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Proposed Rule

2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions and Corporate Average Fuel Economy Standards

Action

Proposed Rule.

Summary

EPA and NHTSA, on behalf of the Department of Transportation, are issuing this joint proposal to further reduce greenhouse gas emissions and improve fuel economy for light-duty vehicles for model years 2017-2025. This proposal extends the National Program beyond the greenhouse gas and corporate average fuel economy standards set for model years 2012-2016. On May 21, 2010, President Obama issued a Presidential Memorandum requesting that NHTSA and EPA develop through notice and comment rulemaking a coordinated National Program to reduce greenhouse gas emissions of light-duty vehicles for model years 2017-2025. This proposal, consistent with the President's request, responds to the country's critical need to address global climate change and to reduce oil consumption. NHTSA is proposing Corporate Average Fuel Economy standards under the Energy Policy and Conservation Act, as amended by the Energy Independence and Security Act, and EPA is proposing greenhouse gas emissions standards under the Clean Air Act. These standards apply to passenger cars, light-duty trucks, and medium-duty passenger vehicles, and represent a continued harmonized and consistent National Program. Under the National Program for model years 2017-2025, automobile manufacturers would be able to continue building a single light-duty national fleet that satisfies all requirements under both programs while ensuring that consumers still have a full range of vehicle choices. EPA is also proposing a minor change to the regulations applicable to MY 2012-2016, with respect to air conditioner performance and measurement of nitrous oxides.

Unified Agenda

Joint Rulemaking To Establish 2017 and Later Model Year Light Duty Vehicle GHG Emissions and CAFE Standards

5 actions from October 13th, 2010 to August 2012

  • October 13th, 2010
  • December 8th, 2010
  • August 9th, 2011
  • December 1st, 2011
  • August 2012
    • Final Action

Passenger Car and Light Truck Corporate Average Fuel Economy Standards MYs 2017 and Beyond

5 actions from October 13th, 2010 to January 30th, 2012

  • October 13th, 2010
  • October 31st, 2010
    • NOI Comment Period End
  • December 8th, 2010
  • December 1st, 2011
  • January 30th, 2012
    • NPRM Comment Period End
 

Table of Contents Back to Top

DATES: Back to Top

Comments: Comments must be received on or before January 30, 2012. Under the Paperwork Reduction Act, comments on the information collection provisions must be received by the Office of Management and Budget (OMB) on or before January 3, 2012. See the SUPPLEMENTARY INFORMATION section on “Public Participation” for more information about written comments.

Public Hearings: NHTSA and EPA will jointly hold three public hearings on the following dates: January 17, 2012, in Detroit, Michigan; January 19, 2012 in Philadelphia, Pennsylvania; and January 24, 2012, in San Francisco, California. EPA and NHTSA will announce the addresses for each hearing location in a supplemental Federal Register Notice. The agencies will accept comments to the rulemaking documents, and NHTSA will also accept comments to the Draft Environmental Impact Statement (EIS) at these hearings and to Docket No. NHTSA-2011-0056. The hearings will start at 10 a.m. local time and continue until everyone has had a chance to speak. See the SUPPLEMENTARY INFORMATION section on “Public Participation.” for more information about the public hearings.

ADDRESSES: Back to Top

Submit your comments, identified by Docket ID No. EPA-HQ-OAR-2010-0799 and/or NHTSA-2010-0131, by one of the following methods:

  • Online: www.regulations.gov: Follow the on-line instructions for submitting comments.
  • Email: a-and-r-Docket@epa.gov
  • Fax: EPA: (202) 566-9744; NHTSA: (202) 493-2251.
  • Mail:
  • EPA: Environmental Protection Agency, EPA Docket Center (EPA/DC), Air and Radiation Docket, Mail Code 28221T, 1200 Pennsylvania Avenue NW., Washington, DC 20460, Attention Docket ID No. EPA-HQ-OAR-2010-0799. In addition, please mail a copy of your comments on the information collection provisions to the Office of Information and Regulatory Affairs, Office of Management and Budget (OMB), Attn: Desk Officer for EPA, 725 17th St., NW., Washington, DC 20503.
  • NHTSA: Docket Management Facility, M-30, U.S. Department of Transportation, West Building, Ground Floor, Rm. W12-140, 1200 New Jersey Avenue SE, Washington, DC 20590.
  • Hand Delivery:
  • EPA: Docket Center, (EPA/DC) EPA West, Room B102, 1301 Constitution Ave. NW., Washington, DC, Attention Docket ID No. EPA-HQ-OAR-2010-0799. Such deliveries are only accepted during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information.
  • NHTSA: West Building, Ground Floor, Rm. W12-140, 1200 New Jersey Avenue SE, Washington, DC 20590, between 9 a.m. and 4 p.m. Eastern Time, Monday through Friday, except Federal Holidays.

Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-2010-0799 and/or NHTSA-2010-0131. See the SUPPLEMENTARY INFORMATION section on “Public Participation” for more information about submitting written comments.

Docket: All documents in the dockets are listed in the http://www.regulations.gov index. Although listed in the index, some information is not publicly available, e.g., confidential business information (CBI) or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available in hard copy in EPA's docket, and electronically in NHTSA's online docket. Publicly available docket materials are available either electronically in www.regulations.gov or in hard copy at the following locations: EPA: EPA Docket Center, EPA/DC, EPA West, Room 3334, 1301 Constitution Ave. NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566-1744. NHTSA: Docket Management Facility, M-30, U.S. Department of Transportation, West Building, Ground Floor, Rm. W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590. The Docket Management Facility is open between 9 a.m. and 5 p.m. Eastern Time, Monday through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: Back to Top

EPA: Christopher Lieske, Office of Transportation and Air Quality, Assessment and Standards Division, Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 48105; telephone number: (734) 214-4584; fax number: (734) 214-4816; email address: lieske.christopher@epa.gov, or contact the Assessment and Standards Division; email address: otaqpublicweb@epa.gov. NHTSA: 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: Back to Top

A. Does this action apply to me? Back to Top

This action affects companies that manufacture or sell new light-duty vehicles, light-duty trucks, and medium-duty passenger vehicles, as defined under EPA's CAA regulations, [1] and passenger automobiles (passenger cars) and non-passenger automobiles (light trucks) as defined under NHTSA's CAFE regulations. [2] Regulated categories and entities include:

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

B. Public Participation Back to Top

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

How do I prepare and submit comments?

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

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

EPA: Direct your comments to Docket ID No EPA-HQ-OAR-2010-0799. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at http://www.regulations.gov, including any personal information provided, unless the comment includes information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through http://www.regulations.gov or email. The http://www.regulations.gov Web site is an “anonymous access” system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an email comment directly to EPA without going through http://www.regulations.gov your email address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption, and be free of any defects or viruses. For additional information about EPA's public docket visit the EPA Docket Center homepage at http://www.epa.gov/epahome/dockets.htm.

NHTSA: Your comments must be written and in English. To ensure that your comments are correctly filed in the Docket, please include the Docket number NHTSA-2010-0131 in your comments. Your comments must not be more than 15 pages long. [3] NHTSA established this limit to encourage you to write your primary comments in a concise fashion. However, you may attach necessary additional documents to your comments, and there is no limit on the length of the attachments. If you are submitting comments electronically as a PDF (Adobe) file, we ask that the documents submitted be scanned using the Optical Character Recognition (OCR) process, thus allowing the agencies to search and copy certain portions of your submissions. [4] Please note that pursuant to the Data Quality Act, in order for the substantive data to be relied upon and used by the agency, it must meet the information quality standards set forth in the OMB and Department of Transportation (DOT) Data Quality Act guidelines. Accordingly, we encourage you to consult the guidelines in preparing your comments. OMB's guidelines may be accessed at http://www.whitehouse.gov/omb/fedreg/reproducible.html. DOT's guidelines may be accessed at http://www.dot.gov/dataquality.htm.

Tips for Preparing Your Comments

When submitting comments, please remember to:

  • Identify the rulemaking by docket number and other identifying information (subject heading, Federal Register date and page number).
  • Explain why you agree or disagree, suggest alternatives, and substitute language for your requested changes.
  • Describe any assumptions and provide any technical information and/or data that you used.
  • If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.
  • Provide specific examples to illustrate your concerns, and suggest alternatives.
  • Explain your views as clearly as possible, avoiding the use of profanity or personal threats.
  • Make sure to submit your comments by the comment period deadline identified in the DATES section above.

How can I be sure that my comments were received?

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

How do I submit confidential business information?

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

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

NHTSA: If you wish to submit any information under a claim of confidentiality, you should submit three copies of your complete submission, including the information you claim to be confidential business information, to the Chief Counsel, NHTSA, at the address given above under FOR FURTHER INFORMATION CONTACT. When you send a comment containing confidential business information, you should include a cover letter setting forth the information specified in our confidential business information regulation. [5]

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

Will the agencies consider late comments?

NHTSA and EPA will consider all comments received before the close of business on the comment closing date indicated above under DATES. To the extent practicable, we will also consider comments received after that date. If interested persons believe that any information that the agencies place in the docket after the issuance of the NPRM affects their comments, they may submit comments after the closing date concerning how the agencies should consider that information for the final rule. However, the agencies' ability to consider any such late comments in this rulemaking will be limited due to the time frame for issuing a final rule.

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

How can I read the comments submitted by other people?

You may read the materials placed in the docket for this document (e.g., the comments submitted in response to this document by other interested persons) at any time by going to http://www.regulations.gov. Follow the online instructions for accessing the dockets. You may also read the materials at the EPA Docket Center or NHTSA Docket Management Facility by going to the street addresses given above under ADDRESSES.

How do I participate in the public hearings?

NHTSA and EPA will jointly host three public hearings on the dates and locations described in the DATES section above. At all hearings, both agencies will accept comments on the rulemaking, and NHTSA will also accept comments on the EIS.

If you would like to present testimony at the public hearings, we ask that you notify the EPA and NHTSA contact persons listed under FOR FURTHER INFORMATION CONTACT at least ten days before the hearing. Once EPA and NHTSA learn how many people have registered to speak at the public hearing, we will allocate an appropriate amount of time to each participant, allowing time for lunch and necessary breaks throughout the day. For planning purposes, each speaker should anticipate speaking for approximately ten minutes, although we may need to adjust the time for each speaker if there is a large turnout. We suggest that you bring copies of your statement or other material for the EPA and NHTSA panels. It would also be helpful if you send us a copy of your statement or other materials before the hearing. To accommodate as many speakers as possible, we prefer that speakers not use technological aids (e.g., audio-visuals, computer slideshows). However, if you plan to do so, you must notify the contact persons in the FOR FURTHER INFORMATION CONTACT section above. You also must make arrangements to provide your presentation or any other aids to NHTSA and EPA in advance of the hearing in order to facilitate set-up. In addition, we will reserve a block of time for anyone else in the audience who wants to give testimony. The agencies will assume that comments made at the hearings are directed to the NPRM unless commenters specifically reference NHTSA's EIS in oral or written testimony.

The hearing will be held at a site accessible to individuals with disabilities. Individuals who require accommodations such as sign language interpreters should contact the persons listed under FOR FURTHER INFORMATION CONTACT section above no later than ten days before the date of the hearing.

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

Table of Contents Back to Top

I. Overview of Joint EPA/NHTSA Proposed 2017-2025 National PROGRAM

A. Introduction

1. Continuation of the National Program

2. Additional Background on the National Program

3. California's Greenhouse Gas Program

4. Stakeholder Engagement

B. Summary of the Proposed 2017-2025 National Program

1. Joint Analytical Approach

2. Level of the Standards

3. Form of the Standards

4. Program Flexibilities for Achieving Compliance

5. Mid-Term Evaluation

6. Coordinated Compliance

7. Additional Program Elements

C. Summary of Costs and Benefits for the Proposed National Program

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

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

D. Background and Comparison of NHTSA and EPA Statutory Authority

1. NHTSA Statutory Authority

2. EPA Statutory Authority

3. Comparing the Agencies' Authority

II. Joint Technical Work Completed for This Proposal

A. Introduction

B. Developing the Future Fleet for Assessing Costs, Benefits, and Effects

1. Why Did the Agencies Establish a Baseline and Reference Vehicle Fleet?

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

3. How Did the Agencies Develop the Projected MY 2017-2025 Vehicle Reference Fleet?

C. Development of Attribute-Based Curve Shapes

1. Why are standards attribute-based and defined by a mathematical function?

2. What attribute are the agencies proposing to use, and why?

3. What mathematical functions have the agencies previously used, and why?

4. How have the agencies changed the mathematical functions for the proposed MYs 2017-2025 standards, and why?

5. What are the agencies proposing for the MYs 2017-2025 curves?

6. Once the agencies determined the appropriate slope for the sloped part, how did the agencies determine the rest of the mathematical function?

7. Once the agencies determined the complete mathematical function shape, how did the agencies adjust the curves to develop the proposed standards and regulatory alternatives?

D. Joint Vehicle Technology Assumptions

1. What Technologies did the Agencies Consider?

2. How did the Agencies Determine the Costs of Each of these Technologies?

3. How Did the Agencies Determine the Effectiveness of Each of these Technologies?

E. Joint Economic and Other Assumptions

F. Air Conditioning Efficiency CO 2 Credits and Fuel Consumption Improvement Values, Off-cycle Reductions, and Full-size Pickup Trucks

1. Proposed Air Conditioning CO 2 Credits and Fuel Consumption Improvement Values

2. Off-Cycle CO 2 Credits

3. Advanced Technology Incentives for Full Sized Pickup Trucks

G. Safety Considerations in Establishing CAFE/GHG Standards

1. Why do the agencies consider safety?

2. How do the agencies consider safety?

3. What is the current state of the research on statistical analysis of historical crash data?

4. How do the agencies think technological solutions might affect the safety estimates indicated by the statistical analysis?

5. How have the agencies estimated safety effects for the proposed standards?

III. EPA Proposal For MYS 2017-2025 Greenhouse Gas Vehicle Standards

A. Overview of EPA Rule

1. Introduction

2. Why is EPA Proposing this Rule?

3. What is EPA Proposing?

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

5. Other Related EPA Motor Vehicle Regulations

B. Proposed Model Year 2017-2025 GHG Standards for Light-duty Vehicles, Light-duty Trucks, and Medium duty Passenger Vehicles

1. What Fleet-wide Emissions Levels Correspond to the CO 2 Standards?

2. What Are the Proposed CO 2 Attribute-based Standards?

3. Mid-Term Evaluation

4. Averaging, Banking, and Trading Provisions for CO 2 Standards

5. Small Volume Manufacturer Standards

6. Nitrous Oxide, Methane, and CO 2-equivalent Approaches

7. Small Entity Exemption

8. Additional Leadtime Issues

9. Police and Emergency Vehicle Exemption From CO 2 Standards

10. Test Procedures

C. Additional Manufacturer Compliance Flexibilities

1. Air Conditioning Related Credits

2. Incentive for Electric Vehicles, Plug-in Hybrid Electric Vehicles, and Fuel Cell Vehicles

3. Incentives for “Game-Changing” Technologies Including use of Hybridization and Other Advanced Technologies for Full-Size Pickup Trucks

4. Treatment of Plug-in Hybrid Electric Vehicles, Dual Fuel Compressed Natural Gas Vehicles, and Ethanol Flexible Fuel Vehicles for GHG Emissions Compliance

5. Off-cycle Technology Credits

D. Technical Assessment of the Proposed CO 2 Standards

1. How did EPA develop a reference and control fleet for evaluating standards?

2. What are the Effectiveness and Costs of CO 2-reducing technologies?

3. How were technologies combined into “packages” and what is the cost and effectiveness of packages?

4. How does EPA Project how a manufacturer would decide between options to improve CO 2 performance to meet a fleet average standard?

5. Projected Compliance Costs and Technology Penetrations

6. How does the technical assessment support the proposed CO 2 standards as compared to the alternatives has EPA considered?

7. To what extent do any of today's vehicles meet or surpass the proposed MY 2017-2025 CO 2 footprint-based targets with current powertrain designs?

E. Certification, Compliance, and Enforcement

1. Compliance Program Overview

2. Compliance With Fleet-Average CO 2 Standards

3. Vehicle Certification

4. Useful Life Compliance

5. Credit Program Implementation

6. Enforcement

7. Other Certification Issues

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

9. Miscellaneous Technical Amendments and Corrections

10. Base Tire Definition

11. Treatment of Driver-Selectable Modes and Conditions

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

1. Impact on GHG Emissions

2. Climate Change Impacts From GHG Emissions

3. Changes in Global Climate Indicators Associated With the Proposal's GHG Emissions Reductions

G. How would the proposal impact non-GHG emissions and their associated effects?

1. Inventory

2. Health Effects of Non-GHG Pollutants

3. Environmental Effects of Non-GHG Pollutants

4. Air Quality Impacts of Non-GHG Pollutants

5. Other Unquantified Health and Environmental Effects

H. What are the estimated cost, economic, and other impacts of the proposal?

1. Conceptual Framework for Evaluating Consumer Impacts

2. Costs Associated With the Vehicle Standards

3. Cost per ton of Emissions Reduced

4. Reduction in Fuel Consumption and its Impacts

5. CO 2 Emission Reduction Benefits

6. Non-Greenhouse Gas Health and Environmental Impacts

7. Energy Security Impacts

8. Additional Impacts

9. Summary of Costs and Benefits

10. U.S. Vehicle Sales Impacts and Payback Period

11. Employment Impacts

I. Statutory and Executive Order Reviews

J. Statutory Provisions and Legal Authority

IV. NHTSA Proposed Rule for Passenger car and Light Truck Cafe Standards for Model Years 2017-2025

A. Executive Overview of NHTSA Proposed Rule

1. Introduction

2. Why does NHTSA set CAFE standards for passenger cars and light trucks?

3. Why is NHTSA proposing CAFE standards for MYs 2017-2025 now?

B. Background

1. Chronology of events since the MY 2012-2016 final rule was issued

2. How has NHTSA developed the proposed CAFE standards since the President's announcement?

C. Development and Feasibility of the Proposed Standards

1. How was the baseline vehicle fleet developed?

2. How were the technology inputs developed?

3. How did NHTSA develop its economic assumptions?

4. How does NHTSA use the assumptions in its modeling analysis?

D. Statutory Requirements

1. EPCA, as Amended by EISA

2. Administrative Procedure Act

3. National Environmental Policy Act

E. What are the proposed CAFE standards?

1. Form of the Standards

2. Passenger Car Standards for MYs 2017-2025

3. Minimum Domestic Passenger Car Standards

4. Light Truck Standards

F. How do the proposed standards fulfill NHTSA's statutory obligations?

1. What are NHTSA's statutory obligations?

2. How did the agency balance the factors for this NPRM?

G. Impacts of the Proposed CAFE Standards

1. How will these standards improve fuel economy and reduce GHG emissions for MY 2017-2025 vehicles?

2. How will these standards improve fleet-wide fuel economy and reduce GHG emissions beyond MY 2025?

3. How will these proposed standards impact non-GHG emissions and their associated effects?

4. What are the estimated costs and benefits of these proposed standards?

5. How would these proposed standards impact vehicle sales?

6. Social Benefits, Private Benefits, and Potential Unquantified Consumer Welfare Impacts of the Proposed Standards

7. What other impacts (quantitative and unquantifiable) will these proposed standards have?

H. Vehicle Classification

I. Compliance and Enforcement

1. Overview

2. How does NHTSA determine compliance?

3. What compliance flexibilities are available under the CAFE program and how do manufacturers use them?

4. What new incentives are being added to the CAFE program for MYs 2017-2025?

5. Other CAFE enforcement issues

J. Regulatory notices and analyses

1. Executive Order 12866, Executive Order 13563, and DOT Regulatory Policies and Procedures

2. National Environmental Policy Act

3. Regulatory Flexibility Act

4. Executive Order 13132 (Federalism)

5. Executive Order 12988 (Civil Justice Reform)

6. Unfunded Mandates Reform Act

7. Regulation Identifier Number

8. Executive Order 13045

9. National Technology Transfer and Advancement Act

10. Executive Order 13211

11. Department of Energy Review

12. Plain Language

13. Privacy Act

I. Overview of Joint EPA/NHTSA Proposed 2017-2025 National Program Back to Top

Executive Summary

EPA and NHTSA are each announcing proposed rules that call for strong and coordinated Federal greenhouse gas and fuel economy standards for passenger cars, light-duty trucks, and medium-duty passenger vehicles (hereafter light-duty vehicles or LDVs). Together, these vehicle categories, which include passenger cars, sport utility vehicles, crossover utility vehicles, minivans, and pickup trucks, among others, are presently responsible for approximately 60 percent of all U.S. transportation-related greenhouse gas (GHG) emissions and fuel consumption. This proposal would extend the National Program of Federal light-duty vehicle GHG emissions and corporate average fuel economy (CAFE) standards to model years (MYs) 2017-2025. This proposed coordinated program would achieve important reductions in GHG emissions and fuel consumption from the light-duty vehicle part of the transportation sector, based on technologies that either are commercially available or that the agencies project will be commercially available in the rulemaking timeframe and that can be incorporated at a reasonable cost. Higher initial vehicle costs will be more than offset by significant fuel savings for consumers over the lives of the vehicles covered by this rulemaking.

This proposal builds on the success of the first phase of the National Program to regulate fuel economy and GHG emissions from U.S. light-duty vehicles, which established strong and coordinated standards for model years (MY) 2012-2016. As with the first phase of the National Program, collaboration with California Air Resources Board (CARB) and with automobile manufacturers and other stakeholders has been a key element in developing the agencies' proposed rules. Continuing the National Program would ensure that all manufacturers can build a single fleet of U.S. vehicles that would satisfy all requirements under both programs as well as under California's program, helping to reduce costs and regulatory complexity while providing significant energy security and environmental benefits.

Combined with the standards already in effect for MYs 2012-2016, as well as the MY 2011 CAFE standards, the proposed standards would result in MY 2025 light-duty vehicles with nearly double the fuel economy, and approximately one-half of the GHG emissions compared to MY 2010 vehicles—representing the most significant federal action ever taken to reduce GHG emissions and improve fuel economy in the U.S. EPA is proposing standards that are projected to require, on an average industry fleet wide basis, 163 grams/mile of carbon dioxide (CO 2) in model year 2025, which is equivalent to 54.5 mpg if this level were achieved solely through improvements in fuel efficiency. [6] Consistent with its statutory authority, NHTSA is proposing passenger car and light truck standards for MYs 2017-2025 in two phases. The first phase, from MYs 2017-2021, includes proposed standards that are projected to require, on an average industry fleet wide basis, 40.9 mpg in MY 2021. The second phase of the CAFE program, from MYs 2022-2025, represents conditional [7] proposed standards that are projected to require, on an average industry fleet wide basis, 49.6 mpg in model year 2025. Both the EPA and NHTSA standards are projected to be achieved through a range of technologies, including improvements in air conditioning efficiency, which reduces both GHG emissions and fuel consumption; the EPA standards also are projected to be achieved with the use of air conditioning refrigerants with a lower global warming potential (GWP), which reduce GHGs (i.e., hydrofluorocarbons) but do not improve fuel economy. The agencies are proposing separate standards for passenger cars and trucks, based on a vehicle's size or “footprint.” For the MYs 2022-2025 standards, EPA and NHTSA are proposing a comprehensive mid-term evaluation and agency decision-making process, given both the long time frame and NHTSA's obligation to conduct a separate rulemaking in order to establish final standards for vehicles for those model years.

From a societal standpoint, this second phase of the National Program is projected to save approximately 4 billion barrels of oil and 2 billion metric tons of GHG emissions over the lifetimes of those vehicles sold in MY 2017-2025. The agencies estimate that fuel savings will far outweigh higher vehicle costs, and that the net benefits to society of the MYs 2017-2025 National Program will be in the range of $311 billion to $421 billion (7 and 3 percent discount rates, respectively) over the lifetimes of those vehicles sold in MY 2017-2025.

These proposed standards would have significant savings for consumers at the pump. Higher costs for new vehicle technology will add, on average, about $2000 for consumers who buy a new vehicle in MY 2025. Those consumers who drive their MY 2025 vehicle for its entire lifetime will save, on average, $5200 to $6600 (7 and 3 percent discount rates, respectively) in fuel savings, for a net lifetime savings of $3000 to $4400. For those consumers who purchase their new MY 2025 vehicle with cash, the discounted fuel savings will offset the higher vehicle cost in less than 4 years, and fuel savings will continue for as long as the consumer owns the vehicle. Those consumers that buy a new vehicle with a typical 5-year loan will benefit from an average monthly cash flow savings of about $12 during the loan period, or about $140 per year, on average. So the consumer would benefit beginning at the time of purchase, since the increased monthly fuel savings would more than offset the higher monthly payment due to the higher incremental vehicle cost.

The agencies have designed the proposed standards to preserve consumer choice—that is, the proposed standards should not affect consumers' opportunity to purchase the size of vehicle with the performance, utility and safety features that meets their needs. The standards are based on a vehicle's size, or footprint—that is, consistent with their general performance and utility needs, larger vehicles have numerically less stringent fuel economy/GHG emissions targets and smaller vehicles have more stringent fuel economy/GHG emissions targets, although since the standards are fleet average standards, no specific vehicle must meet a target. Thus, consumers will be able to continue to choose from the same mix of vehicles that are currently in the marketplace.

The agencies' believe there is a wide range of technologies available for manufacturers to consider in reducing GHG emissions and improving fuel economy. The proposals allow for long-term planning by manufacturers and suppliers for the continued development and deployment across their fleets of fuel saving and emissions-reducing technologies. The agencies believe that advances in gasoline engines and transmissions will continue for the foreseeable future, and that there will be continual improvement in other technologies, including vehicle weight reduction, lower tire rolling resistance, improvements in vehicle aerodynamics, diesel engines, and more efficient vehicle accessories. The agencies also expect to see increased electrification of the fleet through the expanded production of stop/start, hybrid, plug-in hybrid and electric vehicles. Finally, the agencies expect that vehicle air conditioners will continue to improve by becoming more efficient and by increasing the use of alternative refrigerants. Many of these technologies are already available today, and manufacturers will be able to meet the standards through significant efficiency improvements in these technologies, as well as a significant penetration of these and other technologies across the fleet. Auto manufacturers may also introduce new technologies that we have not considered for this rulemaking analysis, which could make possible alternative, more cost-effective paths to compliance.

A. Introduction

1. Continuation of the National Program

EPA and NHTSA are each announcing proposed rules that call for strong and coordinated Federal greenhouse gas and fuel economy standards for passenger cars, light-duty trucks, and medium-duty passenger vehicles (hereafter light-duty vehicles or LDVs). Together, these vehicle categories, which include passenger cars, sport utility vehicles, crossover utility vehicles, minivans, and pickup trucks, are presently responsible for approximately 60 percent of all U.S. transportation-related greenhouse gas emissions and fuel consumption. The proposal would extend the National Program of Federal light-duty vehicle greenhouse gas (GHG) emissions and corporate average fuel economy (CAFE) standards to model years (MYs) 2017-2025. The coordinated program being proposed would achieve important reductions of greenhouse gas (GHG) emissions and fuel consumption from the light-duty vehicle part of the transportation sector, based on technologies that either are commercially available or that the agencies project will be commercially available in the rulemaking timeframe and that can be incorporated at a reasonable cost.

In working together to develop the next round of standards for MYs 2017-2025, NHTSA and EPA are building on the success of the first phase of the National Program to regulate fuel economy and GHG emissions from U.S. light-duty vehicles, which established the strong and coordinated standards for model years (MY) 2012-2016. As for the MYs 2012-2016 rulemaking, collaboration with California Air Resources Board (CARB) and with industry and other stakeholders has been a key element in developing the agencies' proposed rules. Continuing the National Program would ensure that all manufacturers can build a single fleet of U.S. vehicles that would satisfy all requirements under both programs as well as under California's program, helping to reduce costs and regulatory complexity while providing significant energy security and environmental benefits.

The agencies have been developing the basis for these joint proposed standards almost since the conclusion of the rulemaking establishing the first phase of the National Program. After much research and deliberation by the agencies, along with CARB and other stakeholders, President Obama announced plans for these proposed rules on July 29, 2011 and NHTSA and EPA issued a Supplemental Notice of Intent (NOI) outlining the agencies' plans for proposing the MY 2017-2025 standards and program. [8] This July NOI built upon the extensive analysis conducted by the agencies over the past year, including an initial technical assessment report and NOI issued in September 2010, and a supplemental NOI issued in December 2010 (discussed further below). The State of California and thirteen auto manufacturers representing over 90 percent of U.S. vehicle sales provided letters of support for the program concurrent with the Supplemental NOI. [9] The United Auto Workers (UAW) also supported the announcement, [10] as well as many consumer and environmental groups. As envisioned in the Presidential announcement and Supplemental NOI, this proposal sets forth proposed MYs 2017-2025 standards as well as detailed supporting analysis for those standards and regulatory alternatives for public review and comment. The program that the agencies are proposing will spur the development of a new generation of clean cars and trucks through innovative technologies and manufacturing that will, in turn, spur economic growth and create high-quality domestic jobs, enhance our energy security, and improve our environment. Consistent with Executive Order 13563, this proposal was developed with early consultation with stakeholders, employs flexible regulatory approaches to reduce burdens, maintains freedom of choice for the public, and helps to harmonize federal and state regulations.

As described below, NHTSA and EPA are proposing a continuation of the National Program that the agencies believe represents the appropriate levels of fuel economy and GHG emissions standards for model years 2017-2025, given the technologies that the agencies anticipate will be available for use on these vehicles and the agencies' understanding of the cost and manufacturers' ability to apply these technologies during that time frame, and consideration of other relevant factors. Under this joint rulemaking, EPA is proposing GHG emissions standards under the Clean Air Act (CAA), and NHTSA is proposing CAFE standards under EPCA, as amended by the Energy Independence and Security Act of 2007 (EISA). This joint rulemaking proposal reflects a carefully coordinated and harmonized approach to implementing these two statutes, in accordance with all substantive and procedural requirements imposed by law. [11]

The proposed approach allows for long-term planning by manufacturers and suppliers for the continued development and deployment across their fleets of fuel saving and emissions-reducing technologies. NHTSA's and EPA's technology assessment indicates there is a wide range of technologies available for manufacturers to consider in reducing GHG emissions and improving fuel economy. The agencies believe that advances in gasoline engines and transmissions will continue for the foreseeable future, which is a view that is supported in the literature and amongst the vehicle manufacturers and suppliers. [12] The agencies also believe that there will be continual improvement in other technologies including reductions in vehicle weight, lower tire rolling resistance, improvements in vehicle aerodynamics, diesel engines, and more efficient vehicle accessories. The agencies also expect to see increased electrification of the fleet through the expanded production of stop/start, hybrid, plug-in hybrid and electric vehicles. [13] Finally, the agencies expect that vehicle air conditioners will continue to improve by becoming more efficient and by increasing the use of alternative refrigerants. Many of these technologies are already available today, and EPA's and NHTSA's assessments are that manufacturers will be able to meet the standards through significant efficiency improvements in these technologies as well as a significant penetration of these and other technologies across the fleet. We project that these potential compliance pathways for manufacturers will result in significant benefits to consumers and to society, as quantified below. Manufacturers may also introduce new technologies that we have not considered for this rulemaking analysis, which could make possible alternative, more cost-effective paths to compliance.

As discussed further below, as with the standards for MYs 2012-2016, the agencies believe that the proposed standards would continue to preserve consumer choice, that is, the proposed standards should not affect consumers' opportunity to purchase the size of vehicle that meets their needs. NHTSA and EPA are proposing to continue standards based on vehicle footprint, where smaller vehicles have relatively more stringent standards, and larger vehicles have less stringent standards, so there should not be a significant effect on the relative availability of different size vehicles in the fleet. Additionally, as with the standards for MYs 2012-2016, the agencies believe that the proposed standards should not have a negative effect on vehicle safety, as it relates to vehicle footprint and mass as described in Section II.C and II.G below, respectively.

We note that as part of this rulemaking, given the long time frame at issue in setting standards for MY 2022-2025 light-duty vehicles, the agencies are discussing a comprehensive mid-term evaluation and agency decision-making process. NHTSA has a statutory obligation to conduct a separate de novo rulemaking in order to establish final standards for vehicles for the 2022-2025 model years and would conduct the mid-term evaluation as part of that rulemaking, and EPA is proposing regulations that address the mid-term evaluation. The mid-term evaluation will assess the appropriateness of the MY 2022-2025 standards considered in this rulemaking, based on an updated assessment of all the factors considered in setting the standards and the impacts of those factors on the manufacturers' ability to comply. NHTSA and EPA fully expect to conduct this mid-term evaluation in coordination with the California Air Resources Board, given our interest in a maintaining a National Program to address GHGs and fuel economy. Further discussion of the mid-term evaluation is found later in this section, as well as in Sections III and IV.

Based on the agencies' analysis, the National Program standards being proposed are currently projected to reduce GHGs by approximately 2 billion metric tons and save 4 billion barrels of oil over the lifetime of MYs 2017-2025 vehicles relative to the MY 2016 standard curves [14] already in place. The average cost for a MY 2025 vehicle to meet the standards is estimated to be about $2,000 compared to a vehicle that would meet the level of the MY 2016 standards in MY 2025. However, fuel savings for consumers are expected to more than offset the higher vehicle costs. The typical driver would save a total of $5,200 to $6,600 (7 percent and 3 percent discount rate, respectively) in fuel costs over the lifetime of a MY 2025 vehicle and, even after accounting for the higher vehicle cost, consumers would save a net $3,000 to $4,400 (7 percent and 3 percent discount rate, respectively) over the vehicle's lifetime. Further, consumers who buy new vehicles with cash would save enough in lower fuel costs after less than 4 years (at either 7 percent or 3 percent discount rate) of owning a MY 2025 vehicle to offset the higher upfront vehicle costs, while consumers who buy with a 5-year loan would save more each month on fuel than the increased amount they would spend on the higher monthly loan payment, beginning in the first month of ownership.

Continuing the National Program has both energy security and climate change benefits. Climate change is widely viewed as a significant long-term threat to the global environment. EPA has found that elevated atmospheric concentrations of six greenhouse gases—carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perflurocarbons, and sulfur hexafluoride—taken in combination endanger both the public health and the public welfare of current and future generations. EPA further found that the combined emissions of these greenhouse gases from new motor vehicles and new motor vehicle engines contribute to the greenhouse gas air pollution that endangers public health and welfare. 74 FR 66496 (Dec. 15, 2009). As summarized in EPA's Endangerment and Cause or Contribute Findings under Section 202(a) of the Clear Air Act, anthropogenic emissions of GHGs are very likely (90 to 99 percent probability) the cause of most of the observed global warming over the last 50 years. [15] Mobile sources emitted 31 percent of all U.S. GHGs in 2007 (transportation sources, which do not include certain off-highway sources, account for 28 percent) and have been the fastest-growing source of U.S. GHGs since 1990. [16] Mobile sources addressed in the endangerment and contribution findings under CAA section 202(a)—light-duty vehicles, heavy-duty trucks, buses, and motorcycles—accounted for 23 percent of all U.S. GHG in 2007. [17] Light-duty vehicles emit CO 2, methane, nitrous oxide, and hydrofluorocarbons and are responsible for nearly 60 percent of all mobile source GHGs and over 70 percent of Section 202(a) mobile source GHGs. For light-duty vehicles in 2007, CO 2 emissions represent about 94 percent of all greenhouse emissions (including HFCs), and the CO 2 emissions measured over the EPA tests used for fuel economy compliance represent about 90 percent of total light-duty vehicle GHG emissions. 18 19

Improving our energy and national security by reducing our dependence on foreign oil has been a national objective since the first oil price shocks in the 1970s. Net petroleum imports accounted for approximately 51 percent of U.S. petroleum consumption in 2009. [20] World crude oil production is highly concentrated, exacerbating the risks of supply disruptions and price shocks as the recent unrest in North Africa and the Persian Gulf highlights. Recent tight global oil markets led to prices over $100 per barrel, with gasoline reaching as high as $4 per gallon in many parts of the U.S., causing financial hardship for many families and businesses. The export of U.S. assets for oil imports continues to be an important component of the historically unprecedented U.S. trade deficits. Transportation accounted for about 71 percent of U.S. petroleum consumption in 2009. [21] Light-duty vehicles account for about 60 percent of transportation oil use, which means that they alone account for about 40 percent of all U.S. oil consumption.

The automotive market is becoming increasingly global. The U.S. auto companies and U.S. suppliers produce and sell automobiles and automotive components around the world, and foreign auto companies produce and sell in the U.S. As a result, the industry has become increasingly competitive. Staying at the cutting edge of automotive technology while maintaining profitability and consumer acceptance has become increasingly important for the sustainability of auto companies. The proposed standards cover model years 2017-2025 for passenger cars and light-duty trucks sold in the United States. Many other countries and regions around the world have in place fuel economy or CO 2 emission standards for light-duty vehicles. In addition, the European Union is currently discussing more stringent CO 2 standards for 2020, and the Japanese government has recently issued a draft proposal for new fuel efficiency standards for 2020. The overall trend is clear—globally many of the major economic countries are increasing the stringency of their fuel economy or CO 2 emission standards for light-duty vehicles. When considering this common trend, the proposed CAFE and CO 2 standards for MY 2017-2025 may offer some advantages for U.S.-based automotive companies and suppliers. In order to comply with the proposed standards, U.S. firms will need to invest significant research and development dollars and capital in order to develop and produce the technologies needed to reduce CO 2 emissions and improve fuel economy. Companies have limited budgets for research and development programs. As automakers seek greater commonality across the vehicles they produce for the domestic and foreign markets, improving fuel economy and reducing GHGs in U.S. vehicles should have spillovers to foreign production, and vice versa, thus yielding the ability to amortize investment in research and production over a broader product and geographic spectrum. To the extent that the technologies needed to meet the standards contained in this proposal can also be used to comply with the fuel economy and CO 2 standards in other countries, this can help U.S. firms in the global automotive market, as the U.S. firms will be able to focus their available research and development funds on a common set of technologies that can be used both domestically as well as internationally.

2. Additional Background on the National Program

Following the successful adoption of a National Program of federal standards for greenhouse gas emissions (GHG) and fuel economy standards for model years (MY) 2012-2016 light duty vehicles, President Obama issued a Memorandum on May 21, 2010 requesting that the National Highway Traffic Safety Administration (NHTSA), on behalf of the Department of Transportation, and the Environmental Protection Agency (EPA) work together to develop a national program for model years 2017-2025. Specifically, he requested that the agencies develop “* * * a coordinated national program under the CAA [Clean Air Act] and the EISA [Energy Independence and Security Act of 2007] to improve fuel efficiency and to reduce greenhouse gas emissions of passenger cars and light-duty trucks of model years 2017-2025.” [22] The President recognized that our country could take a leadership role in addressing the global challenges of improving energy security and reducing greenhouse gas pollution, stating that “America has the opportunity to lead the world in the development of a new generation of clean cars and trucks through innovative technologies and manufacturing that will spur economic growth and create high-quality domestic jobs, enhance our energy security, and improve our environment.”

The Presidential Memorandum stated “The program should also seek to achieve substantial annual progress in reducing transportation sector greenhouse gas emissions and fossil fuel consumption, consistent with my Administration's overall energy and climate security goals, through the increased domestic production and use of existing, advanced, and emerging technologies, and should strengthen the industry and enhance job creation in the United States.” Among other things, the agencies were tasked with researching and then developing standards for MYs 2017 through 2025 that would be appropriate and consistent with EPA's and NHTSA's respective statutory authorities, in order to continue to guide the automotive sector along the road to reducing its fuel consumption and GHG emissions, thereby ensuring corresponding energy security and environmental benefits. During the public comment period for the MY 2012-2016 proposed rulemaking, many stakeholders, including automakers, encouraged NHTSA and EPA to begin working toward standards for MY 2017 and beyond in order to maintain a single nationwide program. Several major automobile manufacturers and CARB sent letters to EPA and NHTSA in support of a MYs 2017 to 2025 rulemaking initiative as outlined in the President's May 21, 2010 announcement. [23]

The President's memo requested that the agencies, “work with the State of California to develop by September 1, 2010, a technical assessment to inform the rulemaking process * * *.” As a first step in responding to the President's request, the agencies collaborated with CARB to prepare an Interim Joint Technical Assessment Report (TAR) to inform the rulemaking process and provide an initial technical assessment for that work. NHTSA, EPA, and CARB issued the joint Technical Assessment Report consistent with Section 2(a) of the Presidential Memorandum. [24] In developing the technical assessment, EPA, NHTSA, and CARB held numerous meetings with a wide variety of stakeholders including the automobile original equipment manufacturers (OEMs), automotive suppliers, non-governmental organizations, states and local governments, infrastructure providers, and labor unions. The Interim Joint TAR provided an overview of key stakeholder input, addressed other topics noted in the Presidential memorandum, and EPA's and NHTSA's initial assessment of benefits and costs of a range of stringencies of future standards.

In accordance with the Presidential Memorandum, NHTSA and EPA also issued a joint Notice of Intent to Issue a Proposed Rulemaking (NOI). [25] The September 2010 NOI highlighted the results of the analyses contained in the Interim Joint TAR, provided an overview of key program design elements, and announced plans for initiating the joint rulemaking to improve the fuel efficiency and reduce the GHG emissions of passenger cars and light-duty trucks built in MYs 2017-2025. The agencies requested comments on the September NOI and accompanying Interim Joint TAR.

The Interim Joint TAR contained an initial fleet-wide analysis of improvements in overall average GHG emissions and equivalent fuel economy levels. For purposes of an initial assessment, this range was intended to represent a reasonably broad range of stringency increases for potential future GHG emissions standards, and was also consistent with the increases suggested by CARB in its letter of commitment in response to the President's memorandum. 26 27 The TAR evaluated a range of potential stringency scenarios through model year 2025, representing a 3, 4, 5, and 6 percent per year estimated decrease in GHG levels from a model year 2016 fleet-wide average of 250 gram/mile (g/mi). Thus, the model year 2025 scenarios analyzed in the Interim Joint TAR ranged from 190 g/mi on an estimated fleet-wide average (calculated to be equivalent to 47 miles per gallon, mpg, if all improvements were made with fuel economy-improving technologies) under the 3 percent per year reduction scenario, to 143 g/mi on an estimated fleet-wide average (calculated to be equivalent to 62 mpg, if all improvements were made with fuel economy-improving technologies) under the 6 percent per year scenario. [28] For each of these scenarios, the TAR also evaluated four pre-defined “technological pathways” by which these levels could be attained. These pathways were meant to represent ways that the industry as a whole could increase fuel economy and reduce greenhouse gas emissions, and did not represent ways that individual manufacturers would be required to or necessarily would employ in responding to future standards. Each defined technology pathway emphasized a different mix of advanced technologies, by assuming various degrees of penetration of advanced gasoline technologies, mass reduction, hybrid electric vehicles (HEVs), plug-in hybrids (PHEVs), and electric vehicles (EVs).

Manufacturers and others commented extensively on the NOI and Interim Joint TAR on a variety of topics, including the stringency of the standards, program design elements, the effect of potential standards on vehicle safety, and the TAR's discussion of technology costs, effectiveness, and feasibility. In response, the agencies and CARB spent the next several months continuing to gather information from the industry and others in response to the agencies' initial analytical efforts. To aid the public's understanding of some of the key issues facing the agencies in developing the proposed rule, EPA and NHTSA also issued a follow-on Supplemental NOI in November 2010. [29] The Supplemental NOI highlighted many of the key comments the agencies received in response to the September NOI and Interim Joint TAR, and summarized some of the key themes from the comments and the additional stakeholder meetings. We note, as highlighted in the November Supplemental NOI, that there continued to be widespread stakeholder support for continuing the National Program for improved fuel economy and greenhouse gas standards for model years 2017-2025. The November Supplemental NOI also provided an overview of many of the key technical analyses the agencies planned in support the proposed rule.

After issuing the November 2010 Supplemental NOI, EPA, NHTSA and CARB continued studies on technology cost and effectiveness and more in-depth and comprehensive analysis of the issues. In addition to this work, the agencies continued meeting with stakeholders, including with manufacturers, manufacturer organizations, automotive suppliers, a labor union, environmental groups, consumer interest groups, and investment organizations. As discussed above, on July 29, 2011 President Obama announced plans for these proposed rules and NHTSA and EPA issued a Supplemental Notice of Intent (NOI) outlining the agencies' plans for proposing the MY 2017-2025 standards and program.

3. California's Greenhouse Gas Program

In 2004, the California Air Resources Board (CARB) approved standards for new light-duty vehicles, regulating the emission of CO 2 and other GHGs. Thirteen states and the District of Columbia, comprising approximately 40 percent of the light-duty vehicle market, adopted California's standards. On June 30, 2009, EPA granted California's request for a waiver of preemption under the CAA with respect to these standards. [30] The granting of the waiver permits California and the other states to proceed with implementing the California emission standards for MYs 2009-2016. After EPA and NHTSA issued their MYs 2012-2016 standards, CARB revised its program such that compliance with the EPA greenhouse gas standards will be deemed to be compliance with California's GHG standards. [31] This facilitates the National Program by allowing manufacturers to meet all of the standards with a single national fleet.

As requested by the President and in the interest of maximizing regulatory harmonization, NHTSA and EPA have worked closely with CARB throughout the development of this proposal to develop a common technical basis. CARB is releasing a proposal for MY 2017-2025 GHG emissions standards which are consistent with the standards being proposed by EPA and NHTSA. CARB recognizes the benefit for the country of continuing the National Program and plans an approach similar to the one taken for MYs 2012-2016. CARB has committed to propose to revise its GHG emissions standards for MY 2017 and later such that compliance with EPA GHG emissions standards shall be deemed compliance with the California GHG emissions standards, as long as EPA's final GHG standards are substantially as described in the July 2011 Supplemental NOI. [32]

4. Stakeholder Engagement

On July 29, 2010, President Obama announced the support of thirteen major automakers to pursue the next phase in the Administration's national vehicle program, increasing fuel economy and reducing GHG emissions for passenger cars and light trucks built in MYs 2017-2025. [33] The President was joined by Ford, GM, Chrysler, BMW, Honda, Hyundai, Jaguar/Land Rover, Kia, Mazda, Mitsubishi, Nissan, Toyota and Volvo, which together account for over 90 percent of all vehicles sold in the United States. The California Air Resources Board (CARB), the United Auto Workers (UAW) and a number of environmental and consumer groups, also announced their support.

On the same day as the President's announcement, the agencies released a second SNOI (published in the Federal Register on August 9, 2011) generally describing the joint proposal that the EPA and NHTSA expected to issue to establish the National Program for model years 2017-2025, and which is set forth in this NPRM. The agencies explained that the proposal would be developed based on extensive technical analyses, an examination of the factors required under their respective statutes and discussions with and input from individual motor vehicle manufacturers and other stakeholders. The input of stakeholders, which is encouraged by Executive Order 13563, has been invaluable to the agencies in developing today's NPRM.

For background, as discussed above, after publishing the Supplemental NOI on December 8, 2010 (the December 8 SNOI), NHTSA, EPA and CARB continued studies and conducted more in-depth and comprehensive rulemaking analyses related to technology cost and effectiveness, technological feasibility, reasonable timing for manufacturers to implement technologies, and economic factors, and other relevant considerations. In addition to this ongoing and more in-depth work, the agencies continued meeting with stakeholders and received additional input and feedback to help inform the rulemaking. Meetings were held with and relevant information was obtained from manufacturers, manufacturer organizations, suppliers, a labor union, environmental groups, consumer interest groups, and investment organizations.

This section summarizes NHTSA and EPA stakeholder engagement between December 2010 and July 29, 2011, the date on which President Obama announced the agencies' plans for proposing standards for MY2017-2025, and the support of thirteen major automakers and other stakeholders for these plans. [34] Information that the agencies presented to stakeholders is posted in the docket and referenced in multiple places in this section.

The agencies' engagement with the large and diverse group of stakeholders described above between December 2010 and July 29, 2011 shared the single aim of ensuring that the agencies possessed the most complete and comprehensive set of information possible to inform the proposed rulemaking.

Throughout this period, the stakeholders repeated many of the broad concerns and suggestions described in the TAR, NOI, and December 8 SNOI. For example, stakeholders uniformly expressed interest in maintaining a harmonized and coordinated national program that would be supported by CARB and allow auto makers to build one fleet and preserve consumer choice. The stakeholders also raised concerns about potential stringency levels, consumer acceptance of some advanced technologies and the potential structure of compliance flexibilities available under EPCA (as amended by EISA) and the CAA. In addition, most of the stakeholders wanted to discuss issues concerning technology availability, cost and effectiveness and economic practicability. The auto manufacturers, in particular, sought to provide the agencies with a better understanding of their respective strategies (and associated costs) for improving fuel economy while satisfying consumer demand in the coming years. Additionally, some stakeholders expressed concern about potential safety impacts associated with the standards, consumer costs and consumer acceptance, and potential disparate treatment of cars and trucks. Some stakeholders also stressed the importance of investing in infrastructure to support more widespread deployment of alternative vehicles and fuels. Many stakeholders also asked the agencies to acknowledge prevailing economic uncertainties in developing proposed standards. In addition, many stakeholders discussed the number of years to be covered by the program and what they considered to be important features of a mid-term review of any standards set or proposed for MY 2022-2025. In all of these meetings, NHTSA and EPA sought additional data and information from the stakeholders that would allow them to refine their initial analyses and determine proposed standards that are consistent with the agencies' respective statutory and regulatory requirements. The general issues raised by those stakeholders are addressed in the sections of this NPRM discussing the topics to which the issues pertain (e.g., the form of the standards, technology cost and effectiveness, safety impacts, impact on U.S. vehicle sales and other economic considerations, costs and benefits).

The first stage of the meetings occurred between December 2010 and June 20, 2011. These meetings covered topics that were generally similar to the meetings that were held prior to the publication of the December 8 Supplemental NOI and that were summarized in the Supplemental NOI. The manufacturers provided the agencies with additional information related to their product plans for vehicle models and fuel efficiency improving technologies and associated cost estimates. Detailed product plans generally extend only five or six model years into the future. Manufacturers also provided estimates of the amount of improvement in CAFE and CO 2 emissions they could reasonably achieve in model MYs 2017-2025; feedback on the shape of MY 2012-2016 regulatory stringency curves and curve cut points, regulatory program flexibilities; recommendations for and on the structure of one or more mid-term reviews of the later model year standards; estimates of the cost, effectiveness and availability of some fuel efficiency improving technologies; and feedback on some of the cost and effectiveness assumptions used in the TAR analysis. In addition, manufacturers provided input on manufacturer experience with consumer acceptance of some advanced technologies and raised concerns over consumer acceptance if higher penetration of these technologies were needed in the future, consumer's willingness to pay for improved fuel economy, and ideas on enablers and incentives that would increase consumer acceptance. Many manufacturers stated that technology is available to significantly improve fuel economy and CO 2 emissions; however, they maintained that the biggest challenges relate to the cost of the technologies, consumer willingness to pay and consumer acceptance.

During this first phase NHTSA and EPA continued to meet with other stakeholders, who provided their own perspectives on issues of importance to them. They also provided data to the extent available to them. Information obtained from stakeholders during this phase is contained in the docket.

The second stage of meetings occurred between June 21, 2011 and July 14, 2011, during which time EPA, NHTSA, CARB and several White House Offices kicked-off an intensive series of meetings, primarily with manufacturers, to share tentative regulatory concepts developed by EPA, NHTSA and CARB, which included concept stringency curves and program flexibilities based on the analyses completed by the agencies as of June 21, [35] and requested feedback. [36] In particular, the agencies requested that the manufacturers provide detailed and reliable information on how they might comply with the concepts and, if they projected they could not comply, information supporting their belief that they would be unable to comply. Additionally, EPA and NHTSA sought detailed input from the manufacturers regarding potential changes to the concept stringency levels and program flexibilities available under EPA's and NHTSA's respective authority that might facilitate compliance. In addition, manufacturers provided input related to consumer acceptance and adoption of some advanced technologies and program costs based on their independent assessments or information previously submitted to the agencies.

In these second stage meetings, the agencies received considerable input from the manufacturers. The agencies carefully considered the manufacturer information along with information from the agencies' independent analyses. The agencies used all available information to refine their assessment of the range of program concept stringencies and provisions that the agencies determined were consistent with their statutory mandates.

The third stage of meetings occurred between July 15, 2011 and July 28, 2011. During this time period the agencies continued to refine concept stringencies and compliance flexibilities based on further consideration of the information available to them. They also met with approximately 13 manufacturers who expressed ongoing interest in engaging with the agencies. [37]

Throughout all three stages, EPA and NHTSA continued to engage other stakeholders to ensure that the agencies were obtaining the most comprehensive and reliable information possible to guide the agencies in developing proposed standards for MY 2017-2025. Many of these stakeholders reiterated comments previously presented to the agencies. For instance, environmental organizations consistently stated that stringent standards are technically achievable and critical to important national interests, such as improving energy independence, reducing climate change, and enabling the domestic automobile industry to remain competitive in the global market. Labor interests stressed the need to carefully consider economic impacts and the opportunity to create and support new jobs, and consumer advocates emphasized the economic and practical benefits to consumers of improved fuel economy and the need to preserve consumer choice. In addition, a number of stakeholders stated that the standards under development should not have an adverse impact on safety.

On July 29, 2011, EPA and NHTSA the agencies issued a new SNOI with concept stringency curves and program provisions based on refined analyses and further consideration of the record before the agencies. The agencies have received letters of support for the concepts laid out in the SNOI from BMW, Chrysler, Ford, General Motors, Global Automakers, Honda, Hyundai, Jaguar Land Rover, Kia, Mazda, Mitsubishi, Nissan, Toyota, Volvo and CARB. Numerous other stakeholders, including labor, environmental and consumer groups, have expressed their support for the agencies' plans to move forward.

The agencies have considered all of this stakeholder input in developing this proposal, and look forward to continuing the productive dialogue through the comment period following this proposal.

B. Summary of the Proposed 2017-2025 National Program

1. Joint Analytical Approach

This proposed rulemaking continues the collaborative analytical effort between NHTSA and EPA, which began with the MYs 2012-2016 rulemaking. NHTSA and EPA have worked together, and in close coordination with CARB, on nearly every aspect of the technical analysis supporting these joint proposed rules. The results of this collaboration are reflected in the elements of the respective NHTSA and EPA proposed rules, as well as in the analytical work contained in the Draft Joint NHTSA and EPA Technical Support Document (Joint TSD). The agencies have continued to develop and refine supporting analyses since issuing the NOI and Interim Joint TAR last September. The Joint TSD, in particular, describes important details of the analytical work that are common, as well as highlighting any key differences in approach. The joint analyses include the build-up of the baseline and reference fleets, the derivation of the shape of the footprint-based attribute curves that define the agencies' respective standards, a detailed description of the estimated costs and effectiveness of the technologies that are available to vehicle manufacturers, the economic inputs used to calculate the costs and benefits of the proposed rules, a description of air conditioner and other off-cycle technologies, and the agencies' assessment of the effects of the proposed standards on vehicle safety. This comprehensive joint analytical approach has provided a sound and consistent technical basis for both agencies in developing their proposed standards, which are summarized in the sections below.

2. Level of the Standards

EPA and NHTSA are each proposing two separate sets of standards, each under its respective statutory authorities. Both the proposed CO 2 and CAFE standards for passenger cars and light trucks would be footprint-based, similar to the standards currently in effect through model year 2016, and would become more stringent on average in each model year from 2017 through 2025. The basis for measuring performance relative to standards would continue to be based predominantly on the EPA city and highway test cycles (2-cycle test). However, EPA is proposing optional air conditioning and off-cycle credits for the GHG program and adjustments to calculated fuel economy for the CAFE programs that would be based on test procedures other than the 2-cycle tests.

EPA is proposing standards that are projected to require, on an average industry fleet wide basis, 163 grams/mile of CO 2 in model year 2025. This is projected to be achieved through improvements in fuel efficiency with some additional reductions achieved through reductions in non-CO 2 GHG emissions from reduced AC system leakage and the use of lower global warming potential (GWP) refrigerants. The level of 163 grams/mile CO 2 would be equivalent on a mpg basis to 54.5 mpg, if this level was achieved solely through improvements in fuel efficiency. [38]

For passenger cars, the CO 2 compliance values associated with the footprint curves would be reduced on average by 5 percent per year from the model year 2016 projected passenger car industry-wide compliance level through model year 2025. In recognition of manufacturers' unique challenges in improving the fuel economy and GHG emissions of full-size pickup trucks as we transition from the MY 2016 standards to MY 2017 and later, while preserving the utility (e.g., towing and payload capabilities) of those vehicles, EPA is proposing a lower annual rate of improvement for light-duty trucks in the early years of the program. For light-duty trucks, the proposed average annual rate of CO 2 emissions reduction in model years 2017 through 2021 is 3.5 percent per year. EPA is also proposing to change the slopes of the CO 2-footprint curves for light-duty trucks from those in the 2012-2016 rule, in a manner that effectively means that the annual rate of improvement for smaller light-duty trucks in model years 2017 through 2021 would be higher than 3.5 percent, and the annual rate of improvement for larger light-duty trucks over the same time period would be lower than 3.5 percent. For model years 2022 through 2025, EPA is proposing an average annual rate of CO 2 emissions reduction for light-duty trucks of 5 percent per year.

NHTSA is proposing two phases of passenger car and light truck standards in this NPRM. The first phase runs from MYs 2017-2021, with proposed standards that are projected to require, on an average industry fleet wide basis, 40.9 mpg in MY 2021. For passenger cars, the annual increase in the stringency of the target curves between model years 2017 to 2021 is expected to average 4.1 percent. In recognition of manufacturers' unique challenges in improving the fuel economy and GHG emissions of full-size pickup trucks as we transition from the MY 2016 standards to MY 2017 and later, while preserving the utility (e.g., towing and payload capabilities) of those vehicles, NHTSA is also proposing a slower annual rate of improvement for light trucks in the first phase of the program. For light trucks, the proposed annual increase in the stringency of the target curves in model years 2017 through 2021 would be 2.9 percent per year on average. NHTSA is proposing to change the slopes of the fuel economy footprint curves for light trucks from those in the MYs 2012-2016 final rule, which would effectively make the annual rate of improvement for smaller light trucks in MYs 2017-2021 higher than 2.9 percent, and the annual rate of improvement for larger light trucks over that time period lower than 2.9 percent.

The second phase of the CAFE program runs from MYs 2022-2025 and represents conditional [39] proposed standards that are projected to require, on an average industry fleet wide basis, 49.6 mpg in model year 2025. For passenger cars, the annual increase in the stringency of the target curves between model years 2022 and 2025 is expected to average 4.3 percent, and for light trucks, the annual increase during those model years is expected to average 4.7 percent. For the first time, NHTSA is proposing to increase the stringency of standards by the amount (in mpg terms) that industry is expected to improve air conditioning system efficiency, and EPA is proposing, under EPCA, to allow manufacturers to include air conditioning system efficiency improvements in the calculation of fuel economy for CAFE compliance. NHTSA notes that the proposed rates of increase in stringency for CAFE standards are lower than EPA's proposed rates of increase in stringency for GHG standards. As in the MYs 2012-2016 rulemaking, this is for purposes of harmonization and in reflection of several statutory constraints in EPCA/EISA. As a primary example, NHTSA's proposed standards, unlike EPA's, do not reflect the inclusion of air conditioning system refrigerant and leakage improvements, but EPA's proposed standards would allow consideration of such A/C refrigerant improvements which reduce GHGs but do not affect fuel economy.

As with the MYs 2012-2016 standards, NHTSA and EPA's proposed MYs 2017-2025 passenger car and light truck standards are expressed as mathematical functions depending on vehicle footprint. [40] Footprint is one measure of vehicle size, and is determined by multiplying the vehicle's wheelbase by the vehicle's average track width. The standards that must be met by each manufacturer's fleet would be determined by computing the production-weighted average of the targets applicable to each of the manufacturer's fleet of passenger cars and light trucks. [41] Under these footprint-based standards, the average levels required of individual manufacturers will depend, as noted above, on the mix and volume of vehicles the manufacturer produces. The values in the tables below reflect the agencies' projection of the corresponding average fleet levels that will result from these attribute-based curves given the agencies' current assumptions about the mix of vehicles that will be sold in the model years covered by the proposed standards.

As shown in Table I-1, NHTSA's fleet-wide required CAFE levels for passenger cars under the proposed standards are estimated to increase from 40.0 to 56.0 mpg between MY 2017 and MY 2025. Fleet-wide required CAFE levels for light trucks, in turn, are estimated to increase from 29.4 to 40.3 mpg. For the reader's reference, Table I-1 also provides the estimated average fleet-wide required levels for the combined car and truck fleets, culminating in an estimated overall fleet average required CAFE level of 49.6 mpg in MY 2025. Considering these combined car and truck increases, the proposed standards together represent approximately a 4.0 percent annual rate of increase, [42] on average, relative to the MY 2016 required CAFE levels.

The estimated average required mpg levels for cars and trucks under the proposed standards shown in Table I-1 above include the use of A/C efficiency improvements, as discussed above, but do not reflect a number of proposed flexibilities and credits that manufacturers could use for compliance that NHTSA cannot consider in establishing standards based on EPCA/EISA constraints. These flexibilities would cause the actual achieved fuel economy to be lower than the required levels in the table above. The flexibilities and credits that NHTSA cannot consider include the ability of manufacturers to pay civil penalties rather than achieving required CAFE levels, the ability to use FFV credits, the ability to count electric vehicles for compliance, the operation of plug-in hybrid electric vehicles on electricity for compliance prior to MY 2020, and the ability to transfer and carry-forward credits. When accounting for these flexibilities and credits, NHTSA estimates that the proposed CAFE standards would lead to the following average achieved fuel economy levels, based on the projections of what each manufacturer's fleet will comprise in each year of the program: [43]

NHTSA is also required by EISA to set a minimum fuel economy standard for domestically manufactured passenger cars in addition to the attribute-based passenger car standard. The minimum standard “shall be the greater of (A) 27.5 miles per gallon; or (B) 92 percent of the average fuel economy projected by the Secretary for the combined domestic and non-domestic passenger automobile fleets manufactured for sale in the United States by all manufacturers in the model year * * *,” and applies to each manufacturer's fleet of domestically manufactured passenger cars (i.e., like the other CAFE standards, it represents a fleet average requirement, not a requirement for each individual vehicle within the fleet).

Based on NHTSA's current market forecast, the agency's estimates of these proposed minimum standards for domestic passenger cars for MYs 2017-2025 are presented below in Table I-3.

EPA is proposing GHG emissions standards, and Table I-4 provides estimates of the projected overall fleet-wide CO 2 emission compliance target levels. The values reflected in Table I-4 are those that correspond to the manufacturers' projected CO 2 compliance target levels from the car and truck footprint curves, but do not account for EPA's projection of how manufactures will implement two of the proposed incentive programs (advanced technology vehicle multipliers, and hybrid and performance-based incentives for full-size pickup trucks). EPA's projection of fleet-wide emissions levels that do reflect these incentives is shown in Table I-5 below.

As shown in Table I-4, projected fleet-wide CO 2 emission compliance targets for cars increase in stringency from 213 to 144 g/mi between MY 2017 and MY 2025. Similarly, projected fleet-wide CO 2 equivalent emission compliance targets for trucks increase in stringency from 295 to 203 g/mi. As shown, the overall fleet average CO 2 level targets are projected to increase in stringency from 243 g/mi in MY 2017 to 163 g/mi in MY 2025, which is equivalent to 54.5 mpg if all reductions were made with fuel economy improvements.

EPA anticipates that manufacturers would take advantage of proposed program credits and incentives, such as car/truck credit transfers, air conditioning credits, off-cycle credits, advanced technology vehicle multipliers, and hybrid and performance-based incentives for full size pick-up trucks. Two of these flexibility provisions—advanced technology vehicle multipliers and the full size pick-up hybrid/performance incentives—are expected to have an impact on the fleet-wide emissions levels that manufacturers will actually achieve. Therefore, Table I-5 shows EPA's projection of the achieved emission levels of the fleet for MY 2017 through 2025. The differences between the emissions levels shown in Tables I-4 and I-5 reflect the impact on stringency due to the advanced technology vehicle multipliers and the full size pick-up hybrid/performance incentives, but do not reflect car-truck trading, air conditioning credits, or off-cycle credits, because, while those credit provisions should help reduce manufacturers' costs of the program, EPA believes that they will result in real-world emission reductions that will not affect the achieved level of emission reductions. These estimates are more fully discussed in III.B

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A more detailed description of how the agencies arrived at the year by year progression of the stringency of the proposed standards can be found in Sections III and IV of this preamble.

Both agencies also considered other alternative standards as part of their respective Regulatory Impact Analyses that span a reasonable range of alternative stringencies both more and less stringent than the standards being proposed. EPA's and NHTSA's analyses of these regulatory alternatives (and explanation of why we are proposing the standards proposed and not the regulatory alternatives) are contained in Sections III and IV of this preamble, respectively, as well as in EPA's DRIA and NHTSA's PRIA.

3. Form of the Standards

As noted, NHTSA and EPA are proposing to continue attribute-based standards for passenger cars and light trucks, as required by EISA and as allowed by the CAA, and continue to use vehicle footprint as the attribute. Footprint is defined as a vehicle's wheelbase multiplied by its track width—in other words, the area enclosed by the points at which the wheels meet the ground. NHTSA and EPA adopted an attribute-based approach based on vehicle footprint for MYs 2012-2016 light-duty vehicle standards. [47] The agencies continue to believe that footprint is the most appropriate attribute on which to base the proposed standards, as discussed later in this notice and in Chapter 2 of the Joint TSD.

Under the footprint-based standards, the curve defines a GHG or fuel economy performance target for each separate car or truck footprint. Using the curves, each manufacturer thus will have a GHG and CAFE average standard that is unique to each of its fleets, depending on the footprints and production volumes of the vehicle models produced by that manufacturer. A manufacturer will have separate footprint-based standards for cars and for trucks. The curves are mostly sloped, so that generally, larger vehicles (i.e., vehicles with larger footprints) will be subject to less stringent targets (i.e., higher CO 2 grams/mile targets and lower CAFE mpg targets) than smaller vehicles. This is because, generally speaking, smaller vehicles are more capable of achieving lower levels of CO 2 and higher levels of fuel economy than larger vehicles. Although a manufacturer's fleet average standards could be estimated throughout the model year based on projected production volume of its vehicle fleet, the standards to which the manufacturer must comply will be based on its final model year production figures. A manufacturer's calculation of its fleet average standards as well as its fleets' average performance at the end of the model year will thus be based on the production-weighted average target and performance of each model in its fleet. [48]

While the concept is the same, the proposed curve shapes for MYs 2017-2025 are somewhat different from the MYs 2012-2016 footprint curves. The passenger car curves are similar in shape to the car curves for MYs 2012-2016. However, the agencies are proposing more significant changes to the light trucks curves for MYs 2017-2025 compared to the light truck curves for MYs 2012-2016. The agencies are proposing changes to the light-truck curve to increase the slope and to extend the large-footprint cutpoint over time to larger footprints, which we believe represent an appropriate balance of both technical and policy issues, as discussed in Section II.C below and Chapter 2 of the draft Joint TSD.

NHTSA is proposing the attribute curves below for assigning a fuel economy target level to an individual car or truck's footprint value, for model years 2017 through 2025. These mpg values will be production weighted to determine each manufacturer's fleet average standard for cars and trucks. Although the general model of the target curve equation is the same for each vehicle category and each year, the parameters of the curve equation differ for cars and trucks. Each parameter also changes on a model year basis, resulting in the yearly increases in stringency. Figure I-1 below illustrates the passenger car CAFE standard curves for model years 2017 through 2025 while Figure I-2 below illustrates the light truck CAFE standard curves for model years 2017 through 2025.

EPA is proposing the attribute curves shown in Figure I-3 and Figure I-4 below for assigning a CO 2 target level to an individual vehicle's footprint value, for model years 2017 through 2025. These CO 2 values would be production weighted to determine each manufacturer's fleet average standard for cars and trucks. As with the CAFE curves, the general form of the equation is the same for each vehicle category and each year, but the parameters of the equation differ for cars and trucks. Again, each parameter also changes on a model year basis, resulting in the yearly increases in stringency. Figure I-3 below illustrates the CO 2 car standard curves for model years 2017 through 2025 while Figure I-4 shows the CO 2 truck standard curves for model years 2017-2025.

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NHTSA and EPA are proposing to use the same vehicle category definitions for determining which vehicles are subject to the car curve standards versus the truck curve standards as were used for MYs 2012-2016 standards. As in the MYs 2012-2016 rulemaking, a vehicle classified as a car under the NHTSA CAFE program will also be classified as a car under the EPA GHG program, and likewise for trucks. [49] This approach of using CAFE definitions allows the CO 2 standards and the CAFE standards to continue to be harmonized across all vehicles for the National Program.

As just explained, generally speaking, a smaller footprint vehicle will tend to have higher fuel economy and lower CO 2 emissions relative to a larger footprint vehicle when both have the same level of fuel efficiency improvement technology. Since the proposed standards apply to a manufacturer's overall fleet, not to an individual vehicle, if a manufacturer's fleet is dominated by small footprint vehicles, then that fleet will have a higher fuel economy requirement and a lower CO 2 requirement than a manufacturer whose fleet is dominated by large footprint vehicles. Compared to the non-attribute based CAFE standards in place prior to MY 2011, the proposed standards more evenly distribute the compliance burdens of the standards among different manufacturers, based on their respective product offerings. With this footprint-based standard approach, EPA and NHTSA continue to believe that the rules will not create significant incentives to produce vehicles of particular sizes, and thus there should be no significant effect on the relative availability of different vehicle sizes in the fleet due to the proposed standards, which will help to maintain consumer choice during the rulemaking timeframe. Consumers should still be able to purchase the size of vehicle that meets their needs. Table I-6 helps to illustrate the varying CO 2 emissions and fuel economy targets under the proposed standards that different vehicle sizes will have, although we emphasize again that these targets are not actual standards—the proposed standards are manufacturer-specific, rather than vehicle-specific.

4. Program Flexibilities for Achieving Compliance

a. CO 2/CAFE Credits Generated Based on Fleet Average Over-Compliance

The MYs 2012-2016 rules contain several provisions which provide flexibility to manufacturers in meeting standards, many of which the agencies are not proposing to change for MYs 2017 and later. For example, the agencies are proposing to continue allowing manufacturers to generate credits for over-compliance with the CO 2 and CAFE standards. [50] Under the agencies' footprint-based approach to the standards, a manufacturer's ultimate compliance obligations are determined at the end of each model year, when production of the model year is complete. Since the fleet average standards that apply to a manufacturer's car and truck fleets are based on the applicable footprint-based curves, a production volume-weighted fleet average requirement will be calculated for each averaging set (cars and trucks) based on the mix and volumes of the models manufactured for sale by the manufacturer. If a manufacturer's car and/or truck fleet achieves a fleet average CO 2/CAFE level better than the car and/or truck standards, then the manufacturer generates credits. Conversely, if the fleet average CO 2/CAFE level does not meet the standard, the fleet would incur debits (also referred to as a shortfall). As in the MY 2011 CAFE program under EPCA/EISA, and also in MYs 2012-2016 for the light-duty vehicle GHG and CAFE program, a manufacturer whose fleet generates credits in a given model year would have several options for using those credits, including credit carry-back, credit carry-forward, credit transfers, and credit trading.

Credit “carry-back” means that manufacturers are able to use credits to offset a deficit that had accrued in a prior model year, while credit “carry-forward” means that manufacturers can bank credits and use them toward compliance in future model years. EPCA, as amended by EISA, requires NHTSA to allow manufacturers to carry-back credits for up to three model years, and to carry-forward credits for up to five model years. EPA's MYs 2012-2016 light duty vehicle GHG program includes the same limitations and EPA is proposing to continue this limitation in the MY 2017-2025 program. To facilitate the transition to the increasingly more stringent standards, EPA is proposing under its CAA authority a one-time CO 2 carry-forward beyond 5 years, such that any credits generated from MY 2010 through 2016 will be able to be used any time through MY 2021. This provision would not apply to early credits generated in MY 2009. NHTSA's program will continue the 5-year carry-forward and 3-year carry-back, as required by statute.

Credit “transfer” means the ability of manufacturers to move credits from their passenger car fleet to their light truck fleet, or vice versa. EISA required NHTSA to establish by regulation a CAFE credits transferring program, now codified at 49 CFR part 536, to allow a manufacturer to transfer credits between its car and truck fleets to achieve compliance with the standards. For example, credits earned by over-compliance with a manufacturer's car fleet average standard could be used to offset debits incurred due to that manufacturer's not meeting the truck fleet average standard in a given year. However, EISA imposed a cap on the amount by which a manufacturer could raise its CAFE through transferred credits: 1 mpg for MYs 2011-2013; 1.5 mpg for MYs 2014-2017; and 2 mpg for MYs 2018 and beyond. [51] Under section 202(a) of the CAA, in contrast, there is no statutory limitation on car-truck credit transfers, and EPA's GHG program allows unlimited credit transfers across a manufacturer's car-truck fleet to meet the GHG standard. This is based on the expectation that this flexibility will facilitate setting appropriate GHG standards that manufacturers' can comply with in the lead time provided, and will allow the required GHG emissions reductions to be achieved in the most cost effective way. Therefore, EPA did not constrain the magnitude of allowable car-truck credit transfers, [52] as doing so would reduce the flexibility for lead time, and would increase costs with no corresponding environmental benefit. EISA also prohibits the use of transferred credits to meet the minimum domestic passenger car fleet CAFE standard. [53] These statutory limits will necessarily continue to apply to the determination of compliance with the CAFE standards.

Credit “trading” means the ability of manufacturers to sell credits to, or purchase credits from, one another. EISA allowed NHTSA to establish by regulation a CAFE credit trading program, also now codified at 49 CFR Part 536, to allow credits to be traded between vehicle manufacturers. EPA also allows credit trading in the light-duty vehicle GHG program. These sorts of exchanges between averaging sets are typically allowed under EPA's current mobile source emission credit programs (as well as EPA's and NHTSA's recently promulgated GHG and fuel efficiency standards for heavy-duty vehicles and engines). EISA also prohibits manufacturers from using traded credits to meet the minimum domestic passenger car CAFE standard. [54]

b. Air Conditioning Improvement Credits/Fuel Economy Value Increases

Air conditioning (A/C) systems contribute to GHG emissions in two ways. Hydrofluorocarbon (HFC) refrigerants, which are powerful GHGs, can leak from the A/C system (direct A/C emissions). In addition, operation of the A/C system places an additional load on the engine which increases fuel consumption and thus results in additional CO 2 tailpipe emissions (indirect A/C related emissions). In the MYs 2012-2016 program, EPA allows manufacturers to generate credits by reducing either or both types of GHG emissions related to A/C systems. The expected generation of A/C credits is accounted for in setting the level of the overall CO 2 standard. For the current proposal, as with the MYs 2012-2016 program, manufacturers will be able to generate CO 2-equivalent credits to use in complying with the CO 2 standards for improvements in air conditioning (A/C) systems, both for efficiency improvements (reduces tailpipe CO 2 and improves fuel consumption) and for leakage reduction or alternative, lower GWP (global warming potential) refrigerant use (reduces hydrofluorocarbon (HFC) emissions). EPA is proposing that the maximum A/C credit available for cars is 18.8 grams/mile CO 2 and for trucks is 24.4 grams/mile CO 2. The proposed test methods used to calculate these direct and indirect A/C credits are very similar to those of the MYs 2012-2016 program, though EPA is seeking comment on a revised idle test as well as a new test procedure.

For the first time in the current proposal, the agencies are proposing provisions that would account for improvements in air conditioner efficiency in the CAFE program. Improving A/C efficiency leads to real-world fuel economy benefits, because as explained above, A/C operation represents an additional load on the engine, so more efficient A/C operation imposes less of a load and allows the vehicle to go farther on a gallon of gas. Under EPCA, EPA has authority to adopt procedures to measure fuel economy and calculate CAFE. Under this authority EPA is proposing that manufacturers could generate fuel consumption improvement values for purposes of CAFE compliance based on air conditioning system efficiency improvements for cars and trucks. This increase in fuel economy would be allowed up to a maximum based on 0.000563 gallon/mile for cars and 0.000810 gallon/mile for trucks. This is equivalent to the A/C efficiency CO 2 credit allowed by EPA under the GHG program. The same methods would be used in the CAFE program to calculate the values for air conditioning efficiency improvements for cars and trucks as are used in EPA's GHG program. NHTSA is including in its proposed passenger car and light truck CAFE standards an increase in stringency in each model year from 2017-2025 by the amount industry is expected to improve air conditioning system efficiency in those years, in a manner consistent with EPA's GHG standards. EPA is not proposing to allow generation of fuel consumption improvement values for CAFE purposes, nor is NHTSA proposing to increase stringency of the CAFE standard, for the use of A/C systems that reduce leakage or employ alternative, lower GWP refrigerant, because those changes do not improve fuel economy.

c. Off-cycle Credits/Fuel Economy Value Increases

For MYs 2012-2016, EPA provided an option for manufacturers to generate credits for employing new and innovative technologies that achieve CO 2 reductions that are not reflected on current test procedures. EPA noted in the MYs 2012-2016 rulemaking that examples of such “off-cycle” technologies might include solar panels on hybrids, adaptive cruise control, and active aerodynamics, among other technologies. See generally 75 FR at 25438-39. EPA's current program allows off-cycle credits to be generated through MY 2016.

EPA is proposing that manufacturers may continue to use off-cycle credits for MY 2017 and later for the GHG program. As with A/C efficiency, improving efficiency through the use of off-cycle technologies leads to real-world fuel economy benefits and allows the vehicle to go farther on a gallon of gas. Thus, under its EPCA authority EPA is proposing to allow manufacturers to generate fuel consumption improvement values for purposes of CAFE compliance based on the use of off-cycle technologies. Increases in fuel economy under the CAFE program based on off-cycle technology will be equivalent to the off-cycle credit allowed by EPA under the GHG program, and these amounts will be determined using the same procedures and test methods as are used in EPA's GHG program. For the reasons discussed in sections III and IV of this proposal, the ability to generate off-cycle credits and increases in fuel economy for use in compliance will not affect or change the level of the GHG or CAFE standards proposed by each agency.

Many automakers indicated that they had a strong interest in pursuing off-cycle technologies, and encouraged the agencies to refine and simplify the evaluation process to provide more certainty as to the types of technologies the agencies would approve for credit generation. For 2017 and later, EPA is proposing to expand and streamline the MYs 2012-2016 off-cycle credit provisions, including an approach by which the agencies would provide specified amounts of credit and fuel consumption improvement values for a subset of off-cycle technologies whose benefits are readily quantifiable. EPA is proposing a list of technologies and credit values, where sufficient data is available, that manufacturers could use without going through an advance approval process that would otherwise be required to generate credits. EPA believes that our assessment of off-cycle technologies and associated credit values on this proposed list is conservative, and automakers may apply for additional off-cycle credits beyond the minimum credit value if they have sufficient supporting data. Further, manufacturers may also apply for off-cycle technologies beyond those listed, again, if they have sufficient data.

In addition, EPA is providing additional detail on the process and timing for the credit/fuel consumption improvement values application and approval process. EPA is proposing a timeline for the approval process, including a 60-day EPA decision process from the time a manufacturer submits a complete application. EPA is also proposing a detailed, common, step-by-step process, including a specification of the data that manufacturers must submit. For off-cycle technologies that are both not covered by the pre-approved off-cycle credit/fuel consumption improvement values list and that are not quantifiable based on the 5-cycle test cycle option provided in the 2012-2016 rulemaking, EPA is proposing to retain the public comment process from the MYs 2012-2016 rule.

d. Incentives for Electric Vehicles, Plug-in Hybrid Electric Vehicles, and Fuel Cell Vehicles

To facilitate market penetration of the most advanced vehicle technologies as rapidly as possible, EPA is proposing an incentive multiplier for compliance purposes for all electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs) sold in MYs 2017 through 2021. This multiplier approach means that each EV/PHEV/FCV would count as more than one vehicle in the manufacturer's compliance calculation. EPA is proposing that EVs and FCVs start with a multiplier value of 2.0 in MY 2017, phasing down to a value of 1.5 in MY 2021. PHEVs would start at a multiplier value of 1.6 in MY 2017 and phase down to a value of 1.3 in MY 2021. [55] The multiplier would be 1.0 for MYs 2022-2025.

NHTSA currently interprets EPCA and EISA as precluding the agency from offering additional incentives for EVs, FCVs and PHEVs, except as specified by statute, [56] and thus is not proposing incentive multipliers comparable to the EPA incentive multipliers described above.

For EVs, PHEVs and FCVs, EPA is proposing to set a value of 0 g/mile for the tailpipe compliance value for EVs, PHEVs (electricity usage) and FCVs for MY 2017-2021, with no limit on the quantity of vehicles eligible for 0 g/mi tailpipe emissions accounting. For MY 2022-2025, EPA is proposing that 0 g/mi only be allowed up to a per-company cumulative sales cap, tiered as follows: 1) 600,000 vehicles for companies that sell 300,000 EV/PHEV/FCVs in MYs 2019-2021; 2) 200,000 vehicles for all other manufacturers. EPA believes the industry-wide impact of such a tiered cap will be approximately 2 million vehicles. EPA proposes to phase-in the change in compliance value, from 0 grams per mile to net upstream accounting, for any manufacturer that exceeds its cumulative production cap for EV/PHEV/FCVs. EPA proposes that, starting with MY 2022, the compliance value for EVs, FCVs, and the electric portion of PHEVs in excess of individual automaker cumulative production caps would be based on net upstream accounting.

For EVs and other dedicated alternative fuel vehicles, EPA is proposing to calculate fuel economy for the CAFE program using the same methodology as in the MYs 2012-2016 rulemaking, which aligns with EPCA/EISA statutory requirements. For liquid alternative fuels, this methodology generally counts 15 percent of the volume of fuel used in determine the mpg-equivalent fuel economy. For gaseous alternative fuels, the methodology generally determines a gasoline equivalent mpg based on the energy content of the gaseous fuel consumed, and then adjusts the fuel consumption by effectively only counting 15 percent of the actual energy consumed. For electricity, the methodology generally determines a gasoline equivalent mpg by measuring the electrical energy consumed, and then using a petroleum equivalency factor (PEF) to convert to an mpg-equivalent value. The PEF for electricity includes an adjustment that effectively only counts 15 percent of the actual energy consumed. Counting 15 percent of the volume or energy provides an incentive for alternative fuels in the CAFE program.

The methodology that EPA is proposing for dual fueled vehicles under the GHG program and to calculate fuel economy for the CAFE program is discussed below in subsection I.B.7.a.

e. Incentives for “Game Changing” Technologies Performance for Full-Size Pickup Truck Including Hybridization

The agencies recognize that the standards under consideration for MYs 2017-2025 will be challenging for large trucks, including full size pickup trucks. In order to incentivize the penetration into the marketplace of “game changing” technologies for these pickups, including their hybridization, EPA is proposing a CO 2 credit in the GHG program and an equivalent fuel consumption improvement value in the CAFE program for manufacturers that employ significant quantities of hybridization on full size pickup trucks, by including a per-vehicle CO 2 credit and fuel consumption improvement value available for mild and strong hybrid electric vehicles (HEVs). EPA would provide the incentive for the GHG program under EPA's CAA authority and the incentive for the CAFE program under EPA's EPCA authority. EPA's GHG and NHTSA's CAFE proposed standards are set at levels that take into account this flexibility as an incentive for the introduction of advanced technology. This provides the opportunity to begin to transform the most challenging category of vehicles in terms of the penetration of advanced technologies, which, if successful at incentivizing these “game changing technologies,” should allow additional opportunities to successfully achieve the higher levels of truck stringencies in MYs 2022-2025.

EPA is proposing that access to this credit and fuel consumption improvement value be conditioned on a minimum penetration of the technology in a manufacturer's full size pickup truck fleet, and is proposing criteria for a full size pickup truck (e.g., minimum bed size and minimum towing or payload capability). EPA is proposing that mild HEV pickup trucks would be eligible for a per vehicle credit of 10 g/mi [57] during MYs 2017-2021 if the technology is used on a minimum percentage of a company's full size pickups, beginning with at least 30% of a company's full size pickup production in 2017 and ramping up to at least 80% in MY 2021. Strong HEV pickup trucks would be eligible for a 20 g/mi per [58] vehicle credit during MYs 2017-2025 if the technology is used on at least 10% of the company's full size pickups. These volume thresholds are being proposed in order to encourage rapid penetration of these technologies in this vehicle segment. EPA and NHTSA are proposing specific definitions of mild and strong HEV pickup trucks.

Because there are other technologies besides mild and strong hybrids which can significantly reduce GHG emissions and fuel consumption in pickup trucks, EPA is also proposing a performance-based incentive CO 2 emissions credit and equivalent fuel consumption improvement value for full size pickup trucks that achieve a significant CO 2 reduction below/fuel economy improvement above the applicable target. This would be available for vehicles achieving significant CO 2 reductions/fuel economy improvements through the use of technologies other than hybrid drive systems. EPA is proposing that eligible pickup trucks achieving 15 percent below their applicable CO 2 target would receive a 10 g/mi credit, and those achieving 20 percent below their target would receive a 20 g/mi credit. The 10 g/mi performance-based credit would be available for MYs 2017 to 2021 and a vehicle meeting the requirements would receive the credit until MY 2021 unless its CO 2 level increases. The 20 g/mi performance-based credit would be available for a maximum of 5 years within the model years of 2017 to 2025, provided the CO 2 level does not increase for those vehicles earning the credit. The credits would begin in the model year of the eligible vehicle's introduction, and could not extend past MY 2021 for the 10 g/mi credit and MY 2025 for the 20 g/mi credit.

To avoid double-counting, the same vehicle would not receive credit under both the HEV and the performance based approaches.

5. Mid-Term Evaluation

Given the long time frame at issue in setting standards for MYs 2022-2025, and given NHTSA's obligation to conduct a separate rulemaking in order to establish final standards for vehicles for those model years, EPA and NHTSA are proposing a comprehensive mid-term evaluation and agency decision-making process. As part of this undertaking, both NHTSA and EPA will develop and compile up-to-date information for the evaluation, through a collaborative, robust and transparent process, including public notice and comment. The evaluation will be based on (1) a holistic assessment of all of the factors considered by the agencies in setting standards, including those set forth in the rule and other relevant factors, and (2) the expected impact of those factors on the manufacturers' ability to comply, without placing decisive weight on any particular factor or projection. The comprehensive evaluation process will lead to final agency action by both agencies.

Consistent with the agencies' commitment to maintaining a single national framework for regulation of vehicle emissions and fuel economy, the agencies fully expect to conduct the mid-term evaluation in close coordination with the California Air Resources Board (CARB). Moreover, the agencies fully expect that any adjustments to the GHG standards will be made with the participation of CARB and in a manner that ensures continued harmonization of state and federal vehicle standards.

Further discussion of the mid-term evaluation can be found in section III and IV of the proposal.

6. Coordinated Compliance

The MYs 2012-2016 final rules established detailed and comprehensive regulatory provisions for compliance and enforcement under the GHG and CAFE programs. These provisions remain in place for model years beyond MY 2016 without additional action by the agencies and EPA and NHTSA are not proposing any significant modifications to them. In the MYs 2012-2016 final rule, NHTSA and EPA established a program that recognizes, and replicates as closely as possible, the compliance protocols associated with the existing CAA Tier 2 vehicle emission standards, and with earlier model year CAFE standards. The certification, testing, reporting, and associated compliance activities established for the GHG program closely track those in previously existing programs and are thus familiar to manufacturers. EPA already oversees testing, collects and processes test data, and performs calculations to determine compliance with both CAFE and CAA standards. Under this coordinated approach, the compliance mechanisms for both programs are consistent and non-duplicative. EPA also applies the CAA authorities applicable to its separate in-use requirements in this program.

The compliance approach allows manufacturers to satisfy the GHG program requirements in the same general way they comply with previously existing applicable CAA and CAFE requirements. Manufacturers will demonstrate compliance on a fleet-average basis at the end of each model year, allowing model-level testing to continue throughout the year as is the current practice for CAFE determinations. The compliance program design includes a single set of manufacturer reporting requirements and relies on a single set of underlying data. This approach still allows each agency to assess compliance with its respective program under its respective statutory authority. The program also addresses EPA enforcement in cases of noncompliance.

7. Additional Program Elements

a. Treatment of Compressed Natural Gas (CNG), Plug-in Hybrid Electric Vehicles (PHEVs), and Flexible Fuel Vehicles (FFVs)

EPA is proposing that CO 2 compliance values for plug-in hybrid electric vehicles (PHEVs) and bi-fuel compressed natural gas (CNG) vehicles will be based on estimated use of the alternative fuels, recognizing that, once a consumer has paid several thousand dollars to be able to use a fuel that is considerably cheaper than gasoline, it is very likely that the consumer will seek to use the cheaper fuel as much as possible. Accordingly, for CO 2 emissions compliance, EPA is proposing to use the Society of Automotive Engineers “utility factor” methodology (based on vehicle range on the alternative fuel and typical daily travel mileage) to determine the assumed percentage of operation on gasoline and percentage of operation on the alternative fuel for both PHEVs and bi-fuel CNG vehicles, along with the CO 2 emissions test values on the alternative fuel and gasoline.

EPA is proposing to account for E85 use by flexible fueled vehicles (FFVs) as in the existing MY 2016 and later program, based on actual usage of E85 which represents a real-world reduction attributed to alternative fuels. Unlike PHEV and bi-fuel CNG vehicles, there is not a significant cost differential between an FFV and a conventional gasoline vehicle and historically consumers have only fueled these vehicles with E85 a very small percentage of the time.

In the CAFE program for MYs 2017-2019, the fuel economy of dual fuel vehicles will be determined in the same manner as specified in the MY 2012-2016 rule, and as defined by EISA. Beginning in MY 2020, EISA does not specify how to measure the fuel economy of dual fuel vehicles, and EPA is proposing under its EPCA authority to use the “utility factor” methodology for PHEV and CNG vehicles described above to determine how to proportion the fuel economy when operating on gasoline or diesel fuel and the fuel economy when operating on the alternative fuel. For FFVs, EPA is proposing to use the same methodology as it uses for the GHG program to determine how to proportion the fuel economy, which would be based on actual usage of E85. EPA is proposing to continue to use Petroleum Equivalency Factors and the 0.15 divisor used in the MY 2012-2016 rule for the alternative fuels, however with no cap on the amount of fuel economy increase allowed. This issue is discussed further in Section III.B.10.

b. Exclusion of Emergency and Police Vehicles

Under EPCA, manufacturers are allowed to exclude emergency vehicles from their CAFE fleet [59] and all manufacturers have historically done so. In the MYs 2012-2016 program, EPA's GHG program applies to these vehicles. However, after further consideration of this issue, EPA is proposing the same type of exclusion provision for these vehicles for MY 2012 and later because of the unique features of vehicles designed specifically for law enforcement and emergency purposes, which have the effect of raising their GHG emissions and calling into question the ability of manufacturers to sufficiently reduce the emissions from these vehicles without compromising necessary vehicle features or dropping vehicles from their fleets.

c. Small Businesses and Small Volume Manufacturers

EPA is proposing provisions to address two categories of smaller manufacturers. The first category is small businesses as defined by the Small Business Administration (SBA). For vehicle manufacturers, SBA's definition of small business is any firm with less than 1,000 employees. As with the MYs 2012-2016 program, EPA is proposing to continue to exempt small businesses from the GHG standards, for any company that meets the SBA's definition of a small business. EPA believes this exemption is appropriate given the unique challenges small businesses would face in meeting the GHG standards, and since these businesses make up less than 0.1% of total U.S. vehicle sales, and there is no significant impact on emission reductions.

EPA's proposal also addresses small volume manufacturers, with U.S. annual sales of less than 5,000 vehicles. Under the MYs 2012-2016 program, these small volume manufacturers are eligible for an exemption from the CO 2 standards. EPA is proposing to bring small volume manufacturers into the CO 2 program for the first time starting in MY 2017, and allow them to petition EPA for alternative standards.

EPCA provides NHTSA with the authority to exempt from the generally applicable CAFE standards manufacturers that produce fewer than 10,000 passenger cars worldwide in the model year each of the two years prior to the year in which they seek an exemption. [60] If NHTSA exempts a manufacturer, it must establish an alternate standard for that manufacturer for that model year, at the level that the agency decides is maximum feasible for that manufacturer. The exemption and alternative standard apply only if the exempted manufacturer also produces fewer than 10,000 passenger cars worldwide in the year for which the exemption was granted.

Further, the Temporary Lead-time Allowance Alternative Standards (TLAAS) provisions included in EPA's MYs 2012-2016 program for manufacturers with MY 2009 U.S. sales of less than 400,000 vehicles ends after MY 2015 for most eligible manufacturers. [61] EPA is not proposing to extend or otherwise replace the TLAAS provisions for the proposed MYs 2017-2025 program. However, EPA is inviting comment on whether this or some other form of flexibility is warranted for lower volume, limited line manufacturers, as further discussed in Section III.B.8. With the exception of the small businesses and small volume manufacturers discussed above, the proposed MYs 2017-2025 standards would apply to all manufacturers.

C. Summary of Costs and Benefits for the Proposed National Program

This section summarizes the projected costs and benefits of the proposed CAFE and GHG emissions standards. These projections helped inform the agencies' choices among the alternatives considered and provide further confirmation that the proposed standards are appropriate under their respective statutory authorities. The costs and benefits projected by NHTSA to result from these CAFE standards are presented first, followed by those from EPA's analysis of the GHG emissions standards. The agencies recognize that there are uncertainties regarding the benefit and cost values presented in this proposal. Some benefits and costs are not quantified. The value of other benefits and costs could be too low or too high.

For several reasons, the estimates for costs and benefits presented by NHTSA and EPA, while consistent, are not directly comparable, and thus should not be expected to be identical. Most important, NHTSA and EPA's standards would require slightly different fuel efficiency improvements. EPA's proposed GHG standard is more stringent in part due to its assumptions about manufacturers' use of air conditioning leakage credits, which result from reductions in air conditioning-related emissions of HFCs. NHTSA is proposing standards at levels of stringency that assume improvements in the efficiency of air conditioning systems, but that do not account for reductions in HFCs, which are not related to fuel economy or energy conservation. In addition, the CAFE and GHG standards offer somewhat different program flexibilities and provisions, and the agencies' analyses differ in their accounting for these flexibilities (examples include the treatment of EVs, dual-fueled vehicles, and civil penalties), primarily because NHTSA is statutorily prohibited from considering some flexibilities when establishing CAFE standards, [62] while EPA is not. These differences contribute to differences in the agencies' respective estimates of costs and benefits resulting from the new standards. Nevertheless, it is important to note that NHTSA and EPA have harmonized the programs as much as possible, and this proposal to continue the National Program would result in significant cost and other advantages for the automobile industry by allowing them to manufacture one fleet of vehicles across the U.S., rather than comply with potentially multiple state standards that may occur in the absence of the National Program.

In summary, the projected costs and benefits presented by NHTSA and EPA are not directly comparable, because the levels being proposed by EPA include air conditioning-related improvements in HFC reductions, and because of the projection by EPA of complete compliance with the proposed GHG standards, whereas NHTSA projects some manufacturers will pay civil penalties as part of their compliance strategy, as allowed by EPCA. It should also be expected that overall EPA's estimates of GHG reductions and fuel savings achieved by the proposed GHG standards will be slightly higher than those projected by NHTSA only for the CAFE standards because of the same reasons described above. For the same reasons, EPA's estimates of manufacturers' costs for complying with the proposed passenger car and light truck GHG standards are slightly higher than NHTSA's estimates for complying with the proposed CAFE standards.

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

In reading the following section, we note that tables are identified as reflecting “estimated required” values and “estimated achieved” values. When establishing standards, EPCA allows NHTSA to only consider the fuel economy of dual-fuel vehicles (for example, FFVs and PHEVs) when operating on gasoline, and prohibits NHTSA from considering the use of dedicated alternative fuel vehicle credits (including for example EVs), credit carry-forward and carry-back, and credit transfer and trading. NHTSA's primary analysis of costs, fuel savings, and related benefits from imposing higher CAFE standards does not include them. However, EPCA does not prohibit NHTSA from considering the fact that manufacturers may pay civil penalties rather than comply with CAFE standards, and NHTSA's primary analysis accounts for some manufacturers' tendency to do so. The primary analysis is generally identified in tables throughout this document by the term “estimated required CAFE levels.”

To illustrate the effects of the flexibilities and technologies that NHTSA is prohibited from including in its primary analysis, NHTSA performed a supplemental analysis of these effects on benefits and costs of the proposed CAFE standards that helps to demonstrate the real-world impacts. As an example of one of the effects, including the use of FFV credits reduces estimated per-vehicle compliance costs of the program, but does not significantly change the projected fuel savings and CO 2 reductions, because FFV credits reduce the fuel economy levels that manufacturers achieve not only under the proposed standards, but also under the baseline MY 2016 CAFE standards. As another example, including the operation of PHEV vehicles on both electricity and gasoline, and the expected use of EVs for compliance may raise the fuel economy levels that manufacturers achieve under the proposed standards. The supplemental analysis is generally identified in tables throughout this document by the term “estimated achieved CAFE levels.”

Thus, NHTSA's primary analysis shows the estimates the agency considered for purposes of establishing new CAFE standards, and its supplemental analysis including manufacturer use of flexibilities and advanced technologies currently reflects the agency's best estimate of the potential real-world effects of the proposed CAFE standards.

Without accounting for the compliance flexibilities and advanced technologies that NHTSA is prohibited from considering when determining the maximum feasible level of new CAFE standards, since manufacturers' decisions to use those flexibilities and technologies are voluntary, NHTSA estimates that the required fuel economy increases would lead to fuel savings totaling 173 billion gallons throughout the lives of vehicles sold in MYs 2017-2025. At a 3 percent discount rate, the present value of the economic benefits resulting from those fuel savings is $451 billion; at a 7 percent private discount rate, the present value of the economic benefits resulting from those fuel savings is $358 billion.

The agency further estimates that these new CAFE standards would lead to corresponding reductions in CO 2 emissions totaling 1.8 billion metric tons during the lives of vehicles sold in MYs 2017-2025. The present value of the economic benefits from avoiding those emissions is $49 billion, based on a global social cost of carbon value of $22 per metric ton (in 2010, and growing thereafter). [63] It is important to note that NHTSA's CAFE standards and EPA's GHG standards will both be in effect, and each will lead to increases in average fuel economy and CO 2 reductions. The two agencies standards together comprise the National Program, and this discussion of the costs and benefits of NHTSA's CAFE standards does not change the fact that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program. All costs are in 2009 dollars.

Considering manufacturers' ability to employ compliance flexibilities and advanced technologies for meeting the standards, NHTSA estimates the following for fuel savings and avoided CO 2 emissions, assuming FFV credits would be used toward both the baseline and final standards:

NHTSA estimates that the fuel economy increases resulting from the proposed standards would produce other benefits both to drivers (e.g., reduced time spent refueling) and to the U.S. as a whole (e.g., reductions in the costs of petroleum imports beyond the direct savings from reduced oil purchases), [65] as well as some disbenefits (e.g., increased traffic congestion) caused by drivers' tendency to travel more when the cost of driving declines (as it does when fuel economy increases). NHTSA has estimated the total monetary value to society of these benefits and disbenefits, and estimates that the proposed standards will produce significant net benefits to society. Using a 3 percent discount rate, NHTSA estimates that the present value of these benefits would total more than $515 billion over the lives of the vehicles sold during MYs 2017-2025; using a 7 percent discount rate, more than $419 billion. More discussion regarding monetized benefits can be found in Section IV of this notice and in NHTSA's PRIA. Note that the benefit calculation in the following tables includes the benefits of reducing CO 2 emissions, [66] but not the benefits of reducing other GHG emissions.

Considering manufacturers' ability to employ compliance flexibilities and advanced technologies for meeting the standards, NHTSA estimates the present value of these benefits would be reduced as follows:

NHTSA attributes most of these benefits (about $451 billion at a 3 percent discount rate, or about $358 billion at a 7 percent discount rate, excluding consideration of compliance flexibilities and advanced technologies for meeting the standards) to reductions in fuel consumption, valuing fuel (for societal purposes) at the future pre-tax prices projected in the Energy Information Administration's (EIA) reference case forecast from the Annual Energy Outlook (AEO) 2011. NHTSA's PRIA accompanying this proposal presents a detailed analysis of specific benefits of the rule.

NHTSA estimates that the increases in technology application necessary to achieve the projected improvements in fuel economy will entail considerable monetary outlays. The agency estimates that the incremental costs for achieving the proposed CAFE standards—that is, outlays by vehicle manufacturers over and above those required to comply with the MY 2016 CAFE standards—will total about $157 billion (i.e., during MYs 2017-2025).

However, NHTSA estimates that manufacturers employing compliance flexibilities and advanced technologies to meet the standards could significantly reduce these outlays:

NHTSA projects that manufacturers will recover most or all of these additional costs through higher selling prices for new cars and light trucks. To allow manufacturers to recover these increased outlays (and, to a much less extent, the civil penalties that some manufacturers are expected to pay for non-compliance), the agency estimates that the standards would lead to increase in average new vehicle prices ranging from $161 per vehicle in MY 2017 to $1876 per vehicle in MY 2025:

And as before, NHTSA estimates that manufacturers employing compliance flexibilities and advanced technologies to meet the standards could significantly reduce these increases.

NHTSA estimates, therefore, that the total benefits of these proposed CAFE standards will be more than 2.5 times the magnitude of the corresponding costs. As a consequence, the proposed CAFE standards would produce net benefits of $358 billion at a 3 percent discount rate (with compliance flexibilities, $355 billion), or $262 billion at a 7 percent discount rate (with compliance flexibilities, $264 billion), over the useful lives of the vehicles sold during MYs 2017-2025.

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

EPA has analyzed in detail the costs and benefits of the proposed GHG standards. Table I-17 shows EPA's estimated lifetime discounted cost, fuel savings, and benefits for all vehicles projected to be sold in model years 2017-2025. The benefits include impacts such as climate-related economic benefits from reducing emissions of CO 2 (but not other GHGs), reductions in energy security externalities caused by U.S. petroleum consumption and imports, the value of certain health benefits, the value of additional driving attributed to the rebound effect, the value of reduced refueling time needed to fill up a more fuel efficient vehicle. The analysis also includes economic impacts stemming from additional vehicle use, such as the economic damages caused by accidents, congestion and noise. Note that benefits depend on estimated values for the social cost of carbon (SCC), as described in Section III.H.

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Table I-18 shows EPA's estimated lifetime fuel savings and CO 2 equivalent emission reductions for all vehicles sold in the model years 2017-2025. The values in Table I-18 are projected lifetime totals for each model year and are not discounted. As documented in EPA's draft RIA, the potential credit transfer between cars and trucks may change the distribution of the fuel savings and GHG emission impacts between cars and trucks. As discussed above with respect to NHTSA's CAFE standards, it is important to note that NHTSA's CAFE standards and EPA's GHG standards will both be in effect, and each will lead to increases in average fuel economy and reductions in CO 2 emissions. The two agencies' standards together comprise the National Program, and this discussion of costs and benefits of EPA's proposed GHG standards does not change the fact that both the proposed CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program. In general though, in addition to the added GHG benefit of HFC reductions from the EPA program, the fuel savings benefit are also somewhat higher than that from CAFE, primarily because of the possibility of paying civil penalties in lieu of applying technology in NHTSA's program, which is required by EPCA.

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Table I-19 shows EPA's estimated lifetime discounted benefits for all vehicles sold in model years 2017-2025. Although EPA estimated the benefits associated with four different values of a one ton GHG reduction ($5, $22 $36, $67 in CY 2010 and in 2009 dollars), for the purposes of this overview presentation of estimated benefits EPA is showing the benefits associated with one of these marginal values, $22 per ton of CO 2, in 2009 dollars and 2010 emissions. Table I-19 presents benefits based on the $22 value. Section III.H presents the four marginal values used to estimate monetized benefits of GHG reductions and Section III.H presents the program benefits using each of the four marginal values, which represent only a partial accounting of total benefits due to omitted climate change impacts and other factors that are not readily monetized. The values in the table are discounted values for each model year of vehicles throughout their projected lifetimes. The benefits include all benefits considered by EPA such as GHG reductions, PM benefits, energy security and other externalities such as reduced refueling time and accidents, congestion and noise. The lifetime discounted benefits are shown for one of four different social cost of carbon (SCC) values considered by EPA. The values in Table I-19 do not include costs associated with new technology required to meet the GHG standard and they do not include the fuel savings expected from that technology.

Table I-20 shows EPA's estimated lifetime fuel savings, lifetime CO 2 emission reductions, and the monetized net present values of those fuel savings and CO 2 emission reductions. The fuel savings and CO 2 emission reductions are projected lifetime values for all vehicles sold in the model years 2017-2025. The estimated fuel savings in billions of gallons and the GHG reductions in million metric tons of CO 2 shown in Table I-20 are totals for the nine model years throughout their projected lifetime and are not discounted. The monetized values shown in Table I-20 are the summed values of the discounted monetized fuel savings and monetized CO 2 reductions for the model years 2017-2025 vehicles throughout their lifetimes. The monetized values in Table I-20 reflect both a 3 percent and a 7 percent discount rate as noted.

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Table I-21 shows EPA's estimated incremental and total technology outlays for cars and trucks for each of the model years 2017-2025. The technology outlays shown in Table I-21 are for the industry as a whole and do not account for fuel savings associated with the program. Table I-22 shows EPA's estimated incremental cost increase of the average new vehicle for each model year 2017-2025. The values shown are incremental to a baseline vehicle and are not cumulative. In other words, the estimated increase for 2017 model year cars is $194 relative to a 2017 model year car meeting the MY 2016 standards. The estimated increase for a 2018 model year car is $353 relative to a 2018 model year car meeting the MY 2016 standards (not $194 plus $353).

D. Background and Comparison of NHTSA and EPA Statutory Authority

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

1. NHTSA Statutory Authority

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

a. Standard Setting

We have summarized below the most important aspects of standard setting under EPCA, as amended by EISA. For each future model year, EPCA requires that NHTSA establish separate passenger car and light truck standards at “the maximum feasible average fuel economy level that it decides the manufacturers can achieve in that model year,” based on the agency's consideration of four statutory factors: technological feasibility, economic practicability, the effect of other standards of the Government on fuel economy, and the need of the nation to conserve energy. EPCA does not define these terms or specify what weight to give each concern in balancing them; thus, NHTSA defines them and determines the appropriate weighting that leads to the maximum feasible standards given the circumstances in each CAFE standard rulemaking. [67] For MYs 2011-2020, EPCA further requires that separate standards for passenger cars and for light trucks be set at levels high enough to ensure that the CAFE of the industry-wide combined fleet of new passenger cars and light trucks reaches at least 35 mpg not later than MY 2020. For model years after 2020, standards need simply be set at the maximum feasible level.

Because EPCA states that standards must be set for “* * * automobiles manufactured by manufacturers,” and because Congress provided specific direction on how small-volume manufacturers could obtain exemptions from the passenger car standards, NHTSA has long interpreted its authority as pertaining to setting standards for the industry as a whole. Prior to this NPRM, some manufacturers raised with NHTSA the possibility of NHTSA and EPA setting alternate standards for part of the industry that met certain (relatively low) sales volume criteria—specifically, that separate standards be set so that “intermediate-size,” limited-line manufacturers do not have to meet the same levels of stringency that larger manufacturers have to meet until several years later. NHTSA seeks comment on whether or how EPCA, as amended by EISA, could be interpreted to allow such alternate standards for certain parts of the industry.

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

(1) Technological Feasibility

“Technological feasibility” refers to whether a particular method of improving fuel economy can be available for commercial application in the model year for which a standard is being established. Thus, the agency is not limited in determining the level of new standards to technology that is already being commercially applied at the time of the rulemaking, a consideration which is particularly relevant for a rulemaking with a timeframe as long as the present one. For this rulemaking, NHTSA has considered all types of technologies that improve real-world fuel economy, including air-conditioner efficiency, due to EPA's proposal to allow generation of fuel consumption improvement values for CAFE purposes based on improvements to air-conditioner efficiency that improves fuel efficiency.

(2) Economic Practicability

“Economic practicability” refers to whether a standard is one “within the financial capability of the industry, but not so stringent as to” lead to “adverse economic consequences, such as a significant loss of jobs or the unreasonable elimination of consumer choice.” [68] The agency has explained in the past that this factor can be especially important during rulemakings in which the automobile industry is facing significantly adverse economic conditions (with corresponding risks to jobs). Consumer acceptability is also an element of economic practicability, one which is particularly difficult to gauge during times of uncertain fuel prices. [69] In a rulemaking such as the present one, looking out into the more distant future, economic practicability is a way to consider the uncertainty surrounding future market conditions and consumer demand for fuel economy in addition to other vehicle attributes. In an attempt to ensure the economic practicability of attribute-based standards, NHTSA considers a variety of factors, including the annual rate at which manufacturers can increase the percentage of their fleet that employ a particular type of fuel-saving technology, the specific fleet mixes of different manufacturers, and assumptions about the cost of the standards to consumers and consumers' valuation of fuel economy, among other things.

It is important to note, however, that 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.” [70] Instead, NHTSA is compelled “to weigh the benefits to the nation of a higher fuel economy standard against the difficulties of individual automobile manufacturers.” [71] 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. NHTSA has long held that the CAFE program is not necessarily intended to maintain the competitive positioning of each particular company. Rather, it is intended to enhance the fuel economy of the vehicle fleet on American roads, while protecting motor vehicle safety and being mindful of the risk to the overall United States economy.

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

“The effect of other motor vehicle standards of the Government on fuel economy,” involves an analysis of the effects of compliance with emission, safety, noise, or damageability standards on fuel economy capability and thus on average fuel economy. In previous CAFE rulemakings, the agency has said that pursuant to this provision, it considers the adverse effects of other motor vehicle standards on fuel economy. It said so because, from the CAFE program's earliest years [72] until present, the effects of such compliance on fuel economy capability over the history of the CAFE program have been negative ones. For example, safety standards that have the effect of increasing vehicle weight lower vehicle fuel economy capability and thus decrease the level of average fuel economy that the agency can determine to be feasible.

In the wake of Massachusetts v. EPA and of EPA's endangerment finding, granting of a waiver to California for its motor vehicle GHG standards, and its own establishment of GHG standards, NHTSA is confronted with the issue of how to treat those standards under EPCA/EISA, such as in the context of the “other motor vehicle standards” provision. To the extent the GHG standards result in increases in fuel economy, they would do so almost exclusively as a result of inducing manufacturers to install the same types of technologies used by manufacturers in complying with the CAFE standards.

Comment is requested on whether and in what way the effects of the California and EPA standards should be considered under EPCA/EISA, e.g., under the “other motor vehicle standards” provision, consistent with NHTSA's independent obligation under EPCA/EISA to issue CAFE standards. The agency has already considered EPA's proposal and the harmonization benefits of the National Program in developing its own proposal.

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

“The need of the United States to conserve energy” means “the consumer cost, national balance of payments, environmental, and foreign policy implications of our need for large quantities of petroleum, especially imported petroleum.” [73] Environmental implications principally include reductions in emissions of carbon dioxide and criteria pollutants and air toxics. Prime examples of foreign policy implications are energy independence and security concerns.

(5) 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, which is related to the consumer cost (or rather, benefit) of our need for large quantities of petroleum. In this rule, NHTSA relies on fuel price projections from the U.S. Energy Information Administration's (EIA) most recent Annual Energy Outlook (AEO) for this analysis. Federal government agencies generally use EIA's projections in their assessments of future energy-related policies.

(6) Petroleum Consumption and Import Externalities

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

(7) 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 [74] 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 2, the main greenhouse gas emitted as a result of refining, distribution, and use of transportation fuels. Reducing fuel consumption reduces carbon dioxide emissions directly, because the primary source of transportation-related CO 2 emissions is fuel combustion in internal combustion engines.

NHTSA has considered environmental issues, both within the context of EPCA and the National Environmental Policy Act, in making decisions about the setting of standards from the earliest days of the CAFE program. As courts of appeal have noted in three decisions stretching over the last 20 years, [75] NHTSA defined the “need of the Nation to conserve energy” in the late 1970s as including “the consumer cost, national balance of payments, environmental, and foreign policy implications of our need for large quantities of petroleum, especially imported petroleum.” [76] In 1988, NHTSA included climate change concepts in its CAFE notices and prepared its first environmental assessment addressing that subject. [77] It cited concerns about climate change as one of its reasons for limiting the extent of its reduction of the CAFE standard for MY 1989 passenger cars. [78] Since then, NHTSA has considered the benefits of reducing tailpipe carbon dioxide emissions in its fuel economy rulemakings pursuant to the statutory requirement to consider the nation's need to conserve energy by reducing fuel consumption.

ii. Other Factors Considered by NHTSA

NHTSA considers the potential for adverse safety consequences when establishing CAFE standards. This practice is recognized approvingly in case law. [79] Under the universal or “flat” CAFE standards that NHTSA was previously authorized to establish, the primary risk to safety came from the possibility that manufacturers would respond to higher standards by building smaller, less safe vehicles in order to “balance out” the larger, safer vehicles that the public generally preferred to buy. Under the attribute-based standards being proposed in this action, that risk is reduced because building smaller vehicles tends to raise a manufacturer's overall CAFE obligation, rather than only raising its fleet average CAFE. However, even under attribute-based standards, there is still risk that manufacturers will rely on down-weighting to improve their fuel economy (for a given vehicle at a given footprint target) in ways that may reduce safety. [80]

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

EPCA provides that in determining the level at which it should set CAFE standards for a particular model year, NHTSA may not consider the ability of manufacturers to take advantage of several EPCA provisions that facilitate compliance with the CAFE standards and thereby reduce the costs of compliance. Specifically, in determining the maximum feasible level of fuel economy for passenger cars and light trucks, NHTSA cannot consider the fuel economy benefits of “dedicated” alternative fuel vehicles (like battery electric vehicles or natural gas vehicles), must consider dual-fueled automobiles to be operated only on gasoline or diesel fuel, and may not consider the ability of manufacturers to use, trade, or transfer credits. [81] This provision limits, to some extent, the fuel economy levels that NHTSA can find to be “maximum feasible”—if NHTSA cannot consider the fuel economy of electric vehicles, for example, NHTSA cannot set a standards predicated on manufacturers' usage of electric vehicles to meet the standards.

iv. Weighing and Balancing of Factors

NHTSA has broad discretion in balancing the above factors in determining the average fuel economy level that the manufacturers can achieve. Congress “specifically delegated the process of setting * * * fuel economy standards with broad guidelines concerning the factors that the agency must consider.” [82] The breadth of those guidelines, the absence of any statutorily prescribed formula for balancing the factors, the fact that the relative weight to be given to the various factors may change from rulemaking to rulemaking as the underlying facts change, and the fact that the factors may often be conflicting with respect to whether they militate toward higher or lower standards give NHTSA discretion to decide what weight to give each of the competing policies and concerns and then determine how to balance them—“as long as NHTSA's balancing does not undermine the fundamental purpose of the EPCA: energy conservation,” [83] and as long as that balancing reasonably accommodates “conflicting policies that were committed to the agency's care by the statute.” [84] Thus, EPCA does not mandate that any particular number be adopted when NHTSA determines the level of CAFE standards.

v. Other Requirements Related to Standard Setting

The standards for passenger cars and for light trucks must increase ratably each year through MY 2020. [85] This statutory requirement is interpreted, in combination with the requirement to set the standards for each model year at the level determined to be the maximum feasible level that manufacturers can achieve for that model year, to mean that the annual increases should not be disproportionately large or small in relation to each other. [86] Standards after 2020 must simply be set at the maximum feasible level. [87]

The standards for passenger cars and light trucks must also be based on one or more vehicle attributes, like size or weight, which correlate with fuel economy and must be expressed in terms of a mathematical function. [88] Fuel economy targets are set for individual vehicles and increase as the attribute decreases and vice versa. For example, footprint-based standards assign higher fuel economy targets to smaller-footprint vehicles and lower ones to larger footprint-vehicles. The fleetwide average fuel economy that a particular manufacturer is required to achieve depends on the footprint mix of its fleet, i.e., the proportion of the fleet that is small-, medium-, or large-footprint.

This approach can be used to require virtually all manufacturers to increase significantly the fuel economy of a broad range of both passenger cars and light trucks, i.e., the manufacturer must improve the fuel economy of all the vehicles in its fleet. Further, this approach can do so without creating an incentive for manufacturers to make small vehicles smaller or large vehicles larger, with attendant implications for safety.

b. Test Procedures for Measuring Fuel Economy

EPCA provides EPA with the responsibility for establishing procedures to measure fuel economy and to calculate CAFE. Current test procedures measure the effects of nearly all fuel saving technologies. EPA is considering revising the procedures for measuring fuel economy and calculating average fuel economy for the CAFE program, however, to account for four impacts on fuel economy not currently included in these procedures—increases in fuel economy because of increases in efficiency of the air conditioning system; increases in fuel economy because of technology improvements that achieve “off-cycle” benefits; incentives for use of certain hybrid technologies in a significant percentage of pickup trucks; and incentives for achieving fuel economy levels in a significant percentage pickup trucks that exceeds the target curve by specified amounts, in the form of increased values assigned for fuel economy. NHTSA has taken these proposed changes into account in determining the proposed fuel economy standards. These changes would be the same as program elements that are part of EPA's greenhouse gas performance standards, discussed in Section III.B.10. As discussed below, these three elements would be implemented in the same manner as in the EPA's greenhouse gas program—a vehicle manufacturer would have the option to generate these fuel economy values for vehicle models that meet the criteria for these elements and to use these values in calculating their fleet average fuel economy. This proposed revision to CAFE calculation is discussed in more detail in Sections III and IV below.

c. Enforcement and Compliance Flexibility

NHTSA determines compliance with the CAFE standards based on measurements of automobile manufacturers' CAFE from EPA. If a manufacturer's passenger car or light truck CAFE level exceeds the applicable standard for that model year, the manufacturer earns credits for over-compliance. 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. As discussed in more detail in Section IV.I, credits can be carried forward for 5 model years or back for 3, and can also be transferred between a manufacturer's fleets or traded to another manufacturer.

If a manufacturer's passenger car or light truck CAFE level does not meet the applicable standard for that model year, NHTSA notifies the manufacturer. The manufacturer may use “banked” credits to make up the shortfall, but if there are no (or not enough) credits available, then the manufacturer has the option to submit a “carry back plan” to NHTSA. A carry back plan describes what the manufacturer plans to do in the following three model years to earn enough credits to make up for the shortfall through future over-compliance. 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. [89] 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, which have never been exercised by NHTSA in the history of the CAFE program.

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

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 individual vehicles are not required to meet or exceed those targets. However, as a practical matter, if a manufacturer chooses to design some vehicles that fall below their target levels of fuel economy, it will need to design other vehicles that exceed their targets if the manufacturer's overall fleet average is to meet the applicable standard.

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

2. EPA Statutory Authority

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

Pursuant to Title II of the Clean Air Act, EPA has taken a comprehensive, integrated approach to mobile source emission control that has produced benefits well in excess of the costs of regulation. In developing the Title II program, the Agency's historic, initial focus was on personal vehicles since that category represented the largest source of mobile source emissions. Over time, EPA has established stringent emissions standards for large truck and other heavy-duty engines, nonroad engines, and marine and locomotive engines, as well. The Agency's initial focus on personal vehicles has resulted in significant control of emissions from these vehicles, and also led to technology transfer to the other mobile source categories that made possible the stringent standards for these other categories.

As a result of Title II requirements, new cars and SUVs sold today have emissions levels of hydrocarbons, oxides of nitrogen, and carbon monoxide that are 98-99% lower than new vehicles sold in the 1960s, on a per mile basis. Similarly, standards established for heavy-duty highway and nonroad sources require emissions rate reductions on the order of 90% or more for particulate matter and oxides of nitrogen. Overall ambient levels of automotive-related pollutants are lower now than in 1970, even as economic growth and vehicle miles traveled have nearly tripled. These programs have resulted in millions of tons of pollution reduction and major reductions in pollution-related deaths (estimated in the tens of thousands per year) and illnesses. The net societal benefits of the mobile source programs are large. In its annual reports on federal regulations, the Office of Management and Budget reports that many of EPA's mobile source emissions standards typically have projected benefit-to-cost ratios of 5:1 to 10:1 or more. Follow-up studies show that long-term compliance costs to the industry are typically lower than the cost projected by EPA at the time of regulation, which result in even more favorable real world benefit-to-cost ratios. [91] Pollution reductions attributable to Title II mobile source controls are critical components to attainment of primary National Ambient Air Quality Standards, significantly reducing the national inventory and ambient concentrations of criteria pollutants, especially PM2.5 and ozone. See e.g. 69 FR 38958, 38967-68 (June 29, 2004) (controls on non-road diesel engines expected to reduce entire national inventory of PM2.5 by 3.3% (86,000 tons) by 2020). Title II controls have also made enormous reductions in air toxics emitted by mobile sources. For example, as a result of EPA's 2007 mobile source air toxics standards, the cancer risk attributable to total mobile source air toxics will be reduced by 30% in 2030 and the risk from mobile source benzene (a leukemogen) will be reduced by 37% in 2030. (reflecting reductions of over three hundred thousand tons of mobile source air toxic emissions) 72 FR 8428, 8430 (Feb. 26, 2007).

Title II emission standards have also stimulated the development of a much broader set of advanced automotive technologies, such as on-board computers and fuel injection systems, which are the building blocks of today's automotive designs and have yielded not only lower pollutant emissions, but improved vehicle performance, reliability, and durability.

This proposal implements a specific provision from Title II, section 202(a). [92] Section 202(a)(1) of the Clean Air Act (CAA) states that “the Administrator shall by regulation prescribe (and from time to time revise) * * * standards applicable to the emission of any air pollutant from any class or classes of new motor vehicles * * *, which in his judgment cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare.” If EPA makes the appropriate endangerment and cause or contribute findings, then section 202(a) authorizes EPA to issue standards applicable to emissions of those pollutants.

Any standards under CAA section 202(a)(1) “shall be applicable to such vehicles * * * for their useful life.” Emission standards set by the EPA under CAA section 202(a)(1) are technology-based, as the levels chosen must be premised on a finding of technological feasibility. Thus, standards promulgated under CAA section 202(a) are to take effect only “after providing such period as the Administrator finds necessary to permit the development and application of the requisite technology, giving appropriate consideration to the cost of compliance within such period” (section 202 (a)(2); see also NRDC v. EPA, 655 F. 2d 318, 322 (DC Cir. 1981)). EPA is afforded considerable discretion under section 202(a) when assessing issues of technical feasibility and availability of lead time to implement new technology. Such determinations are “subject to the restraints of reasonableness”, which “does not open the door to `crystal ball' inquiry.”NRDC, 655 F. 2d at 328, quoting International Harvester Co. v. Ruckelshaus, 478 F. 2d 615, 629 (DC Cir. 1973). However, “EPA is not obliged to provide detailed solutions to every engineering problem posed in the perfection of the trap-oxidizer. In the absence of theoretical objections to the technology, the agency need only identify the major steps necessary for development of the device, and give plausible reasons for its belief that the industry will be able to solve those problems in the time remaining. The EPA is not required to rebut all speculation that unspecified factors may hinder `real world' emission control.” NRDC, 655 F. 2d at 333-34. In developing such technology-based standards, EPA has the discretion to consider different standards for appropriate groupings of vehicles (“class or classes of new motor vehicles”), or a single standard for a larger grouping of motor vehicles (NRDC, 655 F. 2d at 338).

Although standards under CAA section 202(a)(1) are technology-based, they are not based exclusively on technological capability. EPA has the discretion to consider and weigh various factors along with technological feasibility, such as the cost of compliance (see section 202(a) (2)), lead time necessary for compliance (section 202(a)(2)), safety (see NRDC, 655 F. 2d at 336 n. 31) and other impacts on consumers, [93] and energy impacts associated with use of the technology. See George E. Warren Corp. v. EPA, 159 F.3d 616, 623-624 (DC Cir. 1998) (ordinarily permissible for EPA to consider factors not specifically enumerated in the Act).

In addition, EPA has clear authority to set standards under CAA section 202(a) that are technology forcing when EPA considers that to be appropriate, but is not required to do so (as compared to standards set under provisions such as section 202(a)(3) and section 213(a)(3)). EPA has interpreted a similar statutory provision, CAA section 231, as follows:

While the statutory language of section 231 is not identical to other provisions in title II of the CAA that direct EPA to establish technology-based standards for various types of engines, EPA interprets its authority under section 231 to be somewhat similar to those provisions that require us to identify a reasonable balance of specified emissions reduction, cost, safety, noise, and other factors. See, e.g., Husqvarna AB v. EPA, 254 F.3d 195 (DC Cir. 2001) (upholding EPA's promulgation of technology-based standards for small non-road engines under section 213(a)(3) of the CAA). However, EPA is not compelled under section 231 to obtain the “greatest degree of emission reduction achievable” as per sections 213 and 202 of the CAA, and so EPA does not interpret the Act as requiring the agency to give subordinate status to factors such as cost, safety, and noise in determining what standards are reasonable for aircraft engines. Rather, EPA has greater flexibility under section 231 in determining what standard is most reasonable for aircraft engines, and is not required to achieve a “technology forcing” result. [94]

This interpretation was upheld as reasonable in NACAA v. EPA, (489 F.3d 1221, 1230 (DC Cir. 2007)). CAA section 202(a) does not specify the degree of weight to apply to each factor, and EPA accordingly has discretion in choosing an appropriate balance among factors. See Sierra Club v. EPA, 325 F.3d 374, 378 (DC Cir. 2003) (even where a provision is technology-forcing, the provision “does not resolve how the Administrator should weigh all [the statutory] factors in the process of finding the ‘greatest emission reduction achievable’ ”). Also see Husqvarna AB v. EPA, 254 F. 3d 195, 200 (DC Cir. 2001) (great discretion to balance statutory factors in considering level of technology-based standard, and statutory requirement “to [give appropriate] consideration to the cost of applying * * * technology” does not mandate a specific method of cost analysis); see also Hercules Inc. v. EPA, 598 F. 2d 91, 106 (DC Cir. 1978) (“In reviewing a numerical standard we must ask whether the agency's numbers are within a zone of reasonableness, not whether its numbers are precisely right”); Permian Basin Area Rate Cases, 390 U.S. 747, 797 (1968) (same); Federal Power Commission v. Conway Corp., 426 U.S. 271, 278 (1976) (same); Exxon Mobil Gas Marketing Co. v. FERC, 297 F. 3d 1071, 1084 (DC Cir. 2002) (same).

a. EPA's Testing Authority

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

Pursuant to EPCA, EPA is required to measure fuel economy for each model and to calculate each manufacturer's average fuel economy. [95] EPA uses the same tests—the FTP and HFET—for fuel economy testing. EPA established the FTP for emissions measurement in the early 1970s. In 1976, in response to the Energy Policy and Conservation Act (EPCA) statute, EPA extended the use of the FTP to fuel economy measurement and added the HFET. [96] The provisions in the 1976 regulation, effective with the 1977 model year, established procedures to calculate fuel economy values both for labeling and for CAFE purposes. Under EPCA, EPA is required to use these procedures (or procedures which yield comparable results) for measuring fuel economy for cars for CAFE purposes, but not for labeling purposes. [97] EPCA does not pose this restriction on CAFE test procedures for light trucks, but EPA does use the FTP and HFET for this purpose. EPA determines fuel economy by measuring the amount of CO 2 and all other carbon compounds (e.g. total hydrocarbons (THC) and carbon monoxide (CO)), and then, by mass balance, calculating the amount of fuel consumed. EPA's proposed changes to the procedures for measuring fuel economy and calculating average fuel economy are discussed in section III.B.10.

b. EPA Enforcement Authority

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

c. Compliance

EPA oversees testing, collects and processes test data, and performs calculations to determine compliance with both CAA and CAFE standards. CAA standards apply not only at the time of certification but also throughout the vehicle's useful life, and EPA is accordingly is proposing in-use standards as well as standards based on testing performed at time of production. See section II I.E. Both the CAA and EPCA provide for penalties should manufacturers fail to comply with their fleet average standards, but, unlike EPCA, there is no option for manufacturers to pay fines in lieu of compliance with the standards. Under the CAA, penalties are typically determined on a vehicle-specific basis by determining the number of a manufacturer's highest emitting vehicles that cause the fleet average standard violation. Penalties under Title II of the CAA are capped at $25,000 per day of violation and apply on a per vehicle basis. CAA section 205 (a).

d. Test Procedures

EPA establishes the test procedures under which compliance with both the CAA GHG standards and the EPCA fuel economy standards are measured. EPA's testing authority under the CAA is flexible, but testing for fuel economy for passenger cars is by statute is limited to the Federal Test procedure (FTP) or test procedures which provide results which are equivalent to the FTP. 49 USC section 32904 and section III.B, below. EPA developed and established the FTP in the early 1970s and, after enactment of EPCA in 1976, added the Highway Fuel Economy Test to be used in conjunction with the FTP for fuel economy testing. EPA has also developed tests with additional cycles (the so-called 5-cycle test) which test is used for purposes of fuel economy labeling and is also used in the EPA program for extending off-cycle credits under both the light-duty and (along with NHTSA) heavy-duty vehicle GHG programs. See 75 FR at 25439; 76 FR at 57252. In this rule, EPA is proposing to retain the FTP and HFET for purposes of testing the fleetwide average standards, and is further proposing modifications to the N2O measurement test procedures and the A/C CO 2 efficiency test procedures EPA initially adopted in the 2012-2016 rule.

3. Comparing the Agencies' Authority

As the above discussion makes clear, there are both important differences between the statutes under which each agency is acting as well as several important areas of similarity. One important difference is that EPA's authority addresses various GHGs, while NHTSA's authority addresses fuel economy as measured under specified test procedures and calculated by EPA. This difference is reflected in this rulemaking in the scope of the two standards: EPA's proposal takes into account reductions of direct air conditioning emissions, as well as proposed standards for methane and N 2 O, but NHTSA's does not, because these things do not relate to fuel economy. A second important difference is that EPA is proposing certain compliance flexibilities, such as the multiplier for advanced technology vehicles, and takes those flexibilities into account in its technical analysis and modeling supporting its proposal. EPCA specifies a number of particular compliance flexibilities for CAFE, and expressly prohibits NHTSA from considering the impacts of those statutory compliance flexibilities in setting the CAFE standard so that the manufacturers' election to avail themselves of the permitted flexibilities remains strictly voluntary. [98] The Clean Air Act, on the other hand, contains no such prohibition. These considerations result in some differences in the technical analysis and modeling used to support EPA's and NHTSA's proposed standards.

Another important area where the two agencies' authorities are similar but not identical involves the transfer of credits between a single firm's car and truck fleets. EISA revised EPCA to allow for such credit transfers, but placed a cap on the amount of CAFE credits which can be transferred between the car and truck fleets. 49 U.S.C. 32903(g)(3). Under CAA section 202(a), EPA is proposing to continue to allow CO 2 credit transfers between a single manufacturer's car and truck fleets, with no corresponding limits on such transfers. In general, the EISA limit on CAFE credit transfers is not expected to have the practical effect of limiting the amount of CO 2 emission credits manufacturers may be able to transfer under the CAA program, recognizing that manufacturers must comply with both the proposed CAFE standards and the proposed EPA standards. However, it is possible that in some specific circumstances the EPCA limit on CAFE credit transfers could constrain the ability of a manufacturer to achieve cost savings through unlimited use of GHG emissions credit transfers under the CAA program.

These differences, however, do not change the fact that in many critical ways the two agencies are charged with addressing the same basic issue of reducing GHG emissions and improving fuel economy. The agencies are looking at the same set of control technologies (with the exception of the air conditioning leakage-related technologies). The standards set by each agency will drive the kind and degree of penetration of this set of technologies across the vehicle fleet. As a result, each agency is trying to answer the same basic question—what kind and degree of technology penetration is necessary to achieve the agencies' objectives in the rulemaking time frame, given the agencies' respective statutory authorities?

In making the determination of what standards are appropriate under the CAA and EPCA, each agency is to exercise its judgment and balance many similar factors. NHTSA's factors are provided by EPCA: technological feasibility, economic practicability, the effect of other motor vehicle standards of the Government on fuel economy, and the need of the United States to conserve energy. EPA has the discretion under the CAA to consider many related factors, such as the availability of technologies, the appropriate lead time for introduction of technology, and based on this the feasibility and practicability of their standards; the impacts of their standards on emissions reductions (of both GHGs and non-GHGs); the impacts of their standards on oil conservation; the impacts of their standards on fuel savings by consumers; the impacts of their standards on the auto industry; as well as other relevant factors such as impacts on safety. Conceptually, therefore, each agency is considering and balancing many of the same concerns, and each agency is making a decision that at its core is answering the same basic question of what kind and degree of technology penetration is it appropriate to call for in light of all of the relevant factors in a given rulemaking, for the model years concerned. Finally, each agency has the authority to take into consideration impacts of the standards of the other agency. EPCA calls for NHTSA to take into consideration the effects of EPA's emissions standards on fuel economy capability (see 49 U.S.C. 32902 (f)), and EPA has the discretion to take into consideration NHTSA's CAFE standards in determining appropriate action under section 202(a). This is consistent with the Supreme Court's statement that EPA's mandate to protect public health and welfare is wholly independent from NHTSA's mandate to promote energy efficiency, but there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency. Massachusetts v. EPA, 549 U.S. 497, 532 (2007).

In this context, it is in the Nation's interest for the two agencies to continue to work together in developing their respective proposed standards, and they have done so. For example, the agencies have committed considerable effort to develop a joint Technical Support Document that provides a technical basis underlying each agency's analyses. The agencies also have worked closely together in developing and reviewing their respective modeling, to develop the best analysis and to promote technical consistency. The agencies have developed a common set of attribute-based curves that each agency supports as appropriate both technically and from a policy perspective. The agencies have also worked closely to ensure that their respective programs will work in a coordinated fashion, and will provide regulatory compatibility that allows auto manufacturers to build a single national light-duty fleet that would comply with both the GHG and the CAFE standards. The resulting overall close coordination of the proposed GHG and CAFE standards should not be surprising, however, as each agency is using a jointly developed technical basis to address the closely intertwined challenges of energy security and climate change.

As set out in detail in Sections III and IV of this notice, both EPA and NHTSA believe the agencies' proposals are fully justified under their respective statutory criteria. The proposed standards are feasible in each model year within the lead time provided, based on the agencies' projected increased use of various technologies which in most cases are already in commercial application in the fleet to varying degrees. Detailed modeling of the technologies that could be employed by each manufacturer supports this initial conclusion. The agencies also carefully assessed the costs of the proposed rules, both for the industry as a whole and per manufacturer, as well as the costs per vehicle, and consider these costs to be reasonable during the rulemaking time frame and recoverable (from fuel savings). The agencies recognize the significant increase in the application of technology that the proposed standards would require across a high percentage of vehicles, which will require the manufacturers to devote considerable engineering and development resources before 2017 laying the critical foundation for the widespread deployment of upgraded technology across a high percentage of the 2017-2025 fleet. This clearly will be challenging for automotive manufacturers and their suppliers, especially in the current economic climate, and given the stringency of the recently-established MYs 2012-2016 standards. However, based on all of the analyses performed by the agencies, our judgment is that it is a challenge that can reasonably be met.

The agencies also evaluated the impacts of these standards with respect to the expected reductions in GHGs and oil consumption and, found them to be very significant in magnitude. The agencies considered other factors such as the impacts on noise, energy, and vehicular congestion. The impact on safety was also given careful consideration. Moreover, the agencies quantified the various costs and benefits of the proposed standards, to the extent practicable. The agencies' analyses to date indicate that the overall quantified benefits of the proposed standards far outweigh the projected costs. All of these factors support the reasonableness of the proposed standards. See section III (proposed GHG standards) and section IV (proposed CAFE standards) for a detailed discussion of each agency's basis for its selection of its proposed standards.

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

II. Joint Technical Work Completed for This Proposal Back to Top

A. Introduction

In this section, NHTSA and EPA discuss several aspects of their joint technical analyses. These analyses are common to the development of each agency's standards. Specifically we discuss: the development of the vehicle market forecast used by each agency for assessing costs, benefits, and effects, the development of the attribute-based standard curve shapes, the technologies the agencies evaluated and their costs and effectiveness, the economic assumptions the agencies included in their analyses, a description of the air conditioning and off-cycle technology (credit) programs, as well as the effects of the proposed standards on vehicle safety. The Joint Technical Support Document (TSD) discusses the agencies' joint technical work in more detail.

The agencies have based today's proposal on a very significant body of data and analysis that we believe is the best information currently available on the full range of technical and other inputs utilized in our respective analyses. As noted in various places throughout this preamble, the draft Joint TSD, the NHTSA preliminary RIA, and the EPA draft RIA, we expect new information will become available between the proposal and final rulemaking. This new information will come from a range of sources: some is based on work the agencies have underway (e.g., work on technology costs and effectiveness, potentially updating our baseline year from model year 2008 to model year 2010); other sources are those we expect to be released by others (e.g., the Energy Information Agency's Annual Energy Outlook, which is published each year, and the most recent available version of which we expect to use for the final rule); and other information that will likely come from the public comment process. The agencies intend to evaluate all such new information as it becomes available, and where appropriate to update their analysis based on such information for purposes of the final rule. In addition, the agencies may make new information and/or analyses available in the agencies' respective public dockets for this rulemaking prior to the final rule, where that is appropriate, in order to facilitate public comment. We encourage all stakeholders to periodically check the two agencies' dockets between the proposal and final rules for any potential new docket submissions from the agencies.

B. Developing the Future Fleet for Assessing Costs, Benefits, and Effects

1. Why did the agencies establish a baseline and reference vehicle fleet?

In order to calculate the impacts of the EPA and NHTSA regulations, it is necessary to estimate the composition of the future vehicle fleet absent these regulations, to provide a reference point relative to which costs, benefits, and effects of the regulations are assessed. As in the 2012-2016 light duty vehicle rulemaking, EPA and NHTSA have developed this comparison fleet in two parts. The first step was to develop a baseline fleet based on model year 2008 data. This baseline includes vehicle sales volumes, GHG/fuel economy performance, and contains a listing of the base technologies on every 2008 vehicle sold. The second step was to project that baseline fleet volume into model years 2017-2025. The vehicle volumes projected out to MY 2025 is referred to as the reference fleet volumes. The third step was to modify that MY 2017-2025 reference fleet such that it reflects technology manufacturers could apply if MY 2016 standards are extended without change through MY 2025. [99] Each agency used its modeling system to develop a modified or final reference fleet, or adjusted baseline, for use in its analysis of regulatory alternatives, as discussed below and in Chapter 1 of the EPA draft RIA. All of the agencies' estimates of emission reductions, fuel economy improvements, costs, and societal impacts are developed in relation to the respective reference fleets. This section discusses the first two steps, development of the baseline fleet and the reference fleet.

EPA and NHTSA used a transparent approach to developing the baseline and reference fleets, largely working from publicly available data. Because both input and output sheets from our modeling are public, stakeholders can verify and check EPA's and NHTSA's modeling, and perform their own analyses with these datasets. [100]

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

NHTSA and EPA developed a baseline fleet comprised of model year 2008 data gathered from EPA's emission and fuel economy database. This baseline fleet was originally developed by EPA and NHTSA for the 2012-2016 final rule, and was updated for this proposal. [101] The new fleet has the model year 2008 vehicle's volumes and attributes along with the addition of projected volumes from 2017 to 2025. It also has some expanded footprint data for pickup trucks that was needed for a more detailed analysis of the truck curve.

In this proposed rulemaking, the agencies are again choosing to use model year 2008 vehicle data to be the basis of the baseline fleet, but for different reasons than in the 2012-2016 final rule. Model year 2008 is now the most recent model year for which the industry had normal sales. Model year 2009 data is available, but the agencies believe that model year was disrupted by the economic downturn and the bankruptcies of both General Motors and Chrysler resulting in a significant reduction in the number of vehicles sold by both companies and the industry as a whole. These abnormalities led the agencies to conclude that 2009 data was not representative for projecting the future fleet. Model Year 2010 data was not complete because not all manufacturers have yet submitted it to EPA, and was thus not available in time for it to be used for this proposal. Therefore, the agencies chose to use model year 2008 again as the baseline since it was the latest complete representative and transparent data set available. However, the agencies will consider using Model Year 2010 for the final rule, based on availability and an analysis of the data representativeness. To the extent the MY 2010 data becomes available during the comment period the agencies will place a copy of this data in our respective dockets. We request comments on the relative merits of using MY 2008 and MY 2010 data, and whether one provides a better foundation than the other for purposes of using such data as the foundation for a market forecast extending through MY 2025.

The baseline fleet reflects all fuel economy technologies in use on MY 2008 light duty vehicles. The 2008 emission and fuel economy database included data on vehicle production volume, fuel economy, engine size, number of engine cylinders, transmission type, fuel type, etc., however it did not contain complete information on technologies. Thus, the agencies relied on publicly available data like the more complete technology descriptions from Ward's Automotive Group. [102] In a few instances when required vehicle information (such as vehicle footprint) was not available from these two sources, the agencies obtained this information from publicly accessible internet sites such as Motortrend.com and Edmunds.com. [103] A description of all of the technologies used in modeling the 2008 vehicle fleet and how it was constructed are available in Chapter 1 of the Joint Draft TSD.

Footprint data for the baseline fleet came mainly from internet searches, though detailed information about the pickup truck footprints with volumes was not available online. Where this information was lacking, the agencies used manufacturer product plan data for 2008 model year to find out the correct number footprint and distribution of footprints. The footprint data for pickup trucks was expanded from the original data used in the previous rulemaking. The agencies obtained this footprint data from MY 2008 product plans submitted by the various manufacturers, which can be made public at this time because by now all MY 2008 vehicle models are already in production, which makes footprint data about them essentially public information. A description of exactly how the agencies obtained all the footprints is available in Chapter 1 of the TSD.

3. How Did the Agencies Develop the Projected MY 2017-2025 Vehicle Reference Fleet?

As in the 2012-2016 light duty vehicle rulemaking, EPA and NHTSA have based the projection of total car and total light truck sales for MYs 2017-2025 on projections made by the Department of Energy's Energy Information Administration (EIA). See 75 FR at 25349. EIA publishes a mid-term projection of national energy use called the Annual Energy Outlook (AEO). This projection utilizes a number of technical and econometric models which are designed to reflect both economic and regulatory conditions expected to exist in the future. In support of its projection of fuel use by light-duty vehicles, EIA projects sales of new cars and light trucks. EIA published its Early Annual Energy Outlook for 2011 in December 2010. EIA released updated data to NHTSA in February (Interim AEO). The final release of AEO for 2011 came out in May 2011, but by that time EPA/NHTSA had already prepared modeling runs for potential 2017-2025 standards using the interim data release to NHTSA. EPA and NHTSA are using the interim data release for this proposal, but intend to use the newest version of AEO available for the FRM.

The agencies used the Energy Information Administration's (EIA's) National Energy Modeling System (NEMS) to estimate the future relative market shares of passenger cars and light trucks. However, NEMS methodology includes shifting vehicle sales volume, starting after 2007, away from fleets with lower fuel economy (the light-truck fleet) towards vehicles with higher fuel economies (the passenger car fleet) in order to facilitate projected compliance with CAFE and GHG standards. Because we use our market projection as a baseline relative to which we measure the effects of new standards, and we attempt to estimate the industry's ability to comply with new standards without changing product mix (i.e., we analyze the effects of the proposed rules assuming manufacturers will not change fleet composition as a compliance strategy, as opposed to changes that might happen due to market forces), the Interim AEO 2011-projected shift in passenger car market share as a result of required fuel economy improvements creates a circularity. Therefore, for the current analysis, the agencies developed a new projection of passenger car and light truck sales shares by running scenarios from the Interim AEO 2011 reference case that first deactivate the above-mentioned sales-volume shifting methodology and then hold post-2017 CAFE standards constant at MY 2016 levels. As discussed in Chapter 1 of the agencies' joint Technical Support Document, incorporating these changes reduced the NEMS-projected passenger car share of the light vehicle market by an average of about 5% during 2017-2025.

In the AEO 2011 Interim data, EIA projects that total light-duty vehicle sales will gradually recover from their currently depressed levels by around 2013. In 2017, car sales are projected to be 8.4 million (53 percent) and truck sales are projected to be 7.3 million (47 percent). Although the total level of sales of 15.8 million units is similar to pre-2008 levels, the fraction of car sales is projected to be higher than that existing in the 2000-2007 timeframe. This projection reflects the impact of assumed higher fuel prices. Sales projections of cars and trucks for future model years can be found in Chapter 1 of the joint TSD.

In addition to a shift towards more car sales, sales of segments within both the car and truck markets have been changing and are expected to continue to change. Manufacturers are introducing more crossover utility vehicles (CUVs), which offer much of the utility of sport utility vehicles (SUVs) but use more car-like designs. The AEO 2011 report does not, however, distinguish such changes within the car and truck classes. In order to reflect these changes in fleet makeup, EPA and NHTSA used CSM Worldwide (CSM) as they did in the 2012-2016 rulemaking analysis. EPA and NHTSA believe that CSM is the best source available for a long range forecast for 2017-2025, though when EPA and NHTSA contacted several forecasting firms none of them offered comparably-detailed forecasting for that time frame. NHTSA and EPA decided to use the forecast from CSM for several reasons presented in the Joint TSD chapter I.

The long range forecast from CSM Worldwide is a custom forecast covering the years 2017-2025 which the agencies purchased from CSM in December of 2009. CSM provides quarterly sales forecasts for the automotive industry, and updates their data on the industry quarter. For the public's reference, a copy of CSM's long range forecast has been placed in the docket for this rulemaking. [104] EPA and NHTSA hope to purchase and use an updated forecast, whether from CSM or other appropriate sources, before the final rulemaking. To the extent that such a forecast becomes available during the comment period the agencies will place a copy in our respective dockets.

The next step was to project the CSM forecasts for relative sales of cars and trucks by manufacturer and by market segment onto the total sales estimates of AEO 2011. Table II-1 and Table II-2 show the resulting projections for the reference 2025 model year and compare these to actual sales that occurred in the baseline 2008 model year. Both tables show sales using the traditional definition of cars and light trucks.

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As mentioned previously, NHTSA has changed the definition of a truck for 2011 model year and beyond. The new definition has moved some 2 wheel drive SUVs and CUVs to the car category. Table II-3 shows the different volumes for car and trucks based on the new and old NHTSA definition. The table shows the difference in 2008, 2021, and 2025 to give a feel for how the change in definition changes the car/truck split.

The CSM forecast provides estimates of car and truck sales by segment and by manufacturer separately. The forecast was broken up into two tables. One table with manufacturer volumes by year and the other with vehicle segments percentages by year. Table II-4 and Table II-5 are examples of the data received from CSM. The task of estimating future sales using these tables is complex. We used the same methodology as in the previous rulemaking. A detailed description of how the projection process was done is found in Chapter 1 of the TSD.

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The overall result was a projection of car and truck sales for model years 2017-2025—the reference fleet—which matched the total sales projections of the AEO forecast and the manufacturer and segment splits of the CSM forecast. These sales splits are shown in Table II-6 below.

Given publicly- and commercially-available sources that can be made equally transparent to all reviewers, the forecast described above represents the agencies' best technical judgment regarding the likely composition direction of the fleet. EPA and NHTSA recognize that it is impossible to predict with certainty how manufacturers' product offerings and sales volumes will evolve through MY 2025 under baseline conditions—that is, without further changes in standards after MY 2016. The agencies have not developed alternative market forecasts to examine corresponding sensitivity of analytical results discussed below, and have not varied the market forecast when conducting probabilistic uncertainty analysis discussed in NHTSA's preliminary Regulatory Impact Analysis. The agencies invite comment regarding alternative methods or projections to inform forecasts of the future fleet at the level of specificity and technical completeness required by the agencies' respective modeling systems.

The final step in the construction of the final reference fleet involves applying additional technology to individual vehicle models—that is, technology beyond that already present in MY 2008—reflecting already-promulgated standards through MY 2016, and reflecting the assumption that MY 2016 standards would apply through MY 2025. A description of the agencies' modeling work to develop their respective final reference (or adjusted baseline) fleets appear below in Sections III and IV of this preamble.

C. Development of Attribute-Based Curve Shapes

1. Why are standards attribute-based and defined by a mathematical function?

As in the MYs 2012-2016 CAFE/GHG rules, and as NHTSA did in the MY 2011 CAFE rule, NHTSA and EPA are proposing to set attribute-based CAFE and CO 2 standards that are defined by a mathematical function. EPCA, as amended by EISA, expressly requires that CAFE standards for passenger cars and light trucks be based on one or more vehicle attributes related to fuel economy, and be expressed in the form of a mathematical function. [105] The CAA has no such requirement, although such an approach is permissible under section 202 (a) and EPA has used the attribute-based approach in issuing standards under analogous provisions of the CAA (e.g., criteria pollutant standards for non-road diesel engines using engine size as the attribute, [106] in the recent GHG standards for heavy duty pickups and vans using a work factor attribute, [107] and in the MYs 2012-2016 GHG rule itself which used vehicle footprint as the attribute). Public comments on the MYs 2012-2016 rulemaking widely supported attribute-based standards for both agencies' standards.

Under an attribute-based standard, every vehicle model has a performance target (fuel economy and CO 2 emissions for CAFE and CO 2 emissions standards, respectively), the level of which depends on the vehicle's attribute (for this proposal, footprint, as discussed below). Each manufacturers' fleet average standard is determined by the production-weighted [108] average (for CAFE, harmonic average) of those targets.

The agencies believe that an attribute-based standard is preferable to a single-industry-wide average standard in the context of CAFE and CO 2 standards for several reasons. First, if the shape is chosen properly, every manufacturer is more likely to be required to continue adding more fuel efficient technology each year across their fleet, because the stringency of the compliance obligation will depend on the particular product mix of each manufacturer. Therefore a maximum feasible attribute-based standard will tend to require greater fuel savings and CO 2 emissions reductions overall than would a maximum feasible flat standard (that is, a single mpg or CO 2 level applicable to every manufacturer).

Second, depending on the attribute, attribute-based standards reduce the incentive for manufacturers to respond to CAFE and CO 2 standards in ways harmful to safety. [109] Because each vehicle model has its own target (based on the attribute chosen), properly fitted attribute-based standards provide little, if any, incentive to build smaller vehicles simply to meet a fleet-wide average, because the smaller vehicles will be subject to more stringent compliance targets. [110]

Third, attribute-based standards provide a more equitable regulatory framework for different vehicle manufacturers. [111] A single industry-wide average standard imposes disproportionate cost burdens and compliance difficulties on the manufacturers that need to change their product plans to meet the standards, and puts no obligation on those manufacturers that have no need to change their plans. As discussed above, attribute-based standards help to spread the regulatory cost burden for fuel economy more broadly across all of the vehicle manufacturers within the industry.

Fourth, attribute-based standards better respect economic conditions and consumer choice, as compared to single-value standards. A flat, or single value standard, encourages a certain vehicle size fleet mix by creating incentives for manufacturers to use vehicle downsizing as a compliance strategy. Under a footprint-based standard, manufacturers are required to invest in technologies that improve the fuel economy of the vehicles they sell rather than shifting the product mix, because reducing the size of the vehicle is generally a less viable compliance strategy given that smaller vehicles have more stringent regulatory targets.

2. What attribute are the agencies proposing to use, and why?

As in the MYs 2012-2016 CAFE/GHG rules, and as NHTSA did in the MY 2011 CAFE rule, NHTSA and EPA are proposing to set CAFE and CO 2 standards that are based on vehicle footprint, which has an observable correlation to fuel economy and emissions. There are several policy and technical reasons why NHTSA and EPA believe that footprint is the most appropriate attribute on which to base the standards, even though some other vehicle attributes (notably curb weight) are better correlated to fuel economy and emissions.

First, in the agencies' judgment, from the standpoint of vehicle safety, it is important that the CAFE and CO 2 standards be set in a way that does not encourage manufacturers to respond by selling vehicles that are in any way less safe. While NHTSA's research of historical crash data also indicates that reductions in vehicle mass that are accompanied by reductions in vehicle footprint tend to compromise vehicle safety, footprint-based standards provide an incentive to use advanced lightweight materials and structures that would be discouraged by weight-based standards, because manufacturers can use them to improve a vehicle's fuel economy and CO 2 emissions without their use necessarily resulting in a change in the vehicle's fuel economy and emissions targets.

Further, although we recognize that weight is better correlated with fuel economy and CO 2 emissions than is footprint, we continue to believe that there is less risk of “gaming” (changing the attribute(s) to achieve a more favorable target) by increasing footprint under footprint-based standards than by increasing vehicle mass under weight-based standards—it is relatively easy for a manufacturer to add enough weight to a vehicle to decrease its applicable fuel economy target a significant amount, as compared to increasing vehicle footprint. We also continue to agree with concerns raised in 2008 by some commenters on the MY 2011 CAFE rulemaking that there would be greater potential for gaming under multi-attribute standards, such as those that also depend on weight, torque, power, towing capability, and/or off-road capability. The agencies agree with the assessment first presented in NHTSA's MY 2011 CAFE final rule [112] that the possibility of gaming is lowest with footprint-based standards, as opposed to weight-based or multi-attribute-based standards. Specifically, standards that incorporate weight, torque, power, towing capability, and/or off-road capability in addition to footprint would not only be more complex, but by providing degrees of freedom with respect to more easily-adjusted attributes, they could make it less certain that the future fleet would actually achieve the average fuel economy and CO 2 reduction levels projected by the agencies.

The agencies recognize that based on economic and consumer demand factors that are external to this rule, the distribution of footprints in the future may be different (either smaller or larger) than what is projected in this rule. However, the agencies continue to believe that there will not be significant shifts in this distribution as a direct consequence of this proposed rule. The agencies also recognize that some international attribute-based standards use attributes other than footprint and that there could be benefits for a number of manufacturers if there was greater international harmonization of fuel economy and GHG standards for light-duty vehicles, but this is largely a question of how stringent standards are and how they are tested and enforced. It is entirely possible that footprint-based and weight-based systems can coexist internationally and not present an undue burden for manufacturers if they are carefully crafted. Different countries or regions may find different attributes appropriate for basing standards, depending on the particular challenges they face—from fuel prices, to family size and land use, to safety concerns, to fleet composition and consumer preference, to other environmental challenges besides climate change. The agencies anticipate working more closely with other countries and regions in the future to consider how to address these issues in a way that least burdens manufacturers while respecting each country's need to meet its own particular challenges.

The agencies continue to find that footprint is the most appropriate attribute upon which to base the proposed standards, but recognizing strong public interest in this issue, we seek comment on whether the agencies should consider setting standards for the final rule based on another attribute or another combination of attributes. If commenters suggest that the agencies should consider another attribute or another combination of attributes, the agencies specifically request that the commenters address the concerns raised in the paragraphs above regarding the use of other attributes, and explain how standards should be developed using the other attribute(s) in a way that contributes more to fuel savings and CO 2 reductions than the footprint-based standards, without compromising safety.

3. What mathematical functions have the agencies previously used, and why?

a. NHTSA in MY 2008 and MY 2011 CAFE (constrained logistic)

For the MY 2011 CAFE rule, NHTSA estimated fuel economy levels after normalization for differences in technology, but did not make adjustments to reflect other vehicle attributes (e.g., power-to-weight ratios). [113] Starting with the technology adjusted passenger car and light truck fleets, NHTSA used minimum absolute deviation (MAD) regression without sales weighting to fit a logistic form as a starting point to develop mathematical functions defining the standards. NHTSA then identified footprints at which to apply minimum and maximum values (rather than letting the standards extend without limit) and transposed these functions vertically (i.e., on a gpm basis, uniformly downward) to produce the promulgated standards. In the preceding rule, for MYs 2008-2011 light truck standards, NHTSA examined a range of potential functional forms, and concluded that, compared to other considered forms, the constrained logistic form provided the expected and appropriate trend (decreasing fuel economy as footprint increases), but avoided creating “kinks” the agency was concerned would provide distortionary incentives for vehicles with neighboring footprints. [114]

b. MYs 2012-2016 Light Duty GHG/CAFE (constrained/piecewise linear)

For the MYs 2012-2016 rules, NHTSA and EPA re-evaluated potential methods for specifying mathematical functions to define fuel economy and GHG standards. The agencies concluded that the constrained logistic form, if applied to post-MY 2011 standards, would likely contain a steep mid-section that would provide undue incentive to increase the footprint of midsize passenger cars. [115] The agencies judged that a range of methods to fit the curves would be reasonable, and used a minimum absolute deviation (MAD) regression without sales weighting on a technology-adjusted car and light truck fleet to fit a linear equation. This equation was used as a starting point to develop mathematical functions defining the standards as discussed above. The agencies then identified footprints at which to apply minimum and maximum values (rather than letting the standards extend without limit) and transposed these constrained/piecewise linear functions vertically (i.e., on a gpm or CO 2 basis, uniformly downward) to produce the fleetwide fuel economy and CO 2 emission levels for cars and light trucks described in the final rule. [116]

4. How have the agencies changed the mathematical functions for the proposed MYs 2017-2025 standards, and why?

By requiring NHTSA to set CAFE standards that are attribute-based and defined by a mathematical function, Congress appears to have wanted the post-EISA standards to be data-driven—a mathematical function defining the standards, in order to be “attribute-based,” should reflect the observed relationship in the data between the attribute chosen and fuel economy. [117] EPA is also proposing to set attribute-based CO 2 standards defined by similar mathematical functions, for the reasonable technical and policy grounds discussed below and in section II of the preamble to the proposed rule, and which supports a harmonization with the CAFE standards.

The relationship between fuel economy (and GHG emissions) and footprint, though directionally clear (i.e., fuel economy tends to decrease and CO 2 emissions tend to increase with increasing footprint), is theoretically vague and quantitatively uncertain; in other words, not so precise as to a priori yield only a single possible curve. [118] There is thus a range of legitimate options open to the agencies in developing curve shapes. The agencies may of course consider statutory objectives in choosing among the many reasonable alternatives. For example, curve shapes that might have some theoretical basis could lead to perverse outcomes contrary to the intent of the statutes to conserve energy and protect human health and the environment. [119] Thus, the decision of how to set the target curves cannot always be just about most “clearly” using a mathematical function to define the relationship between fuel economy and the attribute; it often has to have a normative aspect, where the agencies adjust the function that would define the relationship in order to avoid perverse results, improve equity of burden across manufacturers, preserve consumer choice, etc. This is true both for the decisions that guide the mathematical function defining the sloped portion of the target curves, and for the separate decisions that guide the agencies' choice of “cutpoints” (if any) that define the fuel economy/CO 2 levels and footprints at each end of the curves where the curves become flat. Data informs these decisions, but how the agencies define and interpret the relevant data, and then the choice of methodology for fitting a curve to the data, must include a consideration of both technical data and policy goals.

The next sections examine the policy concerns that the agencies considered in developing the proposed target curves that define the proposed MYs 2017-2025 CAFE and CO 2 standards, new technical work (expanding on similar analyses performed by NHTSA when the agency proposed MY 2011-2015 standards, and by both agencies during consideration of options for MY 2012-2016 CAFE and GHG standards) that was completed in the process of reexamining potential mathematical functions, how the agencies have defined the data, and how the agencies explored statistical curve-fitting methodologies in order to arrive at proposed curves.

5. What are the agencies proposing for the MYs 2017-2025 curves?

The proposed mathematical functions for the proposed MYs 2017-2025 standards are somewhat changed from the functions for the MYs 2012-2016 standards, in response to comments received from stakeholders and in order to address technical concerns and policy goals that the agencies judge more significant in this 9-year rulemaking than in the prior one, which only included 5 years. This section discusses the methodology the agencies selected as, at this time, best addressing those technical concerns and policy goals, given the various technical inputs to the agencies' current analyses. Below the agencies discuss how the agencies determined the cutpoints and the flat portions of the MYs 2017-2025 target curves. We also note that both of these sections address only how the target curves were fit to fuel consumption and CO 2 emission values determined using the city and highway test procedures, and that in determining respective regulatory alternatives, the agencies made further adjustments to the resultant curves in order to account for adjustments for improvements to mobile air conditioners.

Thus, recognizing that there are many reasonable statistical methods for fitting curves to data points that define vehicles in terms of footprint and fuel economy, the agencies have chosen for this proposed rule to fit curves using an ordinary least-squares formulation, on sales-weighted data, using a fleet that has had technology applied, and after adjusting the data for the effects of weight-to-footprint, as described below. This represents a departure from the statistical approach for fitting the curves in MYs 2012-2016, as explained in the next section. The agencies considered a wide variety of reasonable statistical methods in order to better understand the range of uncertainty regarding the relationship between fuel consumption (the inverse of fuel economy), CO 2 emission rates, and footprint, thereby providing a range within which decisions about standards would be potentially supportable.

a. What concerns were the agencies looking to address that led them to change from the approach used for the MYs 2012-2016 curves?

During the year and a half since the MYs 2012-2016 final rule was issued, NHTSA and EPA have received a number of comments from stakeholders on how curves should be fitted to the passenger car and light truck fleets. Some limited-line manufacturers have argued that curves should generally be flatter in order to avoid discouraging small vehicles, because steeper curves tend to result in more stringent targets for smaller vehicles. Most full-line manufacturers have argued that a passenger car curve similar in slope to the MY 2016 passenger car curve would be appropriate for future model years, but that the light truck curve should be revised to be less difficult for manufacturers selling the largest full-size pickup trucks. These manufacturers argued that the MY 2016 light truck curve was not “physics-based,” and that in order for future tightening of standards to be feasible for full-line manufacturers, the truck curve for later model years should be steeper and extended further (i.e., made less stringent) into the larger footprints. The agencies do not agree that the MY 2016 light truck curve was somehow deficient in lacking a “physics basis,” or that it was somehow overly stringent for manufacturers selling large pickups—manufacturers making these arguments presented no “physics-based” model to explain how fuel economy should depend on footprint. [120] The same manufacturers indicated that they believed that the light truck standard should be somewhat steeper after MY 2016, primarily because, after more than ten years of progressive increases in the stringency of applicable CAFE standards, large pickups would be less capable of achieving further improvements without compromising load carrying and towing capacity.

In developing the curve shapes for this proposed rule, the agencies were aware of the current and prior technical concerns raised by OEMs concerning the effects of the stringency on individual manufacturers and their ability to meet the standards with available technologies, while producing vehicles at a cost that allowed them to recover the additional costs of the technologies being applied. Although we continue to believe that the methodology for fitting curves for the MY2012-2016 standards was technically sound, we recognize manufacturers' technical concerns regarding their abilities to comply with a similarly shallow curve after MY2016 given the anticipated mix of light trucks in MYs 2017-2025. As in the MYs 2012-2016 rules, the agencies considered these concerns in the analysis of potential curve shapes. The agencies also considered safety concerns which could be raised by curve shapes creating an incentive for vehicle downsizing, as well as the potential loss to consumer welfare should vehicle upsizing be unduly disincentivized. In addition, the agencies sought to improve the balance of compliance burdens among manufacturers. Among the technical concerns and resultant policy trade-offs the agencies considered were the following:

  • Flatter standards (i.e., curves) increase the risk that both the weight and size of vehicles will be reduced, compromising highway safety.
  • Flatter standards potentially impact the utility of vehicles by providing an incentive for vehicle downsizing.
  • Steeper footprint-based standards may incentivize vehicle upsizing, thus increasing the risk that fuel economy and greenhouse gas reduction benefits will be less than expected.
  • Given the same industry-wide average required fuel economy or CO 2 standard, flatter standards tend to place greater compliance burdens on full-line manufacturers.
  • Given the same industry-wide average required fuel economy or CO 2 standard, steeper standards tend to place greater compliance burdens on limited-line manufacturers (depending of course, on which vehicles are being produced).
  • If cutpoints are adopted, given the same industry-wide average required fuel economy, moving small-vehicle cutpoints to the left (i.e., up in terms of fuel economy, down in terms of CO 2 emissions) discourages the introduction of small vehicles, and reduces the incentive to downsize small vehicles in ways that would compromise highway safety.
  • If cutpoints are adopted, given the same industry-wide average required fuel economy, moving large-vehicle cutpoints to the right (i.e., down in terms of fuel economy, up in terms of CO 2 emissions) better accommodates the unique design requirements of larger vehicles—especially large pickups—and extends the size range over which downsizing is discouraged.

All of these were policy goals that required trade-offs, and in determining the curves they also required balance against the comments from the OEMs discussed in the introduction to this section. Ultimately, the agencies do not agree that the MY 2017 target curves for this proposal, on a relative basis, should be made significantly flatter than the MY 2016 curve, [121] as we believe that this would undo some of the safety-related incentives and balancing of compliance burdens among manufacturers—effects that attribute-based standards are intended to provide.

Nonetheless, the agencies recognize full-line OEM concerns and have tentatively concluded that further increases in the stringency of the light truck standards will be more feasible if the light truck curve is made steeper than the MY 2016 truck curve and the right (large footprint) cut-point is extended over time to larger footprints. This conclusion is supported by the agencies' technical analyses of regulatory alternatives defined using the curves developed in the manner described below.

b. What methodologies and data did the agencies consider in developing the 2017-2025 curves?

In considering how to address the various policy concerns discussed in the previous sections, the agencies revisited the data and performed a number of analyses using different combinations of the various statistical methods, weighting schemes, adjustments to the data and the addition of technologies to make the fleets less technologically heterogeneous. As discussed above, in the agencies' judgment, there is no single “correct” way to estimate the relationship between CO 2 or fuel consumption and footprint—rather, each statistical result is based on the underlying assumptions about the particular functional form, weightings and error structures embodied in the representational approach. These assumptions are the subject of the following discussion. This process of performing many analyses using combinations of statistical methods generates many possible outcomes, each embodying different potentially reasonable combinations of assumptions and each thus reflective of the data as viewed through a particular lens. The choice of a standard developed by a given combination of these statistical methods is consequently a decision based upon the agencies' determination of how, given the policy objectives for this rulemaking and the agencies' MY 2008-based forecast of the market through MY 2025, to appropriately reflect the current understanding of the evolution of automotive technology and costs, the future prospects for the vehicle market, and thereby establish curves (i.e., standards) for cars and light trucks.

c. What information did the agencies use to estimate a relationship between fuel economy, CO 2 and footprint?

For each fleet, the agencies began with the MY 2008-based market forecast developed to support this proposal (i.e., the baseline fleet), with vehicles' fuel economy levels and technological characteristics at MY 2008 levels. [122] The development, scope, and content of this market forecast is discussed in detail in Chapter 1 of the joint Technical Support Document supporting this rulemaking.

d. What adjustments did the agencies evaluate?

The agencies believe one possible approach is to fit curves to the minimally adjusted data shown above (the approach still includes sales mix adjustments, which influence results of sales-weighted regressions), much as DOT did when it first began evaluating potential attribute-based standards in 2003. [123] However, the agencies have found, as in prior rulemakings, that the data are so widely spread (i.e., when graphed, they fall in a loose “cloud” rather than tightly around an obvious line) that they indicate a relationship between footprint and CO 2 and fuel consumption that is real but not particularly strong. Therefore, as discussed below, the agencies also explored possible adjustments that could help to explain and/or reduce the ambiguity of this relationship, or could help to produce policy outcomes the agencies judged to be more desirable.

i. Adjustment to reflect differences in technology

As in prior rulemakings, the agencies consider technology differences between vehicle models to be a significant factor producing uncertainty regarding the relationship between CO 2/fuel consumption and footprint. Noting that attribute-based standards are intended to encourage the application of additional technology to improve fuel efficiency and reduce CO 2 emissions, the agencies, in addition to considering approaches based on the unadjusted engineering characteristics of MY 2008 vehicle models, therefore also considered approaches in which, as for previous rulemakings, technology is added to vehicles for purposes of the curve fitting analysis in order to produce fleets that are less varied in technology content.

The agencies adjusted the baseline fleet for technology by adding all technologies considered, except for the most advanced high-BMEP (brake mean effective pressure) gasoline engines, diesel engines, strong HEVs, PHEVs, EVs, and FCVs. The agencies included 15 percent mass reduction on all vehicles.

ii. Adjustments reflecting differences in performance and “density”

For the reasons discussed above regarding revisiting the shapes of the curves, the agencies considered adjustments for other differences between vehicle models (i.e., inflating or deflating the fuel economy of each vehicle model based on the extent to which one of the vehicle's attributes, such as power, is higher or lower than average). Previously, NHTSA had rejected such adjustments because they imply that a multi-attribute standard may be necessary, and the agencies judged multi-attribute standard to be more subject to gaming than a footprint-only standard. 124 125 Having considered this issue again for purposes of this rulemaking, NHTSA and EPA conclude the need to accommodate in the target curves the challenges faced by manufacturers of large pickups currently outweighs these prior concerns. Therefore, the agencies also evaluated curve fitting approaches through which fuel consumption and CO 2 levels were adjusted with respect to weight-to-footprint alone, and in combination with power-to-weight. While the agencies examined these adjustments for purposes of fitting curves, the agencies are not proposing a multi-attribute standard; the proposed fuel economy and CO 2 targets for each vehicle are still functions of footprint alone. No adjustment would be used in the compliance process.

The agencies also examined some differences between the technology-adjusted car and truck fleets in order to better understand the relationship between footprint and CO 2/fuel consumption in the agencies' MY 2008 based forecast. The agencies investigated the relationship between HP/WT and footprint in the agencies' MY2008-based market forecast. On a sales weighted basis, cars tend to become proportionally more powerful as they get larger. In contrast, there is a minimally positive relationship between HP/WT and footprint for light trucks, indicating that light trucks become only slightly more powerful as they get larger.

This analysis, presented in chapter 2.4.1.2 of the agencies' joint TSD, indicated that vehicle performance (power-to-weight ratio) and “density” (curb weight divided by footprint) are both correlated to fuel consumption (and CO 2 emission rate), and that these vehicle attributes are also both related to vehicle footprint. Based on these relationships, the agencies explored adjusting the fuel economy and CO 2 emission rates of individual vehicle models based on deviations from “expected” performance or weight/footprint at a given footprint; the agencies inflated fuel economy levels of vehicle models with higher performance and/or weight/footprint than the average of the fleet would indicate at that footprint, and deflated fuel economy levels with lower performance and/or weight. Previously, NHTSA had rejected such adjustments because they imply that a multi-attribute standard may be necessary, and the agency judged multi-attribute standard to be more subject to gaming than a footprint-only standard. 126 127 While the agencies considered this technique for purposes of fitting curves, the agencies are not proposing a multi-attribute standard, as the proposed fuel economy and CO 2 targets for each vehicle are still functions of footprint alone. No adjustment would be used in the compliance process.

The agencies seek comment on the appropriateness of the adjustments as described in Chapter 2 of the joint TSD, particularly regarding whether these adjustments suggest that standards should be defined in terms of other attributes in addition to footprint, and whether they may encourage changes other than encouraging the application of technology to improve fuel economy and reduce CO 2 emissions. The agencies also seek comment regarding whether these adjustments effectively “lock in” through MY 2025 relationships that were observed in MY 2008.

e. What statistical methods did the agencies evaluate?

The above approaches resulted in three data sets each for (a) vehicles without added technology and (b) vehicles with technology added to reduce technology differences, any of which may provide a reasonable basis for fitting mathematical functions upon which to base the slope of the standard curves: (1) Vehicles without any further adjustments; (2) vehicles with adjustments reflecting differences in “density” (weight/footprint); and (3) vehicles with adjustments reflecting differences in “density,” and adjustments reflecting differences in performance (power/weight). Using these data sets, the agencies tested a range of regression methodologies, each judged to be possibly reasonable for application to at least some of these data sets.

i. Regression Approach

In the MYs 2012-2016 final rules, the agencies employed a robust regression approach (minimum absolute deviation, or MAD), rather than an ordinary least squares (OLS) regression. [128] MAD is generally applied to mitigate the effect of outliers in a dataset, and thus was employed in that rulemaking as part of our interest in attempting to best represent the underlying technology. NHTSA had used OLS in early development of attribute-based CAFE standards, but NHTSA (and then NHTSA and EPA) subsequently chose MAD instead of OLS for both the MY 2011 and the MYs 2012-2016 rulemakings. These decisions on regression technique were made both because OLS gives additional emphasis to outliers [129] and because the MAD approach helped achieve the agencies' policy goals with regard to curve slope in those rulemakings. [130] In the interest of taking a fresh look at appropriate regression methodologies as promised in the 2012-2016 light duty rulemaking, in developing this proposal, the agencies gave full consideration to both OLS and MAD. The OLS representation, as described, uses squared errors, while MAD employs absolute errors and thus weights outliers less.

As noted, one of the reasons stated for choosing MAD over least square regression in the MYs 2012-2016 rulemaking was that MAD reduced the weight placed on outliers in the data. However, the agencies have further considered whether it is appropriate to classify these vehicles as outliers. Unlike in traditional datasets, these vehicles' performance is not mischaracterized due to errors in their measurement, a common reason for outlier classification. Being certification data, the chances of large measurement errors should be near zero, particularly towards high CO 2 or fuel consumption. Thus, they can only be outliers in the sense that the vehicle designs are unlike those of other vehicles. These outlier vehicles may include performance vehicles, vehicles with high ground clearance, 4WD, or boxy designs. Given that these are equally legitimate on-road vehicle designs, the agencies concluded that it would appropriate to reconsider the treatment of these vehicles in the regression techniques.

Based on these considerations as well as the adjustments discussed above, the agencies concluded it was not meaningful to run MAD regressions on gpm data that had already been adjusted in the manner described above. Normalizing already reduced the variation in the data, and brought outliers towards average values. This was the intended effect, so the agencies deemed it unnecessary to apply an additional remedy to resolve an issue that had already been addressed, but we seek comment on the use of robust regression techniques under such circumstances.

ii. Sales Weighting

Likewise, the agencies reconsidered employing sales-weighting to represent the data. As explained below, the decision to sales weight or not is ultimately based upon a choice about how to represent the data, and not by an underlying statistical concern. Sales weighting is used if the decision is made to treat each (mass produced) unit sold as a unique physical observation. Doing so thereby changes the extent to which different vehicle model types are emphasized as compared to a non-sales weighted regression. For example, while total General Motors Silverado (332,000) and Ford F-150 (322,000) sales differ by less than 10,000 in MY 2021 market forecast, 62 F-150s models and 38 Silverado models are reported in the agencies baselines. Without sales-weighting, the F-150 models, because there are more of them, are given 63 percent more weight in the regression despite comprising a similar portion of the marketplace and a relatively homogenous set of vehicle technologies.

The agencies did not use sales weighting in the 2012-2016 rulemaking analysis of the curve shapes. A decision to not perform sales weighting reflects judgment that each vehicle model provides an equal amount of information concerning the underlying relationship between footprint and fuel economy. Sales-weighted regression gives the highest sales vehicle model types vastly more emphasis than the lowest-sales vehicle model types thus driving the regression toward the sales-weighted fleet norm. For unweighted regression, vehicle sales do not matter. The agencies note that the light truck market forecast shows MY 2025 sales of 218,000 units for Toyota's 2WD Sienna, and shows 66 model configurations with MY 2025 sales of fewer than 100 units. Similarly, the agencies' market forecast shows MY 2025 sales of 267,000 for the Toyota Prius, and shows 40 model configurations with MY2025 sales of fewer than 100 units. Sales-weighted analysis would give the Toyota Sienna and Prius more than a thousand times the consideration of many vehicle model configurations. Sales-weighted analysis would, therefore, cause a large number of vehicle model configurations to be virtually ignored in the regressions. [131]

However, the agencies did note in the MYs 2012-2016 final rules that, “sales weighted regression would allow the difference between other vehicle attributes to be reflected in the analysis, and also would reflect consumer demand.” [132] In reexamining the sales-weighting for this analysis, the agencies note that there are low-volume model types account for many of the passenger car model types (50 percent of passenger car model types account for 3.3 percent of sales), and it is unclear whether the engineering characteristics of these model types should equally determine the standard for the remainder of the market.

In the interest of taking a fresh look at appropriate methodologies as promised in the last final rule, in developing this proposal, the agencies gave full consideration to both sales-weighted and unweighted regressions.

iii. Analyses Performed

We performed regressions describing the relationship between a vehicle's CO 2/fuel consumption and its footprint, in terms of various combinations of factors: initial (raw) fleets with no technology, versus after technology is applied; sales-weighted versus non-sales weighted; and with and without two sets of normalizing factors applied to the observations. The agencies excluded diesels and dedicated AFVs because the agencies anticipate that advanced gasoline-fueled vehicles are likely to be dominant through MY 2025, based both on our own assessment of potential standards (see Sections III and IV below) as well as our discussions with large number of automotive companies and suppliers.

Thus, the basic OLS regression on the initial data (with no technology applied) and no sales-weighting represents one perspective on the relation between footprint and fuel economy. Adding sales weighting changes the interpretation to include the influence of sales volumes, and thus steps away from representing vehicle technology alone. Likewise, MAD is an attempt to reduce the impact of outliers, but reducing the impact of outliers might perhaps be less representative of technical relationships between the variables, although that relationship may change over time in reality. Each combination of methods and data reflects a perspective, and the regression results simply reflect that perspective in a simple quantifiable manner, expressed as the coefficients determining the line through the average (for OLS) or the median (for MAD) of the data. It is left to policy makers to determine an appropriate perspective and to interpret the consequences of the various alternatives.

We invite comments on the application of the weights as described above, and the implications for interpreting the relationship between fuel efficiency (or CO 2) and footprint.

f. What results did the agencies obtain, which methodology did the agencies choose for this proposal, and why is it reasonable?

Both agencies analyzed the same statistical approaches. For regressions against data including technology normalization, NHTSA used the CAFE modeling system, and EPA used EPA's OMEGA model. The agencies obtained similar regression results, and have based today's joint proposal on those obtained by NHTSA. The draft Joint TSD Chapter 2 contains a large set of illustrative of figures which show the range of curves determined by the possible combinations of regression technique, with and without sales weighting, with and without the application of technology, and with various adjustments to the gpm variable prior to running a regression.

The choice among the alternatives presented in the draft Joint TSD Chapter 2 was to use the OLS formulation, on sales-weighted data, using a fleet that has had technology applied, and after adjusting the data for the effect of weight-to-footprint, as described above. The agencies believe that this represents a technically reasonable approach for purposes of developing target curves to define the proposed standards, and that it represents a reasonable trade-off among various considerations balancing statistical, technical, and policy matters, which include the statistical representativeness of the curves considered and the steepness of the curve chosen. The agencies judge the application of technology prior to curve fitting to provide a reasonable means—one consistent with the rule's objective of encouraging manufacturers to add technology in order to increase fuel economy—of reducing variation in the data and thereby helping to estimate a relationship between fuel consumption/CO 2 and footprint.

Similarly, for the agencies' current MY 2008-based market-forecast and the agencies' current estimates of future technology effectiveness, the inclusion of the weight-to-footprint data adjustment prior to running the regression also helps to improve the fit of the curves by reducing the variation in the data, and the agencies believe that the benefits of this adjustment for this proposed rule likely outweigh the potential that resultant curves might somehow encourage reduced load carrying capability or vehicle performance (note that the we are not suggesting that we believe these adjustments will reduce load carrying capability or vehicle performance). In addition to reducing the variability, the truck curve is also steepened, and the car curve flattened compared to curves fitted to sales weighted data that do not include these normalizations. The agencies agree with manufacturers of full-size pick-up trucks that in order to maintain towing and hauling utility, the engines on pick-up trucks must be more powerful, than their low “density” nature would statistically suggest based on the agencies' current MY2008-based market forecast and the agencies' current estimates of the effectiveness of different fuel-saving technologies. Therefore, it may be more equitable (i.e., in terms of relative compliance challenges faced by different light truck manufacturers) to adjust the slope of the curve defining fuel economy and CO 2 targets.

As described above, however, other approaches are also technically reasonable, and also represent a way of expressing the underlying relationships. The agencies plan to revisit the analysis for the final rule, after updating the underlying market forecast and estimates of technology effectiveness, and based on relevant public comments received. In addition, the agencies intend to update the technology cost estimates, which could alter the NPRM analysis results and consequently alter the balance of the trade-offs being weighed to determine the final curves.

g. Implications of the proposed slope compared to MY 2012-2016

The proposed slope has several implications relative to the MY 2016 curves, with the majority of changes on the truck curve. With the agencies' current MY2008-based market forecast and the agencies' current estimates of technology effectiveness, the combination of sales weighting and WT/FP normalization produced a car curve slope similar to that finalized in the MY 2012-2016 final rulemaking (4.7 g/mile in MY 2016, vs. 4.5 g/mile proposed in MY 2017). By contrast, the truck curve is steeper in MY 2017 than in MY 2016 (4.0 g/mile in MY 2016 vs. 4.9 g/mile in MY 2017). As discussed previously, a steeper slope relaxes the stringency of targets for larger vehicles relative to those for smaller vehicles, thereby shifting relative compliance burdens among manufacturers based on their respective product mix.

6. Once the agencies determined the appropriate slope for the sloped part, how did the agencies determine the rest of the mathematical function?

The agencies continue to believe that without a limit at the smallest footprints, the function—whether logistic or linear—can reach values that would be unfairly burdensome for a manufacturer that elects to focus on the market for small vehicles; depending on the underlying data, an unconstrained form could result in stringency levels that are technologically infeasible and/or economically impracticable for those manufacturers that may elect to focus on the smallest vehicles. On the other side of the function, without a limit at the largest footprints, the function may provide no floor on required fuel economy. Also, the safety considerations that support the provision of a disincentive for downsizing as a compliance strategy apply weakly, if at all, to the very largest vehicles. Limiting the function's value for the largest vehicles thus leads to a function with an inherent absolute minimum level of performance, while remaining consistent with safety considerations.

Just as for slope, in determining the appropriate footprint and fuel economy values for the “cutpoints,” the places along the curve where the sloped portion becomes flat, the agencies took a fresh look for purposes of this proposal, taking into account the updated market forecast and new assumptions about the availability of technologies. The next two sections discuss the agencies' approach to cutpoints for the passenger car and light truck curves separately, as the policy considerations for each vary somewhat.

a. Cutpoints for PC curve

The passenger car fleet upon which the agencies have based the target curves for MYs 2017-2025 is derived from MY 2008 data, as discussed above. In MY 2008, passenger car footprints ranged from 36.7 square feet, the Lotus Exige 5, to 69.3 square feet, the Daimler Maybach 62. In that fleet, several manufacturers offer small, sporty coupes below 41 square feet, such as the BMW Z4 and Mini, Honda S2000, Mazda MX-5 Miata, Porsche Carrera and 911, and Volkswagen New Beetle. Because such vehicles represent a small portion (less than 10 percent) of the passenger car market, yet often have performance, utility, and/or structural characteristics that could make it technologically infeasible and/or economically impracticable for manufacturers focusing on such vehicles to achieve the very challenging average requirements that could apply in the absence of a constraint, EPA and NHTSA are again proposing to cut off the sloped portion of the passenger car function at 41 square feet, consistent with the MYs 2012-2016 rulemaking. The agencies recognize that for manufacturers who make small vehicles in this size range, putting the cutpoint at 41 square feet creates some incentive to downsize (i.e., further reduce the size, and/or increase the production of models currently smaller than 41 square feet) to make it easier to meet the target. Putting the cutpoint here may also create the incentive for manufacturers who do not currently offer such models to do so in the future. However, at the same time, the agencies believe that there is a limit to the market for cars smaller than 41 square feet—most consumers likely have some minimum expectation about interior volume, among other things. The agencies thus believe that the number of consumers who will want vehicles smaller than 41 square feet (regardless of how they are priced) is small, and that the incentive to downsize to less than 41 square feet in response to this proposal, if present, will be at best minimal. On the other hand, the agencies note that some manufacturers are introducing mini cars not reflected in the agencies MY 2008-based market forecast, such as the Fiat 500, to the U.S. market, and that the footprint at which the curve is limited may affect the incentive for manufacturers to do so.

Above 56 square feet, the only passenger car models present in the MY 2008 fleet were four luxury vehicles with extremely low sales volumes—the Bentley Arnage and three versions of the Rolls Royce Phantom. As in the MYs 2012-2016 rulemaking, NHTSA and EPA therefore are proposing again to cut off the sloped portion of the passenger car function at 56 square feet.

While meeting with manufacturers prior to issuing the proposal, the agencies received comments from some manufacturers that, combined with slope and overall stringency, using 41 square feet as the footprint at which to cap the target for small cars would result in unduly challenging targets for small cars. The agencies do not agree. No specific vehicle need meet its target (because standards apply to fleet average performance), and maintaining a sloped function toward the smaller end of the passenger car market is important to discourage unsafe downsizing, the agencies are thus proposing to again “cut off” the passenger car curve at 41 square feet, notwithstanding these comments.

The agencies seek comment on setting cutpoints for the MYs 2017-2025 passenger car curves at 41 square feet and 56 square feet.

b. Cutpoints for LT curve

The light truck fleet upon which the agencies have based the target curves for MYs 2017-2025, like the passenger car fleet, is derived from MY 2008 data, as discussed in Section 2.4 above. In MY 2008, light truck footprints ranged from 41.0 square feet, the Jeep Wrangler, to 77.5 square feet, the Toyota Tundra. For consistency with the curve for passenger cars, the agencies are proposing to cut off the sloped portion of the light truck function at the same footprint, 41 square feet, although we recognize that no light trucks are currently offered below 41 square feet. With regard to the upper cutpoint, the agencies heard from a number of manufacturers during the discussions leading up to this proposal that the location of the cutpoint in the MYs 2012-2016 rules, 66 square feet, meant that the same standard applied to all light trucks with footprints of 66 square feet or greater, and that in fact the targets for the largest light trucks in the later years of that rulemaking were extremely challenging. Those manufacturers requested that the agencies extend the cutpoint to a larger footprint, to reduce targets for the largest light trucks which represent a significant percentage of those manufacturers light truck sales. At the same time, in re-examining the light truck fleet data, the agencies concluded that aggregating pickup truck models in the MYs 2012-2016 rule had led the agencies to underestimate the impact of the different pickup truck model configurations above 66 square feet on manufacturers' fleet average fuel economy and CO 2 levels (as discussed immediately below). In disaggregating the pickup truck model data, the impact of setting the cutpoint at 66 square feet after model year 2016 became clearer to the agencies.

In the agencies' view, there is legitimate basis for these comments. The agencies' market forecast includes about 24 vehicle configurations above 74 square feet with a total volume of about 50,000 vehicles or less during any MY in the 2017-2025 time frame. While a relatively small portion of the overall truck fleet, for some manufacturers, these vehicles are non-trivial portion of sales. As noted above, the very largest light trucks have significant load-carrying and towing capabilities that make it particularly challenging for manufacturers to add fuel economy-improving/CO 2-reducing technologies in a way that maintains the full functionality of those capabilities.

Considering manufacturer CBI and our estimates of the impact of the 66 square foot cutpoint for future model years, the agencies have initially determined to adopt curves that transition to a different cut point. While noting that no specific vehicle need meet its target (because standards apply to fleet average performance), we believe that the information provided to us by manufacturers and our own analysis supports the gradual extension of the cutpoint for large light trucks in this proposal from 66 square feet in MY 2016 out to a larger footprint square feet before MY 2025.

The agencies are proposing to phase in the higher cutpoint for the truck curve in order to avoid any backsliding from the MY 2016 standard. A target that is feasible in one model year should never become less feasible in a subsequent model year—manufacturers should have no reason to remove fuel economy-improving/CO 2-reducing technology from a vehicle once it has been applied. Put another way, the agencies are proposing to not allow “curve crossing” from one model year to the next. In proposing MYs 2011-2015 CAFE standards and promulgating MY 2011 standards, NHTSA proposed and requested comment on avoiding curve crossing, as an “anti-backsliding measure.” [133] The MY 2016 2 cycle test curves are therefore a floor for the MYs 2017-2025 curves. For passenger cars, which have minimal change in slope from the MY 2012-2016 rulemakings and no change in cut points, there are no curve crossing issues in the proposed standards.

The minimum stringency determination was done using the two cycle curves. Stringency adjustments for air conditioning and other credits were calculated after curves that did not cross were determined in two cycle space. The year over year increase in these adjustments cause neither the GHG nor CAFE curves (with A/C) to contact the 2016 curves when charted.

7. Once the agencies determined the complete mathematical function shape, how did the agencies adjust the curves to develop the proposed standards and regulatory alternatives?

The curves discussed above all reflect the addition of technology to individual vehicle models to reduce technology differences between vehicle models before fitting curves. This application of technology was conducted not to directly determine the proposed standards, but rather for purposes of technology adjustments, and set aside considerations regarding potential rates of application (i.e., phase-in caps), and considerations regarding economic implications of applying specific technologies to specific vehicle models. The following sections describe further adjustments to the curves discussed above, that affect both the shape of the curve, and the location of the curve, that helped the agencies determine curves that defined the proposed standards.

a. Adjusting for Year over Year Stringency

As in the MYs 2012-2016 rules, the agencies developed curves defining regulatory alternatives for consideration by “shifting” these curves. For the MYs 2012-2016 rules, the agencies did so on an absolute basis, offsetting the fitted curve by the same value (in gpm or g/mi) at all footprints. In developing this proposal, the agencies have reconsidered the use of this approach, and have concluded that after MY 2016, curves should be offset on a relative basis—that is, by adjusting the entire gpm-based curve (and, equivalently, the CO 2 curve) by the same percentage rather than the same absolute value. The agencies' estimates of the effectiveness of these technologies are all expressed in relative terms—that is, each technology (with the exception of A/C) is estimated to reduce fuel consumption (the inverse of fuel economy) and CO 2 emissions by a specific percentage of fuel consumption without the technology. It is, therefore, more consistent with the agencies' estimates of technology effectiveness to develop the proposed standards and regulatory alternatives by applying a proportional offset to curves expressing fuel consumption or emissions as a function of footprint. In addition, extended indefinitely (and without other compensating adjustments), an absolute offset would eventually (i.e., at very high average stringencies) produce negative (gpm or g/mi) targets. Relative offsets avoid this potential outcome. Relative offsets do cause curves to become, on a fuel consumption and CO 2 basis, flatter at greater average stringencies; however, as discussed above, this outcome remains consistent with the agencies' estimates of technology effectiveness. In other words, given a relative decrease in average required fuel consumption or CO 2 emissions, a curve that is flatter by the same relative amount should be equally challenging in terms of the potential to achieve compliance through the addition of fuel-saving technology.

On this basis, and considering that the “flattening” occurs gradually for the regulatory alternatives the agencies have evaluated, the agencies tentatively conclude that this approach to offsetting the curves to develop year-by-year regulatory alternatives neither re-creates a situation in which manufacturers are likely to respond to standards in ways that compromise highway safety, nor undoes the attribute-based standard's more equitable balancing of compliance burdens among disparate manufacturers. The agencies invite comment on these conclusions, and on any other means that might avoid the potential outcomes—in particular, negative fuel consumption and CO 2 targets—discussed above.

b. Adjusting for anticipated improvements to mobile air conditioning systems

The fuel economy values in the agencies' market forecast are based on the 2-cycle (i.e., city and highway) fuel economy test and calculation procedures that do not reflect potential improvements in air conditioning system efficiency, refrigerant leakage, or refrigerant Global Warming Potential (GWP). Recognizing that there are significant and cost effective potential air conditioning system improvements available in the rulemaking timeframe (discussed in detail in Chapter 5 of the draft joint TSD), the agencies are increasing the stringency of the target curves based on the agencies' assessment of the capability of manufacturers to implement these changes. For the proposed CAFE standards and alternatives, an offset is included based on air conditioning system efficiency improvements, as these improvements are the only improvements that effect vehicle fuel economy. For the proposed GHG standards and alternatives, a stringency increase is included based on air conditioning system efficiency, leakage and refrigerant improvements. As discussed above in Chapter 5 of the join TSD, the air conditioning system improvements affect a vehicle's fuel efficiency or CO 2 emissions performance as an additive stringency increase, as compared to other fuel efficiency improving technologies which are multiplicative. Therefore, in adjusting target curves for improvements in the air conditioning system performance, the agencies are adjusting the target curves by additive stringency increases (or vertical shifts) in the curves.

For the GHG target curves, the offset for air conditioning system performance is being handled in the same manner as for the MY 2012-2016 rules. For the CAFE target curves, NHTSA for the first time is proposing to account for potential improvements in air conditioning system performance. Using this methodology, the agencies first use a multiplicative stringency adjustment for the sloped portion of the curves to reflect the effectiveness on technologies other than air conditioning system technologies, creating a series of curve shapes that are “fanned” based on two-cycle performance. Then the curves are offset vertically by the air conditioning improvement by an equal amount at every point.

D. Joint Vehicle Technology Assumptions

For the past four to five years, the agencies have been working together closely to follow the development of fuel consumption and GHG reducing technologies. Two major analyses have been published jointly by EPA and NHTSA: The Technical Support Document to support the MYs 2012-2016 final rule and the 2010 Technical Analysis Report (which supported the 2010 Notice of Intent). The latter of these analyses was also done in conjunction with CARB. Both of these analyses have both been published within the past 18 months. As a result, much of the work is still relevant and we continue to rely heavily on these references. However, some technologies—and what we know about them—are changing so rapidly that the analysis supporting this proposal contains a considerable amount of new work on technologies included in this rule, some of which were included in prior rulemakings, and others that were not.

Notably, we have updated our battery costing methodology significantly since the MYs 2012-2016 final rule and even relative to the 2010 TAR. We are now using a peer reviewed model developed by Argonne National Laboratory for the Department of Energy which provides us with more rigorous estimates for battery costs and allows us to estimate future costs specific to hybrids, plug-in hybrids and electric vehicles all of which have different battery design characteristics.

We also have new cost data from more recently completed tear down and other cost studies by FEV which were not available in either the MYs 2012-2016 final rule or the 2010 TAR. These new studies analyzed a 8-speed automatic transmission replacing 6-speed automatic transmission, a 8-speed dual clutch transmission replacing 6-speed dual clutch transmission, a power-split hybrid powertrain with an I4 engine replacing a conventional engine powertrain with V6 engine, a mild hybrid with stop-start technology and an I4 engine replacing a conventional I4 engine, and the Fiat Multi-Air engine technology. We discuss the new tear down studies in Section II.D.2 of this preamble. Based on this, we have updated some of the FEV-developed costs relative to what we used in the 2012-2016 final rule, although these costs are consistent with those used in the 2010 TAR. Furthermore, we have completely re-worked our estimated costs associated with mass reduction relative to both the MYs 2012-2016 final rule and the 2010 TAR.

As would be expected given that some of our cost estimates were developed several years ago, we have also updated all of our base direct manufacturing costs to put them in terms of more recent dollars (2009 dollars for this proposal). We have also updated our methodology for calculating indirect costs associated with new technologies since both the MYs 2012-2016 final rule and the TAR. We continue to use the indirect cost multiplier (ICM) approach used in those analyses, but have made important changes to the calculation methodology—changes done in response to ongoing staff evaluation and public input.

Lastly, we have updated many of the technologies' effectiveness estimates largely based on new vehicle simulation work conducted by Ricardo Engineering. This simulation work provides the effectiveness estimates for a number of the technologies most heavily relied on in the agencies' analysis of potential standards for MYs 2017-2025.

The agencies have also reviewed the findings and recommendations in the updated NAS report “Assessment of Fuel Economy Technologies for Light-Duty Vehicles” that was completed after the MYs 2012-2016 final rule was issued, [134] and NHTSA has performed a sensitivity analysis (contained in its PRIA) to examine the impact of using some of the NAS cost and effectiveness estimates on the proposed standards.

Each of these changes is discussed briefly in the remainder of this section and in much greater detail in Chapter 3 of the draft joint TSD. First we provide a brief summary of the technologies we have considered in this proposal before highlighting the above-mentioned items that are new for this proposal. We request comment on all aspects of our analysis as discussed here and detailed in the draft joint TSD.

1. What technologies did the Agencies Consider?

For this proposal, the agencies project that manufacturers can add a variety of technologies to each of their vehicle models and or platforms in order to improve the vehicles' fuel economy and GHG performance. In order to analyze a variety of regulatory alternative scenarios, it is essential to have a thorough understanding of the technologies available to the manufacturers. This analysis includes an assessment of the cost, effectiveness, availability, development time, and manufacturability of various technologies within the normal redesign and refresh periods of a vehicle line (or in the design of a new vehicle). As we describe in the draft Joint TSD, when a technology can be applied can affect the cost as well as the technology penetration rates (or phase-in caps) that are projected in the analysis.

The agencies considered dozens of vehicle technologies that manufacturers could use to improve the fuel economy and reduce CO 2 emissions of their vehicles during the MYs 2017-2025 timeframe. Many of the technologies considered are available today, are well known, and could be incorporated into vehicles once product development decisions are made. These are “near-term” technologies and are identical or very similar to those anticipated in the agencies' analyses of compliance strategies for the MYs 2012-2016 final rule. For this rulemaking, given its time frame, other technologies are also considered that are not currently in production, but that are beyond the initial research phase, and are under development and expected to be in production in the next 5-10 years. Examples of these technologies are downsized and turbocharged engines operating at combustion pressures even higher than today's turbocharged engines, and an emerging hybrid architecture combined with an 8 speed dual clutch transmission, a combination that is not available today. These are technologies which the agencies believe can, for the most part, be applied both to cars and trucks, and which are expected to achieve significant improvements in fuel economy and reductions in CO 2 emissions at reasonable costs in the MYs 2017 to 2025 timeframe. The agencies did not consider technologies that are currently in an initial stage of research because of the uncertainty involved in the availability and feasibility of implementing these technologies with significant penetration rates for this analysis. The agencies recognize that due to the relatively long time frame between the date of this proposal and 2025, it is very possible that new and innovative technologies will make their way into the fleet, perhaps even in significant numbers, that we have not considered in this analysis. We expect to reconsider such technologies as part of the mid-term evaluation, as appropriate, and possibly could be used to generate credits under a number of the proposed flexibility and incentive programs provided in the proposed rules.

The technologies considered can be grouped into four broad categories: Engine technologies; transmission technologies; vehicle technologies (such as mass reduction, tires and aerodynamic treatments); and electrification technologies (including hybridization and changing to full electric drive). [135] The specific technologies within each broad group are discussed below. The list of technologies presented below is nearly identical to that presented in both the MYs 2012-2016 final rule and the 2010 TAR, with the following new technologies added to the list since the last final rule: The P2 hybrid, a newly emerging hybridization technology that was also considered in the 2010 TAR; continued improvements in gasoline engines, with greater efficiencies and downsizing; continued significant efficiency improvements in transmissions; and ongoing levels of improvement to some of the seemingly more basic technologies such as lower rolling resistance tires and aerodynamic treatments, which are among the most cost effective technologies available for reducing fuel consumption and GHGs. Not included in the list below are technologies specific to air conditioning system improvements and off-cycle controls, which are presented in Section II.F of this NPRM and in Chapter 5 of the draft Joint TSD.

a. Types of Engine Technologies Considered

Low-friction lubricants including low viscosity and advanced low friction lubricant oils are now available with improved performance. If manufacturers choose to make use of these lubricants, they may need to make engine changes and conduct durability testing to accommodate the lubricants. The costs in our analysis consider these engine changes and testing requirements. This level of low friction lubricants is expected to exceed 85 percent penetration by the 2017 MY.

Reduction of engine friction losses can be achieved through low-tension piston rings, roller cam followers, improved material coatings, more optimal thermal management, piston surface treatments, and other improvements in the design of engine components and subsystems that improve efficient engine operation. This level of engine friction reduction is expected to exceed 85 percent penetration by the 2017 MY.

Advanced Low Friction Lubricant and Second Level of Engine Friction Reduction are new for this analysis. As technologies advance between now and the rulemaking timeframe, there will be further development in low friction lubricants and engine friction reductions. The agencies grouped the development in these two areas into a single technology and applied them for MY 2017 and beyond.

Cylinder deactivation disables the intake and exhaust valves and prevents fuel injection into some cylinders during light-load operation. The engine runs temporarily as though it were a smaller engine which substantially reduces pumping losses.

Variable valve timing alters the timing of the intake valves, exhaust valves, or both, primarily to reduce pumping losses, increase specific power, and control residual gases.

Discrete variable valve lift increases efficiency by optimizing air flow over a broader range of engine operation which reduces pumping losses. This is accomplished by controlled switching between two or more cam profile lobe heights.

Continuous variable valve lift is an electromechanical or electrohydraulic system in which valve timing is changed as lift height is controlled. This yields a wide range of performance optimization and volumetric efficiency, including enabling the engine to be valve throttled.

Stoichiometric gasoline direct-injection technology injects fuel at high pressure directly into the combustion chamber to improve cooling of the air/fuel charge as well as combustion quality within the cylinder, which allows for higher compression ratios and increased thermodynamic efficiency.

Turbo charging and downsizing increases the available airflow and specific power level, allowing a reduced engine size while maintaining performance. Engines of this type use gasoline direct injection (GDI) and dual cam phasing. This reduces pumping losses at lighter loads in comparison to a larger engine. We continue to include an 18 bar brake mean effective pressure (BMEP) technology (as in the MYs 2012-2016 final rule) and are also including both 24 bar BMEP and 27 bar BMEP technologies. The 24 bar BMEP technology would use a single-stage, variable geometry turbocharger which would provide a higher intake boost pressure available across a broader range of engine operation than conventional 18 bar BMEP engines. The 27 bar BMEP technology requires additional boost and thus would use a two-stage turbocharger necessitating use of cooled exhaust gas recirculation (EGR) as described below. The 18 bar BMEP technology is applied with 33 percent engine downsizing, 24 bar BMEP is applied with 50 percent engine downsizing, and 27 bar BMEP is applied with 56 percent engine downsizing.

Cooled exhaust-gas recirculation (EGR) reduces the incidence of knocking combustion with additional charge dilution and obviates the need for fuel enrichment at high engine power. This allows for higher boost pressure and/or compression ratio and further reduction in engine displacement and both pumping and friction losses while maintaining performance. Engines of this type use GDI and both dual cam phasing and discrete variable valve lift. The EGR systems considered in this assessment would use a dual-loop system with both high and low pressure EGR loops and dual EGR coolers. For this proposal, cooled EGR is considered to be a technology that can be added to a 24 bar BMEP engine and is an enabling technology for 27 bar BMEP engines.

Diesel engines have several characteristics that give superior fuel efficiency, including reduced pumping losses due to lack of (or greatly reduced) throttling, high pressure direct injection of fuel, a combustion cycle that operates at a higher compression ratio, and a very lean air/fuel mixture relative to an equivalent-performance gasoline engine. This technology requires additional enablers, such as a NO x adsorption catalyst system or a urea/ammonia selective catalytic reduction system for control of NO x emissions during lean (excess air) operation.

b. Types of Transmission Technologies Considered

Improved automatic transmission controls optimize the shift schedule to maximize fuel efficiency under wide ranging conditions and minimizes losses associated with torque converter slip through lock-up or modulation. The first level of controls is expected to exceed 85 percent penetration by the 2017 MY.

Shift optimization is a strategy whereby the engine and/or transmission controller(s) emulates a CVT by continuously evaluating all possible gear options that would provide the necessary tractive power and select the best gear ratio that lets the engine run in the most efficient operating zone.

Six-, seven-, and eight-speed automatic transmissions are optimized by changing the gear ratio span to enable the engine to operate in a more efficient operating range over a broader range of vehicle operating conditions. While a six speed transmission application was most prevalent for the MYs 2012-2016 final rule, eight speed transmissions are expected to be readily available and applied in the MYs 2017 through 2025 timeframe.

Dual clutch or automated shift manual transmissions are similar to manual transmissions, but the vehicle controls shifting and launch functions. A dual-clutch automated shift manual transmission (DCT) uses separate clutches for even-numbered and odd-numbered gears, so the next expected gear is pre-selected, which allows for faster and smoother shifting. The 2012-2016 final rule limited DCT applications to a maximum of 6-speeds. For this proposal we have considered both 6-speed and 8-speed DCT transmissions.

Continuously variable transmission commonly uses V-shaped pulleys connected by a metal belt rather than gears to provide ratios for operation. Unlike manual and automatic transmissions with fixed transmission ratios, continuously variable transmissions can provide fully variable and an infinite number of transmission ratios that enable the engine to operate in a more efficient operating range over a broader range of vehicle operating conditions. The CVT is maintained for existing baseline vehicles and not considered for future vehicles in this proposal due to the availability of more cost effective transmission technologies.

Manual 6-speed transmission offers an additional gear ratio, often with a higher overdrive gear ratio, than a 5-speed manual transmission.

High Efficiency Gearbox (automatic, DCT or manual)—continuous improvement in seals, bearings and clutches, super finishing of gearbox parts, and development in the area of lubrication, all aimed at reducing frictional and other parasitic load in the system for an automatic or DCT type transmission.

c. Types of Vehicle Technologies Considered

Lower-rolling-resistance tires have characteristics that reduce frictional losses associated with the energy dissipated mainly in the deformation of the tires under load, thereby improving fuel economy and reducing CO 2 emissions. New for this proposal (and also marking an advance over low rolling resistance tires considered during the heavy duty greenhouse gas rulemaking, see 76 FR at 57207, 57229) is a second level of lower rolling resistance tires that reduce frictional losses even further. The first level of low rolling resistance tires will have 10 percent rolling resistance reduction while the 2nd level would have 20 percent rolling resistance reduction compared to 2008 baseline vehicle. The first level of lower rolling resistance tires is expected to exceed 85 percent penetration by the 2017 MY.

Low-drag brakes reduce the sliding friction of disc brake pads on rotors when the brakes are not engaged because the brake pads are pulled away from the rotors.

Front or secondary axle disconnect for four-wheel drive systems provides a torque distribution disconnect between front and rear axles when torque is not required for the non-driving axle. This results in the reduction of associated parasitic energy losses.

Aerodynamic drag reduction can be achieved via two approaches, either reducing the drag coefficients or reducing vehicle frontal area. To reduce the drag coefficient, skirts, air dams, underbody covers, and more aerodynamic side view mirrors can be applied. In addition to the standard aerodynamic treatments, the agencies have included a second level of aerodynamic technologies which could include active grill shutters, rear visors, and larger under body panels. The first level of aero dynamic drag improvement is estimated to reduce aerodynamic drag by 10 percent relative to the baseline 2008 vehicle while the second level would reduce aero dynamic drag by 20 percent relative to 2008 baseline vehicles. The second level of aerodynamic technologies was not considered in the MYs 2012-2016 final rule.

Mass Reduction can be achieved in many ways, such as material substitution, design optimization, part consolidation, improving manufacturing process, etc. The agencies applied mass reduction of up to 20 percent relative to MY 2008 levels in this NPRM compared to only 10 percent in 2012-2016 final rule. The agencies also determined effectiveness values for hybrid, plug-in and electric vehicles based on net mass reduction, or the delta between the applied mass reduction (capped at 20 percent) and the added mass of electrification components. In assessing compliance strategies and in structuring the standards, the agencies only considered amounts of vehicle mass reduction that would result in what we estimated to be no adverse effect on overall fleet safety. The agencies have an extensive discussion of mass reduction technologies as well as the cost of mass reduction in chapter 3 of the draft joint TSD.

d. Types of Electrification/Accessory and Hybrid Technologies Considered

Electric power steering (EPS)/Electro-hydraulic power steering (EHPS) is an electrically-assisted steering system that has advantages over traditional hydraulic power steering because it replaces a continuously operated hydraulic pump, thereby reducing parasitic losses from the accessory drive. Manufacturers have informed the agencies that full EPS systems are being developed for all light-duty vehicles, including large trucks. However, the agencies have applied the EHPS technology to large trucks and the EPS technology to all other light-duty vehicles.

Improved accessories (IACC) may include high efficiency alternators, electrically driven (i.e., on-demand) water pumps and cooling fans. This excludes other electrical accessories such as electric oil pumps and electrically driven air conditioner compressors. New for this proposal is a second level of IACC (IACC2) which consists of the IACC technologies and the addition of a mild regeneration strategy and a higher efficiency alternator. The first level of IACC improvements is expected to be at more than 85 percent penetration by the 2017MY.

12-volt Stop-Start, sometimes referred to as idle-stop or 12-volt micro hybrid is the most basic hybrid system that facilitates idle-stop capability. These systems typically incorporate an enhanced performance battery and other features such as electric transmission and cooling pumps to maintain vehicle systems during idle-stop.

Higher Voltage Stop-Start/Belt Integrated Starter Generator (BISG) sometimes referred to as a mild hybrid, provides idle-stop capability and uses a higher voltage battery with increased energy capacity over typical automotive batteries. The higher system voltage allows the use of a smaller, more powerful electric motor. This system replaces a standard alternator with an enhanced power, higher voltage, higher efficiency starter-alternator, that is belt driven and that can recover braking energy while the vehicle slows down (regenerative braking). This mild hybrid technology is not included by either agency as an enabling technology in the analysis supporting this proposal, although some automakers have expressed interest in possibly using the technology during the rulemaking time frame. EPA and NHTSA are providing incentives to encourage this and similar hybrid technologies on pick-up trucks in particular, as described in Section II.F, and the agencies are in the process of including this technology for the final rule analysis as we expand our understanding of the associated costs and limitations.

Integrated Motor Assist (IMA)/Crank integrated starter generator (CISG) provides idle-stop capability and uses a high voltage battery with increased energy capacity over typical automotive batteries. The higher system voltage allows the use of a smaller, more powerful electric motor and reduces the weight of the wiring harness. This system replaces a standard alternator with an enhanced power, higher voltage, higher efficiency starter-alternator that is crankshaft mounted and can recover braking energy while the vehicle slows down (regenerative braking). The IMA technology is not included by either agency as an enabling technology in the analysis supporting this proposal, although it is included as a baseline technology because it exists in our 2008 baseline fleet.

P2 Hybrid is a newly emerging hybrid technology that uses a transmission integrated electric motor placed between the engine and a gearbox or CVT, much like the IMA system described above except with a wet or dry separation clutch which is used to decouple the motor/transmission from the engine. In addition, a P2 hybrid would typically be equipped with a larger electric machine. Disengaging the clutch allows all-electric operation and more efficient brake-energy recovery. Engaging the clutch allows efficient coupling of the engine and electric motor and, when combined with a DCT transmission, reduces gear-train losses relative to power-split or 2-mode hybrid systems.

2-Mode Hybrid is a hybrid electric drive system that uses an adaptation of a conventional stepped-ratio automatic transmission by replacing some of the transmission clutches with two electric motors that control the ratio of engine speed to vehicle speed, while clutches allow the motors to be bypassed. This improves both the transmission torque capacity for heavy-duty applications and reduces fuel consumption and CO 2 emissions at highway speeds relative to other types of hybrid electric drive systems. The 2-mode hybrid technology is not included by either agency as an enabling technology in the analysis supporting this proposal, although it is included as a baseline technology because it exists in our 2008 baseline fleet.

Power-split Hybrid is a hybrid electric drive system that replaces the traditional transmission with a single planetary gearset and a motor/generator. This motor/generator uses the engine to either charge the battery or supply additional power to the drive motor. A second, more powerful motor/generator is permanently connected to the vehicle's final drive and always turns with the wheels. The planetary gear splits engine power between the first motor/generator and the drive motor to either charge the battery or supply power to the wheels. The power-split hybrid technology is not included by either agency as an enabling technology in the analysis supporting this proposal, (the agencies evaluate the P2 hybrid technology discussed above where power-split hybrids might otherwise have been appropriate) although it is included as a baseline technology because it exists in our 2008 baseline fleet.

Plug-in hybrid electric vehicles (PHEV) are hybrid electric vehicles with the means to charge their battery packs from an outside source of electricity (usually the electric grid). These vehicles have larger battery packs with more energy storage and a greater capability to be discharged than other hybrid electric vehicles. They also use a control system that allows the battery pack to be substantially depleted under electric-only or blended mechanical/electric operation and batteries that can be cycled in charge sustaining operation at a lower state of charge than is typical of other hybrid electric vehicles. These vehicles are sometimes referred to as Range Extended Electric Vehicles (REEV). In this MYs 2017-2025 analysis, PHEVs with several all-electric ranges—both a 20 mile and a 40 mile all-electric range—have been included as potential technologies.

Electric vehicles (EV) are equipped with all-electric drive and with systems powered by energy-optimized batteries charged primarily from grid electricity. EVs with several ranges—75 mile, 100 mile and 150 mile range—have been included as potential technologies.

e. Technologies Considered but Deemed “Not Ready” in the MYs 2017-2025 Timeframe

Fuel cell electric vehicles (FCEVs) utilize a full electric drive platform but consume electricity generated by an on-board fuel cell and hydrogen fuel. Fuel cells are electro-chemical devices that directly convert reactants (hydrogen and oxygen via air) into electricity, with the potential of achieving more than twice the efficiency of conventional internal combustion engines. High pressure gaseous hydrogen storage tanks are used by most automakers for FCEVs that are currently under development. The high pressure tanks are similar to those used for compressed gas storage in more than 10 million CNG vehicles worldwide, except that they are designed to operate at a higher pressure (350 bar or 700 bar vs. 250 bar for CNG). While we expect there will be some limited introduction of FCEVs into the market place in the time frame of this rule, we expect this introduction to be relatively small, and thus FCEVs are not considered in the modeling analysis conducted for this proposal.

There are a number of other technologies that the agencies have not considered in their analysis, but may be considered for the final rule. These include HCCI, “multi-air”, and camless valve actuation, and other advanced engines currently under development.

2. How did the agencies determine the costs of each of these technologies?

As noted in the introduction to this section, most of the direct cost estimates for technologies carried over from the MYs 2012-2016 final rule and subsequently used in this proposal are fundamentally unchanged since the MYs 2012-2016 final rule analysis and/or the 2010 TAR. We say “fundamentally” unchanged since the basis of the direct manufacturing cost estimates have not changed; however, the costs have been updated to more recent dollars, the learning effects have resulted in further cost reductions for some technologies, the indirect costs are calculated using a modified methodology and the impact of long-term ICMs is now present during the rulemaking timeframe. Besides these changes, there are also some other notable changes to the costs used in previous analyses. We highlight these changes in Section II.D.2.a, below. We highlight the changes to the indirect cost methodology and adjustments to more recent dollars in Sections II.D.2.b and c. Lastly, we present some updated terminology used for our approach to estimating learning effects in an effort to eliminate confusion with our past terminology. This is discussed in Section II.D.2.d, below.

The agencies note that the technology costs included in this proposal take into account only those associated with the initial build of the vehicle. Although comments were received to the MYs 2012-2016 rulemaking that suggested there could be additional maintenance required with some new technologies (e.g., turbocharging, hybrids, etc.), and that additional maintenance costs could occur as a result, the agencies believe that it is equally possible that maintenance costs could decrease for some vehicles, especially when considering full electric vehicles (which lack routine engine maintenance) or the replacement of automatic transmissions with simpler dual-clutch transmissions. The agencies request comment on the possible maintenance cost impacts associated with this proposal, reminding potential commenters that increased warranty costs are already considered as part of the ICMs.

a. Direct Manufacturing Costs (DMC)

For direct manufacturing costs (DMC) related to turbocharging, downsizing, gasoline direct injection, transmissions, as well as non-battery-related costs on hybrid, plug-in hybrid and electric vehicles, the agencies have relied on costs derived from teardown studies. For battery related DMC for HEVs, PHEVs and EVs, the agencies have relied on the BatPaC model developed by Argonne National Laboratory for the Department of Energy. For mass reduction DMC, the agencies have relied on several studies as described in detail in the draft Joint TSD. We discuss each of these briefly here and in more detail in the draft joint TSD. For the majority of the other technologies considered in this proposal and described above, the agencies have relied on the 2012-2016 final rule and sources described there for estimates of DMC.

i. Costs from Tear-down Studies

As a general matter, the agencies believe that the best method to derive technology cost estimates is to conduct studies involving tear-down and analysis of actual vehicle components. A “tear-down” involves breaking down a technology into its fundamental parts and manufacturing processes by completely disassembling actual vehicles and vehicle subsystems and precisely determining what is required for its production. The result of the tear-down is a “bill of materials” for each and every part of the relevant vehicle systems. This tear-down method of costing technologies is often used by manufacturers to benchmark their products against competitive products. Historically, vehicle and vehicle component tear-down has not been done on a large scale by researchers and regulators due to the expense required for such studies. While tear-down studies are highly accurate at costing technologies for the year in which the study is intended, their accuracy, like that of all cost projections, may diminish over time as costs are extrapolated further into the future because of uncertainties in predicting commodities (and raw material) prices, labor rates, and manufacturing practices. The projected costs may be higher or lower than predicted.

Over the past several years, EPA has contracted with FEV, Inc. and its subcontractor Munro & Associates, to conduct tear-down cost studies for a number of key technologies evaluated by the agencies in assessing the feasibility of future GHG and CAFE standards. The analysis methodology included procedures to scale the tear-down results to smaller and larger vehicles, and also to different technology configurations. FEV's methodology was documented in a report published as part of the MY 2012-2016 rulemaking, detailing the costing of the first tear-down conducted in this work (#1 in the below list). [136] This report was peer reviewed by experts in the industry and revised by FEV in response to the peer review comments. [137] Subsequent tear-down studies (#2-5 in the below list) were documented in follow-up FEV reports made available in the public docket for the MY 2012-2016 rulemaking. [138]

Since then, FEV's work under this contract work assignment has continued. Additional cost studies have been completed and are available for public review. [139] The most extensive study, performed after the MY 2012-2016 Final Rule, involved whole-vehicle tear-downs of a 2010 Ford Fusion powersplit hybrid and a conventional 2010 Ford Fusion. (The latter served as a baseline vehicle for comparison.) In addition to providing powersplit HEV costs, the results for individual components in these vehicles were subsequently used by FEV/Munro to cost another hybrid technology, the P2 hybrid, which employs similar hardware. This approach to costing P2 hybrids was undertaken because P2 HEVs were not yet in volume production at the time of hardware procurement for tear-down. Finally, an automotive lithium-polymer battery was torn down and costed to provide supplemental battery costing information to that associated with the NiMH battery in the Fusion. This HEV cost work, including the extension of results to P2 HEVs, has been extensively documented in a new report prepared by FEV. [140] Because of the complexity and comprehensive scope of this HEV analysis, EPA commissioned a separate peer review focused exclusively on it. Reviewer comments generally supported FEV's methodology and results, while including a number of suggestions for improvement many of which were subsequently incorporated into FEV's analysis and final report. The peer review comments and responses are available in the rulemaking docket. 141 142

Over the course of this work assignment, teardown-based studies have been performed thus far on the technologies listed below. These completed studies provide a thorough evaluation of the new technologies' costs relative to their baseline (or replaced) technologies.

1. Stoichiometric gasoline direct injection (SGDI) and turbocharging with engine downsizing (T-DS) on a DOHC (dual overhead cam) I4 engine, replacing a conventional DOHC I4 engine.

2. SGDI and T-DS on a SOHC (single overhead cam) on a V6 engine, replacing a conventional 3-valve/cylinder SOHC V8 engine.

3. SGDI and T-DS on a DOHC I4 engine, replacing a DOHC V6 engine.

4. 6-speed automatic transmission (AT), replacing a 5-speed AT.

5. 6-speed wet dual clutch transmission (DCT) replacing a 6-speed AT.

6. 8-speed AT replacing a 6-speed AT.

7. 8-speed DCT replacing a 6-speed DCT.

8. Power-split hybrid (Ford Fusion with I4 engine) compared to a conventional vehicle (Ford Fusion with V6). The results from this tear-down were extended to address P2 hybrids. In addition, costs from individual components in this tear-down study were used by the agencies in developing cost estimates for PHEVs and EVs.

9. Mild hybrid with stop-start technology (Saturn Vue with I4 engine), replacing a conventional I4 engine. (Although results from this cost study are included in the rulemaking docket, they were not used by the agencies in this rulemaking's technical analyses.)

10. Fiat Multi-Air engine technology. (Although results from this cost study are included in the rulemaking docket, they were not used by the agencies in this rulemaking's technical analyses.)

Items 6 through 10 in the list above are new since the 2012-2016 final rule.

In addition, FEV and EPA extrapolated the engine downsizing costs for the following scenarios that were based on the above study cases:

1. Downsizing a SOHC 2 valve/cylinder V8 engine to a DOHC V6.

2. Downsizing a DOHC V8 to a DOHC V6.

3. Downsizing a SOHC V6 engine to a DOHC 4 cylinder engine.

4. Downsizing a DOHC 4 cylinder engine to a DOHC 3 cylinder engine.

The agencies have relied on the findings of FEV for estimating the cost of the technologies covered by the tear-down studies.

ii. Costs of HEV, EV & PHEV

The agencies have also reevaluated the costs for HEVs, PHEVs, and EVs since both the 2012-2016 final rule and the 2010 TAR. First, electrified vehicle technologies are developing rapidly and the agencies sought to capture results from the most recent analysis. Second, the 2012-2016 rule employed a single $/kWhr estimate and did not consider the specific vehicle and technology application for the battery when we estimated the cost of the battery. Specifically, batteries used in HEVs (high power density applications) versus EVs (high energy density applications) need to be considered appropriately to reflect the design differences, the chemical material usage differences and differences in $/kWhr as the power to energy ratio of the battery changes for different applications.

To address these issues for this proposal, the agencies have done two things. First, EPA has developed a spreadsheet tool that was used to size the motor and battery based on the different road load of various vehicle classes. Second, the agencies have used a battery cost model developed by Argonne National Laboratory (ANL) for the Vehicle Technologies Program of the U.S. Department of Energy (DOE) Office of Energy Efficiency and Renewable Energy. [143] The model developed by ANL allows users to estimate unique battery pack costs using user customized input sets for different hybridization applications, such as strong hybrid, PHEV and EV. The DOE has established long term industry goals and targets for advanced battery systems as it does for many energy efficient technologies. ANL was funded by DOE to provide an independent assessment of Li-ion battery costs because of ANL's expertise in the field as one of the primary DOE National Laboratories responsible for basic and applied battery energy storage technologies for future HEV, PHEV and EV applications. Since publication of the 2010 TAR, ANL's battery cost model has been peer-reviewed and ANL has updated the model and documentation to incorporate suggestions from peer-reviewers, such as including a battery management system, a battery disconnect unit, a thermal management system, etc. [144] In this proposal, NHTSA and EPA have used the recently revised version of this updated model.

The agencies are using the ANL model as the basis for estimating large- format lithium-ion batteries for this assessment for the following reasons. The model was developed by scientists at ANL who have significant experience in this area. The model uses a bill of materials methodology for developing cost estimates. The ANL model appropriately considers the vehicle application's power and energy requirements, which are two of the fundamental parameters when designing a lithium-ion battery for an HEV, PHEV, or EV. The ANL model can estimate production costs based on user defined inputs for a range of production volumes. The ANL model's cost estimates, while generally lower than the estimates we received from the OEMs, are consistent with some of the supplier cost estimates that EPA received from large-format lithium-ion battery pack manufacturers. This includes data which was received from on-site visits done by the EPA in the 2008-2011 time frame. Finally, the ANL model has been described and presented in the public domain and does not rely upon confidential business information (which could not be reviewed by the public).

The potential for future reductions in battery cost and improvements in battery performance relative to current batteries will play a major role in determining the overall cost and performance of future PHEVs and EVs. The U.S. Department of Energy manages major battery-related R&D programs and partnerships, and has done so for many years, including the ANL model utilized in this report. DOE has reviewed the battery cost projections underlying this proposal and supports the use of the ANL model for the purposes of this rulemaking.

We have also estimated cost associated with in-home chargers and installation of in-home chargers expected to be necessary for PHEVs and EVs. Charger costs are covered in more detail in chapter 3 of the draft Joint TSD.

iii. Mass Reduction Costs

The agencies have revised the costs for mass reduction from the MYs 2012-2016 rule and the 2010 Technical Assessment Report. For this proposal, the agencies are relying on a wide assortment of sources from the literature as well as data provided from a number of OEMs. Based on this review, the agencies have estimated a new cost curve such that the costs increase as the levels of mass reduction increase. For the final rule the agencies will consider any new studies that become available, including two studies that the agencies are sponsoring and expect will be completed in time to inform the final rule. These studies are discussed in TSD chapter 3.

b. Indirect Costs (IC)

i. Markup Factors to Estimate Indirect Costs

For this analysis, indirect costs are estimated by applying indirect cost multipliers (ICM) to direct cost estimates. ICMs were derived by EPA as a basis for estimating the impact on indirect costs of individual vehicle technology changes that would result from regulatory actions. Separate ICMs were derived for low, medium, and high complexity technologies, thus enabling estimates of indirect costs that reflect the variation in research, overhead, and other indirect costs that can occur among different technologies. ICMs were also applied in the MYs 2012-2016 rulemaking.

Prior to developing the ICM methodology, [145] EPA and NHTSA both applied a retail price equivalent (RPE) factor to estimate indirect costs. RPEs are estimated by dividing the total revenue of a manufacturer by the direct manufacturing costs. As such, it includes all forms of indirect costs for a manufacturer and assumes that the ratio applies equally for all technologies. ICMs are based on RPE estimates that are then modified to reflect only those elements of indirect costs that would be expected to change in response to a regulatory-induced technology change. For example, warranty costs would be reflected in both RPE and ICM estimates, while marketing costs might only be reflected in an RPE estimate but not an ICM estimate for a particular technology, if the new regulatory-induced technology change is not one expected to be marketed to consumers. Because ICMs calculated by EPA are for individual technologies, many of which are small in scale, they often reflect a subset of RPE costs; as a result, for low complexity technologies, the RPE is typically higher than the ICM. This is not always the case, as ICM estimates for particularly complex technologies, specifically hybrid technologies (for near term ICMs), and plug-in hybrid battery and full electric vehicle technologies (for near term and long term ICMs), reflect higher than average indirect costs, with the resulting ICMs for those technologies equaling or exceeding the averaged RPE for the industry.

There is some level of uncertainty surrounding both the ICM and RPE markup factors. The ICM estimates used in this proposed action group all technologies into four broad categories and treat them as if individual technologies within each of the categories (“low”, “medium”, “high1” and “high2” complexity) will have the same ratio of indirect costs to direct costs. This simplification means it is likely that the direct cost for some technologies within a category will be higher and some lower than the estimate for the category in general. More importantly, the ICM estimates have not been validated through a direct accounting of actual indirect costs for individual technologies. Rather, the ICM estimates were developed using adjustment factors developed in two separate occasions: the first, a consensus process, was reported in the RTI report; the second, a modified Delphi method, was conducted separately and reported in an EPA memo. [146] Both these panels were composed of EPA staff members with previous background in the automobile industry; the memberships of the two panels overlapped but were not identical. [147] The panels evaluated each element of the industry's RPE estimates and estimated the degree to which those elements would be expected to change in proportion to changes in direct manufacturing costs. The method and estimates in the RTI report were peer reviewed by three industry experts and subsequently by reviewers for the International Journal of Production Economics. RPEs themselves are inherently difficult to estimate because the accounting statements of manufacturers do not neatly categorize all cost elements as either direct or indirect costs. Hence, each researcher developing an RPE estimate must apply a certain amount of judgment to the allocation of the costs. Since empirical estimates of ICMs are ultimately derived from the same data used to measure RPEs, this affects both measures. However, the value of RPE has not been measured for specific technologies, or for groups of specific technologies. Thus applying a single average RPE to any given technology by definition overstates costs for very simple technologies, or understates them for advanced technologies.

In every recent GHG and fuel economy rulemaking proposal, we have requested comment on our ICM factors and whether it is most appropriate to use ICMs or RPEs. We have generally received little to no comment on the issue specifically, other than basic comments that the ICM values are too low. In addition, in the June 2010 NAS report, NAS noted that the under the initial ICMs, no technology would be assumed to have indirect costs as high as the average RPE. NRC found that “RPE factors certainly do vary depending on the complexity of the task of integrating a component into a vehicle system, the extent of the required changes to other components, the novelty of the technology, and other factors. However, until empirical data derived by means of rigorous estimation methods are available, the committee prefers to use average markup factors.” [148] The committee also stated that “The EPA (Rogozhin et al., 2009), however, has taken the first steps in attempting to analyze this problem in a way that could lead to a practical method of estimating technology-specific markup factors” where “this problem” spoke to the issue of estimating technology-specific markup factors and indirect cost multipliers. [149]

The agencies note that, since the committee completed their work, EPA has published its work in the Journal of Production Economics [150] and has also published a memorandum furthering the development of ICMs, [151] neither of which the committee had at their disposal. Further, having published two final rulemakings—the 2012-2016 light-duty rule (see 75 FR 25324) and the more recent heavy-duty GHG rule (see 76 FR 57106)—as well as the 2010 TAR where ICMs served as the basis for all or most of the indirect costs, EPA believes that ICMs are indeed fully developed for regulatory purposes. As thinking has matured, we have adjusted our ICM factors such that they are slightly higher and, importantly, we have changed the way in which the factors are applied.

The first change—increased ICM factors—has been done as a result of further thought among EPA and NHTSA that the ICM factors presented in the original RTI report for low and medium complexity technologies should no longer be used and that we should rely solely on the modified-Delphi values for these complexity levels. For that reason, we have eliminated the averaging of original RTI values with modified-Delphi values and instead are relying solely on the modified-Delphi values for low and medium complexity technologies. The second change—the way the factors are applied—results in the warranty portion of the indirect costs being applied as a multiplicative factor (thereby decreasing going forward as direct manufacturing costs decrease due to learning), and the remainder of the indirect costs being applied as an additive factor (thereby remaining constant year-over-year and not being reduced due to learning). This second change has a comparatively large impact on the resultant technology costs and, we believe, more appropriately estimates costs over time. In addition to these changes, a secondary-level change was also made as part of this ICM recalculation to ICMs. That change was to revise upward the RPE level reported in the original RTI report from an original value of 1.46 to 1.5, to reflect the long term average RPE. The original RTI study was based on 2008 data. However, an analysis of historical RPE data indicates that, although there is year to year variation, the average RPE has remained roughly constant at 1.5. ICMs will be applied to future years' data and, therefore, NHTSA and EPA staffs believe that it would be appropriate to base ICMs on the historical average rather than a single year's result. Therefore, ICMs have been adjusted to reflect this average level. These changes to the ICMs and the methodology are described in greater detail in Chapter 3 of the draft Joint TSD.

ii. Stranded Capital

Because the production of automotive components is capital-intensive, it is possible for substantial capital investments in manufacturing equipment and facilities to become “stranded” (where their value is lost, or diminished). This would occur when the capital is rendered useless (or less useful) by some factor that forces a major change in vehicle design, plant operations, or manufacturer's product mix, such as a shift in consumer demand for certain vehicle types. It can also be caused by new standards that phase-in at a rate too rapid to accommodate planned replacement or redisposition of existing capital to other activities. The lost value of capital equipment is then amortized in some way over production of the new technology components.

It is difficult to quantify accurately any capital stranding associated with new technology phase-ins under the proposed standards because of the iterative dynamic involved—that is, the new technology phase-in rate strongly affects the potential for additional cost due to stranded capital, but that additional cost in turn affects the degree and rate of phase-in for other individual competing technologies. In addition, such an analysis is very company-, factory-, and manufacturing process-specific, particularly in regard to finding alternative uses for equipment and facilities. Nevertheless, in order to account for the possibility of stranded capital costs, the agencies asked FEV to perform a separate bounding analysis of potential stranded capital costs associated with rapid phase-in of technologies due to new standards, using data from FEV's primary teardown-based cost analyses. [152]

The assumptions made in FEV's stranded capital analysis with potential for major impacts on results are:

  • All manufacturing equipment was bought brand new when the old technology started production (no carryover of equipment used to make the previous components that the old technology itself replaced).
  • 10-year normal production runs: Manufacturing equipment used to make old technology components is straight-line depreciated over a 10-year life.
  • Factory managers do not optimize capital equipment phase-outs (that is, they are assumed to routinely repair and replace equipment without regard to whether or not it will soon be scrapped due to adoption of new vehicle technology).
  • Estimated stranded capital is amortized over 5 years of annual production at 450,000 units (of the new technology components). This annual production is identical to that assumed in FEV's primary teardown-based cost analyses. The 5-year recovery period is chosen to help ensure a conservative analysis; the actual recovery would of course vary greatly with market conditions.

The stranded capital analysis was performed for three transmission technology scenarios, two engine technology scenarios, and one hybrid technology scenario. The methodology used by EPA in applying the results to the technology costs is described in Chapter 3.8.7 and Chapter 5.1 of EPA's draft RIA. The methodology used by NHTSA in applying the results to the technology costs is described in NHTSA's preliminary RIA section V.

c. Cost Adjustment to 2009 Dollars

This simple change is to update any costs presented in earlier analyses to 2009 dollars using the GDP price deflator as reported by the Bureau of Economic Analysis on January 27, 2011. The factors used to update costs from 2007 and 2008 dollars to 2009 dollars are shown below. For the final rule, we are considering moving to 2010 dollars but, for this analysis, given the timing of conducting modeling runs and developing inputs to those runs, the factors for converting to 2010 dollars were not yet available.

d. Cost Effects Due to Learning

For many of the technologies considered in this rulemaking, the agencies expect that the industry should be able to realize reductions in their costs over time as a result of “learning effects,” that is, the fact that as manufacturers gain experience in production, they are able to reduce the cost of production in a variety of ways. The agencies continue to apply learning effects in the same way as we did in both the MYs 2012-2016 final rule and in the 2010 TAR. However, we have employed some new terminology in an effort to eliminate some confusion that existed with our old terminology. This new terminology was described in the recent heavy-duty GHG final rule (see 76 FR 57320). Our old terminology suggested we were accounting for two completely different learning effects—one based on volume production and the other based on time. This was not the case since, in fact, we were actually relying on just one learning phenomenon, that being the learning-by-doing phenomenon that results from cumulative production volumes.

As a result, the agencies have also considered the impacts of manufacturer learning on the technology cost estimates by reflecting the phenomenon of volume-based learning curve cost reductions in our modeling using two algorithms depending on where in the learning cycle (i.e., on what portion of the learning curve) we consider a technology to be—“steep” portion of the curve for newer technologies and “flat” portion of the curve for more mature technologies. The observed phenomenon in the economic literature which supports manufacturer learning cost reductions are based on reductions in costs as production volumes increase with the highest absolute cost reduction occurring with the first doubling of production. The agencies use the terminology “steep” and “flat” portion of the curve to distinguish among newer technologies and more mature technologies, respectively, and how learning cost reductions are applied in cost analyses.

Learning impacts have been considered on most but not all of the technologies expected to be used because some of the expected technologies are already used rather widely in the industry and, presumably, quantifiable learning impacts have already occurred. The agencies have applied the steep learning algorithm for only a handful of technologies considered to be new or emerging technologies such as PHEV and EV batteries which are experiencing heavy development and, presumably, rapid cost declines in coming years. For most technologies, the agencies have considered them to be more established and, hence, the agencies have applied the lower flat learning algorithm. For more discussion of the learning approach and the technologies to which each type of learning has been applied the reader is directed to Chapter 3 of the draft Joint TSD. Note that, since the agencies had to project how learning will occur with new technologies over a long period of time, we request comments on the assumptions of learning costs and methodology. In particular, we are interested in input on the assumptions for advanced 27-bar BMEP cooled exhaust gas recirculation (EGR) engines, which are currently still in the experimental stage and not expected to be available in volume production until 2017. For our analysis, we have based estimates of the costs of this engine on current (or soon to be current) production technologies (e.g., gasoline direct injection fuel systems, engine downsizing, cooled EGR, 18-bar BMEP capable turbochargers), and assumed that, since learning (and the associated cost reductions) begins in 2012 for them that it also does for the similar technologies used in 27-bar BMEP engines. We seek comment on the appropriateness of this assumption. [153]

3. How did the agencies determine the effectiveness of each of these technologies?

In 2007 EPA conducted a detailed vehicle simulation project to quantify the effectiveness of a multitude of technologies for the MYs 2012-2016 rule (as well as the 2010 NOI). This technical work was conducted by the global engineering consulting firm, Ricardo, Inc. and was peer reviewed and then published in 2008. For this current rule, EPA has conducted another peer reviewed study with Ricardo to broaden the scope of the original project in order to expand the range of vehicle classes and technologies considered, consistent with a longer-term outlook through model years MYs 2017-2025. The extent of the project was vast, including hundreds of thousands of vehicle simulation runs. The results were, in turn, employed to calibrate and update EPA's lumped parameter model, which is used to quantify the synergies and dis-synergies associated with combining technologies together for the purposes of generating inputs for the agencies respective OMEGA and CAFE modeling.

Additionally, there were a number of technologies that Ricardo did not model explicitly. For these, the agencies relied on a variety of sources in the literature. A few of the values are identical to those presented in the MYs 2012-2016 final rule, while others were updated based on the newer version of the lumped parameter model. More details on the Ricardo simulation, lumped parameter model, as well as the effectiveness for supplemental technologies are described in Chapter 3 of the draft Joint TSD.

The agencies note that the effectiveness values estimated for the technologies considered in the modeling analyses may represent average values, and do not reflect the virtually unlimited spectrum of possible values that could result from adding the technology to different vehicles. For example, while the agencies have estimated an effectiveness of 0.6 to 0.8 percent, depending on the vehicle subclass for low friction lubricants, each vehicle could have a unique effectiveness estimate depending on the baseline vehicle's oil viscosity rating. Similarly, the reduction in rolling resistance (and thus the improvement in fuel economy and the reduction in CO 2 emissions) due to the application of low rolling resistance tires depends not only on the unique characteristics of the tires originally on the vehicle, but on the unique characteristics of the tires being applied, characteristics which must be balanced between fuel efficiency, safety, and performance. Aerodynamic drag reduction is much the same—it can improve fuel economy and reduce CO 2 emissions, but it is also highly dependent on vehicle-specific functional objectives. For purposes of the proposal, NHTSA and EPA believe that employing average values for technology effectiveness estimates, as adjusted depending on vehicle subclass, is an appropriate way of recognizing the potential variation in the specific benefits that individual manufacturers (and individual vehicles) might obtain from adding a fuel-saving technology.

E. Joint Economic and Other Assumptions

The agencies' analysis of CAFE and GHG standards for the model years covered by this proposed rulemaking rely on a range of forecast information, estimates of economic variables, and input parameters. This section briefly describes the agencies' proposed estimates of each of these values. These values play a significant role in assessing the benefits of both CAFE and GHG standards.

In reviewing these variables and the agencies' estimates of their values for purposes of this NPRM, NHTSA and EPA reconsidered comments that the agencies previously received on both the Interim Joint TAR and during the MYs 2012-2016 light duty vehicle rulemaking and also reviewed newly available literature. As a consequence, for today's proposal, the agencies are proposing to update some economic assumptions and parameter estimates, while retaining a majority of values consistent with the Interim Joint TAR and the MYs 2012-2016 final rule. To review the parameters and assumptions the agencies used in the 2012-2016 final rule, please refer to 75 FR 25378 and Chapter 4 of the Joint Technical Support Document that accompanied the final rule. [154] The proposed values summarized below are discussed in greater detail in Chapter 4 of the joint TSD that accompanies this proposal and elsewhere in the preamble and respective RIAs. The agencies seek comment on all of the assumptions discussed below.

  • Costs of fuel economy-improving technologies—These inputs are discussed in summary form above and in more detail in the agencies' respective sections of this preamble, in Chapter 3 of the draft joint TSD, and in the agencies' respective RIAs. The technology direct manufacturing cost estimates used in this analysis are intended to represent manufacturers' direct costs for high-volume production of vehicles with these technologies in the year for which we state the cost is considered “valid.” Technology direct manufacturing cost estimates are fundamentally unchanged from those employed by the agencies in the 2012-2016 final rule, the heavy-duty truck rule (to the extent relevant), and TAR for most technologies, although revised costs are used for batteries, mass reduction, transmissions, and a few other technologies. Indirect costs are accounted for by applying near-term indirect cost multipliers ranging from 1.24 to 1.77 to the estimates of vehicle manufacturers' direct costs for producing or acquiring each technology, depending on the complexity of the technology and the time frame over which costs are estimated. These values are reduced to 1.19 to 1.50 over the long run as some aspects of indirect costs decline. Indirect cost markup factors have been revised from previous rulemakings and the Interim Joint TAR to reflect the agencies current thinking regarding a number of issues. These changes are discussed in detail in Section II.D.2 of this preamble and in Chapter 3 of the draft joint TSD. Details of the agencies' technology cost assumptions and how they were derived can be found in Chapter 3 of the draft joint TSD.
  • Potential opportunity costs of improved fuel economy—This issue addresses the possibility that achieving the fuel economy improvements required by alternative CAFE or GHG standards would require manufacturers to compromise the performance, carrying capacity, safety, or comfort of their vehicle models. If it did so, the resulting sacrifice in the value of these attributes to consumers would represent an additional cost of achieving the required improvements, and thus of manufacturers' compliance with stricter standards. Currently the agencies project that these vehicle attributes will not change as a result of this rule. Section II.C above and Chapter 2 of the draft joint TSD describes how the agency carefully selected an attribute-based standard to minimize manufacturers' incentive to reduce vehicle capabilities. While manufacturers may choose to do this for other reasons, the agencies continue to believe that the rule itself will not result in such changes. Additionally, EPA and NHTSA have sought to include the cost of maintaining these attributes as part of the cost estimates for technologies that are included in the cost analysis for the proposal. For example, downsized engines are assumed to be turbocharged, so that they provide the same performance and utility even though they are smaller. [155] Nonetheless, it is possible that in some cases, the technology cost estimates may not include adequate allowance for the necessary efforts by manufacturers to maintain vehicle acceleration performance, payload, or utility while improving fuel economy and reducing GHG emissions. As described in Section III.D.3 and Section IV.G, there are two possible exceptions in cases where some vehicle types are converted to hybrid or full electric vehicles (EVs), but, in such cases, we believe that sufficient options would exist for consumers concerned about the possible loss of utility (e.g., they would purchase the non-hybridized version of the vehicle or not buy an EV) that welfare loss should not necessarily be assumed. Although consumer vehicle demand models can measure these effects, past analyses using such models have not produced consistent estimates of buyers' willingness-to-pay for higher fuel economy, and it is difficult to decide whether one data source, model specification, or estimation procedure is clearly preferred over another. Thus, the agencies seek comment on how to estimate explicitly the changes in vehicle buyers' choices and welfare from the combination of higher prices for new vehicle models, increases in their fuel economy, and any accompanying changes in vehicle attributes such as performance, passenger- and cargo-carrying capacity, or other dimensions of utility.
  • The on-road fuel economy “gap”—Actual fuel economy levels achieved by light-duty vehicles in on-road driving fall somewhat short of their levels measured under the laboratory test conditions used by EPA to establish compliance with the proposed CAFE and GHG standards. The modeling approach in this proposal follows the 2012-2016 final rule and the Interim Joint TAR. In calculating benefits of the program, the agencies estimate that actual on-road fuel economy attained by light-duty vehicles that operate on liquid fuels will be 20 percent lower than published fuel economy ratings for vehicles that operate on liquid fuels. For example, if the measured CAFE fuel economy value of a light truck is 20 mpg, the on-road fuel economy actually achieved by a typical driver of that vehicle is expected to be 16 mpg (20*.80). [156] Based on manufacturer confidential business information, as well as data derived from the 2006 EPA fuel economy label rule, the agencies use a 30 percent gap for consumption of wall electricity for electric vehicles and plug-in hybrid electric vehicles. [157]
  • Fuel prices and the value of saving fuel—Projected future fuel prices are a critical input into the preliminary economic analysis of alternative standards, because they determine the value of fuel savings both to new vehicle buyers and to society, and fuel savings account for the majority of the proposed rule's estimated benefits. For this proposed rule, the agencies are using the most recent fuel price projections from the U.S. Energy Information Administration's (EIA) Annual Energy Outlook (AEO) 2011 reference case forecast. The forecasts of fuel prices reported in EIA's AEO 2011 extend through 2035. Fuel prices beyond the time frame of AEO's forecast were estimated using an average growth rate for the years 2017-2035 to each year after 2035. This is the same methodology used by the agencies in the 2012-2016 rulemaking, in the heavy duty truck and engine rule (76 FR 57106), and in the Interim Joint TAR. For example, these forecasts of gasoline fuel prices in 2009$ include $3.25 per gallon in 2017, $3.39 in 2021 and $3.71 in 2035. Extrapolating as described above, retail gasoline prices reach $4.16 per gallon in 2050 (measured in constant 2009 dollars). As discussed in Chapter 4 of the draft Joint TSD, while the agencies believe that EIA's AEO reference case generally represents a reasonable forecast of future fuel prices for purposes of use in our analysis of the benefits of this rule, we recognize that there is a great deal of uncertainty in any such forecast that could affect our estimates. The agencies request comment on how best to account for uncertainty in future fuel prices.
  • Consumer valuation of fuel economy and payback period—In estimating the value of fuel economy improvements to potential vehicle buyers that would result from alternative CAFE and GHG standards, the agencies assume that buyers value the resulting fuel savings over only part of the expected lifetimes of the vehicles they purchase. Specifically, we assume that buyers value fuel savings over the first five years of a new vehicle's lifetime, and that buyers discount the value of these future fuel savings. The five-year figure represents the current average term of consumer loans to finance the purchase of new vehicles.
  • Vehicle sales assumptions—The first step in estimating lifetime fuel consumption by vehicles produced during a model year is to calculate the number that are expected to be produced and sold. The agencies relied on the AEO 2011 Reference Case for forecasts of total vehicle sales, while the baseline market forecast developed by the agencies (discussed in Section II.B and in Chapter 1 of the TSD) divided total projected sales into sales of cars and light trucks.
  • Vehicle lifetimes and survival rates—As in the 2012-2016 final rule and Interim Joint TAR, we apply updated values of age-specific survival rates for cars and light trucks to adjusted forecasts of passenger car and light truck sales to determine the number of these vehicles expected to remain in use during each year of their lifetimes. These values remain unchanged from prior analyses.
  • Vehicle miles traveled—We calculated the total number of miles that cars and light trucks produced in each model year will be driven during each year of their lifetimes using estimates of annual vehicle use by age tabulated from the Federal Highway Administration's 2001 National Household Travel Survey (NHTS), [158] adjusted to account for the effects on vehicle use of subsequent increases in fuel prices. In order to insure that the resulting mileage schedules imply reasonable estimates of future growth in total car and light truck use, we calculated the rate of future growth in annual mileage at each age that would be necessary for total car and light truck travel to increase at the rates forecast in the AEO 2011 Reference Case. The growth rate in average annual car and light truck use produced by this calculation is approximately 1 percent per year through 2030 and 0.5 percent thereafter. We applied these growth rates applied to the mileage figures derived from the 2001 NHTS to estimate annual mileage by vehicle age during each year of the expected lifetimes of MY 2017-2025 vehicles. A similar approach to estimating future vehicle use was used in the 2012-2016 final rule and Interim Joint TAR, but the future growth rates in average vehicle use have been revised for this proposal.
  • Accounting for the rebound effect of higher fuel economy—The rebound effect refers to the increase in vehicle use that results if an increase in fuel efficiency lowers the cost of driving. For purposes of this NPRM, the agencies elected to continue to use a 10 percent rebound effect in their analyses of fuel savings and other benefits from higher standards, consistent with the 2012-2016 light-duty vehicle rulemaking and the Interim Joint TAR. That is, we assume a 10 percent decrease in fuel cost per mile resulting from our proposed standards would result in a 1 percent increase in the annual number of miles driven at each age over a vehicle's lifetime. In Chapter 4 of the joint TSD, we provide a detailed explanation of the basis for our rebound estimate, including a summary of new literature published since the 2012-2016 rulemaking that lends further support to the 10 percent rebound estimate. We also refer the reader to Chapters X and XII of NHTSA's PRIA and Chapter 4 of the EPA DRIA that accompanies this preamble for sensitivity and uncertainty analyses of alternative rebound assumptions.
  • Benefits from increased vehicle use—The increase in vehicle use from the rebound effect provides additional benefits to drivers, who may make more frequent trips or travel farther to reach more desirable destinations. This additional travel provides benefits to drivers and their passengers by improving their access to social and economic opportunities away from home. The analysis estimates the economic benefits from increased rebound-effect driving as the sum of the fuel costs they incur in that additional travel plus the consumer surplus drivers receive from the improved accessibility their travel provides. As in the 2012-2016 final rule we estimate the economic value of this consumer surplus using the conventional approximation, which is one half of the product of the decline in vehicle operating costs per vehicle-mile and the resulting increase in the annual number of miles driven.
  • Added costs from congestion, accidents, and noise—Although it provides benefits to drivers as described above, increased vehicle use associated with the rebound effect also contributes to increased traffic congestion, motor vehicle accidents, and highway noise. Depending on how the additional travel is distributed over the day and where it takes place, additional vehicle use can contribute to traffic congestion and delays by increasing traffic volumes on facilities that are already heavily traveled. These added delays impose higher costs on drivers and other vehicle occupants in the form of increased travel time and operating expenses. At the same time, this travel also increases costs associated with traffic accidents, and increased traffic noise. The agencies rely on estimates of congestion, accident, and noise costs caused by automobiles and light trucks developed by the Federal Highway Administration to estimate these increased external costs caused by added driving. [159] This method is consistent with the 2012-2016 final rule.
  • Petroleum consumption and import externalities— U.S. consumption of imported petroleum products also 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 increased U.S. demand for imported oil on the world oil price (“monopsony costs”); (2) the expected costs associated with 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 the U.S. economy against the effects of oil supply disruptions. [160] Although the reduction in the global price of petroleum and refined products due to decreased demand for fuel in the U.S. resulting from this rule represents a benefit to the U.S. economy, it simultaneously represents an economic loss to other countries that produce and sell oil or petroleum products to the U.S. Recognizing the redistributive nature of this “monopsony effect” when viewed from a global perspective (which is consistent with the agencies' use of a global estimate for the social cost of carbon to value reductions in CO 2 emissions, the energy security benefits estimated to result from this program exclude the value of this monopsony effect. In contrast, the macroeconomic disruption and adjustment costs that arise from sudden reductions in the supply of imported oil to the U.S. do not have offsetting impacts outside of the U.S., so the estimated reduction in their expected value stemming from reduced U.S. petroleum imports is included in the energy security benefits estimated for this program. U.S. military costs are excluded from the analysis because their attribution to particular missions or activities is difficult. Also, historical variation in U.S. military costs have not been associated with changes in U.S. petroleum imports, although we recognize that more broadly, there may be significant (if unquantifiable) benefits in improving national security by reducing oil imports. Similarly, since the size or other factors affecting the cost of maintaining the SPR historically have not varied in response to changes in U.S. oil import levels, changes in the costs of the SPR are excluded from the estimates of the energy security benefits of the program. To summarize, the agencies have included only the macroeconomic disruption and adjustment costs portion of the energy security benefits to estimate the monetary value of the total energy security benefits of this program. Based on a recent update of an earlier peer-reviewed Oak Ridge National Laboratory study that was used in support of the both the 2012-2016 light duty vehicle and the 2014-2018 medium- and heavy-duty vehicle rulemaking, we estimate that each gallon of fuel saved will reduce the expected macroeconomic disruption and adjustment costs of sudden reductions in the supply of imported oil to the U.S. economy by $0.185 (2009$) in 2025. Each gallon of fuel saved as a consequence of higher standards is anticipated to reduce total U.S. imports of crude petroleum or refined fuel by 0.95 gallons. [161] The energy security analysis conducted for this proposal also estimates that the world price of oil will fall modestly in response to lower U.S. demand for refined fuel. 162 163 The energy security methodology used in this proposal is the same as that used by the agencies in both the 2012-2016 light duty vehicle and 2014-2018 medium- and heavy-duty vehicle rulemakings. In those rulemakings, the agencies addressed comments about the magnitude of their energy security estimates and methodological issues such as whether to include the monopsony benefits in energy security calculations.
  • Air pollutant emissions—

Impacts on criteria air pollutant emissions—Criteria air pollutants emitted by vehicles and during fuel production and distribution include carbon monoxide (CO), hydrocarbon compounds (usually referred to as “volatile organic compounds,” or VOC), nitrogen oxides (NO X), fine particulate matter (PM 2.5), and sulfur oxides (SO X). Although reductions in domestic fuel refining and distribution that result from lower fuel consumption will reduce U.S. emissions of these pollutants, additional vehicle use associated with the rebound effect, and additional electricity production will increase emissions. Thus the net effect of stricter standards on emissions of each criteria pollutant depends on the relative magnitudes of reduced emissions from fuel refining and distribution, and increases in emissions resulting from added vehicle use. The agencies' analysis assumes that the per-mile emission rates for cars and light trucks produced during the model years affected by the proposed rule will remain constant at the levels resulting from EPA's Tier 2 light duty vehicle emissions standards. The agencies' approach to estimating criteria air pollutant emissions is consistent with the method used in the 2012-2016 final rule (where the agencies received no significant adverse comments), although the agencies employ a more recent version of the EPA's MOVES (Motor Vehicle Emissions Simulator) model.

Economic value of reductions in criteria pollutant emissions—For the purpose of the joint technical analysis, EPA and NHTSA estimate the economic value of the human health benefits associated with reducing population exposure to PM 2.5 using a “benefit-per-ton” method. These PM 2.5-related benefit-per-ton estimates provide the total monetized benefits to human health (the sum of reductions in premature mortality and premature morbidity) that result from eliminating one ton of directly emitted PM 2.5, or one ton of other pollutants that contribute to atmospheric levels of PM 2.5 (such as NO X, SO X, and VOCs), from a specified source. These unit values remain unchanged from the 2012-2016 final rule, and the agencies received no significant adverse comment on the analysis. Note that the agencies' analysis includes no estimates of the direct health or other benefits associated with reductions in emissions of criteria pollutants other than PM 2.5.

Impacts on greenhouse gas (GHG) emissions—NHTSA estimates reductions in emissions of carbon dioxide (CO 2) from passenger car and light truck use by multiplying the estimated reduction in consumption of fuel (gasoline and diesel) by the quantity or mass of CO 2 emissions released per gallon of fuel consumed. EPA directly calculates reductions in total CO 2 emissions from the projected reductions in CO 2 emissions by each vehicle subject to the proposed rule. [164] Both agencies also calculate the impact on CO 2 emissions that occur during fuel production and distribution resulting from lower fuel consumption, as well as the emission impacts due to changes in electricity production. Although CO 2 emissions account for nearly 95 percent of total GHG emissions that result from fuel combustion during vehicle use, emissions of other GHGs are potentially significant as well because of their higher “potency” as GHGs than that of CO 2 itself. EPA and NHTSA therefore also estimate the change in upstream and downstream emissions of non-CO 2 GHGs that occur during the aforementioned processes due to their respective standards. [165] The agencies approach to estimating GHG emissions is consistent with the method used in the 2012-2016 final rule and the Interim Joint TAR.

Economic value of reductions in CO 2 emissions— EPA and NHTSA assigned a dollar value to reductions in CO 2 emissions using recent estimates of the “social cost of carbon” (SCC) developed by a federal interagency group that included the two agencies. As that group's report observed, “The SCC is an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year. It is intended to include (but is not limited to) changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services due to climate change.” [166] Published estimates of the SCC vary widely as a result of uncertainties about future economic growth, climate sensitivity to GHG emissions, procedures used to model the economic impacts of climate change, and the choice of discount rates. [167] The SCC estimates used in this analysis were developed through an interagency process that included EPA, DOT/NHTSA, and other executive branch entities, and concluded in February 2010. We first used these SCC estimates in the benefits analysis for the 2012-2016 light-duty vehicle rulemaking. We have continued to use these estimates in other rulemaking analyses, including the Greenhouse Gas Emission Standards and Fuel Efficiency Standards for Medium- and Heavy-Duty Engines and Vehicles (76 FR 57106, p. 57332) . The SCC Technical Support Document (SCC TSD) provides a complete discussion of the methods used to develop these SCC estimates.

  • The value of changes in driving range—By reducing the frequency with which drivers typically refuel their vehicles, and by extending the upper limit of the range they can travel before requiring refueling, improving fuel economy and reducing GHG emissions provides additional benefits to their owners. The primary benefits from the reduction in the number of required refueling cycles are the value of time saved to drivers and other adult vehicle occupants, as well as the savings to owners in terms of the cost of the fuel that would have otherwise been consumed in transit during those (now no longer required) refueling trips. Using recent data on vehicle owners' refueling patterns gathered from a survey conducted by the National Automotive Sampling System (NASS), NHTSA was able to better estimate parameters associated with refueling trips. NASS data provided NHTSA with the ability to estimate the average time required for a refueling trip, the average time and distance drivers typically travel out of their way to reach fueling stations, the average number of adult vehicle occupants, the average quantity of fuel purchased, and the distribution of reasons given by drivers for refueling. From these estimates, NHTSA constructed an updated set of economic assumptions to update those used in the 2012-2016 FRM in calculating refueling-related benefits. The 2012-2016 FRM discusses NHTSA's intent to utilize the NASS data on refueling trip characteristics in future rulemakings. While the NASS data improve the precision of the inputs used in the analysis of the benefits resulting from fewer refueling cycles, the framework of the analysis remains essentially the same as in the 2012-2016 final rule. Note that this topic and associated benefits were not covered in the Interim Joint TAR. Detailed discussion and examples of the agencies' approach are provided in Chapter VIII of NHTSA's PRIA and Chapter 8 of EPA's DRIA.
  • Discounting future benefits and costs—Discounting future fuel savings and other benefits is intended to account for the reduction in their value to society when they are deferred until some future date, rather than received immediately. [168] The discount rate expresses the percent decline in the value of these future fuel-savings and other benefits—as viewed from today's perspective—for each year they are deferred into the future. In evaluating the non-climate related benefits of the final standards, the agencies have employed discount rates of both 3 percent and 7 percent, consistent with the 2012-2016 final rule and OMB Circular A-4 guidance.

For the reader's reference, Table II-8 and Table II-9 below summarize the values used to calculate the impacts of each proposed standard. The values presented in this table are summaries of the inputs used for the models; specific values used in the agencies' respective analyses may be aggregated, expanded, or have other relevant adjustments. See Joint TSD 4 and each agency's respective RIA for details. The agencies seek comment on the economic assumptions presented in the table.

In addition, the agencies analyzed the sensitivity of their estimates of the benefits and costs associated with this proposed rule to variation in the values of many of these economic assumptions and other inputs. The values used in these sensitivity analyses and their results are presented their agencies' respective RIAs. A wide range of estimates is available for many of the primary inputs that are used in the agencies' CAFE and GHG emissions models. The agencies recognize that each of these values has some degree of uncertainty, which the agencies further discuss in the draft Joint TSD. The agencies have tested the sensitivity of their estimates of costs and benefits to a range of assumptions about each of these inputs, and present these sensitivity analyses in their respective RIAs. For example, NHTSA conducted separate sensitivity analyses for, among other things, discount rates, fuel prices, the social cost of carbon, the rebound effect, consumers' valuation of fuel economy benefits, battery costs, mass reduction costs, the value of a statistical life, and the indirect cost markup factor. This list is similar in scope to the list that was examined in the MY 2012-2016 final rule, but includes battery costs and mass reduction costs, while dropping military security and monopsony costs. NHTSA's sensitivity analyses are contained in Chapter X of NHTSA's PRIA. EPA conducted sensitivity analyses on the rebound effect, battery costs, mass reduction costs, the indirect cost markup factor and on the cost learning curves used in this analysis. These analyses are found in Chapters 3 and 4 of the EPA DRIA. In addition, NHTSA performs a probabilistic uncertainty analysis examining simultaneous variation in the major model inputs including technology costs, technology benefits, fuel prices, the rebound effect, and military security costs. This information is provided in Chapter XII of NHTSA's PRIA. These uncertainty parameters are consistent with those used in the MY 2012-2016 final rule. The agencies will consider conducting additional sensitivity and uncertainty analyses for the final rule as appropriate.

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F. Air Conditioning Efficiency CO 2 Credits and Fuel Consumption Improvement Values, Off-cycle Reductions, and Full-size Pickup Trucks

For MYs 2012-2016, EPA provided an option for manufacturers to generate credits for complying with GHG standards by incorporating efficiency improving vehicle technologies that would reduce CO 2 and fuel consumption from air conditioning (A/C) operation or from other vehicle operation that is not captured by the Federal Test Procedure (FTP) and Highway Fuel Economy Test (HFET), also collectively known as the “two-cycle” test procedure. EPA referred to these credits as “off-cycle credits.”

For this proposal, EPA, in coordination with NHTSA, is proposing under their EPCA authorities to allow manufacturers to generate fuel consumption improvement values for purposes of CAFE compliance based on the use of A/C efficiency and off-cycle technologies. This proposed expansion is a change from the 2012-16 final rule where EPA only provided the A/C efficiency and off-cycle credits for the GHG program. EPA is not proposing to allow these increases for compliance with the CAFE program for MYs 2012-2016, nor to allow any compliance with the CAFE program as a result of reductions in direct A/C emissions resulting from leakage of HFCs from air conditioning systems, which remains a flexibility unique to the GHG program.

The agencies believe that because of the significant amount of credits and fuel consumption improvement values offered under the A/C program (up to 5.0 g/mi for cars and 7.2 g/mi for trucks which is equivalent to a fuel consumption improvement value of 0.000563 gal/mi for cars and 0.000586 gal/mi for trucks) that manufacturers will maximize the benefits these credits and fuel consumption improvement values afford. Consistent with the 2012-2016 final rule, EPA will continue to adjust the stringency of the two-cycle tailpipe CO 2 standards in order to account for this projected widespread penetration of A/C credits (as described more fully in Section III.C), and NHTSA has also accounted for expected A/C efficiency improvements in determining the maximum feasible CAFE standards. The agencies discuss these proposed CO 2 credits/fuel consumption improvement values below and in more detail in the Joint TSD (Chapter 5). EPA discusses additional proposed GHG A/C leakage credits that are unrelated to CO 2 and fuel consumption (though they are part of EPA's CO 2 equivalent calculation) in Section III.C below.

EPA, in coordination with NHTSA, is also proposing to add for MYs 2017-2025 a new incentive for Advanced Technology for Full Sized Pickup Trucks. Under its EPCA authority for CAFE and under its CAA authority for GHGs, EPA is proposing GHG credits and fuel economy improvement values for manufacturers that hybridize a significant quantity of their full size pickup trucks, or that use other technologies that significantly reduce CO 2 emissions and fuel consumption. Further discussions of the A/C, off-cycle, and the advanced technology for pick-up truck incentive programs are provided below.

1. Proposed Air Conditioning CO 2 Credits and Fuel Consumption Improvement Values

The credits/fuel consumption improvement values for higher-efficiency air conditioning technologies are very similar to those EPA included in the 2012-2016 GHG final rule. The proposed credits/fuel consumption improvement values represent an improved understanding of the relationships between A/C technologies and CO 2 emissions and fuel consumption. Much of this understanding results from a new vehicle simulation tool that EPA has developed and the agencies are using for this proposal. EPA designed this model to simulate in an integrated way the dynamic behavior of the several key systems that affect vehicle efficiency: The engine, electrical, transmission, and vehicle systems. The simulation model is supported by data from a wide range of sources; Chapter 2 of the Draft Regulatory Impact Analysis discusses its development in more detail.

The agencies have identified several technologies that are key to the amount of fuel a vehicle consumes and thus the amount of CO 2 it emits. Most of these technologies already exist on current vehicles, but manufacturers can improve the energy efficiency of the technology designs and operation. For example, most of the additional air conditioning related load on an engine is due to the compressor which pumps the refrigerant around the system loop. The less the compressor operates, the less load the compressor places on the engine resulting in less fuel consumption and CO 2 emissions. Thus, optimizing compressor operation with cabin demand using more sophisticated sensors, controls and control strategies, is one path to improving the overall efficiency of the A/C system. Additional components or control strategies are available to manufacturers to reduce the air conditioning load on the engine which are discussed in more detail in Chapter 5 of the joint TSD. Overall, the agencies have concluded that these improved technologies could together reduce A/C-related CO 2 and fuel consumption of today's typical air conditioning systems by 42%. The agencies propose to use this level of improvement to represent the maximum efficiency credit available to a manufacturer.

Demonstrating the degree of efficiency improvement that a manufacturer's air conditioning systems achieve—thus quantifying the appropriate amount of GHG credit and CAFE fuel consumption improvement value the manufacturer is eligible for—would ideally involve a performance test. That is, a test that would directly measure CO 2 (and thus allow calculation of fuel consumption) before and after the incorporation of the improved technologies. Progress toward such a test continues. As mentioned in the introduction to this section, the primary vehicle emissions and fuel consumption test, the Federal Test Procedure (FTP) or “two-cycle” testing, does not require or simulate air conditioning usage through the test cycle. The SC03 test is designed to identify any effect the air conditioning system has on other emissions when it is operating under extreme conditions, but is not designed to measure the small differences in CO 2 due to different A/C technologies.

At the time of the final rule for the 2012-2016 GHG program, EPA concluded that a practical, performance-based test procedure capable of quantifying efficiency credits was not yet available. However, EPA introduced a specialized new procedure that it believed would be appropriate for the more limited purpose of demonstrating that the design improvements for which a manufacturer was earning credits produced actual efficiency improvements. EPA's test is a fairly simple test, performed while the vehicle is at idle. Beginning with the 2014 model year, the A/C Idle Test was to be used to qualify a manufacturer to be able to use the technology lookup table (“menu”) approach to quantify credits. That is, a manufacturer would need to achieve a certain CO 2 level on the Idle Test in order to access the “menu” and generate GHG efficiency credits.

Since that final rule was published, several manufacturers have provided data that raises questions about the ability of the Idle Test to fulfill its intended purpose. Especially for small, lower-powered vehicles, the data also shows that it is difficult to achieve reasonable test-to-test repeatability. The manufacturers have also informed EPA (in meetings subsequent to the 2012-2016 final rule) that the Idle Test does not accurately capture the improvements from many of the technologies listed in the menu. EPA has been aware of all of these issues, and proposing to modify the Idle Test such that the threshold would be a function of engine displacement, in contrast to the flat threshold from the previous rule. EPA continues to consider this Idle Test to be a reasonable measure of some A/C CO 2 emissions as there is significant real-world driving activity at idle, and the Idle Test significantly exercises a number of the A/C technologies from the menu. Sec III.C.1.b.i below and Chapter 5 (5.1.3.5) of the Joint TSD describe further the adjustments EPA is proposing to the Idle Test for manufacturers to qualify for MYs 2014-2016 A/C efficiency credits. EPA proposes that manufacturers continue to use the menu for MYs 2014-2016 to determine credits for the GHG program. This was also the approach that EPA used for efficiency credits in the MY2012-2016 GHG rule. However for MYs 2017-2025, EPA is proposing a new test procedure to demonstrate the effectiveness of A/C efficiency technologies and credits as described below. For MYs 2014-2016, EPA requests comment on substituting the Idle Test requirement with a reporting requirement from this new test procedure as described in Section III.C.1.b.i below.

In order to correct the shortcomings of the available tests, EPA has developed a four-part performance test, called the AC17. The test includes the SC03 driving cycle, the fuel economy highway cycle, in addition to a pre-conditioning cycle, and a solar soak period. EPA is proposing that manufacturers use this test to demonstrate that new or improved A/C technologies actually result in efficiency improvements. Since the appropriateness of the test is still being evaluated, EPA proposes that manufacturers continue to use the menu to determine credits and fuel consumption improvement values for the GHG and CAFE programs. This design-based approach would assign CO 2 credit to each efficiency-improving air conditioning technology that the manufacturer incorporates in a vehicle model. The sum of these values for all technologies would be the amount of CO 2 credit generated by that vehicle, up to a maximum of 5.0 g/mi for car and 7.2 g/mi for trucks. As stated above, this is equivalent to a fuel consumption value of 0.000563 gallons/mi for cars and 0.000586 gallons/mi for trucks. EPA will consult with NHTSA on the amount of fuel consumption improvement value manufacturers may factor into their CAFE calculations if there are adjustments that may be required in the future. Table II-10 presents the proposed CO 2 credit and CAFE fuel consumption improvement values for each of the efficiency-reducing air conditioning technologies considered in this rule. More detail is provided on the calculation of indirect A/C CAFE fuel consumption improvement values in chapter 5 of the TSD. EPA is proposing very specific definitions of each of the technologies in the table below which are discussed in Chapter 5 of the draft joint TSD to ensure that the air conditioner technology used by manufacturers seeking these credits corresponds with the technology used to derive the credit/fuel consumption improvement values.

BILLING CODE 4910-59-P

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As mentioned above, EPA, working with manufacturers and CARB, has made significant progress in developing a more robust test that may eventually be capable of measuring differences in A/C efficiency. While EPA believes that more testing and development will be necessary before the new test could be used directly to quantify efficiency credits and fuel consumption improvement values, EPA is proposing that the test be used to demonstrate that new or improved A/C technologies result in reductions in GHG emissions and fuel consumption. EPA is proposing the AC17 test as a reporting-only alternative to the Idle Test for MYs 2014-2016, and as a prerequisite for generating Efficiency Credits and fuel consumption improvement values for MY 2017 and later. To demonstrate that a vehicle's A/C system is delivering the efficiency benefits of the new technologies, manufacturers would run the AC17 test procedure on a vehicle that incorporates the new technologies, with the A/C system off and then on, and then compare that result to the result from a previous model year or baseline vehicle with similar vehicle characteristics, except that the comparison vehicle would not have the new technologies. If the test result with the new technology demonstrated an emission reduction that is greater than or equal to the menu-based credit potential of those technologies, the manufacturer would generate the appropriate credit based on the menu. However, if the test result did not demonstrate the full menu-based potential of the technology, partial credit could still be earned, in proportion to how far away the result was from the expected menu-based credit amount.

EPA discusses the new test in more detail in Section III.C.1.b below and in Chapter 5 (5.1.3.5) of the joint TSD. Due to the length of time to conduct the test procedure, EPA is also proposing that required testing on the new AC17 test procedure be limited to a subset of vehicles. The agencies request comment on this approach to establishing A/C efficiency credits and fuel consumption improvement values and the use of the new A/C test.

For the CAFE program, EPA is proposing to determine a fleet average fuel consumption improvement value in a manner consistent with the way a fleet average CO 2 credits will be determined. EPA would convert the metric tons of CO 2 credits for air conditioning, off-cycle, and full size pick-up to fleet-wide fuel consumption improvement values, consistent with the way EPA would convert the improvements in CO 2 performance to metric tons of credits. See discussion in section III. C. There would be separate improvement values for each type of credit, calculated separately for cars and for trucks. These improvement values would be subtracted from the manufacturer's two-cycle-based fleet fuel consumption value to yield a final new fleet fuel consumption value, which would be inverted to determine a final fleet fuel CAFE value. EPA considered, but is not proposing, an approach where the fuel consumption improvement values would be accounted for at the individual vehicle level. In this case a credit-adjusted MPG value would have to be calculated for each vehicle that accrues air conditioning, off-cycle, or pick-up truck credits, and a credit-adjusted CAFE would be calculated by sales-weighting each vehicle. EPA found that a significant issue with this approach is that the credit programs do not align with the way fuel economy and GHG emissions are currently reported to EPA or to NHTSA, i.e., at the model type level. Model types are similar in basic engine and transmission characteristics, but credits are expected to vary within a model type, possibly considerably. For example, within a model type the credits could vary by body style, trim level, footprint, and the type of air conditioning systems and other GHG reduction technologies installed. Manufacturers would have to report sales volumes for each unique combination of all of these factors in order to enable EPA to perform the CAFE averaging calculations. This would require a dramatic and expensive overhaul of EPA's data systems, and the manufacturers would likely face similar impacts. The vehicle-specific approach would also likely introduce more opportunities for errors resulting from data entry and rounding, since each vehicle's base fuel economy would be modified by multiple consumption values reported to at least six decimal places. The proposed approach would instead focus on calculating the GHG credits correctly and summing them for each of the car and truck fleets, and the step of transforming to a fuel consumption improvement value is relatively straightforward. However, given that the vehicle-specific and fleet-based approaches yield the same end result, EPA requests comment on whether one approach or the other is preferable, and if so, why a specific approach is preferable.

2. Off-Cycle CO 2 Credits

For MYs 2012-2016, EPA provided an option for manufacturers to generate adjustments (credits) for employing new and innovative technologies that achieve CO 2 reductions which are not reflected on current 2-cycle test procedures. For this proposal, EPA, in coordination with NHTSA, is proposing to apply the off-cycle credits and equivalent fuel consumption improvement values to both the CAFE and GHG programs. This proposed expansion is a change from the 2012-16 final rule where only EPA provided the off-cycle credits for the GHG program. For MY 2017 and later, EPA is proposing that manufacturers may continue to use off-cycle credits for GHG compliance and begin to use fuel consumption improvement values for CAFE compliance. In addition, EPA is proposing a set of defined (e.g. default) values for identified off-cycle technologies that would apply unless the manufacturer demonstrates to EPA that a different value for its technology is appropriate.

Starting with MY2008, EPA started employing a “five-cycle” test methodology to measure fuel economy for the fuel economy label. However, for GHG and CAFE compliance, EPA continues to use the established “two-cycle” (city and highway test cycles, also known as the FTP and HFET) test methodology. As learned through development of the “five-cycle” methodology and researching this proposal, EPA and NHTSA recognize that there are technologies that provide real-world GHG emissions and fuel consumption improvements, but those improvements are not fully reflected on the “two-cycle” test.

During meetings with vehicle manufacturers, EPA received comments that the approval process for generating off-cycle credits was complicated and did not provide sufficient certainty on the amount of credits that might be approved. Commenters also maintained that it is impractical to measure small incremental improvements on top of a large tailpipe measurement, similar to comments received related to quantifying air conditioner improvements. These same manufacturers believed that such a process could stifle innovation and fuel efficient technologies from penetrating into the vehicle fleet.

In response to these concerns, EPA is proposing a menu with a number of technologies that the agency believes will show real-world CO 2 and fuel consumption benefits which can be reasonably quantified by the agencies at this time. This list of pre-approved technologies includes a quantified default value that would apply unless the manufacturer demonstrates to EPA that a different value for a technology is appropriate. This list is similar to the menu driven approach described in the previous section on A/C efficiency credits. The estimates of these credits were largely determined from research, analysis and simulations, rather from full vehicle testing, which would have been cost and time prohibitive. These predefined estimates are somewhat conservative to avoid the potential for windfall. If manufactures believe their specific off-cycle technology achieves larger improvement, they may apply for greater credits and fuel consumption improvement values with supporting data. For technologies not listed, EPA is proposing a case-by-case approach for approval of off-cycle credits and fuel consumption improvement values, similar to the approach in the 2012-2016 rule but with important modifications to streamline the approval process. EPA will also consult with NHTSA during the review process. See section III.C below; technologies for which EPA is proposing default off-cycle credit values and fuel consumption improvement values are shown in Table II—11 below. Fuel consumption improvement values under the CAFE program based on off-cycle technology would be equivalent to the off-cycle credit allowed by EPA under the GHG program, and these amounts would be determined using the same procedures and test methods as are proposed for use in EPA's GHG program.

EPA and NHTSA are not proposing to adjust the stringency of the standards based on the availability of off-cycle credits and fuel consumption improvement values. There are a number of reasons for this. First, the agencies have limited technical information on the cost, development time necessary, and manufacturability of many of these technologies. The analysis presented below (and in greater detail in Chapter 5 of the joint TSD) is limited to quantifying the effectiveness of the technology (for the purposes of quantifying credits and fuel consumption improvement values). It is based on a combination of data and engineering analysis for each technology. Second, for most of these technologies the agencies have no data on what the rates of penetration of these technologies would be during the rule timeframe. Thus, with the exception of active aerodynamic improvements and stop start technology, the agencies do not have adequate information available to consider the technologies on the list when determining the appropriate GHG emissions or CAFE standards. The agencies expect to continue to improve their understanding of these technologies over time. If further information is obtained during the comment period that supports consideration of these technologies in setting the standards, EPA and NHTSA will reevaluate their positions. However, given the current lack of detailed information about these technologies, the agencies do not expect that it will be able to do more for the final rule than estimate some general amount of reasonable projected cost savings from generation of off-cycle credits and fuel consumption improvement values. Therefore, effectively the off-cycle credits and fuel consumption improvement values allow manufacturers additional flexibility in selecting technologies that may be used to comply with GHG emission and CAFE standards.

Two technologies on the list—active aerodynamic improvements and stop start—are in a different position than the other technologies on the list. Both of these technologies are included in the agencies' modeling analysis of technologies projected to be available for use in achieving the reductions needed for the standards. We have information on their effectiveness, cost, and availability for purposes of considering them along with the various other technologies we consider in determining the appropriate CO 2 emissions standard. These technologies are among those listed in Chapter 3 of the joint TSD and have measureable benefit on the 2-cycle test. However, in the context of off-cycle credits and fuel consumption improvement values, stop start is any technology which enables a vehicle to automatically turn off the engine when the vehicle comes to a rest and restart the engine when the driver applies pressure to the accelerator or releases the brake. This includes HEVs and PHEVs (but not EVs). In addition, active grill shutters is just one of various technologies that can be used as part of aerodynamic design improvements (as part of the “aero2” technology). The modeling and other analysis developed for determining the appropriate emissions standard includes these technologies, using the effectiveness values on the 2-cycle test. This is consistent with our consideration of all of the other technologies included in these analyses. Including them on the list for off-cycle credit and fuel consumption improvement value generation, for purposes of compliance with the standards, would recognize that these technologies have a higher degree of effectiveness than reflected in their 2-cycle effectiveness. As discussed in Sections III.C and Chapter 5 of the joint TSD, the agencies have taken into account the generation of off-cycle credits and fuel consumption improvement values by these two technologies in determining the appropriateness of the proposed standards, considering the amount of credit and fuel consumption improvement value, the projected degree of penetration of these technologies, and other factors. The proposed standards are appropriate recognizing that these technologies would also generate off-cycle credits and fuel consumption improvement values. Section III.D has a more detailed discussion on the feasibility of the standards within the context of the flexibilities (such as off-cycle credits and fuel consumption improvement values) proposed in this rule.

For these technologies that provide a benefit on five-cycle testing, but show less benefit on two cycle testing, in order to quantify the emissions impacts of these technologies, EPA will simply subtract the two-cycle benefit from the five-cycle benefit for the purposes of assigning credit and fuel consumption improvement values for this pre-approved list. Other technologies, such as more efficient lighting show no benefit over any test cycle. In these cases, EPA will estimate the average amount of usage using MOVES [169] data if possible and use this to calculate a duty-cycle-weighted benefit (or credit and fuel consumption improvement value). In the 2012-2016 rule, EPA stated a technology must have “real world GHG reductions not significantly captured on the current 2-cycle tests* * *” For this proposal, EPA is proposing to modify this requirement to allow technologies as long as the incremental benefit in the real-world is significantly better than on the 2-cycle test. There are environmental benefits to encouraging these kinds of technologies that might not otherwise be employed, beyond the level that the 2-cycle standards already do, thus we are now allowing credits and fuel consumption improvement values to be generated where the technology achieves an incremental benefit that is significantly better than on the 2-cycle test, as is the case for the technologies on the list.

EPA and NHTSA evaluated many more technologies for off-cycle credits and fuel consumption improvement values and decided that the following technologies should be eligible for off-cycle credits and fuel consumption improvement values. These eleven technologies eligible for credits and fuel consumption improvement values are shown in Table II-11 below. EPA is proposing that a CAFE improvement value for off-cycle improvements be determined at the fleet level by converting the CO 2 credits determined under the EPA program (in metric tons of CO 2) for each fleet (car and truck) to a fleet fuel consumption improvement value. This improvement value would then be used to adjust the fleet's CAFE level upward. See the proposed regulations at 40 CFR 600.510-12. Note that while the table below presents fuel consumption values equivalent to a given CO 2 credit value, these consumption values are presented for informational purposes and are not meant to imply that these values will be used to determine the fuel economy for individual vehicles.

Table II-11 shows the proposed list of off-cycle technologies and credits and equivalent fuel consumption improvement values for cars and trucks. The credits and fuel consumption improvement values for engine heat recovery and solar roof panels are scalable, depending on the amount of energy these systems can generate for the vehicle. The Solar/Thermal control technologies are varied and are limited to 3 and 4.3 g/mi (car and truck respectively) total.

To ensure that the off cycle technology used by manufacturers seeking these credits and fuel consumption improvement values corresponds with the technology used to derive the credit and fuel consumption improvement values, EPA is proposing very specific definitions of each of the technologies in the table of the list of technologies in Chapter 5 of the draft joint TSD. The agencies are requesting comment on all aspects of the off-cycle credit and fuel consumption improvement value program, and would welcome any data to support an adjustment to this table, whether it is to adjust the values or to add or remove technologies.

Vehicle Simulation Tool

Chapter 2 of the RIA provides a detailed description of the vehicle simulation tool that EPA has been developing. This tool is capable of simulating a wide range of conventional and advanced engines, transmissions, and vehicle technologies over various driving cycles. It evaluates technology package effectiveness while taking into account synergy (and dis-synergy) effects among vehicle components and estimates GHG emissions for various combinations of technologies. For the 2017 to 2025 GHG proposal, this simulation tool was used to assist estimating the amount of GHG credits for improved A/C systems and off-cycle technologies. EPA seeks public comments on this approach of using the tool for directly generating and fine-tuning some of the credits in order to capture the amount of GHG reductions provided by primarily off-cycle technologies.

There are a number of technologies that could bring additional GHG reductions over the 5-cycle drive test (or in the real world) compared to the combined FTP/Highway (or two) cycle test. These are called off-cycle technologies and are described in chapter 5 of the Joint TSD in detail. Among them are technologies related to reducing vehicle's electrical loads, such as High Efficiency Exterior Lights, Engine Heat Recovery, and Solar Roof Panels. In an effort to streamline the process for approving off-cycle credits, we have set a relatively conservative estimate of the credit based on our efficacy analysis. EPA seeks comment on utilizing the model in order to quantify the credits more accurately, if actual data of electrical load reduction and/or on-board electricity generation by one or more of these technologies is available through data submission from manufacturers. Similarly, there are technologies that would provide additional GHG reduction benefits in the 5-cycle test by actively reducing the vehicle's aerodynamic drag forces. These are referred to as active aerodynamic technologies, which include but are not limited to active grill shutters and active suspension lowering. Like the electrical load reduction technologies, the vehicle simulation tool can be used to more accurately estimate the additional GHG reductions (therefore the credits) provided by these active aerodynamic technologies over the 5-cycle drive test. EPA seeks comment on using the simulation tool in order to quantify these credits. In order to do this properly, manufacturers would be expected to submit two sets of coast-down coefficients (with and without the active aerodynamic technologies). Or, they could submit two sets of aerodynamic drag coefficient (with and without the active aerodynamic technologies) as a function of vehicle speed.

There are other technologies that would result in additional GHG reduction benefits that cannot be fully captured on the combined FTP/Highway cycle test. These technologies typically reduce engine loads by utilizing advanced engine controls, and they range from enabling the vehicle to turn off the engine at idle, to reducing cabin temperature and thus A/C compressor loading when the vehicle is restarted. Examples include Engine Start-Stop, Electric Heater Circulation Pump, Active Engine/Transmission Warm-Up, and Solar Control. For these types of technologies, the overall GHG reduction largely depends on the control and calibration strategies of individual manufacturers and vehicle types. Also, the current vehicle simulation tool does not have the capability to properly simulate the vehicle behaviors that depend on thermal conditions of the vehicle and its surroundings, such as Active Engine/Transmission Warm-Up and Solar Control. Therefore, the vehicle simulation may not provide full benefits of the technologies on the GHG reductions. For this reason, the agency is not proposing to use the simulation tool to generate the GHG credits for these technologies at this time, though future versions of the model may be more capable of quantifying the efficacy of these off-cycle technologies as well.

3. Advanced Technology Incentives for Full Sized Pickup Trucks

The agencies recognize that the standards under consideration for MY 2017-2025 will be most challenging to large trucks, including full size pickup trucks that are often used for commercial purposes and have generally higher payload and towing capabilities, and cargo volumes than other light-duty vehicles. In Section II.C and Chapter 2 of the joint TSD, EPA and NHTSA describe the proposal to adjust the slope of the truck curve compared to the 2012-2016 rule. In Sections III.B and IV.F, EPA and NHTSA describe the progression of the truck standards. In this section, the agencies describe a credit and fuel consumption improvement value for full size pickup trucks to incentivize advanced technologies on this class of vehicles.

The agencies' goal is to incentivize the penetration into the marketplace of “game changing” technologies for these pickups, including their hybridization. For that reason, EPA, in coordination with NHTSA, is proposing credits and corresponding equivalent fuel consumption improvement values for manufacturers that hybridize a significant quantity of their full size pickup trucks, or use other technologies that significantly reduce CO 2 emissions and fuel consumption. This proposed credit and corresponding equivalent fuel consumption improvement value would be available on a per-vehicle basis for mild and strong HEVs, as well as other technologies that significantly improve the efficiency of the full sized pickup class. [170] The credits and fuel consumption improvement values would apply for purposes of compliance with both the GHG emissions standards and the CAFE standards. This provides the incentive to begin transforming this most challenging category of vehicles toward use of the most advanced technologies.

Access to this credit and fuel consumption improvement value is conditioned on a minimum penetration of the technologies in a manufacturer's full size pickup truck fleet. To ensure its use for only full sized pickup trucks, EPA is proposing a very specific definition for a full sized pickup truck based on minimum bed size and minimum towing capability. The specifics of this proposed definition can be found in Chapter 5 of the draft joint TSD (see Section 5.3.1). This proposed definition is meant to ensure that smaller pickup trucks, which do not offer the same level of utility (e.g., bed size, towing capability and/or payload capability) and thus may not face the same technical challenges to improving fuel economy and reducing CO 2 emissions as compared to full sized pickup trucks, do not qualify. [171] For this proposal, a full sized pickup truck would be defined as meeting requirements 1 and 2, below, as well as either requirement 3 or 4, below:

1. The vehicle must have an open cargo box with a minimum width between the wheelhouses of 48 inches measured as the minimum lateral distance between the limiting interferences (pass-through) of the wheelhouses. The measurement would exclude the transitional arc, local protrusions, and depressions or pockets, if present. [172] An open cargo box means a vehicle where the cargo bed does not have a permanent roof or cover. Vehicles sold with detachable covers are considered “open” for the purposes of these criteria.

2. Minimum open cargo box length of 60 inches defined by the lesser of the pickup bed length at the top of the body (defined as the longitudinal distance from the inside front of the pickup bed to the inside of the closed endgate; this would be measured at the height of the top of the open pickup bed along vehicle centerline and the pickup bed length at the floor) and the pickup bed length at the floor (defined as the longitudinal distance from the inside front of the pickup bed to the inside of the closed endgate; this would be measured at the cargo floor surface along vehicle centerline). [173]

3. Minimum Towing Capability—the vehicle must have a GCWR (gross combined weight rating) minus GVWR (gross vehicle weight rating) value of at least 5,000 pounds. [174]

4. Minimum Payload Capability—the vehicle must have a GVWR (gross vehicle weight rating) minus curb weight value of at least 1,700 pounds.

The technical basis for these proposed definitions is found in Section III.C below and Chapter 5 of the joint TSD. EPA is proposing that mild HEV pickup trucks would be eligible for a per-truck 10 g/mi CO 2 credit (equal to a 0.001125 gal/mi fuel consumption improvement value) during MYs 2017-2021 if the mild HEV technology is used on a minimum percentage of a company's full sized pickups. That minimum percentage would be 30 percent of a company's full sized pickup production in MY 2017 with a ramp up to at least 80 percent of production in MY 2021.

EPA is also proposing that strong HEV pickup trucks would be eligible for a per-truck 20 g/mi CO 2 credit (equal to a 0.002250 gal/mi fuel consumption improvement value) during MYs 2017-2025 if the strong HEV technology is used on a minimum percentage of a company's full sized pickups. That minimum percentage would be 10 percent of a company's full sized pickup production in each year over the model years 2017-2025.

To ensure that the hybridization technology used by manufacturers seeking one of these credits and fuel consumption improvement values meets the intent behind the incentives, EPA is proposing very specific definitions of what qualifies as a mild and a strong HEV. These definitions are described in detail in Chapter 5 of the draft joint TSD (see section 5.3.3).

For similar reasons, EPA is also proposing a performance-based incentive credit and equivalent fuel consumption improvement value for full size pickup trucks that achieve an emission level significantly below the applicable target. [175] EPA, in coordination with NHTSA, proposes this credit to be either 10 g/mi CO 2 (equivalent to 0.001125 gal/mi for the CAFE program) or 20 g/mi CO 2 (equivalent to 0.002250 gal/mi for the CAFE program) for pickups achieving 15 percent or 20 percent, respectively, better CO 2 than their footprint based target in a given model year. Because the footprint target curve has been adjusted to account for A/C related credits, the CO 2 level to be compared with the target would also include any A/C related credits generated by the vehicle. Further details on this performance-based incentive are in Section III.C below and in Chapter 5 of the draft joint TSD (see Section 5.3.4). The 10 g/mi (equivalent to 0.001125 gal/mi) performance-based credit and fuel consumption improvement value would be available for MYs 2017 to 2021 and a vehicle meeting the requirements would receive the credit and fuel consumption improvement value until MY 2021 unless its CO 2 level increases or fuel economy decreases. The 20 g/mi CO 2 (equivalent to 0.0023 gal/mi fuel consumption improvement value) performance-based credit would be available for a maximum of 5 years within the model years of 2017 to 2025, provided its CO 2 level and fuel consumption does not increase. The rationale for these limits is because of the year over year progression of the stringency of the truck target curves. The credits and fuel consumption improvement values would begin in the model year of introduction, and could not extend past MY 2021 for the 10 g/mi credit (equivalent to 0.001125 gal/mi) and MY 2025 for the 20 g/mi credit (equivalent to 0.002250 gal/mi).

As with the HEV-based credit and fuel consumption improvement value, the performance-based credit and fuel consumption improvement value requires that the technology be used on a minimum percentage of a manufacturer's full-size pickup trucks. That minimum percentage for the 10 g/mi GHG credit (equivalent to 0.001125 gal/mi fuel consumption improvement value) would be 15 percent of a company's full sized pickup production in MY 2017 with a ramp up to at least 40 percent of production in MY 2021. The minimum percentage for the 20 g/mi credit (equivalent to 0.002250 gal/mi fuel consumption improvement value) would be 10 percent of a company's full sized pickup production in each year over the model years 2017-2025.

Importantly, the same vehicle could not receive credit and fuel consumption improvement under both the HEV and the performance-based approaches. EPA and NHTSA request comment on all aspects of this proposed pickup truck incentive credit and fuel consumption improvement value, including the proposed definitions for full sized pickup truck and mild and strong HEV.

G. Safety Considerations in Establishing CAFE/GHG Standards

1. Why do the agencies consider safety?

The primary goals of the proposed CAFE and GHG standards are to reduce fuel consumption and GHG emissions from the on-road light-duty vehicle fleet, but in addition to these intended effects, the agencies also consider the potential of the standards to affect vehicle safety. [176] As a safety agency, NHTSA has long considered the potential for adverse safety consequences when establishing CAFE standards, [177] and under the CAA, EPA considers factors related to public health and human welfare, and safety, in regulating emissions of air pollutants from mobile sources. [178] Safety trade-offs associated with fuel economy increases have occurred in the past (particularly before NHTSA CAFE standards were attribute-based), and the agencies must be mindful of the possibility of future ones. These past safety trade-offs may have occurred because manufacturers chose, at the time, to build smaller and lighter vehicles—partly in response to CAFE standards—rather than adding more expensive fuel-saving technologies (and maintaining vehicle size and safety), and the smaller and lighter vehicles did not fare as well in crashes as larger and heavier vehicles. Historically, as shown in FARS data analyzed by NHTSA, the safest cars generally have been heavy and large, while the cars with the highest fatal-crash rates have been light and small. The question, then, is whether past is necessarily prologue when it comes to potential changes in vehicle size (both footprint and “overhang”) and mass in response to these proposed future CAFE and GHG standards. Manufacturers have stated that they will reduce vehicle mass as one of the cost-effective means of increasing fuel economy and reducing CO 2 emissions in order to meet the proposed standards, and the agencies have incorporated this expectation into our modeling analysis supporting the proposed standards. Because the agencies discern a historical relationship between vehicle mass, size, and safety, it is reasonable to assume that these relationships will continue in the future. The question of whether vehicle design can mitigate the adverse effects of mass reduction is discussed below.

Manufacturers are less likely than they were in the past to reduce vehicle footprint in order to reduce mass for increased fuel economy. The primary mechanism in this rulemaking for mitigating the potential negative effects on safety is the application of footprint-based standards, which create a disincentive for manufacturers to produce smaller-footprint vehicles. See section II. C.1, above. This is because, as footprint decreases, the corresponding fuel economy/GHG emission target becomes more stringent. We also believe that the shape of the footprint curves themselves is approximately “footprint-neutral,” that is, that it should neither encourage manufacturers to increase the footprint of their fleets, nor to decrease it. Upsizing footprint is also discouraged through the curve “cut-off” at larger footprints. [179] However, the footprint-based standards do not discourage downsizing the portions of a vehicle in front of the front axle and to the rear of the rear axle, or of other areas of the vehicle outside the wheels. The crush space provided by those portions of a vehicle can make important contributions to managing crash energy. Additionally, simply because footprint-based standards create no incentive to downsize vehicles does not mean that manufacturers will not downsize if doing so makes it easier to meet the overall CAFE/GHG standard, as for example if the smaller vehicles are so much lighter that they exceed their targets by much greater amounts. On balance, however, we believe the target curves and the incentives they provide generally will not encourage down-sizing (or up-sizing) in terms of footprint reductions (or increases). [180] Consequently, all of our analyses are based on the assumption that this rulemaking, in and of itself, will not result in any differences in the sales weighted distribution of vehicle sizes.

Given that we expect manufacturers to reduce vehicle mass in response to the proposed standards, and do not expect manufacturers to reduce vehicle footprint in response to the proposed standards, the agencies must attempt to predict the safety effects, if any, of the proposed standards based on the best information currently available. This section explained why the agencies consider safety; the following section discusses how the agencies consider safety.

2. How do the agencies consider safety?

Assessing the effects of vehicle mass reduction and size on societal safety is a complex issue. One part of estimating potential safety effects involves trying to understand better the relationship between mass and vehicle design. The extent of mass reduction that manufacturers may be considering to meet more stringent fuel economy and GHG standards may raise different safety concerns from what the industry has previously faced. The principal difference between the heavier vehicles, especially truck-based LTVs, and the lighter vehicles, especially passenger cars, is that mass reduction has a different effect in collisions with another car or LTV. When two vehicles of unequal mass collide, the change in velocity (delta V) is higher in the lighter vehicle, similar to the mass ratio proportion. As a result of the higher change in velocity, the fatality risk may also increase. Removing more mass from the heavier vehicle than in the lighter vehicle by amounts that bring the mass ratio closer to 1.0 reduces the delta V in the lighter vehicle, possibly resulting in a net societal benefit.

Another complexity is that if a vehicle is made lighter, adjustments must be made to the vehicle's structure such that it will be able to manage the energy in a crash while limiting intrusion into the occupant compartment after adopting materials that may be stiffer. To maintain an acceptable occupant compartment deceleration, the effective front end stiffness has to be managed such that the crash pulse does not increase as stiffer yet lighter materials are utilized. If the energy is not well managed, the occupants may have to “ride down” a more severe crash pulse, putting more burdens on the restraint systems to protect the occupants. There may be technological and physical limitations to how much the restraint system may mitigate these effects.

The agencies must attempt to estimate now, based on the best information currently available to us, how the assumed levels of mass reduction without additional changes (i.e. footprint, performance, functionality) might affect the safety of vehicles, and how lighter vehicles might affect the safety of drivers and passengers in the entire on-road fleet, as we are analyzing potential future CAFE and GHG standards. The agencies seek to ensure that the standards are designed to encourage manufacturers to pursue a path toward compliance that is both cost-effective and safe.

To estimate the possible safety effects of the MY 2017-2025 standards, then, the agencies have undertaken research that approaches this question from several angles. First, we are using a statistical approach to study the effect of vehicle mass reduction on safety historically, as discussed in greater detail in section C below. Statistical analysis is performed using the most recent historical crash data available, and is considered as the agencies' best estimate of potential mass-safety effects. The agencies recognize that negative safety effects estimated based on the historical relationships could potentially be tempered with safety technology advances in the future, and may not represent the current or future fleet. Second, we are using an engineering approach to investigate what amount of mass reduction is affordable and feasible while maintaining vehicle safety and other major functionalities such as NVH and acceleration performance. Third, we are also studying the new challenges these lighter vehicles might bring to vehicle safety and potential countermeasures available to manage those challenges effectively.

The sections below discuss more specifically the state of the research on the mass-safety relationship, and how the agencies integrate that research into our assessment of the potential safety effects of the MY 2017-2025 CAFE and GHG standards.

3. What is the current state of the research on statistical analysis of historical crash data?

a. Background

Researchers have been using statistical analysis to examine the relationship of vehicle mass and safety in historical crash data for many years, and continue to refine their techniques over time. In the MY 2012-2016 final rule, the agencies stated that we would conduct further study and research into the interaction of mass, size and safety to assist future rulemakings, and start to work collaboratively by developing an interagency working group between NHTSA, EPA, DOE, and CARB to evaluate all aspects of mass, size and safety. The team would seek to coordinate government supported studies and independent research, to the greatest extent possible, to help ensure the work is complementary to previous and ongoing research and to guide further research in this area.

The agencies also identified three specific areas to direct research in preparation for future CAFE/GHG rulemaking in regards to statistical analysis of historical data.

First, NHTSA would contract with an independent institution to review the statistical methods that NHTSA and DRI have used to analyze historical data related to mass, size and safety, and to provide recommendation on whether the existing methods or other methods should be used for future statistical analysis of historical data. This study will include a consideration of potential near multicollinearity in the historical data and how best to address it in a regression analysis. The 2010 NHTSA report was also peer reviewed by two other experts in the safety field—Charles Farmer (Insurance Institute for Highway Safety) and Anders Lie (Swedish Transport Administration). [181]

Second, NHTSA and EPA, in consultation with DOE, would update the MYs 1991-1999 database on which the safety analyses in the NPRM and final rule are based with newer vehicle data, and create a common database that could be made publicly available to help address concerns that differences in data were leading to different results in statistical analyses by different researchers.

And third, in order to assess if the design of recent model year vehicles that incorporate various mass reduction methods affect the relationships among vehicle mass, size and safety, the agencies sought to identify vehicles that are using material substitution and smart design, and to try to assess if there is sufficient crash data involving those vehicles for statistical analysis. If sufficient data exists, statistical analysis would be conducted to compare the relationship among mass, size and safety of these smart design vehicles to vehicles of similar size and mass with more traditional designs.

Significant progress has been made on these tasks since the MY 2012-2016 final rule, as follows: The independent review of recent and updated statistical analyses of the relationship between vehicle mass, size, and crash fatality rates has been completed. NHTSA contracted with the University of Michigan Transportation Research Institute (UMTRI) to conduct this review, and the UMTRI team led by Paul Green evaluated over 20 papers, including studies done by NHTSA's Charles Kahane, Tom Wenzel of the US Department of Energy's Lawrence Berkeley National Laboratory, Dynamic Research, Inc., and others. UMTRI's basic findings will be discussed below. Some commenters in recent CAFE rulemakings, including some vehicle manufacturers, suggested that the designs and materials of more recent model year vehicles may have weakened the historical statistical relationships between mass, size, and safety. The agencies agree that the statistical analysis would be improved by using an updated database that reflects more recent safety technologies, vehicle designs and materials, and reflects changes in the overall vehicle fleet. The agencies also believe, as UMTRI also found, that different statistical analyses may have had different results because they each used slightly different datasets for their analyses. In order to try to mitigate this problem and to support the current rulemaking, NHTSA has created a common, updated database for statistical analysis that consists of crash data of model years 2000-2007 vehicles in calendar years 2002-2008, as compared to the database used in prior NHTSA analyses which was based on model years 1991-1999 vehicles in calendar years 1995-2000. The new database is the most up-to-date possible, given the processing lead time for crash data and the need for enough crash cases to permit statistically meaningful analyses. NHTSA has made the new databases available to the public, [182] enabling other researchers to analyze the same data and hopefully minimizing discrepancies in the results that would have been due to inconsistencies across databases. [183] The agencies recognize, however, that the updated database may not represent the future fleet, because vehicles have continued and will continue to change.

The agencies are aware that several studies have been initiated using NHTSA's 2011 newly established safety database. In addition to a new Kahane study, which is discussed in section II.G.4, other on-going studies include two by Wenzel at Lawrence Berkeley National Laboratory (LBNL) under contract with the U.S. DOE, and one by Dynamic Research, Inc. (DRI) contracted by the International Council on Clean Transportation (ICCT). These studies may take somewhat different approaches to examine the statistical relationship between fatality risk, vehicle mass and size. In addition to a detailed assessment of the NHTSA 2011 report, Wenzel is expected to consider the effect of mass and footprint reduction on casualty risk per crash, using data from thirteen states. Casualty risk includes both fatalities and serious or incapacitating injuries. DRI is expected to use a two-stage approach to separate the effect of mass reduction on two components of fatality risk, crash avoidance and crashworthiness. The LBNL assessment of the NHTSA 2011 report is available in the docket for this NPRM. [184] The casualty risk effect study was not available in time to inform this NPRM. The completed final peer reviewed-report on both assessments will be available prior to the final rule. DRI has also indicated that it expects its study to be publicly available prior to the final rule. The agencies will consider these studies and any others that become available, and the results may influence the safety analysis for the final rule.

Other researchers are free to download the database from NHTSA's Web site, and we expect to see additional papers in the coming months and as comments to the rulemaking that may also inform our consideration of these issues for the final rule. Kahane's updated study for 2011 is currently undergoing peer-review, and is available in the docket for this rulemaking for review by commenters.

Finally, EPA and NHTSA with DOT's Volpe Center, part of the Research and Innovative Technology Administration (RITA), attempted to investigate the implications of “Smart Design,” by identifying and describing the types of “Smart Design” and methods for using “Smart Design” to result in vehicle mass reduction, selecting analytical pairs of vehicles, and using the appropriate crash database to analyze vehicle crash data. The analysis identified several one-vehicle and two-vehicle crash datasets with the potential to shed light on the issue, but the available data for specific crash scenarios was insufficient to produce consistent results that could be used to support conclusions regarding historical performance of “smart designs.”

Undertaking these tasks has helped the agencies come closer to resolving some of the ongoing debates in statistical analysis research of historical crash data. We intend to apply these conclusions going forward, and we believe that the public discussion of the issues will be facilitated by the research conducted. The following sections discuss the findings from these studies and others in greater detail, to present a more nuanced picture of the current state of the statistical research.

b. NHTSA Workshop on Vehicle Mass, Size and Safety

On February 25, 2011, NHTSA hosted a workshop on mass reduction, vehicle size, and fleet safety at the Headquarters of the U.S. Department of Transportation in Washington, DC. [185] The purpose of the workshop was to provide the agencies with a broad understanding of current research in the field and provide stakeholders and the public with an opportunity to weigh in on this issue. NHTSA also created a public docket to receive comments from interested parties that were unable to attend.

The speakers included Charles Kahane of NHTSA, Tom Wenzel of Lawrence Berkeley National Laboratory, R. Michael Van Auken of Dynamic Research Inc. (DRI), Jeya Padmanaban of JP Research, Inc., Adrian Lund of the Insurance Institute for Highway Safety, Paul Green of the University of Michigan Transportation Research Institute (UMTRI), Stephen Summers of NHTSA, Gregg Peterson of Lotus Engineering, Koichi Kamiji of Honda, John German of the International Council on Clean Transportation (ICCT), Scott Schmidt of the Alliance of Automobile Manufacturers, Guy Nusholtz of Chrysler, and Frank Field of the Massachusetts Institute of Technology.

The wide participation in the workshop allowed the agencies to hear from a broad range of experts and stakeholders. The contributions were particularly relevant to the agencies' analysis of the effects of weight reduction for this proposed rule. The presentations were divided into two sessions that addressed the two expansive sets of issues—statistical evidence of the roles of mass and size on safety, and engineering realities—structural crashworthiness, occupant injury and advanced vehicle design.

The first session focused on previous and ongoing statistical studies of crash data that attempt to identify the relative effects of vehicle mass and size on fleet safety. There was consensus that there is a complicated relationship with many confounding influences in the data. Wenzel summarized a recent study he conducted comparing four types of risk (fatality or casualty risk, per vehicle registration-years or per crash) using police-reported crash data from five states. [186] He showed that the trends in risk for various classes of vehicles (e.g., non-sports car passenger cars, vans, SUVs, crossover SUVs, pickups) were similar regardless of what risk was being measured (fatality or casualty) or what exposure metric was used (e.g., registration years, police-reported crashes, etc.). In general, most trends showed a lower risk for drivers of larger, heavier vehicles.

Although Wenzel's analysis was focused on differences in the four types of risk on the relative risk by vehicle type, he cautioned that, when analyzing casualty risk per crash, analysts should control for driver age and gender, crash location (urban vs. rural), and the state in which the crash occurred (to account for crash reporting biases).

Several participants pointed out that analyses must also control for individual technologies with significant safety effects (e.g., Electronic Stability Control, airbags).It was not always conclusive whether a specialty vehicle group (e.g., sports cars, two-door cars, early crossover SUVs) were outliers that confound the trend or unique datasets that isolate specific vehicle characteristics. Unfortunately, specialty vehicle groups are usually adopted by specific driver groups, often with outlying vehicle usage or driver behavior patterns. Green, who conducted an independent review of the previous statistical analyses, suggested that evaluating residuals will give an indication of whether or not a data subset can be legitimately removed without inappropriately affecting the analytical results.

It was recognized that the physics of a two-vehicle crash require that the lighter vehicle experience a greater change in velocity, which often leads to disproportionately more injury risk. Lund noted persistent historical trends that, in any time period, occupants of the smallest and lightest vehicles had, on average, fatality rates approximately twice those of occupants of the largest and heaviest vehicles but predicted “the sky will not fall” as the fleet downsizes, we will not see an increase in absolute injury risk because smaller cars will become increasingly protective of their occupants. Padmanaban also noted in her research of the historical trends that mass ratio and vehicle stiffness are significant predictors with mass ratio consistently the dominant parameter when correlating harm. Reducing the mass of any vehicle may have competing societal effects as it increases the injury risk in the lightened vehicle and decreases them in the partner vehicle

The separation of key parameters was also discussed as a challenge to the analyses, as vehicle size has historically been highly correlated with vehicle mass. Presenters had varying approaches for dealing with the potential multicollinearity between these two variables. Van Auken of DRI stated that there was latitude in the value of Variance Inflation Factor (VIF, a measure of multicollinearity) that would call results into question, and suggested that the large value of VIF for curb weight might imply “perhaps the effect of weight is too small in comparison to other factors.” Green, of UMTRI, stated that highly correlated variables may not be appropriate for use in a predictive model and that “match[ing] on footprint” (i.e., conducting multiple analyses for data subsets with similar footprint values) may be the most effective way to resolve the issue.

There was no consensus on the overall effect of the maneuverability of smaller, lighter vehicles. German noted that lighter vehicles should have improved handling and braking characteristics and “may be more likely to avoid collisions”. Lund presented crash involvement data that implied that, among vehicles of similar function and use rates, crash risk does not go down for more “nimble” vehicles. Several presenters noted the difficulties of projecting past data into the future as new technologies will be used that were not available when the data were collected. The advances in technology through the decades have dramatically improved safety for all weight and size classes. A video of IIHS's 50th anniversary crash test of a 1959 Chevrolet Bel Air and 2009 Chevrolet Malibu graphically demonstrated that stark differences in design and technology that can possibly mask the discrete mass effects, while videos of compatibility crash tests between smaller, lighter vehicles and contemporary larger, heavier vehicles graphically showed the significance of vehicle mass and size.

Kahane presented results from his 2010 report [187] that found that a scenario which took some mass out of heavier vehicles but little or no mass out of the lightest vehicles did not impact safety in absolute terms. Kahane noted that if the analyses were able to consider the mass of both vehicles in a two-vehicle crash, the results may be more indicative of future crashes. There is apparent consistency with other presentations (e.g., Padmanaban, Nusholtz) that reducing the overall ranges of masses and mass ratios seems to reduce overall societal harm. That is, the effect of mass reduction exclusively does not appear to be a “zero sum game” in which any increase in harm to occupants of the lightened vehicle is precisely offset by a decrease in harm to the occupants of the partner vehicle. If the mass of the heavier vehicle is reduced by a larger percentage, the changes in velocity from the collision are more nearly equal and the injuries suffered in the lighter vehicle are likely to be reduced more than the injuries in the heavier vehicle are increased. Alternatively, a fixed mass reduction (say, 100 lbs) in all vehicles could increase societal harm whereas a fixed percentage mass reduction is more likely to be neutral.

Padmanaban described a series of studies conducted in recent years. She included numerous vehicle parameters including bumper height and several measures of vehicle size and stiffness and also commented on previous analyses that using weight and wheelbase together in a logistic model distorts the estimates, resulting in inflated variance with wrong signs and magnitudes in the results. Her results consistently showed that vehicle mass ratio was a more important parameter than those describing vehicle geometry or stiffness. Her ultimate conclusion was that removing mass (e.g., 100 lbs.) from all passenger cars would cause an overall increase in fatalities in truck-to-car crashes while removing the same amount from light trucks would cause an overall decrease in fatalities.

c. Report by Green et al., UMTRI—“Independent Review: Statistical Analyses of Relationship Between Vehicle Curb Weight, Track Width, Wheelbase and Fatality Rates,” April 2011.

As explained above, NHTSA contracted with the University of Michigan Transportation Research Institute (UMTRI) to conduct an independent review ; [188] of a set of statistical analyses of relationships between vehicle curb weight, the footprint variables (track width, wheelbase) and fatality rates from vehicle crashes. The purpose of this review was to examine analysis methods, data sources, and assumptions of the statistical studies, with the objective of identifying the reasons for any differences in results. Another objective was to examine the suitability of the various methods for estimating the fatality risks of future vehicles.

UMTRI reviewed a set of papers, reports, and manuscripts provided by NHTSA (listed in Appendix A of UMTRI's report, which is available in the docket to this rulemaking) that examined the statistical relationships between fatality or casualty rates and vehicle properties such as curb weight, track width, wheelbase and other variables.

It is difficult to summarize a study of that length and complexity for purposes of this discussion, but fundamentally, the UMTRI team concluded the following:

  • Differences in data may have complicated comparisons of earlier analyses, but if the methodology is robust, and the methods were applied in a similar way, small changes in data should not lead to different conclusions. The main conclusions and findings should be reproducible. The data base created by Kahane appears to be an impressive collection of files from appropriate sources and the best ones available for answering the research questions considered in this study.
  • In statistical analysis simpler models generally lead to improved inference, assuming the data and model assumptions are appropriate. In that regard, the disaggregate logistic regression model used by NHTSA in the 2003 report [189] seems to be the most appropriate model, and valid for the analysis in the context that it was used: finding general associations between fatality risk and mass—and the general directions of the reported associations are correct.
  • The two-stage logistic regression model in combination with the two-step aggregate regression used by DRI seems to be more complicated than is necessary based on the data being analyzed, and summing regression coefficients from two separate models to arrive at conclusions about the effects of reductions in weight or size on fatality risk seems to add unneeded complexity to the problem.
  • One of the biggest issues regarding this work is the historical correlation between curb weight, wheelbase, and track width. Including three variables that are highly correlated in the same model can have adverse effects on the fit of the model, especially with respect to the parameter estimates, as discussed by Kahane. UMTRI makes no conclusions about multicollinearity, other than to say that inferences made in the presence of multicollinearity should be judged with great caution. At the NHTSA workshop on size, safety and mass, Paul Green suggested that a matched analysis, in which regressions are run on the relationship between mass reduction and risk separately for vehicles of similar footprint, could be undertaken to investigate the effect of multicollinearity between vehicle mass and size. Kahane has combined wheelbase and track width into one variable (footprint) to compare with curb weight. NHTSA believes that the 2011 Kahane analysis has done all it can to lessen concerns about multicollinearity, but a concern still exists. In considering other studies provided by NHTSA for evaluation by the UMTRI team:

○ Papers by Wenzel, and Wenzel and Ross, addressing associations between fatality risk per vehicle registration-year, weight, and size by vehicle model contribute to understanding some of the relationships between risk, weight, and size. However, least squares linear regression models, without modification, are not exposure-based risk models and inference drawn from these models tends to be weak since they do not account for additional differences in vehicles, drivers, or crash conditions that could explain the variance in risk by vehicle model.

○ A 2009 J.P. Research paper focused on the difficulties associated with separating out the contributions of weight and size variables when analyzing fatality risk properly recognized the problem arising from multicollinearity and included a clear explanation of why fatality risk is expected to increase with increasing mass ratio. UMTRI concluded that the increases in fatality risk associated with a 100-pound reduction in weight allowing footprint to vary with weight as estimated by Kahane and JP Research, are broadly more convincing than the 6.7 percent reduction in fatality risk associated with mass reduction while holding footprint constant, as reported by DRI.

○ A paper by Nusholtz et al. focused on the question of whether vehicle size can reasonably be the dominant vehicle factor for fatality risk, and finding that changing the mean mass of the vehicle population (leaving variability unchanged) has a stronger influence on fatality risk than corresponding (feasible) changes in mean vehicle dimensions, concluded unequivocally that reducing vehicle mass while maintaining constant vehicle dimensions will increase fatality risk. UMTRI concluded that if one accepts the methodology, this conclusion is robust against realistic changes that may be made in the force vs. deflection characteristics of the impacting vehicles.

○ Two papers by Robertson, one a commentary paper and the other a peer-reviewed journal article, were reviewed. The commentary paper did not fit separate models according to crash type, and included passenger cars, vans, and SUVs in the same model. UMTRI concluded that some of the claims in the commentary paper appear to be overstated, and intermediate results and more documentation would help the reader determine if these claims are valid. The second paper focused largely on the effects of electronic stability control (ESC), but generally followed on from the first paper except that curb weight is not fit and fuel economy is used as a surrogate.

The UMTRI study provided a number of useful suggestions that Kahane considered in updating his 2011 analysis, and that have been incorporated into the safety effects estimates for the current rulemaking.

d. Report by Dr. Charles Kahane, NHTSA—“Relationships Between Fatality Risk, Mass, and Footprint in Model Year 2000-2007 Passenger Cars and LTVs,” 2011

The relationship between a vehicle's mass, size, and fatality risk is complex, and it varies in different types of crashes. NHTSA, along with others, has been examining this relationship for over a decade. The safety chapter of NHTSA's April 2010 final regulatory impact analysis (FRIA) of CAFE standards for MY 2012-2016 passenger cars and light trucks included a statistical analysis of relationships between fatality risk, mass, and footprint in MY 1991-1999 passenger cars and LTVs (light trucks and vans), based on calendar year (CY) 1995-2000 crash and vehicle-registration data. [190] The 2010 analysis used the same data as the 2003 analysis, but included vehicle mass and footprint in the same regression model.

The principal findings of NHTSA's 2010 analysis were that mass reduction in lighter cars, even while holding footprint constant, would significantly increase societal fatality risk, whereas mass reduction in the heavier LTVs would significantly reduce net societal fatality risk, because it would reduce the fatality risk of occupants in lighter vehicles which collide with the heavier LTVs. NHTSA concluded that, as a result, any reasonable combination of mass reductions while holding footprint constant in MY 2012-2016 vehicles—concentrated, at least to some extent, in the heavier LTVs and limited in the lighter cars—would likely be approximately safety-neutral; it would not significantly increase fatalities and might well decrease them.

NHTSA's 2010 report partially agreed and partially disagreed with analyses published during 2003-2005 by Dynamic Research, Inc. (DRI). NHTSA and DRI both found a significant protective effect for footprint, and that reducing mass and footprint together (downsizing) on smaller vehicles was harmful. DRI's analyses estimated a significant overall reduction in fatalities from mass reduction in all light-duty vehicles if wheelbase and track width were maintained, whereas NHTSA's report showed overall fatality reductions only in the heavier LTVs, and benefits only in some types of crashes for other vehicle types. Much of NHTSA's 2010 report, as well as recent work by DRI, involved sensitivity tests on the databases and models, which generated a range of estimates somewhere between the initial DRI and NHTSA results. [191]

Immediately after issuing the final rule for MYs 2012-2016 CAFE and GHG standards in May 2010, NHTSA and EPA began work on the next joint rulemaking to develop CAFE and GHG standards for MY 2017 to 2025 and beyond. The preamble to the 2012-2016 final rule stated that NHTSA, working closely with EPA and the Department of Energy (DOE), would perform a new statistical analysis of the relationships between fatality rates, mass and footprint, updating the crash and exposure databases to the latest available model years, refining the methodology in response to peer reviews of the 2010 report and taking into account changes in vehicle technologies. The previous databases of MY 1991-1999 vehicles in CY 1995-2000 crashes has become outdated as new safety technologies, vehicle designs and materials were introduced. The new databases comprising MY 2000-2007 vehicles in CY 2002-2008 crashes with the most up-to-date possible, given the processing lead time for crash data and the need for enough crash cases to permit statistically meaningful analyses. NHTSA has made the new databases available to the public, [192] enabling other researchers to analyze the same data and hopefully minimizing discrepancies in the results due to inconsistencies across the data used. [193]

One way to estimate these effects is via statistical analyses of societal fatality rates per vehicle miles traveled (VMT), by vehicles' mass and footprint, for the current on-road vehicle fleet. The basic analytical method used for the 2011 NHTSA report is the same as in NHTSA's 2010 report: Cross-sectional analyses of the effect of mass and footprint reductions on the societal fatality rate per billion vehicle miles of travel (VMT), while controlling for driver age and gender, vehicle type, vehicle safety features, crash times and locations, and other factors. Separate logistic regression models are run for three types of vehicles and nine types of crashes. Societal fatality rates include occupants of all vehicles in the crash, as well as non-occupants, such as pedestrians and cyclists. NHTSA's 2011 Report [194] analyzes MY 2000-2007 cars and LTVs in CY 2002-2008 crashes. Fatality rates were derived from FARS data, 13 State crash files, and registration and mileage data from R.L. Polk.

The most noticeable change in MY 2000-2007 vehicles from MY 1991-1999 has been the increase in crossover utility vehicles (CUV), which are SUVs of unibody construction, often but not always built upon a platform shared with passenger cars. CUVs have blurred the distinction between cars and trucks. The new analysis treats CUVs and minivans as a separate vehicle class, because they differ in some respects from pickup-truck-based LTVs and in other respects from passenger cars. In the 2010 report, the many different types of LTVs were combined into a single analysis and NHTSA believes that this may have made the analyses too complex and might have contributed to some of the uncertainty in the results.

The new database has accurate VMT estimates, derived from a file of odometer readings by make, model, and model year recently developed by R.L. Polk and purchased by NHTSA. [195] For the 2011 report, the relative distribution of crash types has been changed to reflect the projected distribution of crashes during the period from 2017 to 2025, based on the estimated effectiveness of electronic stability control (ESC) in reduction the number of fatalities in rollover crashes and crashes with a stationary object. The annual target population of fatalities or the annual fatality distribution baseline [196] was not decreased in the period between 2017 and 2025 for the safety statistics analysis, but is taken into account later in the Volpe model analysis, since all vehicles in the future will be equipped with ESC. [197]

For the 2011 report, vehicles are now grouped into five classes rather than four: passenger cars (including both 2-door and 4-door cars) are split in half by median weight; CUVs and minivans; and truck-based LTVs, which are also split in half by median weight of the model year 2000-2007 vehicles. Table II-12 presents the estimated percent increase in U.S. societal fatality risk per ten billion VMT for each 100-pound reduction in vehicle mass, while holding footprint constant, for each of the five classes of vehicles.

Only the 1.44 percent risk increase in the lighter cars is statistically significant. There are non-significant increases in the heavier cars and the lighter truck-based LTVs, and non-significant societal benefits for mass reduction in CUVs, minivans, and the heavier truck-based LTVs. Based on these results, potential combinations of mass reductions that maintain footprint and are proportionately somewhat higher for the heavier vehicles may be safety-neutral or better as point estimates and, in any case, unlikely to significantly increase fatalities. The primarily non-significant results are not due to a paucity of data, but because the societal effect of mass reduction while maintaining footprint, if any, is small.

MY 2000-2007 vehicles of all types are heavier and larger than their MY 1991-1999 counterparts. The average mass of passenger cars increased by 5 percent from 2000 to 2007 and the average mass of pickup trucks increased by 19 percent. Other types of vehicles became heavier, on the average, by intermediate amounts. There are several reasons for these increases: during this time frame, some of the lighter make-models were discontinued; many models were redesigned to be heavier and larger; and consumers more often selected stretched versions such as crew cabs in their new-vehicle purchases.

It is interesting to compare the new results to NHTSA's 2010 analysis of MY 1991-1999 vehicles in CY 1995-2000, especially the new point estimate to the “actual regression result scenario” in the 2010 report:

The new results are directionally the same as in 2010: fatality increase in the lighter cars, safety benefit in the heavier LTVs, but the effects may have become weaker at both ends. (The agencies do not consider this conclusion to be definitive because of the relatively wide confidence bounds of the estimates.) The fatality increase in the lighter cars tapered off from 2.21 percent to 1.44 percent while the societal benefit of mass reduction in the heaviest LTVs diminished from 1.90 percent to 0.39 percent and is no longer statistically significant.

The agencies believe that the changes may be due to a combination of both changes in the characteristics of newer vehicles and revisions to the analysis. NHTSA believes, above all, that several light, small car models with poor safety performance were discontinued by 2000 or during 2000-2007. Also, the tendency of light, small vehicles to be driven poorly is not as strong as it used to be—perhaps in part because safety improvements in lighter and smaller vehicles have made some good drivers more willing to buy them. Both agencies believe that at the other end of the weight/size spectrum, blocker beams and other voluntary compatibility improvements in LTVs, as well as compatibility-related self-protection improvements to cars, have made the heavier LTVs less aggressive in collisions with lighter vehicles (although the effect of mass disparity remains). This report's analysis of CUVs and minivans as a separate class of vehicles may have relieved some inaccuracies in the 2010 regression results for LTVs. Interestingly, the new actual-regression results are quite close to the previous report's “lower-estimate scenario,” which was an attempt to adjust for supposed inaccuracies in some regressions and for a seemingly excessive trend toward higher crash rates in smaller and lighter cars.

The principal difference between the heavier vehicles, especially truck-based LTVs, and the lighter vehicles, especially passenger cars, is that mass reduction has a different effect in collisions with another car or LTV. When two vehicles of unequal mass collide, the delta V is higher in the lighter vehicle, in the same proportion as the mass ratio. As a result, the fatality risk is also higher. Removing some mass from the heavy vehicle reduces delta V in the lighter vehicle, where fatality risk is high, resulting in a large benefit, offset by a small penalty because delta V increases in the heavy vehicle, where fatality risk is low—adding up to a net societal benefit. Removing some mass from the lighter vehicle results in a large penalty offset by a small benefit—adding up to net harm. These considerations drive the overall result: fatality increase in the lighter cars, reduction in the heavier LTVs, and little effect in the intermediate groups. However, in some types of crashes, especially first event rollovers and impacts with fixed objects, mass reduction is usually not harmful and often beneficial, because the lighter vehicles respond more quickly to braking and steering and are often more stable because their center of gravity is lower. Offsetting that benefit is the continuing historical tendency of lighter and smaller vehicles to be driven less well—although it continues to be unknown why that is so, and to what extent, if any, the lightness or smallness of the vehicle contributes to people driving it less safely.

The estimates of the model are formulated for each 100-pound reduction in mass; in other words, if risk increases by 1 percent for 100 pounds reduction in mass, it would increase by 2 percent for a 200-pound reduction, and 3 percent for a 300-pound reduction (more exactly, 2.01 percent and 3.03 percent, because the effects work like compound interest). Confidence bounds around the point estimates will grow wider by the same proportions.

The regression results are best suited to predict the effect of a small change in mass, leaving all other factors, including footprint, the same. With each additional change from the current environment, the model may become somewhat less accurate and it is difficult to assess the sensitivity to additional mass reduction greater than 100 pounds. The agencies recognize that the light-duty vehicle fleet in the 2017-2025 timeframe will be different than the 2000-2007 fleet analyzed for this study. Nevertheless, one consideration provides some basis for confidence. This is NHTSA's fourth evaluation of the effects of mass reduction and/or downsizing, comprising databases ranging from MY 1985 to 2007. The results of the four studies are not identical, but they have been consistent up to a point. During this time period, many makes and models have increased substantially in mass, sometimes as much as 30-40 percent. [198] If the statistical analysis has, over the past years, been able to accommodate mass increases of this magnitude, perhaps it will also succeed in modeling the effects of mass reductions on the order of 10-20 percent, if they occur in the future.

e. Report by Tom Wenzel, LBNL, “An Assessment of NHTSA's Report ‘Relationships Between Fatality Risk, Mass, and Footprint in Model Year 2000-2007 Passenger Cars and LTVs'’ ’, 2011

DOE contracted with Tom Wenzel of Lawrence Berkeley National Laboratory to conduct an assessment of NHTSA's updated 2011 study of the effect of mass and footprint reductions on U.S. fatality risk per vehicle miles traveled, and to provide an analysis of the effect of mass and footprint reduction on casualty risk per police-reported crash, using independent data from thirteen states. The assessment has been completed and reviewed by NHTSA and EPA staff, and a draft final version is included in the docket of today's rulemaking; the separate analysis of crash data from thirteen states will be completed and included in the docket shortly. Both reports will be peer reviewed by outside experts.

The LBNL report replicates Kahane's analysis for NHTSA, using the same data and methods, and in many cases using the same SAS programs. The Wenzel report finds that although mass reduction in lighter (less than 3,106 lbs) cars leads to a statistically significant 1.44% increase in fatality risk per vehicle miles travelled (VMT), the increase is small. He tests this result for sensitivity to changes in specifications of the regression models and what data are used. In addition Wenzel shows that there is a wide range in fatality rates by vehicle model for models that have the same mass, even after accounting for differences in drivers' age and gender, safety features installed, and crash times and locations. This section summarizes the results of the Wenzel assessment of the most recent NHTSA analysis.

The LBNL report highlights the effect of the other driver, vehicle, and crash control variables, in addition to the effect of mass and footprint reduction, on risk. Some of the other variables NHTSA included in its regression models have much larger effects on fatality risk than mass or footprint reduction. For example, the models indicate that a 100-lb increase in the mass of a lighter car results in a 1.44% reduction in fatality risk; this is the largest estimated effect of changes in vehicle mass, and the only one that is statistically significant. For comparison this reduction in fatality risk could also be achieved by a 13% increase in 4-door sedans equipped with ESC.

The 1.44% increase in risk from reducing mass in the lighter cars was tested for sensitivity changes in the specification of, or the data used in, the regression models. For example, using the current distribution of crashes, rather than adjusting the distribution to that expected after full adoption of ESC, reduces the effect to 1.18%; excluding the calendar year variables from the model, which may be weakening the modeled benefits of vehicle safety technologies, reduces the effect to 1.39%; and including vehicle make in the model increases the effect to 1.81%. The results also are sensitive to the selection of data to include in the analysis: Excluding bad drivers increases the effect to 2.03%, while excluding crashes involving alcohol or drugs increases the effect to 1.66%, and including sports, police, and all-wheel drive cars increases the effect to 1.64%. Finally, changing the definition of risk also affects the result for lighter cars: Using the number of fatalities per induced exposure crash reduces the effect to −0.24% (that is, a 0.24% reduction in risk), while using the number of fatal crashes (rather than total fatalities) per VMT increases the effect to 1.84%. These sensitivity tests, except one, changed the estimated coefficient by less than 1 percentage point, which is within its statistical confidence bounds of 0.29 to 2.59 percent and may be considered compatible with the baseline result. Using two or more variables that are strongly correlated in the same regression model (referred to as multicollinearity) can lead to inaccurate results. However, the correlation between vehicle mass and footprint may not be strong enough to cause serious concern. Experts suggest that a correlation of greater than 0.60 (or a variance inflation factor of 2.5) raises concern about multicollinearity. [199] The correlation between vehicle mass and footprint ranges from over 0.80 for four-door sedans, pickups, and SUVs, to about 0.65 for two-door cars and CUVs, to 0.26 for minivans; when pickups and SUVs are considered together, the correlation between mass and footprint is 0.65. Wenzel notes that the 2011 NHTSA report recognizes that the “near” multicollinearity between mass and footprint may not be strong enough to invalidate the results from a regression model that includes both variables. In addition, NHTSA included several analyses to address possible effects of the near-multicollinearity between mass and footprint.

First, NHTSA ran a sensitivity model specification, where footprint is not held constant, but rather allowed to vary as mass varies (i.e. NHTSA ran a regression model which includes mass but not footprint). If the multicollinearity was so great that including both variables in the same model gave misleading results, removing footprint from the model could give mass coefficients five or more percentage points different than keeping it in the model. NHTSA's sensitivity test indicates that when footprint is allowed to vary with mass, the effect of mass reduction on risk increases from 1.44% to 2.64% for lighter cars, and from a non-significant 0.47% to a statistically-significant 1.94% for heavier cars (changes of less than two percentage points); however, the effect of mass reduction on light trucks is unchanged, and is still not statistically significant for CUVs/minivans.

Second, NHTSA conducted a stratification analysis of the effect of mass reduction on risk by dividing vehicles into deciles based on their footprint, and running a separate regression model for each vehicle and crash type, for each footprint decile (3 vehicle types times 9 crash types times 10 deciles equals 270 regressions). This analysis estimates the effect of mass reduction on risk separately for vehicles with similar footprint. The analysis indicates that mass reduction does not consistently increase risk across all footprint deciles for any combination of vehicle type and crash type. Mass reduction increases risk in a majority of footprint deciles for 13 of the 27 crash and vehicle combinations, but few of these increases are statistically significant. On the other hand, mass reduction decreases risk in a majority of footprint deciles for 9 of the 27 crash and vehicle combinations; in some cases these risk reductions are large and statistically significant. [200] If reducing vehicle mass while maintaining footprint inherently leads to an increase in risk, the coefficients on mass reduction should be more consistently positive, and with a larger R 2, across the 27 vehicle/crash combinations, than shown in the analysis. These findings are consistent with the conclusion of the basic regression analyses, namely, that the effect of mass reduction while holding footprint constant, if any, is small.

One limitation of using logistic regression to estimate the effect of mass reduction on risk is that a standard statistic to measure the extent to which the variables in the model explain the range in risk, equivalent to the R 2>statistic in a linear regression model, does not exist. (SAS does generate a pseudo-R 2 value for logistic regression models; in almost all of the NHTSA regression models this value is less than 0.10). For this reason LBNL conducted an analysis of risk versus mass by vehicle model. LBNL used the results of the NHTSA logistic regression model to predict the number of fatalities expected after accounting for all vehicle, driver, and crash variables included in the NHTSA regression model except for vehicle weight and footprint. LBNL then plotted expected fatality risk per VMT by vehicle model against the mass of each model, and analyzed the change in risk as mass increases, as well as how much of the change in risk was explained by all of the variables included in the model.

The analysis indicates that, after accounting for all the variables, risk does decrease as mass increases; however, risk and mass are not strongly correlated, with the R 2 ranging from 0.33 for CUVs to less than 0.15 for all other vehicle types (as shown in Figure x). This means that, on average, risk decreases as mass increases, but the variation in risk among individual vehicle models is stronger than the trend in risk from light to heavy vehicles. For fullsize (i.e. 3/4- and 1-ton) pickups, risk increases as mass increases, with an R 2 of 0.43, consistent with NHTSA's basic regression results for the heavier LTVs (societal risk increases as mass increases). LBNL also examined the relationship between residual risk, that is the remaining unexplained risk after accounting for all vehicle, driver and crash variables, and mass, and found similarly poor correlations. This implies that the remaining factors not included in the regression model that account for the observed range in risk by vehicle model also are not correlated with mass. (LBNL found similar results when the analysis compared risk to vehicle footprint.)

Figure II-2 indicates that some vehicles on the road today have the same, or lower, fatality rates than models that weigh substantially more, and are substantially larger in terms of footprint. After accounting for differences in driver age and gender, safety features installed, and crash times and locations, there are numerous examples of different models with similar weight and footprint yet widely varying fatality rates. The variation of fatality rates among individual models may reflect differences in vehicle design, differences in the drivers who choose such vehicles (beyond what can be explained by demographic variables such as age and gender), and statistical variation of fatality rates based on limited data for individual models. Differences in vehicle design can, and already do, mitigate some safety penalties from reduced mass; this is consistent with NHTSA's opinion that some of the changes in its regression results between the 2003 study and the 2011 study are due to the redesign or removal of certain smaller and lighter models of poor design.

f. Based on this information, what do the agencies consider to be the current state of statistical research on vehicle mass and safety?

The agencies believe that statistical analysis of historical crash data continues to be an informative and important tool in assessing the potential safety impacts of the proposed standards. The effect of mass reduction while maintaining footprint is a complicated topic and there are open questions whether future designs will reduce the historical correlation between weight and size. It is important to note that while the updated database represents more current vehicles with technologies more representative of vehicles on the road today, they still do not fully represent what vehicles will be on the road in the 2017-2025 timeframe. The vehicles manufactured in the 2000-2007 timeframe were not subject to footprint-based fuel economy standards. The agencies expect that the attribute-based standards will likely facilitate the design of vehicles such that manufacturers may reduce mass while maintaining footprint. Therefore, it is possible that the analysis for 2000-2007 vehicles may not be fully representative of the vehicles that will be on the road in 2017 and beyond.

While we recognize that statistical analysis of historical crash data may not be the only way to think about the future relationship between vehicle mass and safety, we also recognize that other assessment methods are also subject to uncertainties, which makes statistical analysis of historical data an important starting point if employed mindfully and recognized for how it can be useful and what its limitations may be.

NHTSA undertook the independent review of statistical studies and held the mass-safety workshop in February 2011 in order to help the agencies sort through the ongoing debates over what statistical analysis of historical data is actually telling us. Previously, the agencies have assumed that differences in results were due in part to inconsistent databases; by creating the updated common database and making it publicly available, we are hopeful that that aspect of the problem has been resolved, and moreover, the UMTRI review suggested that differences in data were probably less significant than the agencies may have thought. Statistical analyses of historical crash data should be examined for potential multicollinearity issues. The agencies will continue to monitor issues with multicollinearity in our analyses, and hope that outside researchers will do the same. And finally, based on the findings of the independent review, the agencies continue to be confident that Kahane's analysis is one of the best for the purpose of analyzing potential safety effects of future CAFE and GHG standards. UMTRI concluded that Kahane's approach is valid, and Kahane has continued and refined that approach for the current analysis. The NHTSA 2011 statistical fatality report finds directionally similar but less statistically significant relationships between vehicle mass, size, and footprint, as discussed above. Based on these findings, the agencies believe that in the future, fatalities due to mass reduction will be best reduced if mass reduction is concentrated in the heaviest vehicles. NHTSA considers part of the reason that more recent historical data shows a dampened effect in the relationship between mass reduction and safety is that all vehicles, including traditionally lighter ones, grew heavier during that timeframe (2000s). As lighter vehicles might become more prevalent in the fleet again over the next decade, it is possible that the trend could strengthen again. On the other hand, extensive use of new lightweight materials and optimized vehicle design may weaken the relationship. Future updated analyses will be necessary to determine how the effect of mass reduction on risk changes over time.

Both agencies agree that there are several identifiable safety trends already in place or expected to occur in the foreseeable future that are not accounted for in the study, since they were not in effect at the time that the vehicles in question were manufactured. For example, there are two important new safety standards that have already been issued and will be phasing in after MY 2008. FMVSS No. 126 (49 CFR § 571.126) requires electronic stability control in all new vehicles by MY 2012, and the upgrade to FMVSS No. 214 (Side Impact Protection, 49 CFR § 571.214) will likely result in all new vehicles being equipped with head-curtain air bags by MY 2014. Additionally, we anticipate continued improvements in driver (and passenger) behavior, such as higher safety belt use rates. All of these may tend to reduce the absolute number of fatalities. On the other hand, as crash avoidance technology improves, future statistical analysis of historical data may be complicated by a lower number of crashes. In summary, the agencies have relied on the coefficients in the Kahane 2011 study for estimating the potential safety effects of the proposed CAFE and GHG standards for MYs 2017-2025, based on our assumptions regarding the amount of mass reduction that could be used to meet the standards in a cost-effective way without adversely affecting safety. Section E below discusses the methodology used by the agencies in more detail; while the results of the safety effects analysis are less significant than the results in the MY 2012-2016 final rule, the agencies still believe that any statistically significant results warrant careful consideration of the assumptions about appropriate levels of mass reduction on which to base future CAFE and GHG standards, and have acted accordingly in developing the proposed standards.

4. How do the agencies think technological solutions might affect the safety estimates indicated by the statistical analysis?

As mass reduction becomes a more important technology option for manufacturers in meeting future CAFE and GHG standards, manufacturers will invest more and more resources in developing increasingly lightweight vehicle designs that meet their needs for manufacturability and the public's need for vehicles that are also safe, useful, affordable, and enjoyable to drive. There are many different ways to reduce mass, as discussed in Chapter 3 of this TSD and in Sections II, III, and IV of the preamble, and a considerable amount of information is available today on lightweight vehicle designs currently in production and that may be able to be put into production in the rulemaking timeframe. Discussion of lightweight material designs from NHTSA's workshop is presented below.

Besides “lightweighting” technologies themselves, though, there are a number of considerations when attempting to evaluate how future technological developments might affect the safety estimates indicated by the statistical analysis. As discussed in the first part of this chapter, for example, careful changes in design and/or materials used might mitigate some of the potential decrease in safety from mass reduction—through improved distribution of crash pulse energy, etc.—but these techniques can sometimes cause other problems, such as increased crash forces on vehicle occupants that have to be mitigated, or greater aggressivity against other vehicles in crashes. Manufacturers may develop new and better restraints—air bags, seat belts, etc.—to protect occupants in lighter vehicles in crashes, but NHTSA's current safety standards for restraint systems are designed based on the current fleet, not the yet-unknown future fleet. The agency will need to monitor trends in the crash data to see whether changes to the safety standards (or new safety standards) become necessary. Manufacturers are also increasingly investigating a variety of crash avoidance technologies—ABS, electronic stability control (ESC), lane departure warnings, vehicle-to-vehicle (V2V) communications—that, as they become more prevalent in the fleet, are expected to reduce the number of overall crashes, and fatal, crashes. Until these technologies are present in the fleet in greater numbers, however, it will be difficult to assess whether they can mitigate the observed relationship between vehicle mass and safety in the historical data.

Along with the California Air Resources Board (CARB), the agencies have initiated several projects to estimate the maximum potential for advanced materials and improved designs to reduce mass in the MY 2017-2021 timeframe, while continuing to meeting safety regulations and maintaining functionality of vehicles. Another NHTSA-sponsored study will estimate the effects of these design changes on overall fleet safety.

A. NHTSA has awarded a contract to Electricore, with EDAG and George Washington University (GWU) as subcontractors, to study the maximum feasible amount of mass reduction for a mid-size car—specifically, a Honda Accord. The study tore down a MY 2011 Honda Accord, studied each component and sub-system, and then redesigned each component and sub-system trying to maximize the amount of mass reduction with technologies that are considered feasible for 200,000 units per year production volume during the time frame of this rulemaking. Electricore and its sub-contractors are consulting industry leaders and experts for each component and sub-system when deciding which technologies are feasible. Electricore and its sub-contractors are also building detailed CAD/CAE/powertrain models to validate vehicle safety, stiffness, NVH, durability, drivability and powertrain performance. For OEM-supplied parts, a detailed cost model is being built based on a Technical Cost Modeling (TCM) approach developed by the Massachusetts Institute of Technology (MIT) Materials Systems Laboratory's research [201] to estimate the costs to OEMs for manufacturing parts. The cost will be broken down into each of the operations involved in the manufacturing; for example, for a sheet metal part, production costs will be estimated from the blanking of the steel coil to the final operation to fabricate the component. Total costs are then categorized into fixed cost, such as tooling, equipment, and facilities; and variable costs such as labor, material, energy, and maintenance. These costs will be assessed through an interactive process between the product designer, manufacturing engineers, and cost analysts. For OEM-purchased parts, the cost will be estimated by consultation with experienced cost analysts and Tier 1 system suppliers. This study will help to inform the agencies about the feasible amount of mass reduction and the cost associated with it. NHTSA intends to have this study completed and peer reviewed before July 2012, in time for it to play an integral role in informing the final rule.

B. EPA has awarded a similar contract to FEV, with EDAG and Monroe & Associates, Inc. as subcontractors, to study the maximum feasible amount of mass reduction for a mid-size CUV (cross over vehicle) specifically, a Toyota Venza. The study tears down a MY 2010 vehicle, studies each component and sub-system, and then redesigns each component and sub-system trying to maximize the amount of mass reduction with technologies that are considered feasible for high volume production for a 2017 MY vehicle. FEV in coordination with EDAG is building detailed CAD/CAE/powertrain models to validate vehicle safety, stiffness, NVH, durability, drivability and powertrain performance to assess the safety of this new design. This study builds upon the low development (20% mass reduction) design in the 2010 Lotus Engineering study “An Assessment of Mass Reduction Opportunities for a 2017-2020 Model Year Vehicle Program”. This study builds upon the low development (20% mass reduction) design in the 2010 Lotus Engineering study “An Assessment of Mass Reduction Opportunities for a 2017-2020 Model Year Vehicle Program”. This study will undergo a peer review. EPA intends to have this study completed and peer reviewed before July 2012, in time for it to play an integral role in informing the final rule.

C. California Air Resources Board (CARB) has awarded a contract to Lotus Engineering, to study the maximum feasible amount of mass reduction for a mid-size CUV (cross over vehicle) specifically, a Toyota Venza. The study will concentrate on the Body-in-White and closures in the high development design (40% mass reduction) in the Lotus Engineering study cited above. The study will provide an updated design with crash simulation, detailed costing and manufacturing feasibility of these two systems for a MY2020 high volume production vehicle. This study will undergo a peer review. EPA intends to have this study completed and peer reviewed before July 2012, in time for it to play an integral role in informing the final rule.

D. NHTSA has contracted with George Washington University (GWU) to build a fleet simulation model to study the impact and relationship of light-weight vehicle design and injuries and fatalities. This study will also include an evaluation of potential countermeasures to reduce any safety concerns associated with lightweight vehicles. NHTSA will include three light-weighted vehicle designs in this study: the one from Electricore/EDAG/GWU mentioned above, one from Lotus Engineering funded by California Air Resource Board for the second phase of the study, evaluating mass reduction levels around 35 percent of total vehicle mass, and two funded by EPA and the International Council on Clean Transportation (ICCT). This study will help to inform the agencies about the possible safety implications for light-weight vehicle designs and the appropriate counter-measures, [202] if applicable, for these designs, as well as the feasible amounts of mass reduction. All of these analyses are expected to be finished and peer-reviewed before July 2012, in time to inform the final rule.

a. NHTSA workshop on vehicle mass, size and safety

As stated above, in section C.2, on February 25, 2011, NHTSA hosted a workshop on mass reduction, vehicle size, and fleet safety at the Headquarters of the US Department of Transportation in Washington, DC. The purpose of the workshop was to provide the agencies with a broad understanding of current research in the field and provide stakeholders and the public with an opportunity to weigh in on this issue. The agencies also created a public docket to receive comments from interested parties that were unable to attend. The presentations were divided into two sessions that addressed the two expansive sets of issues. The first session explored statistical evidence of the roles of mass and size on safety, and is summarized in section C.2. The second session explored the engineering realities of structural crashworthiness, occupant injury and advanced vehicle design, and is summarized here. The speakers in the second session included Stephen Summers of NHTSA, Gregg Peterson of Lotus Engineering, Koichi Kamiji of Honda, John German of the International Council on Clean Transportation (ICCT), Scott Schmidt of the Alliance of Automobile Manufacturers, Guy Nusholtz of Chrysler, and Frank Field of the Massachusetts Institute of Technology.

The second session explored what degree of weight reduction and occupant protection are feasible from technical, economic, and manufacturing perspectives. Field emphasized that technical feasibility alone does not constitute feasibility in the context of vehicle mass reduction. Sufficient material production capacity and viable manufacturing processes are essential to economic feasibility. Both Kamiji and German noted that both good materials and good designs will be necessary to reduce fatalities. For example, German cited the examples of hexagonally structured aluminum columns, such as used in the Honda Insight, that can improve crash absorption at lower mass, and of high-strength steel components that can both reduce weight and improve safety. Kamiji made the point that widespread mass reduction will reduce the kinetic energy of all crashes which should produce some beneficial effect.

Summers described NHTSA's plans for a model to estimate fleetwide safety effects based on an array of vehicle-to-vehicle computational crash simulations of current and anticipated vehicle designs. In particular, three computational models of lightweight vehicles are under development. They are based on current vehicles that have been modified to substantially reduce mass. The most ambitious was the “high development” derivative of a Toyota Venza developed by Lotus Engineering and discussed by Mr. Peterson. Its structure currently contains about 75% aluminum, 12% magnesium, 8% steel, and 5% advanced composites. Peterson expressed confidence that the design had the potential to meet federal safety standards. Nusholtz emphasized that computational crash simulations involving more advanced materials were less reliable than those involving traditional metals such as aluminum and steel.

Nusholtz presented a revised data-based fleet safety model in which important vehicle parameters were modeled based on trends from current NCAP crash tests. For example, crash pulses and potential intrusion for a particular size vehicle were based on existing distributions. Average occupant deceleration was used to estimate injury risk. Through a range of simulations of modified vehicle fleets, he was able to estimate the net effects of various design strategies for lighter weight vehicles, such as various scaling approaches for vehicle stiffness or intrusion. The approaches were selected based on engineering requirements for modified vehicles. Transition from the current fleet was considered. He concluded that protocols resulting in safer transitions (e.g., removing more mass from heavier vehicles with appropriate stiffness scaling according to a3/2power law) were not generally consistent with those that provide the greatest reduction in GHG production.

German discussed several important points on the future of mass reduction. Similar to Kahane's discussion of the difficulties of isolating the impact of weight reduction, German stated that other important variables, such as vehicle design and compatibility factors, must be held constant in order for size or weight impacts to be quantified in statistical analyses. He presented results that, compared to driver, driving influences, and vehicle design influences, the safety impacts of size and weight are small and difficult to quantify. He noted that several scenarios, such as rollovers, greatly favored the occupants of smaller and lighter cars once a crash occurred. He pointed out that if size and design are maintained, lower weight should translate into a lower total crash force. He thought that advanced material designs have the potential to “decouple” the historical correlation between vehicle size and weight, and felt that effective design and driver attributes may start to dominate size and weight issues in future vehicle models.

Other presenters noted industry's perspective of the effect of incentivizing weight reduction. Field highlighted the complexity of institutional changes that may be necessitated by weight reduction, including redesign of material and component supply chains and manufacturing infrastructure. Schmidt described an industry perspective on the complicated decisions that must be made in the face of regulatory change, such as evaluating goals, gains, and timing.

Field and Schmidt noted that the introduction of technical innovations is generally an innate development process involving both tactical and strategic considerations that balance desired vehicle attributes with economic and technical risk. In the absence of challenging regulatory requirements, a substantial technology change is often implemented in stages, starting with lower volume pilot production before a commitment is made to the infrastructure and supply chain modifications necessary for inclusion on a high-volume production model. Joining, damage characterization, durability, repair, and significant uncertainty in final component costs are also concerns. Thus, for example, the widespread implementation of high-volume composite or magnesium structures might be problematic in the short or medium term when compared to relatively transparent aluminum or high strength steel implementations. Regulatory changes will affect how these tradeoffs are made and these risks are managed.

Koichi Kamiji presented data showing in increased use of high strength steel in their Honda product line to reduced vehicle mass and increase vehicle safety. He stated that mass reduction is clearly a benefit in 42% of all fatal crashes because absolute energy is reduced. He followed up with slides showing the application of certain optimized it designs can improve safety even when controlling for weight and size.

A philosophical theme developed that explored the ethics of consciously allowing the total societal harm associated with mass reduction to approach the anticipated benefits of enhanced safety technologies. Although some participants agreed that there may eventually be specific fatalities that would not have occurred without downsizing, many also agreed that safety strategies will have to be adapted to the reality created by consumer choices, and that “We will be ok if we let data on what works—not wishful thinking—guide our strategies.”

5. How have the agencies estimated safety effects for the proposed standards?

a. What was the agencies' methodology for estimating safety effects for the proposed standards?

As explained above, the agencies consider the 2011 statistical analysis of historical crash data by NHTSA to represent the best estimates of the potential relationship between mass reduction and fatality increases in the future fleet. This section discusses how the agencies used NHTSA's 2011 analysis to calculate specific estimates of safety effects of the proposed standards, based on the analysis of how much mass reduction manufacturers might use to meet the proposed standards.

Neither the proposed CAFE/GHG standards nor the agencies' analysis mandates mass reduction, or mandates that mass reduction occur in any specific manner. However, mass reduction is one of the technology applications available to the manufacturers and a degree of mass reduction is used by both agencies' models to determine the capabilities of manufacturers and to predict both cost and fuel consumption/emissions impacts of improved CAFE/GHG standards. We note that the amount of mass reduction selected for this rulemaking is based on our assumptions about how much is technologically feasible without compromising safety. While we are confident that manufacturers will build safe vehicles, we cannot predict with certainty that they will choose to reduce mass in exactly the ways that the agencies have analyzed in response to the standards. In the event that manufacturers ultimately choose to reduce mass and/or footprint in ways not analyzed or anticipated by the agencies, the safety effects of the rulemaking may likely differ from the agencies' estimates.

NHTSA utilized the 2011 Kahane study relationships between weight and safety, expressed as percent changes in fatalities per 100-pound weight reduction while holding footprint constant. However, as mentioned previously, there are several identifiable safety trends already occurring, or expected to occur in the foreseeable future, that are not accounted for in the study. For example, the two important new safety standards that were discussed above for electronic stability control and head curtain airbags, have already been issued and began phasing in after MY 2008. The recent shifts in market shares from pickups and SUVs to cars and CUVs may continue, or accelerate, if gasoline prices remain high, or rise further. The growth in vehicle miles travelled may continue to stagnate if the economy does not improve, or gasoline prices remain high. And improvements in driver (and passenger) behavior, such as higher safety belt use rates, may continue. All of these will tend to reduce the absolute number of fatalities in the future. The agency estimated the overall change in fatalities by calendar year after adjusting for ESC, Side Impact Protection, and other Federal safety standards and behavioral changes projected through this time period. The smaller percent changes in risk from mass reduction (from the 2011 NHTSA analysis), coupled with the reduced number of baseline fatalities, results in smaller absolute increases in fatalities than those predicted in the 2010 rulemaking.

NHTSA examined the impacts of identifiable safety trends over the lifetime of the vehicles produced in each model year. An estimate of these impacts was contained in a previous agency report. [203] The impacts were estimated on a year-by-year basis, but could be examined in a combined fashion. Using this method, we estimate a 12.6 percent reduction in fatality levels between 2007 and 2020 for the combination of safety standards and behavioral changes anticipated (ESC, head-curtain air bags, and increased belt use). Since the same safety standards are taking effect in the same years, the estimates derived from applying NHTSA fatality percentages to a baseline of 2007 fatalities were thus multiplied by 0.874 to account for changes that NHTSA believes will take place in passenger car and light truck safety between the 2007 baseline on-road fleet used for this particular safety analysis and year 2025.

To estimate the amount of mass reduction to apply in the rulemaking analysis, the agencies considered fleet safety effects for mass reduction. As previously discussed and shown in Table II-15, the Kahane 2011 study shows that applying mass reduction to CUVs and light duty trucks will generally decrease societal fatalities, while applying mass reduction to passenger cars will increase fatalities. The CAFE model uses coefficients from the Kahane study along with the mass reduction level applied to each vehicle model to project societal fatality effects in each model year. NHTSA used the CAFE model and conducted iterative modeling runs varying the maximum amount of mass reduction applied to each subclass in order to identify a combination that achieved a high level of overall fleet mass reduction while not adversely affecting overall fleet safety. These maximum levels of mass reduction for each subclass were then used in the CAFE model for the rulemaking analysis. The agencies believe that mass reduction of up to 20 percent is feasible on light trucks, CUVs and minivans, [204] but that less mass reduction should be implemented on other vehicle types to avoid increases in societal fatalities. For this proposal, NHTSA used the mass reduction levels shown in Table II-15.

For the CAFE model, these percentages apply to a vehicle's total weight, including the powertrain. Table II-16 shows the amount of mass reduction in pounds for these percentage mass reduction levels for a typical vehicle weight in each subclass.

After applying the mass reduction levels in the CAFE model, Table II-17 shows the results of NHTSA's safety analysis separately for each model year. [205] These are estimated increases or decreases in fatalities over the lifetime of the model year fleet. A positive number means that fatalities are projected to increase, a negative number (indicated by parentheses) means that fatalities are projected to decrease. The results are significantly affected by the assumptions put into the Volpe model to take more weight out of the heavy LTVs, CUVs, and minivans than out of other vehicles. As the negative coefficients only appear for LTVs greater than 4,594 lbs., CUVs, and minivans, a statistically improvement in safety can only occur if more weight is taken out of these vehicles than passenger cars or smaller light trucks. Combining passenger car and light truck safety estimates for the proposed standards results in an increase in fatalities over the lifetime of the nine model years of MY 2017-2025 of 4 fatalities, broken up into an increase of 61 fatalities in passenger cars and 56 decrease in fatalities in light trucks. NHTSA also analyzed the results for different regulatory alternatives in Chapter IX of its PRIA; the difference in the results by alternative depends upon how much weight reduction is used in that alternative and the types and sizes of vehicles that the weight reduction applies to.

Using the same coefficients from the 2011 Kahane study, EPA used the OMEGA model to conduct a similar analysis. After applying these percentage increases to the estimated weight reductions per vehicle size by model year assumed in the Omega model, Table II-18 shows the results of EPA's safety analysis separately for each model year. These are estimated increases or decreases in fatalities over the lifetime of the model year fleet. A positive number means that fatalities are projected to increase; a negative number means that fatalities are projected to decrease. For details, see the EPA RIA Chapter 3.

b. Why might the real-world effects be less than or greater than what the agencies have calculated?

As discussed above the ways in which future technological advances could potentially mitigate the safety effects estimated for this rulemaking: lightweight vehicles could be designed to be both stronger and not more aggressive; restraint systems could be improved to deal with higher crash pulses in lighter vehicles; crash avoidance technologies could reduce the number of overall crashes; roofs could be strengthened to improve safety in rollovers. As also stated above, however, while we are confident that manufacturers will strive to build safe vehicles, it will be difficult for both the agencies and the industry to know with certainty ahead of time how crash trends will change in the future fleet as lightweighted vehicles become more prevalent. Going forward, we will have to continue to monitor the crash data as well as changes in vehicle weight relative to what we expect.

Additionally, we note that the total amount of mass reduction used in the agencies' analysis for this rulemaking were chosen based on our assumptions about how much is technologically feasible without compromising safety. Again, while we are confident that manufacturers are motivated to build safe vehicles, we cannot predict with certainty that they will choose to reduce mass in exactly the ways that the agencies have analyzed in response to the standards. In the event that manufacturers ultimately choose to reduce mass and/or footprint in ways not analyzed by the agencies, the safety effects of the rulemaking may likely differ from the agencies' estimates.

The agencies acknowledge the proposal does not prohibit manufacturers from redesigning vehicles to change wheelbase and/or track width (footprint). However, as NHTSA explained in promulgating MY2008-2011 light truck CAFE standards and MY2011 passenger car and light truck CAFE standards, and as the agencies jointly explained in promulgating MY2012-2016 CAFE and GHG standards, the agencies believes such engineering changes are significant enough to be unattractive as a measure to undertake solely to reduce compliance burdens. Similarly, the agencies acknowledge that a manufacturer could, without actually reengineering specific vehicles to increase footprint, shift production toward those that perform well compared to their respective footprint-based targets. However, NHTSA and, more recently NHTSA and EPA have previously explained, because such production shifts would run counter to market demands, they would also be competitively unattractive. Based on this regulatory design, the analysis assumes this proposal will not have either of the effects described above.

As discussed in Chapter 2 of the Draft Joint TSD, the agencies note that the standard is flat for vehicles smaller than 41 square feet and that downsizing in this category could help achieve overall compliance, if the vehicles are desirable to consumers. The agencies note that less than 10 percent of MY2008 passenger cars were below 41 square feet, and due to the overall lower level of utility of these vehicles, and the engineering challenges involved in ensuring that these vehicles meet all applicable federal motor vehicle safety standards (FMVSS), we expect a significant increase in this segment of the market in the future is unlikely. Please see Chapter 2 of the Draft Joint TSD for additional discussion.

We seek comment on the appropriateness of the overall analytic assumption that the attribute-based aspect of the proposed standards will have no effect on the overall distribution of vehicle footprints. Notwithstanding the agencies current judgment that such deliberate reengineering or production shift are unlikely as pure compliance strategies, both agencies are considering the potential future application of vehicle choice models, and anticipate that doing so could result in estimates that market shifts induced by changes in vehicle prices and fuel economy levels could lead to changes in fleet's footprint distribution. However, neither agency is currently able to include vehicle choice modeling in our analysis.

As discussed in Chapter 2 of the Draft Joint TSD, the agencies note that the standard is flat for vehicles smaller than 41 square feet and that downsizing in this category could help achieve overall compliance, if the vehicles are desirable to consumers. The agencies note that less than 10 percent of MY2008 passenger cars were below 41 square feet, and due to the overall lower level of utility of these vehicles, and the engineering challenges involved in ensuring that these vehicles meet all applicable federal motor vehicle safety standards (FMVSS), we expect a significant increase in this segment of the market in the future is unlikely. Please see Chapter 2 of the Draft Joint TSD for additional discussion.

c. Do the agencies plan to make any changes in these estimates for the final rule?

As discussed above, the agencies have based our estimates of safety effects due to the proposed standards on Kahane's 2011 report. That report is currently undergoing peer review and is docketed for public review; [206] the peer review comments and response to peer review comments, along with any revisions to the report in response to that review, will also be docketed there. Depending on the results of the peer review, our calculation of safety effects for the final rule will also be revised accordingly. The agencies will also consider any comments received on the proposed rule, and determine at that time whether and how our estimates should be changed in response to those comments. Additional studies published by the agencies or other independent researchers as previously discussed will also be considered, along with any other relevant information.

III. EPA Proposal for MYs 2017-2025 Greenhouse Gas Vehicle Standards Back to Top

A. Overview of EPA Rule

1. Introduction

Soon after the completion of the successful model years (MYs) 2012-2016 rulemaking in May 2010, the President, with support from the auto manufacturers, requested that EPA and NHTSA work to extend the National Program to MYs 2017-2025 light duty vehicles. The agencies were requested to develop “a coordinated national program under the CAA (Clean Air Act) and the EISA (Energy Independence and Security Act of 2007) to improve fuel efficiency and to reduce greenhouse gas emissions of passenger cars and light-duty trucks of model years 2017-2025.” [207] EPA's proposal grows directly out of our work with NHTSA and CARB in developing such a continuation of the National Program. This proposal provides important benefits to society and consumers in the form of reduced emissions of greenhouse gases (GHGs), reduced consumption of oil, and fuel savings for consumers, all at reasonable costs. It provides industry with the important certainty and leadtime needed to implement the technology changes that will achieve these benefits, as part of a harmonized set of federal requirements. Acting now to address the standards for MYs 2017-2025 will allow for the important continuation of the National Program that started with MYs 2012-2016.

EPA is proposing GHG emissions standards for light-duty vehicles, light-duty trucks, and medium-duty passenger vehicles (hereafter light vehicles) for MYs 2017 through 2025. These vehicle categories, which include cars, sport utility vehicles, minivans, and pickup trucks used for personal transportation, are responsible for almost 60% of all U.S. transportation related GHG emissions.

If finalized, this proposal would be the second EPA rule to regulate light vehicle GHG emissions under the Clean Air Act (CAA), building upon the GHG emissions standards for MYs 2012-2016 that were established in 2010, [208] and the third rule to regulate GHG emissions from the transportation sector. [209] Combined with the standards already in effect for MYs 2012-2016, the proposed standards would result in MY 2025 light vehicles emitting approximately one-half of the GHG emissions of MY 2010 vehicles and would represent the most significant federal action ever taken to reduce GHG emissions (and improve fuel economy) in the U.S.

From a societal standpoint, the proposed GHG emissions standards are projected to save approximately 2 billion metric tons of GHG emissions and 4 billion barrels of oil over the lifetimes of those vehicles sold in MYs 2017-2025. EPA estimates that fuel savings will far outweigh higher vehicle costs, and that the net benefits to society will be in the range of $311 billion (at 7% discount rate) to $421 billion (3% discount) over the lifetimes of those vehicles sold in MYs 2017-2025. Just in calendar year 2040 alone, after the on-road vehicle fleet has largely turned over to vehicles sold in MY 2025 and later, EPA projects GHG emissions savings of 462 million metric tons, oil savings of 2.63 million barrels per day, and net benefits of $144 billion using the $22/ton CO 2 social cost of carbon value.

EPA estimates that these proposed standards will save consumers money. Higher costs for new technology, sales taxes, and insurance will add, on average in the first year, about $2100 for consumers who buy a new vehicle in MY 2025. But those consumers who drive their MY 2025 vehicle for its entire lifetime will save, on average, $5200 (7% discount rate) to $6600 (3% discount) in fuel savings, for a net lifetime savings of $3000-$4400. For those consumers who purchase their new MY 2025 vehicle with cash, the discounted fuel savings will offset the higher vehicle cost in less than 4 years, and fuel savings will continue for as long as the consumer owns the vehicle. Those consumers that buy a new vehicle with a 5-year loan will benefit from a monthly cash flow savings of $12 (or about $140 per year), on average, as the monthly fuel savings more than offsets the higher monthly payment due to the higher incremental vehicle cost.

The proposed standards are designed to allow full consumer choice, in that they are footprint-based, i.e., larger vehicles have higher absolute GHG emissions targets and smaller vehicles have lower absolute GHG emissions targets. While the GHG emissions targets do become more stringent each year, the emissions targets have been selected to allow compliance by vehicles of all sizes and with current levels of vehicle attributes such as utility, size, safety, and performance. Accordingly, these proposed standards are projected to allow consumers to choose from the same mix of vehicles that are currently in the marketplace.

Section I above provides a comprehensive overview of the joint EPA/NHTSA proposal, including the history and rationale for a National Program that allows manufacturers to build a single fleet of light vehicles that can satisfy all federal and state requirements for GHG emissions and fuel economy, the level and structure of the proposed GHG emissions and corporate average fuel economy (CAFE) standards, the compliance flexibilities proposed to be available to manufacturers, the mid-term evaluation, and a summary of the costs and benefits of the GHG and CAFE standards based on a “model year lifetime analysis.”

In this Section III, EPA provides more detailed information about EPA's proposed GHG emissions standards. After providing an overview of key information in this section (III.A), EPA discusses the proposed standards (III.B); the vehicles covered by the standards, various compliance flexibilities available to manufacturers, and a mid-term evaluation (III.C); the feasibility of the proposed standards (III.D); provisions for certification, compliance, and enforcement (III.E); the reductions in GHG emissions projected for the proposed standards and the associated effects of these reductions (III.F); the impact of the proposal on non-GHG emissions and their associated effects (III.G); the estimated cost, economic, and other impacts of the proposal (III.H); and various statutory and executive order issues (III.I).

2. Why is EPA proposing this Rule?

a. Light Duty Vehicle Emissions Contribute to Greenhouse Gases and the Threat of Climate Change

Greenhouse gases (GHGs) are gases in the atmosphere that effectively trap some of the Earth's heat that would otherwise escape to space. GHGs are both naturally occurring and anthropogenic. The primary GHGs of concern that are directly emitted by human activities include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.

These gases, once emitted, remain in the atmosphere for decades to centuries. They become well mixed globally in the atmosphere and their concentrations accumulate when emissions exceed the rate at which natural processes remove GHGs from the atmosphere. The heating effect caused by the human-induced buildup of GHGs in the atmosphere is very likely the cause of most of the observed global warming over the last 50 years. The key effects of climate change observed to date and projected to occur in the future include, but are not limited to, more frequent and intense heat waves, more severe wildfires, degraded air quality, heavier and more frequent downpours and flooding, increased drought, greater sea level rise, more intense storms, harm to water resources, continued ocean acidification, harm to agriculture, and harm to wildlife and ecosystems. A more in depth explanation of observed and projected changes in GHGs and climate change, and the impact of climate change on health, society, and the environment is included in Section III.F below.

Mobile sources represent a large and growing share of U.S. GHG emissions and include light-duty vehicles, light-duty trucks, medium duty passenger vehicles, heavy duty trucks, airplanes, railroads, marine vessels and a variety of other sources. In 2007, all mobile sources emitted 30% of all U.S. GHGs, and have been the source of the largest absolute increase in U.S. GHGs since 1990. Transportation sources, which do not include certain off highway sources such as farm and construction equipment, account for 27% of U.S. GHG emissions, and motor vehicles (CAA section 202(a)), which include light-duty vehicles, light-duty trucks, medium-duty passenger vehicles, heavy-duty trucks, buses, and motorcycles account for 23% of total U.S. GHGs.

Light duty vehicles emit carbon dioxide, methane, nitrous oxide and hydrofluorocarbons. Carbon dioxide (CO2) is the end product of fossil fuel combustion. During combustion, the carbon stored in the fuels is oxidized and emitted as CO2 and smaller amounts of other carbon compounds. Methane (CH4) emissions are a function of the methane content of the motor fuel, the amount of hydrocarbons passing uncombusted through the engine, and any post-combustion control of hydrocarbon emissions (such as catalytic converters). Nitrous oxide (N 2 O) (and nitrogen oxide (NO X)) emissions from vehicles and their engines are closely related to air-fuel ratios, combustion temperatures, and the use of pollution control equipment. For example, some types of catalytic converters installed to reduce motor vehicle NO X, carbon monoxide (CO) and hydrocarbon (HC) emissions can promote the formation of N 2 O. Hydrofluorocarbons (HFC) are progressively replacing chlorofluorocarbons (CFC) and hydrochlorofluorocarbons (HCFC) in these vehicles' cooling and refrigeration systems as CFCs and HCFCs are being phased out under the Montreal Protocol and Title VI of the CAA. There are multiple emissions pathways for HFCs with emissions occurring during charging of cooling and refrigeration systems, during operations, and during decommissioning and disposal.

b. Basis for Action Under the Clean Air Act

Section 202(a)(1) of the Clean Air Act (CAA) states that “the Administrator shall by regulation prescribe (and from time to time revise) * * * standards applicable to the emission of any air pollutant from any class or classes of new motor vehicles * * *, which in his judgment cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare.” The Administrator has found that the elevated concentrations of a group of six GHGs in the atmosphere may reasonably be anticipated to endanger public health and welfare, and that emissions of GHGs from new motor vehicles and new motor vehicle engines contribute to this air pollution.

As a result of these findings, section 202(a) requires EPA to issue standards applicable to emissions of that air pollutant, and authorizes EPA to revise them from time to time. This preamble describes the proposed revisions to the current standards to control emissions of CO2 and HFCs from new light-duty motor vehicles. [210] For further discussion of EPA's authority under section 202(a), see Section I.D. of the preamble.

c. EPA's Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act

On December 15, 2009, EPA published its findings that elevated atmospheric concentrations of GHGs are reasonably anticipated to endanger the public health and welfare of current and future generations, and that emissions of GHGs from new motor vehicles contribute to this air pollution. Further information on these findings may be found at 74 FR 66496 (December 15, 2009) and 75 FR 49566 (Aug. 13, 2010).

3. What is EPA proposing?

a. Light-Duty Vehicle, Light-Duty Truck, and Medium-Duty Passenger Vehicle Greenhouse Gas Emission Standards and Projected Emissions Levels

EPA is proposing tailpipe carbon dioxide (CO 2) standards for cars and light trucks based on the CO 2 emissions-footprint curves for cars and light trucks that are shown above in Section I.B.3 and below in Section III.B. These curves establish different CO 2 emissions targets for each unique car and truck footprint value. Generally, the larger the vehicle footprint, the higher the corresponding vehicle CO 2 emissions target. Vehicle CO 2 emissions will be measured over the EPA city and highway tests. Under this proposal, various incentives and credits are available for manufacturers to demonstrate compliance with the standards. See Section I.B for a comprehensive overview of both the EPA CO 2 emissions-footprint standard curves and the various compliance flexibilities that are proposed to be available to the manufacturers in meeting the EPA tailpipe CO 2 standards.

EPA projects that the proposed tailpipe CO 2 emissions-footprint curves would yield a fleetwide average light vehicle CO 2 emissions compliance target level in MY 2025 of 163 grams per mile, which would represent an average reduction of 35 percent relative to the projected average light vehicle CO 2 level in MY 2016. On average, car CO 2 emissions would be reduced by about 5 percent per year, while light truck CO2 emissions would be reduced by about 3.5 percent per year from MY 2017 through 2021, and by about 5 percent per year from MY 2022 through 2025.

The following three tables, Table III-1 through Table III-3, summarize EPA's projections of what the proposed standards would mean in terms of projected CO 2 emissions reductions for passenger cars, light trucks, and the overall fleet combining passenger cars and light trucks for MYs 2017-2025. It is important to emphasize that these projections are based on technical assumptions by EPA about various matters, including the mix of cars and trucks, as well as the mix of vehicle footprint values, in the fleet in varying years. It is possible that the actual CO 2 emissions values will be either higher or lower than the EPA projections.

In each of these tables, the column “Projected CO 2 Compliance Target” represents our projected fleetwide average CO 2 compliance target value based on the proposed CO 2-footprint curve standards as well as the projected mixes of cars and trucks and vehicle footprint levels. This Compliance Target represents the projected fleetwide average of the projected standards for the various manufacturers.

The column(s) under “Incentives” represent the emissions impact of the proposed multiplier incentive for EV/PHEV/FCVs and the proposed pickup truck incentives. These incentives allow manufacturers to meet their Compliance Targets with CO2 emissions levels slightly higher than they would otherwise have to be, but do not reflect actual real-world CO 2 emissions reductions. As such they reduce the emissions reductions that the CO 2 standards would be expected to achieve.

The column “Projected Achieved CO2” is the sum of the CO 2 Compliance Target and the value(s) in the “Incentive” columns. This Achieved CO 2 value is a better reflection of the CO 2 emissions benefits of the standards, since it accounts for the incentive programs. One incentive that is not reflected in these tables is the 0 gram per mile compliance value for EV/PHEV/FCVs. The 0 gram per mile value accurately reflects the tailpipe CO 2 gram per mile achieved by these vehicles; however, the use of this fuel does impact the overall GHG reductions associated with the proposed standards due to fuel production and distribution-related upstream GHG emissions which are projected to be greater than the upstream GHG emissions associated with gasoline from oil. The combined impact of the 0 gram per mile and multiplier incentive for EV/PHEV/FCVs on overall program GHG emissions is discussed in more detail below in Section III.C.2.

The columns under “Credits” quantify the projected CO 2 emissions credits that we project manufacturers will achieve through improvements in air conditioner refrigerants and efficiency. These credits reflect real world emissions reductions, so they do not raise the levels of the Achieved CO 2 values, but they do allow manufacturers to comply with their compliance targets with 2-cycle test CO 2 emissions values higher than otherwise. One other credit program that could similarly affect the 2-cycle CO 2 values is the off-cycle credit program, but it is not included in this table due to the uncertainty inherent in projecting the future use of these technologies. The off-cycle credits, like A/C credits, reflect real world reductions, so they would not change the CO2 Achieved values.

The column “Projected 2-cycle CO2” is the projected fleetwide 2-cycle CO 2 emissions values that manufacturers would have to achieve in order to be able to comply with the proposed standards. This value is the sum of the projected fleetwide credit, incentive, and Compliance Target values. [211]

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Table III-4 shows the projected real world CO 2 emissions and fuel economy values associated with the proposed CO 2 standards. These real world estimates, similar to values shown on new vehicle labels, reflect the fact that the way cars and trucks are operated in the real world generally results in higher CO 2 emissions and lower fuel economy than laboratory test results used to determine compliance with the standards, which are performed under tightly controlled conditions. There are many assumptions that must be made for these projections, and real world CO 2 emissions and fuel economy performance can vary based on many factors.

The real world tailpipe CO 2 emissions projections in Table III-4 are calculated starting with the projected 2-cycle CO 2 emissions values in Table III-1 through Table III-3, subtracting the air conditioner efficiency credits, and then multiplying by a factor of 1.25. The 1.25 factor is an approximation of the ratio of real world CO 2 emissions to 2-cycle test CO 2 emissions for the fleet in the recent past. It is not possible to know the appropriate factor for future vehicle fleets, as this factor will depend on many factors such as technology performance, driver behavior, climate conditions, fuel composition, etc. Issues associated with future projections of this factor are discussed in TSD 4. Air conditioner efficiency credits were subtracted from the 2-cycle CO 2 emissions values as air conditioning efficiency improvements will increase real world fuel economy. The real world fuel economy value is calculated by dividing 8887 grams of CO 2 per gallon of gasoline by the real world tailpipe CO 2 emissions value.

As discussed both in Section I and later in this Section III, EPA either already has adopted or is proposing provisions for averaging, banking, and trading of credits, that allow annual credits for a manufacturer's over-compliance with its unique fleet-wide average standard, carry-forward and carry-backward of credits, the ability to transfer credits between a manufacturer's car and truck fleets, and credit trading between manufacturers. EPA is proposing a one-time carry-forward of any credits such that any credits generated in MYs 2010-2016 can be used through MY 2021. These provisions are not expected to change the emissions reductions achieved by the standards, but should significantly reduce the cost of achieving those reductions. The tables above do not reflect the year to year impact of these provisions. For example, EPA expects that many manufacturers may generate credits by over complying with the standards for cars, and transfer such credits to its truck fleet. Table III-1 (cars) and Table III-2 (trucks) do not reflect such transfers. If on an industry wide basis more credits are transferred from cars to trucks than vice versa, you would expect to achieve greater reductions from cars than reflected in Table III-1 (lower CO 2 gram/miles values) and less reductions from trucks than reflected in Table III-2 (higher CO 2 gram/mile values). Credit transfers between cars and trucks would not be expected to change the results for the combined fleet, reflected in Table III-3.

The proposed rule would also exclude from coverage a limited set of vehicles: emergency and police vehicles, and vehicles manufactured by small businesses. As discussed in Section III.B below, these exclusions have very limited impact on the total GHG emissions reductions from the light- duty vehicle fleet. We also do not anticipate significant impacts on total GHG emissions reductions from the proposed provisions allowing small volume manufacturers to petition EPA for alternative standards. See Section III.B.5 below.

b. Environmental and Economic Benefits and Costs of EPA's Standards

i. Model Year Lifetime Analysis

Section I.C provides a comprehensive discussion of the projected benefits and costs associated with the proposed MYs 2017-2025 GHG and CAFE standards based on a “model year lifetime” analysis, i.e., the benefits and costs associated with the lifetime operation of the new vehicles sold in these nine model years. It is important to note that while the incremental vehicle costs associated with MY 2017 vehicles will in fact occur in calendar year 2017, the benefits associated with MY 2017 vehicles will be split among all the calendar years from 2017 through the calendar year during which the last MY 2017 vehicle would be retired.

Table III-5 provides a summary of the GHG emissions and oil savings associated with the lifetime operation of all the vehicles sold in each model year. Cumulatively, for the nine model years from 2017 through 2025, the proposed standards are projected to save approximately 2 billion metric tons of GHG emissions and 4 billion barrels of oil.

Table III-6 provides a summary of the most important projected economic impacts of the proposed GHG emissions standards based on this model year lifetime analytical approach. These monetized dollar values are all discounted to the first year of each model year, then summed up across all model years. With a 3% discount rate, cumulative incremental vehicle technology cost for MYs 2017-2025 vehicles is $140 billion, fuel savings is $444 billion, other monetized benefits are $117 billion, and program net benefits are projected to be $421 billion. Using a 7% discount rate, the projected program net benefits are $311 billion.

As discussed previously, EPA recognizes that some of these same benefits and costs are also attributable to the CAFE standard contained in this joint proposal, although the GHG program achieves greater reductions of both GHG emissions and petroleum. More details associated with this model year lifetime analysis of the proposed GHG standards are presented in Sections III.F and III.H.

ii. Calendar Year Analysis

In addition to the model year lifetime analysis projections summarized above, EPA also performs a “calendar year” analysis that projects the environmental and economic impacts associated with the proposed tailpipe CO 2 standards during specific calendar years out to 2050. This calendar year approach reflects the timeframe when the benefits would be achieved and the costs incurred. Because the EPA tailpipe CO 2 emissions standards will remain in effect unless and until they are changed, the projected impacts in this calendar year analysis beyond calendar year 2025 reflect vehicles sold in model years after 2025 (e.g., most of the benefits in calendar year 2040 would be due to vehicles sold after MY 2025).

Table III-7 provides a summary of the most important projected benefits and costs of the proposed EPA GHG emissions standards based on this calendar year analysis. In calendar year 2025, EPA projects GHG savings of 151 million metric tons and oil savings of 0.83 million barrels per day. These would grow to 547 million metric tons of GHG savings and 3.12 million barrels of oil per day by calendar year 2050. Program net benefits are projected to be $18 billion in calendar year 2025, growing to $198 billion in calendar year 2050. Program net benefits over the 34-year period from 2017 through 2050 are projected to have a net present value in 2012 of $600 billion (7% discount rate) to $1.4 trillion (3% discount rate).

More details associated with this calendar year analysis of the proposed GHG standards are presented in Sections III.F and III.H.

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iii. Consumer Analysis

The model year lifetime and calendar year analytical approaches discussed above aggregate the environmental and economic impacts across the nationwide light vehicle fleet. EPA has also projected the average impact of the proposed GHG standards on individual consumers who own and drive MY 2025 light vehicles over their lifetimes.

Table III-8 shows, on average, several key consumer impacts associated with the proposed tailpipe CO 2 standard for MY 2025 vehicles. Some of these factors are dependent on the assumed discount factors, and this table uses the same 3% and 7% discount factors used throughout this preamble. EPA uses AEO2011 fuel price projections of $3.25 per gallon in calendar year 2017, rising to $3.54 per gallon in calendar year 2025 and $3.85 per gallon in calendar year 2040.

EPA projects that the new technology necessary to meet the proposed MY 2025 standard would add, on average, an extra $1950 (including markup) to the sticker price of a new MY 2025 light-duty vehicle. Including higher vehicle sales taxes and first-year insurance costs, the projected incremental first-year cost to the consumer is about $2100 on average. The projected incremental lifetime vehicle cost to the consumer, reflecting higher insurance premiums over the life of the vehicle, is, on average, about $2200. For all of the consumers who drive MY 2025 light-duty vehicles, the proposed standards are projected to yield a net savings of $3000 (7% discount rate) to $4400 (3% discount) over the lifetime of the vehicle, as the discounted lifetime fuel savings of $5200-$6600 is 2.4 to 3 times greater than the $2200 incremental lifetime vehicle cost to the consumer.

Of course, many vehicles are owned by more than one consumer. The payback period and monthly cash flow approaches are two ways to evaluate the economic impact of the MY 2025 standard on those new car buyers who do not own the vehicle for its entire lifetime. Projected payback periods of 3.7-3.9 years means that, for a consumer that buys a new vehicle with cash, the discounted fuel savings for that consumer would more than offset the incremental lifetime vehicle cost in 4 years. If the consumer owns the vehicle beyond this payback period, the vehicle will save money for the consumer. For a consumer that buys a new vehicle with a 5-year loan, the monthly cash flow savings of $12 (or about $140 per year) shows that the consumer would benefit immediately as the monthly fuel savings more than offsets the higher monthly payment due to the higher incremental first-year vehicle cost.

The final entries in Table III-8 show the CO 2 and oil savings that would be associated with the MY 2025 vehicles on average, both on a lifetime basis and in the first full year of operation. On average, a consumer who owns a MY 2025 vehicle for its entire lifetime is projected to emit 20 fewer metric tons of CO 2 and consume 2200 fewer gallons of gasoline due to the proposed standards.

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

EPA has significant discretion under section 202(a) of the Act in how to structure the standards that apply to the emission of the air pollutant at issue here, the aggregate group of six GHGs, as well as to the content of such standards. See generally 74 FR at 49464-65. EPA statutory authority under section 202(a)(1) of the Clean Air Act (CAA) is discussed in more detail in Section I.D of the preamble. In this rulemaking, EPA is proposing a CO 2 tailpipe emissions standard that provides for credits based on reductions of HFCs, as the appropriate way to issue standards applicable to emissions of the single air pollutant, the aggregate group of six GHGs. EPA is not proposing to change the methane and nitrous oxide standards already in place (although EPA is proposing certain changes to the compliance mechanisms for these standards as explained in Section III.B below). EPA is not setting any standards for perfluorocarbons or sulfur hexafluoride, as they are not emitted by motor vehicles. The following is a summary of the basis for the proposed GHG standards under section 202(a), which is discussed in more detail in the following portions of Section III.

With respect to CO 2 and HFCs, EPA is proposing attribute-based light-duty car and truck standards that achieve large and important emissions reductions of GHGs. EPA has evaluated the technological feasibility of the standards, and the information and analysis performed by EPA indicates that these standards are feasible in the lead time provided. EPA and NHTSA have carefully evaluated the effectiveness of individual technologies as well as the interactions when technologies are combined. EPA projects that manufacturers will be able to meet the standards by employing a wide variety of technologies that are already commercially available. EPA's analysis also takes into account certain flexibilities that will facilitate compliance. These flexibilities include averaging, banking, and trading of various types of credits. For a few very small volume manufacturers, EPA is proposing to allow manufacturers to petition for alternative standards.

EPA, as a part of its joint technology analysis with NHTSA, has performed what we believe is the most comprehensive federal vehicle technology analysis in history. We carefully considered the cost to manufacturers of meeting the standards, estimating piece costs for all candidate technologies, direct manufacturing costs, cost markups to account for manufacturers' indirect costs, and manufacturer cost reductions attributable to learning. In estimating manufacturer costs, EPA took into account manufacturers' own practices such as making major changes to vehicle technology packages during a planned redesign cycle. EPA then projected the average cost across the industry to employ this technology, as well as manufacturer-by-manufacturer costs. EPA considers the per vehicle costs estimated by this analysis to be within a reasonable range in light of the emissions reductions and benefits achieved. EPA projects, for example, that the fuel savings over the life of the vehicles will more than offset the increase in cost associated with the technology used to meet the standards. As explained in Section III.D.6 below, EPA has also investigated potential standards both more and less stringent than those being proposed and has rejected them. Less stringent standards would forego emission reductions which are feasible, cost effective, and cost feasible, with short consumer payback periods. EPA judges that the proposed standards are appropriate and preferable to more stringent alternatives based largely on consideration of cost—both to manufacturers and to consumers—and the potential for overly aggressive penetration rates for advanced technologies relative to the penetration rates seen in the proposed standards, especially in the face of unknown degree of consumer acceptance of both the increased costs and the technologies themselves.

EPA has also evaluated the impacts of these standards with respect to reductions in GHGs and reductions in oil usage. For the lifetime of the model year 2017-2025 vehicles we estimate GHG reductions of approximately 2 billion metric tons and fuel reductions of about 4 billion barrels of oil. These are important and significant reductions. EPA has also analyzed a variety of other impacts of the standards, ranging from the standards' effects on emissions of non-GHG pollutants, impacts on noise, energy, safety and congestion. EPA has also quantified the cost and benefits of the standards, to the extent practicable. Our analysis to date indicates that the overall quantified benefits of the standards far outweigh the projected costs. We estimate the total net social benefits (lifetime present value discounted to the first year of the model year) over the life of MY 2017-2025 vehicles to be $421 billion with a 3% discount rate and $311 billion with a 7% discount rate.

Under section 202(a), EPA is called upon to set standards that provide adequate lead-time for the development and application of technology to meet the standards. EPA's standards satisfy this requirement given the present existence of the technologies on which the proposed rule is predicated and the substantial lead times afforded under the proposal (which by MY2025 allow for multiple vehicle redesign cycles and so affords opportunities for adding technologies in the most cost efficient manner, see 75 FR at 25407). In setting the standards, EPA is called upon to weigh and balance various factors, and to exercise judgment in setting standards that are a reasonable balance of the relevant factors. In this case, EPA has considered many factors, such as cost, impacts on emissions (both GHG and non-GHG), impacts on oil conservation, impacts on noise, energy, safety, and other factors, and has where practicable quantified the costs and benefits of the proposed rule. In summary, given the technical feasibility of the standard, the cost per vehicle in light of the savings in fuel costs over the lifetime of the vehicle, the very significant reductions in emissions and in oil usage, and the significantly greater quantified benefits compared to quantified costs, EPA is confident that the standards are an appropriate and reasonable balance of the factors to consider under section 202(a). See Husqvarna AB v. EPA, 254 F. 3d 195, 200 (DC Cir. 2001) (great discretion to balance statutory factors in considering level of technology-based standard, and statutory requirement “to [give appropriate] consideration to the cost of applying * * * technology” does not mandate a specific method of cost analysis); see also Hercules Inc. v. EPA, 598 F. 2d 91, 106 (DC Cir. 1978) (“In reviewing a numerical standard we must ask whether the agency's numbers are within a zone of reasonableness, not whether its numbers are precisely right”); Permian Basin Area Rate Cases, 390 U.S. 747, 797 (1968) (same); Federal Power Commission v. Conway Corp., 426 U.S. 271, 278 (1976) (same); Exxon Mobil Gas Marketing Co. v. FERC, 297 F. 3d 1071, 1084 (DC Cir. 2002) (same).

EPA recognizes that most of the technologies that we are considering for purposes of setting standards under section 202(a) are commercially available and already being utilized to a limited extent across the fleet, or will soon be commercialized by one or more major manufacturers. The vast majority of the emission reductions that would result from this rule would result from the increased use of these technologies. EPA also recognizes that this rule would enhance the development and commercialization of more advanced technologies, such as PHEVs and EVs and strong hybrids as well. In this technological context, there is no clear cut line that indicates that only one projection of technology penetration could potentially be considered feasible for purposes of section 202(a), or only one standard that could potentially be considered a reasonable balancing of the factors relevant under section 202(a). EPA therefore evaluated several alternative standards, some more stringent than the promulgated standards and some less stringent.

See Section III.D.6 for EPA's analysis of alternative GHG emissions standards.

5. Other Related EPA Motor Vehicle Regulations

a. EPA's Recent Heavy-Duty GHG Emissions Rulemaking

EPA and NHTSA recently conducted a joint rulemaking to establish a comprehensive Heavy-Duty National Program that will reduce greenhouse gas emissions and fuel consumption for on-road heavy-duty vehicles beginning in MY 2014 (76 FR 57106 (September 15, 2011)). EPA's final carbon dioxide (CO 2), nitrous oxide (N 2 O), and methane (CH 4) emissions standards, along with NHTSA's final fuel consumption standards, are tailored to each of three regulatory categories of heavy-duty vehicles: (1) Combination Tractors; (2) Heavy-duty Pickup Trucks and Vans; and (3) Vocational Vehicles. The rules include separate standards for the engines that power combination tractors and vocational vehicles. EPA also set hydrofluorocarbon standards to control leakage from air conditioning systems in combination tractors and heavy-duty pickup trucks and vans.

The agencies estimate that the combined standards will reduce CO 2 emissions by approximately 270 million metric tons and save 530 million barrels of oil over the life of vehicles sold during the 2014 through 2018 model years, providing $49 billion in net societal benefits when private fuel savings are considered. See 76 FR at 57125-27.

b. EPA's Plans for Further Standards for Light Vehicle Criteria Pollutants and Gasoline Fuel Quality

In the May 21, 2010 Presidential Memorandum, in addition to addressing GHGs and fuel economy, the President also requested that EPA examine its broader motor vehicle air pollution control program. The President requested that “[t]he Administrator of the EPA review for adequacy the current nongreenhouse gas emissions regulations for new motor vehicles, new motor vehicle engines, and motor vehicle fuels, including tailpipe emissions standards for nitrogen oxides and air toxics, and sulfur standards for gasoline. If the Administrator of the EPA finds that new emissions regulations are required, then I request that the Administrator of the EPA promulgate such regulations as part of a comprehensive approach toward regulating motor vehicles.” [214] EPA is currently in the process of conducting an assessment of the potential need for additional controls on light-duty vehicle non-GHG emissions and gasoline fuel quality. EPA has been actively engaging in technical conversations with the automobile industry, the oil industry, nongovernmental organizations, the states, and other stakeholders on the potential need for new regulatory action, including the areas that are specifically mentioned in the Presidential Memorandum. EPA will coordinate all future actions in this area with the State of California.

Based on this assessment, in the near future, EPA expects to propose a separate but related program that would, in general, affect the same set of new vehicles on the same timeline as would the proposed light-duty GHG emissions standards. It would be designed to address air quality problems with ozone and PM, which continue to be serious problems in many parts of the country, and light-duty vehicles continue to play a significant role.

EPA expects that this related program, called “Tier 3” vehicle and fuel standards, would among other things propose tailpipe and evaporative standards to reduce non-GHG pollutants from light-duty vehicles, including volatile organic compounds, nitrogen oxides, particulate matter, and air toxics. EPA's intent, based on extensive interaction to date with the automobile manufacturers and other stakeholders, is to propose a Tier 3 program that would allow manufacturers to proceed with coordinated future product development plans with a full understanding of the major regulatory requirements they will be facing over the long term. This coordinated regulatory approach would allow manufacturers to design their future vehicles so that any technological challenges associated with meeting both the GHG and Tier 3 standards could be efficiently addressed.

It should be noted that under EPA's current regulations, GHG emissions and CAFE compliance testing for gasoline vehicles is conducted using a defined fuel that does not include any amount of ethanol. [215] If the certification test fuel is changed to some ethanol-based fuel through a future rulemaking, EPA would be required under EPCA to address the need for a test procedure adjustment to preserve the level of stringency of the CAFE standards. [216] EPA is committed to doing so in a timely manner to ensure that any change in certification fuel will not affect the stringency of future GHG emission standards.

B. Proposed Model Year 2017-2025 GHG Standards for Light-duty Vehicles, Light-duty Trucks, and Medium duty Passenger Vehicles

EPA is proposing new emissions standards to control greenhouse gases (GHGs) from MY 2017 and later light-duty vehicles. EPA is proposing new emission standards for carbon dioxide (CO 2) on a gram per mile (g/mile) basis that will apply to a manufacturer's fleet of cars, and a separate standard that will apply to a manufacturer's fleet of trucks. CO 2 is the primary greenhouse gas resulting from the combustion of vehicular fuels, and the amount of CO 2 emitted is directly correlated to the amount of fuel consumed. EPA is proposing to conduct a mid-term evaluation of the GHG standards and other requirements for MYs 2022-2025, as further discussed in Section III.B.3 below.

EPA is not proposing changes to the CH 4 and N 2 O emissions standards, but is proposing revisions to the options that manufacturers have in meeting the CH 4 and N 2 O standards, and to the timeframe for manufacturers to begin measuring N 2 O emissions. These proposed changes are not intended to change the stringency of the CH 4 and N 2 O standards, but are aimed at addressing implementation concerns regarding the standards.

The opportunity to earn credits toward the fleet-wide average CO 2 standards for improvements to air conditioning systems remains in place for MY 2017 and later, including improvements to address both hydrofluorocarbon (HFC) refrigerant losses (i.e., system leakage) and indirect CO 2 emissions related to the air conditioning efficiency and load on the engine. The CO 2 standards proposed for cars and trucks take into account EPA's projection of the average amount of credits expected to be generated across the industry. EPA is proposing several revisions to the air conditioning credits provisions, as discussed in Section III.C.1.

The MY 2012-2016 Final Rule established several program elements that remain in place, where EPA is not proposing significant changes. The proposed standards described below would apply to passenger cars, light-duty trucks, and medium-duty passenger vehicles (MDPVs). As an overall group, they are referred to in this preamble as light-duty vehicles or simply as vehicles. In this preamble section, passenger cars may be referred to simply as “cars”, and light-duty trucks and MDPVs as “light trucks” or “trucks.” [217]

EPA is not proposing changes to the averaging, banking, and trading program elements, as discussed in Section III.B.4, with the exception of our proposal for a one-time carry-forward of any credits generated in MY 2010-2016 to be used anytime through MY2021. The previous rulemaking also established provisions for MY 2016 and later FFVs, where the emissions levels of these vehicles are based on tailpipe emissions performance and the amount of alternative fuel used. These provisions remain in place without change.

Several provisions are being proposed that allow manufacturer's to generate credits for use in complying with the standards or that provide additional incentives for use of advanced technology. These include credits for technology that reduces CO 2 emissions during off-cycle operation that is not reasonably accounted for by the 2-cycle tests used for compliance purposes. EPA is proposing various changes to this program to streamline its use compared to the MYs 2012-2016 program. These provisions are discussed in section III.C. In addition, EPA is proposing the use of multipliers to provide an incentive for the use of EVs, PHEVs, and FCVs, as well as a specified gram/mile credit for full size pick-up trucks that meet various efficiency performance criteria and/or include hybrid technology at a minimum level of production volumes. These provisions are also discussed in Section III.C. As discussed in those sections, while these additional credit provisions do not change the level of the standards proposed for cars and trucks, unlike the provisions for AC credits, they all support the reasonableness of the standards proposed for MYs 2017-2025.

1. What Fleet-wide Emissions Levels Correspond to the CO 2 Standards?

EPA is proposing standards that are projected to require, on an average industry fleet wide basis, 163 grams/mile of CO 2 in model year 2025. The level of 163 grams/mile CO 2 would be equivalent on a mpg basis to 54.5 mpg, if this level was achieved solely through improvements in fuel efficiency. 218 219 For passenger cars, the proposed footprint curves call for reducing CO 2 by 5 percent per year on average from the model year 2016 passenger car standard through model year 2025. In recognition of manufacturers' unique challenges in improving the GHG emissions of full-size pickup trucks as we transition from the MY 2016 standards to MY 2017 and later, while preserving the utility (e.g., towing and payload capabilities) of those vehicles, EPA is proposing a lower annual rate of improvement for light-duty trucks in the early years of the program. For light-duty trucks, the footprint curves call for reducing CO 2 by 3.5 percent per year on average from the model year 2016 truck standard through model year 2021. EPA is also proposing to change the slopes of the CO 2-footprint curves for light-duty trucks from those in the 2012-2016 rule, in a manner that effectively means that the annual rate of improvement for smaller light-duty trucks in model years 2017 through 2021 would be higher than 3.5 percent, and the annual rate of improvement for larger light-duty trucks over the same time period would be lower than 3.5 percent to account for the unique challenges for improving the GHG of large light trucks while maintaining cargo hauling and towing utility. For model years 2022 through 2025, EPA is proposing a reduction of CO 2 for light- duty trucks of 5 percent per year on average starting from the model year 2021 truck standard.

EPA's proposed standards include EPA's projection of average industry wide CO 2-equivalent emission reductions from A/C improvements, where the proposed footprint curve is made more stringent by an amount equivalent to this projection of A/C credits. This projection of A/C credits builds on the projections from MYs 2012-2016, with the increases in credits mainly due to the full penetration of low GWP alternative refrigerant by MY 2021. The proposed car standards would begin with MY 2017, with a generally linear increase in stringency from MY 2017 through MY 2025 for cars. The truck standards have a more gradual increase for MYs 2017-2020 then more rapidly in MY 2021. For MYs 2021-2025, the truck standards increase in stringency generally in a linear fashion. EPA proposes to continue to have separate standards for cars and light trucks, and to have identical definitions of cars and trucks as NHTSA, in order to harmonize with CAFE standards. The tables in this section below provide overall fleet average levels that are projected for both cars and light trucks over the phase-in period which is estimated to correspond with the proposed standards. The actual fleet-wide average g/mi level that would be achieved in any year for cars and trucks will depend on the actual production for that year, as well as the use of the various credit and averaging, banking, and trading provisions. For example, in any year, manufacturers would be able to generate credits from cars and use them for compliance with the truck standard, or vice versa. Such transfer of credits between cars and trucks is not reflected in the table below. In Section III.F, EPA discusses the year-by-year estimate of emissions reductions that are projected to be achieved by the standards.

In general, the proposed schedule of standards acts as a phase-in to the MY 2025 standards, and reflects consideration of the appropriate lead-time and engineering redesign cycles for each manufacturer to implement the requisite emission reductions technology across its product line. Note that MY 2025 is the final model year in which the standards become more stringent. The MY 2025 CO 2 standards would remain in place for MY 2025 and later model years, until revised by EPA in a future rulemaking. EPA estimates that, on a combined fleet-wide national basis, the 2025 MY proposed standards would require a level of 163 g/mile CO 2. The derivation of the 163 g/mile estimate is described in Section III.B.2. EPA has estimated the overall fleet-wide CO 2-equivalent emission (target) levels that correspond with the proposed attribute-based standards, based on the projections of the composition of each manufacturer's fleet in each year of the program. Tables Table III-9 and Table III-10 provide these target estimates for each manufacturer.

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These estimates were aggregated based on projected production volumes into the fleet-wide averages for cars, trucks, and the entire fleet, shown in Table III-11. [220] The combined fleet estimates are based on the assumption of a fleet mix of cars and trucks that vary over the MY 2017-2025 timeframe. This fleet mix distribution can be found in Chapter 1 of the join TSD.

As shown in Table III-11, fleet-wide CO 2-equivalent emission levels for cars under the approach are projected to decrease from 213 to 144 grams per mile between MY 2017 and MY 2025. Similarly, fleet-wide CO 2-equivalent emission levels for trucks are projected to decrease from 295 to 203 grams per mile. These numbers do not include the effects of other flexibilities and credits in the program. [221] The estimated achieved values can be found in Chapter 3 of the Regulatory Impact Analysis (RIA).

As noted above, EPA is proposing standards that would result in increasingly stringent levels of CO 2 control from MY 2017 though MY 2025. Applying the CO 2 footprint curves applicable in each model year to the vehicles (and their footprint distributions) expected to be sold in each model year produces progressively more stringent estimates of fleet-wide CO 2 emission targets. The standards achieve important CO 2 emissions reductions through the application of feasible control technology at reasonable cost, considering the needed lead time for this program and with proper consideration of manufacturer product redesign cycles. EPA has analyzed the feasibility of achieving the proposed CO 2 standards, based on projections of the adoption of technology to reduce emissions of CO 2, during the normal redesign process for cars and trucks, taking into account the effectiveness and cost of the technology. The results of the analysis are discussed in detail in Section III.D below and in the draft RIA. EPA also presents the overall estimated costs and benefits of the car and truck proposed CO 2 standards in Section III.H. In developing the proposal, EPA has evaluated the kinds of technologies that could be utilized by the automobile industry, as well as the associated costs for the industry and fuel savings for the consumer, the magnitude of the GHG and oil reductions that may be achieved, and other factors relevant under the CAA.

With respect to the lead time and cost of incorporating technology improvements that reduce GHG emissions, EPA places important weight on the fact that the proposed rule provides a long planning horizon to achieve the very challenging emissions standards being proposed, and provides manufacturers with certainty when planning future products. The time-frame and levels for the standards are expected to provide manufacturers the time needed to develop and incorporate technology that will achieve GHG reductions, and to do this as part of the normal vehicle redesign process. Further discussing of lead time, redesigns and feasibility can be found in Section III-D and Chapter 3 of the joint TSD.

In the MY 2012-2016 Final Rule, EPA established several provisions which will continue to apply for the proposed MY2017-2025 standards. Consistent with the requirement of CAA section 202(a)(1) that standards be applicable to vehicles “for their useful life,” CO 2 vehicle standards would apply for the useful life of the vehicle. Under section 202(i) of the Act, which authorized the Tier 2 standards, EPA established a useful life period of 10 years or 120,000 miles, whichever first occurs, for all light-duty vehicles and light-duty trucks. [222] This useful life was applied to the MY 2012-2016 GHG standards and EPA is not proposing any changes to the useful life for MYs 2017-2025. Also, as with MYs 2012-2016, EPA proposes that the in-use emission standard would be 10% higher for a model than the emission levels used for certification and compliance with the fleet average that is based on the footprint curves. As with the MY2012-2016 standards, this will address issues of production variability and test-to-test variability. The in-use standard is discussed in Section II I.E. Finally, EPA is not proposing any changes to the test procedures over which emissions are measured and weighted to determine compliance with the standards. These procedures are the Federal Test Procedure (FTP or “city” test) and the Highway Fuel Economy Test (HFET or “highway” test).

2. What Are the Proposed CO 2 Attribute-based Standards?

As with the MY 2012-2016 standards, EPA is proposing separate car and truck standards, that is, vehicles defined as cars have one set of footprint-based curves for MY 2017-2025 and vehicles defined as trucks have a different set for MY 2017-2025. In general, for a given footprint the CO 2 g/mi target for trucks would be less stringent than for a car with the same footprint. EPA's approach for establishing the footprint curves for model years 2017 and later, including changes from the approach used for the MY2012-2016 footprint curves, is discussed in Section II.C and Chapter 2 of the joint TSD. The curves are described mathematically by a family of piecewise linear functions (with respect to vehicle footprint) that gradually and continually ramp down from the MY 2016 curve established in the previous rule. As Section II.C describes, EPA has modified the curves from 2016, particularly for trucks. To make this modification, we wanted to ensure that starting from the 2016 curve, there is a gradual transition to the new slopes and cut point (out to 74 sq ft from 66 sq ft). The transition is also designed to prevent the curve from one year from crossing the previous year's curve.

Written in mathematic notation, the form of the proposed function is as follows: [223]

The car curves are largely similar to 2016 curve in slope. By contrast, the MY 2017 and later truck curves are steeper relative to the MY 2016 curve, but gradually flatten as a result of the multiplicative increase of the standards. As a further change from the MYs 2012-2016 rule, the truck curve does not reach the ultimate cutpoint of 74 sq ft until 2022. The gap between the 2020 curve and the 2021 curve is indicative of design of the truck standards described earlier, where a significant proportion of the increased stringency over the first five years occurs between MY 2020 and MY 2021. Finally, the gradual flattening of both the car and the trucks curves is noticeable. For further discussion of these topics, please see Section II.C and Chapter 2 of the joint TSD.

3. Mid-Term Evaluation

Given the long time frame at issue in setting standards for MY2022-2025 light-duty vehicles, and given NHTSA's obligation to conduct a separate rulemaking in order to establish final standards for vehicles for those model years, EPA and NHTSA will conduct a comprehensive mid-term evaluation and agency decision-making as described below. Up to date information will be developed and compiled for the evaluation, through a collaborative, robust and transparent process, including public notice and comment. The evaluation will be based on (1) A holistic assessment of all of the factors considered by the agencies in setting standards, including those set forth in the rule and other relevant factors, and (2) the expected impact of those factors on the manufacturers' ability to comply, without placing decisive weight on any particular factor or projection. The comprehensive evaluation process will lead to final agency action by both agencies.

Consistent with the agencies' commitment to maintaining a single national framework for regulation of vehicle emissions and fuel economy, the agencies fully expect to conduct the mid-term evaluation in close coordination with the California Air Resources Board (CARB). Moreover, the agencies fully expect that any adjustments to the standards will be made with the participation of CARB and in a manner that ensures continued harmonization of state and Federal vehicle standards.

EPA will conduct a mid-term evaluation of the later model year light-duty GHG standards (MY2022-2025). The evaluation will determine whether those standards are appropriate under section 202(a) of the Act. Under the regulations proposed today, EPA would be legally bound to make a final decision, by April 1, 2018, on whether the MY 2022-2025 GHG standards are appropriate under section 202(a), in light of the record then before the agency.

EPA, NHTSA and CARB will jointly prepare a draft Technical Assessment Report (TAR) to inform EPA's determination on the appropriateness of the GHG standards and to inform NHTSA's rulemaking for the CAFE standards for MYs 2022-2025. The TAR will examine the same issues and underlying analyses and projections considered in the original rulemaking, including technical and other analyses and projections relevant to each agency's authority to set standards as well as any relevant new issues that may present themselves. There will be an opportunity for public comment on the draft TAR, and appropriate peer review will be performed of underlying analyses in the TAR. The assumptions and modeling underlying the TAR will be available to the public, to the extent consistent with law.

EPA will also seek public comment on whether the standards are appropriate under section 202(a), e.g. comments to affirm or change the GHG standards (either more or less stringent). The agencies will carefully consider comments and information received and respond to comments in their respective subsequent final actions.

EPA and NHTSA will consult and coordinate in developing EPA's determination on whether the MY 2022-2025 GHG standards are appropriate under section 202(a) and NHTSA's NPRM.

In making its determination, EPA will evaluate and determine whether the MY2022-2025 GHG standards are appropriate under section 202(a) of the CAA based on a comprehensive, integrated assessment of all of the results of the review, as well as any public comments received during the evaluation, taken as a whole. The decision making required of the Administrator in making that determination is intended to be as robust and comprehensive as that in the original setting of the MY2017-2025 standards.

In making this determination, EPA will consider information on a range of relevant factors, including but not limited to those listed in the proposed rule and below:

1. Development of powertrain improvements to gasoline and diesel powered vehicles.

2. Impacts on employment, including the auto sector.

3. Availability and implementation of methods to reduce weight, including any impacts on safety.

4. Actual and projected availability of public and private charging infrastructure for electric vehicles, and fueling infrastructure for alternative fueled vehicles.

5. Costs, availability, and consumer acceptance of technologies to ensure compliance with the standards, such as vehicle batteries and power electronics, mass reduction, and anticipated trends in these costs.

6. Payback periods for any incremental vehicle costs associated with meeting the standards.

7. Costs for gasoline, diesel fuel, and alternative fuels.

8. Total light-duty vehicle sales and projected fleet mix.

9. Market penetration across the fleet of fuel efficient technologies.

10. Any other factors that may be deemed relevant to the review.

If, based on the evaluation, EPA decides that the GHG standards are appropriate under section 202(a), then EPA will announce that final decision and the basis for EPA's decision. The decision will be final agency action which also will be subject to judicial review on its merits. EPA will develop an administrative record for that review that will be no less robust than that developed for the initial determination to establish the standards. In the midterm evaluation, EPA will develop a robust record for judicial review that is the same kind of record that would be developed and before a court for judicial review of the adoption of standards.

Where EPA decides that the standards are not appropriate, EPA will initiate a rulemaking to adopt standards that are appropriate under section 202(a), which could result in standards that are either less or more stringent. In this rulemaking EPA will evaluate a range of alternative standards that are potentially effective and reasonably feasible, and the Administrator will propose the alternative that in her judgment is the best choice for a standard that is appropriate under section 202(a). [224] If EPA initiates a rulemaking, it will be a joint rulemaking with NHTSA. Any final action taken by EPA at the end of that rulemaking is also judicially reviewable.

The MY 2022-2025 GHG standards will remain in effect unless and until EPA changes them by rulemaking.

NHTSA intends to issue conditional standards for MYs 2022-2025 in the LDV rulemaking being initiated this fall for MY2017 and later model years. The CAFE standards for MYs 2022-2025 will be determined with finality in a subsequent, de novo notice and comment rulemaking conducted in full compliance with section 32902 of title 49 U.S.C. and other applicable law. Accordingly, NHTSA's development of its proposal in that later rulemaking will include the making of economic and technology analyses and estimates that are appropriate for those model years and based on then-current information.

Any rulemaking conducted jointly by the agencies or by NHTSA alone will be timed to provide sufficient lead time for industry to make whatever changes to their products that the rulemaking analysis deems feasible based on the new information available. At the very latest, the three agencies will complete the mid-term evaluation process and subsequent rulemaking on the standards that may occur in sufficient time to promulgate final standards for MYs 2022-2025 with at least 18 months lead time, but additional lead time may be provided.

EPA understands that California intends to propose a mid-term evaluation in its program that is coordinated with EPA and NHTSA and is based on a similar set of factors as outlined in this Appendix A. The rules submitted to EPA for a waiver under the CAA will include such a mid-term evaluation. EPA understands that California intends to continue promoting harmonized state and federal vehicle standards. EPA further understands that California's 2017-2025 standards to be submitted to EPA for a waiver under the Clean Air Act will deem compliance with EPA greenhouse gas emission standards, even if amended after 2012, as compliant with California's. Therefore, if EPA revises it standards in response to the mid-term evaluation, California may need to amend one or more of its 2022-2025 MY standards and would submit such amendments to EPA with a request for a waiver, or for confirmation that said amendments fall within the scope of an existing waiver, as appropriate.

4. Averaging, Banking, and Trading Provisions for CO 2 Standards

In the MY 2012-2016 rule, EPA adopted credit provisions for credit carry-back, credit carry-forward, credit transfers, and credit trading. For EPA's purposes, these kinds of provisions are collectively termed Averaging, Banking, and Trading (ABT), and have been an important part of many mobile source programs under CAA Title II, both for fuels programs as well as for engine and vehicle programs. [225] As in the MY2012-2016 program, EPA is proposing basically the same comprehensive program for averaging, banking, and trading of credits which together will help manufacturers in planning and implementing the orderly phase-in of emissions control technology in their production, consistent with their typical redesign schedules. ABT is important because it can help to address many issues of technological feasibility and lead-time, as well as considerations of cost. ABT is an integral part of the standard setting itself, and is not just an add-on to help reduce costs. In many cases, ABT resolves issues of cost or technical feasibility, allowing EPA to set a standard that is numerically more stringent. The ABT provisions are integral to the fleet averaging approach established in the MY 2012-2016 rule. EPA is proposing to change the credit carry-forward provisions as described below, but the program otherwise would remain in place unchanged for model years 2017 and later.

As noted above, the ABT provisions consist primarily of credit carry-back, credit carry-forward, credit transfers, and credit trading. A manufacturer may have a deficit at the end of a model year after averaging across its fleet using credit transfers between cars and trucks—that is, a manufacturer's fleet average level may fail to meet the required fleet average standard. Credit carry-back refers to using credits to offset any deficit in meeting the fleet average standards that had accrued in a prior model year. A deficit must be offset within 3 model years using credit carry-back provisions. After satisfying any needs to offset pre-existing debits within a vehicle category, remaining credits may be banked, or saved for use in future years. This is referred to as credit carry-forward. The EPCA/EISA statutory framework for the CAFE program includes a 5-year credit carry-forward provision and a 3-year credit carry-back provision. In the MYs 2012-2016 program, EPA chose to adopt 5-year credit carry-forward and 3-year credit carry-back provisions as a reasonable approach that maintained consistency between the agencies' provisions. EPA is proposing to continue with this approach in this rulemaking. (A further discussion of the ABT provisions can be found at 75 FR 25412-14 May 7, 2010).

Although the credit carry-forward and carry-back provisions would generally remain in place for MY 2017 and later, EPA is proposing to allow all unused credits generated in MY 2010-2016 to be carried forward through MY 2021. This amounts to the normal 5 year carry-forward for MY 2016 and later credits but provides additional carry-forward years for credits earned in MYs 2010-2015. Extending the life for MY 2010-2015 credits would provide greater flexibility for manufacturers in using the credits they have generated. These credits would help manufacturers resolve lead-time issues they might face in the model years prior to 2021 as they transition from the 2016 standards to the progressively more stringent standards for 2017 and later. It also provides an additional incentive to generate credits earlier, for example in MYs 2014 and 2015, because those credits may be used through 2021, thereby encouraging the earlier use of additional CO 2 reducing technology.

While this provision provides greater flexibility in how manufacturers use credits they have generated, it would not change the overall CO 2 benefits of the National Program, as EPA does not expect that any of the credits would have expired as they likely would be used or traded to other manufacturers. EPA believes the proposed approach provides important additional flexibility in the early years of the new MY2017 and later standards. EPA requests comments on the proposed approach for carrying over MY 2010-2015 credits through MY 2021.

EPA is not proposing to allow MY 2009 early credits to be carried forward beyond the normal 5 years due to concerns expressed during the 2012-2016 rulemaking that there may be the potential for large numbers of credits that could be generated in MY 2009 for companies that are over-achieving on CAFE and that some of these credits could represent windfall credits. [226] In response to these concerns, EPA placed restrictions the use of MY 2009 credits (for example, MY 2009 credits may not be traded) and does not believe expanding the use of MY 2009 credits would be appropriate. Under the MY 2012-2016 early credits program, manufacturers have until the end of MY 2011 (reports must be submitted by April 2012), when the early credits program ends, to submit early credit reports. Therefore, EPA does not yet have information on the amount of early MY2009 credits actually generated by manufacturers to assess whether or not they could be viewed as windfall. Nevertheless, because these concerns continue, EPA is proposing not to extend the MY 2009 credit transfers past the existing 5-years limit.

Transferring credits refers to exchanging credits between the two averaging sets, passenger cars and trucks, within a manufacturer. For example, credits accrued by over-compliance with a manufacturer's car fleet average standard could be used to offset debits accrued due to that manufacturer not meeting the truck fleet average standard in a given year. Finally, accumulated credits may be traded to another manufacturer. In EPA's CO 2 program, there are no limits on the amount of credits that may be transferred or traded.

The averaging, banking, and trading provisions are generally consistent with those included in the CAFE program, with a few notable exceptions. As with EPA's approach (except for the proposal discussed above for a one-time extended carry-forward of MY2010-2016 credits), CAFE allows five year carry-forward of credits and three year carry-back, per EISA. CAFE transfers of credits across a manufacturer's car and truck averaging sets are also allowed, but with limits established by EISA on the use of transferred credits. The amount of transferred credits that can be used in a year is limited under CAFE, and transferred credits may not be used to meet the CAFE minimum domestic passenger car standard, also per statute. CAFE allows credit trading, but again, traded credits cannot be used to meet the minimum domestic passenger car standard.

5. Small Volume Manufacturer Standards

In adopting the CO 2 standards for MY 2012-2016, EPA recognized that for very small volume manufacturers, the CO 2 standards adopted for MY 2012-2016 would be extremely challenging and potentially infeasible absent credits from other manufacturers. EPA therefore deferred small volume manufacturers (SVMs) with annual U.S. sales less than 5,000 vehicles from having to meet CO 2 standards until EPA is able to establish appropriate SVM standards. As part of establishing eligibility for the exemption, manufacturers must make a good faith effort to secure credits from other manufacturers, if they are reasonably available, to cover the emissions reductions they would have otherwise had to achieve under applicable standards.

These small volume manufacturers face a greater challenge in meeting CO 2 standards compared to large manufacturers because they only produce a few vehicle models, mostly focusing on high performance sports cars and luxury vehicles. These manufacturers have limited product lines across which to average emissions, and the few models they produce often have very high CO 2 levels. As SVMs noted in discussions, SVMs only produce one or two vehicle types but must compete directly with brands that are part of larger manufacturer groups that have more resources available to them. There is often a time lag in the availability of technologies from suppliers between when the technology is supplied to large manufacturers and when it is available to small volume manufacturers. Also, incorporating new technologies into vehicle designs costs the same or more for small volume manufacturers, yet the costs are spread over significantly smaller volumes. Therefore, SVMs typically have longer model life cycles in order to recover their investments. SVMs further noted that despite constraints facing them, SVMs need to innovate in order to differentiate themselves in the market and often lead in incorporating technological innovations, particularly lightweight materials.

In the MY 2012-2016 Final Rule, EPA noted that it intended to conduct a follow-on rulemaking to establish appropriate standards for these manufacturers. In developing this proposal, the agencies held detailed technical discussions with the manufacturers eligible for the exemption under the MY 2012-2016 program and reviewed detailed product plans of each manufacturer. EPA continues to believe that SVMs would face great difficulty meeting the primary CO 2 standards and that establishing challenging but less stringent SVM standards is appropriate given the limited products offering of SVMs. EPA believes it is important to establish standards that will require SVMs to continue to innovate to reduce emissions and do their “fair share” under the GHG program. However, selecting a single set of standards that would apply to all SVMs is difficult because each manufacturer's product lines vary significantly. EPA is concerned that a standard that would be appropriate for one manufacturer may not be feasible for another, potentially driving them from the domestic market. Alternatively, a less stringent standard may only cap emissions for some manufacturers, providing little incentive to reduce emissions.

Based on this, rather than conducting a separate rulemaking, as part of this MY 2017-2025 rulemaking EPA is proposing to allow SVMs to petition EPA for an alternative CO 2 standard for these model years. The proposed approach for SVM standards and eligibility requirements are described below. EPA is also requesting comments on extending eligibility for the proposed SVM standards to very small manufacturers that are owned by large manufacturers but are able to establish that they are operationally independent.

EPA considered a variety of approaches and believes a case-by-case approach for establishing SVM standards would be appropriate. EPA is proposing to allow eligible SVMs the option to petition EPA for alternative standards. An SVM utilizing this option would be required to submit data and information that the agency would use in addition to other available information to establish CO 2 standards for that specific manufacturer. EPA requests comments on all aspects of the proposed approach described in detail below.

a. Overview of Existing Case-by-Case Approaches

A case-by-case approach for establishing standards for SVMs has been adopted by NHTSA for CAFE, CARB in their 2009-2016 GHG program, and the European Union (EU) for European CO 2 standards. For the CAFE program, EPCA allows manufacturers making less than 10,000 vehicles per year worldwide to petition the agency to have an alternative standard set for them. [227] NHTSA has adopted alternative standards for some small volume manufacturers under these CAFE provisions and continually reviews applications as they are submitted. [228] Under the CAFE program, petitioners must include projections of the most fuel efficient production mix of vehicle configurations for a model year and a discussion demonstrating that the projections are reasonable. Petitioners must include, among other items, annual production data, efforts to comply with applicable fuel economy standards, and detailed information on vehicle technologies and specifications. The petitioner must explain why they have not pursued additional means that would allow them to achieve higher average fuel economy. NHTSA publishes a proposed decision in the Federal Register and accepts public comments. Petitions may be granted for up to three years.

For the California GHG standards for MYs 2009-2016, CARB established a process that would start at the beginning of MY2013, where small volume manufacturers would identify all MY 2012 vehicle models certified by large volume manufacturers that are comparable to the SVM's planned MY 2016 vehicle models. [229] The comparison vehicles were to be selected on the basis of horsepower and power to weight ratio. The SVM was required to demonstrate the appropriateness of the comparison models selected. CARB would then provide a target CO 2 value based on the emissions performance of the comparison vehicles to the SVM for each of their vehicle models to be used to calculate a fleet average standard for each test group for MY2016 and later. Since CARB provides that compliance with the National Program for MYs 2012-2016 will be deemed compliance with the CARB program, it has not taken action to set unique SVM standards, but its program nevertheless was a useful model to consider.

The EU process allows small manufacturers to apply for a derogation from the primary CO 2 emissions reduction targets. [230] Applications for 2012 were required to be submitted by manufacturers no later than March 31, 2011, and the Commission will assess the application within 9 months of the receipt of a complete application. Applications for derogations for 2012 have been submitted by several manufacturers and non confidential versions are currently available to the public. [231] In the EU process, the SVM proposes an alternative emissions target supported by detailed information on the applicant's economic activities and technological potential to reduce CO 2 emissions. The application also requires information on individual vehicle models such as mass and specific CO 2 emissions of the vehicles, and information on the characteristics of the market for the types of vehicles manufactured. The proposed alternative emissions standards may be the same numeric standard for multiple years or a declining standard, and the alternative standards may be established for a maximum period of five years. Where the European Commission is satisfied that the specific emissions target proposed by the manufacturer is consistent with its reduction potential, including the economic and technological potential to reduce its specific emissions of CO 2, and taking into account the characteristics of the market for the type of car manufactured, the Commission will grant a derogation to the manufacturer.

b. EPA's Proposed Framework for Case-by-Case SVM Standards

EPA proposes that SVMs will become subject to the GHG program beginning with MY 2017. Starting in MY 2017, an SVM would be required to meet the primary program standards unless EPA establishes alternative standards for the manufacturer. EPA proposes that eligible manufacturers seeking alternative standards must petition EPA for alternative standards by July 30, 2013, providing the information described below. If EPA finds that the application is incomplete, EPA would notify the manufacturer and provide an additional 30 days for the manufacturer to provide all necessary information. EPA would then publish a notice in the Federal Register of the manufacturer's petition and recommendations for an alternative standard, as well as EPA's proposed alternative standard. Non confidential business information portions of the petition would be available to the public for review in the docket. After a period for public comment, EPA would make a determination on an alternative standard for the manufacturer and publish final notice of the determination in the Federal Register for the general public as well as the applicant. EPA expects the process to establish the alternative standard to take about 12 months once a complete application is submitted by the manufacturer.

EPA proposes that manufacturers would petition for alternative standards for up to 5 model years (i.e., MYs 2017—2021) as long as sufficient information is available on which to base the alternative standards (see application discussion below). This initial round of establishing case-by-case standards would be followed by one or more additional rounds until standards are established for the SVM for all model years up to and including MY 2025. For the later round(s) of standard setting, EPA proposes that the SVM must submit their petition 36 months prior to the start of the first model year for which the standards would apply in order to provide sufficient time for EPA to evaluate and set alternative standards (e.g., January 1, 2018 for MY 2022). The 36 month requirement would not apply to new market entrants, discussed in section III.C.5.e below. The subsequent case-by-case standard setting would follow the same notice and comment process as outlined above.

EPA also proposes that if EPA does not establish SVM standards for a manufacturer at least 12 months prior to the start of the model year in cases where the manufacturer provided all required information by the established deadline, the manufacturer may request an extension of the alternative standards currently in place, on a model year by model year basis. This would provide assurance to manufacturers that they would have at least 12 months lead time to prepare for the upcoming model year.

EPA requests comments on allowing SVMs to comply early with the MY 2017 SVM standards established for them. Manufacturers may want to certify to the MY 2017 standards in earlier model years (e.g., MY 2015 or MY 2016). Under the MY 2012-2016 program, SVMs are eligible for an exemption from the standards as long as they have made a good faith effort to purchase credits. By certifying to the SVM alternative standard early in lieu of this exemption, manufacturers could avoid having to seek out credits to purchase in order to maintain this exemption. EPA would not allow certification for vehicles already produced by the manufacturer, so the applicability of this provision would be limited due to the timing of establishing the SVM standards. Manufacturers interested in the possibility of early compliance would be able to apply for SVM standards earlier than the required July 30, 2013 deadline proposed above. An early compliance option also may be beneficial for new manufacturers entering the market that qualify as SVMs.

c. Petition Data and Information Requirements

As described in detail in section I.D.2, EPA establishes motor vehicle standards under section 202(a) that are based on technological feasibility, and considering lead time, safety, costs and other impacts on consumers, and other factors such as energy impacts associated with use of the technology. EPA proposes to require that SVMs submit the data and information listed below which EPA would use, in addition to other relevant information, in determining an appropriate alternative standard for the SVM. EPA would also consider data and information provided by commenters during the comment process in determining the final level of the SVM's standards. As noted above, other case-by-case standard setting approaches have been adopted by NHTSA, the European Union, and CARB and EPA has considered the data requirements of those programs in developing the proposed data and information requirements detailed below. EPA requests comments on the following proposed data requirements.

EPA proposes that SVMs would provide the following information as part of their petition for SVM standards:

Vehicle Model and Fleet Information

  • MYs that the application covers—up to 5 MYs. Sufficient information must be provided to establish alternative standards for each year
  • Vehicle models and sales projections by model for each MY
  • Description of models (vehicle type, mass, power, footprint, expected pricing)
  • Description of powertrain
  • Production cycle for each model including new vehicle model introductions
  • Vehicle footprint based targets and projected fleet average standard under primary program by model year

Technology Evaluation

  • CO 2 reduction technologies employed or expected to be on the vehicle model(s) for the applicable model years, including effectiveness and cost information

—Including A/C and potential off-cycle technologies

  • Evaluation of similar vehicles to those produced by the petitioning SVM and certified in MYs 2012-2013 (or latest 2 MYs for later applications) for each vehicle model including CO 2 results and any A/C credits generated by the models

—Similar vehicles must be selected based on vehicle type, horsepower, mass, power-to-weight, vehicle footprint, vehicle price range and other relevant factors as explained by the SVM

  • Discussion of CO 2 reducing technologies employed on vehicles offered by the manufacturer outside of the U.S. market but not in the U.S., including why those vehicles/technologies are not being introduced in the U.S. market as a way of reducing overall fleet CO 2 levels
  • Evaluation of technologies projected by EPA as technologies likely to be used to meet the MYs 2012-2016 and MYs 2017-2025 standards that are not projected to be fully utilized by the petitioning SVM and explanation of reasons for not using the technologies, including relevant cost information [232]

SVM Projected Standards

  • The most stringent CO 2 level estimated by the SVM to be feasible and appropriate by model and MY and the technological and other basis for the estimate
  • For each MY, projection of the lowest fleet average CO 2 production mix of vehicle models and discussion demonstrating that these projections are reasonable
  • A copy of any applications submitted to NHTSA for MY 2012 and later alternative standards

Eligibility

  • U.S. sales for previous three model years and projections for production volumes over the time period covered by the application
  • Complete information on ownership structure in cases where SVM has ties to other manufacturers with U.S. vehicle sales

EPA proposes to weigh several factors in determining what CO 2 standards are appropriate for a given SVMs fleet. These factors would include the level of technology applied to date by the manufacturer, the manufacturer's projections for the application of additional technology, CO 2 reducing technologies being employed by other manufacturers including on vehicles with which the SVM competes directly and the CO 2 levels of those vehicles, and the technological feasibility and reasonableness of employing additional technology not projected by the manufacturer in the time-frame for which standards are being established. EPA would also consider opportunities to generate A/C and off-cycle credits that are available to the manufacturer. Lead time would be a key consideration both for the initial years of the SVM standard, where lead time would be shorter due to the timing of the notice and comment process to establish the standards, and for the later years where manufacturers would have more time to achieve additional CO 2 reductions.

d. SVM Credits Provisions

As discussed in Section III.B.4, EPA's program includes a variety of credit averaging, banking, and trading provisions. EPA proposes that these provisions would generally apply to SVM standards as well, with the exception that SVMs would not be allowed to trade credits to other manufacturers. Because SVMs would be meeting alternative, less stringent standards compared to manufacturers in the primary program, EPA proposes that SVM would not be allowed to trade (i.e., sell or otherwise provide) CO 2 credits that the SVM generates against the SVM standards to other manufacturers. SVMs would be able to use credits purchased from other manufacturers generated in the primary program. Although EPA does not expect significant credits to be generated by SVMs due to the manufacturer-specific standard setting approach being proposed, SVMs would be able to generate and use credits internally, under the credit carry-forward and carry-back provisions. Under a case-by-case approach, EPA would not view such credits as windfall credits and not allowing internal banking could stifle potential innovative approaches for SVMs. SVMs would also be able to transfer credits between the car and light trucks categories.

e. SVM Standards Eligibility

i. Current SVMs

The MY 2012-2016 rulemaking limited eligibility for the SVM deferment to manufacturers in the U.S. market in MY 2008 or MY 2009 with U.S. sales of less than 5,000 vehicles per year. After initial eligibility has been established, the SVM remains eligible for the exemption if the rolling average of three consecutive model years of sales remains below 5,000 vehicles. Manufacturers going over the 5,000 vehicle rolling average limit would have two additional model years to transition to having to meet applicable CO 2 standards. Based on these eligibility criteria, there are three companies that qualify currently as SVMs under the MY2012-2016 standards: Aston Martin, Lotus, and McLaren. [233] These manufacturers make up much less than one percent of total U.S. vehicles sales, so the environmental impact of these alternative standards would be very small. EPA continues to believe that the 5,000 vehicle cut-point and rolling three year average approach is appropriate and proposes to retain it as a primary criterion for SVMs to remain eligible for SVM standards. The 5,000 vehicle threshold allows for some sales growth by SVMs, as the SVMs in the market today typically have annual sales of below 2,000 vehicles. However, EPA wants to ensure that standards for as few vehicles as possible are included in the SVM standards to minimize the environmental impact, and therefore believes it is appropriate that manufacturers with U.S. sales growing to above 5,000 vehicles per year be required to comply with the primary standards. Manufacturers with unusually strong sales in a given year would still likely remain eligible, based on the three year rolling average. However, if a manufacturer expands in the U.S. market on a permanent basis such that they consistently sell more than 5,000 vehicles per year, they would likely increase their rolling average to above 5,000 and no longer be eligible. EPA believes a manufacturer will be able to consider these provisions, along with other factors, in its planning to significantly expand in the U.S. market. As discussed below, EPA is not proposing to continue to tie eligibility to having been in the market in MY 2008 or MY 2009, or any other year and is instead proposing eligibility criteria for new SVMs newly entering the U.S. market.

ii. New SVMs (New Entrants to the U.S. Market)

As noted above, the SVM deferment under the MY 2012-2016 program included a requirement that a manufacturer had to have been in the U.S. vehicle market in MY 2008 or MY 2009. This provision ensured that a known universe of manufacturers would be eligible for the exemption in the short term and manufacturers would not be driven from the market as EPA proceeded to develop appropriate SVM standards. EPA is not proposing to include such a provision for the SVM standards eligibility criteria for MY 2017-2025. EPA believes that with SVM standards in place, tying eligibility to being in the market in a prior year is no longer necessary because SVMs will be required to achieve appropriate levels of emissions control. Also, it could serve as a potential market barrier to competition by hindering new SVMs from entering the U.S. market.

For new market entrants, EPA proposes that a manufacturer seeking an alternative standard for MY2017-2025 must apply and that standards would be established through the process described above. The new SVM would not be able to certify their vehicles until the standards are established and therefore EPA would expect the manufacturer to submit an application as early as possible but at least 30 months prior to when they expect to begin producing vehicles in order to provide enough time for EPA to evaluate standards and to follow the notice and comment process to establish the standards and for certification. In addition to the information and data described below, EPA proposes to require new market entrants to provide evidence that the company intends to enter the U.S. market within the time frame of the MY2017-2025 SVM standards. Such evidence would include documentation of work underway to establish a dealer network, appropriate financing and marketing plans, and evidence the company is working to meet other federal vehicle requirements such as other EPA emissions standards and NHTSA vehicle safety standards. EPA is concerned about the administrative burden that could be created for the agency by companies with no firm plans to enter the U.S. market submitting applications in order to see what standard might be established for them. This information, in addition to a complete application with the information and data outlined above, would provide evidence of the seriousness of the applicant. As part of this review, EPA reserves the right to not undertake its SVM standards development process for companies that do not exhibit a serious and documented effort to enter the U.S. market.

EPA remains concerned about the potential for gaming by a manufacturer that sells less than 5,000 vehicles in the first year, but with plans for significantly larger sales volumes in the following years. EPA believes that it would not be appropriate to establish SVM standards for a new market entrant that plans a steep ramp-up in U.S. vehicle sales. Therefore, EPA proposes that for new entrants, U.S. vehicle sales must remain below 5,000 vehicles for the first three years in the market. After the initial three years, the manufacturer must maintain a three year rolling average below 5,000 vehicles (e.g., the rolling average of years 2, 3 and 4, must be below 5,000 vehicles). If a new market entrant does not comply with these provisions for the first five years in the market, vehicles sold above the 5,000 vehicle threshold would be found not to be covered by the alternative standards, and EPA expects the fleet average is therefore not in compliance with the standards and would be subject to enforcement action and also, the manufacturer would lose eligibility for the SVM standards until it has reestablished three consecutive years of sales below 5,000 vehicles.

By not tying the 5,000 vehicle eligibility criteria to a particular model year, it would be possible for a manufacturer already in the market to drop below the 5,000 vehicle threshold in a future year and attempt to establish eligibility. EPA proposes to treat such manufacturers as new entrants to the market for purposes of determining eligibility for SVM standards. However, the requirements to demonstrate that the manufacturer intends to enter the U.S. market obviously would not be relevant in this case, and therefore would not apply.

iii. Aggregation Requirements and an Operational Independence Concept

In determining eligibility for the MY 2012-2016 exemption, sales volumes must be aggregated across manufacturers according to the provisions of 40 CFR 86.1838-01(b)(3), which requires the sales of different firms to be aggregated in various situations, including where one firm has a 10% or more equity ownership of another firm, or where a third party has a 10% or more equity ownership of two or more firms. These are the same aggregation requirements used in other EPA small volume manufacturer provisions, such as those for other light-duty emissions standards. [234] EPA proposes to retain these aggregation provisions as part of the eligibility criteria for the SVM standards for MYs 2017-2025. Manufacturers also retain, no matter their size, the option to meet the full set of GHG requirements on their own, and do not necessarily need to demonstrate compliance as part of a corporate parent company fleet. However, as discussed below, EPA is seeking comments on allowing manufacturers that otherwise would not be eligible for the SVM standards due to these aggregation provisions, to demonstrate to the Administrator that they are “operationally independent” based on the criteria described below. Under such a concept, if the Administrator were to determine that a manufacturer was operationally independent, that manufacturer would be eligible for SVM standards.

During the 2012-2016 rule comment period, EPA received comments from Ferrari requesting that EPA allow a manufacturer to apply to EPA to establish SVM status based on the independence of its research, development, testing, design, and manufacturing from another firm that has ownership interest in that manufacturer. Ferrari is majority owned by Fiat and would be aggregated with other Fiat brands, including Chrysler, Maserati, and Alfa Romeo, for purposes of determining eligibility for SVM standards; therefore Ferrari does not meet the eligibility criteria for SVM status. However, Ferrari believes that it would qualify for such an “operational independence” concept, if such an option were provided. In the MY 2012-2016 Final Rule, EPA noted that it would further consider the issue of operational independence and seek public comments on this concept (see 75 FR 25420). In this proposal, EPA is requesting comment on the concept of operational independence. Specifically, we are seeking comment on expanding eligibility for the SVM standards to manufacturers who would have U.S. annual sales of less than 5,000 vehicles and based on a demonstration that they are “operationally independent” of other companies. Under such an approach, EPA would be amending the limitation for SVM corporate aggregation provisions such that a manufacturer that is more than 10 percent owned by a large manufacturer would be allowed to qualify for SVM standards on the basis of its own sales, because it operates its research, design, production, and manufacturing independently from the parent company.

In seeking public comment on this concept of operational independence, EPA particularly is interested in comments regarding the degree to which this concept could unnecessarily open up the SVM standards to several smaller manufacturers that are integrated into large companies—smaller companies that may be capable of and planning to meet the CO 2 standards as part of the larger manufacturer's fleet. EPA also seeks comment on the concern that manufacturers could change their corporate structure to take advantage of such provisions (that is, gaming). EPA is therefore requesting comment on approaches, described below, to narrowly define the operational independence criteria to ensure that qualifying companies are truly independent and to avoid gaming to meet the criteria. EPA also requests comments on the possible implications of this approach on market competition, which we believe should be fully explored through the public comment process. EPA acknowledges that regardless of the criteria for operational independence, a small manufacturer under the umbrella of a large manufacturer is fundamentally different from other SVMs because the large manufacturer has several options under the GHG program to bring the smaller subsidiary into compliance, including the use of averaging or credit transfer provisions, purchasing credits from another manufacturer, or providing technical and financial assistance to the smaller subsidiary. Truly independent SVMs do not have the potential access to these options, with the exception of buying credits from another manufacturer. EPA requests comments on the need for and appropriateness of allowing companies to apply for less stringent SVM standards based on sales that are not aggregated with other companies because of operational independence.

EPA is considering and requesting comments on the operational independence criteria listed below. These criteria are meant to establish that a company, though owned by another manufacturer, does not benefit operationally or financially from this relationship, and should therefore be considered independent for purposes of calculating the sales volume for the SVM program. Manufacturers would need to demonstrate compliance with all of these criteria in order to be found to be operationally independent. By “related manufacturers” below, EPA means all manufacturers that would be aggregated together under the 10 percent ownership provisions contained in EPA's current small volume manufacturer definition (i.e., the parent company and all subsidiaries where there is 10 percent or greater ownership).

EPA would need to determine, based on the information provided by the manufacturer in its application, that the manufacturer currently meets the following criteria and has met them for at least 24 months preceding the application submittal:

1. No financial or other support of economic value was provided by related manufacturers for purposes of design, parts procurement, R&D and production facilities and operation. Any other transactions with related manufacturers must be conducted under normal commercial arrangements like those conducted with other parties. Any such transactions shall be at competitive pricing rates to the manufacturer.

2. Maintains separate and independent research and development, testing, and production facilities.

3. Does not use any vehicle powertrains or platforms developed or produced by related manufacturers.

4. Patents are not held jointly with related manufacturers.

5. Maintains separate business administration, legal, purchasing, sales, and marketing departments; maintains autonomous decision making on commercial matters.

6. Overlap of Board of Directors is limited to 25 percent with no sharing of top operational management, including president, chief executive officer (CEO), chief financial officer (CFO), and chief operating officer (COO), and provided that no individual overlapping director or combination of overlapping directors exercises exclusive management control over either or both companies.

7. Parts or components supply agreements between related companies must be established through open market process and to the extent that manufacturer sells parts/components to non-related auto manufacturers, it does so through the open market at competitive pricing.

In addition to the criteria listed above, EPA also requests comments on the following programmatic elements and framework. EPA requests comments on requiring the manufacturer applying for operational independence to provide an attest engagement from an independent auditor verifying the accuracy of the information provided in the application. [235] EPA foresees possible difficulty verifying the information in the application, especially if the company is located overseas. The principal purpose of the attest engagement would be to provide an independent review and verification of the information provided. EPA also would require that the application be signed by the company president or CEO. After EPA approval, the manufacturer would be required to report within 60 days any material changes to the information provided in the application. A manufacturer would lose eligibility automatically after the material change occurs. However, EPA would confirm that the manufacturer no longer meets one or more of the criteria and thus is no longer considered operationally independent, and would notify the manufacturer. EPA would provide two model years lead time for the manufacturer to transition to the primary program. For example, if the manufacturer lost eligibility sometime in calendar year 2018 (based on when the material change occurs), the manufacturer would need to meet primary program standards in MY 2021.

In addition, EPA requests comments on whether or not a manufacturer losing eligibility should be able to re-establish itself as operationally independent in a future year and over what period of time they would need to meet the criteria to again be eligible. EPA requests comments on, for example, whether or not a manufacturer meeting the criteria for three to five consecutive years should be allowed to again be considered operationally independent.

6. Nitrous Oxide, Methane, and CO 2-equivalent Approaches

a. Standards and Flexibility

For light-duty vehicles, as part of the MY 2012-2016 rulemaking, EPA finalized standards for nitrous oxide (N 2 O) of 0.010 g/mile and methane (CH 4) of 0.030 g/mile for MY 2012 and later vehicles. 75 FR at 25421-24. The light-duty vehicle standards for N 2 O and CH 4 were established to cap emissions, where current levels are generally significantly below the cap. The cap would prevent future emissions increases, and were generally not expected to result in the application of new technologies or significant costs for the manufacturers for current vehicle designs. EPA also finalized an alternative CO 2 equivalent standard option, which manufacturers may choose to use in lieu of complying with the N 2 O and CH 4 cap standards. The CO 2-equivalent standard option allows manufacturers to fold all 2-cycle weighted N 2 O and CH 4 emissions, on a CO 2-equivalent basis, along with CO 2 into their CO 2 emissions fleet average compliance level. [236] The applicable CO 2 fleet average standard is not adjusted to account for the addition of N 2 O and CH 4. For flexible fueled vehicles, the N 2 O and CH 4 standards must be met on both fuels (e.g., both gasoline and E-85).

After the light-duty standards were finalized, manufacturers raised concerns that for a few of the vehicle models in their existing fleet they were having difficulty meeting the N 2 O and/or CH 4 standards, in the near-term. In such cases, manufacturers would still have the option of complying using the CO 2 equivalent alternative. On a CO 2 equivalent basis, folding in all N 2 O and CH 4 emissions could add up to 3-4 g/mile to a manufacturer's overall fleet-average CO 2 emissions level because the alternative standard must be used for the entire fleet, not just for the problem vehicles. The 3-4 g/mile assumes all emissions are actually at the level of the cap. See 75 FR at 74211. This could be especially challenging in the early years of the program for manufacturers with little compliance margin because there is very limited lead time to develop strategies to address these additional emissions. Some manufacturers believe that the current CO 2-equivalent fleet-wide option “penalizes” them by requiring them to fold in both CH 4 and N 2 O emissions for their entire fleet, even if they have difficulty meeting the cap on only one vehicle model.

In response to these concerns, as part of the heavy-duty GHG rulemaking, EPA requested comment on and finalized provisions allowing manufacturers to use CO 2 credits, on a CO 2-equivalent basis, to meet the light-duty N 2 O and CH 4 standards. [237] Manufacturers have the option of using CO 2 credits to meet N 2 O and CH 4 standards on a test group basis as needed for MYs 2012-2016. In their public comments to the proposal in the heavy-duty package, manufacturers urged EPA to extend this flexibility indefinitely, as they believed this option was more advantageous than the CO 2-equivalent fleet wide option (discussed previously) already provided in the light-duty program, because it allowed manufacturers to address N 2 O and CH 4 separately and on a test group basis, rather than across their whole fleet. Further, manufacturers believed that since this option is allowed under the heavy-duty standards, allowing it indefinitely in the light-duty program would make the light- and heavy-duty programs more consistent. In the Final Rule for Heavy-Duty Vehicles, EPA noted that it would consider this issue further in the context of new standards for MYs 2017-2025 in the planned future light-duty vehicle rulemaking. 76 FR at 57194.

EPA has further considered this issue and is proposing to allow the additional option of using CO 2 credits to meet the light-duty vehicle N 2 O and CH 4 standards to extend for all model years beyond MY 2016. EPA understands manufacturer concerns that if they use the CO 2-equivalent option for meeting the GHG standards, they would be penalized by having to incorporate all N 2 O and CH 4 emissions across their entire fleet into their CO 2-equivalent fleet emissions level determination. EPA continues to believe that allowing CO 2 credits to meet CH 4 and N 2 O standards on a CO 2-equivalent basis is a reasonable approach to provide additional flexibility without diminishing overall GHG emissions reductions.

EPA is also requesting comments on establishing an adjustment to the CO 2-equivalent standard for manufacturers selecting the CO 2-equivalent option established in the MY 2012-2016 rulemaking. Manufacturers would continue to be required to fold in all of their CH 4 and N 2 O emissions, along with CO 2, into their CO 2-equivalent levels. They would then apply the agency-established adjustment factor to the CO 2-equivalent standard. For example, if the adjustment for CH 4 and N 2 O combined was 1 to 2 g/mile CO 2-equivalent (taking into account the GWP of N 2 O and CH 4), manufacturers would determine their CO 2 fleet emissions standard and add the 1 to 2 g/mile adjustment factor to it to determine their CO 2-equivalent standard. The adjustment factor would slightly increase the amount of allowed fleet average CO 2-equivalent emissions for the manufacturer's fleet. The purpose of this adjustment would be so manufacturers do not have to offset the typical N 2 O and CH 4 vehicle emissions, while holding manufacturers responsible for higher than average N 2 O and CH 4 emissions levels.

At this time, EPA is not proposing an adjustment value due to a current lack of N 2 O test data on which to base the adjustment for N 2 O. As discussed below, EPA and manufacturers are currently evaluating N 2 O measurement equipment and insufficient data is available at this time on which to base an appropriate adjustment. For CH 4, manufacturers currently provide data during certification, and based on current vehicle data a fleet-wide adjustment for CH 4 in the range of 0.14 g/mile appears to be appropriate. [238] EPA requests comments on this concept and requests city and highway cycle N 2 O data on current Tier 2 vehicles which could help serve as the basis for the adjustment.

EPA continues to believe that it would not be appropriate to base the adjustment on the cap standards because such an approach could have the effect of undermining the stringency of the CO 2 standards, as many vehicles would likely have CH 4 and N 2 O levels much lower than the cap standards. EPA believes that if an appropriate adjustment could be developed and applied, it would help alleviate manufacturers' concerns discussed above and make the CO 2-equivalent approach a more viable option.

b. N 2 O Measurement

For the N 2 O standard, EPA finalized provisions in the MY 2012-2016 rule allowing manufacturers to support an application for a certificate by supplying a compliance statement based on good engineering judgment, in lieu of N 2 O test data, through MY 2014. EPA required N 2 O testing starting with MY 2015. See 75 FR at 25423. This flexibility provided manufacturers with lead time needed to make necessary facilities changes and install N 2 O measurement equipment.

Since the final rule, manufacturers have raised concerns that the lead-time provided to begin N 2 O measurement is not sufficient, as their research and evaluation of N 2 O measurement instrumentation has involved a greater level of effort than previously expected. There are several analyzers available today for the measurement of N 2 O. Over the last year since the MY 2012-2016 standards were finalized, EPA has continued to evaluate instruments for N 2 O measurement and now believes instruments not evaluated during the 2012-2016 rulemaking have the potential to provide more precise emissions measurement and believe it would be prudent to provide manufacturers with additional time to evaluate, procure, and install equipment in their test cells. [239] Therefore, EPA believes that the manufacturer's concerns about the need for additional lead-time have merit, and is proposing to extend the ability for manufacturers to use compliance statements based on good engineering judgment in lieu of test data through MY 2016. Beginning in MY 2017, manufacturers would be required to measure N 2 O emissions to verify compliance with the standard. This approach, if finalized, will provide the manufacturers with two additional years of lead-time to evaluate, procure, and install N 2 O measurement systems throughout their certification laboratories.

7. Small Entity Exemption

In the MY 2012-2016 rule, EPA exempted entities from the GHG emissions standard, if the entity met the Small Business Administration (SBA) size criteria of a small business as described in 13 CFR 121.201. [240] This includes both U.S.-based and foreign small entities in three distinct categories of businesses for light-duty vehicles: small manufacturers, independent commercial importers (ICIs), and alternative fuel vehicle converters. EPA is proposing to continue this exemption for the MY 2017-2025 standards. EPA will instead consider appropriate GHG standards for these entities as part of a future regulatory action.

EPA has identified about 21 entities that fit the Small Business Administration (SBA) size criterion of a small business. EPA estimates there currently are approximately four small manufacturers including three electric vehicle small manufacturers that have recently entered the market, eight ICIs, and nine alternative fuel vehicle converters in the light-duty vehicle market. EPA estimates that these small entities comprise less than 0.1 percent of the total light-duty vehicle sales in the U.S., and therefore the exemption will have a negligible impact on the GHG emissions reductions from the standards. Further detail regarding EPA's assessment of small businesses is provided in Regulatory Flexibility Act Section III.J.3.

At least one small business manufacturer, Fisker Automotive, in discussions with EPA, has suggested that small businesses should have the option of voluntarily opting-in to the GHG standards. This manufacturer sells electric vehicles, and sees a potential market for selling credits to other manufacturers. EPA believes that there could be several benefits to this approach, as it would allow small businesses an opportunity to generate revenue to offset their technology investments and encourage commercialization of the innovative technology, and it would benefit any manufacturer seeking those credits to meet their compliance obligations. EPA is proposing to allow small businesses to waive their small entity exemption and opt-in to the GHG standards. Upon opting in, the manufacturer would be subject to all of the requirements that would otherwise be applicable. This would allow small entity manufacturers to earn CO 2 credits under the program, which may be an especially attractive option for the new electric vehicle manufacturers entering the market. EPA proposes to make the opt-in available starting in MY 2014, as the MY 2012, and potentially the MY 2013, certification process will have already occurred by the time this rulemaking is finalized. EPA is not proposing to retroactively certify vehicles that have already been produced. However, EPA proposes that manufacturers certifying to the GHG standards for MY 2014 would be eligible to generate credits for vehicles sold in MY 2012 and MY 2013 based on the number of vehicles sold and the manufacturer's footprint-based standard under the primary program that would have otherwise applied to the manufacturer if it were a large manufacturer. This approach would be similar to that used by EPA for early credits generated in MYs 2009-2011, where manufacturers did not certify vehicles to CO 2 standards in those years but were able to generate credits. See 75 FR at 25441. EPA believes it is appropriate to provide these credits to small entities, as the credits would be available to large manufacturers producing similar vehicles, and the credits further encourage manufacturers of advanced technology vehicles such as EVs. In addition to benefiting these small businesses, this option also has the potential to expand the pool of credits available to be purchased by other manufacturers. EPA proposes that manufacturers waiving their small entity exemption would be required to meet all aspects of the GHG standards and program requirements across their entire product line. EPA requests comments on the small business provisions described above.

8. Additional Leadtime Issues

The 2012-2016 GHG vehicle standards include Temporary Leadtime Allowance Alternative Standards (TLAAS) which provide alternative standards to certain intermediate sized manufacturers (those with U.S. sales between 5,000 and 400,000 during model year 2009) to accommodate two situations: manufacturers which traditionally paid fines instead of complying with CAFE standards, and limited line manufacturers facing special compliance challenges due to less flexibility afforded by averaging, banking and trading. See 75 FR at 25414-416. EPA is not proposing to continue this program for MYs 2017-2025. First, the allowance was premised on the need to provide adequate lead time, given the (at the time the rule was finalized) rapidly approaching MY 2012 deadline, and given that manufacturers were transitioning from a CAFE regime that allows fine-paying, to a Clean Air Act regime that does not. That concern is no longer applicable, given that there is ample lead time before the MY 2017 standards. More important, the Temporary Lead Time Allowance was just that—temporary—and EPA provided it to allow manufacturers to transition to full compliance in later model years. See 75 FR at 25416. EPA is thus not proposing to continue this provision.

In the context of the increasing stringency of standards in the latter phase of the program (e.g., MY 2022-2025), one manufacturer suggested that EPA should consider providing limited line, intermediate volume manufacturers additional time to phase into the standards. The concern raised is that such limited line manufacturers face unique challenges securing competitive supplier contracts for new technologies, and have fewer vehicle lines to allocate the necessary upfront investment and risk inherent with new technology introduction. This manufacturer believes that as the standards become increasingly stringent in future years requiring the investment in new or advanced technologies, intermediate volume limited line manufacturers may have to pay a premium to gain access to these technologies which would put them at a competitive disadvantage. EPA seeks comment on this issue, and whether there is a need to provide some type of additional leadtime for intermediate volume limited line manufacturers to meet the latter year standards.

In the context of the increasing stringency of standards starting in MY 2017, as discussed, EPA is not proposing a continuation of the TLAAS. TLAAS was available to firms with a wide range of U.S. sales volumes (between 5,000 and 400,000 in MY 2009). One company with U.S. sales on the order of 25,000 vehicles per year has indicated that it believes that the CO 2 standards in today's proposal for MY 2017-2025 would present significant technical challenges for their company, due to the relatively small volume of products it sells in the U.S., limited ability to average across their limited line fleet, and the performance-oriented nature of its vehicles. This firm indicated that absent access several years in advance to CO 2 credits that it could purchase from other firms, this firm would need to significantly change the types of products they currently market in the U.S. beginning in model year 2017, even if it adds substantial CO 2 reducing technology to its vehicles. EPA requests comment on the potential need to include additional flexibilities for companies with U.S. vehicle sales on the order of 25,000 units per year, and what types of additional flexibilities would be appropriate. Potential flexibilities could include an extension of the TLAAS program for lower volume companies, or a one-to-three year delay in the applicable model year standard (e.g., the proposed MY 2017 standards could be delayed to begin in MY 2018, MY 2019, or MY 2020). Commenters suggesting that additional flexibilities may be needed are encouraged to provide EPA with data supporting their suggested flexibilities.

9. Police and Emergency Vehicle Exemption From CO 2 Standards

Under EPCA, manufacturers are allowed to exclude police and other emergency vehicles from their CAFE fleet and all manufacturers that produce emergency vehicles have historically done so. EPA received comments in the MY 2012-2016 rulemaking that these vehicles should be exempt from the GHG emissions standards and EPA committed to further consider the issue in a future rulemaking. [241] After further consideration of this issue, EPA proposes to exempt police and other emergency vehicles from the CO 2 standards starting in MY 2012. [242] EPA believes it is appropriate to provide an exemption for these vehicles because of the unique features of vehicles designed specifically for law enforcement and emergency response purposes, which have the effect of raising their GHG emissions, as well as for purposes of harmonization with the CAFE program. EPA proposes to exempt vehicles that are excluded under EPCA and NHTSA regulations which define emergency vehicle as “a motor vehicle manufactured primarily for use as an ambulance or combination ambulance-hearse or for use by the United States Government or a State or local government for law enforcement, or for other emergency uses as prescribed by regulation by the Secretary of Transportation.” [243]

The unique features of these vehicles result in significant added weight including: heavy-duty suspensions, stabilizer bars, heavy-duty/dual batteries, heavy-duty engine cooling systems, heavier glass, bullet-proof side panels, and high strength sub-frame. Police pursuit vehicles are often equipped with specialty steel rims and increased rolling resistance tires designed for high speeds, and unique engine and transmission calibrations to allow high-power, high-speed chases. Police and emergency vehicles also have features that tend to reduce aerodynamics, such as emergency lights, increased ground clearance, and heavy-duty front suspensions.

EPA is concerned that manufacturers may not be able to sufficiently reduce the emissions from these vehicles, and would be faced with a difficult choice of compromising necessary vehicle features or dropping vehicles from their fleets, as they may not have credits under the fleet averaging provisions necessary to cover the excess emissions from these vehicles as standards become more stringent. Without the exemption, there could be situations where a manufacturer is more challenged in meeting the GHG standards simply due to the inclusion of these higher emitting emergency vehicles. Technical feasibility issues go beyond those of other high-performance vehicles and there is a clear public need for law enforcement and emergency vehicles that meet these performance characteristics as these vehicles must continue to be made available in the market. MY 2012-2016 standards, as well as MY 2017 and later standards would be fully harmonized with CAFE regarding the treatment of these vehicles. EPA requests comments on its proposal to exempt emergency vehicles from the GHG standards.

10. Test Procedures

EPA is considering revising the procedures for measuring fuel economy and calculating average fuel economy for the CAFE program, effective beginning in MY 2017, to account for three impacts on fuel economy not currently included in these procedures—increases in fuel economy because of increases in efficiency of the air conditioner; increases in fuel economy because of technology improvements that achieve “off-cycle” benefits; and incentives for use of certain hybrid technologies in full size pickup trucks, and for the use of other technologies that help those vehicles exceed their targets, in the form of increased values assigned for fuel economy. As discussed in section IV of this proposal, NHTSA would take these changes into account in determining the maximum feasible fuel economy standard, to the extent practicable. In this section, EPA discusses the legal framework for considering these changes, and the mechanisms by which these changes could be implemented. EPA invites comment on all aspects of this concept, and plans to adopt this approach in the final rule if it determines the changes are appropriate after consideration of all comments on these issues.

These changes would be the same as program elements that are part of EPA's greenhouse gas performance standards, discussed in section III.B.1 and 2, above. EPA is considering adopting these changes for A/C efficiency and off-cycle technology because they are based on technology improvements that affect real world fuel economy, and the incentives for light-duty trucks will promote greater use of hybrid technology to improve fuel economy in these vehicles. In addition, adoption of these changes would lead to greater coordination between the greenhouse gas program under the CAA and the fuel economy program under EPCA. As discussed below, these three elements would be implemented in the same manner as in the EPA's greenhouse gas program—a vehicle manufacturer would have the option to generate these fuel economy values for vehicle models that meet the criteria for these “credits,” and to use these values in calculating their fleet average fuel economy.

a. Legal Framework

EPCA provides that:

(c) Testing and calculation procedures. The Administrator [of EPA] shall measure fuel economy for each model and calculate average fuel economy for a manufacturer under testing and calculation procedures prescribed by the Administrator. However * * *, the Administrator shall use the same procedures for passenger automobiles the Administrator used for model year 1975 * * *, or procedures that give comparable results. 49 U.S.C. 32904(c)

Thus, EPA is charged with developing and adopting the procedures used to measure fuel economy for vehicle models and for calculating average fuel economy across a manufacturer's fleet. While this provision provides broad discretion to EPA, it contains an important limitation for the measurement and calculation procedures applicable to passenger automobiles. For passenger automobiles, EPA has to use the same procedures used for model year 1975 automobiles, or procedures that give comparable results. [244] This limitation does not apply to vehicles that are not passenger automobiles. The legislative history explains that:

Compliance by a manufacturer with applicable average fuel economy standards is to be determined in accordance with test procedures established by the EPA Administrator. Test procedures so established would be the procedures utilized by the EPA Administrator for model year 1975, or procedures which yield comparable results. The words “or procedures which yield comparable results” are intended to give EPA wide latitude in modifying the 1975 test procedures to achieve procedures that are more accurate or easier to administer, so long as the modified procedure does not have the effect of substantially changing the average fuel economy standards. H.R. Rep. No. 94-340, at 91-92 (1975). [245]

EPA measures fuel economy for the CAFE program using two different test procedures—the Federal Test Procedure (FTP) and the Highway Fuel Economy Test (HFET). These procedures originated in the early 1970's, and were intended to generally represent city and highway driving, respectively. These two tests are commonly referred to as the “2-cycle” test procedures for CAFE. The FTP is also used for measuring compliance with CAA emissions standards for vehicle exhaust. EPA has made various changes to the city and highway fuel economy tests over the years. These have ranged from changes to dynamometers and other mechanical elements of testing, changes in test fuel properties, changes in testing conditions, to changes made in the 1990s when EPA adopted additional test procedures for exhaust emissions testing, called the Supplemental Federal Test Procedures (SFTP).

When EPA has made changes to the FTP or HFET, we have evaluated whether it is appropriate to provide for an adjustment to the measured fuel economy results, to comply with the EPCA requirement for passenger cars that the test procedures produce results comparable to the 1975 test procedures. These adjustments are typically referred to as a CAFE or fuel economy test procedure adjustment or adjustment factor. In 1985 EPA evaluated various test procedure changes made since 1975, and applied fuel economy adjustment factors to account for several of the test procedure changes that reduced the measured fuel economy, producing a significant CAFE impact for vehicle manufacturers. 50 FR 27172 (July 1, 1985). EPA defined this significant CAFE impact as any change or group of changes that has at least a one tenth of a mile per gallon impact on CAFE results. Id. at 27173. EPA also concluded in this proceeding that no adjustments would be provided for changes that removed the manufacturer's ability to take advantage of flexibilities in the test procedure and derive increases in measured fuel economy values which were not the result of design improvements or marketing shifts, and which would not result in any improvement in real world fuel economy. EPA likewise concluded that test procedure changes that provided manufacturers with an improved ability to achieve increases in measured fuel economy based on real world fuel economy improvements also would not warrant a CAFE adjustment. Id. at 27172, 27174, 27183. EPA adopted retroactive adjustments that had the effect of increasing measured fuel economy (to offset test procedure changes that reduced the measured fuel economy level) but declined to apply retroactive adjustments that reduced fuel economy.

The DC Circuit reviewed two of EPA's decisions on CAFE test procedure adjustments. Center for Auto Safety et al. v. Thomas, 806 F.2d 1071 (1986). First, the Court rejected EPA's decision to apply only positive retroactive adjustments, as the appropriateness of an adjustment did not depend on whether it increased or decreased measured fuel economy results. Second, the Court upheld EPA's decision to not apply any adjustment for the change in the test setting for road load power. The 1975 test procedure provided a default setting for road load power, as well as an optional, alternative method that allowed a manufacturer to develop an alternative road load power setting. The road load power setting affected the amount of work that the engine had to perform during the test, hence it affected the amount of fuel consumed during the test and the measured fuel economy. EPA changed the test procedure by replacing the alternative method in the 1975 procedure with a new alternative coast down procedure. Both the original and the replacement alternative procedures were designed to allow manufacturers to obtain the benefit of vehicle changes, such as changes in aerodynamic design, that improved real world fuel economy by reducing the amount of work that the engine needed to perform to move the vehicle. The Center for Auto Safety (CAS) argued that EPA was required to provide a test procedure adjustment for the new alternative coast down procedure as it increased measured fuel economy compared to the values measured for the 1975 fleet. In 1975, almost no manufacturers made use of the then available alternative method, while in later years many manufacturers made use of the option once it was changed to the coast down procedure. CAS argued this amounted to a change in test procedure that did not achieve comparable results, and therefore required a test procedure adjustment. CAS did not contest that the coast down method and the prior alternative method achieved comparable results.

The DC Circuit rejected CAS' arguments, stating that:

The critical fact is that a procedure that credited reductions in a vehicle's road load power requirements achieved through improved aerodynamic design was available for MY1975 testing, and those manufacturers, however few in number, that found it advantageous to do so, employed that procedure. The manifold intake procedure subsequently became obsolete for other reasons, but its basic function, to measure real improvements in fuel economy through more aerodynamically efficient designs, lived on in the form of the coast down technique for measuring those aerodynamic improvements. We credit the EPA's finding that increases in measured fuel economy because of the lower road load settings obtainable under the coast down method, were increases “likely to be observed on the road,” and were not“unrepresentative artifact[s] of the dynamometer test procedure.” Such real improvements are exactly what Congress meant to measure when it afforded the EPA flexibility to change testing and calculating procedures. We agree with the EPA that no retroactive adjustment need be made on account of the coast down technique. Center for Auto Safety et al v. EPA, 806 F.2d 1071, 1077 (DC Cir. 1986)

Some years later, in 1996, EPA adopted a variety of test procedure changes as part of updating the emissions test procedures to better reflect real world operation and conditions. 61 FR 54852 (October 22, 1996). EPA adopted new test procedures to supplement the FTP, as well as modifications to the FTP itself. For example, EPA adopted a new supplemental test procedure specifically to address the impact of air conditioner use on exhaust emissions. Since this new test directly addressed the impact of A/C use on emissions, EPA removed the specified A/C horsepower adjustment that had been in the FTP since 1975. Id. at 54864, 54873. Later EPA determined that there was no need for CAFE adjustments for the overall set of test procedures changes to the FTP, as the net effect of the changes was no significant change in CAFE results.

As evidenced by this regulatory history, EPA's traditional approach is to consider the impact of potential test procedure changes on CAFE results for passenger automobiles and determine if a CAFE adjustment factor is warranted to meet the requirement that the test procedure produce results comparable to the 1975 test procedure. This involves evaluating the magnitude of the impact on measured fuel economy results. It also involves evaluating whether the change in measured fuel economy reflects real word fuel economy impacts from changes in technology or design, or whether it is an artifact of the test procedure or test procedure flexibilities such that the change in measured fuel economy does not reflect a real world fuel economy impact.

In this case, allowing credits for improvements in air conditioner efficiency and off-cycle efficiency for passenger cars would lead to an increase (i.e., improvement) in the fuel economy results for the vehicle model. The impact on fuel economy and CAFE results clearly could be greater than one tenth of a mile per gallon (the level that EPA has previously indicated as having a substantial impact). The increase in fuel economy results would reflect real world improvements in fuel economy and not changes that are just artifacts of the test procedure or changes that come from closing a loophole or removing a flexibility in the current test procedure. However, these changes in procedure would not have the “critical fact” that the CAS Court relied upon—the existence of a 1975 test provision that was designed to account for the same kind of fuel economy improvements from changes in A/C or off-cycle efficiency. Under EPA's traditional approach, these changes would appear to have a significant impact on CAFE results, would reflect real world changes in fuel economy, but would not have a comparable precedent in the 1975 test procedure addressing the impact of these technology changes on fuel economy. EPA's traditional approach would be expected to lead to a CAFE adjustment factor for passenger cars to account for the impact of these changes.

However, EPA is considering whether a change in approach is appropriate based on the existence of similar EPA provisions for the greenhouse gas emissions procedures and standards. In the past, EPA has determined whether a CAFE adjustment factor for passenger cars would be appropriate in a context where manufacturers are subject to a CAFE standard under EPCA and there is no parallel greenhouse gas standard under the CAA. That is not the case here, as MY2017-2025 passenger cars will be subject to both CAFE and greenhouse gas standards. As such, EPA is considering whether it is appropriate to consider the impact of a CAFE procedure change in this broader context standard.

The term “comparable results” is not defined in section 32904(c), and the legislative history indicates that it is intended to address changes in procedure that result in a substantial change in the average fuel economy standard. As explained above, EPA has considered a change of one-tenth of a mile per gallon as having a substantial impact, based in part on the one tenth of a mile per gallon rounding convention in the statute for CAFE calculations. 48 FR 56526, 56528 fn.14 (December 21, 1983). A change in the procedure that changes fuel economy results to this or a larger degree has the effect of changing the stringency of the CAFE standard, either making it more or less stringent. A change in stringency of the standard changes the burden on the manufacturers, as well as the fuel savings and other benefits to society expected from the standard. A CAFE adjustment factor is designed to account for these impacts.

Here, however, there is a companion EPA standard for greenhouse gas emissions. In this case, the changes would have an impact on the fuel economy results and therefore the stringency of the CAFE standard, but would not appear to have a real world impact on the burden placed on the manufacturers, as the provisions would be the same as provisions in EPA's greenhouse gas standards. Similarly it would not appear to have a real world impact on the fuel savings and other benefits of the National Program which would remain identical. If that is the case, then it would appear reasonable to interpret section 32904(c) in these circumstances as not restricting these changes in procedure for passenger automobiles. The fuel economy results would be considered “comparable results” to the 1975 procedure as there would not be a substantial impact on real world CAFE stringency and benefits, given the changes in procedure are the same as provisions in EPA's companion greenhouse gas procedures and standards. EPA invites comment on this approach to interpreting section 32904(c), as well as the view that this would not have a substantial impact on either the burden on manufacturers or the benefits of the National Program.

EPA is also considering an alternative interpretation. Under this interpretation, the reference to the 1975 procedures in section 32904(c) would be viewed as a historic reference point, and not a codification of any specific procedures or fuel economy improvement technologies. The change in procedure would be considered within EPA's broad discretion to prescribe reasonable testing and calculation procedures, as these changes reflect real world improvements in design and accompanying real world improvements in fuel economy. The changes in procedure would reflect real world fuel economy improvements and increase harmonization with EPA's greenhouse gas program. Since the changes in procedure have an impact on fuel economy results and could have an impact on the stringency of the CAFE standard, EPA could consider two different approaches to offsetting the change in stringency.

In one approach EPA could maintain the stringency of the 2-cycle (FTP and HFET) CAFE standard by adopting a corresponding adjustment factor to the test results, ensuring that the stringency of the CAFE standard was not substantially changed by the change in procedure. This would be the traditional approach EPA has followed. Another approach would be for NHTSA to maintain the stringency of the 2-cycle CAFE standard by increasing that standard's stringency to offset any reduction in stringency associated with changes that increase fuel economy values. The effect of this adjustment to the standard would be to maintain at comparable levels the amount of CAFE to be achieved using technology whose effects on fuel economy are accounted for as measured under the 1975 test procedures. The effect of the adjustment to the standard would also typically be an additional amount of CAFE that would have to be achieved, for example by technology whose effects on fuel economy are not accounted for under the 1975 test procedures. Under this interpretation, this would maintain the level of stringency of the 2-cycle CAFE standard that would be adopted for passenger cars absent the changes in procedure. As with the interpretation discussed above, this alternative interpretation would be a major change from EPA's past interpretation and practice. In this joint rulemaking the alternative interpretation would apply to changes in procedure that are the same as the companion EPA greenhouse gas program. However, that would not be an important element in this alternative interpretation, which would apply irrespective of the similarity with EPA's greenhouse gas procedures and standards. EPA invites comment on this alternative interpretation.

The discussion above focuses on the procedures for passenger cars, as section 32904(c) only limits changes to the CAFE test and calculation procedures for these automobiles. There is no such limitation on the procedures for light-trucks. The credit provisions for improvements in air conditioner efficiency and off-cycle performance would apply to light-trucks as well. In addition, the limitation in section 32904(c) does not apply to the provisions for credits for use of hybrids in light-trucks, if certain criteria are met, as these provisions apply to light-trucks and not passenger automobiles.

b. Implementation of This Approach

As discussed in section IV, NHTSA would take these changes in procedure into account in setting the applicable CAFE standards for passenger cars and light-trucks, to the extent practicable. As in EPA's greenhouse gas program, the allowance of AC credits for cars and trucks results in a more stringent CAFE standard than otherwise would apply (although in the CAFE program the AC credits would only be for AC efficiency improvements, since refrigerant improvements do not impact fuel economy). The allowance of off-cycle credits has been considered in setting the CAFE standards for passenger car and light-trucks and credits for hybrid use in light pick-up trucks has not been expressly considered in setting the CAFE standards for light-trucks, because the agencies did not believe that it was possible to quantify accurately the extent to which manufacturers would rely on those credits, but if more accurate quantification were possible, NHTSA would consider incorporating those incentives into its stringency determination.

EPA further discusses the criteria and test procedures for determining AC credits, off-cycle technology credits, and hybrid/performance-based credits for full size pickup trucks in Section III.C below.

C. Additional Manufacturer Compliance Flexibilities

1. Air Conditioning Related Credits

A/C is virtually standard equipment in new cars and trucks today. Over 95% of the new cars and light trucks in the United States are equipped with A/C systems. Given the large number of vehicles with A/C in use in today's light duty vehicle fleet, their impact on the amount of energy consumed and on the amount of refrigerant leakage that occurs due to their use is significant.

EPA proposes that manufacturers be able to comply with their fleetwide average CO 2 standards described above by generating and using credits for improved (A/C) systems. Because such improved A/C technologies tend to be relatively inexpensive compared to other GHG-reducing technologies, EPA expects that most manufacturers would choose to generate and use such A/C compliance credits as a part of their compliance demonstrations. For this reason, EPA has incorporated the projected costs of compliance with A/C related emission reductions into the overall cost analysis for the program. As discussed in section II.F, and III.B.10, EPA, in coordination with NHTSA, is also proposing that manufacturers be able to include fuel consumption reductions resulting from the use of A/C efficiency improvements in their CAFE compliance calculations. Manufacturers would generate “fuel consumption improvement values” essentially equivalent to EPA CO 2 credits, for use in the CAFE program. The proposed changes to the CAFE program to incorporate A/C efficiency improvements are discussed below in section III.C.1.b.

As in the 2012-2016 final rule, EPA is structuring the A/C provisions as optional credits for achieving compliance, not as separate standards. That is, unlike standards for N 2 O and CH 4, there are no separate GHG standards related to AC related emissions. Instead, EPA provides manufacturers the option to generate A/C GHG emission reductions that could be used as part of their CO 2 fleet average compliance demonstrations. As in the 2012-2016 final rule, EPA also included projections of A/C credit generation in determining the appropriate level of the proposed standards. [246]

In the time since the analyses supporting the 2012-2016 FRM were completed, EPA has re-assessed its estimates of overall A/C emissions and the fraction of those emissions that might be controlled by technologies that are or will be available to manufacturers. [247] As discussed in more detail in Chapter 5 of the Joint TSD (see Section 5.1.3.2), the revised estimates remain very similar to those of the earlier rule. This includes the leakage of refrigerant during the vehicle's useful life, as well as the subsequent leakage associated with maintenance and servicing, and with disposal at the end of the vehicle's life (also called “direct emissions”). The refrigerant universally used today is HFC-134a with a global warming potential (GWP) of 1,430. [248] Together these leakage emissions are equivalent to CO 2 emissions of 13.8 g/ mi for cars and 17.2 g/mi for trucks. (Due to the high GWP of HFC-134a, a small amount of leakage of the refrigerant has a much greater global warming impact than a similar amount of emissions of CO 2 or other mobile source GHGs.) EPA also estimates that A/C efficiency-related emissions (also called “indirect” A/C emissions), account for CO 2-equivalent emissions of 11.9 g/mi for cars and 17.1 g/mi for trucks. [249] Chapter 5 of the Joint TSD (see Section 5.1.3.2) discusses the derivation of these estimates.

Achieving GHG reductions in the most cost-effective ways is a primary goal of the program, and EPA believes that allowing manufacturers to comply with the proposed standards by using credits generated from incorporating A/C GHG-reducing technologies is a key factor in meeting that goal. [250] EPA accounts for projected reductions from A/C related credits in developing the standards (curve targets), and includes these emission reductions in estimating the achieved benefits of the program. See Section II.D above.

Manufacturers can make very feasible improvements to their A/C systems to reduce leakage and increase efficiency. Manufacturers can reduce A/C leakage emissions by using components that tend to limit or eliminate refrigerant leakage. Also, manufacturers can significantly reduce the global warming impact of leakage emissions by adopting systems that use an alternative, low-GWP refrigerant, acceptable under EPA's SNAP program, as discussed below, especially if systems are also designed to minimize leakage. [251] Manufacturers can also increase the overall efficiency of the A/C system and thus reduce A/C-related CO 2 emissions. This is because the A/C system contributes to increased CO 2 emissions through the additional work required to operate the compressor, fans, and blowers. This additional work typically is provided through the engine's crankshaft, and delivered via belt drive to the alternator (which provides electric energy for powering the fans and blowers) and the A/C compressor (which pressurizes the refrigerant during A/C operation). The additional fuel used to supply the power through the crankshaft necessary to operate the A/C system is converted into CO 2 by the engine during combustion. This incremental CO 2 produced from A/C operation can thus be reduced by increasing the overall efficiency of the vehicle's A/C system, which in turn will reduce the additional load on the engine from A/C operation.

As with the earlier GHG rule, EPA is proposing two separate credit approaches to address leakage reductions and efficiency improvements independently. A leakage reduction credit would take into account the various technologies that could be used to reduce the GHG impact of refrigerant leakage, including the use of an alternative refrigerant with a lower GWP. An efficiency improvement credit would account for the various types of hardware and control of that hardware available to increase the A/C system efficiency. To generate credits toward compliance with the fleet average CO 2 standard, manufacturers would be required to attest to the durability of the leakage reduction and the efficiency improvement technologies over the full useful life of the vehicle.

EPA believes that both reducing A/C system leakage and increasing A/C efficiency would be highly cost-effective and technologically feasible for light-duty vehicles in the 2017-2025 timeframe. EPA proposes to maintain much of the existing framework for quantifying, generating, and using A/C Leakage Credits and Efficiency Credits. EPA expects that most manufacturers would choose to use these A/C credit provisions, although some may choose not to do so. Consistent with the 2012-2016 final rule, the proposed standard reflects this projected widespread penetration of A/C control technology.

The following table summarizes the maximum credits the EPA proposes to make available in the overall A/C program.

The next table shows the credits on a model year basis that EPA projects that manufacturers will generate on average (starting with the ending values from the 2012-2016 final rule). In the 2012-2016 rule, the total average car and total average truck credits accounted for the difference between the GHG and CAFE standards.

The year-on-year progression of credits was determined as follows. The credits are assumed to increase starting from their MY 2016 value at a rate approximately commensurate with the increasing stringency of the 2017-2025 GHG standards, but not exceeding a 20% penetration rate increase in any given year, until the maximum credits are achieved by 2021. EPA expects that manufacturers would be changing over to alternative refrigerants at the time of complete vehicle redesign, which occurs about every 5 years, though in confidential meetings, some manufacturers/suppliers have informed EPA that a modification of the hardware for some alternative refrigerant systems may be able to be done between redesign periods. Given the significant number of credits for using low GWP refrigerants, as well as the variety of alternative refrigerants that appear to be available, EPA believes that a total phase-in of alternative refrigerants is likely to begin in the near future and be completed by no later than 2021 (as shown in Table III-13 above). EPA requests comment on our assumptions for the phase-in rate for alternative refrigerants.

The progression of the average credits (relative to the maximum) also defines the relative year-on-year costs as described in Chapter 3 of the Joint TSD. The costs are proportioned by the ratio of the average credit in any given year to the maximum credit. This is nearly equivalent to proportioning costs to technology penetration rates as is done for all the other technologies. However because the maximum efficiency credits for cars and trucks have changed since the 2012-2016 rule, proportioning to the credits provides a more realistic and smoother year-on-year sequencing of costs. [252]

EPA seeks comment on all aspects of the A/C credit program, including changes from the current A/C credit program and the details in the Joint TSD.

a. Air Conditioning Leakage (“Direct”) Emissions and Credits

i. Quantifying A/C Leakage Credits for Today's Refrigerant

As previously discussed, EPA proposes to continue the existing leakage credit program, with minor modifications. Although in general EPA continues to prefer performance-based standards whenever possible, A/C leakage is very difficult to accurately measure in a laboratory test, due to the typical slowness of such leaks and the tendency of leakage to develop unexpectedly as vehicles age. At this time, no appropriate performance test for refrigerant leakage is available. Thus, as in the existing MYs 2012-2016 program, EPA would associate each available leakage-reduction technology with associated leakage credit value, which would be added together to quantify the overall system credit, up to the maximum available credit. EPA's Leakage Credit method is drawn from the SAE J2727 method (HFC-134a Mobile Air Conditioning System Refrigerant Emission Chart, August 2008 version), which in turn was based on results from the cooperative “IMAC” study. [253] EPA is proposing to incorporate several minor modifications that SAE is making to the J2727 method, but these do not affect the proposed credit values for the technologies. Chapter 5 of the joint TSD includes a full discussion of why EPA is proposing to continue the design-based “menu” approach to quantifying Leakage Credits, including definitions of each of the technologies associated with the values in the menu.

In addition to the above “menu” for vehicles using the current high-GWP refrigerant (HFC-134a), EPA also proposes to continue to provide the leakage credit calculation for vehicles using an alternative, lower-GWP refrigerant. This provision was also a part of the MYs 2012-2016 rule. As with the earlier rule, the agency is including this provision because shifting to lower-GWP alternative refrigerants would significantly reduce the climate-change concern about HFC-134a refrigerant leakage by reducing the direct climate impacts. Thus, the credit a manufacturer could generate is a function of the degree to which the GWP of an alternative refrigerant is less than that of the current refrigerant (HFC-134a).

In recent years, the global industry has given serious attention primarily to three of the alternative refrigerants: HFO-1234yf, HFC-152a, and carbon dioxide (R-744). Work on additional low GWP alternatives continues. HFO1234yf, has a GWP of 4, HFC-152a has a GWP of 124 and CO 2 has a GWP of 1. [254] Both HFC-152a and CO 2 are produced commercially in large amounts and thus, supply of refrigerant is not a significant factor preventing adoption. [255] HFC-152a has been shown to be comparable to HFC-134a with respect to cooling performance and fuel use in A/C systems. [256]

In the MYs 2012-2016 GHG rule, a manufacturer using an alternative refrigerant would receive no credit for leakage-reduction technologies. At that time, EPA believed that from the perspective of primary climate effect, leakage of a very low GWP refrigerant is largely irrelevant. However, there is now reason to believe that the need for repeated recharging (top-off) of A/C systems with another, potentially costly refrigerant could lead some consumers and/or repair facilities to recharge a system designed for use with an alternative, low GWP refrigerant with either HFC-134a or another high GWP refrigerant. Depending on the refrigerant, it may still be feasible, although not ideal, for systems designed for a low GWP refrigerant to operate on HFC-134a; in particular, the A/C system operating pressures for HFO-1234yf and HFC-152a might allow their use. Thus, the need for repeated recharging in use could slow the transition away from the high-GWP refrigerant even though recharging with a refrigerant different from that already in the A/C system is not authorized under current regulations. [257]

For alternative refrigerant systems, EPA is proposing to add to the existing credit calculation approach for alternative-refrigerant systems a provision that would provide a disincentive for manufacturers if systems designed to operate with HFO-1234yf, HFC-152a, R744, or some other low GWP refrigerant incorporated fewer leakage-reduction technologies. A system with higher annual leakage could then be recharged with HFC-134a or another refrigerant with a GWP higher than that with which the vehicle was originally equipped (e.g., HFO-1234yf, CO 2, or HFC-152a). Some stakeholders have suggested that EPA take precautions to address the potential for HFC-134a to replace HFO-1234yf, for example, in vehicles designed for use with the new refrigerant (see comment and response section of EPA's SNAP rule on HFO-1234yf , 76 FR 17509; March 29, 2011). [258] In EPA's proposed disincentive provision, manufacturers would avoid some or all of a deduction in their Leakage Credit of about 2 g/mi by maintaining the use of low-leak components after a transition to an alternative refrigerant.

ii. Issues Raised by a Potential Broad Transition to Alternative Refrigerants

As described previously, use of alternative, lower-GWP refrigerants for mobile use reduces the climate effects of leakage or release of refrigerant through the entire life-cycle of the A/C system. Because the impact of direct emissions of such refrigerants on climate is significantly less than that for the current refrigerant HFC-134a, release of these refrigerants into the atmosphere through direct leakage, as well as release due to maintenance or vehicle scrappage, is predictably less of a concern than with the current refrigerant. As discussed above, there remains a concern, even with a low-GWP refrigerant, that some repairs may repeatedly result in the replacement of the lower-GWP refrigerant from a leaky A/C system with a readily-available, inexpensive, high-GWP refrigerant.

For a number of years, the automotive industry has explored lower-GWP refrigerants and the systems required for them to operate effectively and efficiently, taking into account refrigerant costs, toxicity, flammability, environmental impacts, and A/C system costs, weight, complexity, and efficiency. European Union regulations require a transition to alternative refrigerants with a GWP of 150 or less for motor vehicle air conditioning. The European Union's Directive on mobile air-conditioning systems (MAC Directive [259] ) aims at reducing emissions of specific fluorinated greenhouse gases in the air-conditioning systems fitted to passenger cars (vehicles under EU category M1) and light commercial vehicles (EU category N1, class 1).

The main objectives of the EU MAC Directive are: to control leakage of fluorinated greenhouse gases with a global warming potential (GWP) higher than 150 used in this sector; and to prohibit by a specified date the use of higher GWP refrigerants in MACs. The MAC Directive is part of the European Union's overall objectives to meet commitments made under the UNFCCC's Kyoto Protocol. This transition starts with new car models in 2011 and continues with a complete transition to manufacturing all new cars with low GWP refrigerant by January 1, 2017.

One alternative refrigerant has generated significant interest in the automobile manufacturing industry and it appears likely to be used broadly in the near future for this application. This refrigerant, called HFO-1234yf, has a GWP of 4. The physical and thermodynamic properties of this refrigerant are similar enough to HFC-134a that auto manufacturers would need to make relatively minor technological changes to their vehicle A/C systems in order to manufacture and market vehicles capable of using HFO-1234yf. Although HFO-1234yf is flammable, it requires a high amount of energy to ignite, and is expected to have flammability risks that are not significantly different from those of HFC-134a or other refrigerants found acceptable subject to use conditions (76 FR 17494-17496, 17507; March 29, 2011).

There are some drawbacks to the use of HFO-1234yf. Some technological changes, such as the addition of an internal heat exchanger in the A/C system, may be necessary to use HFO-1234yf. In addition, the anticipated cost of HFO-1234yf is several times that of HFC-134a. At the time that EPA's Significant New Alternatives Policy (SNAP) program issued its determination allowing the use of HFO-1234yf in motor vehicle A/C systems, the agency cited estimated costs of $40 to $60 per pound, and stated that this range was confirmed by an automobile manufacturer (76 FR 17491; March 29, 2011) and a component supplier. [260] By comparison, HFC-134a currently costs about $2 to $4 per pound. [261] The higher cost of HFO-1234yf is largely because of limited global production capability at this time. However, because it is more complicated to produce the molecule for HFO-1234yf, it is unlikely that it will ever be as inexpensive as HFC-134a is currently. In Chapter 5 of the TSD (see Section 5.1.4), the EPA has accounted for this additional cost of both the refrigerant as well as the hardware upgrades.

Manufacturers have seriously considered other alternative refrigerants in recent years. One of these, HFC-152a, has a GWP of 124. [262] HFC-152a is produced commercially in large amounts. [263] HFC-152a has been shown to be comparable to HFC-134a with respect to cooling performance and fuel use in A/C systems. [264] HFC-152a is flammable, listed as A2 by ASHRAE. [265] Air conditioning systems using this refrigerant would require engineering strategies or devices in order to reduce flammability risks to acceptable levels (e.g., use of release valves or secondary-loop systems). In addition, CO 2 can be used as a refrigerant. It has a GWP of 1, and is widely available commercially. [266] Air conditioning systems using CO 2 would require different designs than other refrigerants, primarily due to the higher operating pressures that are required. Reesearch continues exploring the potential for these alternative refrigerants for automotive applications. Finally, EPA is aware that the chemical and automobile manufacturing industries continue to consider additional refrigerants with GWPs less than 150. For example, SAE International is currently running a cooperative research program looking at two low GWP refrigerant blends, with the program to complete in 2012. [267] The producers of these blends have not to date applied for SNAP approval. However, we expect that there may well be additional alternative refrigerants available to vehicle manufacturers in the next few years.

(1) Related EPA Actions to Date and Potential Actions Concerning Alternative Refrigerants

EPA is addressing potential environmental and human health concerns of low-GWP alternative refrigerants through a number of actions. The SNAP program has issued final rules regulating the use of HFC-152a and HFO-1234yf in order to reduce their potential risks (June 12, 2008, 73 FR 33304; March 29, 2010, 76 FR 17488). The SNAP rule for HFC-152a allows its use in new motor vehicle A/C systems where proper engineering strategies and/or safety devices are incorporated into the system. The SNAP rules for both HFC-152a and HFO-1234yf require meeting safety requirements of the industry standard SAE J639. With both refrigerants, EPA expects that manufacturers conduct and keep on file failure mode and effect analysis for the motor vehicle A/C system, as stated in SAE J1739. EPA has also proposed a rule that would allow use of carbon dioxide as a refrigerant subject to use conditions for motor vehicle A/C systems (September 21, 2006; 71 FR 55140). EPA expects to finalize a rule for use of carbon dioxide in motor vehicle A/C systems in 2012.

Under Section 612(d) of the Clean Air Act, any person may petition EPA to add alternatives to or remove them from the list of acceptable substitutes for ozone depleting substances. The National Resource Defense Council (NRDC) submitted a petition on behalf of NRDC, the Institute for Governance & Sustainable Development (IGSD), and the Environmental Investigation Agency-US (EIA-US) to EPA under Clean Air Act Section 612(d), requesting that the Agency remove HFC-134a from the list of acceptable substitutes and add it to the list of unacceptable (prohibited) substitutes for motor vehicle A/C, among other uses. [268] EPA has found this petition complete specifically for use of HFC-134a in new motor vehicle A/C systems for use in passenger cars and light duty vehicles. EPA intends to initiate a separate notice and comment rulemaking in response to this petition in the future.

EPA expects to address potential toxicity issues with the use of CO 2 as a refrigerant in automotive A/C systems in the upcoming final SNAP rule mentioned above. CO 2 has a workplace exposure limit of 5000 pm on a 8-hour time-weighted average. [269] EPA has also addressed potential toxicity issues with HFO-1234yf through a significant new use rule (SNUR) under the Toxic Substances Control Act (TSCA) (October 27, 2010; 75 FR 65987). The SNUR for HFO-1234yf allows its use as an A/C refrigerant for light-duty vehicles and light-duty trucks, and found no significant toxicity issues with that use. As mentioned in the NPRM for a VOC exemption for HFO-1234yf, “The EPA considered the results of developmental testing available at the time of the final SNUR action to be of some concern, but not a sufficient basis to find HFO-1234yf unacceptable under the SNUR determination. As a result, the EPA requested additional toxicity testing and issued the SNUR for HFO-1234yf. The EPA has received and is presently reviewing the results of the additional toxicity testing. The EPA continues to believe that HFO-1234yf, when used in new automobile air conditioning systems in accordance with the use conditions under the SNAP rule, does not result in significantly greater risks to human health than the use of other available substitutes.” (76 FR 64063, October 17, 2011). HFC-152a is considered relatively low in toxicity and comparable to HFC-134a, both of which have a workplace environmental exposure limit from the American Industrial Hygiene Association of 1000 ppm on an 8-hour time-weighted average (73 FR 33304; June 12, 2008).

EPA has issued a proposed rule, proposing to exempt HFO-1234yf from the definition of “volatile organic compound” (VOC) for purposes of preparing State implementation Plans (SIPs) to attain the national ambient air quality standards for ozone under Title I of the Clean Air Act (October 17, 2011; 76 FR 64059). VOCs are a class of compounds that can contribute to ground level ozone, or smog, in the presence of sunlight. Some organic compounds do not react enough with sunlight to create significant amounts of smog. EPA has already determined that a number of compounds, including the current automotive refrigerant, HFC-134a as well as HFC-152a, are low enough in photochemical reactivity that they do not need to be regulated under SIPs. CO 2 is not considered a volatile organic compound (VOC) for purposes of preparing SIPs.

(2) Vehicle Technology Requirements for Alternative Refrigerants

As discussed above, significant hardware changes could be needed to allow use of HFC-152a or CO 2, because of the flammability of HFC-152a and because of the high operating pressure required for CO 2. In the case of HFO-1234yf, manufacturers have said that A/C systems for use with HFO-1234yf would need a limited amount of additional hardware to maintain cooling efficiency compared to HFC-134a. In particular, A/C systems may require an internal heat exchanger to use HFO-1234yf, because HFO-1234yf would be less effective in A/C systems not designed for its use. Because EPA's SNAP ruling allows only for its use in new vehicles, we expect that manufacturers would introduce cars using HFO-1234yf only during complete vehicle redesigns or when introducing new models. [270] EPA expects that the same would be true for other alternative refrigerants that are potential candidates (e.g., HFC-152a and CO 2). This need for complete vehicle redesign limits the potential pace of a transition from HFC-134a to alternative refrigerants. In meetings with EPA, manufacturers have informed EPA that, in the case of HFO-1234yf, for example, they would need to upgrade their refrigerant storage facilities and charging stations on their assembly lines. During the transition period between the refrigerants, some of these assembly lines might need to have the infrastructure for both refrigerants simultaneously since many lines produce multiple vehicle models. Moreover, many of these plants might not immediately have the facilities or space for two refrigerant infrastructures, thus likely further increasing necessary lead time. EPA took these kinds of factors into account in estimating the penetration of alternative refrigerants, and the resulting estimated average credits over time shown in Table III-13.

Switching to alternative refrigerants in the U.S. market continues to be an attractive option for automobile manufacturers because vehicles with low GWP refrigerant could qualify for a significantly larger leakage credit. Manufacturers have expressed to EPA that they would plan to place a significant reliance on, or in some cases believe that they would need, alternative refrigerant credits for compliance with GHG fleet emission standards starting in MY 2017.

(3) Alternative Refrigerant Supply

EPA is aware that another practical factor affecting the rate of transition to alternative refrigerants is their supply. As mentioned above, both HFC-152a and CO 2 are being produced commercially in large quantities and thus, although their supply chain does not at this time include auto manufacturers, it may be easier to increase production to meet additional demand that would occur if manufacturers adopt either as a refrigerant. However, for the newest refrigerant listed under the SNAP program, HFO-1234yf, supply is currently limited. There are currently two major producers of HFO-1234yf, DuPont and Honeywell, that are licensed to produce this chemical for the U.S. market. Both companies will likely provide most of their production for the next few years from a single overseas facility, as well as some production from small pilot plants. The initial emphasis for these companies is to provide HFO-1234yf to the European market, where regulatory requirements for low GWP refrigerants are already in effect. These same companies have indicated that they plan to construct a new facility in the 2014 timeframe and intend to issue a formal announcement about that facility close to the end of this calendar year. This facility should be designed to provide sufficient production volume for a worldwide market in coming years. EPA expects that the speed of the transition to alternative refrigerants in the U.S. may depend on how rapidly chemical manufacturers are able to provide supply to automobile manufacturers sufficient to allow most or all vehicles sold in the U.S. to be built using the alternative refrigerant.

One manufacturer (GM) has announced its intention to begin introducing vehicle models using HFO- 1234yf as early as MY 2013. [271] EPA is not aware of other companies that have made a public commitment to early adoption of HFO-1234yf or other alternative refrigerants. As described above, we expect that in most cases a change-over to systems designed for alternative refrigerants would be limited to vehicle product redesign cycles, typically about every 5 years. Because of this, the pace of introduction is likely to be limited to about 20% of a manufacturer's fleet per year. In addition, the current uncertainty about the availability of supply of the new refrigerant in the early years of introduction into vehicles in the U.S. vehicles, also discussed above, means that the change-over may not occur at every vehicle redesign point. Thus, even with the announced intention of this one manufacturer to begin early introduction of an alternative refrigerant, EPA's analysis of the overall industry trend will assume minimal penetration of the U.S. vehicle market before MY 2017.

Table III-13 shows that, starting from MY 2017, virtually all of the expected increase in generated credits would be due to a gradual increase in penetration of alternative refrigerants. In earlier model years, EPA attributes the expected increase in Leakage Credits to improvements in low-leak technologies.

(4) Projected Potential Scenarios for Auto Industry Changeover to Alternative Refrigerants

As discussed above, EPA is planning on issuing a proposed SNAP rulemaking in the future requesting comment on whether to move HFC-134a from the list of acceptable substitutes to the list of unacceptable (prohibited) substitutes. However, the agency has not determined the specific content of that proposal, and the results of any final action are unknowable at this time. EPA recognizes that a major element of that proposal will be the evaluation of the time needed for a transition for automobile manufacturers away from HFC-134a. Thus, there could be multiple scenarios for the timing of a transition considered in that future proposed rulemaking. Should EPA finalize a rule under the SNAP program that prohibits the use of HFC-134a in new vehicles, the agency plans to evaluate the impacts of such a SNAP rule to determine whether it would be necessary to consider revisions to the availability and use of the compliance credit for MY 2017-2025.

For purposes of this proposed GHG rule, EPA is assuming the current status, where there are no U.S. regulatory requirements for manufacturers to eliminate the use of HFC-134a for newly manufactured vehicles. Thus, the agency would expect that the market penetration of alternatives will proceed based on supply and demand and the strong incentives in this proposal. Given the combination of clear interest from automobile manufacturers in switching to an alternative refrigerant, the interest from HFO-1234yf alternative refrigerant manufacturers to expand their capacity to produce and market the refrigerant, and current commercial availability of HFC-152a and CO 2, EPA believes it is reasonable to project that supply would be adequate to support the orderly rate of transition to an alternative refrigerant described above. As mentioned earlier, at least one U.S. manufacturer already has plans to introduce models using the alternative refrigerant HFO-1234yf beginning in MY 2013. However, it is not certain how widespread the transition to a alternative refrigerants will be in the U.S., nor how quickly that transition will occur in the absence of requirements or strong incentives.

There are other situations that could lead to an overall fleet changeover from HFC-134a to alternative refrigerants. For example, the governments of the U.S., Canada, and Mexico have proposed to the Parties to the Montreal Protocol on Substances that Deplete the Ozone Layer that production of HFCs be reduced over time. The North American Proposal to amend the Montreal Protocol allows the global community to make near-term progress on climate change by addressing this group of potent greenhouse gases. The proposal would result in lower emissions in developed and developing countries through the phase-down of the production and consumption of HFCs. If an amendment were adopted by the Parties, then switching from HFC-134a to alternative refrigerants would likely become an attractive option for decreasing the overall use and emissions of high-GWP HFCs, and the Parties would likely initiate or expand policies to incentivize suppliers to ramp up the supply of alternative refrigerants. Options for reductions would include transition from HFCs, moving from high to lower GWP HFCs, and reducing charge sizes.

EPA requests comment on the implications for the program of the refrigerant transition scenario assumed for the analyses supporting this NPRM; that is, where there are no U.S. regulatory requirements for manufacturers to eliminate the use of HFC-134a for newly manufactured vehicles. EPA requests comment on factors that may affect the industry demand for refrigerant and its U.S. and international supply.

b. Air Conditioning Efficiency (“Indirect”) Emissions and Credits

In addition to the A/C leakage credits discussed above, EPA is proposing credits for improving the efficiency of—and thus reducing the CO 2 emissions from—A/C systems. Manufacturers have available a number of very cost-effective technology options that can reduce these A/C-related CO 2 emissions, which EPA estimates are currently on average 11.9 g/mi for cars and 17.1 for trucks nationally. [272] When manufacturers incorporate these technologies into vehicles that clearly result in reduced CO 2 emissions, EPA believes that A/C Efficiency Credits are warranted. Based on extensive industry testing and EPA analysis, the agency proposes that eligible efficiency-improving technologies be limited to up to a maximum 42% improvement, [273] which translates into a maximum credit value of 5.0 g/mi for cars and 7.2 g/mi for trucks.

As discussed further in Section III.C.1.b.iii below, under its EPCA authority, EPA is proposing, in coordination with NHTSA, to allow manufacturers to generate fuel consumption improvement values for purposes of CAFE compliance based on the use of A/C efficiency technologies. EPA is proposing that both the A/C efficiency credits under EPA's GHG program and the A/C efficiency fuel consumption improvement values under the CAFE program would be based on the same methodologies and test procedures, as further described below.

i. Quantifying A/C Efficiency Credits

In the 2012-2016 rule, EPA proposed that A/C Efficiency Credits be calculated based on the efficiency-improving technologies included in the vehicle. The design-based approach, associating each technology with a specific credit value, was a surrogate for a using a performance test to determine credit values. Although EPA generally prefers measuring actual emissions performance to a design-based approach, measuring small differences in A/C CO 2 emissions is very difficult, and an accurate test procedure capable of determining such differences was not available.

In conjunction with the (menu or) design-based calculation, EPA continues to believe it is important to verify that the technologies installed to generate credits are improving the efficiency of the A/C system. In the 2012-2016 rule, EPA required that manufacturers submit data from an A/C CO 2 Idle Test as a prerequisite to accessing the design-based credit calculation method. Beginning in MY 2014, manufacturers wishing to generate the A/C Efficiency Credits need to meet a CO 2 emissions threshold on the Idle Test.

As manufacturers have begun to evaluate the Idle Test requirements, they have made EPA aware of an issue with the test's original design. In the MYs 2012-2016 rule, EPA received comments that the Idle Test did not properly capture the efficiency impact of some of the technologies on the Efficiency Credit menu list. EPA also received comments that idle operation is not typical of real-world driving. EPA acknowledges that both of these comments have merit. At the time of the MY 2012-2016 rule, we expected that many manufacturers would be able to demonstrate improved efficiency with technologies like forced cabin air recirculation or electronically-controlled, and variable-displacement compressors., But under idle conditions, testing by manufacturers has shown that the benefits from these technologies can be difficult to quantify. Also, recent data provided by the industry shows that some vehicles that incorporate higher-efficiency A/C technologies are not able to consistently reach the CO 2 threshold on the current Idle Test. The available data also indicates that meeting the threshold tends to be more difficult for vehicles with smaller-displacement engines. [274] EPA continues to believe that there are some technologies that do have their effectiveness demonstrated during idle and that idle is a significant fraction of real-world operation. [275]

Although EPA believes some adjustments in the Idle Test are warranted and is proposing such adjustments, the agency also believes that a reasonable degree of verification is still needed, to demonstrate that that A/C efficiency-improving technologies for which manufacturers are basing credits are indeed implemented properly and are reducing A/C-related fuel consumption. EPA continues to believe that the Idle Test is a reasonable measure of some A/C-related CO 2 emissions as there is significant real-world driving activity at idle, and it significantly exercises a number of the A/C technologies from the menu. Therefore, EPA proposes to maintain the use of Idle Test as a prerequisite for generating Efficiency Credits for MYs 2014-2016. However, in order to provide reasonable verification while encouraging the development and use of efficiency-improving technologies, EPA proposes to revise the CO 2 threshold. Specifically, the agency proposes to scale the magnitude of the threshold to the displacement of the vehicle's engine, with smaller-displacement engines having a higher “grams per minute” threshold than larger-displacement engines. Thus, for vehicles with smaller-displacement engines, the threshold would be less stringent. The revised threshold would apply for MYs 2014-2016, and can be used (optionally) instead of the flat gram per minute threshold that applies for MYs 2014, through 2016. [276] In addition to revising the threshold, EPA proposes to relax the average ambient temperature and humidity requirements, due to the difficulty in controlling the year-round humidity in test cells designed for FTP testing. EPA requests comment on the proposed continued use of the Idle Test as a tool to validate the function of a vehicle's A/C efficiency-improving technologies, and on the revised CO 2 threshold and ambient requirements.

As stated above, EPA still considers the Idle Test to be a reasonable measure of some A/C-related CO 2 emissions. However, there are A/C efficiency-improving technologies that cannot be fully evaluated with the Idle Test. In addition to proposing the revised Idle Test, EPA proposes that manufacturers have the option of reporting results from a new transient A/C test in place of the Idle Test, for MYs 2014-2016. In the year since the previous GHG rule was finalized, EPA, CARB, and a consortium of auto manufacturers (USCAR) have developed a new transient test procedure that can measure the effect of the operation of the overall A/C system on CO 2 emissions and fuel economy. The new test, known as “AC17” (for Air Conditioning, 2017), and described in detail in Chapter 5 of the Joint TSD, is essentially a combination of the existing SC03 and HWFET test procedures, which, with the proposed modifications, would exercise the A/C system (and new technologies) under conditions representing typical U.S. driving and climate.

Some aspects of the AC17 test are still being developed and improved, but the basic procedure is sufficiently complete for EPA to propose it as a reporting option alternative to the Idle Test threshold in 2014, and a replacement for the Idle Test in 2017, as a prerequisite for generating Efficiency Credits. In model years 2014 to 2016, the AC17 test would be used to demonstrate that a vehicle's A/C system is delivering the efficiency benefits of the new technologies, and the menu will still be utilized. Manufacturers would run the AC17 test procedure on each vehicle platform that incorporates the new technologies, with the A/C system off and then on, and then report these test results to the EPA. This reporting option would replace the need for the Idle Test. In addition to reporting the test results, EPA will require that manufactures provide detailed vehicle and A/C system information for each vehicle tested (e.g. vehicle class, model type, curb weight, engine size, transmission type, interior volume, climate control type, refrigerant type, compressor type, and evaporator/condenser characteristics).

For model years 2017 and beyond, the A/C Idle Test menu and threshold requirement would be eliminated and be replaced with the AC17 test, as a prerequisite for access to the credit menu. For vehicle models which manufacturers are applying for A/C efficiency credits, the AC17 test would be run to validate that the performance and efficiency of a vehicle's A/C technology is commensurate to the level of credit for which the manufacturer is applying. To determine whether the efficiency improvements of these technologies are being realized on the vehicle, the results of an AC17 test performed on a new vehicle model would be compared to a “baseline” vehicle which does not incorporate the efficiency-improving technologies. If the difference between the new vehicle's AC17 test result and the baseline vehicle test result is greater than or equal to the amount of menu credit for which the manufacturer is applying, then the menu credit amount would be generated. However, if the difference in test results did not demonstrate the full menu-based potential of the technology, a partial credit could still be generated. This partial credit would be proportional to how far the difference in results was from the expected menu-based credit (i.e., the sum of the individual technology credits). The baseline vehicle is defined as one with characteristics which are similar to the new vehicle, except that it is not equipped with the efficiency-improving technologies (or they are de-activated). EPA is seeking comment on this approach to qualifying for A/C efficiency credits.

The AC17 test requires a significant amount of time for each test (nearly 4 hours) and must be run in expensive SC03-capable facilities. EPA believes that the purpose of the test—to validate that A/C CO 2 reductions are indeed occurring and hence that the manufacturer is eligible for efficiency credits—would be met if the manufacturer performs the new test on a limited subset of test vehicles. EPA proposes that manufacturers wishing to use the AC17 test to validate a vehicle's A/C technology be required to test one vehicle from each platform. For this purpose, “platform” would be defined as a group of vehicles with common body floorplan, chassis, engine, and transmission. [277] EPA requests comment on the new test and its proposed use. EPA also requests comment on using the AC17 test to quantify efficiency credits, instead of the menu. EPA is also seeking comment on an option starting in MY 2017, to have the AC17 test be used in a similar fashion as the Idle Test, such that if the CO 2 measurements are below a certain threshold value, then credit would be quantified based on the menu. EPA also seeks comment on eliminating the idle test in favor of reporting only the AC17 test for A/C efficiency credits starting as early as MY 2014.

ii. Potential Future Use of the New A/C Test for Credit Quantification

As described above, EPA is proposing to use the AC17 test as a prerequisite to generating A/C Efficiency Credits. The test is well-suited for this purpose since it can accurately measure the difference in the increased CO 2 emissions that occur when the A/C system is turned on vs. when it is turned off. This difference in the “off-on” CO 2 emissions, along with details about the vehicle and its A/C system design, will help inform EPA as to how these efficiency-improving technologies perform on a wide variety of vehicle types.

However, the test is limited in its ability to accurately quantify the amount of credit that would be warranted by an improved A/C system on a particular vehicle. This is because to determine an absolute—rather than a relative—difference in CO 2 effect for an individual vehicle design would require knowledge of the A/C system CO 2 performance for that exact vehicle, but without those specific A/C efficiency improvements installed. This would be difficult and costly, since two test vehicles (or a single vehicle with the components removed and replaced) would be necessary to quantify this precisely. Even then, the inherent variability between such tests on such a small sample in such an approach might not be statistically robust enough to confidently determine a small absolute CO 2 emissions impact between the two vehicles.

As an alternative to comparing new vehicle AC17 test with a “baseline” (described above), in Chapter 5 of the Joint TSD, EPA discusses a potential method of more accurately quantifying the credit. This involves comparing the efficiencies of individual components outside the vehicles, through “bench” testing of components supplemented by vehicle simulation modeling to relate that component's performance to the complete vehicle. EPA believes that such approaches may eventually allow the AC17 test to be used as part of a more complicated series of test procedures and simulations, to accurately quantify the A/C CO 2 effect of an individual vehicle's A/C technology package. However, EPA believes that this issue is beyond the scope of this proposed rule since there are many challenges associated with measuring small incremental decreases in fuel consumption and CO 2 emissions compared to the relatively large overall fuel consumption rate and CO 2 emissions. The agency does encourage comment, including test data, on how the AC17 test could be enhanced in order to measure the individual and collective impact of different A/C efficiency-improving technologies on individual vehicle designs and thus to quantify Efficiency Credits. EPA especially seeks comment on a more complex procedure, also discussed in Chapter 5 of the Joint TSD, that uses a combination of bench testing of components, vehicle simulation models, and dynamometer testing to quantify Efficiency Credits. Specifically, the agencies request comment on how to define the baseline configuration for bench testing. The agencies also request comment on the use of the Lifecycle Climate Performance Model (LCCP), or alternatively, the use of an EPA simulation tool to convert the test bench results to a change in fuel consumption and CO 2 emissions.

iii. A/C Efficiency Fuel Consumption Improvement Values in the CAFE Program

As described in section II.F and above, EPA is proposing to use the AC17 test as a prerequisite to generating A/C Efficiency Credits starting in MY 2017. EPA is proposing, in coordination with NHTSA, for the first time under its EPCA authority to allow manufacturers to use this same test procedure to generate fuel consumption improvement values for purposes of CAFE compliance based on the use of A/C efficiency technologies. As described above, the CO 2 credits would be determined from a comparison of the new vehicle compared to an older “baseline vehicle.” For CAFE, EPA proposes to convert the total CO 2 credits due to A/C efficiency improvements from metric tons of CO 2 to a fleetwide CAFE improvement value. The fuel consumption improvement values are presented to give the reader some context and explain the relationship between CO 2 and fuel consumption improvements. The fuel consumption improvement values would be the amount of fuel consumption reduction achieved by that vehicle, up to a maximum of 0.000563 gallons/mi fuel consumption improvement value for cars and a 0.000586 gallons/mi fuel consumption improvement value for trucks. [278] If the difference between the new vehicle and baseline results does not demonstrate the full menu-based potential of the technology, a partial credit could still be generated. This partial credit would be proportional to how far the difference in results was from the expected menu-based credit (i.e., the sum of the individual technology credits). The table below presents the proposed CAFE fuel consumption improvement values for each of the efficiency-reducing air conditioning technologies considered in this proposal. More detail is provided on the calculation of indirect A/C CAFE fuel consumption improvement values in chapter 5 of the joint TSD. EPA is proposing definitions of each of the technologies in the table below which are discussed in Chapter 5 of the draft joint TSD to ensure that the air conditioner technology used by manufacturers seeking these values corresponds with the technology used to derive the fuel consumption improvement values.

2. Incentive for Electric Vehicles, Plug-in Hybrid Electric Vehicles, and Fuel Cell Vehicles

a. Rationale for Temporary Regulatory Incentives for Electric Vehicles, Plug-in Hybrid Electric Vehicles, and Fuel Cell Vehicles

EPA has identified two vehicle powertrain-fuel combinations that have the future potential to transform the light-duty vehicle sector by achieving near-zero greenhouse gas (GHG) emissions and oil consumption in the longer term, but which face major near-term market barriers such as vehicle cost, fuel cost (in the case of fuel cell vehicles), the development of low-GHG fuel production and distribution infrastructure, and/or consumer acceptance.

  • Electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs) which would operate exclusively or frequently on grid electricity that could be produced from very low GHG emission feedstocks or processes.
  • Fuel cell vehicles (FCVs) which would operate on hydrogen that could be produced from very low GHG emissions feedstocks or processes.

As in the 2012-2016 rule, EPA is proposing temporary regulatory incentives for the commercialization of EVs, PHEVs, and FCVs. EPA believes that these advanced technologies represent potential game-changers with respect to control of transportation GHG emissions as they can combine an efficient vehicle propulsion system with the potential to use motor fuels produced from low-GHG emissions feedstocks or from fossil feedstocks with carbon capture and sequestration. EPA recognizes that the use of EVs, PHEVs, and FCVs in the 2017-2025 timeframe, in conjunction with the incentives, will decrease the overall GHG emissions reductions associated with the program as the upstream emissions associated with the generation and distribution of electricity are higher than the upstream emissions associated with production and distribution of gasoline. EPA accounts for this difference in projections of the overall program's impacts and benefits (see Section III.F). [279]

The tailpipe GHG emissions from EVs, PHEVs operated on grid electricity, and hydrogen-fueled FCVs are zero, and traditionally the emissions of the vehicle itself are all that EPA takes into account for purposes of compliance with standards set under Clean Air Act section 202(a). Focusing on vehicle tailpipe emissions has not raised any issues for criteria pollutants, as upstream emissions associated with production and distribution of the fuel are addressed by comprehensive regulatory programs focused on the upstream sources of those emissions. At this time, however, there is no such comprehensive program addressing upstream emissions of GHGs, and the upstream GHG emissions associated with production and distribution of electricity are higher, on a national average basis, than the corresponding upstream GHG emissions of gasoline or other petroleum based fuels. [280] In the future, if there were a program to comprehensively control upstream GHG emissions, then the zero tailpipe levels from these vehicles have the potential to contribute to very large GHG reductions, and to transform the transportation sector's contribution to nationwide GHG emissions (as well as oil consumption). For a discussion of this issue in the 2012-2016 rule, see 75 FR at 25434-438.

EVs and FCVs also represent some of the most significant changes in automotive technology in the industry's history. [281] For example, EVs face major consumer barriers such as significantly higher vehicle cost and lower range. However, EVs also have attributes that could be attractive to some consumers: Lower and more predictable fuel price, no need for oil changes or spark plugs, and reducing one's personal contribution to local air pollution, climate change, and oil dependence. [282]

Original equipment manufacturers currently offer two EVs and one PHEV in the U.S. market. [283] Deliveries of the Nissan Leaf EV, which has a list price of about $33,000 (before tax credits) and an EPA label range of 73 miles, began in December 2010 in selected areas, and total sales through October 2011 are about 8000. The luxury Tesla Roadster EV, with a list price of $109,000, has been on sale since March 2008 with cumulative sales of approximately 1500. The Chevrolet Volt PHEV, with a list price of about $41,000 and an EPA label all-electric range of 35 miles, has sold over 5000 vehicles since it entered the market in December 2010 in selected markets. At this time, no original equipment manufacturer offers FCVs to the general public except for some limited demonstration programs. [284] Currently, combined EV, PHEV, and FCV sales represent about 0.1% of overall light-duty vehicle sales. Additional models, such as the Ford Focus EV, the Mitsubishi i EV, and the Toyota Prius PHEV, are expected to enter the U.S. market in the next few months.

The agency remains optimistic about consumer acceptance of EVs, PHEVs, and FCVs in the long run, but we believe that near-term market acceptance is less certain. One of the most successful new automotive powertrain technologies—conventional hybrid electric vehicles like the Toyota Prius—illustrates the challenges involved with consumer acceptance of new technologies, even those that do not involve vehicle attribute tradeoffs. Even though conventional hybrids have now been on the U.S. market for over a decade, their market share hovers around 2 to 3 percent or so [285] even though they offer higher vehicle range than their traditional gasoline vehicle counterparts, involve no significant consumer tradeoffs (other than cost), and have reduced their incremental cost to a few thousand dollars. The cost and consumer tradeoffs associated with EVs, PHEVs, and FCVs are more significant than those associated with conventional hybrids. Given the long leadtimes associated with major transportation technology shifts, there is value in promoting these potential game-changing technologies today if we want to retain the possibility of achieving major environmental and energy benefits in the future.

In terms of the relative relationship between tailpipe and upstream fuel production and distribution GHG emissions, EVs, PHEVs, and FCVs are very different than conventional gasoline vehicles. Combining vehicle tailpipe and fuel production/distribution sources, gasoline vehicles emit about 80 percent of these GHG emissions at the vehicle tailpipe with the remaining 20 percent associated with “upstream” fuel production and distribution GHG emissions. [286] On the other hand, vehicles using electricity and hydrogen emit no GHG (or other emissions) at the vehicle tailpipe, and therefore all GHG emissions associated with powering the vehicle are due to fuel production and distribution. [287] Depending on how the electricity and hydrogen fuels are produced, these fuels can have very high fuel production/distribution GHG emissions (for example, if coal is used with no GHG emissions control) or very low GHG emissions (for example, if renewable processes with minimal fossil energy inputs are used, or if carbon capture and sequestration is used). For example, as shown in the Regulatory Impact Analysis, today's Nissan Leaf EV would have an upstream GHG emissions value of 161 grams per mile based on national average electricity, and a value of 89 grams per mile based on the average electricity in California, one of the initial markets for the Leaf.

Because these upstream GHG emissions values are generally higher than the upstream GHG emissions values associated with gasoline vehicles, and because there is currently no national program in place to reduce GHG emissions from electric powerplants, EPA believes it is appropriate to consider the incremental upstream GHG emissions associated with electricity production and distribution. But, we also think it is appropriate to encourage the initial commercialization of EV/PHEV/FCVs as well, in order to retain the potential for game-changing GHG emissions and oil savings in the long term.

Accordingly, EPA proposes to provide temporary regulatory incentives for EVs, PHEVs (when operated on electricity) and FCVs that will be discussed in detail below. EPA recognizes that the use of EVs, PHEVs, and FCVs in the 2017-2025 timeframe, in conjunction with the incentives, will decrease the overall GHG emissions reductions associated with the program as the upstream emissions associated with the generation and distribution of electricity are higher than the upstream emissions associated with production and distribution of gasoline. EPA accounts for this difference in projections of the overall program's impacts and benefits (see Section III.F). EPA believes that the relatively minor impact on GHG emissions reductions in the near term is justified by promoting technologies that have significant transportation GHG emissions and oil consumption game-changing potential in the longer run, and that also face major market barriers in entering a market that has been dominated by gasoline vehicle technology and infrastructure for over 100 years.

EPA will review all of the issues associated with upstream GHG emissions, including the status of EV/PHEV/FCV commercialization, the status of upstream GHG emissions control programs, and other relevant factors.

b. MYs 2012-2016 Light-Duty Vehicle Greenhouse Gas Emissions Standards

The light-duty vehicle greenhouse gas emissions standards for model years 2012-2016 provide a regulatory incentive for electric vehicles (EVs), fuel cell vehicles (FCVs), and for the electric portion of operation of plug-in hybrid electric vehicles (PHEVs). See generally 75 FR at 25434-438. This is designed to promote advanced technologies that have the potential to provide “game changing” GHG emissions reductions in the future. This incentive is a 0 grams per mile compliance value (i.e., a compliance value based on measured vehicle tailpipe GHG emissions) up to a cumulative EV/PHEV/FCV production cap threshold for individual manufacturers. There is a two-tier cumulative EV/PHEV/FCV production cap for MYs 2012-2016: The cap is 300,000 vehicles for those manufacturers that sell at least 25,000 EVs/PHEVs/FCVs in MY 2012, and the cap is 200,000 vehicles for all other manufacturers. For manufacturers that exceed the cumulative production cap over MYs 2012-2016, compliance values for those vehicles in excess of the cap will be based on a full accounting of the net fuel production and distribution GHG emissions associated with those vehicles relative to the fuel production and distribution GHG emissions associated with comparable gasoline vehicles. For an electric vehicle, this accounting is based on the vehicle electricity consumption over the EPA compliance tests, eGRID2007 national average powerplant GHG emissions factors, and multiplicative factors to account for electricity grid transmission losses and pre-powerplant feedstock GHG related emissions. [288] The accounting for a hydrogen fuel cell vehicle would be done in a comparable manner.

Although EPA also proposed a vehicle incentive multiplier for MYs 2012-2016, the agency did not finalize a multiplier. At that time, the Agency believed that combining the 0 gram per mile and multiplier incentives would be excessive.

The 0 grams per mile compliance value decreases the GHG emissions reductions associated with the 2012-2016 standards compared to the same standards and no 0 grams per mile compliance value. It is impossible to know the precise number of vehicles that will take advantage of this incentive in MYs 2012-2016. In the preamble to the final rule, EPA projected the decrease in GHG emissions reductions that would be associated with a scenario of 500,000 EVs certified with a compliance value of 0 grams per mile. This scenario would result in a projected decrease of 25 million metric tons of GHG emissions reductions, or less than 3 percent of the total projected GHG benefits of the program of 962 million metric tons. This GHG emissions impact could be smaller or larger, of course, based on the actual number of EVs that would certify at 0 grams per mile.

In the preamble to the final rule, EPA stated that it would reassess this issue for rulemakings beginning in MY 2017 based on the status of advanced vehicle technology commercialization, the status of upstream GHG control programs, and other relevant factors.

c. Supplemental Notice of Intent

In our most recent Supplemental Notice of Intent, [289] EPA stated that: “EPA intends to propose an incentive multiplier for all electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs) sold in MYs 2017 through 2021. This multiplier approach means that each EV/PHEV/FCV would count as more than one vehicle in the manufacturer's compliance calculation. EPA intends to propose that EVs and FCVs start with a multiplier value of 2.0 in MY 2017, phasing down to a value of 1.5 in MY 2021. PHEVs would start at a multiplier value of 1.6 in MY 2017 and phase down to a value of 1.3 in MY 2021. These multipliers would be proposed for incorporation in EPA's GHG program * * *. As an additional incentive for EVs, PHEVs and FCVs, EPA intends to propose allowing a value of 0 g/mile for the tailpipe compliance value for EVs, PHEVs (electricity usage) and FCVs for MYs 2017-2021, with no limit on the quantity of vehicles eligible for 0 g/mi tailpipe emissions accounting. For MYs 2022-2025, 0 g/mi will only be allowed up to a per-company cumulative sales cap based on significant penetration of these advanced vehicles in the marketplace. EPA intends to propose an appropriate cap in the NPRM.”

d. Proposal for MYs 2017-2025

EPA is proposing the following temporary regulatory incentives for EVs, PHEVs, and FCVs consistent with the discussion in the August 2011 Supplemental Notice of Intent.

For MYs 2017 through 2021, EPA is proposing two incentives. The first proposed incentive is to allow all EVs, PHEVs (electric operation), and FCVs to use a GHG emissions compliance value of 0 grams per mile. There would be no cap on the number of vehicles eligible for the 0 grams per mile compliance value for MYs 2017 through 2021.

The second proposed incentive for MYs 2017 through 2021 is a multiplier for all EVs, PHEVs, and FCVs, which would allow each of these vehicles to “count” as more than one vehicle in the manufacturer's compliance calculation. [290] While the Agency rejected a multiplier incentive in the MYs 2012-2016 final rule, we are proposing a multiplier for MYs 2017-2021 because, while advanced technologies were not necessary for compliance in MYs 2012-2016, they are necessary, for some manufacturers, to comply with the GHG standards in the MYs 2022-2025 timeframe. A multiplier for MYs 2017-2021 can also promote the initial commercialization of these advanced technologies. In order for a PHEV to be eligible for the multiplier incentive, EPA proposes that PHEVs be required to be able to complete a full EPA highway test (10.2 miles), without using any conventional fuel, or alternatively, have a minimum equivalent all-electric range of 10.2 miles as measured on the EPA highway cycle. EPA seeks comment on whether this minimum range (all-electric or equivalent all-electric) should be lower or higher, or whether the multiplier should vary based on range or on another PHEV metric such as battery capacity or ratio of electric motor power to engine or total vehicle power. The specific proposed multipliers are shown in Table III-15.

EPA also requests comments on the merits of providing similar multiplier incentives to dedicated and/or dual fuel compressed natural gas vehicles.

For MYs 2022 through 2025, EPA is proposing one incentive—the 0 grams per mile GHG emissions compliance incentive for EVs, PHEVs (electric operation), and FCVs up to a per-company cumulative production cap threshold for those model years. EPA is proposing a two-tier, per-company cap based on cumulative production in prior years, consistent with the general approach that was adopted in the rulemaking for MYs 2012-2016. For manufacturers that sell 300,000 or more EV/PHEV/FCVs combined in MYs 2019-2021, the proposed cumulative production cap would be 600,000 EV/PHEV/FCVs for MYs 2022-2025. Other automakers would have a proposed cumulative production cap of 200,000 EV/PHEV/FCVs in MYs 2022-2025.

This proposed cap design is appropriate as a way to encourage automaker investment in potential GHG emissions game-changing technologies that face very significant cost and consumer barriers. In addition, as with the rulemaking for MYs 2012-2016, EPA believes it is important to both recognize the benefit of early leadership in commercialization of these technologies, and encourage additional manufacturers to invest over time. Manufacturers are unlikely to do so if vehicles with these technologies are treated for compliance purposes to be no more advantageous than the best conventional hybrid vehicles. Finally, we believe that the proposed cap design provides a reasonable limit to the overall decrease in program GHG emissions reductions associated with the incentives, and EPA is being transparent about these GHG emissions impacts (see later in this section and also Section III.F).

EPA recognizes that a central tension in the design of a proposed cap relates to certainty and uncertainty with respect to both individual automaker caps and the overall number of vehicles that may fall under the cap, which determines the overall decrease in GHG emissions reductions. A per-company cap as described above would provide clear certainty for individual manufacturers at the time of the final rule, but would yield uncertainty about how many vehicles industry-wide would take advantage of the 0 grams per mile incentive and therefore the overall impact on GHG emissions. An alternative approach would be an industry-wide cap where EPA would establish a finite limit on the total number of vehicles eligible for the 0 grams per mile incentive, with a method for allocating this industry-wide cap to individual automakers. An industry-wide cap would provide certainty with respect to the maximum number of vehicles and GHG emissions impact and would reward those automakers who show early leadership. If EPA were to make a specific numerical allocation at the time of the final rule, automakers would have certainty, but EPA is concerned that we may not have sufficient information to make an equitable allocation for a timeframe that is over a decade away. If EPA were to adopt an allocation formula in the final rule that was dependent on future sales (as we are proposing above for the per-company cap), automakers would have much less certainty in compliance planning as they would not know their individual caps until some point in the future.

To further assess the merits of an industry-wide cap approach, EPA also seeks comment on the following alternative for an industry-wide cap. EPA would place an industry-wide cumulative production cap of 2 million EV/PHEV/FCVs eligible for the 0 grams per mile incentive in MYs 2022-2025. EPA has chosen 2 million vehicles because, as shown below, we project that this limits the maximum decrease in GHG emissions reductions to about 5 percent of total program GHG savings. EPA would allocate this 2 million vehicle cap to individual automakers in calendar year 2022 based on cumulative EV/PHEV/FCV sales in MYs 2019-2021, i.e., if an automaker sold X percent of industry-wide EV/PHEV/FCV sales in MYs 2019-2021, that automaker would get X percent of the 2 million industry-wide cumulative production cap in MYs 2022-2025 (or possibly somewhat less than X percent, if EPA were to reserve some small volumes for those automakers that sold zero EV/PHEV/FCVs in MYs 2019-2021).

For both the proposed per-company cap and the alternative industry-wide cap, EPA proposes that, for production beyond the cumulative vehicle production cap for a given manufacturer in MY 2022 and later, compliance values would be calculated according to a methodology that accounts for the full net increase in upstream GHG emissions relative to that of a comparable gasoline vehicle. EPA also asks for comment on various approaches for phasing in from a 0 gram per mile value to a full net increase value, e.g., an interim period when the compliance value might be one-half of the net increase.

EPA also seeks comments on whether any changes should be made for MYs 2012-2016, i.e., whether the compliance value for production beyond the cap should be one-half of the net increase in upstream GHG emissions, or whether the current cap for MYs 2012-2016 should be removed.

EPA is not proposing any multiplier incentives for MYs 2022 through 2025. EPA believes that the 0 gram per mile compliance value, with cumulative vehicle production cap, is a sufficient incentive for MYs 2022-2025.

One key issue here is the appropriate electricity upstream GHG emissions factor or rate to use in future projections of EV/PHEV emissions based on the net upstream approach. In the following example, we use a 2025 nationwide average electricity upstream GHG emissions rate (powerplant plus feedstock extraction, transportation, and processing) of 0.574 grams GHG/watt-hour, based on simulations with the EPA Office of Atmospheric Program's Integrated Planning Model (IPM). [291] For the example below, EPA is using a projected national average value from the IPM model, but EPA recognizes that values appropriate for future vehicle use may be higher or lower than this value. EPA is considering running the IPM model with a more robust set of vehicle and vehicle charging-specific assumptions to generate a better electricity upstream GHG emissions factor for EVs and PHEVs for our final rulemaking, and, at minimum, intends to account for the likely regional sales variation for initial EV/PHEV/FCVs, and different scenarios for the relative frequency of daytime and nighttime charging. EPA seeks comment on whether there are additional factors that we should try to include in the IPM modeling for the final rulemaking.

EPA proposes a 4-step methodology for calculating the GHG emissions compliance value for vehicle production in excess of the cumulative production cap for an individual automaker. For example, for an EV in MY 2025, this methodology would include the following steps and calculations:

  • Measuring the vehicle electricity consumption in watt-hours/mile over the EPA city and highway tests (for example, a midsize EV in 2025 might have a 2-cycle test electricity consumption of 230 watt-hours/mile)
  • Adjusting this watt-hours/mile value upward to account for electricity losses during electricity transmission (dividing 230 watt-hours/mile by 0.93 to account for grid/transmission losses yields a value of 247 watt-hours/mile)
  • Multiplying the adjusted watt-hours/mile value by a 2025 nationwide average electricity upstream GHG emissions rate of 0.574 grams/watt-hour at the powerplant (247 watt-hours/mile multiplied by 0.574 grams GHG/watt-hour yields 142 grams/mile)
  • Subtracting the upstream GHG emissions of a comparable midsize gasoline vehicle of 39 grams/mile [292] to reflect a full net increase in upstream GHG emissions (142 grams/mile for the EV minus 39 grams/mile for the gasoline vehicle yields a net increase and EV compliance value of 103 grams/mile). [293]

The full accounting methodology for FCVs and the portion of PHEV operation on grid electricity would use this same approach. The proposed regulations contain EPA's proposed method to determine the compliance value for PHEVs, and EPA proposes to develop a similar methodology for FCVs if and when the need arises. [294] Given the uncertainty about how hydrogen would be produced, if and when it were used as a transportation fuel, EPA seeks comment on projections for the fuel production and distribution GHG emissions associated with hydrogen production for various feedstocks and processes.

EPA is fully accounting for the upstream GHG emissions associated with all electricity used by EVs and PHEVs (and any hydrogen used by FCVs), both in our regulatory projections of the impacts and benefits of the program, and in all GHG emissions inventory accounting.

EPA seeks public comment on the proposed incentives for EVs, PHEVs, and FCVs described above.

e. Projection of Impact on GHG Emissions Reductions Due to Incentives

EPA believes it is important to project the impact on GHG emissions that will be associated with the proposed incentives (both 0 grams per mile and the multiplier) for EV/PHEV/FCVs over the MYs 2017-2025 timeframe. Since it is impossible to know precisely how many EV/PHEV/FCVs will be sold in the MYs 2017-2025 timeframe that will utilize the proposed incentives, EPA presents projections for two scenarios: (1) The number of EV/PHEV/FCVs that EPA's OMEGA technology and cost model predicts based exclusively on its projections for the most cost-effective way for the industry to meet the proposed standards, and (2) a scenario with a greater number of EV/PHEV/FCVs, based not only on compliance with the proposed GHG and CAFE standards, but other factors such as the proposed cumulative production caps and manufacturer investments. For this analysis, EPA assumes that EVs and PHEVs each account for 50 percent of all EV/PHEV/FCVs. EPA seeks comment on whether there are other scenarios which should be evaluated for this purpose in the final rule.

EPA projects that the cumulative GHG emissions savings of the proposed MYs 2017-2025 standards, on a model year lifetime basis, is approximately 2 billion metric tons. Table III-16 projects that the likely decrease in cumulative GHG emissions reductions due to the EV/PHEV/FCV incentives for MYs 2017-2025 vehicles is in the range of 80 to 110 million metric tons, or about 4 to 5 percent.

It is important to note that the above projection of the impact of the EV/PHEV/FCV incentives on the overall program GHG emissions reductions assumes that there would be no change to the standard even if the EV 0 gram per mile incentive were not in effect, i.e., that EPA would propose exactly the same standard if the 0 gram per mile compliance value were not allowed for any EV/PHEV/FCVs. While EPA has not analyzed such a scenario, it is clear that not allowing a 0 gram per mile compliance value would change the technology mix and cost projected for the proposed standard.

It is also important to note that the projected impact on GHG emissions reductions in the above table are based on the 2025 nationwide average electricity upstream GHG emissions rate (powerplant plus feedstock) of 0.574 grams GHG/watt-hour discussed above (based on simulations with the EPA's Integrated Planning Model (IPM) for powerplants in 2025, and a 1.06 factor to account for feedstock-related GHG emissions).

EPA recognizes two factors which could significantly reduce the electricity upstream GHG emissions factor by calendar year 2025. First, there is a likelihood that early EV/PHEV/FCV sales will be much more concentrated in parts of the country with lower electricity GHG emissions rates and much less concentrated in regions with higher electricity GHG emissions rates. This has been the case with sales of hybrid vehicles, and is likely to be more so with EVs in particular. Second, there is the possibility of a future comprehensive program addressing upstream emissions of GHGs from the generation of electricity. Other factors which could also help in this regard include technology innovation and lower prices for some powerplant fuels such as natural gas.

On the other hand, EPA also recognizes factors which could increase the appropriate electricity upstream GHG emissions factor in the future, such as a consideration of marginal electricity demand rather than average demand and use of high-power charging. The possibility that EVs won't displace gasoline vehicle use on a 1:1 basis (i.e., multi-vehicle households may use EVs for more shorter trips and fewer longer trips, which could lead to lower overall travel for typical EVs and higher overall travel for gasoline vehicles) could also reduce the overall GHG emissions benefits of EVs.

EPA seeks comment on information relevant to these and other factors which could both decrease or increase the proper electricity upstream GHG emissions factor for calendar year 2025 modeling.

3. Incentives for “Game-Changing” Technologies Including Use of Hybridization and Other Advanced Technologies for Full-Size Pickup Trucks

As explained in section II. C above, the agencies recognize that the standards under consideration for MY 2017-2025 will be challenging for large trucks, including full size pickup trucks that are often used for commercial purposes and have generally higher payload and towing capabilities, and cargo volumes than other light-duty vehicles. In Section II.C and Chapter 2 of the joint TSD, EPA and NHTSA describe how the slope of the truck curve has been adjusted compared to the 2012-2016 rule to reflect these disproportionate challenges. In Section III.B, EPA describes the progression of the truck standards. In this section, EPA describes a proposed incentive for full size pickup trucks, proposed by EPA under both section 202 (a) of the CAA and section 32904 (c) of EPCA, to incentivize advanced technologies on this class of vehicles. This incentive would be in the form of credits under the EPA GHG program, and fuel consumption improvement values (equivalent to EPA's credits) under the CAFE program.

The agencies' goal is to incentivize the penetration into the marketplace of “game changing” technologies for these pickups, including their hybridization. For that reason, EPA is proposing credits for manufacturers that hybridize a significant quantity of their full size pickup trucks, or use other technologies that significantly reduce CO 2 emissions and fuel consumption. This proposed credit would be available on a per-vehicle basis for mild and strong HEVs, as well as for use of other technologies that significantly improve the efficiency of the full sized pickup class. As described in section II.F. and III.B.10, EPA, in coordination with NHTSA, is also proposing that manufacturers be able to include “fuel consumption improvement values” equivalent to EPA CO 2 credits in the CAFE program. The gallon per mile values equivalent to EPA proposed CO 2 credits are also provided below, in addition to the proposed CO 2 credits. [297] These credits and fuel consumption improvement values provide the incentive to begin transforming this challenged category of vehicles toward use of the most advanced technologies.

Access to this credit is conditioned on a minimum penetration of the technologies in a manufacturer's full size pickup truck fleet. The proposed penetration rates can be found in Table 5-26 in the TSD. EPA is seeking comment on these penetration rates and how they should be applied to a manufacturer's truck fleet.

To ensure its use for only full sized pickup trucks, EPA is proposing a specific definition for a full sized pickup truck based on minimum bed size and minimum towing capability. The specifics of this proposed definition can be found in Chapter 5 of the draft joint TSD (see Section 5.3.1) and in the draft regulations at 86.1866-12(e). This proposed definition is meant to ensure that the larger pickup trucks which provide significant utility with respect to payload and towing capacity as well as open beds with large cargo capacity are captured by the definition, while smaller pickup trucks which have more limited hauling, payload and/or towing are not covered by the proposed definition. For this proposal, a full sized pickup truck would be defined as meeting requirements 1 and 2, below, as well as either requirement 3 or 4, below:

1. The vehicle must have an open cargo box with a minimum width between the wheelhouses of 48 inches measured as the minimum lateral distance between the limiting interferences (pass-through) of the wheelhouses. The measurement would exclude the transitional arc, local protrusions, and depressions or pockets, if present. [298] An open cargo box means a vehicle where the cargo bed does not have a permanent roof or cover. Vehicles sold with detachable covers are considered “open” for the purposes of these criteria.

2. Minimum open cargo box length of 60 inches defined by the lesser of the pickup bed length at the top of the body (defined as the longitudinal distance from the inside front of the pickup bed to the inside of the closed endgate; this would be measured at the height of the top of the open pickup bed along vehicle centerline and the pickup bed length at the floor) and the pickup bed length at the floor (defined as the longitudinal distance from the inside front of the pickup bed to the inside of the closed endgate; this would be measured at the cargo floor surface along vehicle centerline). [299]

3. Minimum Towing Capability—the vehicle must have a GCWR (gross combined weight rating) minus GVWR (gross vehicle weight rating) value of at least 5,000 pounds. [300]

4. Minimum Payload Capability—the vehicle must have a GVWR (gross vehicle weight rating) minus curb weight value of at least 1,700 pounds.

As discussed above, this proposed definition is intend to cover the larger pickup trucks sold in the U.S. today (and for 2017 and later) which have the unique attributes of an open bed, and larger towing and/or payload capacity. This proposed incentive will encourage the penetration of advanced, low CO 2 technologies into this market segment. The proposed definition would exclude a number of smaller-size pickup trucks sold in the U.S. today (examples are the Dodge Dakota, Nissan Frontier, Chevrolet Colorado, Toyota Tacoma and Ford Ranger). These vehicles generally have smaller boxes (and thus smaller cargo capacity), and lower payload and towing ratings. EPA is aware that some configurations of these smaller pickups trucks can offer towing capacity similar to the larger pickups. As discussed in the draft Joint TSD Section 5.3.1, EPA is seeking comment on expanding the scope of this credit to somewhat smaller pickups (with a minimum distance between the wheel wells of 42 inches, but still with a minimum box length of 60 inches), provided they have the towing capabilities of the larger full-size trucks (for example a minimum towing capacity of 6,000 pounds). EPA believes this could incentivize advanced technologies (such as HEVs) on pickups which offer some of the utility of the larger vehicles, but overall have lower CO 2 emissions due to the much lighter mass of the vehicle. Providing an advanced technology incentive credit for a vehicle which offers consumers much of the utility of a larger pickup truck but with overall lower CO 2 performance would promote the overall objective of the proposed standards.

EPA proposes that mild HEV pickup trucks would be eligible for a per-truck 10 g/mi CO 2 credit (equal to 0.0011 gal/mi for a 25 mpg truck) during MYs 2017-2021 if the mild HEV technology is used on a minimum percentage of a company's full sized pickups. That minimum percentage would be 30 percent of a company's full sized pickup production in MY 2017 with a ramp up to at least 80 percent of production in MY 2021.

EPA is also proposing that strong HEV pickup trucks would be eligible for a per-truck 20 g/mi CO 2 credit (equal to 0.0023 gal/mi for a 25 mpg truck) during MYs 2017-2025 if the strong HEV technology is used on a minimum percentage of a company's full sized pickups. That minimum percentage would be 10 percent of a company's full sized pickup production in each year over the model years 2017-2025.

To ensure that the hybridization technology used by manufacturers seeking one of these credits meets the intent behind the incentives, EPA is proposing very specific definitions of what qualifies as a mild and a strong HEV for these purposes. These definitions are described in detail in Chapter 5 of the draft joint TSD (see section 5.3.3).

Because there are other technologies besides mild and strong hybrids which can significantly reduce GHG emissions and fuel consumption in pickup trucks, EPA is also proposing performance-based incentive credits, and equivalent fuel consumption improvement values for CAFE, for full size pickup trucks that achieve an emission level significantly below the applicable CO 2 target. [301] EPA proposes that this credit be either 10 g/mi CO 2 (equivalent to 0.0011 gal/mi for the CAFE program) or 20 g/mi CO 2 (equivalent to 0.0023 gal/mi for the CAFE program) for pickups achieving 15 percent or 20 percent, respectively, better CO 2 than their footprint based target in a given model year. Because the footprint target curve has been adjusted to account for A/C related credits, the CO 2 level to be compared with the target would also include any A/C related credits generated by the vehicles. EPA provides further details on this performance-based incentive in Chapter 5 of the draft joint TSD (see Section 5.3). The 10 g/mi (equivalent to 0.0011 gal/mi) performance-based credit would be available for MYs 2017 to 2021 and a vehicle meeting the requirements would receive the credit until MY 2021 unless its CO 2 level or fuel consumption increases. The 10 g/mi credit is not available after 2021 because the post-2021 standards quickly overtake a 15% overcompliance. Earlier in the program, an overcompliance lasts for more years, making the credit/value appropriate for a longer period. The 20 g/mi CO 2 (equivalent to 0.0023 gal/mi) performance-based credit would be available for a maximum of 5 consecutive years within the model years of 2017 to 2025 after it is first eligible, provided its CO 2 level and fuel consumption does not increase. Subsequent redesigns can qualify for the credit again. The credits would begin in the model year of introduction, and (as noted) could not extend past MY 2021 for the 10 g/mi credit (equivalent to 0.0011 gal/mi) and MY 2025 for the 20 g/mi credit (equivalent to 0.0023 gal/mi).

As with the HEV-based credit, the performance-based credit/value requires that the technology be used on a minimum percentage of a manufacturer's full-size pickup trucks. That minimum percentage for the 10 g/mi GHG credit (equivalent to 0.0011 gal/mi fuel consumption improvement value) would be 15 percent of a company's full sized pickup production in MY 2017 with a ramp up to at least 40 percent of production in MY 2021. The minimum percentage for the 20 g/mi credit (equivalent to 0.0011 gal/mi fuel consumption improvement value) would be 10 percent of a company's full sized pickup production in each year over the model years 2017-2025. These minimum percentages are set to encourage significant penetration of these technologies, leading to long-term market acceptance.

Importantly, the same vehicle could not receive credits (or equivalent fuel consumption improvement values) under both the HEV and the performance-based approaches. EPA requests comment on all aspects of this proposed pickup truck incentive credit, including the proposed definitions for full sized pickup truck and mild and strong HEV.

4. Treatment of Plug-in Hybrid Electric Vehicles, Dual Fuel Compressed Natural Gas Vehicles, and Ethanol Flexible Fuel Vehicles for GHG Emissions Compliance

a. Greenhouse Gas Emissions

i. Introduction

This section addresses proposed approaches for determining the compliance values for greenhouse gas (GHG) emissions for those vehicles that can use two different fuels, typically referred to as dual fuel vehicles under the CAFE program. Three specific technologies are addressed: Plug-in hybrid electric vehicles (PHEVs), dual fuel compressed natural gas (CNG) vehicles, and ethanol flexible fuel vehicles (FFVs). [302] EPA's underlying principle is to base compliance values on demonstrated vehicle tailpipe CO 2 emissions performance. The key issue with vehicles that can use more than one fuel is how to weight the operation (and therefore GHG emissions performance) on the two different fuels. EPA proposes to do this on a technology-by-technology basis, and the sections below will explain the rationale for choosing a particular approach for each vehicle technology.

EPA is proposing no changes to the tailpipe GHG emissions compliance approach for dedicated vehicles, i.e., those vehicles that can use only one fuel. As finalized for MY 2016 and later vehicles in the 2012-2016 rule, tailpipe CO 2 emissions compliance levels are those values measured over the EPA 2-cycle city/highway tests. [303] EPA is proposing provisions for how and when to also account for the upstream fuel production and distribution related GHG emissions associated with electric vehicles, fuel cell vehicles, and the electric portion of plug-in hybrid electric vehicles, and these provisions are discussed in Section III.C.2 above.

ii. Plug-In Hybrid Electric Vehicles

PHEVs can operate both on an on-board battery that can be charged by wall electricity from the grid, and on a conventional liquid fuel such as gasoline. Depending on how these vehicles are fueled and operated, PHEVs could operate exclusively on grid electricity, exclusively on the conventional fuel, or any combination of both fuels. EPA can determine the CO 2 emissions performance when operated on the battery and on the conventional fuel. But, in order to generate a single CO 2 emissions compliance value, EPA must adopt an approach for determining the appropriate weighting of the CO 2 emissions performance on grid electricity and the CO 2 emissions performance on gasoline.

EPA is proposing no changes to the Society of Automotive Engineers (SAE) cycle-specific utility factor approach for PHEV compliance and label emissions calculations first adopted by EPA in the joint EPA/DOT final rulemaking establishing new fuel economy and environment label requirements for MY 2013 and later vehicles. [304] This utility factor approach is based on several key assumptions. One, PHEVs are designed such that the first mode of operation is all-electric drive or electric assist. Every PHEV design with which EPA is familiar is consistent with this assumption. Two, PHEVs will be charged once per day. While this critical assumption is unlikely to be met by every PHEV driver every day, EPA believes that a large majority of PHEV owners will be highly motivated to re-charge as frequently as possible, both because the owner has paid a considerably higher initial vehicle cost to be able to operate on grid electricity, and because electricity is considerably cheaper, on a per mile basis, than gasoline. Three, it is reasonable to assume that future PHEV drivers will retain driving profiles similar to those of past drivers on which the utility factors were based. More detailed information on the development of this utility factor approach can be obtained from the Society of Automotive Engineers. [305] EPA will continue to reevaluate the appropriateness of these assumptions over time.

Based on this approach, and PHEV-specific specifications such as all-electric drive or equivalent all-electric range, the cycle-specific utility factor methodology yields PHEV-specific values for projected average percent of operation on grid electricity and average percent of operation on gasoline over both the city and highway test cycles. For example, the Chevrolet Volt PHEV, the only original equipment manufacturer (OEM) PHEV in the U.S. market today, which has an all-electric range of 35 miles on EPA's fuel economy label, has city and highway cycle utility factors of about 0.65, meaning that the average Volt driver is projected to drive about 65 percent of the miles on grid electricity and about 35 percent of the miles on gasoline. Each PHEV will have its own utility factor.

Based on this utility factor approach, EPA calculates the GHG emissions compliance value for an individual PHEV as the sum of (1) the GHG emissions value for electric operation (either 0 grams per mile or a non-zero value reflecting the net upstream GHG emissions accounting depending on whether automaker EV/PHEV/FCV production is below or above its cumulative production cap as discussed in Section III.C.2 above) multiplied by the utility factor, and (2) the tailpipe CO 2 emissions value on gasoline multiplied by (1 minus the utility factor).

iii. Dual Fuel Compressed Natural Gas Vehicles

Dual fuel CNG vehicles operate on either compressed natural gas or gasoline, but not both at the same time, and have separate tanks for the two fuels. [306] There are no OEM dual fuel CNG vehicles in the U.S. market today, but some manufacturers have expressed interest in bringing them to market during the rulemaking time frame. Under current EPA regulations through MY 2015, GHG emissions compliance values for dual fuel CNG vehicles are based on a methodology that provides significant GHG emissions incentives equivalent to the “CAFE credit” approach for dual and flexible fuel vehicles. For MY 2016, current EPA regulations utilize a methodology based on demonstrated vehicle emissions performance and real world fuels usage, similar to that for ethanol flexible fuel vehicles discussed below.

EPA proposes to develop a new approach for dual fuel CNG vehicle GHG emissions compliance that is very similar to the utility factor approach developed and described above for PHEVs, and for this new approach to take effect with MY 2016. As with PHEVs, EPA believes that owners of dual fuel CNG vehicles will preferentially seek to refuel and operate on CNG fuel as much as possible, both because the owner paid a much higher price for the dual fuel capability, and because CNG fuel is considerably cheaper than gasoline on a per mile basis. EPA notes that there are some relevant differences between dual fuel CNG vehicles and PHEVs, and some of these differences might weaken the case for using utility factors for dual fuel CNG vehicles. For example, a dual fuel CNG vehicle might be able to run on gasoline when both fuels are available on board (depending on how the vehicle is designed), it may be much more inconvenient for some private dual fuel CNG vehicle owners to fuel every day relative to PHEVs, and there are many fewer CNG refueling stations than electrical charging facilities. [307] On the other hand, there are differences that could strengthen the case as well, e.g., many dual fuel CNG vehicles will likely have smaller gasoline tanks given the expectation that gasoline will be used only as an “emergency” fuel, and it may be easier for a dual fuel CNG vehicle to be refueled during the day than a PHEV (which is most conveniently refueled at night with a home charging unit).

Taking all these considerations into account, EPA believes that the merit of using a utility factor-based approach for dual fuel CNG vehicles is similar to that of doing so for PHEVs, and we propose to develop a similar methodology for dual fuel CNG vehicles. For example, applying the current SAE fleet utility factor approach developed for PHEVs to a dual fuel CNG vehicle with a 150-mile CNG range would result in a compliance assumption of about 95 percent operation on CNG and about 5 percent operation on gasoline. [308] EPA is proposing to directly extend the PHEV utility factor methodology to dual fuel CNG vehicles, using the same assumptions about daily refueling. EPA invites comment on this proposal, including the appropriateness of the assumptions described above for dual fuel CNG vehicles.

Further, for MYs 2012-2015, EPA is also proposing to allow the option, at the manufacturer's discretion, to use the proposed utility factor-based methodology for MYs 2016-2025 discussed above. The rationale for providing this option is that some manufacturers are likely to reach the maximum allowable GHG emissions credits (based on the statutory CAFE credits) through their production of ethanol FFVs, and therefore would not be able to gain any GHG emissions compliance benefit even if they produced dual fuel CNG vehicles that demonstrated superior GHG emissions performance.

In determining eligibility for the utility factor approach, EPA may consider placing additional constraints on the designs of dual fuel CNG vehicles to maximize the likelihood that consumers will routinely seek to use CNG fuel. Options include, but are not limited to, placing a minimum value on CNG tank size or CNG range, a maximum value on gasoline tank size or gasoline range, a minimum ratio of CNG-to-gasoline range, and requiring an onboard control system so that a dual fuel CNG vehicle is only able to access the gasoline fuel tank if the CNG tank is empty. EPA seeks comments on the merits of these additional eligibility constraints for dual fuel CNG vehicles.

iv. Ethanol Flexible Fuel Vehicles

Ethanol FFVs can operate on E85 (a blend of 15 percent gasoline and 85 percent ethanol, by volume), gasoline, or any blend of the two. There are many ethanol FFVs in the market today.

In the final rulemaking for MY 2012-2016, EPA promulgated regulations for MYs 2012-2015 ethanol FFVs that provided significant GHG emissions incentives equivalent to the long-standing “CAFE credits” for ethanol FFVs under EPCA, since many manufacturers had relied on th