[Federal Register Volume 74, Number 186 (Monday, September 28, 2009)]
[Proposed Rules]
[Pages 49454-49789]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-22516]



[[Page 49453]]

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Part II





Environmental Protection Agency





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40 CFR Parts 86 and 600



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Department of Transportation





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National Highway Traffic Safety Administration



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49 CFR Parts 531, 533, 537, et al.



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

Federal Register / Vol. 74, No. 186 / Monday, September 28, 2009 / 
Proposed Rules

[[Page 49454]]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 86 and 600

DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Parts 531, 533, 537, and 538

[EPA-HQ-OAR-2009-0472; FRL-8959-4; NHTSA-2009-0059]
RIN 2060-AP58; RIN 2127-AK90


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

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

ACTION: Proposed rule.

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

FOR FURTHER INFORMATION CONTACT: Comments: Comments must be received on 
or before November 27, 2009. Under the Paperwork Reduction Act, 
comments on the information collection provisions must be received by 
the Office of Management and Budget (OMB) on or before October 28, 
2009. See the SUPPLEMENTARY INFORMATION section on ``Public 
Participation'' for more information about written comments.
    Hearings: NHTSA and EPA will jointly hold three public hearings on 
the following dates: October 21, 2009 in Detroit, Michigan; October 23, 
2009 in New York, New York; and October 27, 2009 in Los Angeles, 
California. EPA and NHTSA will announce the addresses for each hearing 
location in a supplemental Federal Register Notice. The hearings will 
start at 9 a.m. local time and continue until everyone has had a chance 
to speak. See the SUPPLEMENTARY INFORMATION section on ``Public 
Participation'' for more information about the public hearings.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2009-0472 and/or NHTSA-2009-0059, by one of the following methods:
     www.regulations.gov: Follow the on-line instructions for 
submitting comments.
     E-mail: a-and-r-Docket@epa.gov.
     Fax: EPA: (202) 566-1741; NHTSA: (202) 493-2251.
     Mail:
    [cir] EPA: Environmental Protection Agency, EPA Docket Center (EPA/
DC), Air and Radiation Docket, Mail Code 2822T, 1200 Pennsylvania 
Avenue, NW., Washington, DC 20460, Attention Docket ID No. EPA-HQ-OAR-
2009-0472. In addition, please mail a copy of your comments on the 
information collection provisions to the Office of Information and 
Regulatory Affairs, Office of Management and Budget (OMB), Attn: Desk 
Officer for EPA, 725 17th St., NW., Washington, DC 20503.
    [cir] 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:
    [cir] EPA: Docket Center, (EPA/DC) EPA West, Room B102, 1301 
Constitution Ave., NW., Washington, DC, Attention Docket ID No. EPA-HQ-
OAR-2009-0472. Such deliveries are only accepted during the Docket's 
normal hours of operation, and special arrangements should be made for 
deliveries of boxed information.
    [cir] NHTSA: West Building, Ground Floor, Rm. W12-140, 1200 New 
Jersey Avenue, SE., Washington, DC 20590, between 9 a.m. and 5 p.m. 
Eastern Time, Monday through Friday, except Federal Holidays.
    Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-
2009-0472 and/or NHTSA-2009-0059. See the SUPPLEMENTARY INFORMATION 
section on ``Public Participation'' for more information about 
submitting written comments.
    Public Hearing: NHTSA and EPA will jointly hold three public 
hearings on the following dates: October 21, 2009 in Detroit, Michigan; 
October 23, 2009 in New York, New York; and October 27, 2009 in Los 
Angeles, California. EPA and NHTSA will announce the addresses for each 
hearing location in a supplemental Federal Register Notice. See the 
SUPPLEMENTARY INFORMATION section on ``Public Participation'' for more 
information about the public hearings.
    Docket: All documents in the dockets are listed in the 
www.regulations.gov index. Although listed in the index, some 
information is not publicly available, e.g., confidential business 
information (CBI) or other information whose disclosure is restricted 
by statute. Certain other material, such as copyrighted material, will 
be publicly available only in hard copy. Publicly available docket 
materials are available either electronically in www.regulations.gov or 
in hard copy at the following locations: EPA: EPA Docket Center, EPA/
DC, EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, DC. 
The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday 
through Friday, excluding legal holidays. The telephone number for the 
Public Reading Room is (202) 566-1744. NHTSA: Docket Management 
Facility, M-30, U.S. Department of Transportation, West Building, 
Ground Floor, Rm. W12-140, 1200 New Jersey Avenue, SE, Washington, DC 
20590. The Docket Management Facility is open between 9 a.m. and 5 p.m. 
Eastern Time, Monday through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: EPA: Tad Wysor, Office of 
Transportation and Air Quality, Assessment and Standards Division, 
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor MI 
48105; telephone number: 734-214-4332; fax number: 734-214-4816; e-mail 
address: wysor.tad@epa.gov, or Assessment and Standards Division 
Hotline; telephone number (734) 214-4636; e-mail address 
asdinfo@epa.gov. NHTSA: Rebecca Yoon, Office of Chief Counsel, National 
Highway Traffic Safety Administration, 1200 New Jersey Avenue, SE., 
Washington, DC 20590. Telephone: (202) 366-2992.

SUPPLEMENTARY INFORMATION:

A. Does This Action Apply to Me?

    This action affects companies that manufacture or sell new light-
duty vehicles, light-duty trucks, and medium-duty passenger vehicles, 
as defined under EPA's CAA regulations,\1\

[[Page 49455]]

and passenger automobiles (passenger cars) and non-passenger 
automobiles (light trucks) as defined under NHTSA's CAFE 
regulations.\2\ Regulated categories and entities include:
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    \1\ ``Light-duty vehicle,'' ``light-duty truck,'' and ``medium-
duty passenger vehicle'' are defined in 40 CFR 86.1803-01. 
Generally, the term ``light-duty vehicle'' means a passenger car, 
the term ``light-duty truck'' means a pick-up truck, sport-utility 
vehicle, or minivan of up to 8,500 lbs gross vehicle weight rating, 
and ``medium-duty passenger vehicle'' means a sport-utility vehicle 
or passenger van from 8,500 to 10,000 lbs gross vehicle weight 
rating. Medium-duty passenger vehicles do not include pick-up 
trucks.
    \2\ ``Passenger car'' and ``light truck'' are defined in 49 CFR 
part 523.

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                                        NAICS    Examples of potentially
              Category                codes \A\     regulated entities
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Industry............................     336111  Motor vehicle
                                                  manufacturers.
                                         336112
Industry............................     811112  Commercial Importers of
                                                  Vehicles and Vehicle
                                                  Components.
                                         811198
                                         541514
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\A\ North American Industry Classification System (NAICS).

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

B. Public Participation

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

How Do I Prepare and Submit Comments?

    In this joint proposal, there are many issues common to both EPA's 
and NHTSA's proposals. For the convenience of all parties, comments 
submitted to the EPA docket will be considered comments submitted to 
the NHTSA docket, and vice versa. An exception is that comments 
submitted to the NHTSA docket on the Draft Environmental Impact 
Statement will not be considered submitted to the EPA docket. 
Therefore, the public only needs to submit comments to either one of 
the two agency dockets. Comments that are submitted for consideration 
by one agency should be identified as such, and comments that are 
submitted for consideration by both agencies should be identified as 
such. Absent such identification, each agency will exercise its best 
judgment to determine whether a comment is submitted on its proposal.
    Further instructions for submitting comments to either the EPA or 
NHTSA docket are described below.
    EPA: Direct your comments to Docket ID No EPA-HQ-OAR-2009-0472. 
EPA's policy is that all comments received will be included in the 
public docket without change and may be made available online at 
www.regulations.gov, including any personal information provided, 
unless the comment includes information claimed to be Confidential 
Business Information (CBI) or other information whose disclosure is 
restricted by statute. Do not submit information that you consider to 
be CBI or otherwise protected through www.regulations.gov or e-mail. 
The www.regulations.gov Web site is an ``anonymous access'' system, 
which means EPA will not know your identity or contact information 
unless you provide it in the body of your comment. If you send an e-
mail comment directly to EPA without going through www.regulations.gov 
your e-mail address will be automatically captured and included as part 
of the comment that is placed in the public docket and made available 
on the Internet. If you submit an electronic comment, EPA recommends 
that you include your name and other contact information in the body of 
your comment and with any disk or CD-ROM you submit. If EPA cannot read 
your comment due to technical difficulties and cannot contact you for 
clarification, EPA may not be able to consider your comment. Electronic 
files should avoid the use of special characters, any form of 
encryption, and be free of any defects or viruses. For additional 
information about EPA's public docket visit the EPA Docket Center 
homepage at http://www.epa.gov/epahome/dockets.htm.
    NHTSA: Your comments must be written and in English. To ensure that 
your comments are correctly filed in the Docket, please include the 
Docket number NHTSA-2009-0059 in your comments. Your comments must not 
be more than 15 pages long.\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. 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 agencies, it must meet the information quality 
standards set forth in the OMB and Department of Transportation (DOT) 
Data Quality Act guidelines. Accordingly, we encourage you to consult 
the guidelines in preparing your comments. OMB's guidelines may be 
accessed at http://www.whitehouse.gov/omb/fedreg/reproducible.html. 
DOT's guidelines may be accessed at http://www.dot.gov/dataquality.htm.
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    \3\ See 49 CFR 553.21.
    \4\ Optical character recognition (OCR) is the process of 
converting an image of text, such as a scanned paper document or 
electronic fax file, into computer-editable text.
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Tips for Preparing Your Comments
    When submitting comments, remember to:
     Identify the rulemaking by docket number and other 
identifying information (subject heading, Federal Register date and 
page number).
     Follow directions--The agency may ask you to respond to 
specific questions or organize comments by referencing a Code of 
Federal Regulations (CFR) part or section number.
     Explain why you agree or disagree, suggest alternatives, 
and substitute language for your requested changes.
     Describe any assumptions and provide any technical 
information and/or data that you used.
     If you estimate potential costs or burdens, explain how 
you arrived at your estimate in sufficient detail to allow for it to be 
reproduced.
     Provide specific examples to illustrate your concerns, and 
suggest alternatives.

[[Page 49456]]

     Explain your views as clearly as possible, avoiding the 
use of profanity or personal threats.
    Make sure to submit your comments by the comment period deadline 
identified in the DATES section above.

How Can I Be Sure That My Comments Were Received?

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

How Do I Submit Confidential Business Information?

    Any confidential business information (CBI) submitted to one of the 
agencies will also be available to the other agency. However, as with 
all public comments, any CBI information only needs to be submitted to 
either one of the agencies' dockets and it will be available to the 
other. Following are specific instructions for submitting CBI to either 
agency.
    EPA: Do not submit CBI to EPA through http://www.regulations.gov or 
e-mail. Clearly mark the part or all of the information that you claim 
to be CBI. For CBI information in a disk or CD-ROM that you mail to 
EPA, mark the outside of the disk or CD-ROM as CBI and then identify 
electronically within the disk or CD-ROM the specific information that 
is claimed as CBI. In addition to one complete version of the comment 
that includes information claimed as CBI, a copy of the comment that 
does not contain the information claimed as CBI must be submitted for 
inclusion in the public docket. Information so marked will not be 
disclosed except in accordance with procedures set forth in 40 CFR part 
2.
    NHTSA: If you wish to submit any information under a claim of 
confidentiality, you should submit three copies of your complete 
submission, including the information you claim to be confidential 
business information, to the Chief Counsel, NHTSA, at the address given 
above under FOR FURTHER INFORMATION CONTACT. When you send a comment 
containing confidential business information, you should include a 
cover letter setting forth the information specified in our 
confidential business information regulation.\5\
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    \5\ See 49 CFR part 512.
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    In addition, you should submit a copy from which you have deleted 
the claimed confidential business information to the Docket by one of 
the methods set forth above.

Will the Agencies Consider Late Comments?

    NHTSA and EPA will consider all comments received before the close 
of business on the comment closing date indicated above under DATES. To 
the extent practicable, we will also consider comments received after 
that date. If interested persons believe that any new information the 
agency places in the docket affects their comments, they may submit 
comments after the closing date concerning how the agency should 
consider that information for the final rule. However, the agencies' 
ability to consider any such late comments in this rulemaking will be 
limited due to the time frame for issuing a final rule.
    If a comment is received too late for us to practicably consider in 
developing a final rule, we will consider that comment as an informal 
suggestion for future rulemaking action.

How Can I Read the Comments Submitted by Other People?

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

How Do I Participate in the Public Hearings?

    NHTSA and EPA will jointly host three public hearings on the dates 
and locations described in the DATES and ADDRESSES sections above.
    If you would like to present testimony at the public hearings, we 
ask that you notify the EPA and NHTSA contact persons listed under FOR 
FURTHER INFORMATION CONTACT at least ten days before the hearing. Once 
EPA and NHTSA learn how many people have registered to speak at the 
public hearing, we will allocate an appropriate amount of time to each 
participant, allowing time for lunch and necessary breaks throughout 
the day. For planning purposes, each speaker should anticipate speaking 
for approximately ten minutes, although we may need to adjust the time 
for each speaker if there is a large turnout. We suggest that you bring 
copies of your statement or other material for the EPA and NHTSA panels 
and the audience. It would also be helpful if you send us a copy of 
your statement or other materials before the hearing. To accommodate as 
many speakers as possible, we prefer that speakers not use 
technological aids (e.g., audio-visuals, computer slideshows). However, 
if you plan to do so, you must notify the contact persons in the FOR 
FURTHER INFORMATION CONTACT section above. You also must make 
arrangements to provide your presentation or any other aids to NHTSA 
and EPA in advance of the hearing in order to facilitate set-up. In 
addition, we will reserve a block of time for anyone else in the 
audience who wants to give testimony.
    The hearing will be held at a site accessible to individuals with 
disabilities. Individuals who require accommodations such as sign 
language interpreters should contact the persons listed under FOR 
FURTHER INFORMATION CONTACT section above no later than ten days before 
the date of the hearing.
    NHTSA and EPA will conduct the hearing informally, and technical 
rules of evidence will not apply. We will arrange for a written 
transcript of the hearing and keep the official record of the hearing 
open for 30 days to allow you to submit supplementary information. You 
may make arrangements for copies of the transcript directly with the 
court reporter.

Table of Contents

I. Overview of Joint EPA/NHTSA National Program

A. Introduction
    1. Building Blocks of the National Program
    2. Joint Proposal for a National Program
B. Summary of the Joint Proposal
C. Background and Comparison of NHTSA and EPA Statutory Authority
    1. NHTSA Statutory Authority
    2. EPA Statutory Authority
    3. Comparing the Agencies' Authority
D. Summary of the Proposed Standards for the National Program
    1. Joint Analytical Approach
    2. Level of the Standards
    3. Form of the Standards
E. Summary of Costs and Benefits for the Joint Proposal
    1. Summary of Costs and Benefits of Proposed NHTSA CAFE 
Standards
    2. Summary of Costs and Benefits of Proposed EPA GHG Standards
F. Program Flexibilities for Achieving Compliance
    1. CO2/CAFE Credits Generated Based on Fleet Average 
Performance
    2. Air Conditioning Credits
    3. Flex-Fuel and Alternative Fuel Vehicle Credits
    4. Temporary Lead-time Allowance Alternative Standards
    5. Additional Credit Opportunities Under the CAA
G. Coordinated Compliance
H. Conclusion

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II. Joint Technical Work Completed for This Proposal

A. Introduction
B. How Did NHTSA and EPA Develop the Baseline Market Forecast?
    1. Why Do the Agencies Establish a Baseline Vehicle Fleet?
    2. How Do the Agencies Develop the Baseline Vehicle Fleet?
    3. How Is the Development of the Baseline Fleet for this 
Proposal Different From NHTSA's Historical Approach, and Why is This 
Approach Preferable?
    4. How Does Manufacturer Product Plan Data Factor Into the 
Baseline Used in This Proposal?
C. Development of Attribute-Based Curve Shapes
D. Relative Car-Truck Stringency
E. Joint Vehicle Technology Assumptions
    1. What Technologies Do the Agencies Consider?
    2. How Did the Agencies Determine the Costs and Effectiveness of 
Each of These Technologies?
F. Joint Economic Assumptions

III. EPA Proposal for Greenhouse Gas Vehicle Standards

A. Executive Overview of EPA Proposal
    1. Introduction
    2. Why Is EPA Proposing This Rule?
    3. What Is EPA Proposing?
    4. Basis for the Proposed GHG Standards Under Section 202(a)
B. Proposed GHG Standards for Light-Duty Vehicles, Light-Duty 
Trucks, and Medium-Duty Passenger Vehicles
    1. What Fleet-Wide Emissions Levels Correspond to the 
CO2 Standards?
    2. What Are the CO2 Attribute-Based Standards?
    3. Overview of How EPA's Proposed CO2 Standards Would 
Be Implemented for Individual Manufacturers
    4. Averaging, Banking, and Trading Provisions for CO2 
Standards
    5. CO2 Temporary Lead-Time Allowance Alternative 
Standards
    6. Proposed Nitrous Oxide and Methane Standards
    7. Small Entity Deferment
C. Additional Credit Opportunities for CO2 Fleet Average 
Program
    1. Air Conditioning Related Credits
    2. Flex Fuel and Alternative Fuel Vehicle Credits
    3. Advanced Technology Vehicle Credits for Electric Vehicles, 
Plug-in Hybrids, and Fuel Cells
    4. Off-cycle Technology Credits
    5. Early Credit Options
D. Feasibility of the Proposed CO2 Standards
    1. How Did EPA Develop a Reference Vehicle Fleet for Evaluating 
Further CO2 Reductions?
    2. What Are the Effectiveness and Costs of CO2-
Reducing Technologies?
    3. How Can Technologies Be Combined into ``Packages'' and What 
Is the Cost and Effectiveness of Packages?
    4. Manufacturer's Application of Technology
    5. How Is EPA Projecting That a Manufacturer Would Decide 
Between Options To Improve CO2 Performance To Meet a 
Fleet Average Standard?
    6. Why Are the Proposed CO2 Standards Feasible?
    7. What Other Fleet-Wide CO2 Levels Were Considered?
E. Certification, Compliance, and Enforcement
    1. Compliance Program Overview
    2. Compliance With Fleet-Average CO2 Standards
    3. Vehicle Certification
    4. Useful Life Compliance
    5. Credit Program Implementation
    6. Enforcement
    7. Prohibited Acts in the CAA
    8. Other Certification Issues
    9. Miscellaneous Revisions to Existing Regulations
    10. Warranty, Defect Reporting, and Other Emission-related 
Components Provisions
    11. Light Vehicles and Fuel Economy Labeling
F. How Would This Proposal Reduce GHG Emissions and Their Associated 
Effects?
    1. Impact on GHG Emissions
    2. Overview of Climate Change Impacts From GHG Emissions
    3. Changes in Global Mean Temperature and Sea-Level Rise 
Associated With the Proposal's GHG Emissions Reductions
    4. Weight Reduction and Potential Safety Impacts
G. How Would the Proposal Impact Non-GHG Emissions and Their 
Associated Effects?
    1. Upstream Impacts of Program
    2. Downstream Impacts of Program
    3. Health Effects of Non-GHG Pollutants
    4. Environmental Effects of Non-GHG Pollutants
    5. Air Quality Impacts of Non-GHG Pollutants
H. What Are the Estimated Cost, Economic, and Other Impacts of the 
Proposal?
    1. Conceptual Framework for Evaluating Consumer Impacts
    2. Costs Associated With the Vehicle Program
    3. Cost per Ton of Emissions Reduced
    4. Reduction in Fuel Consumption and Its Impacts
    5. Impacts on U.S. Vehicle Sales and Payback Period
    6. Benefits of Reducing GHG Emissions
    7. Non-Greenhouse Gas Health and Environmental Impacts
    8. Energy Security Impacts
    9. Other Impacts
    10. Summary of Costs and Benefits
I. Statutory and Executive Order Reviews
    1. Executive Order 12866: Regulatory Planning and Review
    2. Paperwork Reduction Act
    3. Regulatory Flexibility Act
    4. Unfunded Mandates Reform Act
    5. Executive Order 13132 (Federalism)
    6. Executive Order 13175 (Consultation and Coordination With 
Indian Tribal Governments)
    7. Executive Order 13045: ``Protection of Children From 
Environmental Health Risks and Safety Risks''
    8. Executive Order 13211 (Energy Effects)
    9. National Technology Transfer Advancement Act
    10. Executive Order 12898: Federal Actions to Address 
Environmental Justice in Minority Populations and Low-Income 
Populations
J. Statutory Provisions and Legal Authority

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

A. Executive Overview of NHTSA Proposal
    1. Introduction
    2. Role of Fuel Economy Improvements in Promoting Energy 
Independence, Energy Security, and a Low Carbon Economy
    3. The National Program
    4. Review of CAFE Standard Setting Methodology Per the 
President's January 26, 2009 Memorandum on CAFE Standards for MYs 
2011 and Beyond
    5. Summary of the Proposed MY 2012-2016 CAFE Standards
B. Background
    1. Chronology of Events Since the National Academy of Sciences 
Called for Reforming and Increasing CAFE Standards
    2. NHTSA Issues Final Rule Establishing Attribute-Based CAFE 
Standards for MY 2008-2011 Light Trucks (March 2006)
    3. Ninth Circuit Issues Decision re Final Rule for MY 2008-2011 
Light Trucks (November 2007)
    4. Congress Enacts Energy Security and Independence Act of 2007 
(December 2007)
    5. NHTSA Proposes CAFE Standards for MYs 2011-2015 (April 2008)
    6. Ninth Circuit Revises Its Decision re Final Rule for MY 2008-
2011 Light Trucks (August 2008)
    7. NHTSA Releases Final Environmental Impact Statement (October 
2008)
    8. Department of Transportation Decides not to Issue MY 2011-
2015 final Rule (January 2009)
    9. The President Requests NHTSA to Issue Final Rule for MY 2011 
Only (January 2009)
    10. NHTSA Issues Final Rule for MY 2011 (March 2009)
    11. Energy Policy and Conservation Act, as Amended by the Energy 
Independence and Security Act
C. Development and Feasibility of the Proposed Standards
    1. How Was the Baseline Vehicle Fleet Developed?
    2. How were the Technology Inputs Developed?
    3. How Did NHTSA Develop the Economic Assumption Inputs?
    4. How Does NHTSA Use the Assumptions in Its Modeling Analysis?
    5. How Did NHTSA Develop the Shape of the Target Curves for the 
Proposed Standards?
D. Statutory Requirements
    1. EPCA, as Amended by EISA
    2. Administrative Procedure Act
    3. National Environmental Policy Act
E. What Are the Proposed CAFE Standards?
    1. Form of the Standards
    2. Passenger Car Standards for MYs 2012-2016
    3. Minimum Domestic Passenger Car Standards
    4. Light Truck Standards
F. How Do the Proposed Standards Fulfill NHTSA's Statutory 
Obligations?

[[Page 49458]]

G. Impacts of the Proposed CAFE Standards
    1. How Would These Proposed Standards Improve Fuel Economy and 
Reduce GHG Emissions for MY 2012-2016 Vehicles?
    2. How Would These Proposed Standards Improve Fleet-Wide Fuel 
Economy and Reduce GHG Emissions Beyond MY 2016?
    3. How Would These Proposed Standards Impact Non-GHG Emissions 
and Their Associated Effects?
    4. What Are the Estimated Costs and Benefits of These Proposed 
Standards?
    5. How Would These Proposed Standards Impact Vehicle Sales?
    6. What Are the Consumer Welfare Impacts of These Proposed 
Standards?
    7. What Are the Estimated Safety Impacts of These Proposed 
Standards?
    8. What Other Impacts (Quantitative and Unquantifiable) Will 
These Proposed Standards Have?
H. Vehicle Classification
I. Compliance and Enforcement
    1. Overview
    2. How Does NHTSA Determine Compliance?
    3. What Compliance Flexibilities Are Available under the CAFE 
Program and How Do Manufacturers Use Them?
    4. Other CAFE Enforcement Issues--Variations in Footprint
J. Other Near-Term Rulemakings Mandated by EISA
    1. Commercial Medium- and Heavy-Duty On-Highway Vehicles and 
Work Trucks
    2. Consumer Information
K. Regulatory Notices and Analyses
    1. Executive Order 12866 and DOT Regulatory Policies and 
Procedures
    2. National Environmental Policy Act
    3. Regulatory Flexibility Act
    4. Executive Order 13132 (Federalism)
    5. Executive Order 12988 (Civil Justice Reform)
    6. Unfunded Mandates Reform Act
    7. Paperwork Reduction Act
    8. Regulation Identifier Number
    9. Executive Order 13045
    10. National Technology Transfer and Advancement Act
    11. Executive Order 13211
    12. Department of Energy Review
    13. Plain Language
    14. Privacy Act

I. Overview of Joint EPA/NHTSA National Program

A. Introduction

    The National Highway Traffic Safety Administration (NHTSA) and the 
Environmental Protection Agency (EPA) are each announcing proposed 
rules whose benefits would address the urgent and closely intertwined 
challenges of energy independence and security and global warming. 
These proposed rules call for a strong and coordinated Federal 
greenhouse gas and fuel economy program for passenger cars, light-duty-
trucks, and medium-duty passenger vehicles (hereafter light-duty 
vehicles), referred to as the National Program. The proposed rules can 
achieve substantial reductions of greenhouse gas (GHG) emissions and 
improvements in fuel economy from the light-duty vehicle part of the 
transportation sector, based on technology that is already being 
commercially applied in most cases and that can be incorporated at a 
reasonable cost.
    This joint notice is consistent with the President's announcement 
on May 19, 2009 of a National Fuel Efficiency Policy of establishing 
consistent, harmonized, and streamlined requirements that would reduce 
greenhouse gas emissions and improve fuel economy for all new cars and 
light-duty trucks sold in the United States.\6\ The National Program 
holds out the promise of delivering additional environmental and energy 
benefits, cost savings, and administrative efficiencies on a nationwide 
basis that might not be available under a less coordinated approach. 
The proposed National Program also offers the prospect of regulatory 
convergence by making it possible for the standards of two different 
Federal agencies and the standards of California and other States to 
act in a unified fashion in providing these benefits. This would allow 
automakers to produce and sell a single fleet nationally. Thus, it may 
also help to mitigate the additional costs that manufacturers would 
otherwise face in having to comply with multiple sets of Federal and 
State standards. This joint notice is also consistent with the Notice 
of Upcoming Joint Rulemaking issued by DOT and EPA on May 19 \7\ and 
responds to the President's January 26, 2009 memorandum on CAFE 
standards for model years 2011 and beyond,\8\ the details of which can 
be found in Section IV of this joint notice.
---------------------------------------------------------------------------

    \6\ President Obama Announces National Fuel Efficiency Policy, 
The White House, May 19, 2009. Available at: http://www.whitehouse.gov/the_press_office/President-Obama-Announces-National-Fuel-Efficiency-Policy/ (last accessed August 18, 2009). 
Remarks by the President on National Fuel Efficiency Standards, The 
White House, May 19, 2009. Available at: http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-on-national-fuel-efficiency-standards/ (Last accessed August 18, 2009).
    \7\ 74 FR 24007 (May 22, 2009).
    \8\ Available at: http://www.whitehouse.gov/the_press_office/Presidential_Memorandum_Fuel_Economy/ (last accessed on August 
18, 2009).
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1. Building Blocks of the National Program
    The National Program is both needed and possible because the 
relationship between improving fuel economy and reducing CO2 
tailpipe emissions is a very direct and close one. The amount of those 
CO2 emissions is essentially constant per gallon combusted 
of a given type of fuel. Thus, the more fuel efficient a vehicle is, 
the less fuel it burns to travel a given distance. The less fuel it 
burns, the less CO2 it emits in traveling that distance.\9\ 
While there are emission control technologies that reduce the 
pollutants (e.g., carbon monoxide) produced by imperfect combustion of 
fuel by capturing or destroying them, there is no such technology for 
CO2. Further, while some of those pollutants can also be 
reduced by achieving a more complete combustion of fuel, doing so only 
increases the tailpipe emissions of CO2. Thus, there is a 
single pool of technologies for addressing these twin problems, i.e., 
those that reduce fuel consumption and thereby reduce CO2 
emissions as well.
---------------------------------------------------------------------------

    \9\ Panel on Policy Implications of Greenhouse Warming, National 
Academy of Sciences, National Academy of Engineering, Institute of 
Medicine, ``Policy Implications of Greenhouse Warming: Mitigation, 
Adaptation, and the Science Base,'' National Academies Press, 1992. 
p. 287.
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a. DOT's CAFE Program
    In 1975, Congress enacted the Energy Policy and Conservation Act 
(EPCA), mandating that NHTSA establish and implement a regulatory 
program for motor vehicle fuel economy to meet the various facets of 
the need to conserve energy, including ones having energy independence 
and security, environmental and foreign policy implications. Fuel 
economy gains since 1975, due both to the standards and market factors, 
have resulted in saving billions of barrels of oil and avoiding 
billions of metric tons of CO2 emissions. In December 2007, 
Congress enacted the Energy Independence and Securities Act (EISA), 
amending EPCA to require substantial, continuing increases in fuel 
economy standards.
    The CAFE standards address most, but not all, of the real world 
CO2 emissions because EPCA requires the use of 1975 
passenger car test procedures under which vehicle air conditioners are 
not turned on during fuel economy testing.\10\ Fuel economy is 
determined by measuring the amount of CO2 and other carbon 
compounds emitted from the tailpipe, not by attempting to measure 
directly the amount of fuel consumed during a vehicle test, a difficult 
task to accomplish with precision. The carbon content of the test fuel 
\11\ is then used to calculate the amount of fuel that had to be 
consumed per mile in order to

[[Page 49459]]

produce that amount of CO2. Finally, that fuel consumption 
figure is converted into a miles-per-gallon figure. CAFE standards also 
do not address the 5-8 percent of GHG emissions that are not 
CO2, i.e., nitrous oxide (N2O), and methane 
(CH4) as well as emissions of CO2 and 
hydrofluorocarbons (HFCs) related to operation of the air conditioning 
system.
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    \10\ EPCA does not require the use of 1975 test procedures for 
light trucks.
    \11\ This is the method that EPA uses to determine compliance 
with NHTSA's CAFE standards.
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b. EPA's Greenhouse Gas Standards for Light-Duty Vehicles
    Under the Clean Air Act EPA is responsible for addressing air 
pollutants from motor vehicles. On April 2, 2007, the U.S. Supreme 
Court issued its opinion in Massachusetts v. EPA,\12\ a case involving 
a 2003 order of the Environmental Protection Agency (EPA) denying a 
petition for rulemaking to regulate greenhouse gas emissions from motor 
vehicles under section 202(a) of the Clean Air Act (CAA).\13\ The Court 
held that greenhouse gases were air pollutants for purposes of the 
Clean Air Act and further held that the Administrator must determine 
whether or not emissions from new motor vehicles cause or contribute to 
air pollution which may reasonably be anticipated to endanger public 
health or welfare, or whether the science is too uncertain to make a 
reasoned decision. The Court further ruled that, in making these 
decisions, the EPA Administrator is required to follow the language of 
section 202(a) of the CAA. The Court rejected the argument that EPA 
cannot regulate CO2 from motor vehicles because to do so 
would de facto tighten fuel economy standards, authority over which has 
been assigned by Congress to DOT. The Court stated that ``[b]ut that 
DOT sets mileage standards in no way licenses EPA to shirk its 
environmental responsibilities. EPA has been charged with protecting 
the public`s `health' and `welfare', a statutory obligation wholly 
independent of DOT's mandate to promote energy efficiency.'' The Court 
concluded that ``[t]he two obligations may overlap, but there is no 
reason to think the two agencies cannot both administer their 
obligations and yet avoid inconsistency.'' \14\ The Court remanded the 
case back to the Agency for reconsideration in light of its 
findings.\15\
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    \12\ 549 U.S. 497 (2007).
    \13\ 68 FR 52922 (Sept. 8, 2003).
    \14\ 549 U.S. at 531-32.
    \15\ For further information on Massachusetts v. EPA see the 
July 30, 2008 Advance Notice of Proposed Rulemaking, ``Regulating 
Greenhouse Gas Emissions under the Clean Air Act'', 73 FR 44354 at 
44397. There is a comprehensive discussion of the litigation's 
history, the Supreme Court's findings, and subsequent actions 
undertaken by the Bush Administration and the EPA from 2007-2008 in 
response to the Supreme Court remand.
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    EPA has since proposed to find that emissions of GHGs from new 
motor vehicles and motor vehicle engines cause or contribute to air 
pollution that may reasonably be anticipated to endanger public health 
and welfare.\16\ This proposal represents the second phase of EPA's 
response to the Supreme Court's decision.
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    \16\ 74 FR 18886 (Apr. 24, 2009).
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c. California Air Resources Board Greenhouse Gas Program
    In 2004, the California Air Resources Board approved standards for 
new light-duty vehicles, which regulate the emission of not only 
CO2, but also other GHGs. Since then, thirteen States and 
the District of Columbia, comprising approximately 40 percent of the 
light-duty vehicle market, have adopted California's standards. These 
standards apply to model years 2009 through 2016 and require 
CO2 emissions for passenger cars and the smallest light 
trucks of 323 g/mi in 2009 and 205 g/mi in 2016, and for the remaining 
light trucks of 439 g/mi in 2009 and 332 g/mi in 2016. On June 30, 
2009, EPA granted California's request for a waiver of preemption under 
the CAA.\17\ The granting of the waiver permits California and the 
other States to proceed with implementing the California emission 
standards.
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    \17\ 74 FR 32744 (July 8, 2009).
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2. Joint Proposal for a National Program
    On May 19, 2009, the Department of Transportation and the 
Environmental Protection Agency issued a Notice of Upcoming Joint 
Rulemaking to propose a strong and coordinated fuel economy and 
greenhouse gas National Program for Model Year (MY) 2012-2016 light 
duty vehicles.

B. Summary of the Joint Proposal

    In this joint rulemaking, EPA is proposing GHG emissions standards 
under the Clean Air Act (CAA), and NHTSA is proposing Corporate Average 
Fuel Economy (CAFE) standards under the Energy Policy and Conservation 
Action of 1975 (EPCA), as amended by the Energy Independence and 
Security Act of 2007 (EISA). The intention of this joint rulemaking 
proposal is to set forth a carefully coordinated and harmonized 
approach to implementing these two statutes, in accordance with all 
substantive and procedural requirements imposed by law.
    Climate change is widely viewed as the most significant long-term 
threat to the global environment. According to the Intergovernmental 
Panel on Climate Change, anthropogenic emissions of greenhouse gases 
are very likely (90 to 99 percent probability) the cause of most of the 
observed global warming over the last 50 years. The primary GHGs of 
concern are carbon dioxide (CO2), methane, nitrous oxide, 
hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. Mobile 
sources emitted 31.5 percent of all U.S. GHG in 2006, and have been the 
fastest-growing source of U.S. GHG since 1990. Light-duty vehicles emit 
four GHGs--CO2, methane, nitrous oxide, and 
hydrofluorocarbons--and are responsible for nearly 60 percent of all 
mobile source GHGs. For Light-duty vehicles, CO2 emissions 
represent about 95 percent of all greenhouse emissions, and the 
CO2 emissions measured over the EPA tests used for fuel 
economy compliance represent over 90 percent of total light-duty 
vehicle greenhouse gas emissions.
    Improving energy security by reducing our dependence on foreign oil 
has been a national objective since the first oil price shocks in the 
1970s. Net petroleum imports now account for approximately 60 percent 
of U.S. petroleum consumption. World crude oil production is highly 
concentrated, exacerbating the risks of supply disruptions and price 
shocks. Tight global oil markets led to prices over $100 per barrel in 
2008, with gasoline reaching as high as $4 per gallon in many parts of 
the U.S., causing financial hardship for many families. The export of 
U.S. assets for oil imports continues to be an important component of 
the U.S.' historically unprecedented trade deficits. Transportation 
accounts for about two-thirds of U.S. petroleum consumption. Light-duty 
vehicles account for about 60 percent of transportation oil use, which 
means that they alone account for about 40 percent of all U.S. oil 
consumption.
    NHTSA and EPA have coordinated closely and worked jointly in 
developing their respective proposals. This is reflected in many 
aspects of this joint proposal. For example, the agencies have 
developed a comprehensive joint Technical Support Document (TSD) that 
provides a solid technical underpinning for each agency's modeling and 
analysis used to support their proposed standards. Also, to the extent 
allowed by law, the agencies have harmonized many elements of program 
design, such as the form of the standard (the footprint-based attribute 
curves), and the definitions used for cars and trucks. They have 
developed the same or similar compliance flexibilities, to the extent 
allowed and appropriate under their

[[Page 49460]]

respective statutes, such as averaging, banking, and trading of 
credits, and have harmonized the compliance testing and test protocols 
used for purposes of the fleet average standards each agency is 
proposing. Finally, as discussed in Section I.C., under their 
respective statutes each agency is called upon to exercise its judgment 
and determine standards that are an appropriate balance of various 
relevant statutory factors. Given the common technical issues before 
each agency, the similarity of the factors each agency is to consider 
and balance, and the authority of each agency to take into 
consideration the standards of the other agency, both EPA and NHTSA are 
proposing standards that result in a harmonized National Program.
    This joint proposal covers passenger cars, light-duty-trucks, and 
medium-duty passenger vehicles built in model years 2012 through 2016. 
These vehicle categories are responsible for almost 60 percent of all 
U.S. transportation-related GHG emissions. EPA and NHTSA expect that 
automobile manufacturers will meet these proposed standards by 
utilizing technologies that will reduce vehicle GHG emissions and 
improve fuel economy. Although many of these technologies are available 
today, the emissions reductions and fuel economy improvements proposed 
would involve more widespread use of these technologies across the 
light-duty vehicle fleet. These include improvements to engines, 
transmissions, and tires, increased use of start-stop technology, 
improvements in air conditioning systems (to the extent currently 
allowed by law), increased use of hybrid and other advanced 
technologies, and the initial commercialization of electric vehicles 
and plug-in hybrids.
    The proposed National Program would result in approximately 950 
million metric tons of total carbon dioxide equivalent emissions 
reductions and approximately 1.8 billion barrels of oil savings over 
the lifetime of vehicles sold in model years 2012 through 2016. In 
total, the combined EPA and NHTSA 2012-2016 standards would reduce GHG 
emissions from the U.S. light-duty fleet by approximately 21 percent by 
2030 over the level that would occur in the absence of the National 
Program. These proposals also provide important energy security 
benefits, as light-duty vehicles are about 95 percent dependent on oil-
based fuels. The benefits of the proposed National Program would total 
about $250 billion at a 3% discount rate, or $195 billion at a 7% 
discount rate. In the discussion that follows in Sections III and IV, 
each agency explains the related benefits for their individual 
standards.
    Together, EPA and NHTSA estimate that the average cost increase for 
a model year 2016 vehicle due to the proposed National Program is less 
than $1,100. U.S. consumers who purchase their vehicle outright would 
save enough in lower fuel costs over the first three years to offset 
these higher vehicle costs. However, most U.S. consumers purchase a new 
vehicle using credit rather than paying cash and the typical car loan 
today is a five year, 60 month loan. These consumers would see 
immediate savings due to their vehicle's lower fuel consumption in the 
form of reduced monthly costs of $12-$14 per month throughout the 
duration of the loan (that is, the fuel savings outweigh the increase 
in loan payments by $12-$14 per month). Whether a consumer takes out a 
loan or purchases a new vehicle outright, over the lifetime of a model 
year 2016 vehicle, consumers would save more than $3,000 due to fuel 
savings. The average 2016 MY vehicle will emit 16 fewer metric tons of 
CO2 emissions during its lifetime.
    This joint proposal also offers the prospect of important 
regulatory convergence and certainty to automobile companies. Absent 
this proposal, there would be three separate Federal and State regimes 
independently regulating light-duty vehicles to reduce fuel consumption 
and GHG emissions: NHTSA's CAFE standards, EPA's GHG standards, and the 
GHG standards applicable in California and other States adopting the 
California standards. This joint proposal would allow automakers to 
meet both the NHTSA and EPA requirements with a single national fleet, 
greatly simplifying the industry's technology, investment and 
compliance strategies. In addition, in a letter dated May 18, 2009, 
California stated that it ``recognizes the benefit for the country and 
California of a National Program to address greenhouse gases and fuel 
economy and the historic announcement of United States Environmental 
Protection Agency (EPA) and National Highway Transportation Safety 
Administration's (NHTSA) intent to jointly propose a rule to set 
standards for both. California fully supports proposal and adoption of 
such a National Program.'' To promote the National Program, California 
announced its commitment to take several actions, including revising 
its program for MYs 2012-2016 such that compliance with the Federal GHG 
standards would be deemed to be compliance with California's GHG 
standards. This would allow the single national fleet used by 
automakers to meet the two Federal requirements and to meet California 
requirements as well. This commitment was conditioned on several 
points, including EPA GHG standards that are substantially similar to 
those described in the May 19, 2009 Notice of Upcoming Joint 
Rulemaking. Many automakers and trade associations also announced their 
support for the National Program announced that day.\18\ The 
manufacturers conditioned their support on EPA and NHTSA standards 
substantially similar to those described in that Notice. NHTSA and EPA 
met with many vehicle manufacturers to discuss the feasibility of the 
National Program. EPA and NHTSA are confident that these proposed GHG 
and CAFE standards, if finalized, would successfully harmonize both the 
Federal and State programs for MYs 2012-2016 and would allow our 
country to achieve the increased benefits of a single, nationwide 
program to reduce light-duty vehicle GHG emissions and reduce the 
country's dependence on fossil fuels by improving these vehicles' fuel 
economy.
---------------------------------------------------------------------------

    \18\ These letters are available at http://www.epa.gov/otaq/climate/regulations.htm.
---------------------------------------------------------------------------

    A successful and sustainable automotive industry depends upon, 
among other things, continuous technology innovation in general, and 
low greenhouse gas emissions and high fuel economy vehicles in 
particular. In this respect, this proposal would help spark the 
investment in technology innovation necessary for automakers to 
successfully compete in both domestic and export markets, and thereby 
continue to support a strong economy.
    While this proposal covers MYs 2012-2016, EPA and NHTSA anticipate 
the importance of seeking a strong, coordinated national program for 
light-duty vehicles in model years beyond 2016 in a future rulemaking.
    Key elements of the proposal for a harmonized and coordinated 
program are the level and form of the GHG and CAFE standards, the 
available compliance mechanisms, and general implementation elements. 
These elements are outlined in the following sections.

C. Background and Comparison of NHTSA and EPA Statutory Authority

    This section provides the agencies' respective statutory 
authorities under which CAFE and GHG standards are established.
1. NHTSA Statutory Authority
    NHTSA establishes CAFE standards for passenger cars and light 
trucks for each model year under EPCA, as

[[Page 49461]]

amended by EISA. EPCA mandates a motor vehicle fuel economy regulatory 
program to meet the various facets of the need to conserve energy, 
including ones having environmental and foreign policy implications. 
EPCA allocates the responsibility for implementing the program between 
NHTSA and EPA as follows: NHTSA sets CAFE standards for passenger cars 
and light trucks; EPA establishes the procedures for testing, tests 
vehicles, collects and analyzes manufacturers' data, and calculates the 
average fuel economy of each manufacturer's passenger cars and light 
trucks; and NHTSA enforces the standards based on EPA's calculations.
a. Standard Setting
    We have summarized below the most important aspects of standard 
setting under EPCA, as amended by EISA.
    For each future model year, EPCA requires that NHTSA establish 
standards at ``the maximum feasible average fuel economy level that it 
decides the manufacturers can achieve in that model year,'' based on 
the agency's consideration of four statutory factors: technological 
feasibility, economic practicability, the effect of other standards of 
the Government on fuel economy, and the need of the nation to conserve 
energy. EPCA does not define these terms or specify what weight to give 
each concern in balancing them; thus, NHTSA defines them and determines 
the appropriate weighting based on the circumstances in each CAFE 
standard rulemaking.\19\
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    \19\ See Center for Biological Diversity v. NHTSA, 538 F.3d. 
1172, 1195 (9th Cir. 2008) (``The EPCA clearly requires the agency 
to consider these four factors, but it gives NHTSA discretion to 
decide how to balance the statutory factors--as long as NHTSA's 
balancing does not undermine the fundamental purpose of the EPCA: 
Energy conservation.'')
---------------------------------------------------------------------------

    For MYs 2011-2020, EPCA further requires that separate standards 
for passenger cars and for light trucks be set at levels high enough to 
ensure that the CAFE of the industry-wide combined fleet of new 
passenger cars and light trucks reaches at least 35 mpg not later than 
MY 2020.
i. Factors That Must Be Considered in Deciding the Appropriate 
Stringency of CAFE Standards
(1) Technological Feasibility
    ``Technological feasibility'' refers to whether a particular method 
of improving fuel economy can be available for commercial application 
in the model year for which a standard is being established. Thus, the 
agency is not limited in determining the level of new standards to 
technology that is already being commercially applied at the time of 
the rulemaking. NHTSA has historically considered all types of 
technologies that improve real-world fuel economy, except those whose 
effects are not reflected in fuel economy testing. Principal among them 
are technologies that improve air conditioner efficiency because the 
air conditioners are not turned on during testing under existing test 
procedures.
(2) Economic Practicability
    ``Economic practicability'' refers to whether a standard is one 
``within the financial capability of the industry, but not so stringent 
as to'' lead to ``adverse economic consequences, such as a significant 
loss of jobs or the unreasonable elimination of consumer choice.'' \20\ 
This factor is especially important in the context of current events, 
where the automobile industry is facing significantly adverse economic 
conditions, as well as significant loss of jobs. In an attempt to 
ensure the economic practicability of attribute-based standards, NHTSA 
considers a variety of factors, including the annual rate at which 
manufacturers can increase the percentage of its fleet that employs a 
particular type of fuel-saving technology, and cost to consumers. 
Consumer acceptability is also an element of economic practicability, 
one which is particularly difficult to gauge during times of 
frequently-changing fuel prices. NHTSA believes this approach is 
reasonable for the MY 2012-2016 standards in view of the facts before 
it at this time. NHTSA is aware, however, that facts relating to a 
variety of key issues in CAFE rulemaking are steadily evolving and 
seeks comments on the balancing of these factors in light of the facts 
available during the comment period.
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    \20\ 67 FR 77015, 77021 (Dec. 16, 2002).
---------------------------------------------------------------------------

    At the same time, the law does not preclude a CAFE standard that 
poses considerable challenges to any individual manufacturer. The 
Conference Report for EPCA, as enacted in 1975, makes clear, and the 
case law affirms, ``a determination of maximum feasible average fuel 
economy should not be keyed to the single manufacturer which might have 
the most difficulty achieving a given level of average fuel economy.'' 
\21\ Instead, NHTSA is compelled ``to weigh the benefits to the nation 
of a higher fuel economy standard against the difficulties of 
individual automobile manufacturers.'' Id. The law permits CAFE 
standards exceeding the projected capability of any particular 
manufacturer as long as the standard is economically practicable for 
the industry as a whole. Thus, while a particular CAFE standard may 
pose difficulties for one manufacturer, it may also present 
opportunities for another. The CAFE program is not necessarily intended 
to maintain the competitive positioning of each particular company. 
Rather, it is intended to enhance fuel economy of the vehicle fleet on 
American roads, while protecting motor vehicle safety and being mindful 
of the risk of harm to the overall United States economy.
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    \21\ CEI-I, 793 F.2d 1322, 1352 (D.C. Cir. 1986).
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(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,\22\ 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 
\23\ 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.
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    \22\ In the case of emission standards, this includes standards 
adopted by the Federal government and can include standards adopted 
by the States as well, since in certain circumstances the Clean Air 
Act allows States to adopt and enforce State standards different 
from the Federal ones.
    \23\ 42 FR 63184, 63188 (Dec. 15, 1977). See also 42 FR 33534, 
33537 (Jun. 30, 1977).
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    In the wake of Massachusetts v. EPA and of EPA's proposed 
endangerment finding, granting of a waiver to California for its motor 
vehicle GHG standards, and its own proposal of GHG standards, NHTSA is 
confronted with the issue of how to treat those standards under the 
``other motor vehicle standards'' provision. To the extent the GHG 
standards result in increases in fuel economy, they would do so almost 
exclusively as a result of inducing manufacturers to install the same 
types of technologies used by manufacturers in complying with the CAFE 
standards. The primary exception would involve increases in the 
efficiency of air conditioners.
    Comment is requested on whether and in what way the effects of the 
California and EPA standards should be

[[Page 49462]]

considered under the ``other motor vehicle standards'' provision or 
other provisions of EPCA in 49 U.S.C. 32902, consistent with NHTSA's 
independent obligation under EPCA/EISA to issue CAFE standards. The 
agency has already considered EPA's proposal and the harmonization 
benefits of the National Program in developing its own proposal.
(4) The Need of the United States To Conserve Energy
    ``The need of the United States to conserve energy'' means ``the 
consumer cost, national balance of payments, environmental, and foreign 
policy implications of our need for large quantities of petroleum, 
especially imported petroleum.'' \24\ Environmental implications 
principally include reductions in emissions of criteria pollutants and 
carbon dioxide. Prime examples of foreign policy implications are 
energy independence and security concerns.
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    \24\ 42 FR 63184, 63188 (1977).
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(a) Fuel Prices and the Value of Saving Fuel
    Projected future fuel prices are a critical input into the 
preliminary economic analysis of alternative CAFE standards, because 
they determine the value of fuel savings both to new vehicle buyers and 
to society. In this rule, NHTSA relies on fuel price projections from 
the U.S. Energy Information Administration's (EIA) Annual Energy 
Outlook (AEO) for this analysis. Federal government agencies generally 
use EIA's projections in their assessments of future energy-related 
policies.
(b) Petroleum Consumption and Import Externalities
    U.S. consumption and imports of petroleum products impose costs on 
the domestic economy that are not reflected in the market price for 
crude petroleum, or in the prices paid by consumers of petroleum 
products such as gasoline. These costs include (1) higher prices for 
petroleum products resulting from the effect of U.S. oil import demand 
on the world oil price; (2) the risk of disruptions to the U.S. economy 
caused by sudden reductions in the supply of imported oil to the U.S.; 
and (3) expenses for maintaining a U.S. military presence to secure 
imported oil supplies from unstable regions, and for maintaining the 
strategic petroleum reserve (SPR) to provide a response option should a 
disruption in commercial oil supplies threaten the U.S. economy, to 
allow the United States to meet part of its International Energy Agency 
obligation to maintain emergency oil stocks, and to provide a national 
defense fuel reserve. Higher U.S. imports of crude oil or refined 
petroleum products increase the magnitude of these external economic 
costs, thus increasing the true economic cost of supplying 
transportation fuels above the resource costs of producing them. 
Conversely, reducing U.S. imports of crude petroleum or refined fuels 
or reducing fuel consumption can reduce these external costs.
(c) 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 \25\ 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.
---------------------------------------------------------------------------

    \25\ The ``rebound effect'' refers to the tendency of drivers to 
drive their vehicles more as the cost of doing so goes down, as when 
fuel economy improves.
---------------------------------------------------------------------------

    Fuel savings from stricter CAFE standards also result in lower 
emissions of CO2, the main greenhouse gas emitted as a 
result of refining, distribution, and use of transportation fuels. 
Lower fuel consumption reduces carbon dioxide emissions directly, 
because the primary source of transportation-related CO2 
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,\26\ 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.'' \27\ Pursuant to that view, NHTSA declined in the 
past to include diesel engines in determining the appropriate level of 
standards for passenger cars and for light trucks because particulate 
emissions from diesels were then both a source of concern and 
unregulated.\28\ In 1988, NHTSA included climate change concepts in its 
CAFE notices and prepared its first environmental assessment addressing 
that subject.\29\ 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.\30\ 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.
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    \26\ Center for Auto Safety v. NHTSA, 793 F.2d 1322, 1325 n. 12 
(D.C. Cir. 1986); Public Citizen v. NHTSA, 848 F.2d 256, 262-3 n. 27 
(D.C. Cir. 1988) (noting that ``NHTSA itself has interpreted the 
factors it must consider in setting CAFE standards as including 
environmental effects''); and Center for Biological Diversity v. 
NHTSA, 538 F.3d 1172 (9th Cir. 2007).
    \27\ 42 FR 63184, 63188 (Dec. 15, 1977) (emphasis added).
    \28\ For example, the final rules establishing CAFE standards 
for MY 1981-84 passenger cars, 42 FR 33533, 33540-1 and 33551 (Jun. 
30, 1977), and for MY 1983-85 light trucks, 45 FR 81593, 81597 (Dec. 
11, 1980).
    \29\ 53 FR 33080, 33096 (Aug. 29, 1988).
    \30\ 53 FR 39275, 39302 (Oct. 6, 1988).
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ii. Other Factors Considered by NHTSA
    NHTSA considers the potential for adverse safety consequences when 
in establishing CAFE standards. This practice is recognized approvingly 
in case law.\31\ Under the universal or ``flat'' CAFE standards that 
NHTSA was previously authorized to establish, the primary risk to 
safety came from the possibility that manufacturers would respond to 
higher standards by building smaller, less safe vehicles in order to 
``balance out'' the larger, safer vehicles that the public generally 
preferred to buy. Under the attribute-based standards being proposed in 
this action, that risk is reduced because building smaller vehicles 
tends to raise a manufacturer's overall CAFE obligation, rather than 
only raising its fleet average CAFE. However, even under attribute-
based standards, there is still risk that manufacturers will rely on 
downweighting to improve their fuel economy (for a given vehicle at a 
given

[[Page 49463]]

footprint target) in ways that may reduce safety.
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    \31\ See, e.g., Center for Auto Safety v. NHTSA (CAS), 793 F.2d 
1322 (D.C. Cir. 1986) (Administrator's consideration of market 
demand as component of economic practicability found to be 
reasonable); Public Citizen 848 F.2d 256 (Congress established broad 
guidelines in the fuel economy statute; agency's decision to set 
lower standard was a reasonable accommodation of conflicting 
policies). As the United States Court of Appeals pointed out in 
upholding NHTSA's exercise of judgment in setting the 1987-1989 
passenger car standards, ``NHTSA has always examined the safety 
consequences of the CAFE standards in its overall consideration of 
relevant factors since its earliest rulemaking under the CAFE 
program.'' Competitive Enterprise Institute v. NHTSA (CEI I), 901 
F.2d 107, 120 at n.11 (D.C. Cir. 1990).
---------------------------------------------------------------------------

    In addition, the agency considers consumer demand in establishing 
new standards and in assessing whether already established standards 
remained feasible. In the 1980's, the agency relied in part on the 
unexpected drop in fuel prices and the resulting unexpected failure of 
consumer demand for small cars to develop in explaining the need to 
reduce CAFE standards for a several year period in order to give 
manufacturers time to develop alternative technology-based strategies 
for improving fuel economy.
iii. Factors That NHTSA Is Statutorily Prohibited From Considering in 
Setting Standards
    EPCA provides that in determining the level at which it should set 
CAFE standards for a particular model year, NHTSA may not consider the 
ability of manufacturers to take advantage of several EPCA provisions 
that facilitate compliance with the CAFE standards and thereby reduce 
the costs of compliance.\32\ As noted below in Section IV, 
manufacturers can earn compliance credits by exceeding the CAFE 
standards and then use those credits to achieve compliance in years in 
which their measured average fuel economy falls below the standards. 
Manufacturers can also increase their CAFE levels through MY 2019 by 
producing alternative fuel vehicles. EPCA provides an incentive for 
producing these vehicles by specifying that their fuel economy is to be 
determined using a special calculation procedure that results in those 
vehicles being assigned a high fuel economy level.
---------------------------------------------------------------------------

    \32\ 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

iv. Weighing and Balancing of Factors
    NHTSA has broad discretion in balancing the above factors in 
determining the average fuel economy level that the manufacturers can 
achieve. Congress ``specifically delegated the process of setting * * * 
fuel economy standards with broad guidelines concerning the factors 
that the agency must consider.'' The breadth of those guidelines, the 
absence of any statutorily prescribed formula for balancing the 
factors, the fact that the relative weight to be given to the various 
factors may change from rulemaking to rulemaking as the underlying 
facts change, and the fact that the factors may often be conflicting 
with respect to whether they militate toward higher or lower standards 
give NHTSA discretion to decide what weight to give each of the 
competing policies and concerns and then determine how to balance 
them--as long as NHTSA's balancing does not undermine the fundamental 
purpose of the EPCA: Energy conservation, and as long as that balancing 
reasonably accommodates ``conflicting policies that were committed to 
the agency's care by the statute.''
    Thus, EPCA does not mandate that any particular number be adopted 
when NHTSA determines the level of CAFE standards. Rather, any number 
within a zone of reasonableness may be, in NHTSA's assessment, the 
level of stringency that manufacturers can achieve. See, e.g., Hercules 
Inc. v. EPA, 598 F.2d 91, 106 (D.C. Cir. 1978) (``In reviewing a 
numerical standard we must ask whether the agency's numbers are within 
a zone of reasonableness, not whether its numbers are precisely 
right'').
v. Other Requirements Related to Standard Setting
    The standards for passenger cars and those for light trucks must 
increase ratably each year. This statutory requirement is interpreted, 
in combination with the requirement to set the standards for each model 
year at the level determined to be the maximum feasible level that 
manufacturers can achieve for that model year, to mean that the annual 
increases should not be disproportionately large or small in relation 
to each other.
    The standards for passenger cars and light trucks must be based on 
one or more vehicle attributes, like size or weight, that correlate 
with fuel economy and must be expressed in terms of a mathematical 
function. Fuel economy targets are set for individual vehicles and 
increase as the attribute decreases and vice versa. For example, size-
based (i.e., size-indexed) standards assign higher fuel economy targets 
to smaller (and generally, but not necessarily, lighter) vehicles and 
lower ones to larger (and generally, but not necessarily, heavier) 
vehicles. The fleet-wide average fuel economy that a particular 
manufacturer is required to achieve depends on the size mix of its 
fleet, i.e., the proportion of the fleet that is small-, medium- or 
large-sized.
    This approach can be used to require virtually all manufacturers to 
increase significantly the fuel economy of a broad range of both 
passenger cars and light trucks, i.e., the manufacturer must improve 
the fuel economy of all the vehicles in its fleet. Further, this 
approach can do so without creating an incentive for manufacturers to 
make small vehicles smaller or large vehicles larger, with attendant 
implications for safety.
b. Test Procedures for Measuring Fuel Economy
    EPCA provides EPA with the responsibility for establishing CAFE 
test procedures. Current test procedures measure the effects of nearly 
all fuel saving technologies. The principal exception is improvements 
in air conditioning efficiency. By statutory law in the case of 
passenger cars and by administrative regulation in the case of light 
trucks, air conditioners are not turned on during fuel economy testing. 
See Section I.C.2 for details.
    The fuel economy test procedures for light trucks could be amended 
through rulemaking to provide for air conditioner operation during 
testing and to take other steps for improving the accuracy and 
representativeness of fuel economy measurements. Comment is sought by 
the agencies regarding implementing such amendments beginning in MY 
2017 and also on the more immediate interim alternative step of 
providing CAFE program credits under the authority of 49 U.S.C. 
32904(c) for light trucks equipped with relatively efficient air 
conditioners for MYs 2012-2016. These CAFE credits would be earned by 
manufacturers on the same terms and under the same conditions as EPA is 
proposing to provide them under the CAA, and additional detail is on 
this request for comment for early CAFE credits is contained in Section 
IV of this preamble. Modernizing the passenger car test procedures, or 
even providing similar credits, would not be possible under EPCA as 
currently written.
c. Enforcement and Compliance Flexibility
    EPA is responsible for measuring automobile manufacturers' CAFE so 
that NHTSA can determine compliance with the CAFE standards. When NHTSA 
finds that a manufacturer is not in compliance, it notifies the 
manufacturer. Surplus credits generated from the five previous years 
can be used to make up the deficit. The amount of credit earned is 
determined by multiplying the number of tenths of a mpg by which a 
manufacturer exceeds a standard for a particular category of 
automobiles by the total volume of automobiles of that category 
manufactured by the manufacturer for a given model year. If there are 
no (or not enough) credits available, then the manufacturer can either 
pay the fine, or submit a carry back plan to NHTSA. A carry back plan 
describes what the manufacturer plans to do in the

[[Page 49464]]

following three model years to earn enough credits to make up for the 
deficit. NHTSA must examine and determine whether to approve the plan.
    In the event that a manufacturer does not comply with a CAFE 
standard, even after the consideration of credits, EPCA provides for 
the assessing of civil penalties, unless, as provided below, the 
manufacturer has earned credits for exceeding a standard in an earlier 
year or expects to earn credits in a later year.\33\ 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.
---------------------------------------------------------------------------

    \33\ EPCA does not provide authority for seeking to enjoin 
violations of the CAFE standards.
---------------------------------------------------------------------------

    Unlike the National Traffic and Motor Vehicle Safety Act, EPCA does 
not provide for recall and remedy in the event of a noncompliance. The 
presence of recall and remedy provisions\34\ 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.
---------------------------------------------------------------------------

    \34\ 49 U.S.C. 30120, Remedies for defects and noncompliance.
---------------------------------------------------------------------------

    In contrast, a CAFE standard applies to a manufacturer's entire 
fleet for a model year. It does not require that a particular 
individual vehicle be equipped with any particular equipment or feature 
or meet a particular level of fuel economy. It does require that the 
manufacturer's fleet, as a whole, comply. Further, although under the 
attribute-based approach to setting CAFE standards fuel economy targets 
are established for individual vehicles based on their footprints, the 
vehicles are not required to comply with those targets. However, as a 
practical matter, if a manufacturer chooses to design some vehicles 
that fall below their target levels of fuel economy, it will need to 
design other vehicles that exceed their targets if the manufacturer's 
overall fleet average is to meet the applicable standard.
    Thus, under EPCA, there is no such thing as a noncompliant vehicle, 
only a noncompliant fleet. No particular vehicle in a noncompliant 
fleet is any more, or less, noncompliant than any other vehicle in the 
fleet.
2. EPA Statutory Authority
    Title II of the Clean Air Act (CAA) provides for comprehensive 
regulation of mobile sources, authorizing EPA to regulate emissions of 
air pollutants from all mobile source categories. Pursuant to these 
sweeping grants of authority, EPA considers such issues as technology 
effectiveness, its cost (both per vehicle, per manufacturer, and per 
consumer), the lead time necessary to implement the technology, and 
based on this the feasibility and practicability of potential 
standards; the impacts of potential standards on emissions reductions 
of both GHGs and non-GHGs; the impacts of standards on oil conservation 
and energy security; the impacts of standards on fuel savings by 
consumers; the impacts of standards on the auto industry; other energy 
impacts; as well as other relevant factors such as impacts on safety.
    This proposal implements a specific provision from Title II, 
section 202(a).\35\ 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.
---------------------------------------------------------------------------

    \35\ 42 U.S.C. 7521(a).
---------------------------------------------------------------------------

    Any standards under CAA section 202(a)(1) ``shall be applicable to 
such vehicles * * * for their useful life.'' Emission standards set by 
the EPA under CAA section 202(a)(1) are technology-based, as the levels 
chosen must be premised on a finding of technological feasibility. 
Thus, standards promulgated under CAA section 202(a) are to take effect 
only ``after providing such period as the Administrator finds necessary 
to permit the development and application of the requisite technology, 
giving appropriate consideration to the cost of compliance within such 
period'' (section 202(a)(2); see also NRDC v. EPA, 655 F.2d 318, 322 
(D.C. Cir. 1981)). EPA is afforded considerable discretion under 
section 202(a) when assessing issues of technical feasibility and 
availability of lead time to implement new technology. Such 
determinations are ``subject to the restraints of reasonableness'', 
which ``does not open the door to `crystal ball' inquiry.'' NRDC, 655 
F.2d at 328, quoting International Harvester Co. v. Ruckelshaus, 478 
F.2d 615, 629 (D.C. Cir. 1973). However, ``EPA is not obliged to 
provide detailed solutions to every engineering problem posed in the 
perfection of the trap-oxidizer. In the absence of theoretical 
objections to the technology, the agency need only identify the major 
steps necessary for development of the device, and give plausible 
reasons for its belief that the industry will be able to solve those 
problems in the time remaining. The EPA is not required to rebut all 
speculation that unspecified factors may hinder `real world' emission 
control.'' NRDC, 655 F.2d at 333-34. In developing such technology-
based standards, EPA has the discretion to consider different standards 
for appropriate groupings of vehicles (``class or classes of new motor 
vehicles''), or a single standard for a larger grouping of motor 
vehicles (NRDC, 655 F.2d at 338).
    Although standards under CAA section 202(a)(1) are technology-
based, they are not based exclusively on technological capability. EPA 
has the discretion to consider and weigh various factors along with 
technological feasibility, such as the cost of compliance (see section 
202(a)(2)), lead time necessary for compliance (section 202(a)(2)), 
safety (see NRDC, 655 F.2d at 336 n. 31) and other impacts on 
consumers, and energy impacts associated with use of the technology. 
See George E. Warren Corp. v. EPA, 159 F.3d 616, 623-624 (D.C. Cir. 
1998) (ordinarily permissible for EPA to consider factors not 
specifically enumerated in the Act). See also Entergy Corp. v. 
Riverkeeper, Inc., 129 S.Ct. 1498, 1508-09 (2009) (congressional 
silence did not bar EPA from employing cost-benefit analysis under 
Clean Water Act absent some other clear indication that such analysis 
was prohibited; rather, silence indicated discretion to use or not use 
such an approach as the agency deems appropriate).
    In addition, EPA has clear authority to set standards under CAA 
section 202(a) that are technology forcing when EPA considers that to 
be appropriate, but is

[[Page 49465]]

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.\36\
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    \36\ 70 FR 69664, 69676, November 17, 2005.

    This interpretation was upheld as reasonable in NACAA v. EPA, (489 
F.3d 1221, 1230 (D.C. Cir. 2007)). CAA section 202(a) does not specify 
the degree of weight to apply to each factor, and EPA accordingly has 
discretion in choosing an appropriate balance among factors. See Sierra 
Club v. EPA, 325 F.3d 374, 378 (D.C. Cir. 2003) (even where a provision 
is technology-forcing, the provision ``does not resolve how the 
Administrator should weigh all [the statutory] factors in the process 
of finding the 'greatest emission reduction achievable' ''). Also see 
Husqvarna AB v. EPA, 254 F. 3d 195, 200 (D.C. Cir. 2001) (great 
discretion to balance statutory factors in considering level of 
technology-based standard, and statutory requirement ``to [give 
appropriate] consideration to the cost of applying * * * technology'' 
does not mandate a specific method of cost analysis); see also Hercules 
Inc. v. EPA, 598 F. 2d 91, 106 (D.C. Cir. 1978) (``In reviewing a 
numerical standard we must ask whether the agency's numbers are within 
a zone of reasonableness, not whether its numbers are precisely 
right''); Permian Basin Area Rate Cases, 390 U.S. 747, 797 (1968) 
(same); Federal Power Commission v. Conway Corp., 426 U.S. 271, 278 
(1976) (same); Exxon Mobil Gas Marketing Co. v. FERC, 297 F. 3d 1071, 
1084 (D.C. Cir. 2002) (same).
a. EPA's Testing Authority
    Under section 203 of the CAA, sales of vehicles are prohibited 
unless the vehicle is covered by a certificate of conformity. EPA 
issues certificates of conformity pursuant to section 206 of the Act, 
based on (necessarily) pre-sale testing conducted either by EPA or by 
the manufacturer. The Federal Test Procedure (FTP or ``city'' test) and 
the Highway Fuel Economy Test (HFET or ``highway'' test) are used for 
this purpose. Compliance with standards is required not only at 
certification but throughout a vehicle's useful life, so that testing 
requirements may continue post-certification. Useful life standards may 
apply an adjustment factor to account for vehicle emission control 
deterioration or variability in use (section 206(a)).
    Pursuant to EPCA, EPA is required to measure fuel economy for each 
model and to calculate each manufacturer's average fuel economy.\37\ 
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.\38\ 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.\39\ 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 CO2 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.
---------------------------------------------------------------------------

    \37\ See 49 U.S.C. 32904(c).
    \38\ See 41 FR 38674 (Sept. 10, 1976), which is codified at 40 
CFR part 600.
    \39\ See 49 U.S.C. 32904(c).
---------------------------------------------------------------------------

b. EPA Enforcement Authority
    Section 207 of the CAA grants EPA broad authority to require 
manufacturers to remedy vehicles if EPA determines there are a 
substantial number of noncomplying vehicles. In addition, section 205 
of the CAA authorizes EPA to assess penalties of up to $37,500 per 
vehicle for violations of various prohibited acts specified in the CAA. 
In determining the appropriate penalty, EPA must consider a variety of 
factors such as the gravity of the violation, the economic impact of 
the violation, the violator's history of compliance, and ``such other 
matters as justice may require.'' Unlike EPCA, the CAA does not 
authorize vehicle manufacturers to pay fines in lieu of meeting 
emission standards.
3. Comparing the Agencies' Authority
    As the above discussion makes clear, there are both important 
differences between the statutes under which each agency is acting as 
well as several important areas of similarity. One important difference 
is that EPA's authority addresses various GHGs, while NHTSA's authority 
addresses fuel economy as measured under specified test procedures. 
This difference is reflected in this rulemaking in the scope of the two 
standards: EPA's proposal takes into account air conditioning related 
reductions, as well as proposed standards for methane and 
N2O, but NHTSA's does not. A second important difference is 
that EPA is proposing certain compliance flexibilities, and takes those 
flexibilities into account in its technical analysis and modeling 
supporting its proposal. EPCA places certain limits on compliance 
flexibilities for CAFE, and expressly prohibits NHTSA from considering 
the impacts of the compliance flexibilities in setting the CAFE 
standard so that the manufacturers' election to avail themselves of the 
permitted flexibilities remains strictly voluntary.\40\ 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.
---------------------------------------------------------------------------

    \40\ 74 FR 24009 (May 22, 2009).
---------------------------------------------------------------------------

    These differences, however, do not change the fact that in many 
critical ways the two agencies are charged with addressing the same 
basic issue of reducing GHG emissions and improving fuel economy. Given 
the direct relationship between emissions of CO2 and fuel 
economy levels, both agencies are looking at the same set of control 
technologies (with the exception of the air conditioning related 
technologies). The standards set by each agency will drive the kind and 
degree of penetration of this set of technologies across the vehicle 
fleet. As a result, each agency is trying to answer the same basic 
question--what kind and degree of technology penetration is necessary 
to achieve the agencies' objectives in the rulemaking time frame, given 
the

[[Page 49466]]

agencies' respective statutory authorities?
    In making the determination of what standards are appropriate under 
the CAA and EPCA, each agency is to exercise its judgment and balance 
many similar factors, such as the availability of technologies, the 
appropriate lead time for introduction of technology, and based on this 
the feasibility and practicability of their standards; the impacts of 
their standards on emissions reductions (of both GHGs and non-GHGs); 
the impacts of their standards on oil conservation; the impacts of 
their standards on fuel savings by consumers; the impacts of their 
standards on the auto industry; as well as other relevant factors such 
as impacts on safety. Conceptually, therefore, each agency is 
considering and balancing many of the same factors, and each agency is 
making a decision that at its core is answering the same basic question 
of what kind and degree of technology penetration is it appropriate to 
call for in light of all of the relevant factors. Finally, each agency 
has the authority to take into consideration impacts of the standards 
of the other agency. EPCA calls for NHTSA to take into consideration 
the effects of EPA's emissions standards on fuel economy capability 
(see 49 U.S.C. 32902 (f)), and EPA has the discretion to take into 
consideration NHTSA's CAFE standards in determining appropriate action 
under section 202(a). This is consistent with the Supreme Court's 
statement that EPA's mandate to protect public health and welfare is 
wholly independent from NHTSA's mandate to promote energy efficiency, 
but there is no reason to think the two agencies cannot both administer 
their obligations and yet avoid inconsistency. Massachusetts v. EPA, 
549 U.S. 497, 532 (2007).
    In this context, it is in the Nation's interest for the two 
agencies to work together in developing their respective proposed 
standards, and they have done so. For example, the agencies have 
committed considerable effort to develop a joint Technical Support 
Document that provides a technical basis underlying each agency's 
analyses. The agencies also have worked closely together in developing 
and reviewing their respective modeling, to develop the best analysis 
and to promote technical consistency. The agencies have developed a 
common set of attribute-based curves that each agency supports as 
appropriate both technically and from a policy perspective. The 
agencies have also worked closely to ensure that their respective 
programs will work in a coordinated fashion, and will provide 
regulatory compatibility that allows auto manufacturers to build a 
single national light-duty fleet that would comply with both the GHG 
and the CAFE standards. The resulting overall close coordination of the 
proposed GHG and CAFE standards should not be surprising, however, as 
each agency is using a jointly developed technical basis to address the 
closely intertwined challenges of energy security and climate change. 
As discussed above, in determining the standards to propose the 
agencies are called upon to weigh and balance various factors that are 
relevant under their respective statutory provisions. Each agency is to 
exercise its judgment and balance many similar factors, such as the 
availability of technologies, the appropriate lead time for 
introduction of technology, and based on this, the feasibility and 
practicability of their standards; and the impacts of their standards 
on the following: Emissions reductions (of both GHGs and non-GHGs); oil 
conservation; fuel savings by consumers; the auto industry; as well as 
other relevant factors such as safety. Conceptually, each agency is 
considering and balancing many of the same factors, and each agency is 
making a decision that at its core is answering the same basic question 
of what kind and degree of technology penetration is appropriate and 
required in light of all of the relevant factors. Each Administrator is 
called upon to exercise judgment and propose standards that the 
Administrator determines are a reasonable balance of these relevant 
factors.
    As set out in detail in Sections III and IV of this notice, both 
EPA and NHTSA believe the agencies' proposals are fully justified under 
their respective statutory criteria. The proposed standards can be 
achieved within the lead time provided, based on a projected increased 
use of various technologies which in most cases are already in 
commercial application in the fleet to varying degrees. Detailed 
modeling of the technologies that could be employed by each 
manufacturer supports this initial conclusion. The agencies also 
carefully assessed the costs of the proposed rules, both for the 
industry as a whole and per manufacturer, as well as the costs per 
vehicle, and consider these costs to be reasonable and recoverable 
(from fuel savings). The agencies recognize the significant increase in 
the application of technology that the proposed standards would require 
across a high percentage of vehicles, which will require the 
manufacturers to devote considerable engineering and development 
resources before 2012 laying the critical foundation for the widespread 
deployment of upgraded technology across a high percentage of the 2012-
2016 fleet. This clearly will be challenging for automotive 
manufacturers and their suppliers, especially in the current economic 
climate. However, based on all of the analyses performed by the 
agencies, our judgment is that it is a challenge that can reasonably be 
met.
    The agencies also evaluated the impacts of these standards with 
respect to the expected reductions in GHGs and oil consumption and, 
found them to be very significant in magnitude. The agencies considered 
other factors such as the impacts on noise, energy, and vehicular 
congestion. The impact on safety was also given careful consideration. 
Moreover, the agencies quantified the various costs and benefits of the 
proposed standards, to the extent practicable. The agencies' analyses 
to date indicate that the overall quantified benefits of the proposed 
standards far outweigh the projected costs. All of these factors 
support the reasonableness of the proposed standards.
    The agencies also evaluated alternatives which were less and more 
stringent than those proposed. Less stringent standards, however, would 
forego important GHG emission reductions and fuel savings that are 
technically achievable at reasonable cost in the lead time provided. In 
addition, less stringent GHG standards would not result in a harmonized 
National Program for the country. Based on California's letter of May 
18, 2009, the GHG emission standards would not result in the State of 
California revising its regulations such that compliance with EPA's GHG 
standards would be deemed to be compliance with California's GHG 
standards for these model years. The substantial cost advantages 
associated with a single national program discussed at the outset of 
this section would then be foregone.
    The agencies are not proposing any of the more stringent 
alternatives analyzed largely due to concerns over lead time and 
economic practicability. The proposed standards already require 
aggressive application of technologies, and more stringent standards 
which would require more widespread use (including more substantial 
implementation of advanced technologies such as strong hybrids) raise 
serious issues of adequacy of lead time, not only to meet the standards 
but to coordinate such significant changes with manufacturers' redesign 
cycles. At a time when the entire industry remains in an economically 
critical state, the agencies believe that it would be

[[Page 49467]]

unreasonable to propose more stringent standards. Even in a case where 
economic factors were not a consideration, there are real-world time 
constraints which must be considered due to the short lead time 
available for the early years of this program, in particular for model 
years 2012 and 2013. The physical processes which the automotive 
industry must follow in order to introduce reliable, high quality 
products require certain minimums of time during the product 
development process. These include time needed for durability testing 
which requires significant mileage accumulation under a range of 
conditions (e.g., high and low temperatures, high altitude, etc.) in 
both real-world and laboratory conditions. In addition, the product 
development cycle includes a number of pre-production gateways on the 
manufacturing side at both the supplier level and at the automotive 
manufacturer level that are constrained by time. Thus adequate lead-
time is an important factor that the agencies have taken into 
consideration in evaluating the proposed standards as well as the 
alternative standards.
    As noted, both agencies also considered the overall costs of their 
respective proposed standards in relation to the projected benefits. 
The fact that the benefits are estimated to considerably exceed their 
costs supports the view that the proposed standards represent a 
reasonable balance of the relevant statutory factors. In drawing this 
conclusion, the agencies acknowledge the uncertainties and limitations 
of the analyses. For example, the analysis of the benefits is highly 
dependent on the estimated price of fuel projected out many years into 
the future. There is also significant uncertainty in the potential 
range of values that could be assigned to the social cost of carbon. 
There are a variety of impacts that the agencies are unable to 
quantify, such as non-market damages, extreme weather, socially 
contingent effects, or the potential for longer-term catastrophic 
events, or the impact on consumer choice. The agencies also note the 
need to consider factors such as the availability of technology within 
the lead time provided and many of the other factors discussed above. 
The cost-benefit analyses are one of the important things the agencies 
consider in making a judgment as to the appropriate standards to 
propose under their respective statutes. Consideration of the results 
of the cost-benefit analyses by the agencies, however, includes careful 
consideration of the limitations discussed above.
    One important area where the two agencies' authorities are similar 
but not identical involves the transfer of credits between a single 
firm's car and truck fleets. EISA revised EPCA to allow for such credit 
transfers, but with a cap on the amount of CAFE credits which can be 
transferred between the car and truck fleets. 49 U.S.C. 32903(g)(3). 
Under CAA section 202(a), EPA is proposing to allow CO2 credit 
transfers between a single manufacturer's car and truck fleets, with no 
corresponding limits on such transfers. In general, the EPCA limit on 
CAFE credit transfers is not expected to have the practical effect of 
limiting the amount of CO2 emission credits manufacturers may be able 
to transfer under the CAA program, recognizing that manufacturers must 
comply with both the proposed CAFE standards and the proposed EPA 
standards. However, it is possible that in some specific circumstances 
the EPCA limit on CAFE credit transfers could constrain the ability of 
a manufacturer to achieve cost savings through unlimited use of GHG 
emissions credit transfers under the CAA program.
    The agencies request comment on the impact of the EISA credit 
transfer caps on the implementation of the proposed CAFE and GHG 
standards, including whether it would impose such a constraint and the 
impacts of a constraint on costs, emissions, and fuel economy. In 
addition, the agencies invite comment on approaches that could assist 
in addressing this issue, recognizing the importance the agencies place 
on harmonization, and that would be consistent with their respective 
statutes. For example, any approach must be consistent with both the 
EISA transfer caps and the EPCA requirement to set annual CAFE 
standards at the maximum feasible average fuel economy level that NHTSA 
decides the manufacturers can achieve in that model year, based on the 
agency's consideration of the four statutory factors. Manufacturers 
should submit publicly available evidence supporting their position on 
this issue so that a well informed decision can be made and explained 
to the public.

D. Summary of the Proposed Standards for the National Program

1. Joint Analytical Approach
    NHTSA and EPA have worked closely together on nearly every aspect 
of this joint proposal. The extent and results of this collaboration is 
reflected in the elements of the respective NHTSA and EPA proposals, as 
well as the analytical work contained in the Joint Technical Support 
Document (Joint TSD). The Joint TSD, in particular, describes important 
details of the analytical work that are shared, as well as any 
differences in approach. These includes the build up of the baseline 
and reference fleets, the derivation of the shape of the curve that 
defines the standards, a detailed description of the costs and 
effectiveness of the technology choices that are available to vehicle 
manufacturers, a summary of the computer models used to estimate how 
technologies might be added to vehicles, and finally the economic 
inputs used to calculate the impacts and benefits of the rules, where 
practicable. Some of these are highlighted below.
    EPA and NHTSA have jointly developed attribute curve shapes that 
each agency is using for its proposed standards. Both agencies reviewed 
the shape of the attribute-based curve used for the model year 2011 
CAFE standards. After a new and thorough analysis of current vehicle 
data and the comments received from previous two CAFE rules, the two 
agencies improved upon the constrained logistic curve and developed a 
similarly shaped piece-wise linear function. Further details of these 
functions can be found in Sections III and IV of this preamble as well 
as Chapter 2 of the Joint TSD.
    A critical technical underpinning of each agency's proposal is the 
cost and effectiveness of the various control technologies. These are 
used to analyze the feasibility and cost of potential GHG and CAFE 
standards. The technical work reflected in the joint TSD is the 
culmination of over 3 years of literature research, consultation with 
experts, detailed computer simulations, vehicle tear-downs and 
engineering review, all of which will continue into the future as more 
data becomes available. To promote transparency, the vast majority of 
this information is collected from publically available sources, and 
can be found in the docket of this rule. Non-public (i.e., confidential 
manufacturer) information was used only to the limited extent it was 
needed to fill a data void. A detailed description of all of the 
technology information considered can be found in Chapter 3 of the 
Joint TSD (and for A/C, Chapter 2 of the EPA RIA).
    This detailed technology data forms the inputs to computer models 
that each agency uses to project how vehicle manufacturers may add 
those technologies in order to comply with new standards. These are the 
OMEGA and Volpe models for EPA and NHTSA respectively. The Volpe model 
is

[[Page 49468]]

tailored for NHTSA's EPCA and EISA needs, while the OMEGA model is 
tailored for EPA's CAA needs. In developing the National Program, EPA 
and NHTSA have worked closely to ensure that consistent and reasonable 
results are achieved from both models. This fruitful collaboration has 
resulted in the improvement of both approaches and now, far from being 
redundant, these models serve the purposes of the respective agencies 
while also maintaining an important validating role. The models and 
their inputs can also be found in the docket. Further description of 
the model and outputs can be found in Sections II and IV of this 
preamble, and Chapter 3 of the Joint TSD.
    This comprehensive joint analytical approach has provided a sound 
and consistent technical basis for each agency in developing its 
proposed standards, which are summarized in the sections below.
2. Level of the Standards
    In this notice, EPA and NHTSA are proposing two separate sets of 
standards, each under its respective statutory authorities. EPA is 
proposing national CO2 emissions standards for light-duty 
vehicles under section 202 (a) of the Clean Air Act. These standards 
would require these vehicles to meet an estimated combined average 
emissions level of 250 grams/mile of CO2 in model year 2016. 
NHTSA is proposing CAFE standards for passenger cars and light trucks 
under 49 U.S.C. 32902. These standards would require them to meet an 
estimated combined average fuel economy level of 34.1 mpg in model year 
2016. The proposed standards for both agencies begin with the 2012 
model year, with standards increasing in stringency through model year 
2016. They represent a harmonized approach that will allow industry to 
build a single national fleet that will satisfy both the GHG 
requirements under the CAA and CAFE requirements under EPCA/EISA.
    Given differences in their respective statutory authorities, 
however, the agencies' proposed standards include some important 
differences. Under the CO2 fleet average standard proposed 
under CAA section 202(a), EPA expects manufacturers to take advantage 
of the option to generate CO2-equivalent credits by reducing 
emissions of hydrofluorocarbons (HFCs) and CO2 through 
improvements in their air conditioner systems. EPA accounted for these 
reductions in developing its proposed CO2 standard. EPCA 
does not allow vehicle manufacturers to use air conditioning credits in 
complying with CAFE standards for passenger cars.\41\ CO2 
emissions due to air conditioning operation are not measured by the 
test procedure mandated by statute for use in establishing and 
enforcing CAFE standards for passenger cars. As a result, improvements 
in the efficiency of passenger car air conditioners would not be 
considered as a possible control technology for purposes of CAFE.
---------------------------------------------------------------------------

    \41\ There is no such statutory limitation with respect to light 
trucks.
---------------------------------------------------------------------------

    These differences regarding the treatment of air conditioning 
improvements (related to CO2 and HFC reductions) affect the 
relative stringency of the EPA standard and NHTSA standard. The 250 
grams per mile of CO2 equivalent emissions limit is 
equivalent to 35.5 mpg \42\ if the automotive industry were to meet 
this CO2 level all through fuel economy improvements. As a 
consequence of the prohibition against NHTSA's allowing credits for air 
conditioning improvements for purposes of passenger car CAFE 
compliance, NHTSA is proposing fuel economy standards that are 
estimated to require a combined (passenger car and light truck) average 
fuel economy level of 34.1 mpg by MY 2016.
---------------------------------------------------------------------------

    \42\ The agencies are using a common conversion factor between 
fuel economy in units of miles per gallon and CO2 
emissions in units of grams per mile. This conversion factor is 
8,887 grams CO2 per gallon gasoline fuel. Diesel fuel has 
a conversion factor of 10,180 grams CO2 per gallon diesel 
fuel though for the purposes of this calculation, we are assuming 
100% gasoline fuel.
---------------------------------------------------------------------------

    NHTSA and EPA's proposed standards, like the standards NHTSA 
promulgated in March 2009 for model year 2011 (MY 2011), are expressed 
as mathematical functions depending on vehicle footprint. Footprint is 
one measure of vehicle size, and is determined by multiplying the 
vehicle's wheelbase by the vehicle's average track width.\43\ The 
standards that must be met by the fleet of each manufacturer would be 
determined by computing the sales-weighted harmonic average of the 
targets applicable to each of the manufacturer's passenger cars and 
light trucks. Under these proposed footprint-based standards, the 
levels required of individual manufacturers depend, as noted above, on 
the mix of vehicles sold. NHTSA and EPA's respective proposed standards 
are shown in the tables below. It is important to note that the 
standards are the attribute-based curves proposed by each agency. The 
values in the tables below reflect the agencies' projection of the 
corresponding fleet levels that would result from these attribute-based 
curves.
---------------------------------------------------------------------------

    \43\ See 49 CFR 523.2 for the exact definition of ``footprint.''
---------------------------------------------------------------------------

    As shown in Table I.D.2-1, NHTSA's proposed fleet-wide CAFE-
required levels for passenger cars under the proposed standards are 
projected to increase from 33.6 to 38.0 mpg between MY 2012 and MY 
2016. Similarly, fleet-wide CAFE levels for light trucks are projected 
to increase from 25.0 to 28.3 mpg. These numbers do not include the 
effects of other flexibilities and credits in the program. NHTSA has 
also estimated the average fleet-wide required levels for the combined 
car and truck fleets. As shown, the overall fleet average CAFE level is 
expected to be 34.1 mpg in MY 2016. These standards represent a 4.3 
percent average annual rate of increase relative to the MY 2011 
standards.\44\
---------------------------------------------------------------------------

    \44\ Because required CAFE levels depend on the mix of vehicles 
sold by manufacturers in a model year, NHTSA's estimate of future 
required CAFE levels depends on its estimate of the mix of vehicles 
that will be sold in that model year. NHTSA currently estimates that 
the MY 2011 standards will require average fuel economy levels of 
30.5 mpg for passenger cars, 24.2 mpg for light trucks, and 27.6 mpg 
for the combined fleet.

                Table I.D.2-1--Average Required Fuel Economy (mpg) Under Proposed CAFE Standards
----------------------------------------------------------------------------------------------------------------
                                                2011-base     2012       2013       2014       2015       2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars................................       30.2       33.6       34.4       35.2       36.4       38.0
Light Trucks..................................       24.1       25.0       25.6       26.2       27.1       28.3
Combined Cars & Trucks........................       27.3       29.8       30.6       31.4       32.6       34.1
----------------------------------------------------------------------------------------------------------------


[[Page 49469]]

    Accounting for the expectation that some manufacturers would 
continue to pay civil penalties rather than achieving required CAFE 
levels, and the ability to use FFV credits, NHTSA estimates that the 
proposed CAFE standards would lead to the following average achieved 
fuel economy levels, based on the projections of what each 
manufacturer's fleet will comprise in each year of the program: \45\
---------------------------------------------------------------------------

    \45\ NHTSA's estimates account for availability of CAFE credits 
for the sale of flexibly-fuel vehicles (FFVs), and for the potential 
that some manufacturers would pay civil penalties rather than 
complying with the proposed CAFE standards. This yields NHTSA's 
estimates of the real-world fuel economy that could be achieved 
under the proposed CAFE standards. NHTSA has not included any 
potential impact of car-truck credit transfer in its estimate of the 
achieved CAFE levels.

Table I.D.2-2--Projected Fleet-Wide Achieved CAFE Levels Under the Proposed Footprint-Based CAFE Standards (mpg)
----------------------------------------------------------------------------------------------------------------
                                                                       2012     2013     2014     2015     2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.....................................................     32.5     33.4     34.3     35.3     36.5
Light Trucks.......................................................     24.1     24.6     25.3     26.3     27.0
Combined Cars & Trucks.............................................     28.7     29.6     30.4     31.6     32.7
----------------------------------------------------------------------------------------------------------------

    NHTSA is also required by EISA to set a minimum fuel economy 
standard for domestically manufactured passenger cars in addition to 
the attribute-based passenger car standard. The minimum standard 
``shall be the greater of (A) 27.5 miles per gallon; or (B) 92 percent 
of the average fuel economy projected by the Secretary for the combined 
domestic and non-domestic passenger automobile fleets manufactured for 
sale in the United States by all manufacturers in the model year * * 
*.'' \46\
---------------------------------------------------------------------------

    \46\ 49 U.S.C. 32902(b)(4).
---------------------------------------------------------------------------

    Based on NHTSA's current market forecast, the agency's estimates of 
these minimum standards under the proposed MY 2012-2016 CAFE standards 
(and, for comparison, the final MY 2011 standard) are summarized below 
in Table I.D.2-3.\47\ For eventual compliance calculations, the final 
calculated minimum standards will be updated to reflect any changes in 
the average fuel economy level required under the final standards.
---------------------------------------------------------------------------

    \47\ In the March 2009 final rule establishing MY 2011 standards 
for passenger cars and light trucks, NHTSA estimated that the 
minimum required CAFE standard for domestically manufactured 
passenger cars would be 27.8 mpg under the MY 2011 passenger car 
standard. Based on the agency's current forecast of the MY 2011 
passenger car market, NHTSA now estimates that the minimum required 
CAFE standard will be 28.0 mpg in MY 2011.

 Table I.D.2-3--Estimated Minimum Standard for Domestically Manufactured Passenger Cars Under Final MY 2011 and
                          Proposed MY 2012-2016 CAFE Standards for Passenger Cars (mpg)
----------------------------------------------------------------------------------------------------------------
                                2011                                   2012     2013     2014     2015     2016
----------------------------------------------------------------------------------------------------------------
28.0...............................................................     30.9     31.6     32.4     33.5     34.9
----------------------------------------------------------------------------------------------------------------

    EPA is proposing GHG emissions standards, and Table I.D.2-4 
provides EPA's estimates of their projected overall fleet-wide 
CO2 equivalent emission levels.\48\ The g/mi values are 
CO2 equivalent values because they include the projected use 
of A/C credits by manufacturers.
---------------------------------------------------------------------------

    \48\ These levels do not include the effect of flexible fuel 
credits, transfer of credits between cars and trucks, temporary lead 
time allowance, or any other credits with the exception of air 
conditioning.

Table I.D.2-4--Projected Fleet-Wide Emissions Compliance Levels Under the Proposed Footprint-Based CO2 Standards
                                                     (g/mi)
----------------------------------------------------------------------------------------------------------------
                                                                       2012     2013     2014     2015     2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.....................................................      261      253      246      235      224
Light Trucks.......................................................      352      341      332      317      302
Combined Cars & Trucks.............................................      295      286      276      263      250
----------------------------------------------------------------------------------------------------------------

    As shown in Table I.D.2-4, projected fleet-wide CO2 
emission level requirements for cars under the proposed approach are 
projected to increase in stringency from 261 to 224 grams per mile 
between MY 2012 and MY 2016. Similarly, fleet-wide CO2 
equivalent emission level requirements for trucks are projected to 
increase in stringency from 352 to 302 grams per mile. As shown, the 
overall fleet average CO2 level requirements are projected 
to be 250 g/mile in 2016.
    EPA anticipates that manufacturers will take advantage of program 
flexibilities such as flex fueled vehicle credits, and car/truck credit 
trading. Due to the credit trading between cars and trucks, the 
estimated improvements in CO2 emissions are distributed 
differently than shown in Table I.D 2-4, where full manufacturer 
compliance is assumed. Table I.D.2-5 shows EPA projection of the 
achieved emission levels of the fleet for MY 2012 through 2016, which 
does consider the impact of car/truck credit transfer and the increase 
in emissions due to program flexibilities including flex fueled vehicle 
credits and the temporary leadtime allowance alternative standards. The 
use of optional air conditioning credits is considered both in this 
analysis of achieved levels and of the projected levels described 
above.. As can be seen in Table I.D.2-5, the projected achieved levels 
are slightly higher for model years 2012-2015 due to the projected use 
of the proposed flexibilities, but in model

[[Page 49470]]

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

Table I.D.2-5--Projected Fleet-Wide Achieved Emission Levels Under the Proposed Footprint-Based CO2 Standards (g/
                                                       mi)
----------------------------------------------------------------------------------------------------------------
                                                                       2012     2013     2014     2015     2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.....................................................      264      254      245      232      220
Light Trucks.......................................................      365      355      346      332      311
Combined Cars & Trucks.............................................      302      291      281      267      250
----------------------------------------------------------------------------------------------------------------

    NHTSA's and EPA's technology assessment indicates there is a wide 
range of technologies available for manufacturers to consider in 
upgrading vehicles to reduce GHG emissions and improve fuel 
economy.\49\ As noted, these include improvements to the engines such 
as use of gasoline direct injection and downsized engines that use 
turbochargers to provide performance similar to that of larger engines, 
the use of advanced transmissions, increased use of start-stop 
technology, improvements in tire performance, reductions in vehicle 
weight, increased use of hybrid and other advanced technologies, and 
the initial commercialization of electric vehicles and plug-in hybrids. 
EPA is also projecting improvements in vehicle air conditioners 
including more efficient as well as low leak systems. All of these 
technologies are already available today, and EPA's and NHTSA's 
assessment is that manufacturers would be able to meet the proposed 
standards through more widespread use of these technologies across the 
fleet.
---------------------------------------------------------------------------

    \49\ The close relationship between emissions of 
CO2--the most prevalent greenhouse gas emitted by motor 
vehicles--and fuel consumption, means that the technologies to 
control CO2 emissions and to improve fuel economy overlap 
to a great degree
---------------------------------------------------------------------------

    With respect to the practicability of the standards in terms of 
lead time, during MYs 2012-2016 manufacturers are expected to go 
through the normal automotive business cycle of redesigning and 
upgrading their light-duty vehicle products, and in some cases 
introducing entirely new vehicles not on the market today. This 
proposal would allow manufacturers the time needed to incorporate 
technology to achieve GHG reductions and improve fuel economy during 
the vehicle redesign process. This is an important aspect of the 
proposal, as it avoids the much higher costs that would occur if 
manufacturers needed to add or change technology at times other than 
their scheduled redesigns. This time period would also provide 
manufacturers the opportunity to plan for compliance using a multi-year 
time frame, again consistent with normal business practice. Over these 
five model years, there would be an opportunity for manufacturers to 
evaluate almost every one of their vehicle model platforms and add 
technology in a cost effective way to control GHG emissions and improve 
fuel economy. This includes redesign of the air conditioner systems in 
ways that will further reduce GHG emissions.
    Both agencies considered other standards as part of the rulemaking 
analyses, both more and less stringent than those proposed. EPA's and 
NHTSA's analysis of alternative standards are contained in Sections III 
and IV of this notice, respectively.
    The CAFE and GHG standards described above are based on determining 
emissions and fuel economy using the city and highway test procedures 
that are currently used in the CAFE program. Both agencies recognize 
that these test procedures are not fully representative of real world 
driving conditions. For example EPA has adopted more representative 
test procedures that are used in determining compliance with emissions 
standards for pollutants other than GHGs. These test procedures are 
also used in EPA's fuel economy labeling program. However, as discussed 
in Section III, the current information on effectiveness of the 
individual emissions control technologies is based on performance over 
the two CAFE test procedures. For that reason EPA is proposing to use 
the current CAFE test procedures for the proposed CO2 
standards and is not proposing to change those test procedures in this 
rulemaking. NHTSA, as discussed above, is limited by statute in what 
test procedures can be used for purposes of passenger car testing; 
however there is no such statutory limitation with respect to test 
procedures for trucks. However, the same reasons for not changing the 
truck test procedures apply for CAFE as well.
    Both EPA and NHTSA are interested in developing programs that 
employ test procedures that are more representative of real world 
driving conditions, to the extent authorized under their respective 
statutes. This is an important issue, and the agencies intend to 
address it in the context of a future rulemaking to address standards 
for model year 2017 and thereafter. This could include a range of test 
procedure changes to better represent real-world driving conditions in 
terms of speed, acceleration, deceleration, ambient temperatures, use 
of air conditioners, and the like. With respect to air conditioner 
operation, EPA discusses the procedures it intends to use for 
determining emissions credits for controls on air conditioners in 
Section III. Comment is also invited in Section IV on the issue of 
providing air conditioner credits under 49 U.S.C. 32902 and/or 32904 
for light-trucks in the model years covered by this proposal.
    Finally, based on the information EPA developed in its recent 
rulemaking that updated its fuel economy labeling program to better 
reflect average real-world fuel economy, the calculation of fuel 
savings and CO2 emissions reductions obtained by the 
proposed CAFE and GHG standards includes adjustments to account for the 
difference between the fuel economy level measured in the CAFE test 
procedure and the fuel economy actually achieved on average under real 
world driving conditions. These adjustments are industry averages for 
the vehicles' performance as a whole, however, and are not a substitute 
for the information on effectiveness of individual control technologies 
that will be explored for purposes of a future GHG and CAFE rulemaking.
3. Form of the Standards
    In this rule, NHTSA and EPA are proposing attribute-based standards 
for passenger cars and light trucks. NHTSA adopted an attribute 
standard based on vehicle footprint in its Reformed CAFE program for 
light trucks for model years 2008-2011,\50\ and recently extended this 
approach to passenger cars in the CAFE rule for MY 2011 as required by 
EISA.\51\ EPA and NHTSA are proposing vehicle footprint as the 
attribute for the GHG

[[Page 49471]]

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

    \50\ 71 FR 17566 (Apr. 6, 2006).
    \51\ 74 FR 14196 (Mar. 30, 2009).
---------------------------------------------------------------------------

    Under the proposed footprint-based standards, each manufacturer 
would have a GHG and CAFE target unique to its fleet, depending on the 
footprints of the vehicle models produced by that manufacturer. A 
manufacturer would have separate footprint-based standards for cars and 
for trucks. Generally, larger vehicles (i.e., vehicles with larger 
footprints) would be subject to less stringent standards (i.e., higher 
CO2 grams/mile standards and lower CAFE standards) than 
smaller vehicles. This is because, generally speaking, smaller vehicles 
are more capable of achieving higher standards than larger vehicles. 
While a manufacturer's fleet average standard could be estimated 
throughout the model year based on projected production volume of its 
vehicle fleet, the standard to which the manufacturer must comply would 
be based on its final model year production figures. A manufacturer's 
calculation of fleet average emissions at the end of the model year 
would thus be based on the production-weighted average emissions of 
each model in its fleet.
    In designing the footprint-based standards, the agencies built upon 
the footprint standard curves for passenger cars and light trucks used 
in the CAFE rule for MY 2011.\52\ EPA and NHTSA worked together to 
design car and truck footprint curves that followed from logistic 
curves used in that rule. The agencies started by addressing two main 
concerns regarding the car curve. The first concern was that the 2011 
car curve was relatively steep near the inflection point thus causing 
concern that small variations in footprint could produce relatively 
large changes in fuel economy targets. A curve that was directionally 
less steep would reduce the potential for gaming. The second issue was 
that the inflection point of the logistic curve was not centered on the 
distribution of vehicle footprints across the industries' fleet, thus 
resulting in a flat (universal or unreformed) standard for over half 
the fleet. The proposed car curve has been shifted and made less steep 
compared to the car curve adopted by NHTSA for 2011, such that it 
better aligns the sloped region with higher production volume vehicle 
models. Finally, both the car and truck curves are defined in terms of 
a constrained linear function for fuel consumption and, equivalently, a 
piece-wise linear function for CO2. NHTSA and EPA include a 
full discussion of the development of these curves in the joint TSD and 
a summary is found in Section II below. In addition, a full discussion 
of the equations and coefficients that define the curves is included in 
Section III for the CO2 curves and Section IV for the mpg 
curves. The following figures illustrate the standards. First Figure 
I.D.3-1 shows the fuel economy (mpg) car standard curve.
---------------------------------------------------------------------------

    \52\ 74 FR 14407-14409 (Mar. 30, 2009).
---------------------------------------------------------------------------

    Under an attribute-based standard, every vehicle model has a 
performance target (fuel economy for the CAFE standards, and 
CO2 g/mile for the GHG emissions standards), the level of 
which depends on the vehicle's attribute (for this proposal, 
footprint). The manufacturers' fleet average performance is determined 
by the production-weighed \53\ average (for CAFE, harmonic average) of 
those targets. NHTSA and EPA are proposing CAFE and CO2 
emissions standards defined by constrained linear functions and, 
equivalently, piecewise linear functions.\54\ As a possible option for 
future rulemakings, the constrained linear form was introduced by NHTSA 
in the 2007 NPRM proposing CAFE standards for MY 2011-2015.
---------------------------------------------------------------------------

    \53\ Production for sale in the United States.
    \54\ The equations are equivalent but are specified differently 
due to differences in the agencies' respective models.
---------------------------------------------------------------------------

    NHTSA is proposing the attribute curves below for assigning a fuel 
economy level to an individual vehicle's footprint value, for model 
years 2012 through 2016. These mpg values would be production weighted 
to determine each manufacturer's fleet average standard for cars and 
trucks. Although the general model of the equation is the same for each 
vehicle category and each year, the parameters of the equation differ 
for cars and trucks. Each parameter also changes on an annual basis, 
resulting in the yearly increases in stringency. Figure I.D.3-1 below 
illustrates the passenger car CAFE standard curves for model years 2012 
through 2016 while Figure I.D.3-2 below illustrates the light truck 
standard curves for model years 2012-2016. The MY 2011 final standards 
for cars and trucks, which are specified by a constrained logistic 
function rather than a constrained linear function, are shown for 
comparison.
BILLING CODE 4910-59-P

[[Page 49472]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.000


[[Page 49473]]


[GRAPHIC] [TIFF OMITTED] TP28SE09.001

    EPA is proposing the attribute curves below for assigning a 
CO2 level to an individual vehicle's footprint value, for 
model years 2012 through 2016. These CO2 values would be 
production weighted to determine each manufacturer's fleet average 
standard for cars and trucks. Although the general model of the 
equation is the same for each vehicle category and each year, the 
parameters of the equation differ for cars and trucks. Each parameter 
also changes on an annual basis, resulting in the yearly increases in 
stringency. Figure I.D.3-3 below illustrates the CO2 car 
standard curves for model years 2012 through 2016 while Figure I.D.3-4 
shows the CO2 truck standard curves for Model Years 2012-
2016.

[[Page 49474]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.002


[[Page 49475]]


[GRAPHIC] [TIFF OMITTED] TP28SE09.003

BILLING CODE 4910-59-C
    NHTSA and EPA propose to use the same vehicle category definitions 
for determining which vehicles are subject to the car footprint curves 
versus the truck curve standards. In other words, a vehicle classified 
as a car under the NHTSA CAFE program would also be classified as a car 
under the EPA GHG program, and likewise for trucks. EPA and NHTSA are 
proposing to employ the same car and truck definitions for the MY 2012-
2016 CAFE and GHG standards as those used in the CAFE program for the 
2011 model year standards.\55\ This proposed approach of using CAFE 
definitions allows EPA's

[[Page 49476]]

proposed CO2 standards and the proposed CAFE standards to be 
harmonized across all vehicles. EPA is not changing the car/truck 
definition for the purposes of any other previous rule.
---------------------------------------------------------------------------

    \55\ 49 CFR part 523.
---------------------------------------------------------------------------

    Generally speaking, a smaller footprint vehicle will have lower 
CO2 emissions relative to a larger footprint vehicle. A 
footprint-based CO2 standard can be relatively neutral with 
respect to vehicle size and consumer choice. All vehicles, whether 
smaller or larger, must make improvements to reduce CO2 
emissions, and therefore all vehicles will be relatively more 
expensive. With the footprint-based standard approach, EPA and NHTSA 
believe there should be no significant effect on the relative 
distribution of different vehicle sizes in the fleet, which means that 
consumers will still be able to purchase the size of vehicle that meets 
their needs. Table I.D.3-1 illustrates the fact that different vehicle 
sizes will have varying CO2 emissions and fuel economy 
targets under the proposed standards.

          Table I.D.3-1--Model Year 2016 CO2 and Fuel Economy Targets for Various MY 2008 Vehicle Types
----------------------------------------------------------------------------------------------------------------
                                                                   Example model
             Vehicle type                    Example models       footprint (sq.   CO2 emissions   Fuel economy
                                                                       ft.)       target  (g/mi)   target  (mpg)
----------------------------------------------------------------------------------------------------------------
                                             Example Passenger Cars
----------------------------------------------------------------------------------------------------------------
Compact car...........................  Honda Fit...............              40             214            41.4
Midsize car...........................  Ford Fusion.............              46             237            37.3
Fullsize car..........................  Chrysler 300............              53             270            32.8
----------------------------------------------------------------------------------------------------------------
                                            Example Light-Duty Trucks
----------------------------------------------------------------------------------------------------------------
Small SUV.............................  4WD Ford Escape.........              44             269            32.8
Midsize crossover.....................  Nissan Murano...........              49             289            30.6
Minivan...............................  Toyota Sienna...........              55             313            28.2
Large pickup truck....................  Chevy Silverado.........              67             358            24.7
----------------------------------------------------------------------------------------------------------------

E. Summary of Costs and Benefits for the Joint Proposal

    This section summarizes the projected costs and benefits of the 
proposed CAFE and GHG emissions standards. These projections helped 
inform the agencies' choices among the alternatives considered and 
provide further confirmation that proposed standards fall within the 
spectrum of choices allowable under their respective statutory 
criteria. The costs and benefits projected by NHTSA to result from 
NHTSA's proposed CAFE standards are presented first, followed by those 
from EPA's analysis of the proposed GHG emissions standards.
    The agencies recognize that there are uncertainties regarding the 
benefit and cost values presented in this proposal. Some benefits and 
costs are not quantified. The values of other benefits and costs could 
be too low or too high.
    For several reasons, the estimates for costs and benefits presented 
by NHTSA and EPA, while consistent, are not directly comparable, and 
thus should not be expected to be identical. Most important, NHTSA and 
EPA's proposed standards would require slightly different fuel 
efficiency improvements. EPA's proposed GHG standard is more stringent 
in part due to its assumptions about manufacturers' use of air 
conditioning credits, which result from reductions in air conditioning-
related emissions of HFCs and CO2. In addition, the proposed 
CAFE and GHG standards offer different program flexibilities, and the 
agencies' analyses differ in their accounting for these flexibilities 
(for example, FFVs etc.), primarily because NHTSA is statutorily 
prohibited from considering some flexibilities when establishing CAFE 
standards, while EPA is not. These differences contribute to 
differences in the agencies' respective estimates of costs and benefits 
resulting from the new standards.
    Because EPCA prohibits NHTSA from considering the use of FFV 
credits when establishing CAFE standards, the agency's primary analysis 
of costs, fuel savings, and related benefits from imposing higher CAFE 
standards does not include them. However, EPCA does not prohibit NHTSA 
from considering the fact that manufacturers may pay civil penalties 
rather than complying with CAFE standards, and NHTSA's primary analysis 
accounts for some manufacturers' tendency to do so. In addition, NHTSA 
performed a supplemental analysis of the effect of FFV credits on 
benefits and costs from its proposed CAFE standards, to demonstrate the 
real-world impacts of FFVs, and the summary estimates presented in 
Section IV include these effects. Including the use of FFV credits 
reduces estimated per-vehicle compliance costs of the program. However, 
as shown below, including FFV credits does not significantly change the 
projected fuel savings and CO2 reductions, because FFV 
credits reduce the fuel economy levels that manufacturers achieve not 
only under the proposed standards, but also under the baseline MY 2011 
CAFE standards.
    Also, EPCA, as amended by EISA, allows manufacturers to transfer 
credits between their passenger car and light truck fleets. However, 
EPCA also prohibits NHTSA from considering manufacturers' ability to 
use CAFE credits when determining the stringency of the CAFE standards. 
Because of this prohibition, NHTSA's primary analysis does not account 
for the extent to which credit transfers might actually occur. For 
purposes of its supplemental analysis, NHTSA considered accounting for 
the fact that EPCA allows some transfer of CAFE credits between the 
passenger car and light truck fleets, but determined that in NHTSA's 
year-by-year analysis, manufacturers' likely credit transfers cannot be 
reasonably estimated at this time.\56\
---------------------------------------------------------------------------

    \56\ NHTSA's analysis estimates multi-year planning effects 
within a context in which each model year is represented explicitly, 
and technologies applied in one model year carry forward to future 
model years. NHTSA does not currently have a basis to estimate how a 
manufacturer might, for example, weigh the transfer of credits from 
the passenger car to the light truck fleet in MY 2013 against the 
potential to carry light truck technologies forward from MY 2013 
through MY 2016. The agency is considering the possibility of 
implementing such analysis for purposes of the final rule.
---------------------------------------------------------------------------

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

[[Page 49477]]

    EPA made explicit assumptions about manufacturers' use of FFV 
credits under both the baseline and control alternatives, and its 
estimates of costs and benefits from the proposed GHG standards reflect 
these assumptions. However, under the proposed GHG standards, FFV 
credits would be available through MY 2015; starting in MY 2016, EPA 
proposes to allow FFV credits only based on a manfucturers's 
demonstration that the alternative fuel is actually being used in the 
vehicles and the actual GHG performance for the vehicle run on that 
alternative fuel.
    EPA's analysis also assumes that manufacturers would transfer 
credits between their car and truck fleets in the MY 2011 baseline 
subject to the maximum value allowed by EPCA, and that unlimited car-
truck credit transfers would occur under the proposed GHG standards. 
Including these assumptions in EPA's analysis increases the resulting 
estimates of fuel savings and reductions in GHG emissions, while 
reducing EPA's estimates of program compliance costs.
    Finally, under the proposed EPA GHG program, there is no ability 
for a manufacturer to intentionally pay fines in lieu of meeting the 
standard. Under EPCA, however, vehicle manufacturers are allowed to pay 
fines as an alternative to compliance with applicable CAFE standards. 
NHTSA's analysis explicitly estimates the level of voluntary fine 
payment by individual manufacturers, which reduces NHTSA's estimates of 
both the costs and benefits of its proposed CAFE standards. In 
contrast, the CAA does not allow for fine payment in lieu of compliance 
with emission standards, and EPA's analysis of costs and benefits from 
its proposed standard thus assumes full compliance. This assumption 
results in higher estimates of fuel savings, reductions in GHG 
emissions, and manufacturers' compliance costs to sell fleets that 
comply with both NHTSA's proposed CAFE program and EPA's proposed GHG 
program.
    In summary, the projected costs and benefits presented by NHTSA and 
EPA are not directly comparable, because the levels being proposed by 
EPA include air conditioning-related improvements in equivalent fuel 
efficiency and HFC reductions, because the assumptions incorporated in 
EPA's analysis regarding car-truck credit transfers, and because of the 
projection by EPA of complete compliance with the proposed GHG 
standards. It should also be expected that overall EPA's estimates of 
GHG reductions and fuel savings achieved by the proposed GHG standards 
will be slightly higher than those projected by NHTSA only for the CAFE 
standards because of the reasons described above. For the same reasons, 
EPA's estimates of manufacturers' costs for complying with the proposed 
passenger car and light trucks GHG standards are slightly higher than 
NHTSA's estimates for complying with the proposed CAFE standards.
1. Summary of Costs and Benefits of Proposed NHTSA CAFE Standards
    Without accounting for the compliance flexibilities that NHTSA is 
prohibited from considering when determining the level of new CAFE 
standards, since manufacturers' decisions to use those flexibilities 
are voluntary, NHTSA estimates that these fuel economy increases would 
lead to fuel savings totaling 62 billion gallons throughout the useful 
lives of vehicles sold in MYs 2012-2016. At a 3% discount rate, the 
present value of the economic benefits resulting from those fuel 
savings is $158 billion.
    The agency further estimates that these new CAFE standards would 
lead to corresponding reductions in CO2 emissions totaling 
656 million metric tons (mmt) during the useful lives of vehicles sold 
in MYs 2012-2016. The present value of the economic benefits from 
avoiding those emissions is $16.4 billion, based on a global social 
cost of carbon value of $20 per metric ton,\57\ although NHTSA 
estimated the benefits associated with five different values of a one 
ton GHG reduction ($5, $10, $20, $34, $56).\58\ See Section II for a 
more detailed discussion of the social cost of carbon. It is important 
to note that NHTSA's CAFE standards and EPA's GHG standards will both 
be in effect, and each will lead to increases in average fuel economy 
and CO2 emissions reductions. The two agencies' standards 
together comprise the National Program, and this discussion of costs 
and benefits of NHTSA's CAFE standards does not change the fact that 
both the CAFE and GHG standards, jointly, are the source of the 
benefits and costs of the National Program.
---------------------------------------------------------------------------

    \57\ We have developed two interim estimates of the global 
social cost of carbon (SCC) ($/tCO2 in 2007 (2006$)): $33 
per tCO2 at a 3% discount rate, and $5 per 
tCO2 with a 5% discount rate. The 3% and 5% estimates 
have independent appeal and at this time a clear preference for one 
over the other is not warranted. Thus, we have also included--and 
centered our current attention on--the average of the estimates 
associated with these discount rates, which is $19 (in 2006$) per 
ton of CO2 emissions. When converted to 2007$ for 
consistency with other economic values used in the agency's 
analysis, this figure corresponds to $20 per metric ton of 
CO2 emissions occurring in 2007. This value is assumed to 
increase at 3% annually for emissions occurring after 2007.
    \58\ The $10 and $56 figures are alternative interim estimates 
based on uncertainty about interest rates of long periods of time. 
They are based on an approach that models discount rate uncertainty 
as something that evolves over time; in contrast, the preferred 
approach mentioned in the immediately preceding paragraph assumes 
that there is a single discount rate with equal probability of 3% 
and 5%.

 Table I.E.1-1--NHTSA Fuel Saved (Billion Gallons) and CO2 Emissions Avoided (mmt) Under Proposed CAFE Standards
                                              (Without FFV Credits)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Fuel (b. gal.)............................................        4        9       13       16       19       62
CO2 (mmt).................................................       44       96      137      173      206      656
----------------------------------------------------------------------------------------------------------------

    Considering manufacturers' ability to earn credit toward compliance 
by selling FFVs, NHTSA estimates very little change in incremental fuel 
savings and avoided CO2 emissions, assuming FFV credits 
would be used toward both the baseline and proposed standards:

[[Page 49478]]



 Table I.E.1-2--NHTSA Fuel Saved (Billion Gallons) and CO2 Emissions Avoided (mmt) Under Proposed CAFE Standards
                                               (With FFV Credits)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Fuel (b. gal.)............................................        5        8       12       15       19       59
CO2 (mmt).................................................       49       90      129      167      204      639
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that these fuel economy increases would produce 
other benefits both to drivers (e.g., reduced time spent refueling) and 
to the U.S. (e.g., reductions in the costs of petroleum imports beyond 
the direct savings from reduced oil purchases, as well as some 
disbenefits (e.g., increase traffic congestion) caused by drivers' 
tendency to travel more when the cost of driving declines (as it does 
when fuel economy increases). NHTSA has estimated the total monetary 
value to society of these benefits and disbenefits, and estimates that 
the proposed standards will produce significant net benefits to 
society. Using a 3% discount rate, NHTSA estimates that the present 
value of these benefits would total more than $200 billion over the 
useful lives of vehicles sold during MYs 2012-2016. More discussion 
regarding monetized benefits can be found in Section IV of this notice 
and in NHTSA's Regulatory Impact Analysis.

 Table I.E.1-3--NHTSA Discounted Benefits ($Billion) Under Proposed CAFE Standards (Before FFV Credits, Using 3
                                             Percent Discount Rate)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars............................................      7.6     17.0     24.4     31.2     38.7    119.1
Light Trucks..............................................      5.5     11.6     17.3     22.2     26.0     82.6
Combined..................................................     13.1     28.7     41.8     53.4     64.7    201.7
----------------------------------------------------------------------------------------------------------------

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

    Table I.E.1-4--NHTSA Discounted Benefits ($Billion) Under Proposed Standards (Before FFV Credits, Using 7
                                             Percent Discount Rate)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars............................................      6.0     13.6     19.5     25.0     31.1     95.3
Light Trucks..............................................      4.3      9.1     13.5     17.4     20.4     64.6
Combined..................................................     10.3     22.6     33.1     42.4     51.5    159.8
----------------------------------------------------------------------------------------------------------------

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

 Table I.E.1-5a--NHTSA Discounted Benefits ($Billion) Under Proposed CAFE Standards (With FFV Credits, Using a 3
                                             Percent Discount Rate)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars............................................      7.8     15.9     22.5     28.6     37.1    111.9
Light Trucks..............................................      6.1     10.2     15.9     22.1     26.3     80.5
Combined..................................................     13.9     26.1     38.4     50.7     63.3    192.5
----------------------------------------------------------------------------------------------------------------


 Table I.E.1-5b--NHTSA Discounted Benefits ($Billion) Under Proposed CAFE Standards (With FFV Credits, Using a 7
                                             Percent Discount Rate)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars............................................      6.2     12.7     18.0     23.0     29.8     89.6
Light Trucks..............................................      4.7      7.9     12.4     17.3     20.6     63.0
Combined..................................................     10.9     20.6     20.4     40.3     50.4    152.5
----------------------------------------------------------------------------------------------------------------

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

[[Page 49479]]

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

Table I.E.1-6--Summary of Benefits Fuel Savings and CO2 Emissions Reduction Due to the Proposed Rule (Before FFV
                                                    Credits)
----------------------------------------------------------------------------------------------------------------
                                                                          Monetized value (discounted)
                                                Amount         -------------------------------------------------
                                                                    3% Discount rate         7% Discount rate
----------------------------------------------------------------------------------------------------------------
Fuel savings.........................  61.6 billion gallons...  $158.0 billion.........  $125.3 billion.
CO2 emissions reductions.............  656 million metric tons  $16.4 billion..........  $12.8 billion.
                                        (mmt).
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that the increases in technology application 
necessary to achieve the projected improvements in fuel economy will 
entail considerable monetary outlays. The agency estimates that 
incremental costs for achieving its proposed standards--that is, 
outlays by vehicle manufacturers over and above those required to 
comply with the MY 2011 CAFE standards--will total about $60 billion 
(i.e., during MYs 2012-2016).

    Table I.E.1-7--NHTSA Incremental Technology Outlays ($Billion) Under Proposed CAFE Standards (Before FFV
                                                    Credits)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars............................................      4.1      6.5      8.4      9.9     11.8     40.8
Light Trucks..............................................      1.5      2.8      4.0      5.2      5.9     19.4
Combined..................................................      5.7      9.3     12.5     15.1     17.6     60.2
----------------------------------------------------------------------------------------------------------------

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

 Table I.E.1-8--NHTSA Incremental Technology Outlays ($Billion) Under Proposed CAFE Standards (With FFV Credits)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars............................................      2.5      4.4      6.1      7.4      9.3     29.6
Light Trucks..............................................      1.3      2.0      3.1      4.3      5.0     15.6
Combined..................................................      3.7      6.3      9.2     11.7     14.2     45.2
----------------------------------------------------------------------------------------------------------------

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

    Table I.E.1-9--NHTSA Incremental Increases in Average New Vehicle Costs ($) Under Proposed CAFE Standards
                                              (Before FFV Credits)
----------------------------------------------------------------------------------------------------------------
                                                                       2012     2013     2014     2015     2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.....................................................      591      735      877      979    1,127
Light Trucks.......................................................      283      460      678      882    1,020
Combined...........................................................      476      635      806      945    1,091
----------------------------------------------------------------------------------------------------------------

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

Table I.E.1-10--NHTSA Incremental Increases in Average New Vehicle Costs ($) Under Proposed CAFE Standards (With
                                                  FFV Credits)
----------------------------------------------------------------------------------------------------------------
                                                                       2012     2013     2014     2015     2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.....................................................      295      448      591      695      851
Light Trucks.......................................................      231      347      533      758      895

[[Page 49480]]

 
Combined...........................................................      271      411      571      716      866
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates, therefore, that the total benefits of these 
proposed standards would be more than three times the magnitude of the 
corresponding costs. As a consequence, its proposed standards would 
produce net benefits of $142 billion at a 3 percent discount rate (with 
FFV credits, $147 billion) or $100 billion at a 7 percent discount rate 
over the useful lives of vehicles sold during MYs 2012-2016.
2. Summary of Costs and Benefits of Proposed EPA GHG Standards
    EPA has conducted a preliminary assessment of the costs and 
benefits of the proposed GHG standards. Table I.E.2-1 shows EPA's 
estimated lifetime fuel savings and CO2 equivalent emission 
reductions for all vehicles sold in the model years 2012-2016. The 
values in Table I.E.2-1 are projected lifetime totals for each model 
year and are not discounted. As documented in DRIA Chapter 5, the 
potential credit transfer between cars and trucks may change the 
distribution of the fuel savings and GHG emission impacts between cars 
and trucks. As discussed above with respect to NHTSA's CAFE standards, 
it is important to note that NHTSA's CAFE standards and EPA's GHG 
standards will both be in effect, and each will lead to increases in 
average fuel economy and CO2 emissions reductions. The two 
agency's standards together comprise the National Program, and this 
discussion of costs and benefits of EPA's GHG standards does not change 
the fact that both the CAFE and GHG standards, jointly, are the source 
of the benefits and costs of the National Program.

        Table I.E.2-1--EPA's Estimated 2012-2016 Model Year Lifetime Fuel Saved and GHG Emissions Avoided
----------------------------------------------------------------------------------------------------------------
                                                        2012      2013      2014      2015      2016      Total
----------------------------------------------------------------------------------------------------------------
Cars............................  Fuel (billion            4         6         8        11        14        43
                                   gallons).
                                  Fuel (billion            0.1       0.1       0.2       0.3       0.3       1.0
                                   barrels).
                                  CO2 EQ (mmt)......      51        74        98       137       179       539
Light Trucks....................  Fuel (billion            2         4         6         9        12        33
                                   gallons).
                                  Fuel (billion            0.1       0.1       0.1       0.2       0.3       0.8
                                   barrels).
                                  CO2 EQ (mmt)......      30        51        77       107       143       408
Combined........................  Fuel (billion            7        10        14        19        26        76
                                   gallons).
                                  Fuel (billion            0.2       0.2       0.3       0.5       0.6       1.8
                                   barrels).
                                  CO2 EQ (mmt)......      81       125       174       244       323       947
----------------------------------------------------------------------------------------------------------------

    Table I.E.2-2 shows EPA's estimated lifetime discounted benefits 
for all vehicles sold in model years 2012-2016. Although EPA estimated 
the benefits associated with five different values of a one ton GHG 
reduction ($5, $10, $20, $34, $56), for the purposes of this overview 
presentation of estimated benefits EPA is showing the benefits 
associated with one of these marginal values, $20 per ton of 
CO2, in 2007 dollars and 2007 emissions, in this joint 
proposal. Table I.E.2-2 presents benefits based on the $20 value. 
Section III.H presents the five marginal values used to estimate 
monetized benefits of GHG reductions and Section III.H presents the 
program benefits using each of the five marginal values, which 
represent only a partial accounting of total benefits due to omitted 
climate change impacts and other factors that are not readily 
monetized. These factors are being used on an interim basis while 
analysis is conducted to generate new estimates. The values in the 
table are discounted values for each model year throughout their 
projected lifetimes. The benefits include all benefits considered by 
EPA such as fuel savings, GHG reductions, PM benefits, energy security 
and other externalities such as reduced refueling and accidents, 
congestion and noise. The lifetime discounted benefits are shown for 
one of five different social cost of carbon (SCC) values considered by 
EPA. The values in Table I.E.2-2 do not include costs associated with 
new technology required to meet the proposal.

 Table I.E.2-2--EPA's Estimated 2012-2016 Model Year Lifetime Discounted Benefits Assuming the $20/Ton SCC Value
                                                       \a\
                                           [$Billions of 2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                 Model year
                       Discount rate                       -----------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
3%........................................................    $20.4    $31.7    $44.9    $63.7    $87.2     $248
7.........................................................     15.8     24.7     34.9     49.3     67.7      193
----------------------------------------------------------------------------------------------------------------
\a\ The benefits include all benefits considered by EPA such as fuel savings, GHG reductions, PM benefits,
  energy security and other externalities such as reduced refueling and accidents, congestion and noise.


[[Page 49481]]

    Table I.E.2-3 shows EPA's estimated lifetime fuel savings, lifetime 
CO2 emission reductions, and the monetized net present 
values of those fuel savings and CO2 emission reductions. 
The gallons of fuel and CO2 emission reductions are 
projected lifetime values for all vehicles sold in the model years 
2012-2016. The estimated fuel savings in billions of barrels and the 
GHG reductions in million metric tons of CO2 shown in Table 
I.E.2-3 are totals for the five model years throughout their projected 
lifetime and are not discounted. The monetized values shown in Table 
I.E.2-3 are the summed values of the discounted monetized-fuel savings 
and monetized-CO2 reductions for the five model years 2012-
2016 throughout their lifetimes. The monetized values in Table I.E.2-3 
reflect both a 3 percent and a 7 percent discount rate as noted.

    Table I.E.2-3--EPA's Estimated 2012-2016 Model Year Lifetime Fuel
Savings, CO2 Emission Reductions, and Discounted Monetized Benefits at a
                            3% Discount Rate
                   [Monetized values in 2007 dollars]
------------------------------------------------------------------------
                                        Amount        $ value (billions)
------------------------------------------------------------------------
Fuel savings....................  1.8 billion         $193, 3% discount
                                   barrels.            rate.
                                                      $151, 7% discount
                                                       rate.
CO2 emission reductions (valued   947 MMT CO2e......  $21.0, 3% discount
 assuming $20/ton CO2 in 2007).                        rate.
                                                      $15.0, 7% discount
                                                       rate.
------------------------------------------------------------------------

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

                          Table I.E.2-4--EPA's Estimated Incremental Technology Outlays
                                           [$Billions of 2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Cars......................................................     $3.5     $5.3     $7.0     $8.9    $10.7    $35.3
Trucks....................................................      2.0      3.1      4.0      5.1      6.8     20.9
Combined..................................................      5.4      8.4     10.9     13.9     17.5     56.1
----------------------------------------------------------------------------------------------------------------

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

                 Table I.E.2-5--EPA's Estimated Incremental Increase in Average New Vehicle Cost
                                             [2007 Dollars per unit]
----------------------------------------------------------------------------------------------------------------
                                                                       2012     2013     2014     2015     2016
----------------------------------------------------------------------------------------------------------------
Cars...............................................................     $374     $531     $663     $813     $968
Trucks.............................................................      358      539      682      886    1,213
Combined...........................................................      368      534      670      838    1,050
----------------------------------------------------------------------------------------------------------------

F. Program Flexibilities for Achieving Compliance

    EPA's and NHTSA's proposed programs provide compliance flexibility 
to manufacturers, especially in the early years of the National 
Program. This flexibility is expected to provide sufficient lead time 
for manufacturers to make necessary technological improvements and 
reduce the overall cost of the program, without compromising overall 
environmental and fuel economy objectives. The broad goal of 
harmonizing the two agencies' proposed standards includes preserving 
manufacturers' flexibilities in meeting the standards, to the extent 
appropriate and required by law. The following section provides an 
overview of the flexibility provisions the agencies are proposing.
1. CO2/CAFE Credits Generated Based on Fleet Average 
Performance
    Under the NHTSA and EPA proposal the fleet average standards that 
apply to a manufacturer's car and truck fleets would be based on the 
applicable footprint-based curves. At the end of each model year, when 
production of the model year is complete, a production-weighted fleet 
average would be calculated for each averaging set (cars and trucks). 
Under this approach, a manufacturer's car and/or truck fleet that 
achieves a fleet average CO2/CAFE level better than the 
standard would generate credits. Conversely, if the fleet average 
CO2/CAFE level does not meet the standard the fleet would 
generate debits (also referred to as a shortfall).
    Under the proposed program, a manufacturer whose fleet generates 
credits in a given model year would have several options for using 
those credits, including credit carry-back, credit carry-forward, 
credit transfers,

[[Page 49482]]

and credit trading. These provisions exist in the MY 2011 CAFE program 
under EPCA and EISA, and similar provisions are part of EPA's Tier 2 
program for light duty vehicle criteria pollutant emissions, as well as 
many other mobile source standards issued by EPA under the CAA. EPA is 
proposing that the manufacturer would be able to carry-back credits to 
offset any deficit that had accrued in a prior model year and was 
subsequently carried over to the current model year. EPCA already 
provides for this. EPCA restricts the carry-back of CAFE credits to 
three years and EPA is proposing the same limitation, in keeping with 
the goal of harmonizing both sets of proposed standards.
    After satisfying any need to offset pre-existing deficits, 
remaining credits could be saved (banked) for use in future years. 
Under the CAFE program, EISA allows manufacturers to apply credits 
earned in a model year to compliance in any of the five subsequent 
model years.\59\ EPA is also proposing, under the GHG program, to allow 
manufacturers to use these banked credits in the five years after the 
year in which they were generated (i.e., five years carry-forward).
---------------------------------------------------------------------------

    \59\ 49 U.S.C. 32903(a)(2).
---------------------------------------------------------------------------

    EISA required NHTSA to establish by regulation a CAFE credits 
transferring program, which NHTSA established in a March 2009 final 
rule codified at 49 CFR part 536, to allow a manufacturer to transfer 
credits between its vehicle fleets to achieve compliance with the 
standards. For example, credits earned by over-compliance with a 
manufacturer's car fleet average standard could be used to offset 
debits incurred due to that manufacturer's not meeting the truck fleet 
average standard in a given year. EPA's Tier 2 program also provides 
for this type of credit transfer. For purposes of this NPRM, EPA 
proposes unlimited credit transfers across a manufacturer's car-truck 
fleet to meet the GHG standard. This is based on the expectation that 
this kind of credit transfer provision will allow the required GHG 
emissions reductions to be achieved in the most cost effective way, and 
this flexibility will facilitate the ability of the manufacturers to 
comply with the GHG standards in the lead time provided. Under the CAA, 
unlike under EISA, there is no statutory limitation on car-truck credit 
transfers. Therefore EPA is not proposing to constrain car-truck credit 
transfers as doing so would increase costs with no corresponding 
environmental benefit. For the CAFE program, however, EISA limits the 
amount of credits that may be transferred, and also prohibits the use 
of transferred credits to meet the statutory minimum level for the 
domestic car fleet standard.\60\ These and other statutory limits would 
continue to apply to the determination of compliance with the CAFE 
standard.
---------------------------------------------------------------------------

    \60\ 49 U.S.C. 32903(g)(4).
---------------------------------------------------------------------------

    Finally, EISA also allowed NHTSA to establish by regulation a CAFE 
credit trading program, which NHTSA established in the March 2009 final 
rule at 40 CFR Part 536, to allow credits to be traded (sold) to other 
vehicle manufacturers. EPA is also proposing to allow credit trading in 
the GHG program. These sorts of exchanges are typically allowed under 
EPA's current mobile source emission credit programs, although 
manufacturers have seldom made such exchanges. Under the NHTSA CAFE 
program, EPCA also allows these types of credit trades, although, as 
with transferred credits, traded credits may not be used to meet the 
minimum domestic car standards specified by statute.\61\
---------------------------------------------------------------------------

    \61\ 49 U.S.C. 32903(f)(2).
---------------------------------------------------------------------------

2. Air Conditioning Credits
    Air conditioning (A/C) systems contribute to GHG emissions in two 
ways. Hydrofluorocarbon (HFC) refrigerants, which are powerful GHG 
pollutants, can leak from the A/C system. Operation of the A/C system 
also places an additional load on the engine, which results in 
additional CO2 tailpipe emissions. EPA is proposing an 
approach that allows manufacturers to generate credits by reducing GHG 
emissions related to A/C systems. Specifically, EPA is proposing a test 
procedure and method to calculate CO2 equivalent reductions 
for the full useful life on a grams/mile basis that can be used as 
credits in meeting the fleet average CO2 standards. EPA's 
analysis indicates this approach provides manufacturers with a highly 
cost-effective way to achieve a portion of GHG emissions reductions 
under the EPA program. EPA is estimating that manufacturers will on 
average take advantage of 11 g/mi GHG credit toward meeting the 250 g/
mi by 2016 (though some companies may have more). EPA is also proposing 
to allow manufacturers to earn early A/C credits starting in MY 2009 
through 2011, as discussed further in a later section.
    Comment is also sought on the approach of providing CAFE credits 
under 49 U.S.C. 32904(c) for light trucks equipped with relatively 
efficient air conditioners for MYs 2012-2016. The agencies invite 
comment on allowing a manufacturer to generate additional CAFE credits 
from the reduction of fuel consumption through the application of air 
conditioning efficiency improvement technologies to trucks. Currently, 
the CAFE program does not induce manufacturers to install more 
efficient air conditioners because the air conditioners are not turned 
on during fuel economy testing. The agencies note that if such credits 
were adopted, it may be necessary to reflect them in the setting of the 
CAFE standards for light trucks for the same model years and invite 
comment on that issue.
3. Flex-Fuel and Alternative Fuel Vehicle Credits
    EPCA authorizes an incentive under the CAFE program for production 
of dual-fueled or flexible-fuel vehicles (FFV) and dedicated 
alternative fuel vehicles. FFVs are vehicles that can run both on an 
alternative fuel and conventional fuel. Most FFVs are E-85 capable 
vehicles, which can run on either gasoline or a mixture of up to 85 
percent ethanol and 15 percent gasoline. Dedicated alternative fuel 
vehicles are vehicles that run exclusively on an alternative fuel. EPCA 
was amended by EISA to extend the period of availability of the FFV 
incentive, but to begin phasing it out by annually reducing the amount 
of FFV incentive that can be used toward compliance with the CAFE 
standards.\62\ EPCA does not premise the availability of the FFV 
credits on actual use of alternative fuel by an FFV vehicle. Under 
NHTSA's CAFE program, pursuant to EISA, after MY 2019, no FFV credits 
will be available for CAFE compliance.\63\ For dedicated alternative 
fuel vehicles, there are no limits or phase-out of the credits. 
Consistent with the statute, NHTSA will continue to allow the use of 
FFV credits for purposes of compliance with the proposed standards 
until the end of the phase-out period.
---------------------------------------------------------------------------

    \62\ EPCA provides a statutory incentive for production of FFVs 
by specifying that their fuel economy is determined using a special 
calculation procedure that results in those vehicles being assigned 
a higher fuel economy level than would otherwise occur. This is 
typically referred to as an FFV credit.
    \63\ Id.
---------------------------------------------------------------------------

    For the GHG program, EPA is proposing to allow FFV credits in line 
with EISA limits only during the period from MYs 2012 to 2015. After MY 
2015, EPA proposes to allow FFV credits only based on a manufacturer's 
demonstration that the alternative fuel is actually being used in the 
vehicles. EPA is seeking comments on how that demonstration could be 
made. EPA discusses this in more detail in Section III.C of the 
preamble.

[[Page 49483]]

4. Temporary Lead-Time Allowance Alternative Standards
    Manufacturers with limited product lines may be especially 
challenged in the early years of the proposed program. Manufacturers 
with narrow product offerings may not be able to take full advantage of 
averaging or other program flexibilities due to the limited scope of 
the types of vehicles they sell. For example, some smaller volume 
manufacturers focus on high performance vehicles with higher 
CO2 emissions, above the CO2 emissions target for 
that vehicle footprint, but do not have other types of vehicles in 
their production mix with which to average. Often, these manufacturers 
pay fines under the CAFE program rather than meeting the applicable 
CAFE standard. EPA believes that these technological circumstances may 
call for a more gradual phase-in of standards so that manufacturer 
resources can be focused on meeting the 2016 levels.
    EPA is proposing a temporary lead-time allowance for manufacturers 
who sell vehicles in the U.S. in MY 2009 whose vehicle sales in that 
model year are below 400,000 vehicles. EPA proposes that this allowance 
would be available only during the MY 2012-2015 phase-in years of the 
program. A manufacturer that satisfies the threshold criteria would be 
able to treat a limited number of vehicles as a separate averaging 
fleet, which would be subject to a less stringent GHG standard.\64\ 
Specifically, a standard of 125 percent of the vehicle's otherwise 
applicable foot-print target level would apply to up to 100,000 
vehicles total, spread over the four year period of MY 2012 through 
2015. Thus, the number of vehicles to which the flexibility could apply 
is limited. EPA also is proposing appropriate restrictions on credit 
use for these vehicles, as discussed further in Section III. By MY 
2016, these allowance vehicles must be averaged into the manufacturer's 
full fleet (i.e., they are no longer eligible for a different 
standard). EPA discusses this in more detail in Section III.B of the 
preamble.
---------------------------------------------------------------------------

    \64\ EPCA does not permit such an allowance. Consequently, 
manufacturers who may be able to take advantage of a lead-time 
allowance under the proposed GHG standards would be required to 
comply with the applicable CAFE standard or be subject to penalties 
for non-compliance.
---------------------------------------------------------------------------

5. Additional Credit Opportunities Under the CAA
    EPA is proposing additional opportunities for early credits in MYs 
2009-2011 through over-compliance with a baseline standard. The 
baseline standard would be set to be equivalent, on a national level, 
to the California standards. Potentially, credits could be generated by 
over-compliance with this baseline in one of two ways--over-compliance 
by the fleet of vehicles sold in California and the CAA section 177 
States (i.e., those States adopting the California program), or over-
compliance with the fleet of vehicles sold in the 50 States. EPA is 
also proposing early credits based on over-compliance with CAFE, but 
only for vehicles sold in States outside of California and the CAA 
section 177 States. Under the proposed early credit provisions, no 
early FFV credits would be allowed, except those achieved by over-
compliance with the California program based on California's provisions 
that manufacturers demonstrate actual use of the alternative fuel. 
EPA's proposed early credits options are designed to ensure that there 
would be no double counting of early credits. Consistent with this 
paragraph, NHTSA notes, however, that credits for overcompliance with 
CAFE standards during MYs 2009-2011 will still be available for 
manufacturers to use toward compliance in future model years, just as 
before.
    EPA is proposing additional credit opportunities to encourage the 
commercialization of advanced GHG/fuel economy control technologies, 
such as electric vehicles, plug-in hybrid electric vehicles, and fuel 
cell vehicles. These proposed advanced technology credits are in the 
form of a multiplier that would be applied to the number of vehicles 
sold, such that each eligible vehicle counts as more than one vehicle 
in the manufacturer's fleet average. EPA is also proposing to allow 
early advanced technology credits to be generated beginning in MYs 2009 
through 2011.
    EPA is also proposing an Option for manufacturers to generate 
credits for employing technologies that achieve GHG reductions that are 
not reflected on current test procedures. Examples of such ``off-
cycle'' technologies might include solar panels on hybrids, adaptive 
cruise control, and active aerodynamics, among other technologies. EPA 
is seeking comments on the best ways to quantify such credits to ensure 
any off-cycle credits applied for by a manufacturer are verifiable, 
reflect real-world reductions, based on repeatable test procedures, and 
are developed through a transparent process allowing appropriate 
opportunities for public comment.

G. Coordinated Compliance

    Previous NHTSA and EPA regulations and statutory provisions 
establish ample examples on which to develop an effective compliance 
program that achieves the energy and environmental benefits from CAFE 
and motor vehicle GHG standards. NHTSA and EPA are proposing 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 CAFE standards. The certification, testing, 
reporting, and associated compliance activities closely track current 
practices 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 
proposed coordinated approach, the compliance mechanisms for both 
programs are consistent and non-duplicative. EPA will also apply the 
CAA authorities applicable to its separate in-use requirements in this 
program.
    The proposed approach allows manufacturers to satisfy the new 
program requirements in the same general way they comply with existing 
applicable CAA and CAFE requirements. Manufacturers would 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 proposed compliance 
program design establishes 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.
    NHTSA and EPA do not anticipate any significant noncompliance under 
the proposed program. However, failure to meet the fleet average 
standards (after credit opportunities are exhausted) would ultimately 
result in the potential for penalties under both EPCA and the CAA. The 
CAA allows EPA considerable discretion in assessment of penalties. 
Penalties under the CAA are typically determined on a vehicle-specific 
basis by determining the number of a manufacturer's highest emitting 
vehicles that caused the fleet average standard violation. This is the 
same mechanism used for EPA's National Low Emission Vehicle and Tier 2 
corporate average standards, and to date there have been no instances 
of noncompliance. CAFE penalties are specified by EPCA and would be 
assessed for the entire noncomplying fleet at a rate of $5.50 times the 
number of vehicles in the fleet, times the number of tenths of mpg by 
which the fleet average falls below the standard. In

[[Page 49484]]

the event of a compliance action arising out of the same facts and 
circumstances, EPA could consider CAFE penalties when determining 
appropriate remedies for the EPA case.

H. Conclusion

    This joint proposal by NHTSA and EPA represents a strong and 
coordinated National Program to achieve greenhouse gas emission 
reductions and fuel economy improvements from the light-duty vehicle 
part of the transportation sector. EPA's proposal for GHG standards 
under the Clean Air Act is discussed in Section III of this notice; 
NHTSA's proposal for CAFE standards under EPCA is discussed in Section 
IV. Each agency includes analyses on a variety of relevant issues under 
its respective statute, such as feasibility of the proposed standards, 
costs and benefits of the proposal, and effects on the economy, auto 
manufacturers, and consumers. This joint rulemaking proposal reflects a 
carefully coordinated and harmonized approach to developing and 
implementing standards under the two agencies' statutes and is in 
accordance with all substantive and procedural requirements required by 
law.
    NHTSA and EPA believe that the MY 2012 through 2016 standards 
proposed would provide substantial reductions in emissions of GHGs and 
oil consumption, with significant fuel savings for consumers. The 
proposed program is technologically feasible at a reasonable cost, 
based on deployment of available and effective control technology 
across the fleet, and industry would have the opportunity to plan over 
several model years and incorporate the vehicle upgrades into the 
normal redesign cycles. The proposed program would result in enormous 
societal net benefits, including greenhouse gas emission reductions, 
fuel economy savings, improved energy security, and cost savings to 
consumers from reduced fuel utilization.

II. Joint Technical Work Completed for This Proposal

A. Introduction

    In this section NHTSA and EPA discuss several aspects of the joint 
technical analyses the two agencies collaborated on which are common to 
the development of each agency's proposed standards. Specifically we 
discuss: The development of the baseline vehicle market forecast used 
by each agency, the development of the proposed attribute-based 
standard curve shapes, how the relative stringency between the car and 
truck fleet standards for this proposal was determined, which 
technologies the agencies evaluated and their costs and effectiveness, 
and which economic assumptions the agencies included in their analyses. 
The joint Technical Support Document (TSD) discusses the agencies' 
joint technical work in more detail.

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

1. Why Do the Agencies Establish a Baseline Vehicle Fleet?
    In order to calculate the impacts of the EPA and NHTSA proposed 
regulations, it is necessary to estimate the composition of the future 
vehicle fleet absent these proposed regulations in order to conduct 
comparisons. EPA and NHTSA have developed a comparison fleet in two 
parts. The first step was to develop a baseline fleet based on model 
year 2008 data. The second step was to project that fleet into 2011-
2016. This is called the reference fleet. The third step was to modify 
that 2011-2016 reference fleet such that it had sufficient technologies 
to meet the 2011 CAFE standards. This final ``reference fleet'' is the 
light duty fleet estimated to exist in 2012-2016 if these proposed 
rules are not adopted. Each agency developed a final reference fleet to 
use in its modeling. All of the agencies' estimates of emission 
reductions, fuel economy improvements, costs, and societal impacts are 
developed in relation to the respective reference fleets.
2. How Do the Agencies Develop the Baseline Vehicle Fleet?
    EPA and NHTSA have based the projection of total car and total 
light truck sales on recent projections made by the Energy Information 
Administration (EIA). EIA publishes a long-term projection of national 
energy use annually called the Annual Energy Outlook. 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. Due to 
the state of flux of both energy prices and the economy, EIA published 
three versions of its 2009 Annual Energy Outlook. The Preliminary 2009 
report was published early (in November 2008) in order to reflect the 
dramatic increase in fuel prices which occurred during 2008 and which 
occurred after the development of the 2008 Annual Energy Outlook. The 
official 2009 report was published in March of 2009. A third 2009 
report was published a month later which reflected the economic 
stimulus package passed by Congress earlier this year. We use the sales 
projections of this latest report, referred to as the updated 2009 
Annual Energy Outlook, here.
    In their updated 2009 report, EIA projects that total light-duty 
vehicle sales will gradually recover from their currently depressed 
levels by roughly 2013. In 2016, car and light truck sales are 
projected to be 9.5 and 7.1 million units, respectively. While the 
total level of sales of 16.6 million units is similar to pre-2008 
levels, the fraction of car sales is higher than that existing in the 
2000-2007 timeframe. This presumably reflects the impact of higher fuel 
prices and that fact that cars tend to have higher levels of fuel 
economy than trucks. We note that EIA's definition of cars and trucks 
follows that used by NHTSA prior to the MY 2011 CAFE final rule 
published earlier this year. That recent CAFE rule, which established 
the MY 2011 standards, reclassified a number of 2-wheel drive sport 
utility vehicles from the truck fleet to the car fleet. This has the 
impact of shifting a considerable number of previously defined trucks 
into the car category. Sales projections of cars and trucks for all 
future model years can be found in the draft Joint TSD for this 
proposal.
    In addition to a shift towards more car sales, sales of segments 
within both the car and truck markets have also been changing and are 
expected to continue to change in the future. Manufacturers are 
introducing more crossover models which offer much of the utility of 
SUVs but using more car-like designs. In order to reflect these changes 
in fleet makeup, EPA and NHTSA considered several available forecasts. 
After review EPA purchased and shared with NHTSA forecasts from two 
well-known industry analysts, CSM-Worldwide (CSM), and J.D. Powers. 
NHTSA and EPA decided to use the forecast from CSM, for several 
reasons. One, CSM agreed to allow us to publish the data, on which our 
forecast is based, in the public domain.\65\ Two, it covered nearly all 
the timeframe of greatest relevance to this proposed rule (2012-2015 
model years). Three, it provided projections of vehicle sales both by 
manufacturer and by market segment. Four, it utilized market segments 
similar to those used in the

[[Page 49485]]

EPA emission certification program and fuel economy guide. As discussed 
further below, this allowed the CSM forecast to be combined with other 
data obtained by NHTSA and EPA. We also assumed that the breakdowns of 
car and truck sales by manufacturer and by market segment for 2016 
model year and beyond were the same as CSM's forecast for 2015 calendar 
year. The changes between company market share and industry market 
segments were most significant from 2011-2014, while for 2014-2015 the 
changes were relatively small. Therefore, we assumed 2016 market share 
and market segments to be the same as for 2015. To the extent that the 
agencies have received CSM forecasts for 2016, we will consider using 
them for the final rule.
---------------------------------------------------------------------------

    \65\ The CSM data made public includes only the higher level 
volume projections by market segment and manufacturer. The 
projections by nameplate and model are strictly the agencies' 
estimates based on these higher level CSM segment and manufacturer 
distribution.
---------------------------------------------------------------------------

    We then projected the CSM forecasts for relative sales of cars and 
trucks by manufacturer and by market segment on to the total sales 
estimates of the updated 2009 Annual Energy Outlook. Tables II.B.1-1 
and II.B.1-2 show the resulting projections for the 2016 model year and 
compare these to actual sales which occurred in 2008 model year. Both 
tables show sales using the traditional or classic definition of cars 
and light trucks. Determining which classic trucks will be defined as 
cars using the revised definition established by NHTSA earlier this 
year and included in this proposed rule requires more detailed 
information about each vehicle model which is developed next.

       Table II.B.2-1--Annual Sales of Light-Duty Vehicles by Manufacturer in 2008 and Estimated for 2016
----------------------------------------------------------------------------------------------------------------
                                         Cars                    Light trucks                    Total
                             -----------------------------------------------------------------------------------
                                 2008 MY       2016 MY       2008 MY       2016 MY       2008 MY       2016 MY
----------------------------------------------------------------------------------------------------------------
BMW.........................       291,796       380,804        61,324       134,805       353,120       515,609
Chrysler....................       537,808       110,438     1,119,397       133,454     1,657,205       243,891
Daimler.....................       208,052       235,205        79,135       109,917       287,187       345,122
Ford........................       641,281       990,700     1,227,107     1,713,376     1,868,388     2,704,075
General Motors..............     1,370,280     1,562,791     1,749,227     1,571,037     3,119,507     3,133,827
Honda.......................       899,498     1,429,262       612,281       812,325     1,511,779     2,241,586
Hyundai.....................       270,293       437,329       120,734       287,694       391,027       725,024
Kia.........................       145,863       255,954       135,589       162,515       281,452       418,469
Mazda.......................       191,326       290,010       111,220       112,837       302,546       402,847
Mitsubishi..................        76,701        49,697        24,028        10,872       100,729        60,569
Porsche.....................        18,909        37,064        18,797        17,175        37,706        54,240
Nissan......................       653,121       985,668       370,294       571,748     1,023,415     1,557,416
Subaru......................       149,370       128,885        49,211        75,841       198,581       204,726
Suzuki......................        68,720        69,452        45,938        34,307       114,658       103,759
Tata........................         9,596        41,584        55,584        47,105        65,180        88,689
Toyota......................     1,143,696     1,986,824     1,067,804     1,218,223     2,211,500     3,205,048
Volkswagen..................       290,385       476,699        26,999        99,459       317,384       576,158
                             -----------------------------------------------------------------------------------
    Total...................     6,966,695     9,468,365     6,874,669     7,112,689    13,841,364    16,581,055
----------------------------------------------------------------------------------------------------------------


      Table II.B.2-2--Annual Sales of Light-Duty Vehicles by Market Segment in 2008 and Estimated for 2016
----------------------------------------------------------------------------------------------------------------
                             Cars                                                            Light trucks
----------------------------------------------------------------------------------------------------------------
                                       2008 MY       2016 MY                             2008 MY       2016 MY
----------------------------------------------------------------------------------------------------------------
Full-Size Car.....................       730,355       466,616  Full-Size Pickup....     1,195,073     1,475,881
Mid-Size Car......................     1,970,494     2,641,739  Mid-Size Pickup.....       598,197       510,580
Small/Compact Car.................     1,850,522     2,444,479  Full-Size Van.......        33,384       284,110
                                                                Mid-Size Van........       719,529       615,349
Subcompact/Mini Car...............       599,643     1,459,138  Mid-Size MAV *......       191,448       158,930
                                                                Small MAV...........       235,524       289,880
Luxury Car........................     1,057,875     1,432,162  Full-Size SUV*......       530,748        90,636
Specialty Car.....................       754,547     1,003,078  Mid-Size SUV........       347,026       110,155
Others............................         3,259        21,153  Small SUV...........       377,262       124,397
                                                                Full-Size CUV *.....       406,554       319,201
                                                                Mid-Size CUV........       798,335     1,306,770
                                                                Small CUV...........     1,441,589     1,866,580
                                   -----------------------------------------------------------------------------
    Total Sales...................     6,966,695     9,468,365  ....................     6,874,669     7,152,470
----------------------------------------------------------------------------------------------------------------
* MAV--Multi-Activity Vehicle, SUV--Sport Utility Vehicle, CUV--Crossover Utility Vehicle.

    The agencies recognize that CSM forecasts a very significant 
reduction in market share for Chrysler. This may be a result of the 
extreme uncertainty surrounding Chrysler in early 2009. The forecast 
from CSM used in this proposal is CSM's forecast from the 2nd quarter 
of 2009. CSM also provided to the agencies an updated forecast in the 
3rd quarter of 2009, which we were unable to use for this proposal due 
to time constraints. However, we have placed a copy of the 3rd Quarter 
CSM forecast in the public docket for this rulemaking, and we will 
consider its use, and any further updates from CSM or other data 
received during the comment period when developing the analysis for the 
final rule.\66\ CSM's forecast for Chrysler for the 3rd quarter of 2009 
was significantly increased compared to the 2nd quarter, by nearly a 
factor of two

[[Page 49486]]

increase in projected sales over the 2012-2015 time frame.
---------------------------------------------------------------------------

    \66\ ``CSM North America Sales Forecast Comparison 2Q09 3Q09 For 
Docket.'' 2nd and 3rd quarter forecasting results from CSM World 
Wide (Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    The forecasts obtained from CSM provided estimates of car and 
trucks sales by segment and by manufacturer, but not by manufacturer 
for each market segment. Therefore, we needed other information on 
which to base these more detailed market splits. For this task, we used 
as a starting point each manufacturer's sales by market segment from 
model year 2008. Because of the larger number of segments in the truck 
market, we used slightly different methodologies for cars and trucks.
    The first step for both cars and trucks was to break down each 
manufacturer's 2008 sales according to the market segment definitions 
used by CSM. For example, we found that Ford's car sales in 2008 were 
broken down as shown in Table II.B.2-3:

           Table II.B.2-3--Breakdown of Ford's 2008 Car Sales
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Full-size cars........................  76,762 units.
Mid-size cars.........................  170,399 units.
Small/Compact cars....................  180,249 units.
Subcompact/Mini cars..................  None.
Luxury cars...........................  100,065 units.
Specialty cars........................  110,805 units.
------------------------------------------------------------------------

    We then adjusted each manufacturer's sales of each of its car 
segments (and truck segments, separately) so that the manufacturer's 
total sales of cars (and trucks) matched the total estimated for each 
future model year based on EIA and CSM forecasts. For example, as 
indicated in Table II.B.2-1, Ford's total car sales in 2008 were 
641,281 units, while we project that they will increase to 990,700 
units by 2016. This represents an increase of 54.5 percent. Thus, we 
increased the 2008 sales of each Ford car segment by 54.5 percent. This 
produced estimates of future sales which matched total car and truck 
sales per EIA and the manufacturer breakdowns per CSM (and exemplified 
for 2016 in Table II.B.1-1). However, the sales splits by market 
segment would not necessarily match those of CSM (and exemplified for 
2016 in Table II.B.2-2).
    In order to adjust the market segment mix for cars, we first 
adjusted sales of luxury, specialty and other cars. Since the total 
sales of cars for each manufacturer were already set, any changes in 
the sales of one car segment had to be compensated by the opposite 
change in another segment. For the luxury, specialty and other car 
segments, it is not clear how changes in sales would be compensated. 
For example, if luxury car sales decreased, would sales of full-size 
cars increase, mid-size cars, etc.? Thus, any changes in the sales of 
cars within these three segments were assumed to be compensated for by 
proportional changes in the sales of the other four car segments. For 
example, for 2016, the figures in Table II.B.2-2 indicate that luxury 
car sales in 2016 are 1,432,162 units. Luxury car sales are 1,057,875 
units in 2008. However, after adjusting 2008 car sales by the change in 
total car sales for 2016 projected by EIA and a change in manufacturer 
market share per CSM, luxury car sales increased to 1,521,892 units. 
Thus, overall for 2016, luxury car sales had to decrease by 89,730 
units or 6 percent. We decreased the luxury car sales by each 
manufacturer by this percentage. The absolute decrease in luxury car 
sales was spread across sales of full-size, mid-size, compact and 
subcompact cars in proportion to each manufacturer's sales in these 
segments in 2008. The same adjustment process was used for specialty 
cars and the ``other cars'' segment defined by CSM.
    A slightly different approach was used to adjust for changing sales 
of the remaining four car segments. Starting with full-size cars, we 
again determined the overall percentage change that needed to occur in 
future year full-size cars sales after (1) adjusting for total sales 
per EIA, (2) manufacturer sales mix per CSM and (3) adjustments in the 
luxury, specialty and other car segments, in order to meet the segment 
sales mix per CSM. Sales of each manufacturer's large cars were 
adjusted by this percentage. However, instead of spreading this change 
over the remaining three segments, we assigned the entire change to 
mid-size vehicles. We did so because, as shown in 2008, higher fuel 
prices tend to cause car purchasers to purchase smaller vehicles. We 
are using AEO 2009 for this analysis, which assumes fuel prices similar 
in magnitude to actual high fuel prices seen in the summer of 2008.\67\ 
However, if a consumer had previously purchased a full-size car, we 
thought it unlikely that they would jump all the way to a subcompact. 
It seemed more reasonable to project that they would drop one vehicle 
size category smaller. Thus, the change in each manufacturer's sales of 
full-size cars was matched by an opposite change (in absolute units 
sold) in mid-size cars.
---------------------------------------------------------------------------

    \67\ J.D. Power and Associates, Press Release, May 16, 2007. 
``Rising Gas Prices Begin to Sway New-Vehicle Owners Toward Smaller 
Versions of Trucks and Utility Vehicles.''
---------------------------------------------------------------------------

    The same process was then applied to mid-size cars, with the change 
in mid-size car sales being matched by an opposite change in compact 
car sales. This process was repeated one more time for compact car 
sales, with changes in sales in this segment being matched by the 
opposite change in the sales of subcompacts. The overall result was a 
projection of car sales for 2012-2016 which matched the total sales 
projections of EIA and the manufacturer and segment splits of CSM. 
These sales splits can be found in Chapter 1 of the draft Joint 
Technical Support Document for this proposal.
    As mentioned above, a slightly different process was applied to 
truck sales. The reason for this was we could not confidently project 
how the change in sales from one segment preferentially went to or came 
from another particular segment. Some trend from larger vehicles to 
smaller vehicles would have been possible. However, the CSM forecasts 
indicated large changes in total sport utility vehicle, multi-activity 
vehicle and cross-over sales which could not be connected. Thus, we 
applied an iterative, but straightforward process for adjusting 2008 
truck sales to match the EIA and CSM forecasts.
    The first three steps were exactly the same as for cars. We broke 
down each manufacturer's truck sales into the truck segments as defined 
by CSM. We then adjusted all manufacturers' truck segment sales by the 
same factor so that total truck sales in each model year matched EIA 
projections for truck sales by model year. We then adjusted each 
manufacturer's truck sales by segment proportionally so that each 
manufacturer's percentage of total truck sales matched that forecast by 
CSM. This again left the need to adjust truck sales by segment to match 
the CSM forecast for each model year.
    In the fourth step, we adjusted the sales of each truck segment by 
a common factor so that total sales for that segment matched the 
combination of the EIA and CSM forecasts. For example, sales of large 
pickups across all manufacturers were 1,144,166 units in 2016 after 
adjusting total sales to match EIA's forecast and adjusting each 
manufacturer's truck sales to match CSM's forecast for the breakdown of 
sales by manufacturer. Applying CSM's forecast of the large pickup 
segment of truck sales to EIA's total sales forecast indicated total 
large pickup sales of 1,475,881 units. Thus, we increased each 
manufacturer's sales of large pickups by 29 percent. The same type of 
adjustment was applied to all the other truck segments at the same 
time. The result was a set of sales projections which matched EIA's 
total truck sales projection and CSM's market segment forecast. 
However, after this step, sales

[[Page 49487]]

by manufacturer no longer met CSM's forecast. Thus, we repeated step 
three and adjusted each manufacturer's truck sales so that they met 
CSM's forecast. The sales of each truck segment (by manufacturer) were 
adjusted by the same factor. The resulting sales projection matched 
EIA's total truck sales projection and CSM's manufacturer forecast, but 
sales by market segment no longer met CSM's forecast. However, the 
difference between the sales projections after this fifth step was 
closer to CSM's market segment forecast than it was after step three. 
In other words, the sales projection was converging. We repeated these 
adjustments, matching manufacturer sales mix in one step and then 
market segment in the next for a total of 19 times. At this point, we 
were able to match the market segment splits exactly and the 
manufacturer splits were within 0.1% of our goal, which is well within 
the needs of this analysis.
    The next step in developing the baseline fleet was to characterize 
the vehicles within each manufacturer-segment combination. In large 
part, this was based on the characterization of the specific vehicle 
models sold in 2008. EPA and NHTSA chose to base our estimates of 
detailed vehicle characteristics on 2008 sales for several reasons. 
One, these vehicle characteristics are not confidential and can thus be 
published here for careful review and comment by interested parties. 
Two, being actual sales data, this vehicle fleet represents the 
distribution of consumer demand for utility, performance, safety, etc.
    We gathered most of the information about the 2008 vehicle fleet 
from EPA's emission certification and fuel economy database. The data 
obtained from this source included vehicle production volume, fuel 
economy, engine size, number of engine cylinders, transmission type, 
fuel type, etc. EPA's certification database does not include a 
detailed description of the types of fuel economy-improving/
CO2-reducing technologies considered in this proposal. Thus, 
we augmented this description with publicly available data which 
includes more complete technology descriptions from Ward's Automotive 
Group.\68\ In a few instances when required vehicle information was not 
available from these two sources (such as vehicle footprint), we 
obtained this information from publicly accessible Internet sites such 
as Motortrend.com and Edmunds.com.\69\
---------------------------------------------------------------------------

    \68\ Note that WardsAuto.com is a fee-based service, but all 
information is public to subscribers.
    \69\ Motortrend.com and Edmunds.com are free, no-fee Internet 
sites.
---------------------------------------------------------------------------

    The projections of future car and truck sales described above apply 
to each manufacturer's sales by market segment. The EPA emissions 
certification sales data are available at a much finer level of detail, 
essentially vehicle configuration. As mentioned above, we placed each 
vehicle in the EPA certification database into one of the CSM market 
segments. We then totaled the sales by each manufacturer for each 
market segment. If the combination of EIA and CSM forecasts indicated 
an increase in a given manufacturer's sales of a particular market 
segment, then the sales of all the individual vehicle configurations 
were adjusted by the same factor. For example, if the Prius represented 
30% of Toyota's sales of compact cars in 2008 and Toyota's sales of 
compact cars in 2016 was projected to double by 2016, then the sales of 
the Prius were doubled, and the Prius sales in 2016 remained 30% of 
Toyota's compact car sales.
    NHTSA and EPA request comment on the methodology and data sources 
used for developing the baseline vehicle fleet for this proposal and 
the reasonableness of the results.
3. How Is the Development of the Baseline Fleet for This Proposal 
Different From NHTSA's Historical Approach, and Why Is This Approach 
Preferable?
    NHTSA has historically based its analysis of potential new CAFE 
standards on detailed product plans the agency has requested from 
manufacturers planning to produce light vehicles for sale in the United 
States. Although the agency has not attempted to compel manufacturers 
to submit such information, most major manufacturers and some smaller 
manufacturers have voluntarily provided it when requested.
    As in this and other prior rulemakings, NHTSA has requested 
extensive and detailed information regarding the models that 
manufacturers plan to offer, as well as manufacturers' estimates of the 
volume of each model they expect to produce for sale in the U.S. 
NHTSA's recent requests have sought information regarding a range of 
engineering and planning characteristics for each vehicle model (e.g., 
fuel economy, engine, transmission, physical dimensions, weights and 
capacities, redesign schedules), each engine (e.g., fuel type, fuel 
delivery, aspiration, valvetrain configuration, valve timing, valve 
lift, power and torque ratings), and each transmission (e.g., type, 
number of gears, logic).
    The information that manufacturers have provided in response to 
these requests has varied in completeness and detail. Some 
manufacturers have submitted nearly all of the information NHTSA has 
requested, have done so for most or all of the model years covered by 
NHTSA's requests, and have closely followed NHTSA's guidance regarding 
the structure of the information. Other manufacturers have submitted 
partial information, information for only a few model years, and/or 
information in a structure less amenable to analysis. Still other 
manufacturers have not responded to NHTSA's requests or have responded 
on occasion, usually with partial information.
    In recent rulemakings, NHTSA has integrated this information and 
estimated missing information based on a range of public and commercial 
sources (such as those used to develop today's market forecast). For 
unresponsive manufacturers, NHTSA has estimated fleet composition based 
on the latest-available CAFE compliance data (the same data used as 
part of the foundation for today's market forecast). NHTSA has then 
adjusted the size of the fleet based on AEO's forecast of the light 
vehicle market and normalized manufacturers' market shares based on the 
latest-available CAFE compliance data.
    Compared to this approach, the market forecast the agencies have 
developed for this analysis has both advantages and disadvantages.
    Most importantly, today's market forecast is much more transparent. 
The information sources used to develop today's market forecast are all 
either in the public domain or available commercially. Therefore, NHTSA 
and EPA are able to make public the market inputs actually used in the 
agencies' respective modeling systems, such that any reviewer may 
independently repeat and review the agencies' analyses. Previously, 
although NHTSA provided this type of information to manufacturers upon 
request (e.g., GM requested and received outputs specific to GM), NHTSA 
was otherwise unable to release market inputs and the most detailed 
model outputs (i.e., the outputs containing information regarding 
specific vehicle models) because doing so would violate requirements 
protecting manufacturers' confidential business information from 
disclosure.\70\ Therefore, this approach provides much greater 
opportunity for the public to

[[Page 49488]]

review every aspect of the agencies' analyses and comment accordingly.
---------------------------------------------------------------------------

    \70\ See 49 CFR part 512.
---------------------------------------------------------------------------

    Another significant advantage of today's market forecast is the 
agencies' ability to assess more fully the incremental costs and 
benefits of the proposed standards. In the past two years, NHTSA has 
requested and received three sets of future product plan submissions 
from the automotive companies, most recently this past spring. These 
submissions are intended to be the actual future product plans for the 
companies. In the most recent submission it is clear that many of the 
firms have been and are clearly planning for future CAFE standard 
increases for model years 2012 and later. The results for the product 
plans for many firms are a significant increase in their projected 
future application of fuel economy improvement technology. However, for 
the purposes of assessing the costs of the model year 2012-2016 
standards the use of the product plans presents a difficulty, namely, 
how to assess the increased costs of the proposed future standards if 
the companies have already anticipated the future standards and the 
costs are therefore now part of the agencies' baseline. This is a real 
concern with the most recent product plans received from the companies, 
and is one of the reasons the agencies have decided not to use the 
recent product plans to define the baseline market data for assessing 
our proposed standards. The approach used for this proposal does not 
raise this concern, as the underlying data comes from model year 2008 
production.\71\
---------------------------------------------------------------------------

    \71\ However, as discussed below, an alternative approach that 
NHTSA is exploring would be to use only manufacturers' near-term 
product plans, e.g., from MY 2010 or MY 2011. NHTSA believes 
manufacturers' near-term plans should be less subject to this 
concern about missing costs and benefits already included in the 
baseline. NHTSA is also hopeful that in connection with the 
agencies' rulemaking efforts, manufacturers will be willing to make 
their near-term plans available to the public.
---------------------------------------------------------------------------

    In addition, by developing a baseline fleet from common sources, 
the agencies have been able to avoid some errors--perhaps related to 
interpretation of requests--that have been observed in past responses 
to NHTSA's requests. For example, while reviewing information submitted 
to support the most recent CAFE rulemaking, NHTSA staff discovered that 
one manufacturer had misinterpreted instructions regarding the 
specification of vehicle track width, leading to important errors in 
estimates of vehicle footprints. Although the manufacturer resubmitted 
the information with corrections, with this approach, the agencies are 
able to reduce the potential for such errors and inconsistencies by 
utilizing common data sources and procedures.
    An additional advantage of the approach used for this proposal is a 
consistent projection of the change in fuel economy and CO2 
emissions across the various vehicles from the application of new 
technology. In the past, company product plans would include the 
application of new fuel economy improvement technology for a new or 
improved vehicle model with the resultant estimate from the company of 
the fuel economy levels for the vehicle. However, companies did not 
always provide to NHTSA the detailed analysis which showed how they 
forecasted what the fuel economy performance of the new vehicle was--
that is, whether it came from actual test data, from vehicle simulation 
modeling, from best engineering judgment or some other methodology. 
Thus, it was not possible for NHTSA to review the methodology used by 
the manufacturer, nor was it possible to review what approach the 
different manufacturers utilized from a consistency perspective. With 
the approach used for this proposal, the baseline market data comes 
from actual vehicles which have actual fuel economy test data--so there 
is no question what is the basis for the fuel economy or CO2 
performance of the baseline market data as it is actual measured data.
    Another advantage of today's approach is that future market shares 
are based on a forecast of what will occur in the future, rather than a 
static value. In the past, NHTSA has utilized a constant market share 
for each model year, based on the most recent year available, for 
example from the CAFE compliance data, that is, a forecast of the 2011-
2015 time frame where company market shares do not change. In the 
approach used today, we have utilized the forecasts from CSM of how 
future market shares among the companies may change over time.\72\
---------------------------------------------------------------------------

    \72\ We note that market share forecasts like CSM's could, of 
course, be applied to any data used to create the baseline market 
forecast. If, as mentioned above, manufacturers do consent to make 
public MY 2010 or 2011 product plan data for the final rule, the 
agencies could consider applying market share forecast to that data 
as well.
---------------------------------------------------------------------------

    The approach the agencies have taken in developing today's market 
forecast does, however, have some disadvantages. Most importantly, it 
produces a market forecast that does not represent some important 
changes likely to occur in the future.
    Some of the changes not captured by today's approach are specific. 
For example, the agencies' current market forecast includes some 
vehicles for which manufacturers have announced plans for elimination 
or drastic production cuts such as the Chevrolet Trailblazer, the 
Chrysler PT Cruiser, the Chrysler Pacifica, the Dodge Magnum, the Ford 
Crown Victoria, the Hummer H2, the Mercury Sable, the Pontiac Grand 
Prix, and the Pontiac G5. These vehicle models appear explicitly in 
market inputs to NHTSA's analysis, and are among those vehicle models 
included in the aggregated vehicle types appearing in market inputs to 
EPA's analysis.
    Conversely, the agencies' market forecast does not include some 
forthcoming vehicle models, such as the Chevrolet Volt, the Chevrolet 
Camaro, the Ford Fiesta and several publicly announced electric 
vehicles, including the announcements from Nissan. Nor does it include 
several MY 2009 or 2010 vehicles, such as the Honda Insight, the 
Hyundai Genesis and the Toyota Venza, as our starting point for vehicle 
definitions was Model Year 2008. Additionally, the market forecast does 
not account for publicly announced technology introductions, such as 
Ford's EcoBoost system, whose product plans specify which vehicles and 
how many are planned to have this technology. Were the agencies to rely 
on manufacturers' product plans (that were submitted), the market 
forecast would account for not only these specific examples, but also 
for similar examples that have not yet been announced publicly.
    The agencies anticipate that including vehicles after MY 2008 would 
not significantly impact our estimates of the technology required to 
comply with the proposed standards. If they were included, these 
vehicles could make the standards appear to cost less relative to the 
reference case. First, the projections of sales by vehicle segment and 
manufacturer include these expected new vehicle models. Thus, to the 
extent that these new vehicles are expected to change consumer demand, 
they should be reflected in our reference case. While we are projecting 
the characteristics of the new vehicles with MY 2008 vehicles, the 
primary difference between the new vehicles and 2008 vehicles in the 
same vehicle segment is the use of additional CO2-reducing 
and fuel-saving technology. Both the NHTSA and EPA models add such 
technology to facilitate compliance with the proposed standards. Thus, 
our future projections of the vehicle fleet generally shift vehicle 
designs towards those of these newer vehicles. The advantage of our 
approach is that it helps clarify the costs of this proposal, as the 
cost of all fuel economy

[[Page 49489]]

improvements beyond those required by the MY 2011 CAFE standards are 
being assigned to the proposal. In some cases, the new vehicles being 
introduced by manufacturers are actually in response to their 
anticipation of this rulemaking. Our approach prevents some of these 
technological improvements and their associated cost from being assumed 
in the baseline. Thus, the added technology will not be considered to 
be free for the purposes of this rule.
    We note that, as a result of these issues, the market file may show 
sales volumes for certain vehicles during MYs 2012-2016 even though 
they will be discontinued before that time frame. Although the agencies 
recognize that these specific vehicles will be discontinued, we 
continue to include them in the market forecast because they are useful 
for representing successor vehicles that may appear in the rulemaking 
time frame to replace the discontinued vehicles in that market segment.
    Other market changes not captured by today's approach are broader. 
For example, Chrysler Group LLC has announced plans to offer small- and 
medium-sized cars using Fiat powertrains. The product plan submitted by 
Chrysler includes vehicles that appear to reflect these plans. However, 
none of these specific vehicle models are included in the market 
forecast the agencies have developed starting with MY 2008 CAFE 
compliance data. The product plan submitted by Chrysler is also more 
optimistic with regard to Chrysler's market share during MYs 2012-2016 
than the market forecast projected by CSM and used by the agencies for 
this proposal. Similarly, the agencies' market forecast does not 
reflect Nissan's plans regarding electric vehicles.
    Additionally, some technical information that manufacturers have 
provided in product plans regarding specific vehicle models is, at 
least insofar as NHTSA and EPA have been able to determine, not 
available from public or commercial sources. While such gaps do not 
bear significantly on the agencies' analysis, the diversity of pickup 
configurations necessitated utilizing a sales-weighted average 
footprint value \73\ for many manufacturers' pickups. Since our 
modeling only utilizes footprint in order to estimate each 
manufacturer's CO2 or fuel economy standard and all the 
other vehicle characteristics are available for each pickup 
configuration, this approximation has no practical impact on the 
projected technology or cost associated with compliance with the 
various standards evaluated. The only impact which could arise would be 
if the relative sales of the various pickup configurations changed, or 
if the agencies were to explore standards with a different shape. This 
would necessitate recalculating the average footprint value in order to 
maintain accuracy.
---------------------------------------------------------------------------

    \73\ A full-size pickup might be offered with various 
combinations of cab style (e.g., regular, extended, crew) and box 
length (e.g., 5\1/2\', 6\1/2\', 8') and, therefore, multiple 
footprint sizes. CAFE compliance data for MY 2008 data does not 
contain footprint information, and does not contain information that 
can be used to reliably identify which pickup entries correspond to 
footprint values estimable from public or commercial sources. 
Therefore, the agencies have used the known production levels of 
average values to represent all variants of a given pickup line 
(e.g., all variants of the F-150 and the Sierra/Silverado) in order 
to calculate the sales-weighted average footprint value for each 
pickup family. Again, this has no impact on the results of our 
modeling effort, although it would require re-estimation if we were 
to examine light truck standards of a different shape. In the 
extreme, one single footprint value could be used for every vehicle 
sold by a single manufacturer as long as the fuel economy standard 
associated with this footprint value represented the sales-weighted, 
harmonic average of the fuel economy standards associated with each 
vehicle's footprint values.
---------------------------------------------------------------------------

    The agencies have carefully considered these advantages and 
disadvantages of using a market forecast derived from public and 
commercial sources rather than from manufacturers' product plans, and 
we believe that the advantages outweigh the disadvantages for the 
purpose of proposing standards for model years 2012-2016. NHTSA's 
inability to release confidential market inputs and corresponding 
detailed outputs from the CAFE model has raised serious concerns among 
many observers regarding the transparency of NHTSA's analysis, as well 
as related concerns that the lack of transparency might enable 
manufacturers to provide unrealistic information to try to influence 
NHTSA's determination of the maximum feasible standards. Although NHTSA 
does not agree with some observers' assertions that some manufacturers 
have deliberately provided inaccurate or otherwise misleading 
information, today's market forecast is fully open and transparent, and 
is therefore not subject to such concerns.
    With respect to the disadvantages, the agencies are hopeful that 
manufacturers will, in the future, agree to make public their plans 
regarding model years that are very near, such as MY 2010 or perhaps MY 
2011, so that this information can be considered for purposes of the 
final rule analysis and be available for the public. In any event, 
because NHTSA and EPA are releasing market inputs used in the agencies' 
respective analyses, manufacturers, suppliers, and other automobile 
industry observers and participant can submit comments on how these 
inputs should be improved, as can all other reviewers.
4. How Does Manufacturer Product Plan Data Factor into the Baseline 
Used in This Proposal?
    In the Spring of 2009, many manufacturers submitted product plans 
in response to NHTSA's request that they do so.\74\ NHTSA and EPA both 
have access to these plans, and both agencies have reviewed them in 
detail. A small amount of product plan data was used in the development 
of the baseline. The specific pieces of data are:
---------------------------------------------------------------------------

    \74\ 74 FR 9185 (Mar. 3, 2009)
---------------------------------------------------------------------------

     Wheelbase;
     Track Width Front;
     Track Width Rear;
     EPS (Electric Power Steering);
     ROLL (Reduced Rolling Resistance);
     LUB (Advance Lubrication i.e., low weight oil);
     IACC (Improved Electrical Accessories);
     Curb Weight;
     GVWR (Gross Vehicle Weight Rating)
    The track widths, wheelbase, curb weight, and GVWR could have been 
looked up on the Internet (159 were), but were taken from the product 
plans when available for convenience. To ensure accuracy, a sample from 
each product plan was used as a check against the numbers available 
from Motortrend.com. These numbers will be published in the baseline 
file since they can be easily looked up on the Internet. On the other 
hand, EPS, ROLL, LUB, and IACC are difficult to determine without using 
manufacturer's product plans. These items will not be published in the 
baseline file, but the data has been aggregated into the EPA baseline 
in the technology effectiveness and cost effectiveness for each vehicle 
in a way that allows the baseline for the model to be published without 
revealing the manufacturers' data.
    Considering both the publicly-available baseline used in this 
proposal and the product plans provided recently by manufacturers, 
however, it is possible that the latter could potentially be used to 
develop a more realistic forecast of product mix and vehicle 
characteristics of the near-future light-duty fleet. At the core of 
concerns about using company product plans are two concerns about doing 
so: (a) Uncertainty and possible inaccuracy in manufacturers' forecasts 
and (b) the transparency of using product plan data. With respect to 
the first concern, the

[[Page 49490]]

agencies note that manufacturers' near-term forecasts (i.e., for model 
years two or three years into the future) should be less uncertain and 
more amenable to eventual retrospective analysis (i.e., comparison to 
actual sales) than manufacturers' longer-term forecasts (i.e., for 
model years more than five years into the future). With respect to the 
second concern, NHTSA has consulted with most manufacturers and 
believes that although few, if any, manufacturers would be willing to 
make public their longer-term plans, many responding manufacturers may 
be willing to make public their short-term plans. In a companion 
notice, NHTSA is seeking product plan information from manufacturers 
for MYs 2008 to 2020, and the agencies will also continue to consult 
with manufacturers regarding the possibility of releasing plans for MY 
2010 and/or MY 2011 for purposes of developing and analyzing the final 
GHG and CAFE standards for MYs 2012-2016. The agencies are hopeful that 
manufacturers will agree to do so, and that NHTSA and EPA would 
therefore be able to use product plans in ways that might aid in 
increasing the accuracy of the baseline market forecast.

C. Development of Attribute-Based Curve Shapes

    NHTSA and EPA are setting attribute-based CAFE and CO2 
standards that are defined by a mathematical function for MYs 2012-2016 
passenger cars and light trucks. 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.\75\ The CAA has no 
such requirement, though in past rules, EPA has relied on both 
universal and attribute-based standards (e.g., for nonroad engines, EPA 
uses the attribute of horsepower). However, given the advantages of 
using attribute-based standards and given the goal of coordinating and 
harmonizing CO2 standards promulgated under the CAA and CAFE 
standards promulgated under EPCA, as expressed in the joint NOI, EPA is 
also proposing to issue standards that are attribute-based and defined 
by mathematical functions.
---------------------------------------------------------------------------

    \75\ 49 U.S.C. 32902(a)(3)(A).
---------------------------------------------------------------------------

    Under an attribute-based standard, every vehicle model has a 
performance target (fuel economy and GHG emissions for CAFE and GHG 
emissions standards, respectively), the level of which depends on the 
vehicle's attribute (for this proposal, footprint). The manufacturers' 
fleet average performance is determined by the production-weighed \76\ 
average (for CAFE, harmonic average) of those targets. NHTSA and EPA 
are proposing CAFE and CO2 emissions standards defined by 
constrained linear functions and, equivalently, piecewise linear 
functions.\77\ As a possible option for future rulemakings, the 
constrained linear form was introduced by NHTSA in the 2007 NPRM 
proposing CAFE standards for MY 2011-2015. Described mathematically, 
the proposed constrained linear function is defined according to the 
following formula: \78\
---------------------------------------------------------------------------

    \76\ Production for sale in the United States.
    \77\ The equations are equivalent but are specified differently 
due to differences in the agencies' respective models.
    \78\ This function is linear in fuel consumption but not in fuel 
economy.

---------------------------------------------------------------------------
Where:

TARGET = the fuel economy target (in mpg) applicable to vehicles of 
a given footprint (FOOTPRINT, in square feet),
a = the function's upper limit (in mpg),
b = the function's lower limit (in mpg),
c = the slope (in gpm per square foot) of the sloped portion of the 
function,
d = the intercept (in gpm) of the sloped portion of the function 
(that is, the value the sloped portion would take if extended to a 
footprint of 0 square feet, and the MIN and MAX functions take the 
minimum and maximum, respectively, of the included values; for 
example, MIN(1,2) = 1, MAX(1,2) = 2, and MIN[MAX(1,2),3)] = 2.

[GRAPHIC] [TIFF OMITTED] TP28SE09.004

    Because the format is linear on a gallons-per-mile basis, not on a 
miles-per-gallon basis, it is plotted as fuel consumption below. 
Graphically, the constrained linear form appears as shown in Figure 
II.C.1-1.
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[[Page 49491]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.005

    The specific form and stringency for each fleet (passenger cars and 
light trucks) and model year are defined through specific values for 
the four coefficients shown above.
    EPA is proposing the equivalent equation below for assigning 
CO2 targets to an individual vehicle's footprint value. 
Although the general model of the equation is the same for each vehicle 
category and each year, the parameters of the equation differ for cars 
and trucks. Each parameter also changes on an annual basis, resulting 
in the yearly increases in stringency seen in the tables above. 
Described mathematically, EPA's proposed piecewise linear function is 
as follows:

Target = a, if x <= l
Target = cx + d, if l < x <= h
Target = b, if x > h


[[Page 49492]]


    In the constrained linear form applied by NHTSA, this equation 
takes the simplified form:

Target = MIN [MAX (c * x + d, a), b]

Where:

Target = the CO2 target value for a given footprint (in 
g/mi)
a = the minimum target value (in g/mi CO2)
b = the maximum target value (in g/mi CO2)
c = the slope of the linear function (in g/mi per sq ft 
CO2)
d = is the intercept or zero-offset for the line (in g/mi 
CO2)
x = footprint of the vehicle model (in square feet, rounded to the 
nearest tenth)
l & h are the lower and higher footprint limits or constraints or 
(``kinks'') or the boundary between the flat regions and the 
intermediate sloped line (in sq ft)

    Graphically, piecewise linear form, like the constrained linear 
form, appears as shown in Figure II.C.1-2.
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[[Page 49493]]


BILLING CODE 4910-59-C
    As for the constrained linear form, the specific form and 
stringency for each fleet (passenger car and light trucks) and model 
year are defined through specific values for the four coefficients 
shown above.
    For purposes of this rule, NHTSA and EPA developed the basic curve 
shapes using methods similar to those applied by NHTSA in fitting the 
curves defining the MY 2011 standards. The first step is defining the 
reference market inputs (in the form used by NHTSA's CAFE model) 
described in Section II.B of this preamble and in Chapter 1 of the 
joint TSD. However, because the baseline fleet is technologically 
heterogeneous, NHTSA used the CAFE model to develop a fleet to which 
nearly all the technologies discussed in Chapter 3 of the joint TSD 
\79\ were applied, by taking the following steps: (1) Treating all 
manufacturers as unwilling to pay civil penalties rather than applying 
technology, (2) applying any technology at any time, irrespective of 
scheduled vehicle redesigns or freshening, and (3) ignoring ``phase-in 
caps'' that constrain the overall amount of technology that can be 
applied by the model to a given manufacturer's fleet. These steps 
helped to increase technological parity among vehicle models, thereby 
providing a better basis (than the baseline or reference fleets) for 
estimating the statistical relationship between vehicle size and fuel 
economy.
---------------------------------------------------------------------------

    \79\ The agencies excluded diesel engines and strong hybrid 
vehicle technologies from this exercise (and only this exercise) 
because the agencies expect that manufacturers would not need to 
rely heavily on these technologies in order to comply with the 
proposed standards. NHTSA and EPA did include diesel engines and 
strong hybrid vehicle technologies in all other portions of their 
analyses.
---------------------------------------------------------------------------

    In fitting the curves, NHTSA also continued to apply constraints to 
limit the function's value for both the smallest and largest vehicles. 
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 
apply to the smallest vehicles targets that are simply unachievable. 
Limiting the function's value for the smallest vehicles ensures that 
the function remains technologically achievable at small footprints, 
and that it does not unduly burden manufacturers focusing on small 
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 leads to a function with an inherent absolute 
minimum level of performance, while remaining consistent with safety 
considerations.
    Before fitting the sloped portion of the constrained linear form, 
NHTSA selected footprints above and below which to apply constraints 
(i.e., minimum and maximum values) on the function. For passenger cars, 
the agency noted that several manufacturers offer small and, in some 
cases, sporty coupes below 41 square feet, examples including the BMW 
Z4 and Mini, Saturn Sky, Honda Fit and S2000, Hyundai Tiburon, Mazda 
MX-5 Miata, Suzuki SX4, Toyota Yaris, and Volkswagen New Beetle. 
Because such vehicles represent a small portion (less than 10 percent) 
of the passenger car market, yet often have characteristics that could 
make it infeasible to achieve the very challenging targets that could 
apply in the absence of a constraint, NHTSA is proposing to ``cut off'' 
the linear portion of the passenger car function at 41 square feet. For 
consistency, the agency is proposing to do the same for the light truck 
function, although no light trucks are currently offered below 41 
square feet. The agency further noted that above 56 square feet, the 
only passenger car model 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. NHTSA is therefore proposing to 
``cut off'' the linear portion of the passenger car function at 56 
square feet. Finally, the agency noted that although public information 
is limited regarding the sales volumes of the many different 
configurations (cab designs and bed sizes) of pickup trucks, most of 
the largest pickups (e.g., the Ford F-150, GM Sierra/Silverado, Nissan 
Titan, and Toyota Tundra) appear to fall just above 66 square feet in 
footprint. NHTSA is therefore proposing to ``cut off'' the linear 
portion of the light truck function at 66 square feet.
    NHTSA and EPA seek comment on this approach to fitting the curves. 
We note that final decisions on this issue will play an important role 
in determining the form and stringency of the final CAFE and 
CO2 standards, the incentives those standards will provide 
(e.g., with respect to downsizing small vehicles), and the relative 
compliance burden faced by each manufacturer.
    For purposes of the CAFE and CO2 standards proposed in 
this NPRM, NHTSA and EPA recognize that there is some possibility that 
low fuel prices during the years in which MY 2012-2016 vehicles are in 
service might lead to less than currently anticipated fuel savings and 
emissions reductions. One way to assure that emission reductions are 
achieved in fact is through the use of explicit backstops, fleet 
average standards established at an absolute level. For purposes of the 
CAFE program, EISA requires a backstop for domestically-manufactured 
passenger cars--a universal minimum, non-attribute-based standard of 
either ``27.5 mpg or 92 percent of the average fuel economy projected 
by the Secretary of Transportation for the combined domestic and non-
domestic passenger automobile fleets manufactured for sale in the 
United States by all manufacturers in the model year * * *,'' whichever 
is greater.\80\ In the MY 2011 final rule, the first rule setting 
standards since EISA added the backstop provision to EPCA, NHTSA 
considered whether the statute permitted the agency to set backstop 
standards for the other regulated fleets of imported passenger cars and 
light trucks. Although commenters expressed support both for and 
against a more permissive reading of EISA, NHTSA concluded in that 
rulemaking that its authority was likely limited to setting only the 
backstop standard that Congress expressly provided, i.e., the one for 
domestic passenger cars. A backstop, however, could be adopted under 
section 202(a) of the CAA assuming it could be justified under the 
relevant statutory criteria. EPA and NHTSA also note that the flattened 
portion of the car curve directionally addresses the issue of a 
backstop (i.e., a flat curve is itself a backstop). The agencies seek 
comment on whether backstop standards, or any other method within the 
agencies' statutory authority, should and can be implemented in order 
to guarantee a level of CO2 emissions reductions and fuel 
savings under the attribute-based standards.
---------------------------------------------------------------------------

    \80\ 49 U.S.C. 32902(b)(4).
---------------------------------------------------------------------------

    Having developed a set of baseline data to which to fit the 
mathematical fuel consumption function, the initial values for 
parameters c and d were determined for cars and trucks separately. c 
and d were initially set at the values for which the average 
(equivalently, sum) of the absolute values of the differences was 
minimized between the ``maximum technology'' fleet fuel consumption 
(within the footprints between the upper and lower

[[Page 49494]]

limits) and the straight line the function defined above at the same 
corresponding vehicle footprints. That is, c and d were determined by 
minimizing the average absolute residual, commonly known as the MAD 
(Mean Absolute Deviation) approach, of the corresponding straight line.
    Finally, NHTSA calculated the values of the upper and lower values 
(a and b) based on the corresponding footprints discussed above (41 and 
56 square feet for passenger cars, and 41 and 66 square feet for light 
trucks).
    The result of this methodology is shown below in Figures II.A.2-2 
and II.A.2-3 for passenger cars and light trucks, respectively. The 
fitted curves are shown with the underlying ``maximum technology'' 
passenger car and light truck fleets. For passenger cars, the mean 
absolute deviation of the sloped portion of the function was 14 
percent. For trucks, the corresponding MAD was 10 percent.
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[[Page 49496]]


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    The agencies used these functional forms as a starting point to 
develop mathematical functions defining the actual proposed standards 
as discussed above. The agencies then transposed these functions 
vertically (i.e., on a gpm or CO2 basis, uniformly downward) 
to produce the relative car and light truck standards described in the 
next section.

D. Relative Car-Truck Stringency

    The agencies have determined, under their respective statutory 
authorities, that it is appropriate to propose fleetwide standards with 
the projected levels of stringency of 34.1 mpg or 250 g/mi (as well as 
the corresponding intermediate year fleetwide standards) for NHTSA and 
EPA respectively. To determine the relative stringency of passenger car 
and light truck standards, the agencies are concerned that increasing 
the difference between the car and truck standards (either by

[[Page 49497]]

raising the car standards or lowering the truck standards) could 
encourage manufacturers to build fewer cars and more trucks, likely to 
the detriment of fuel economy and CO2 reductions.\81\ In 
order to maintain consistent car/truck standards, the agencies applied 
a constant ratio between the estimated average required performance 
under the passenger car and light truck standards, in order to maintain 
a stable set of incentives regarding vehicle classification.
---------------------------------------------------------------------------

    \81\ For example, since many 2WD SUVs are classified as 
passenger cars, manufacturers have already warned that high car 
standards relative to truck standards could create an incentive for 
them to drop the 2WD version and sell only the 4WD version.
---------------------------------------------------------------------------

    To calculate relative car-truck stringency in this proposal, the 
agencies explored a number of possible alternatives. In the interest of 
harmonization, the agencies agree to use the Volpe model in order to 
estimate stringencies at which net benefits would be maximized. Further 
details of the development of this scenario approach can be found in 
Section IV of this preamble as well as in NHTSA's PRIA and DEIS. NHTSA 
examined passenger car and light truck standards that would produce the 
proposed combined average fuel economy levels from Table I.B.2-2 above. 
NHTSA did so by shifting downward the curves that maximize net 
benefits, holding the relative stringency of passenger car and light 
truck standards constant at the level determined by maximizing net 
benefits, such that the average fuel economy required of passenger cars 
remains 34 percent higher than the average fuel economy required of 
light trucks. This methodology resulted in the average fuel economy 
levels for passenger cars and light trucks during MYs 2012-2016 as 
shown in Table I.D.2-1. The following chart illustrates this 
methodology of shifting the standards from the levels maximizing net 
benefits to the levels consistent with the combined fuel economy 
standards in this rule.

[[Page 49498]]

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    After this analysis was completed, EPA examined two alternative 
approaches to determine whether they would lead to significantly 
different outcomes. First, EPA analyzed the relative stringencies using 
a 10-year payback analysis (with the OMEGA model). This analysis sets 
the relative stringencies if increased technology cost is to be paid 
back out of fuel savings over a 10-year period (assuming a 3% discount 
rate). Second, EPA also conducted a technology maximized analysis, 
which sets the relative stringencies if all technologies (with the 
exception of strong hybrids and diesels) are assumed to be utilized in 
the fleet. (This is the same methodology that was used to determine the 
curve shape as explained in the section above and in Chapter 2 of the 
joint TSD section).

[[Page 49499]]

Compared to NHTSA's approach based on stringencies estimated to 
maximize net benefits, EPA staff found that these two other approaches 
produced very similar results to NHTSA's, i.e., similar ratios of car-
truck relative stringency (the ratio being within a range of 1.34 to 
1.37 relative stringency of the car to the truck fuel economy 
standard). EPA believes that this similarity supports the proposed 
relative stringency of the two standards.
    The car and truck standards for EPA (Table I.D. 2-4 above) were 
subsequently determined by first converting the average required fuel 
economy levels to average required CO2 emission rates, and 
then applying the expected air conditioning credits for 2012-2016. 
These A/C credits are shown in the following table. Further details of 
the derivation of these factors can be found in Section III of this 
preamble or in the EPA RIA.

                Table II.D.1-1 Expected Fleet A/C Credits (in CO2 Equivalent g/mi) From 2012-2016
----------------------------------------------------------------------------------------------------------------
                                                                                                       Average
                                                     Average technology      Average      Average     credit for
                                                   penetration  (percent)  credit  for   credit for    combined
                                                                               cars        trucks       fleet
----------------------------------------------------------------------------------------------------------------
2012............................................                       25          3.0          3.4          3.1
2013............................................                       40          4.8          5.4          5.0
2014............................................                       55          7.2          8.1          7.5
2015............................................                       75          9.6         10.8         10.0
2016............................................                       85         10.2         11.5         10.6
----------------------------------------------------------------------------------------------------------------

    The agencies seek comment on the use of this methodology for 
apportioning the fleet stringencies to relative car and truck standards 
for 2012-2016.

E. Joint Vehicle Technology Assumptions

    Vehicle technology assumptions, i.e., assumptions about their cost, 
effectiveness, and the rate at which they can be incorporated into new 
vehicles, are often very controversial as they have a significant 
impact on the levels of the standards. Agencies must, therefore, take 
great care in developing and justifying these assumptions. In 
developing technology inputs for MY 2012-2016 standards, the agencies 
reviewed the technology assumptions that NHTSA used in setting the MY 
2011 standards and the comments that NHTSA received in response to its 
May 2008 Notice of Proposed Rulemaking. This review is consistent with 
the request by President Obama in his January 26 memorandum to DOT. In 
addition, the agencies reviewed the technology input estimates 
identified in EPA's July 2008 Advanced Notice of Proposed Rulemaking. 
The review of these documents was supplemented with updated information 
from more current literature, new product plans and from EPA 
certification testing.
    As a general matter, the best way to derive technology cost 
estimates is to conduct real-world tear down studies. These studies 
break down each technology into its respective components, evaluate the 
costs of each component, and build up the costs of the entire 
technology based on the contribution of each component. As such, tear 
down studies require a significant amount of time and are very costly. 
EPA has begun conducting tear down studies to assess the costs of 4-5 
technologies under a contract with FEV. To date, only two technologies 
(stoichiometeric gasoline direct injection and turbo charging with 
engine downsizing for a 4 cylinder engine to a 4 cylinder engine) have 
been evaluated. The agencies relied on the findings of FEV for 
estimating the cost of these technologies in this rulemaking--directly 
for the 4 cylinder engines, and extrapolated for the 6 and 8 cylinder 
engines. The agencies request comment on the use of these estimated 
costs from the FEV study. For the other technologies, because tear down 
studies were not yet available, the agencies decided to pursue, to the 
extent possible, the Bill of Materials (BOM) approach as outlined in 
NHTSA's MY 2011 final rule. A similar approach was used by EPA in the 
EPA 2008 Staff Technical Report. This approach was recommended to NHTSA 
by Ricardo, an international engineering consulting firm retained by 
NHTSA to aid in the analysis of public comments on its proposed 
standards for MYs 2011-2015 because of its expertise in the area of 
fuel economy technologies. A BOM approach is one element of the process 
used in tear down studies. The difference is that under a BOM approach, 
the build up of cost estimates is conducted based on a review of cost 
and effectiveness estimates for each component from available 
literature, while under a tear down study, the cost estimates which go 
into the BOM come from the tear down study itself. To the extent that 
the agencies departed from the MY 2011 CAFE final rule estimates, the 
agencies explained the reasons and provided supporting analyses. As 
tear down studies are concluded by FEV during the rulemaking process, 
the agencies will make them available in the joint rulemaking docket of 
this rulemaking. The agencies will consider these studies and any 
comments received on them, as practicable and appropriate, as well as 
any other new information pertinent to the rulemaking of which the 
agencies become aware, in developing technology cost assumptions for 
the final rule.
    Similarly, the agencies followed a BOM approach for developing its 
effectiveness estimates, insofar as the BOM developed for the cost 
estimates helped to inform the appropriate effectiveness values derived 
from the literature review. The agencies supplemented the information 
with results from available simulation work and real world EPA 
certification testing.
    The agencies would also like to note that per the Energy 
Independence and Security Act (EISA), the National Academies of 
Sciences is conducting an updated study to update Chapter 3 of the 2002 
NAS Report, which outlines technology estimates. The update will take a 
fresh look at that list of technologies and their associated cost and 
effectiveness values.
    The report is expected to be available on September 30, 2009. As 
soon as the update to the NAS Report is received, it will be placed in 
the joint rulemaking docket for the public's review and comment. 
Because this will occur during the comment period, the public is 
encouraged to check the docket regularly and provide comments on the 
updated NAS Report by the closing of the comment period of this notice. 
NHTSA and EPA will consider the updated NAS Report and any comments 
received, as practicable and appropriate, on it when considering 
revisions to the technology cost and effectiveness estimates for the 
final rule.

[[Page 49500]]

Consideration of this report is consistent with the request by 
President Obama in his January 26 memorandum to DOT.
1. What Technologies Do the Agencies Consider?
    The agencies considered over 35 vehicle technologies that 
manufacturers could use to improve the fuel economy and reduce 
CO2 emissions of their vehicles during MYs 2012-2016. The 
majority of the technologies described in this section are readily 
available, well known, and could be incorporated into vehicles once 
production decisions are made. Other technologies considered may not 
currently be in production, but are beyond the research phase and under 
development, and are expected to be in production in the next few 
years. These are technologies which can, for the most part, be applied 
both to cars and trucks, and which are capable of achieving significant 
improvements in fuel economy and reductions in CO2 
emissions, at reasonable costs. The agencies did not consider 
technologies in the research stage because the leadtime available for 
this rule is not sufficient to move such technologies from research to 
production.
    The technologies considered in the agencies' analysis are briefly 
described below. They fall into five broad categories: engine 
technologies, transmission technologies, vehicle technologies, 
electrification/accessory technologies, and hybrid technologies. For a 
more detailed description of each technology and their costs and 
effectiveness, we refer the reader to Chapter 3 of the joint TSD, 
Chapter III of NHTSA's PRIA, and Chapter 1 of EPA's DRIA. Technologies 
to reduce CO2 and HFC emissions from air conditioning 
systems are discussed in Section III of this preamble and in EPA's 
DRIA.
    Types of engine technologies that improve fuel economy and reduce 
CO2 emissions include the following:
     Low-friction lubricants--low viscosity and advanced low 
friction lubricants oils are now available with improved performance 
and better lubrication. If manufacturers choose to make use of these 
lubricants, they would need to make engine changes and possibly conduct 
durability testing to accommodate the low-friction lubricants.
     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 engine operation.
     Conversion to dual overhead cam with dual cam phasing--as 
applied to overhead valves designed to increase the air flow with more 
than two valves per cylinder and reduce pumping losses.
     Cylinder deactivation--deactivates 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 
valve, exhaust valve, 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. Accomplished by controlled switching between 
two or more cam profile lobe heights.
     Continuous variable valve lift--is an electromechanically 
controlled 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 within the cylinder, which 
allows for higher compression ratios and increased thermodynamic 
efficiency.
     Combustion restart--can be used in conjunction with 
gasoline direct-injection systems to enable idle-off or start-stop 
functionality. Similar to other start-stop technologies, additional 
enablers, such as electric power steering, accessory drive components, 
and auxiliary oil pump, might be required.
     Turbocharging and downsizing--increases the available 
airflow and specific power level, allowing a reduced engine size while 
maintaining performance. This reduces pumping losses at lighter loads 
in comparison to a larger engine.
     Exhaust-gas recirculation boost--increases the exhaust-gas 
recirculation used in the combustion process to increase thermal 
efficiency and reduce pumping losses.
     Diesel engines--have several characteristics that give 
superior fuel efficiency, including reduced pumping losses due to lack 
of (or greatly reduced) throttling, and a combustion cycle that 
operates at a higher compression ratio, with a very lean air/fuel 
mixture, relative to an equivalent-performance gasoline engine. This 
technology requires additional enablers, such as NOx trap 
catalyst after-treatment or selective catalytic reduction 
NOx after-treatment. The cost and effectiveness estimates 
for the diesel engine and aftertreatment system utilized in this 
proposal have been revised from the NHTSA MY 2011 CAFE final rule, and 
the agencies request comment on these diesel cost estimates.
    Types of transmission technologies considered include:
     Improved automatic transmission controls--optimizes shift 
schedule to maximize fuel efficiency under wide ranging conditions, and 
minimizes losses associated with torque converter slip through lock-up 
or modulation.
     Six-, seven-, and eight-speed automatic transmissions--the 
gear ratio spacing and transmission ratio are optimized for a broader 
range of engine operating conditions.
     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 
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.
     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 transmission ratios with an infinite number of gears, 
enabling finer optimization of transmission torque multiplication under 
different operating conditions so that the engine can operate at higher 
efficiency.
     Manual 6-speed transmission--offers an additional gear 
ratio, often with a higher overdrive gear ratio, than a 5-speed manual 
transmission.
    Types of vehicle technologies considered include:
     Low-rolling-resistance tires--have characteristics that 
reduce frictional losses associated with the energy dissipated in the 
deformation of the tires under load, therefore improving fuel economy 
and reducing CO2 emissions.
     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.

[[Page 49501]]

     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--is achieved by changing 
vehicle shape or reducing frontal area, including skirts, air dams, 
underbody covers, and more aerodynamic side view mirrors.
     Mass reduction and material substitution--Mass reduction 
encompasses a variety of techniques ranging from improved design and 
better component integration to application of lighter and higher-
strength materials. Mass reduction is further compounded by reductions 
in engine power and ancillary systems (transmission, steering, brakes, 
suspension, etc.). The agencies recognize there is a range of diversity 
and complexity for mass reduction and material substitution 
technologies and there are many techniques that automotive suppliers 
and manufacturers are using to achieve the levels of this technology 
that the agencies have modeled in our analysis for this proposal. The 
agencies seek comments on the methods, costs, and effectiveness 
estimates associated with mass reduction and material substitution 
techniques that manufacturers intend to employ for reducing fuel 
consumption and CO2 emissions during the rulemaking time 
frame.
    Types of electrification/accessory and hybrid technologies 
considered include:
     Electric power steering (EPS)--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.
     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.
     Air Conditioner Systems--These technologies include 
improved hoses, connectors and seals for leakage control. They also 
include improved compressors, expansion valves, heat exchangers and the 
control of these components for the purposes of improving tailpipe 
CO2 emissions as a result of A/C use. These technologies are 
covered separately in the EPA RIA.
     12-volt micro-hybrid (MHEV)--also known as idle-stop or 
start stop and commonly implemented as a 12-volt belt-driven integrated 
starter-generator, this is the most basic hybrid system that 
facilitates idle-stop capability. Along with other enablers, this 
system replaces a common alternator with a belt-driven enhanced power 
starter-alternator, and a revised accessory drive system.
     Higher Voltage Stop-Start/Belt Integrated Starter 
Generator (BISG)--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. 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).
     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).
     2-mode hybrid (2MHEV)--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 CO2 emissions at highway speeds 
relative to other types of hybrid electric drive systems.
     Power-split hybrid (PSHEV)--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.
     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. They also use a control system 
that allows the battery pack to be substantially depleted under 
electric-only or blended mechanical/electric operation.
     Electric vehicles (EV)--are vehicles with all-electric 
drive and with vehicle systems powered by energy-optimized batteries 
charged primarily from grid electricity.
    The cost estimates for the various hybrid systems have been revised 
from the estimates used in the MY 2011 CAFE final rule, in particular 
with respect to estimated battery costs. The agencies request comment 
on the hybrid cost estimates detailed in the draft Joint Technical 
Support Document.
2. How Did the Agencies Determine the Costs and Effectiveness of Each 
of These Technologies?
    Building on NHTSA's estimates developed for the MY 2011 CAFE final 
rule and EPA's Advanced Notice of Proposed Rulemaking, which relied on 
the 2008 Staff Technical Report,\82\ the agencies took a fresh look at 
technology cost and effectiveness values for purposes of the joint 
proposal under the National Program. For costs, the agencies 
reconsidered both the direct or ``piece'' costs and indirect costs of 
individual components of technologies. For the direct costs, the 
agencies followed a bill of materials (BOM) approach employed by NHTSA 
in NHTSA's MY 2011 final rule based on recommendation from Ricardo, 
Inc. EPA used a similar approach in the 2008 EPA Staff Technical 
Report. A bill of materials, in a general sense, is a list of 
components or sub-systems that make up a system--in this case, an item 
of fuel economy-improving technology. In order to determine what a 
system costs, one of the first steps is to determine its components and 
what they cost.
---------------------------------------------------------------------------

    \82\ EPA Staff Technical Report: Cost and Effectiveness 
Estimates of Technologies Used to Reduce Light-Duty Vehicle Carbon 
Dioxide Emissions. EPA420-R-08-008, March 2008.
---------------------------------------------------------------------------

    NHTSA and EPA estimated these components and their costs based on a 
number of sources for cost-related information. The objective was to 
use those sources of information considered to be most credible for 
projecting the costs of individual vehicle technologies. For example, 
while NHTSA and Ricardo engineers had relied considerably in the

[[Page 49502]]

MY 2011 final rule on the 2008 Martec Report for costing contents of 
some technologies, upon further joint review and for purposes of the MY 
2012-2016 standards, the agencies decided that some of the costing 
information in that report was no longer accurate due to downward 
trends in commodity prices since the publication of that report. The 
agencies reviewed, then revalidated or updated cost estimates for 
individual components based on new information. Thus, while NHTSA and 
EPA found that much of the cost information used in NHTSA's MY 2011 
final rule and EPA's staff report was consistent to a great extent, the 
agencies, in reconsidering information from many 
sources,83,84,85,86,87,88,89 revised several component costs 
of several major technologies: turbocharging with engine downsizing, 
mild and strong hybrids, diesels, stoichiometric gasoline direct 
injection fuel systems, and valve train lift technologies. These are 
discussed at length in the joint TSD and in NHTSA's PRIA.
---------------------------------------------------------------------------

    \83\ National Research Council, ``Effectiveness and Impact of 
Corporate Average Fuel Economy (CAFE) Standards,'' National Academy 
Press, Washington, DC (2002) (the ``2002 NAS Report''), available at 
http://www.nap.edu/openbook.php?isbn=0309076013 (last accessed 
August 7, 2009).
    \84\ Northeast States Center for a Clean Air Future (NESCCAF), 
``Reducing Greenhouse Gas Emissions from Light-Duty Motor 
Vehicles,'' 2004 (the ``2004 NESCCAF Report''), available at http://www.nesccaf.org/documents/rpt040923ghglightduty.pdf (last accessed 
August 7, 2009).
    \85\ ``Staff Report: Initial Statement of Reasons for Proposed 
Rulemaking, Public Hearing to Consider Adoption of Regulations to 
Control Greenhouse Gas Emissions from Motor Vehicles,'' California 
Environmental Protection Agency, Air Resources Board, August 6, 
2004.
    \86\ Energy and Environmental Analysis, Inc., ``Technology to 
Improve the Fuel Economy of Light Duty Trucks to 2015,'' 2006 (the 
``2006 EEA Report''), Docket EPA-HQ-OAR-2009-0472.
    \87\ Martec, ``Variable Costs of Fuel Economy Technologies,'' 
June 1, 2008, (the ``2008 Martec Report'') available at Docket No. 
NHTSA-2008-0089-0169.1
    \88\ Vehicle fuel economy certification data.
    \89\ Confidential data submitted by manufacturers in response to 
the March 2009 and other requests for product plans.
---------------------------------------------------------------------------

    For two technologies (stoichiometric gasoline direct injection and 
turbocharging with engine downsizing), the agencies relied, to the 
extent possible, on the tear down data available and scaling 
methodologies used in EPA's ongoing study with FEV. This study consists 
of complete system tear-down to evaluate technologies down to the nuts 
and bolts to arrive at very detailed estimates of the costs associated 
with manufacturing them.\90\ The confidential information provided by 
manufacturers as part of their product plan submissions to the agencies 
or discussed in meetings between the agencies and the manufacturers and 
suppliers served largely as a check on publicly-available data.
---------------------------------------------------------------------------

    \90\ U.S. Environmental Protection Agency, ``Draft Report--
Light-Duty Technology Cost Analysis Pilot Study,'' Contract No. EP-
C-07-069, Work Assignment 1-3, September 3, 2009.
---------------------------------------------------------------------------

    For the other technologies, considering all sources of information 
and using the BOM approach, the agencies worked together intensively 
during the summer of 2009 to determine component costs for each of the 
technologies and build up the costs accordingly. Where estimates differ 
between sources, we have used engineering judgment to arrive at what we 
believe to be the best cost estimate available today, and explained the 
basis for that exercise of judgment.
    Once costs were determined, they were adjusted to ensure that they 
were all expressed in 2007 dollars using a ratio of GDP values for the 
associated calendar years,\91\ and indirect costs were accounted for 
using the new approach developed by EPA and explained in Chapter 3 of 
the draft joint TSD, rather than using the traditional Retail Price 
Equivalent (RPE) multiplier approach. A report explaining how EPA 
developed this approach can be found in the docket for this notice. 
NHTSA and EPA also reconsidered how costs should be adjusted by 
modifying or scaling content assumptions to account for differences 
across the range of vehicle sizes and functional requirements, and 
adjusted the associated material cost impacts to account for the 
revised content, although some of these adjustments may be different 
for each agency due to the different vehicle subclasses used in their 
respective models. In previous rulemakings, NHTSA has used the Producer 
Price Index (PPI) to adjust vehicle technology costs to consistent 
price levels, since the PPI measures the effects of cost changes that 
are specific to the vehicle manufacturing industry. For purposes of 
this NPRM, NHTSA and EPA chose to use the GDP deflator, which accounts 
for the effect of economy-wide price inflation on technology cost 
estimates, in order to express those estimates in comparable terms with 
forecasts of fuel prices and other economic values used in the analysis 
of costs and benefits from the proposed standards. Because it is 
specific to the automotive sector, the PPI tends to be highly volatile 
from year to year, reflecting rapidly changing balances between supply 
and demand for specific components, rather than longer-term trends in 
the real cost of producing a broad range of powertrain components. 
NHTSA and EPA seek comment on whether the agencies should use a GDP 
deflator or a PPI inflator for purposes of developing technology cost 
estimates for the final rule.
---------------------------------------------------------------------------

    \91\ NHTSA examined the use of the CPI multiplier instead of GDP 
for adjusting these dollar values, but found the difference to be 
exceedingly small--only $0.14 over $100.
---------------------------------------------------------------------------

    Regarding estimates for technology effectiveness, NHTSA and EPA 
also reexamined the estimates from NHTSA's MY 2011 final rule and EPA's 
ANPRM and 2008 Staff Technical Report, which were largely consistent 
with NHTSA's 2008 NPRM estimates. The agencies also reconsidered other 
sources such as the 2002 NAS Report, the 2004 NESCCAF report, recent 
CAFE compliance data (by comparing similar vehicles with different 
technologies against each other in fuel economy testing, such as a 
Honda Civic Hybrid versus a directly comparable Honda Civic 
conventional drive), and confidential manufacturer estimates of 
technology effectiveness. NHTSA and EPA engineers reviewed 
effectiveness information from the multiple sources for each technology 
and ensured that such effectiveness estimates were based on technology 
hardware consistent with the BOM components used to estimate costs. 
Together, they compared the multiple estimates and assessed their 
validity, taking care to ensure that common BOM definitions and other 
vehicle attributes such as performance, refinement, and drivability 
were taken into account. However, because the agencies' respective 
models employ different numbers of vehicle subclasses and use different 
modeling techniques to arrive at the standards, direct comparison of 
BOMs was somewhat more complicated. To address this and to confirm that 
the outputs from the different modeling techniques produced the same 
result, NHTSA and EPA developed mapping techniques, devising technology 
packages and mapping them to corresponding incremental technology 
estimates. This approach helped compare the outputs from the 
incremental modeling technique to those produced by the technology 
packaging approach to ensure results that are consistent and could be 
translated into the respective models of the agencies.
    In general, most effectiveness estimates used in both the MY 2011 
final rule and the 2008 EPA staff report were determined to be accurate 
and were carried forward without significant change into this proposal. 
When NHTSA and EPA's estimates for effectiveness diverged slightly due 
to

[[Page 49503]]

differences in how agencies apply technologies to vehicles in their 
respective models, we report the ranges for the effectiveness values 
used in each model. While the agencies believe that the ideal estimates 
for the final rule would be based on tear down studies or BOM approach 
and subjected to a transparent peer-reviewed process, NHTSA and EPA are 
confident that the thorough review conducted, led to the best available 
conclusion regarding technology costs and effectiveness estimates for 
the current rulemaking and resulted in excellent consistency between 
the agencies' respective analyses for developing the CAFE and 
CO2 standards.
    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 potentially-limitless spectrum of 
possible values that could result from adding the technology to 
different vehicles. For example, while the agencies have estimated an 
effectiveness of 0.5 percent 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 CO2 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 CO2 
emissions, but it is also highly dependent on vehicle-specific 
functional objectives. For purposes of this NPRM, 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. However, the agencies seek comment on 
whether additional levels of specificity beyond that already provided 
would improve the analysis for the final rule, and if so, how those 
levels of specificity should be analyzed.
    Chapter 3 of the draft Joint Technical Support Document contains a 
detailed description of our assessment of vehicle technology cost and 
effectiveness estimates. The agencies note that the technology costs 
included in this NPRM take into account only those associated with the 
initial build of the vehicle. The agencies seek comment on the 
additional lifetime costs, if any, associated with the implementation 
of advanced technologies including warranty costs, and maintenance and 
replacement costs such as replacement costs for low rolling resistance 
tires, low friction lubricants, and hybrid batteries, and maintenance 
on diesel aftertreatment components.

F. Joint Economic Assumptions

    The agencies' preliminary analysis of alternative CAFE and GHG 
standards for the model years covered by this proposed rulemaking rely 
on a range of forecast information, economic estimates, and input 
parameters. This section briefly describes the agencies' preliminary 
choices of specific parameter values. These proposed economic values 
play a significant role in determining the benefits of both CAFE and 
GHG standards.
    In reviewing these variables and the agency's estimates of their 
values for purposes of this NPRM, NHTSA and EPA reconsidered previous 
comments that NHTSA had received and reviewed newly available 
literature. As a consequence, the agencies elected to revise some 
economic assumptions and parameter estimates, while retaining others. 
Some of the most important changes, which are discussed in greater 
detail in the agencies' respective sections below, as well as in 
Chapter 4 of the joint TSD and in Chapter VIII of NHTSA's PRIA and 
Chapter 8 of EPA's DRIA, include significant revisions to the markup 
factors for technology costs; reducing the rebound effect from 15 to 10 
percent; and revising the value of reducing CO2 emissions 
based on recent interagency efforts to develop estimates of this value 
for government-wide use. The agencies seek comment on the economic 
assumptions described below.
     Costs of fuel economy-improving technologies--These 
estimates are presented in summary form above and in more detail in the 
agencies' respective sections of this preamble, in Chapter 3 of the 
joint TSD, and in the agencies' respective RIAs. The technology cost 
estimates used in this analysis are intended to represent 
manufacturers' direct costs for high-volume production of vehicles with 
these technologies and sufficient experience with their application so 
that all cost reductions due to ``learning curve'' effects have been 
fully realized. Costs are then modified by applying near-term indirect 
cost multipliers ranging from 1.11 to 1.64 to the estimates of vehicle 
manufacturers' direct costs for producing or acquiring each technology 
to improve fuel economy, depending on the complexity of the technology 
and the time frame over which costs are estimated.
     Potential opportunity costs of improved fuel economy--This 
estimate 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 assume that these vehicle attributes do not change, and 
include the cost of maintaining these attributes as part of the cost 
estimates for technologies. However, it is possible that the technology 
cost estimates do not include adequate allowance for the necessary 
efforts by manufacturers to maintain vehicle performance, carrying 
capacity, and utility while improving fuel economy and reducing GHG 
emissions. While, in principle, consumer vehicle demand models can 
measure these effects, these models do not appear to be robust across 
specifications, since authors derive a wide range of willingness-to-pay 
values for fuel economy from these models, and there is not clear 
guidance from the literature on whether one specification is clearly 
preferred over another. Thus, the agencies seek comment on how to 
estimate explicitly the changes in vehicle buyers' 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-like test 
conditions used by NHTSA and EPA to establish compliance with the 
proposed CAFE and GHG standards. The agencies use an on-road fuel 
economy gap for light-duty vehicles of 20 percent lower than published 
fuel economy levels. 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

[[Page 49504]]

(20*.80).\92\ NHTSA previously used this estimate in its MY 2011 final 
rule, and the agencies confirmed it based on independent analysis for 
use in this NPRM.
---------------------------------------------------------------------------

    \92\ U.S. Environmental Protection Agency, Final Technical 
Support Document, Fuel Economy Labeling of Motor Vehicle Revisions 
to Improve Calculation of Fuel Economy Estimates, EPA420-R-06-017, 
December 2006.
---------------------------------------------------------------------------

     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. The agencies relied 
on the most recent fuel price projections from the U.S. Energy 
Information Administration's (EIA) Annual Energy Outlook (AEO) for this 
analysis. Specifically, the agencies used the AEO 2009 (April 2009 
release) Reference Case forecasts of inflation-adjusted (constant-
dollar) retail gasoline and diesel fuel prices, which represent the 
EIA's most up-to-date estimate of the most likely course of future 
prices for petroleum products.\93\
---------------------------------------------------------------------------

    \93\ Energy Information Administration, Annual Energy Outlook 
2009, Revised Updated Reference Case (April 2009), Table 12. 
Available at http://www.eia.doe.gov/oiaf/servicerpt/stimulus/excel/aeostimtab_12.xls (last accessed July 26, 2009).
---------------------------------------------------------------------------

    EIA's Updated Reference Case reflects the effects of the American 
Reinvestment and Recovery Act of 2009, as well as the most recent 
revisions to the U.S. and global economic outlook. In addition, it also 
reflects the provisions of the Energy Independence and Security Act of 
2007 (EISA), including the requirement that the combined mpg level of 
U.S. cars and light trucks reach 35 miles per gallon by model year 
2020. Because this provision would be expected to reduce future U.S. 
demand for gasoline and other fuels, there is some concern about 
whether the AEO 2009 forecast of fuel prices already partly reflects 
the increases in CAFE standards considered in this rule, and thus 
whether it is suitable for valuing the projected reductions in fuel 
use. In response to this concern, the agencies note that EIA issued a 
revised version of AEO 2008 in June 2008, which modified its previous 
December 2007 Early Release of AEO 2008 to reflect the effects of the 
recently-passed EISA legislation.\94\ The fuel price forecasts reported 
in EIA's Revised Release of AEO 2008 differed by less than one cent per 
gallon over the entire forecast period (2008-230) from those previously 
issued as part of its initial release of AEO 2008. Thus, the agencies 
are reasonably confident that the fuel price forecasts presented in AEO 
2009 and used to analyze the value of fuel savings projected to result 
from this rule are not unduly affected by the CAFE provisions of EISA, 
and therefore do not cause a baseline problem. Nevertheless, the 
agencies request comment on the use of the AEO 2009 fuel price 
forecasts, and particularly on the potential impact of the EISA-
mandated CAFE improvements on these projections.
---------------------------------------------------------------------------

    \94\ Energy Information Administration, Annual Energy Outlook 
2008, Revised Early Release (June 2008), Table 12. Available at 
http://www.eia.doe.gov/oiaf/archive/aeo08/excel/aeotab_12.xls (last 
accessed September 12, 2009).
---------------------------------------------------------------------------

     Consumer valuation of fuel economy and payback period--In 
estimating the value of fuel economy improvements that would result 
from alternative CAFE and GHG standards to potential vehicle buyers, 
the agencies assume that buyers value the resulting fuel savings over 
only part of the expected lifetime 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 using rates of 3% and 7%. 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.\95\ 
The agencies relied on the AEO 2009 Reference Case for forecasts of 
total vehicle sales, while the baseline market forecast developed by 
the agencies (see Section II.B) divided total projected sales into 
sales of cars and light trucks.
---------------------------------------------------------------------------

    \95\ Vehicles are defined to be of age 1 during the calendar 
year corresponding to the model year in which they are produced; 
thus for example, model year 2000 vehicles are considered to be of 
age 1 during calendar year 2000, age 2 during calendar year 2001, 
and to reach their maximum age of 26 years during calendar year 
2025. NHTSA considers the maximum lifetime of vehicles to be the age 
after which less than 2 percent of the vehicles originally produced 
during a model year remain in service. Applying these conventions to 
vehicle registration data indicates that passenger cars have a 
maximum age of 26 years, while light trucks have a maximum lifetime 
of 36 years. See Lu, S., NHTSA, Regulatory Analysis and Evaluation 
Division, ``Vehicle Survivability and Travel Mileage Schedules,'' 
DOT HS 809 952, 8-11 (January 2006). Available at http://www-nrd.nhtsa.dot.gov/Pubs/809952.pdf (last accessed July 27, 2009).
---------------------------------------------------------------------------

     Vehicle survival assumptions--We then applied updated 
values of age-specific survival rates for cars and light trucks to 
these adjusted forecasts of passenger car and light truck sales to 
determine the number of these vehicles remaining in use during each 
year of their expected lifetimes.
     Total vehicle use--We then 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 Transportation Survey (NHTS),\96\ adjusted to 
account for the effect 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 growth in annual car and light truck mileage 
at each age that is necessary for total car and light truck travel to 
increase at the rates forecast in the AEO 2009 Reference Case. The 
growth rate in average annual car and light truck use produced by this 
calculation is approximately 1.1 percent per year.\97\ This rate was 
applied to the mileage figures derived from the 2001 NHTS to estimate 
annual mileage during each year of the expected lifetimes of MY 2012-
2016 cars and light trucks.\98\
---------------------------------------------------------------------------

    \96\ For a description of the Survey, see http://nhts.ornl.gov/quickStart.shtml (last accessed July 27, 2009).
    \97\ It was not possible to estimate separate growth rates in 
average annual use for cars and light trucks, because of the 
significant reclassification of light truck models as passenger cars 
discussed previously.
    \98\ While the adjustment for future fuel prices reduces average 
mileage at each age from the values derived from the 2001 NHTS, the 
adjustment for expected future growth in average vehicle use 
increases it. The net effect of these two adjustments is to increase 
expected lifetime mileage by about 18 percent for passenger cars and 
about 16 percent for light trucks.
---------------------------------------------------------------------------

     Accounting for the rebound effect of higher fuel economy--
The rebound effect refers to the fraction of fuel savings expected to 
result from an increase in vehicle fuel economy--particularly an 
increase required by the adoption of higher CAFE and GHG standards--
that is offset by additional vehicle use. The increase in vehicle use 
occurs because higher fuel economy reduces the fuel cost of driving, 
typically the largest single component of the monetary cost of 
operating a vehicle, and vehicle owners respond to this reduction in 
operating costs by driving slightly more. For purposes of this NPRM, 
the agencies have elected to use a 10 percent rebound effect in their 
analyses of fuel savings and other benefits from higher standards.
     Benefits from increased vehicle use--The increase in 
vehicle use from the rebound effect provides additional benefits to 
their owners, who may make more frequent trips or travel farther to 
reach more desirable destinations. This

[[Page 49505]]

additional travel provides benefits to drivers and their passengers by 
improving their access to social and economic opportunities away from 
home. The benefits from increased vehicle use include both the fuel 
expenses associated with this additional travel, and the consumer 
surplus it provides. We estimate the economic value of the consumer 
surplus provided by added driving 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. Because it depends on the extent of improvement in 
fuel economy, the value of benefits from increased vehicle use changes 
by model year and varies among alternative standards.
     The value of increased 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 thus 
provides some additional benefits to their owners. No direct estimates 
of the value of extended vehicle range are readily available, so the 
agencies' analysis calculates the reduction in the annual number of 
required refueling cycles that results from improved fuel economy, and 
applies DOT-recommended values of travel time savings to convert the 
resulting time savings to their economic value.\99\ The agencies invite 
comment on the assumptions used in this analysis. Please see the 
Chapter 4 of the draft Joint TSD for details.
---------------------------------------------------------------------------

    \99\ Department of Transportation, Guidance Memorandum, ``The 
Value of Saving Travel Time: Departmental Guidance for Conducting 
Economic Evaluations,'' Apr. 9, 1997. http://ostpxweb.dot.gov/policy/Data/VOT97guid.pdf (last accessed October 20, 2007); update 
available at http://ostpxweb.dot.gov/policy/Data/VOTrevision1_2-11-03.pdf (last accessed October 20, 2007).
---------------------------------------------------------------------------

     Added costs from congestion, crashes and noise--Although 
it provides some benefits to drivers, 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 on 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 during peak periods. These added delays 
impose higher costs on drivers and other vehicle occupants in the form 
of increased travel time and operating expenses, increased 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 the increased external costs caused by added 
driving due to the rebound effect.\100\
---------------------------------------------------------------------------

    \100\ These estimates were developed by FHWA for use in its 1997 
Federal Highway Cost Allocation Study; http://www.fhwa.dot.gov/policy/hcas/final/index.htm (last accessed July 29, 2009).
---------------------------------------------------------------------------

     Petroleum consumption and import externalities--U.S. 
consumption and imports of 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. In economics literature on this subject, these costs 
include (1) higher prices for petroleum products resulting from the 
effect of U.S. oil import demand on the world oil price (``monopsony 
costs''); (2) the risk of disruptions to the U.S. economy caused by 
sudden reductions in the supply of imported oil to the U.S.; and (3) 
expenses for maintaining a U.S. military presence to secure imported 
oil supplies from unstable regions, and for maintaining the strategic 
petroleum reserve (SPR) to cushion against resulting price 
increases.\101\ Reducing U.S. imports of crude petroleum or refined 
fuels can reduce the magnitude of these external costs. Any reduction 
in their total value that results from lower fuel consumption and 
petroleum imports represents an economic benefit of setting more 
stringent standards over and above the dollar value of fuel savings 
itself. The agencies do not include a value for monopsony costs in 
order to be consistent with their use of a global value for the social 
cost of carbon. Based on a recently-updated ORNL study, we estimate 
that each gallon of fuel saved that results in a reduction in U.S. 
petroleum imports (either crude petroleum or refined fuel) will reduce 
the expected costs of oil supply disruptions to the U.S. economy by 
$0.169 (2007$). The agencies do not include savings in budgetary 
outlays to support U.S. military activities among the benefits of 
higher fuel economy and the resulting fuel savings. 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.\102\
---------------------------------------------------------------------------

    \101\ See, e.g., Bohi, Douglas R. and W. David Montgomery 
(1982). Oil Prices, Energy Security, and Import Policy Washington, 
DC: Resources for the Future, Johns Hopkins University Press; Bohi, 
D. R., and M. A. Toman (1993). ``Energy and Security: Externalities 
and Policies,'' Energy Policy 21:1093-1109; and Toman, M. A. (1993). 
``The Economics of Energy Security: Theory, Evidence, Policy,'' in 
A. V. Kneese and J. L. Sweeney, eds. (1993). Handbook of Natural 
Resource and Energy Economics, Vol. III. Amsterdam: North-Holland, 
pp. 1167-1218.
    \102\ Each gallon of fuel saved is assumed to reduce imports of 
refined fuel by 0.5 gallons, and the volume of fuel refined 
domestically by 0.5 gallons. Domestic fuel refining is assumed to 
utilize 90% imported crude petroleum and 10% domestically-produced 
crude petroleum as feedstocks. Together, these assumptions imply 
that each gallon of fuel saved will reduce imports of refined fuel 
and crude petroleum by 0.50 gallons + 0.50 gallons*90% = 0.50 
gallons + 0.45 gallons = 0.95 gallons.
---------------------------------------------------------------------------

     Air pollutant emissions
    [cir] Impacts on criteria air pollutant emissions--While reductions 
in domestic fuel refining and distribution that result from lower fuel 
consumption will reduce U.S. emissions of criteria pollutants, 
additional vehicle use associated with the rebound effect will increase 
emissions of these pollutants. 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. Criteria air pollutants emitted by vehicles and during fuel 
production include carbon monoxide (CO), hydrocarbon compounds (usually 
referred to as ``volatile organic compounds,'' or VOC), nitrogen oxides 
(NOX), fine particulate matter (PM2.5), and 
sulfur oxides (SOX). It is assumed that the emission rates 
(per mile) stay constant for future year vehicles.
    [cir] EPA and NHTSA estimate the economic value of the human health 
benefits associated with reducing exposure to PM2.5 using a 
``benefit-per-ton'' method. These PM2.5-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 PM2.5, 
or one ton of a pollutant that contributes to secondarily-formed 
PM2.5 (such as NOX, SOX, and VOCs), from a specified source. 
Chapter 4.2.9 of the Technical Support Document that accompanies this 
proposal includes a description of these values.
    Reductions in GHG emissions--Emissions of carbon dioxide and other 
greenhouse gases (GHGs) occur throughout the process of producing and 
distributing transportation fuels, as well as from fuel combustion 
itself. By reducing the volume of fuel consumed by passenger cars and 
light trucks, higher standards will thus reduce GHG emissions generated 
by fuel use, as well as throughout the fuel supply cycle. The agencies 
estimated the increases of GHGs other than CO2, including

[[Page 49506]]

methane and nitrous oxide, from additional vehicle use by multiplying 
the increase in total miles driven by cars and light trucks of each 
model year and age by emission rates per vehicle-mile for these GHGs. 
These emission rates, which differ between cars and light trucks as 
well as between gasoline and diesel vehicles, were estimated by EPA 
using its recently-developed Motor Vehicle Emission Simulator (Draft 
MOVES 2009).\103\ Increases in emissions of non-CO2 GHGs are 
converted to equivalent increases in CO2 emissions using 
estimates of the Global Warming Potential (GWP) of methane and nitrous 
oxide.
---------------------------------------------------------------------------

    \103\ The MOVES model assumes that the per-mile rates at which 
cars and light trucks emit these GHGs are determined by the 
efficiency of fuel combustion during engine operation and chemical 
reactions that occur during catalytic after-treatment of engine 
exhaust, and are thus independent of vehicles' fuel consumption 
rates. Thus MOVES' emission factors for these GHGs, which are 
expressed per mile of vehicle travel, are assumed to be unaffected 
by changes in fuel economy.
---------------------------------------------------------------------------

    [cir] Economic value of reductions in CO2 emissions--EPA 
and NHTSA assigned a dollar value to reductions in CO2 
emissions using the marginal dollar value (i.e., cost) of climate-
related damages resulting from carbon emissions, also referred to as 
``social cost of carbon'' (SCC). The SCC is intended to measure the 
monetary value society places on impacts resulting from increased GHGs, 
such as property damage from sea level rise, forced migration due to 
dry land loss, and mortality changes associated with vector-borne 
diseases. 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. EPA and NHTSA's coordinated 
proposals present a set of interim SCC values reflecting a Federal 
interagency group's interpretation of the relevant climate economics 
literature. Sections III.H and IV.C.3 provide more detail about SCC.
     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. The discount rate 
expresses the percent decline in the value of these 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 proposed 
standards, the agencies have employed discount rates of both 3 percent 
and 7 percent.
    For the reader's reference, Table II.F.1-1 below summarizes 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 the 
respective RIAs for details. The agencies seek comment on the economic 
assumptions presented in the table and discussed below.
    In addition, the agencies have conducted a range of sensitivities 
and present them in their respective RIAs. For example, NHTSA has 
conducted a sensitivity analysis on several assumptions including (1) 
forecasts of future fuel prices, (2) the discount rate applied to 
future benefits and costs, (3) the magnitude of the rebound effect, (4) 
the value to the U.S. economy of reducing carbon dioxide emissions, (5) 
the monopsony effect, and (6) the reduction in external economic costs 
resulting from lower U.S. oil imports. This information is provided in 
NHTSA's PRIA. The agencies will consider additional sensitivities for 
the final rule as appropriate, including sensitivities on the markup 
factors applied to direct manufacturing costs to account for indirect 
costs (i.e., the Indirect Cost Markups (ICMs) which are discussed in 
Sections III and IV), and the learning curve estimates used in this 
analysis.

    Table II.F.1-1--Economic Values for Benefits Computations (2007$)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Fuel Economy Rebound Effect.............................             10%
``Gap'' between test and on-road MPG....................             20%
Value of refueling time per ($ per vehicle-hour)........           24.64
Annual growth in average vehicle use....................            1.1%
Fuel Prices (2012-50 average, $/gallon):
    Retail gasoline price...............................            3.77
    Pre-tax gasoline price..............................            3.40
Economic Benefits from Reducing Oil Imports ($/gallon):
    ``Monopsony'' Component.............................            0.00
    Price Shock Component...............................            0.17
    Military Security Component.........................            0.00
    Total Economic Costs ($/gallon).....................            0.17
Emission Damage Costs (2020, $/ton or $/metric ton):
    Carbon monoxide.....................................               0
    Volatile organic compounds (VOC)....................           1,283
    Nitrogen oxides (NOX)--vehicle use..................           5,116
    Nitrogen oxides (NOX)--fuel production and                     5,339
     distribution.......................................
    Particulate matter (PM2.5)--vehicle use.............         238,432
    Particulate matter (PM2.5)--fuel production and              292,180
     distribution.......................................
    Sulfur dioxide (SO2)................................          30,896
                                                                       5
                                                                      10
                                                                      20
                                                                      34
    Carbon dioxide (CO2)................................              56
    Annual Increase in CO2 Damage Cost..................              3%
External Costs from Additional Automobile Use ($/vehicle-
 mile):
    Congestion..........................................           0.054
    Accidents...........................................           0.023
    Noise...............................................           0.001
    Total External Costs................................           0.078
External Costs from Additional Light Truck Use ($/        ..............
 vehicle-mile):

[[Page 49507]]

 
    Congestion..........................................           0.048
    Accidents...........................................           0.026
    Noise...............................................           0.001
    Total External Costs................................           0.075
Discount Rates Applied to Future Benefits...............          3%, 7%
------------------------------------------------------------------------

III. EPA Proposal for Greenhouse Gas Vehicle Standards

A. Executive Overview of EPA Proposal

1. Introduction
    The Environmental Protection Agency (EPA) is proposing to establish 
greenhouse gas emissions standards for the largest sources of 
transportation greenhouse gases--light-duty vehicles, light-duty 
trucks, and medium-duty passenger vehicles (hereafter light vehicles). 
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 
greenhouse gas emissions. This action represents the first-ever 
proposal by EPA to regulate vehicle greenhouse gas emissions under the 
Clean Air Act (CAA) and would establish standards for model years 2012 
and later light vehicles sold in the U.S.
    EPA is proposing three separate standards. The first and most 
important is a set of fleet-wide average carbon dioxide 
(CO2) emission standards for cars and trucks. These 
standards are based on CO2 emissions-footprint curves, where 
each vehicle has a different CO2 emissions compliance target 
depending on its footprint value. Vehicle CO2 emissions 
would be measured over the EPA city and highway tests. The proposed 
standard allows for credits based on demonstrated improvements in 
vehicle air conditioner systems, including both efficiency and 
refrigerant leakage improvement, which are not captured by the EPA 
tests. The EPA projects that the average light vehicle tailpipe 
CO2 level in model year 2011 will be 326 grams per mile 
while the average vehicle tailpipe CO2 emissions compliance 
level for the proposed model year 2016 standard will be 250 grams per 
mile, an average reduction of 23 percent from today's CO2 
levels.
    EPA is also proposing standards that will cap tailpipe nitrous 
oxide (N2O) and methane (CH4) emissions at 0.010 
and 0.030 grams per mile, respectively. Even after adjusting for the 
higher relative global warming potencies of these two compounds, 
nitrous oxide and methane emissions represent less than one percent of 
overall vehicle greenhouse gas emissions from new vehicles. 
Accordingly, the goal of these two proposed standards is to limit any 
potential increases in the future and not to force reductions relative 
to today's low levels.
    This proposal represents the second-phase of EPA's response to the 
Supreme Court's 2007 decision in Massachusetts v. EPA \104\ which found 
that greenhouse gases were air pollutants for purposes of the Clean Air 
Act. The Court held that the Administrator must determine whether or 
not emissions from new motor vehicles cause or contribute to air 
pollution which may reasonably be anticipated to endanger public health 
or welfare, or whether the science is too uncertain to make a reasoned 
decision. The Court further ruled that, in make these decisions, the 
EPA Administrator is required to follow the language of section 202(a) 
of the CAA. The Court remanded the case back to the Agency for 
reconsideration in light of its finding.
---------------------------------------------------------------------------

    \104\ 549 U.S. 497 (2007). For further information on 
Massachusetts v. EPA see the July 30, 2008 Advance Notice of 
Proposed Rulemaking, ``Regulating Greenhouse Gas Emissions under the 
Clean Air Act'', 73 FR 44354 at 44397. There is a comprehensive 
discussion of the litigation's history, the Supreme Court's 
findings, and subsequent actions undertaken by the Bush 
Administration and the EPA from 2007-2008 in response to the Supreme 
Court remand.
---------------------------------------------------------------------------

    The Administrator responded to the Court's remand by issuing two 
proposed findings under section 202(a) of the Clean Air Act.\105\ 
First, the Administrator proposed to find that the science supports a 
positive endangerment finding that a mix of certain greenhouse gases in 
the atmosphere endangers the public health and welfare of current and 
future generations. This is referred to as the endangerment finding. 
Second, the Administrator proposed to find that the emissions of four 
of these gases--carbon dioxide, methane, nitrous oxide, and 
hydrofluorocarbons--from new motor vehicles and new motor vehicle 
engines contribute to the atmospheric concentrations of these key 
greenhouse gases and hence to the threat of climate change. This is 
referred to as the cause and contribute finding. Finalizing this 
proposed light vehicle regulations is contingent upon EPA finalizing 
both the endangerment finding and cause or contribute finding. Sections 
III.B.1 through III.B.4 below provide more details on the legal and 
scientific bases for this proposal.
---------------------------------------------------------------------------

    \105\ 74 FR 18886, April 24, 2009.
---------------------------------------------------------------------------

    As discussed in Section I, this GHG proposal is part of a joint 
National Program such that a large majority of the projected benefits 
are achieved jointly with NHTSA's proposed CAFE rule which is described 
in detail in Section IV of this preamble. EPA's proposal projects total 
carbon dioxide emissions savings of nearly 950 million metric tons, and 
oil savings of 1.8 billion barrels over the lifetimes of the vehicles 
sold in model years 2012-2016. EPA projects net societal benefits of 
$192 billion at a 3 percent discount rate for these same vehicles, or 
$136 billion at a 7 percent discount rate (both values assume a $20/ton 
SCC value). Accordingly, these proposed light vehicle greenhouse gas 
emissions standards would make an important ``first step'' contribution 
as part of the National Program toward meeting long-term greenhouse gas 
emissions and import oil reduction goals, while providing important 
economic benefits as well.
2. Why is EPA Proposing this Rule?
    This proposal addresses only light vehicles. EPA is addressing 
light vehicles as a first step in control of greenhouse gas emissions 
under the Clean Air Act for four reasons. First, light vehicles are 
responsible for almost 60% of all mobile source greenhouse gas 
emissions, a share three times larger than any other mobile source 
subsector, and represent about one-sixth of all U.S. greenhouse gas 
emissions. Second, technology exists that can be readily and cost-
effectively applied to these vehicles to reduce greenhouse gas 
emissions in the near term. Third, EPA already has an existing testing 
and compliance program for these vehicles, refined since the mid-1970s 
for emissions certification and fuel economy compliance, which would 
require only minor modifications to accommodate greenhouse gas 
emissions regulations. Finally, this proposal is an important first 
step in responding to the Supreme Court's ruling in Massachusetts vs. 
EPA. In addition, EPA is currently evaluating controls for motor 
vehicles other than those covered

[[Page 49508]]

by this proposal, and is reviewing seven petitions submitted by various 
States and organizations requesting that EPA use its Clean Air Act 
authorities to take action to reduce greenhouse gas emissions from 
aircraft (under Sec.  231(a)(2)), ocean-going vessels (under Sec.  
213(a)(4)), and other nonroad engines and vehicle sources (also under 
Sec.  213(a)(4)).
a. Light Vehicle Emissions Contribute to Greenhouse Gases and the 
Threat of Climate Change
    Greenhouse gases are gases in the atmosphere that effectively trap 
some of the Earth's heat that would otherwise escape to space. 
Greenhouse gases are both naturally occurring and anthropogenic. The 
primary greenhouse gases of concern are directly emitted by human 
activities and include carbon dioxide, methane, nitrous oxide, 
hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.
    These gases, once emitted, remain in the atmosphere for decades to 
centuries. Thus, they become well mixed globally in the atmosphere and 
their concentrations accumulate when emissions exceed the rate at which 
natural processes remove greenhouse gases from the atmosphere. The 
heating effect caused by the human-induced buildup of greenhouse gases 
in the atmosphere is very likely\106\ 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 detailed 
explanation of observed and projected changes in greenhouse gases and 
climate change and its impact on health, society, and the environment 
is included in EPA's technical support document for the recently 
released Proposed Endangerment and Cause or Contribute Findings for 
Greenhouse Gases Under Section 202(a) of the Clean Air Act.\107\
---------------------------------------------------------------------------

    \106\ According to Intergovernmental Panel on Climate Change 
(IPCC) terminology, ``very likely'' conveys a 90 to 99 percent 
probability of occurrence. ``Virtually certain'' conveys a greater 
than 99 percent probability, ``likely'' conveys a 66 to 90 percent 
probability, and ``about as likely as not'' conveys a 33 to 66 
percent probability.
    \107\ 74 FR18886, April 24, 2009. Both the Federal Register 
Notice and the Technical Support Document for this rulemaking are 
found in the public docket for this rulemaking. Docket is EPA-OAR-
2009-0171.
---------------------------------------------------------------------------

    Transportation sources represent a large and growing share of 
United States greenhouse gases and include automobiles, highway heavy 
duty trucks, airplanes, railroads, marine vessels and a variety of 
other sources. In 2006, all transportation sources emitted 31.5% of all 
U.S. greenhouse gases, and were the fastest-growing source of 
greenhouse gases in the U.S., accounting for 47% of the net increase in 
total U.S. greenhouse gas emissions from 1990-2006.\108\ The only 
sector with larger greenhouse gas emissions was electricity generation 
which emitted 33.7% of all U.S. greenhouse gases.
---------------------------------------------------------------------------

    \108\ Inventory of U.S. Greenhouse Gases and Sinks: 1990-2006.
---------------------------------------------------------------------------

    Light vehicles emit four greenhouse gases: 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.\109\ 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).\110\ Nitrous oxide (N2O) (and 
nitrogen oxide (NOX)) 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 
NOX, carbon monoxide (CO) and hydrocarbon emissions can 
promote the formation of N2O.\111\ Hydrofluorocarbons (HFC) 
emissions 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.\112\
---------------------------------------------------------------------------

    \109\ Mobile source carbon dioxide emissions in 2006 equaled 26 
percent of total U.S. CO2 emissions.
    \110\ In 2006, methane emissions equaled 0.32 percent of total 
U.S. methane emissions Nitrous oxide is a product of the reaction 
that occurs between nitrogen and oxygen during fuel combustion.
    \111\ In 2006, nitrous oxide emissions for these sources 
accounted for 8 percent of total U.S. nitrous oxide emissions.
    \112\ In 2006 HFC from these source categories equaled 56 
percent of total U.S. HFC emissions, making it the single largest 
source category of U.S. HFC emissions.
---------------------------------------------------------------------------

b. Basis for Action Under 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.'' As noted above, the 
Administrator has proposed to find that the air pollution of elevated 
levels of greenhouse gas concentrations may reasonably be anticipated 
to endanger public health and welfare.\113\ The Administrator has 
proposed to define the air pollution to be the elevated concentrations 
of the mix of six GHGs: carbon dioxide (CO2), methane 
(CH4), nitrous oxide (N2O), hydrofluorocarbons 
(HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride 
(SF6). The Administrator has further proposed to find under 
CAA section 202(a) that CO2, methane, N2O and HFC 
emissions from new motor vehicles and engines contribute to this air 
pollution. This preamble describes proposed standards that would 
control emissions of CO2, HFCs, nitrous oxide, and methane. 
Standards for these GHGs would only be finalized if EPA determines that 
the criteria have been met for endangerment by the air pollution, and 
that emissions of GHGs from new motor vehicles or engines ``cause or 
contribute'' to that air pollution. In that case, section 202(a) would 
authorize EPA to issue standards applicable to emissions of those 
pollutants. For further discussion of EPA's authority under section 
202(a), see Section I.C.2 of the proposal.
---------------------------------------------------------------------------

    \113\ 74 FR18886, April 24, 2009.
---------------------------------------------------------------------------

    There are a variety of other CAA Title II provisions that are 
relevant to standards established under section 202(a). As noted above, 
the standards are applicable to motor vehicles for their useful life. 
EPA has the discretion in determining what standard applies over the 
useful life. For example, EPA may set a single standard that applies 
both when the vehicles are new and throughout the useful life, or where 
appropriate may set a standard that varies during the term of useful 
life, such as a standard that is more stringent in the early years of 
the useful life and less stringent in the later years.

[[Page 49509]]

    The standards established under CAA section 202(a) are implemented 
and enforced through various mechanisms. Manufacturers are required to 
obtain an EPA certificate of conformity with the section 202 
regulations before they may sell or introduce their new motor vehicle 
into commerce, according to CAA section 206(a). The introduction into 
commerce of vehicles without a certificate of conformity is a 
prohibited act under CAA section 203 that may subject a manufacturer to 
civil penalties and injunctive actions (see CAA sections 204 and 205). 
Under CAA section 206(b), EPA may conduct testing of new production 
vehicles to determine compliance with the standards. For in-use 
vehicles, if EPA determines that a substantial number of vehicles do 
not conform to the applicable regulations then the manufacturer must 
submit and implement a remedial plan to address the problem (see CAA 
section 207(c)). There are also emissions-based warranties that the 
manufacturer must implement under CAA section 207(a).
c. EPA's Greenhouse Gas Proposal Under Section 202(a) Concerning 
Endangerment and Cause or Contribute Findings
    EPA's Administrator recently signed a proposed action with two 
distinct findings regarding greenhouse gases under section 202(a) of 
the Clean Air Act. This action is called the Proposed Endangerment and 
Cause or Contribute Findings for Greenhouse Gases under the Clean Air 
Act (Endangerment Proposal).\114\ The Administrator proposed an 
affirmative endangerment finding that the current and projected 
concentrations of a mix of six key greenhouse gases--carbon dioxide 
(CO2), methane (CH4), nitrous oxide 
(N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), 
and sulfur hexafluoride(SF6)--in the atmosphere threaten the 
public health and welfare of current and future generations. She also 
proposed to find that the combined emissions of four of the gases--
carbon dioxide, methane, nitrous oxide and hydrofluorocarbons from new 
motor vehicles and motor vehicle engines--contribute to the atmospheric 
concentrations of these greenhouse gases and therefore to the climate 
change problem.
---------------------------------------------------------------------------

    \114\ 74 FR 18886 (April 24, 2009).
---------------------------------------------------------------------------

    Specifically, the Administrator proposed, after a thorough 
examination of the scientific evidence on the causes and impact of 
current and future climate change, to find that the science 
compellingly supports a positive finding that atmospheric 
concentrations of these greenhouse gases result in air pollution which 
may reasonably be anticipated to endanger both public health and 
welfare. In her proposed finding, the Administrator relied heavily upon 
the major findings and conclusions from the recent assessments of the 
U.S. Climate Change Science Program and the U.N. Intergovernmental 
Panel on Climate Change.\115\ The Administrator proposed a positive 
endangerment finding after considering both observed and projected 
future effects of climate change, key uncertainties, and the full range 
of risks and impacts to public health and welfare occurring within the 
United States. In addition, the proposed finding noted that the 
evidence concerning risks and impacts occurring outside the U.S. 
provided further support for the proposed finding.
---------------------------------------------------------------------------

    \115\ The U.S. Climate Change Science Program (CCSP) is now 
called the U.S. Global Change Research Program (GCRP).
---------------------------------------------------------------------------

    The key scientific findings supporting the proposed endangerment 
finding are that:

--Concentrations of greenhouse gases are at unprecedented levels 
compared to recent and distant past. These high concentrations are the 
unambiguous result of anthropogenic emissions and are very likely the 
cause of the observed increase in average temperatures and other 
climatic changes.
--The effects of climate change observed to date and projected to occur 
in the future include more frequent and intense heat waves, more severe 
wildfires, degraded air quality, heavier downpours and flooding, 
increasing drought, greater sea level rise, more intense storms, harm 
to water resources, harm to agriculture, and harm to wildlife and 
ecosystems. These impacts are effects on public health and welfare 
within the meaning of the Clean Air Act.
    With regard to new motor vehicles and engines, the Administrator 
also proposed a finding that the combined emissions of four greenhouse 
gases--carbon dioxide, methane, nitrous oxide and hydrofluorocarbons--
from new motor vehicles and engines contributes to this air pollution, 
i.e., the atmospheric concentrations of the mix of six greenhouse gases 
which create the threat of climate change and its impacts. Key facts 
supporting the proposed cause and contribute finding for on-highway 
vehicles regulated under section 202(a) of the Clean Air Act are that 
these sources are responsible for 24% of total U.S. greenhouse gas 
emissions, and more than 4% of total global greenhouse gas 
emissions.\116\ The Administrator also considered whether emissions of 
each greenhouse gas individually, as a separate air pollutant, would 
contribute to this air pollution.
---------------------------------------------------------------------------

    \116\ This figure includes the greenhouse gas contributions of 
light vehicles, heavy duty vehicles, and remaining on-highway mobile 
sources.
---------------------------------------------------------------------------

    If the Administrator makes affirmative findings under section 
202(a) on both endangerment and cause or contribute, then EPA is to 
issue standards ``applicable to emission'' of the air pollutant or 
pollutants that EPA finds causes or contributes to the air pollution 
that endangers public health and welfare. The Endangerment Proposal 
invited public comment on whether the air pollutant should be 
considered the group of GHGs, or whether each GHG should be treated as 
a separate air pollutant. Either way, the emissions standards proposed 
today would satisfy the requirements of section 202(a) as the 
Administrator has significant discretion in how to structure the 
standards that apply to the emission of the air pollutant or air 
pollutants at issue. For example, under either approach EPA would have 
the discretion under section 202(a) to adopt separate standards for 
each GHG, a single composite standard covering various gases, or any 
combination of these. In this rulemaking EPA is proposing separate 
standards for nitrous oxide and methane, and a CO2 standard 
that provides for credits based on reductions of HFCs, as the 
appropriate way to issue standards applicable to emissions of these 
GHGs.
3. What is EPA Proposing?
a. Proposed Light-Duty Vehicle, Light-Duty Truck, and Medium-Duty 
Passenger Vehicle Greenhouse Gas Emission Standards and Projected 
Compliance Levels
    The CO2 emissions standards are by far the most 
important of the three standards and are the primary focus of this 
summary. EPA is proposing an attribute-based approach for the 
CO2 fleet-wide standard (one for cars and one for trucks), 
based on vehicle footprint as the attribute. These curves establish 
different CO2 emissions targets for each unique car and 
truck footprint. Generally, the larger the vehicle footprint, the 
higher the corresponding vehicle CO2 emissions target. Table 
III.A.3-1 shows the greenhouse gas standards for light vehicles that 
EPA is proposing for model years (MY) 2012 and later:

[[Page 49510]]



                   Table III.A.3-1--Proposed Industry-Wide Greenhouse Gas Emissions Standards
----------------------------------------------------------------------------------------------------------------
  Standard/covered  pollutants     Form of  standard  Level of  standard        Credits           Test cycles
----------------------------------------------------------------------------------------------------------------
CO2 Standard \117\: Tailpipe CO2  Fleetwide average   See footprint--CO2  CO2-e credits       EPA 2-cycle (FTP
                                   footprint CO2-      curves in Figure    \118\.              and HFET test
                                   curves for cars     I.C-1 for cars                          cycles), with
                                   and trucks.         and Figure I.C-2                        separate
                                                       for trucks.                             mechanisms for A/
                                                                                               C credits.\119\
N2O Standard: Tailpipe N2O......  Cap per vehicle...  0.010 g/mi........  None..............  EPA FTP test.
CH4 Standard: Tailpipe CH4......  Cap per vehicle...  0.030 g/mi........  None..............  EPA FTP test.
----------------------------------------------------------------------------------------------------------------

    One important flexibility associated with the proposed 
CO2 standard is the proposed option for manufacturers to 
obtain credits associated with improvements in their air conditioning 
systems. As will be discussed in greater detail in later sections, EPA 
is establishing test procedures and design criteria by which 
manufacturers can demonstrate improvements in both air conditioner 
efficiency (which reduces vehicle tailpipe CO2 by reducing 
the load on the engine) and air conditioner refrigerants (using lower 
global warming potency refrigerants and/or improving system design to 
reduce GHG emissions associated with leaks). Neither of these 
strategies to reduce GHG emissions from air conditioners would be 
reflected in the EPA FTP or HFET tests. These improvements would be 
translated to a g/mi CO2-equivalent credit that can be 
subtracted from the manufacturer's tailpipe CO2 compliance 
value. EPA expects a high percentage of manufacturers to take advantage 
of this flexibility to earn air conditioning-related credits for 
MY2012-2016 vehicles such that the average credit earned is about 11 
grams per mile CO2-equivalent in 2016.
---------------------------------------------------------------------------

    \117\ While over 99 percent of the carbon in automotive fuels is 
converted to CO2 in a properly functioning engine, 
compliance with the CO2 standard will also account for 
the very small levels of carbon associated with vehicle tailpipe 
hydrocarbon (HC) and carbon monoxide (CO) emissions, converted to 
CO2 on a mass basis, as discussed further in section x.
    \118\ CO2-e refers to CO2-equivalent, and 
is a metric that allows non-CO2 greenhouse gases (such as 
hydrofluorocarbons used as automotive air conditioning refrigerants) 
to be expressed as an equivalent mass (i.e., corrected for relative 
global warming potency) of CO2 emissions.
    \119\ FTP is the Federal Test Procedure which uses what is 
commonly referred to as the ``city'' driving schedule, and HFET is 
the Highway Fuel Economy Test which uses the ``highway'' driving 
schedule. Compliance with the CO2 standard will be based 
on the same 2-cycle values that are currently used for CAFE 
standards compliance; EPA projects that fleet-wide in-use or real 
world CO2 emissions are approximately 25 percent higher, 
on average, than 2-cycle CO2 values.
---------------------------------------------------------------------------

    A second flexibility being proposed is CO2 credits for 
flexible and dual fuel vehicles, similar to the CAFE credits for such 
vehicles which allow manufacturers to gain up to 1.2 mpg in their 
overall CAFE ratings. The Energy Independence and Security Act of 2007 
(EISA) mandated a phase-out of these flexible fuel vehicle CAFE credits 
beginning in 2015, and ending after 2019. EPA is proposing to allow 
comparable CO2 credits for flexible fuel vehicles through MY 
2015, but for MY 2016 and beyond, EPA is proposing to treat flexible 
and dual fuel vehicles on a CO2-performance basis, 
calculating the overall CO2 emissions for flexible and dual 
fuel vehicles based on a fuel use-weighted average of the 
CO2 levels on gasoline and on a manufacturer's demonstrated 
actual usage of the alternative fuel in its vehicle fleet.
    Table III.A.3-2 summarizes EPA projections of industry-wide 2-cycle 
CO2 emissions and fuel economy levels that would be achieved 
by manufacturer compliance with the proposed GHG standards for MY2012-
2016.
    For MY2011, Table III.A.3-2 uses the projected NHTSA compliance 
values for its MY2011 CAFE standards of 30.2 mpg for cars and 24.1 mpg 
for trucks, converted to an equivalent combined car and truck 
CO2 level of 325 grams per mile.\120\ EPA believes this is a 
reasonable estimate with which to compare the proposed MY2012-2016 
CO2 emission standards. Identifying the proper MY2011 
estimate is complicated for many reasons, among them being the turmoil 
in the current automotive market for consumers and manufacturers, 
uncertain and volatile oil and gasoline prices, the ability of 
manufacturers to use flexible fuel vehicle credits to meet MY2011 CAFE 
standards, and the fact that most manufacturers have been surpassing 
CAFE standards (particularly the car standard) in recent years. Taking 
all of these considerations into account, EPA believes that the MY2011 
projected CAFE compliance values, converted to CO2 emissions 
levels, represent a reasonable estimate.
---------------------------------------------------------------------------

    \120\ 74 FR 14196.
---------------------------------------------------------------------------

    Table III.A.3-2 shows projected industry-wide average 
CO2 emissions values. The Projected CO2 Emissions 
for the Footprint-Based Standard column shows the CO2 g/mi 
level corresponding with the footprint standard that must be met. It is 
based on the proposed CO2-footprint curves and projected 
footprint values, and will decrease each year to 250 grams per mile (g/
mi) in MY2016. For MY2012-2015, the emissions impact of the projected 
utilization of flexible fuel vehicle (FFV) credits and the temporary 
lead-time allowance alternative standard (TLAAS, discussed below) are 
shown in the next two columns. Neither of these programs is proposed to 
be available in MY2016. The Projected CO2 Emissions column 
gives the CO2 emissions levels projected to be achieved 
given use of the flexible fuel credits and temporary lead-time 
allowance program. This column shows that, relative to the MY 2011 
estimate, EPA projects that MY2016 CO2 emissions will be 
reduced by 23 percent over five years. The Projected A/C Credit column 
represents the industry wide average air conditioner credit 
manufacturers are expected to earn on an equivalent CO2 gram 
per mile basis in a given model year. In MY2016, the projected A/C 
credit of 10.6 g/mi represents 14 percent of the 75 g/mi CO2 
emissions reductions associated with the proposed standards. The 
Projected 2-cycle CO2 Emissions column shows the projected 
CO2 emissions as measured over the EPA 2-cycle tests, which 
would allow compliance with the standard assuming utilization of the 
projected FFV, TLAAS, and A/C credits.

[[Page 49511]]



                Table III.A.3-2--Projected Fleetwide CO[ihel2] Emissions Values (grams per mile)
----------------------------------------------------------------------------------------------------------------
                                     Projected
                                     CO[ihel2]
                                     emissions                 Projected    Projected                 Projected
            Model year                for the     Projected      TLAAS      CO[ihel2]   Projected A/   2-cycle
                                     footprint-   FFV credit     credit     emissions     C credit    CO[ihel2]
                                       based                                                          emissions
                                      standard
----------------------------------------------------------------------------------------------------------------
2011..............................  ...........  ...........  ...........        (325)  ...........        (325)
2012..............................          295            6          0.3          302          3.1          305
2013..............................          286          5.7          0.2          291          5.0          296
2014..............................          276          5.4          0.2          281          7.5          289
2015..............................          263          4.1          0.1          267         10.0          277
2016..............................          250            0            0          250         10.6          261
----------------------------------------------------------------------------------------------------------------

    EPA is also proposing a series of flexibilities for compliance with 
the CO2 standard which are not expected to significantly 
affect the projected compliance and achieved values shown above, but 
which should significantly reduce the costs of achieving those 
reductions. These flexibilities include the ability to earn: annual 
credits for a manufacturer's over-compliance with its unique fleet-wide 
average standard, early credits from MY2009-2011, credits for early 
introduction of advanced technology vehicles, credit for ``off-cycle'' 
CO2 reductions not reflected in CO2/fuel economy 
tests, as well as the carry-forward and carry-backward of credits, the 
ability to transfer credits between a manufacturer's car and truck 
fleets, and a temporary lead-time allowance alternative standard 
(included in the tables above) that will permit manufacturers with less 
than 400,000 vehicles produced in MY 2009 to designate a fraction of 
their vehicles to meet a 25% higher CO2 standard for MY 
2012-2015. All of these proposed flexibilities are discussed in greater 
detail in later sections.
    EPA is also proposing caps on the tailpipe emissions of nitrous 
oxide (N2O) and methane (CH4)--0.010 g/mi for 
N2O and 0.030 g/mi for CH4--over the EPA FTP 
test. While N2O and CH4 can be potent greenhouse 
gases on a relative mass basis, their emission levels from modern 
vehicle designs are extremely low and represent only about 1% of total 
light vehicle GHG emissions. These cap standards are designed to ensure 
that N2O and CH4 emissions levels do not rise in 
the future, rather than to force reductions in the already low 
emissions levels. Accordingly, these standards are not designed to 
require automakers to make any changes in current vehicle designs, and 
thus EPA is not projecting any environmental or economic impacts 
associated with these proposed standards.
    EPA has attempted to build on existing practice wherever possible 
in designing a compliance program for the proposed GHG standards. In 
particular, the program structure proposed will streamline the 
compliance process for both manufacturers and EPA by enabling 
manufacturers to use a single data set to satisfy both the new GHG and 
CAFE testing and reporting requirements. Timing of certification, 
model-level testing, and other compliance activities also follow 
current practices established under the Tier 2 and CAFE programs.
b. Environmental and Economic Benefits and Costs of EPA's Proposed 
Standards
    In Table III.A.3-3 EPA presents estimated annual net benefits for 
the indicated calendar years. The table also shows the net present 
values of those benefits for the calendar years 2012-2050 using both a 
3% and a 7% discount rate. As discussed previously, EPA recognizes that 
much of these same costs and benefits are also attributed to the 
proposed CAFE standard contained in this joint proposal.

                               Table III.A.3-3--Projected Quantifiable Benefits and Costs for Proposed CO[ihel2] Standard
                                                 [(In million 2007 $s) [Note: B = unquantified benefits]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2020            2030            2040            2050           NPV, 3%         NPV, 7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Quantified Annual Costs \a\.............................        -$25,100        -$72,500       -$105,700       -$146,100     -$1,287,600       -$529,500
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits from Reduced GHG Emissions at each assumed SCC value:
--------------------------------------------------------------------------------------------------------------------------------------------------------
    SCC 5%..............................................           1,200           3,300           5,700           9,500          69,200          28,600
    SCC 5% Newell-Pizer.................................           2,500           6,600          11,000          19,000         138,400          57,100
    SCC from 3% and 5%..................................           4,700          12,000          22,000          36,000         263,000         108,500
    SCC 3%..............................................           8,200          22,000          38,000          63,000         456,900         188,500
    SCC 3% Newell-Pizer.................................          14,000          36,000          63,000         100,000         761,400         314,200
--------------------------------------------------------------------------------------------------------------------------------------------------------
Other Quantified Externalities
--------------------------------------------------------------------------------------------------------------------------------------------------------
PM[ihel2].[ihel5] Related Benefits \b\ \c\ \d\..........           1,400           3,000           4,600           6,700          59,800          26,300
Energy Security Impacts (price shock)...................           2,300           4,800           6,200           7,800          85,800          38,800
Reduced Refueling.......................................           2,500           4,900           6,400           8,000          89,600          41,000
Value of Increased Driving \e\..........................           4,900          10,000          13,600          18,000         184,700          82,700
Accidents, Noise, Congestion............................          -2,400          -4,900          -6,300          -7,900         -88,200         -40,200
--------------------------------------------------------------------------------------------------------------------------------------------------------
Quantified Net Benefits at each assumed SCC value:
--------------------------------------------------------------------------------------------------------------------------------------------------------
    SCC 5%..............................................          35,000          93,600         135,900         188,200       1,688,500         706,700
    SCC 5% Newell-Pizer.................................          36,300          96,900         141,200         197,700       1,757,700         735,200
    SCC from 3% and 5%..................................          38,500         102,300         152,200         214,700       1,882,300         786,600

[[Page 49512]]

 
    SCC 3%..............................................          42,000         112,300         168,200         241,700       2,076,200         866,600
    SCC 3% Newell-Pizer.................................          47,800         126,300         193,200         278,700       2,380,700         992,300
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Quantified annual costs are negative because fuel savings are included as negative costs (i.e., positive savings). Since the fuel savings outweigh
  the vehicle technology costs, the costs of as presented here are actually negative (i.e., they represent savings).
\b\ Note that the co-pollutant impacts associated with the standards presented here do not include the full complement of endpoints that, if quantified
  and monetized, would change the total monetized estimate of rule-related impacts. Instead, the co-pollutant benefits are based on benefit-per-ton
  values that reflect only human health impacts associated with reductions in PM[ihel2].[ihel5] exposure. Ideally, human health and environmental
  benefits would be based on changes in ambient PM[ihel2].[ihel5] and ozone as determined by full-scale air quality modeling. However, EPA was unable to
  conduct a full-scale air quality modeling analysis in time for the proposal. EPA does intend to more fully capture the co-pollutant benefits for the
  analysis of the final standards.
\c\ The PM[ihel2].[ihel5]-related benefits (derived from benefit-per-ton values) presented in this table are based on an estimate of premature mortality
  derived from the ACS study (Pope et al., 2002). If the benefit-per-ton estimates were based on the Six Cities study (Laden et al., 2006), the values
  would be approximately 145% (nearly two-and-a-half times) larger.
\d\ The PM[ihel2].[ihel5]-related benefits (derived from benefit-per-ton values) presented in this table assume a 3% discount rate in the valuation of
  premature mortality to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used, the values would be approximately 9%
  lower.
\e\ Calculated using pre-tax fuel prices.

4. Basis for the Proposed GHG Standards Under Section 202(a)
    EPA statutory authority under section 202(a)(1) of the Clean Air 
Act (CAA) is discussed in more detail in Section I.C.2. The following 
is a summary of the basis for the proposed standards under section 
202(a), which is discussed in more detail in the following portions of 
Section III.
    With respect to CO2 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 proposed 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's 
projection of the technology that would be used to comply with the 
proposed standards indicates that manufacturers will be able to meet 
the proposed standards by employing a wide variety of technology that 
is already commercially available and can be incorporated into their 
vehicle at the time of redesign. In addition to the use of the 
manufacturers' redesign cycle, EPA's analysis also takes into account 
certain flexibilities that will facilitate compliance especially in the 
early years of the program when potential lead time constraints are 
most challenging. These flexibilities include averaging, banking, and 
trading of various types of credits. For the industry as a whole, EPA's 
projections indicate that the proposed standards can be met using 
technology that will be available in the lead-time provided.
    To account for additional lead-time concerns for various 
manufacturers of typically higher performance vehicles, EPA is 
proposing a Temporary Lead-time Allowance that will further facilitate 
compliance for limited volumes of such vehicles in the program's 
initial years. For a few very small volume manufacturers, EPA projects 
that manufacturers will likely comply using a combination of credits 
and technology.
    EPA has also 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 standard practices such as making major 
changes to model 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 from this analysis to be well 
within a reasonable range in light of the emissions reductions and 
benefits received. 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.
    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 2012-2016 vehicles we estimate GHG reductions of 
approximately 950 million metric tons CO2 eq. and fuel 
reductions of 1.8 billion barrels of oil. These are important and 
significant reductions that would be achieved by the proposed 
standards. 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 proposed standards, to the 
extent practicable. Our analysis to date indicates that the overall 
quantified benefits of the proposed standards far outweigh the 
projected costs. Utilizing a 3% discount rate and a $20 per ton social 
cost of carbon we estimate the total net social benefits over the life 
of the model year 2012-2016 vehicles is $192 billion, and the net 
present value of the net social benefits of the standards through the 
year 2050 is $1.9 trillion dollars. These values are estimated at $136 
billion and $787 billion, respectively, using a 7% discount rate and 
the $20 per ton SCC value.
    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 proposed standards satisfy this 
requirement, as discussed above. 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 rule. In 
summary, given the technical feasibility of the standard, the moderate 
cost per vehicle in light of the savings in fuel costs over the life 
time of the vehicle, the very significant reductions

[[Page 49513]]

in emissions and in oil usage, and the significantly greater quantified 
benefits compared to quantified costs, EPA is confident that the 
proposed 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 (D.C. Cir. 2001) (great discretion to balance statutory 
factors in considering level of technology-based standard, and 
statutory requirement ``to [give appropriate] consideration to the cost 
of applying * * * technology'' does not mandate a specific method of 
cost analysis); see also Hercules Inc. v. EPA, 598 F.2d 91, 106 (D.C. 
Cir. 1978) (``In reviewing a numerical standard we must ask whether the 
agency's numbers are within a zone of reasonableness, not whether its 
numbers are precisely right''); Permian Basin Area Rate Cases, 390 U.S. 
747, 797 (1968) (same); Federal Power Commission v. Conway Corp., 426 
U.S. 271, 278 (1976) (same); Exxon Mobil Gas Marketing Co. v. FERC, 297 
F.3d 1071, 1084 (D.C. Cir. 2002) (same).
    EPA recognizes that the vast majority of technology which we are 
considering for purposes of setting standards under section 202(a) is 
commercially available and already being utilized to a limited extent 
across the fleet. The vast majority of the emission reductions which 
would result from this proposed rule would result from the increased 
use of these technologies. EPA also recognizes that this proposed rule 
would enhance the development and limited use of more advanced 
technologies, such as PHEVs and EVs. 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 has therefore evaluated two sets of alternative 
standards, one more stringent than the proposed standards and one less 
stringent.
    The alternatives are 4% per year increase in standards which would 
be less stringent than our proposal and a 6% per year increase in the 
standards which would be more stringent than our proposal. EPA is not 
proposing either of these. As discussed in Section III.D.7, the 4% per 
year compared to the proposal forgoes CO2 reductions which 
can be achieved at reasonable costs and are achievable by the industry 
within the rule's timeframe. The 6% per year alternative requires a 
significant increase in the projected required technology which may not 
be achievable in this timeframe due to the limited available lead time 
and the current difficult financial condition of the automotive 
industry. (See Section III.D.7 for a detailed discussion of why EPA is 
not proposing either of the alternatives.) EPA thus believes that it is 
appropriate to propose the CO2 standards discussed above. 
EPA invites comment on all aspects of this judgment, as well as comment 
on the alternative standards.
    EPA is also proposing standards for N2O and 
CH4. EPA has designed these standards to act as emission 
rate (i.e., gram per mile) caps and to avoid future increases in light 
duty vehicle emissions. As discussed in Section III.B.6, N2O 
and CH4 emissions are already generally well controlled by 
current emissions standards, and EPA has not identified clear 
technological steps available to manufacturers today that would 
significantly reduce current emission levels for the vast majority of 
vehicles manufactured today (i.e., stoichiometric gasoline vehicles). 
However, for both N2O and CH4, some vehicle 
technologies (and, for CH4, use of natural gas fuel) could 
potentially increase emissions of these GHGs in the future, and EPA 
believes it is important that this be avoided. EPA expects that, almost 
universally across current car and truck designs, manufacturers will be 
able to meet the ``cap'' standards with little if any technological 
improvements or cost. EPA has designed the level of the N2O 
and CH4 standards with the intent that manufacturers would 
be able to meet them without the need for technological improvement; in 
other words, these emission standards are designed to be ``anti-
backsliding'' standards.

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

    EPA is proposing new emission standards to control greenhouse gases 
(GHGs) from light-duty vehicles. First, EPA is proposing emission 
standards for carbon dioxide (CO2) on a gram per mile (g/
mile) basis that would apply to a manufacturer's fleet of cars, and a 
separate standard that would apply to a manufacturer's fleet of trucks. 
CO2 is the primary pollutant resulting from the combustion 
of vehicular fuels, and the amount of CO2 emitted is 
directly correlated to the amount of fuel consumed. Second, EPA is 
providing auto manufacturers with the opportunity to earn credits 
toward the fleet-wide average CO2 standards for improvements 
to air conditioning systems, including both hydrofluorocarbon (HFC) 
refrigerant losses (i.e., system leakage) and indirect CO2 
emissions related to the increased load on the engine. Third, EPA is 
proposing separate emissions standards for two other GHG pollutants: 
Methane (CH4) and nitrous oxide (N2O). 
CH4 and N2O emissions relate closely to the 
design and efficient use of emission control hardware (i.e., catalytic 
converters). The standards for CH4 and N2O would 
be set as a cap that would limit emissions increases and prevent 
backsliding from current emission levels. 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 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.'' \121\
---------------------------------------------------------------------------

    \121\ As described in Section III.B.2., EPA is proposing for 
purposes of GHG emissions standards to use the same vehicle category 
definitions as are used in the CAFE program.
---------------------------------------------------------------------------

    EPA is establishing a system of averaging, banking, and trading of 
credits integral to the fleet averaging approach, based on manufacturer 
fleet average CO2 performance, as discussed in Section 
III.B.4. This approach is similar to averaging, banking, and trading 
(ABT) programs EPA has established in other programs and is also 
similar to provisions in the CAFE program. In addition to traditional 
ABT credits based on the fleet emissions average, EPA is also proposing 
to include A/C credits as an aspect of the standards, as mentioned 
above. EPA is also proposing several additional credit provisions that 
apply only in the initial model years of the program. These include 
flex fuel vehicle credits, credits based on the use of advanced 
technologies, and generation of credits prior to model year 2012. The 
proposed A/C credits and additional credit opportunities are described 
in Section III.C. These credit programs would provide flexibility to 
manufacturers, which may be especially important during the early 
transition years of the program. EPA is also proposing to allow a 
manufacturer to carry a deficit into the future for a limited number of 
model years. A parallel provision, referred to as credit carry-back, is 
proposed as part of the CAFE program.
1. What Fleet-Wide Emissions Levels Correspond to the CO2 
Standards?
    The proposed attribute-based CO2 standards, if made 
final, are projected to achieve a national fleet-wide average, covering 
both light cars and trucks, of

[[Page 49514]]

250 grams/mile of CO2 in model year (MY) 2016. This includes 
CO2-equivalent emission reductions from A/C improvements, 
reflected as credits in the standard. The standards would begin with MY 
2012, with a generally linear increase in stringency from MY 2012 
through MY 2016. EPA is proposing separate standards for cars and light 
trucks. 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 will 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 may generate credits from cars and use them for 
compliance with the truck standard. Such transfer of credits between 
cars and trucks is not reflected in the table below. In Section III.F, 
the year-by-year estimate of emissions reductions that are projected to 
be achieved by the proposed standards are discussed.
    In general, the proposed schedule of standards acts as a phase-in 
to the MY 2016 standards, and reflects consideration of the appropriate 
lead-time for each manufacturer to implement the requisite emission 
reductions technology across its product line.\122\ Note that 2016 is 
the final model year in which standards become more stringent. The 2016 
CO2 standards would remain in place for 2017 and later model 
years, until revised by EPA in a future rulemaking.
---------------------------------------------------------------------------

    \122\ See CAA section 202(a)(2).
---------------------------------------------------------------------------

    EPA estimates that, on a combined fleet-wide national basis, the 
proposed 2016 MY standards would achieve a level of 250 g/mile 
CO2, including CO2-equivalent credits from A/C 
related reductions. The derivation of the 250 g/mile estimate is 
described in Section III.B.2.
    EPA has estimated the overall fleet-wide CO2-equivalent 
emission 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 III.B.1-1 and 
III.B.1-2 provide these estimates for each manufacturer.\123\
---------------------------------------------------------------------------

    \123\ These levels do not include the effect of flexible fuel 
credits, transfer of credits between cars and trucks, temporary lead 
time allowance, or any other credits.

 Table III.B.1-1--Estimated Fleet CO2-Equivalent Levels Corresponding to
                     the Proposed Standards for Cars
------------------------------------------------------------------------
                                                Model year
          Manufacturer           ---------------------------------------
                                   2012    2013    2014    2015    2016
------------------------------------------------------------------------
BMW.............................     265     257     249     238     227
Chrysler........................     266     259     251     242     231
Daimler.........................     270     263     257     245     234
Ford............................     266     259     251     239     228
General Motors..................     266     258     250     239     228
Honda...........................     259     251     244     232     221
Hyundai.........................     260     252     244     233     221
Kia.............................     262     253     246     235     223
Mazda...........................     258     250     243     231     220
Mitsubishi......................     255     247     240     228     217
Nissan..........................     263     255     247     236     225
Porsche.........................     242     234     227     215     204
Subaru..........................     252     244     237     225     214
Suzuki..........................     244     236     229     217     206
Tata............................     286     278     271     259     248
Toyota..........................     257     250     242     231     220
Volkswagen......................     254     246     239     228     217
------------------------------------------------------------------------


 Table III.B.1-2--Estimated Fleet CO2-Equivalent Levels Corresponding to
                 the Proposed Standards for Light Trucks
------------------------------------------------------------------------
                                                Model year
          Manufacturer           ---------------------------------------
                                   2012    2013    2014    2015    2016
------------------------------------------------------------------------
BMW.............................     334     324     313     298     283
Chrysler........................     349     339     329     315     300
Daimler.........................     346     334     323     308     293
Ford............................     363     352     343     329     314
General Motors..................     372     361     351     337     322
Honda...........................     333     322     311     295     280
Hyundai.........................     330     320     308     293     278
Kia.............................     341     330     319     303     288
Mazda...........................     321     311     300     286     271
Mitsubishi......................     320     310     299     284     269
Nissan..........................     352     341     332     318     303
Porsche.........................     338     327     316     301     286
Subaru..........................     319     308     297     282     267
Suzuki..........................     324     313     301     286     271
Tata............................     326     316     305     289     275
Toyota..........................     342     332     320     305     291

[[Page 49515]]

 
Volkswagen......................     344     333     322     307     292
------------------------------------------------------------------------

    These estimates were aggregated based on projected production 
volumes into the fleet-wide averages for cars and trucks (Table 
III.B.1-3).\124\
---------------------------------------------------------------------------

    \124\ Due to rounding during calculations, the estimated fleet-
wide CO2-equivalent levels may vary by plus or minus 1 
gram.

       Table III.B.1-3--Estimated Fleet-wide CO2-Equivalent Levels
                 Corresponding to the Proposed Standards
------------------------------------------------------------------------
                                               Cars           Trucks
------------------------------------------------------------------------
               Model year                   CO2 (g/mi)      CO2 (g/mi)
------------------------------------------------------------------------
2012....................................             261             352
2013....................................             254             341
2014....................................             245             331
2015....................................             234             317
2016 and later..........................             224             303
------------------------------------------------------------------------

    As shown in Table III.B.1-3, fleet-wide CO2-equivalent 
emission levels for cars under the proposed approach are projected to 
decrease from 261 to 224 grams per mile between MY 2012 and MY 2016. 
Similarly, fleet-wide CO2-equivalent emission levels for 
trucks are projected to decrease from 352 to 303 grams per mile. These 
numbers do not include the effects of other flexibilities and credits 
in the program. The estimated achieved values can be found in Chapter 5 
of the Draft Regulatory Impact Analysis (DRIA).
    EPA has also estimated the average fleet-wide levels for the 
combined car and truck fleets. These levels are provided in Table 
III.B.1-4. As shown, the overall fleet average CO2 level is 
expected to be 250 g/mile in 2016.

  Table III.B.1-4--Estimated Fleet-wide Combined CO2-Equivalent Levels
                 Corresponding to the Proposed Standards
------------------------------------------------------------------------
                                                           Combined car
---------------------------------------------------------    and truck
                                                         ---------------
                       Model year                           CO2 (g/mi)
------------------------------------------------------------------------
2012....................................................             295
2013....................................................             286
2014....................................................             276
2015....................................................             263
2016....................................................             250
------------------------------------------------------------------------

    As noted above, EPA is proposing standards that would result in 
increasingly stringent levels of CO2 control from MY 2012 
though MY 2016--applying the CO2 footprint curves applicable 
in each model year to the vehicles expected to be sold in each model 
year produces fleet-wide annual reductions in CO2 emissions. 
As explained in Section III.D below and the relevant support documents, 
EPA believes that the proposed level of improvement achieves important 
CO2 emissions reductions through the application of feasible 
control technology at reasonable cost, considering the needed lead time 
for this program. EPA further believes that the proposed averaging, 
banking and trading provisions, as well as other credit-generating 
mechanisms, allow manufacturers further flexibilities which reduce the 
cost of the proposed CO2 standards and help to provide 
adequate lead time. EPA believes this approach is justified under 
section 202(a) of the Clean Air Act.
    EPA has analyzed the feasibility under the CAA of achieving the 
proposed CO2 standards, based on projections of what actions 
manufacturers are expected to take to reduce emissions. The results of 
the analysis are discussed in detail in Section III.D below and in the 
DRIA. EPA also presents the estimated costs and benefits of the 
proposed car and truck CO2 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 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 and NHTSA place important 
weight on the fact that during MYs 2012-2016 manufacturers are expected 
to redesign and upgrade their light-duty vehicle products (and in some 
cases introduce entirely new vehicles not on the market today). Over 
these five model years there would be an opportunity for manufacturers 
to evaluate almost every one of their vehicle model platforms and add 
technology in a cost-effective way to control GHG emissions and improve 
fuel economy. This includes redesign of the air conditioner systems in 
ways that will further reduce GHG emissions. The time-frame and levels 
for the proposed standards, as well as the ability to average, bank and 
trade credits and carry a deficit forward for a limited time, are 
expected to provide manufacturers the time needed to incorporate 
technology that will achieve GHG reductions, and to do this as part of 
the normal vehicle redesign process. This is an important aspect of the 
proposal, as it would avoid the much higher costs that would occur if 
manufacturers needed to add or change technology at times other than 
these scheduled redesigns. This time period would also provide 
manufacturers the opportunity to plan for compliance using a multi-year 
time frame, again in accord with their normal business practice.
    Consistent with the requirement of CAA section 202(a)(1) that 
standards be applicable to vehicles ``for their useful life,'' EPA is 
proposing CO2 vehicle standards that 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 Tier 2 
light-duty vehicles and light-duty trucks.\125\ Tier 2 refers to EPA's 
standards for criteria pollutants such as NOX, HC, and CO. 
EPA is proposing new CO2 standards for the same group of 
vehicles, and therefore the Tier 2 useful life would apply for 
CO2 standards as well. The in-use emission standard will be 
10% higher than the certification standard, to address issues of 
production variability and test-to-test variability. The in-use 
standard is discussed in Section III.E.
---------------------------------------------------------------------------

    \125\ See 65 FR 6698 (February 10, 2000).
---------------------------------------------------------------------------

    EPA is proposing to measure CO2 for certification and 
compliance purposes using the same test procedures currently used by 
EPA for measuring fuel economy. These procedures are the Federal Test 
Procedure (FTP or ``city'' test) and the Highway Fuel Economy

[[Page 49516]]

Test (HFET or ``highway'' test).\126\ This corresponds with the data 
used to develop the footprint-based CO2 standards, since the 
data on control technology efficiency was also developed in reference 
to these test procedures. Although EPA recently updated the test 
procedures used for fuel economy labeling, to better reflect the actual 
in-use fuel economy achieved by vehicles, EPA is not proposing to use 
these test procedures for the CO2 standards proposed here, 
given the lack of data on control technology effectiveness under these 
procedures.\127\ As stated in Section I, EPA and NHTSA invite comments 
on potential amendments to the CAFE and GHG test procedures, including 
but not limited to air conditioner-related emissions, that could be 
implemented beginning in MY 2017.
---------------------------------------------------------------------------

    \126\ 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.\126\ 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.
    \127\ See 71 FR 77872, December 27, 2006.
---------------------------------------------------------------------------

    EPA proposes to include hydrocarbons (HC) and carbon monoxide (CO) 
in its CO2 emissions calculations on a CO2-
equivalent basis. It is well accepted that HC and CO are typically 
oxidized to CO2 in the atmosphere in a relatively short 
period of time and so are effectively part of the CO2 
emitted by a vehicle. In terms of standard stringency, accounting for 
the carbon content of tailpipe HC and CO emissions and expressing it as 
CO2-equivalent emissions would add less than one percent to 
the overall CO2-equivalent emissions level. This will also 
ensure consistency with CAFE calculations since HC and CO are included 
in the ``carbon balance'' methodology that EPA uses to determine fuel 
usage as part of calculating vehicle fuel economy levels.
2. What Are the CO2 Attribute-Based Standards?
    EPA proposes to use the same vehicle category definitions that are 
used in the CAFE program for the 2011 model year standards.\128\ The 
CAFE vehicle category definitions differ slightly from the EPA 
definitions for cars and light trucks used for the Tier 2 program, as 
well as other EPA vehicle programs. Specifically, NHTSA's 
reconsideration of the CAFE program statutory language has resulted in 
many two-wheel drive SUVs under 6000 pounds gross vehicle weight being 
reclassified as cars under the CAFE program. The proposed approach of 
using CAFE definitions allows EPA's proposed CO2 standards 
and the proposed CAFE standards to be harmonized across all vehicles. 
In other words, vehicles would be subject to either car standards or 
truck standards under both programs, and not car standards under one 
program and trucks standards under the other.
---------------------------------------------------------------------------

    \128\ See 49 CFR part 523.
---------------------------------------------------------------------------

    EPA is proposing separate car and truck standards, that is, 
vehicles defined as cars have one set of footprint-based curves for MY 
2012-2016 and vehicles defined as trucks have a different set for MY 
2012-2016. In general, for a given footprint the CO2 g/mi 
target for trucks is less stringent then for a car with the same 
footprint.
    EPA is not proposing a single fleet standard where all cars and 
trucks are measured against the same footprint curve for several 
reasons. First, some vehicles classified as trucks (such as pick-up 
trucks) have certain attributes not common on cars which attributes 
contribute to higher CO2 emissions--notably high load 
carrying capability and/or high towing capability. Due to these 
differences, it is reasonable to separate the light-duty vehicle fleet 
into two groups. Second, EPA would like to harmonize key program design 
elements of the GHG standards with NHTSA's CAFE program where it is 
reasonable to do so. NHTSA is required by statute to set separate 
standards for passenger cars and for non-passenger cars.
    Finally, most of the advantages of a single standard for all light 
duty vehicles are also present in the two-fleet standards proposed 
here. Because EPA is proposing to allow unlimited credit transfer 
between a manufacturer's car and truck fleets, the two fleets can 
essentially be viewed as a single fleet when manufacturers consider 
compliance strategies. Manufacturers can thus choose on which vehicles 
within their fleet to focus GHG reducing technology and then use credit 
transfers as needed to demonstrate compliance, just as they would if 
there was a single fleet standard. The one benefit of a single light-
duty fleet not captured by a two-fleet approach is that a single fleet 
prevents potential ``gaming'' of the car and truck definitions to try 
and design vehicles which are more similar to passenger cars but which 
may meet the regulatory definition of trucks. Although this is of 
concern to EPA, we do not believe at this time that concern is 
sufficient to outweigh the other reasons for proposing separate car and 
truck fleet standards. EPA requests comment on this approach.
    For model years 2012 and later, EPA is proposing a series of 
CO2 standards that are described mathematically by a family 
of piecewise linear functions (with respect to vehicle footprint). The 
form of the function is as follows:

CO2 = a, if x <= l
CO2 = cx + d, if l < x <= h
CO2 = b, if x > h

Where:
CO2 = the CO2 target value for a given 
footprint (in g/mi)
a = the minimum CO2 target value (in g/mi)
b = the maximum CO2 target value (in g/mi)
c = the slope of the linear function (in g/mi per sq ft)
d = is the zero-offset for the line (in g/mi CO2)
x = footprint of the vehicle model (in square feet, rounded to the 
nearest tenth)
l & h are the lower and higher footprint limits, constraints, or the 
boundary (``kinks'') between the flat regions and the intermediate 
sloped line.

    EPA's proposed parameter values that define the family of functions 
for the proposed CO2 fleetwide average car and truck 
standards are as follows:

                                                       Table III.B.2-1--Parameter Values for Cars
                                                             [For CO2 gram per mile targets]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                               Lower           Upper
                       Model year                                a               b               c               d          constraint      constraint
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012....................................................             242             313            4.72            48.8              41              56
2013....................................................             234             305            4.72            40.8              41              56
2014....................................................             227             297            4.72            33.2              41              56
2015....................................................             215             286            4.72            22.0              41              56
2016 and later..........................................             204             275            4.72            10.9              41              56
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 49517]]


                                                      Table III.B.2-2--Parameter Values for Trucks
                                                             [For CO2 gram per mile targets]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                               Lower           Upper
                       Model year                                a               b               c               d          constraint      constraint
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012....................................................             298             399            4.04           132.6              41              66
2013....................................................             287             388            4.04           121.6              41              66
2014....................................................             276             377            4.04           110.3              41              66
2015....................................................             261             362            4.04            95.2              41              66
2016 and later..........................................             246             347            4.04            80.4              41              66
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The equations can be shown graphically for each vehicle category, 
as shown in Figures III.B.2-1 and III.B.2-2. These standards (or 
functions) decrease from 2012-2016 with a vertical shift. A more 
detailed description of the development of the attribute based standard 
can be found in Chapter 2 of the Draft Joint TSD. More background 
discussion on other alternative attributes and curves EPA explored can 
be found in the EPA DRIA. EPA recognizes that the CAA does not mandate 
that EPA use an attribute based standard, as compared to NHTSA's 
obligations under EPCA. The EPA believes that proposing a footprint-
based program will harmonize EPA's proposed program and the proposed 
CAFE program as a single national program, resulting in reduced 
compliance complexity for manufacturers. EPA's reasons for proposing to 
use an attribute based standard are discussed in more detail in the 
Joint TSD. Comments are requested on this proposal to use the 
attribute-based approach for regulating tailpipe CO2 
emissions.

BILLING CODE 4910-59-P

[[Page 49518]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.010


[[Page 49519]]


[GRAPHIC] [TIFF OMITTED] TP28SE09.011

BILLING CODE 4910-59-C
3. Overview of How EPA's Proposed CO2 Standards Would Be 
Implemented for Individual Manufacturers
    This section provides a brief overview of how EPA proposes to 
implement the CO2 standards. Section III.E explains EPA's 
proposed approach for certification and compliance in detail. EPA is 
proposing two kinds of standards--fleet average standards determined by 
a manufacturer's fleet profile of various models, and in-use standards 
that would apply to the various models that make up the manufacturer's 
fleet. Although this is similar in concept to the current light-duty 
vehicle Tier 2 program, there are

[[Page 49520]]

important differences. In explaining EPA's proposal for the 
CO2 standards, it is useful to summarize how the Tier 2 
program works.
    Under Tier 2, manufacturers select a test vehicle prior to 
certification and test the vehicle and/or its emissions hardware to 
determine both its emissions performance when new and the emissions 
performance expected at the end of its useful life. Based on this 
testing, the vehicle is assigned to one of several specified bins of 
emissions levels, identified in the Tier 2 rule, and this bin level 
becomes the emissions standard for the test group the test vehicle 
represents. All of the vehicles in the group must meet the emissions 
level for that bin throughout their useful life. The emissions level 
assigned to the bin is also used in calculating the manufacturer's 
fleet average emissions performance.
    Since compliance with the Tier 2 fleet average depends on actual 
test group sales volumes and bin levels, it is not possible to 
determine compliance at the time the manufacturer applies for and 
receives a certificate of conformity for a test group. Instead, at 
certification, the manufacturer demonstrates that the vehicles in the 
test group are expected to comply throughout their useful life with the 
emissions bin assigned to that test group, and makes a good faith 
demonstration that its fleet is expected to comply with the Tier 2 
average when the model year is over. EPA issues a certificate for the 
vehicles covered by the test group based on this demonstration, and 
includes a condition in the certificate that if the manufacturer does 
not comply with the fleet average then production vehicles from that 
test group will be treated as not covered by the certificate to the 
extent needed to bring the manufacturer's fleet average into compliance 
with Tier 2.
    EPA proposes to retain the Tier 2 approach of requiring 
manufacturers to demonstrate in good faith at the time of certification 
that models in a test group will meet applicable standards throughout 
useful life. EPA also proposes to retain the practice of conditioning 
certificates upon attainment of the fleet average standard. However, 
there are several important differences between a Tier 2 type of 
program and the CO2 standards program EPA is proposing. 
These differences and resulting modifications to certification are 
summarized below and are described in detail in Section III.E.
    EPA is proposing to certify test groups as it does for Tier 2, with 
the CO2 emission results for the test vehicle as the initial 
or default standard for all of the models in the test group. However, 
manufacturers would later substitute test data for individual models in 
that test group, based on the model level fuel economy testing that 
typically occurs through the course of the model year. This model level 
data would then be used to assign a distinct certification level for 
that model, instead of the initial test group level. These model level 
results would then be used to calculate the fleet average after the end 
of production.\129\ The option to substitute model level test data for 
the test group data is at the manufacturer's discretion, except they 
are required as under the CAFE test protocols to test, at a minimum, 
enough models to represent 90 percent of their production. The test 
group level would continue to apply for any model that is not covered 
by model level testing. A related difference is that the fleet average 
calculation for Tier 2 is based on test group bin levels and test group 
sales whereas under this proposal the CO2 fleet level would 
be based on a combination of test group and model-level emissions and 
model-level production. For the new CO2 standards, EPA is 
proposing to use production rather than sales in calculating the fleet 
average in order to more closely conform with CAFE, which is a 
production-based program. EPA does not expect any significant 
environmental effect because there is little difference between 
production and sales, and this will reduce the complexity of the 
program for manufacturers.
---------------------------------------------------------------------------

    \129\ The final in-use vehicle standards for each model would 
also be based on the model-level fuel economy testing. As discussed 
in Section III.E.4, an in-use adjustment factor would be applied to 
the model level results to determine the in-use standard that would 
apply during the useful life of the vehicle.
---------------------------------------------------------------------------

4. Averaging, Banking, and Trading Provisions for CO2 
Standards
    As explained above, a fleet average CO2 program for 
passenger cars and light trucks is proposed. EPA has implemented 
similar averaging programs for a range of motor vehicle types and 
pollutants, from the Tier 2 fleet average for NOX to 
motorcycle hydrocarbon (HC) plus oxides of nitrogen (NOX) 
emissions to NOX and particulate matter (PM) emissions from 
heavy-duty engines.\130\ The proposed program would operate much like 
EPA's existing averaging programs in that manufacturers would calculate 
production-weighted fleet average emissions at the end of the model 
year and compare their fleet average with a fleet average standard to 
determine compliance. As in other EPA averaging programs, the Agency is 
also proposing a 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, using their typical redesign schedules.
---------------------------------------------------------------------------

    \130\ For example, see the Tier 2 light-duty vehicle emission 
standards program (65 FR 6698, February 10, 2000), the 2010 and 
later model year motorcycle emissions program (69 FR 2398, January 
15, 2004), and the 2007 and later model year heavy-duty engine and 
vehicle standards program (66 FR 5001, January 18, 2001).
---------------------------------------------------------------------------

    Averaging, Banking, and Trading (ABT) of emissions credits has 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. 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 lead-time or technical feasibility, allowing EPA to set a 
standard that is either numerically more stringent or goes into effect 
earlier than could have been justified otherwise. This provides 
important environmental benefits at the same time it increases 
flexibility and reduces costs for the regulated industry.
    This section discusses generation of credits by achieving a fleet 
average CO2 level that is lower than the manufacturer's 
CO2 fleet average standard. EPA is proposing a variety of 
additional ways credits may be generated by manufacturers. Section 
III.C describes these additional opportunities to generate credits in 
detail. EPA is proposing that credits could be earned through A/C 
system improvements beyond a specified baseline. Credits can also be 
generated by producing alternative fuel vehicles, by producing advanced 
technology vehicles including electric vehicles, plug-in hybrids, and 
fuel cell vehicles, and by using technologies that improve off-cycle 
emissions. In addition, EPA is proposing that early credits could be 
generated prior to the proposed program's MY 2012 start date. The 
credits would be used in calculating the fleet averages at the end of 
the model year, with the exception of early credits which would be 
tracked separately. These proposed credit generating opportunities are 
described below in Section III.C.
    As explained earlier, manufacturers would determine the fleet 
average standard that would apply to their car fleet and the standard 
for their truck fleet from the applicable attribute-based curve. A 
manufacturer's credit or debit

[[Page 49521]]

balance would be determined by comparing their fleet average with the 
manufacturer's CO2 standard for that model year. The 
standard would be calculated from footprint values on the attribute 
curve and actual production levels of vehicles at each footprint. A 
manufacturer would generate credits if its car or truck fleet achieves 
a fleet average CO2 level lower than its standard and would 
generate debits if its fleet average CO2 level is above that 
standard. At the end of the model year, each manufacturer would 
calculate a production-weighted fleet average for each averaging set, 
cars and trucks. A manufacturer's car or truck fleet that achieves a 
fleet average CO2 level lower than its standard would 
generate credits, and if its fleet average CO2 level is 
above that standard its fleet would generate debits.
    EPA is proposing to account for the difference in expected lifetime 
vehicle miles traveled (VMT) between cars and trucks in order to 
preserve CO2 reductions when credits are transferred between 
cars and trucks. As directed by EISA, NHTSA accomplishes this in the 
CAFE program by using an adjustment factor that is applied to credits 
when they are transferred between car and truck compliance categories. 
The CAFE adjustment factor accounts for two different influences that 
can cause the transfer of car and truck credits (expressed in tenths of 
a mpg), if left unadjusted, to potentially negate fuel reductions. 
First, mpg is not linear with fuel consumption, i.e., a 1 mpg 
improvement above a standard will imply a different amount of actual 
fuel consumed depending on the level of the standard. Second, NHTSA's 
conversion corrects for the fact that the typical lifetime miles for 
cars is less than that for trucks, meaning that credits earned for cars 
and trucks are not necessarily equal. NHTSA's adjustment factor 
essentially converts credits into vehicle lifetime gallons to ensure 
preservation of fuel savings and the transfer credits on an equal 
basis, and then converts back to the statutorily required credit units 
of tenths of a mile per gallon. To convert to gallons NHTSA's 
conversion must take into account the expected lifetime mileage for 
cars and trucks. Because EPA is proposing standards that are expressed 
on a CO2 gram per mile basis, which is linear with fuel 
consumption, EPA's credit calculations do not need to account for the 
first issue noted above. However, EPA is proposing to account for the 
second issue by expressing credits when they are generated in total 
lifetime megagrams (metric tons), rather than through the use of 
conversion factors that would apply at certain times. In this way 
credits could be freely exchanged between car and truck compliance 
categories without adjustment. Additional detail regarding this 
approach, including a discussion of the vehicle lifetime mileage 
estimates for cars and trucks can be found in Section III.E.5. A 
discussion of the estimated vehicle lifetime miles traveled can be 
found in Chapter 4 of the draft Joint Technical Support Document. EPA 
requests comment on the proposed approach.
    A manufacturer that generates credits in a given year and vehicle 
category could use those credits in essentially four ways, although 
with some limitations. These provisions are very similar to those of 
other EPA averaging, banking, and trading programs. These provisions 
have the potential to reduce costs and compliance burden, and support 
the feasibility of the standards being proposed in terms of lead time 
and orderly redesign by a manufacturer, thus promoting and not reducing 
the environmental benefits of the program.
    First, the manufacturer would have to offset any deficit that had 
accrued in that averaging set in a prior model year and had been 
carried over to the current model year. In such a case, the 
manufacturer would be obligated to use any current model year credits 
to offset that deficit. This is referred to in the CAFE program as 
credit carry-back. EPA's proposed deficit carry-forward, or credit 
carry-back provisions are described further, below.
    Second, after satisfying any needs to offset pre-existing deficits 
within a vehicle category, remaining credits could be banked, or saved 
for use in future years. EPA is proposing that credits generated in 
this program be available to the manufacturer for use in any of the 
five years after the year in which they were generated, consistent with 
the CAFE program under EISA. This is also referred to as a credit 
carry-forward provision. For other new emission control programs, EPA 
has sometimes initially restricted credit life to allow time for the 
Agency to assess whether the credit program is functioning as intended. 
When EPA first offered averaging and banking provisions in its light-
duty emissions control program (the National Low Emission Vehicle 
Program), credit life was restricted to three years. The same is true 
of EPA's early averaging and banking program for heavy-duty engines. As 
these programs matured and were subsequently revised, EPA became 
confident that the programs were functioning as intended and that the 
standards were sufficiently stringent to remove the restrictions on 
credit life.
    EPA is therefore acting consistently with our past practice in 
proposing to reasonably restrict credit life in this new program. The 
Agency believes, subject to consideration of public comment, that a 
credit life of five years represents an appropriate balance between 
promoting orderly redesign and upgrade of the emissions control 
technology in the manufacturer's fleet and the policy goal of 
preventing large numbers of credits accumulated early in the program 
from interfering with the incentive to develop and transition to other 
more advanced emissions control technologies. As discussed below in 
Section III.C, EPA is proposing that any early credits generated by a 
manufacturer, beginning as soon as MY 2009, would also be subject to 
the five-year credit carry-forward restriction based on the year in 
which they are generated. This would limit the effect of the early 
credits on the long-term emissions reductions anticipated to result 
from the proposed new standards.
    Third, EPA is proposing to allow manufacturers to transfer 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's not meeting the truck fleet 
average standard in a given year. EPA believes that such cross-category 
use of credits by a manufacturer would provide important additional 
flexibility in the transition to emissions control technology without 
affecting overall emission reductions.
    Finally, accumulated credits could be traded to another vehicle 
manufacturer. As with intra-company credit use, such inter-company 
credit trading would provide flexibility in the transition to emissions 
control technology without affecting overall emission reductions. 
Trading credits to another vehicle manufacturer would be a 
straightforward process between the two manufacturers, but could also 
involve third parties that could serve as credit brokers. Brokers would 
not own the credits at any time. These sorts of exchanges are typically 
allowed under EPA's current emission credit programs, e.g., the Tier 2 
light-duty vehicle NOX fleet average standard and the heavy-
duty engine NOX fleet average standards, although 
manufacturers have seldom made such exchanges. EPA seeks comment on 
enhanced reporting requirements or other methods that could help EPA 
assess validity of

[[Page 49522]]

credits, especially those obtained from third-party credit brokers
    If a manufacturer had a deficit at the end of a model year--that 
is, its fleet average level failed to meet the required fleet average 
standard--EPA proposes that the manufacturer could carry that deficit 
forward (also referred to credit carry-back) for a total of three model 
years after the model year in which that deficit was generated. As 
noted above, such a deficit carry-forward could only occur after the 
manufacturer applied any banked credits or credits from another 
averaging set. If a deficit still remained after the manufacturer had 
applied all available credits, and the manufacturer did not obtain 
credits elsewhere, the deficit could be carried over for up to three 
model years. No deficit could be carried into the fourth model year 
after the model year in which the deficit occurred. Any deficit from 
the first model year that remained after the third model year would 
thus constitute a violation of the condition on the certificate, which 
would constitute a violation of the Clean Air Act and would be subject 
to enforcement action.
    In the Tier 2 rulemaking proposal, EPA proposed to allow deficits 
to be carried forward for one year. In their comments on that proposal, 
manufacturers argued persuasively that by the time they can tabulate 
their average emissions for a particular model year, the next model 
year is likely to be well underway and it is too late to make 
calibration, marketing, or production mix changes to adjust that year's 
credit generation. Based on those comments, in the Tier 2 final rule 
EPA finalized provisions that allowed the deficit to be carried forward 
for a total of three years. EPA continues to believe that three years 
is an appropriate amount of time that gives the manufacturers adequate 
time to respond to a deficit situation but does not create a lengthy 
period of prolonged non-compliance with the fleet average 
standards.\131\ Subsequent EPA emission control programs that 
incorporate ABT provisions (e.g., the Mobile Source Air Toxics rule) 
have provided this three-year deficit carry-forward provision for this 
reason.\132\
---------------------------------------------------------------------------

    \131\ See 65 FR 6745 (February 10, 2000).
    \132\ See 71 FR 8427 (February 26, 2007).
---------------------------------------------------------------------------

    The proposed averaging, banking, and trading provisions are 
generally consistent with those included in the CAFE program, with a 
few notable exceptions. As with EPA's proposed approach, CAFE allows 
five year carry-forward of credits and three year carry-back. 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, and transferred credits may not be used to meet 
the CAFE minimum domestic passenger car standard. CAFE allows credit 
trading, but again, traded credits cannot be used to meet the minimum 
domestic passenger car standard. EPA is not proposing these constraints 
on the use of transferred credits.
    Additional details regarding the averaging, banking, and trading 
provisions and how EPA proposes to implement these provisions can be 
found in Section III.E.
5. CO2 Optional Temporary Lead-time Allowance Alternative 
Standards
    EPA is proposing a limited and narrowly prescribed option, called 
the Temporary Lead-time Allowance Alternative Standards (TLAAS), to 
provide additional lead time for a certain subset of manufacturers. 
This option is designed to address two different situations where we 
project that more lead time is needed, based on the level of emissions 
control technology and emissions control performance currently 
exhibited by certain vehicles. One situation involves manufacturers who 
have traditionally paid CAFE fines instead of complying with the CAFE 
fleet average, and as a result at least part of their vehicle 
production currently has significantly higher CO2 and lower 
fuel economy levels than the industry average. More lead time is needed 
in the program's initial years to upgrade these vehicles to meet the 
aggressive CO2 emissions performance levels required by the 
proposal. The other situation involves manufacturers who have a limited 
line of vehicles and are unable to take advantage of averaging of 
emissions performance across a full line of production. For example, 
some smaller volume manufacturers focus on high performance vehicles 
with higher CO2 emissions, above the CO2 
emissions target for that vehicle footprint, but do not have other 
types of vehicles in their production mix with which to average. Often, 
these manufacturers also pay fines under the CAFE program rather than 
meeting the applicable CAFE standard. Because voluntary non-compliance 
is impermissible for the GHG standards proposed under the CAA, both of 
these types of manufacturers need additional lead time to upgrade 
vehicles and meet the proposed standards. EPA is proposing an optional, 
temporary alternative standard, which is only slightly less stringent, 
and limited to the first four model years (2012--2015) of the National 
Program, so that these manufacturers can have sufficient lead time to 
meet the tougher MY 2016 GHG standards, while preserving consumer 
choice of vehicles during this time.
    In MY 2016, the TLAAS option ends, and all manufacturers, 
regardless of size, and domestic sales volume, must comply with the 
same CO2 standards, while under the CAFE program companies 
would continue to be allowed to pay civil penalties in lieu of 
complying with the CAFE standards. However, because companies must meet 
both the CAFE standards and the EPA CO2 standards, the 
National Program will have the practical impact of providing a level 
playing field for all companies beginning in MY 2016--a situation which 
has never existed under the CAFE program. This option thereby results 
in more fuel savings and CO2 reductions than would be the 
case under the CAFE program.
    EPA projects that the environmental impact of the proposed TLAAS 
program will be very small. If all companies eligible to use the TLAAS 
use it to the maximum extent allowed, total GHG emissions from the 
proposal will increase by less than 0.4% over the lifetime of the MY 
2012-2016 vehicles. EPA believes the impact will be even smaller, as we 
do not expect all of the eligible companies to use this option, and we 
do not expect all companies who do use the program will use it to the 
maximum extent allowed, as we have included provisions which discourage 
companies from using the TLAAS any longer than it is needed.
    EPA has structured the TLAAS option to provide more lead time in 
these kinds of situations, but to limit the program so that it would 
only be used in situations where these kinds of lead time concerns 
arise. Based on historic data on sales, EPA is using a specific 
historic U.S. sales volume as the best way to identify the subset of 
production that falls into this situation. Under the TLAAS, these 
manufacturers would be allowed to produce up to but no more than 
100,000 vehicles that would be subject to a somewhat less stringent 
CO2 standard. This 100,000 volume is not an annual limit, 
but is an absolute limit for the total number of vehicles which can use 
the TLAAS program over the model years 2012-2015. Any additional 
production would be subject to the same standards as any other 
manufacturer. In addition, EPA is imposing a variety of restrictions on 
the use of the TLAAS program, discussed in more detail below, to ensure 
that only manufacturers who need more lead-time

[[Page 49523]]

for the kinds of reasons noted above are likely to use the program. 
Finally, the program is temporary and expires at the end of MY 2015. A 
more complete discussion of the program is provided below. EPA believes 
the proposed program reasonably addresses a real world lead time 
constraint, and does it in a way that balances the need for more lead 
time with the need to minimize any resulting loss in potential 
emissions reductions. EPA invites comment as to whether its proposal is 
the best way to balance these concerns.
    EPA proposes to establish a TLAAS for a specified subset of 
manufacturers. There are two types of companies who would make use of 
TLAAS--those manufacturers who have paid CAFE fines in recent years, 
and who need additional lead-time to incorporate the needed technology; 
and those companies who are not full-line manufacturers, who have a 
smaller range of models and vehicle types, who may need additional 
lead-time as well. This alternative standard would apply to 
manufacturers with total U.S. sales of less than 400,000 vehicles per 
year, using 2009 model year final sales numbers to determine 
eligibility for these alternative standards. EPA reviewed the sales 
volumes of manufacturers over the last few years, and determined that 
manufacturers below this level typically fit the characteristics 
discussed above, and manufacturers above this level did not. Thus, EPA 
chose this level because it functionally identifies the group of 
manufacturers described above, recognizing that there is nothing 
intrinsic in the sales volume itself that warrants this allowance. EPA 
was not able to identify any other objective criteria that would more 
appropriately identify the manufacturers and vehicle fleets described 
above.
    EPA is proposing that manufacturers qualifying for TLAAS would be 
allowed to meet slightly less stringent standards for a limited number 
of vehicles for model years 2012-2015. Specifically, an eligible 
manufacturer could have a total of up to 100,000 units of cars and 
trucks combined over model years 2012-2015, and during those model 
years those vehicles would be subject to a standard 1.25 times the 
standard that would otherwise apply to those vehicles under the primary 
program. In other words, the footprint curves upon which the individual 
manufacturer standards for the TLAAS fleets are based would be less 
stringent by a factor of 1.25 for up to 100,000 of an eligible 
manufacturer's vehicles for model years 2012-2015. As noted, this 
approach seeks to balance the need to provide additional lead-time 
without reducing the environmental benefits of the proposed program. 
EPA believes that 100,000 units over four model years achieves an 
appropriate balance as the emissions impact is quite small, but does 
provide companies with some flexibility during MY 2012-2015. For 
example, for a manufacturer producing 400,000 vehicles per year, this 
would be a total of up to 100,000 vehicles out of a total production of 
up to 1.6 million vehicles over the four year period, or about 6 
percent of total production.
    Manufacturers with no U.S. sales in model year 2009 would not 
qualify for the TLAAS program. Manufacturers meeting the cut-point of 
400,000 for MY 2009 but with U.S. directed production above 400,000 in 
any subsequent model years would remain eligible for the TLAAS program. 
Also, the total sales number applies at the corporate level, so if a 
corporation owns several vehicle brands the aggregate sales for the 
corporation would be used. These provisions would help prevent gaming 
of the provisions through corporate restructuring. Corporate ownership 
or control relationships would be based on determinations made under 
CAFE for model year 2009. In other words, corporations grouped together 
for purposes of meeting CAFE standards, would be grouped together for 
determining whether or not they are eligible under the 400,000 vehicle 
cut point.
    EPA derived the 100,000 maximum unit set aside number based on a 
gradual phase-out schedule shown in Table III.B.5-1, below. However, 
individual manufacturers' situations will vary significantly and so EPA 
believes a flexible approach that allows manufacturers to use the 
allowance as they see fit during these model years would be most 
appropriate. As another example, an eligible manufacturer could also 
choose to apply the TLAAS program to an average of 25,000 vehicles per 
year, over the four-year period. Therefore, EPA is proposing that a 
total of 100,000 vehicles of an eligible manufacturer, with any 
combination of cars or trucks, could be subject to the alternative 
standard over the four year period without restrictions.

                            Table III.B.5-1--TLAAS Example Vehicle Production Volumes
----------------------------------------------------------------------------------------------------------------
             Model year                      2012               2013               2014               2015
----------------------------------------------------------------------------------------------------------------
Sales Volume........................             40,000             30,000             20,000             10,000
----------------------------------------------------------------------------------------------------------------

    The TLAAS vehicles would be separate car and truck fleets for that 
model year and would be subject to the less stringent footprint-based 
standards of 1.25 times the primary fleet average that would otherwise 
apply. The manufacturer would determine what vehicles are assigned to 
these separate averaging sets for each model year. EPA is proposing 
that credits from the primary fleet average program can be transferred 
and used in the TLAAS program. Credits within the TLAAS program may 
also be transferred between the TLAAS car and truck averaging sets for 
use through 2015 when the TLAAS would end. However, credits generated 
under TLAAS would not be allowed to be transferred or traded to the 
primary program. Therefore, any unused credits under TLAAS would expire 
after model year 2015. EPA believes that this is necessary to limit the 
program to situations where it is needed and to prevent the allowance 
from being inappropriately transferred to the long-term primary 
program.
    EPA is concerned that some manufacturers would be able to place 
relatively clean vehicles in the TLAAS to maximize TLAAS credits if 
credit use was unrestricted. However, any credits generated from the 
primary program that are not needed for compliance in the primary 
program, should be used to offset the TLAAS vehicles. EPA is thus 
proposing to restrict the use of banking and trading between companies 
of credits in the primary program in years in which the TLAAS is being 
used. For example, manufacturers using the TLAAS in MY 2012 could not 
bank credits in the primary program during MY 2012 for use in MY 2013 
and later. No such restriction would be in place for years when the 
TLAAS is not being used. EPA also believes this provision is necessary 
to prevent credits from being earned simply by removing some high-
emitting vehicles from the primary fleet. Absent this restriction, 
manufacturers would be able to choose to use the TLAAS for these 
vehicles and also be

[[Page 49524]]

able to earn credits under the primary program that could be banked or 
traded under the primary program without restriction. EPA is proposing 
two additional restrictions regarding the use of the TLAAS by requiring 
that for any of the 2012-2015 model years for which an eligible 
manufacturer would like to use the TLAAS, the manufacturer must use two 
of the available flexibilities in the GHG program first in order to try 
and show compliance with the primary standard before accessing the 
TLAAS. Specifically, before using the TLAAS the manufacturer must: (1) 
use any banked emission credits from a previous model year; and, (2) 
use any available credits from the companies' car or truck fleet for 
the specific model year (i.e., use credit transfer from cars to trucks 
or from trucks to cars, that is, before using the TLAAS for either the 
car fleet or the truck fleet, make use of any available credit 
transfers first). EPA is requesting comments on all aspects of the 
proposed TLAAS program including comments on other provisions that 
might be needed to ensure that the TLAAS program is being used as 
intended and to ensure no gaming occurs.
    Finally, EPA recognizes that there will be a wide range of 
companies within the eligible manufacturers with sales less than 
400,000 vehicles in model year 2009. Some of these companies, while 
having relatively small U.S. sales volumes, are large global automotive 
firms, including companies such as Mercedes and Volkswagen. Other 
companies are significantly smaller niche firms, with sales volumes 
closer to 10,000 vehicles per year worldwide; an example of this type 
of firm is Aston Martin. EPA anticipates that there are a small number 
of such smaller volume manufacturers, which have claimed that they may 
face greater challenges in meeting the proposed standards due to their 
limited product lines across which to average. EPA requests comment on 
whether the proposed TLAAS program, as described above, provides 
sufficient lead-time for these smaller firms to incorporate the 
technology needed to comply with the proposed GHG standards.
6. Proposed Nitrous Oxide and Methane Standards
    In addition to fleet-average CO2 standards, EPA is 
proposing separate per-vehicle standards for nitrous oxide 
(N2O) and methane (CH4) emissions. Standards are 
being proposed that would cap vehicle N2O and CH4 
emissions at current levels. Our intention is to set emissions 
standards that act to cap emissions to ensure that future vehicles do 
not increase their N2O and CH4 emissions above 
levels that would be allowed under the proposal.
    EPA considered an approach of expressing each of these standards in 
common terms of CO2-equivalent emissions and combining them 
into a single standard along with CO2 and HFC emissions. 
California's ``Pavley'' program adopted such a CO2-
equivalent emissions standards approach to GHG emissions in their 
program.\133\ However, these pollutants are largely independent of one 
another in terms of how they are generated by the vehicle and how they 
are tested for during implementation. Potential control technologies 
and strategies for each pollutant also differ. Moreover, an approach 
that provided for averaging of these pollutants could undermine the 
stringency of the CO2 standards, as at this time we are 
proposing standards which ``cap'' N2O and CH4 
emissions, rather then proposing a level which is either at the 
industry fleet-wide average or which would result in reductions from 
these pollutants. It is possible that once EPA begins to receive more 
detailed information on the N2O and CH4 
performance of the new vehicle fleet as a result of this proposed rule 
(if it were to be finalized as proposed) that for a future action for 
model years 2017 and later EPA could consider a CO2-
equivalent standard which would not result in any increases in GHG 
emissions due to the current lack of detailed data on N2O 
and CH4 emissions performance. In addition, EPA seeks 
comment on whether a CO2-equivalent emissions standard 
should be considered for model years 2012 through 2016, and whether 
there are advantages or disadvantages to such an approach, including 
potential impacts on harmonization with CAFE standards.
---------------------------------------------------------------------------

    \133\ California Environmental Protection Agency Air Resources 
Board, Staff Report: Initial Statement of Reasons for Proposed 
Rulemaking Public Hearing To Consider Adoption Of Regulations To 
Control Greenhouse Gas Emissions From Motor Vehicles, August 6, 
2004.
---------------------------------------------------------------------------

    Almost universally across current car and truck designs, both 
gasoline- and diesel-fueled, these emissions are relatively low, and 
our intent is to not require manufacturers to make technological 
improvements in order to reduce N2O and CH4 at 
this time. However, it is important that future vehicle technologies or 
fuels do not result in increases in these emissions, and this is the 
intent of the proposed ``cap'' standards.
    EPA requests comments on our approach to regulating N2O 
and CH4 emissions including the appropriateness of ``cap'' 
standards as opposed to ``technology-forcing'' standards, the technical 
bases for the proposed N2O and CH4 standards, the 
proposed test procedures, and timing. Specifically, EPA seeks comment 
on the appropriateness of the proposed levels of the N2O and 
CH4 standards to accomplish our stated intent. In addition, 
EPA seeks comment on any additional emissions data on N2O 
and CH4 from current technology vehicles.
a. Nitrous Oxide (N2O) Exhaust Emission Standard
    N2O is a global warming gas with a high global warming 
potential.\134\ It accounts for about 2.7% of the current greenhouse 
gas emissions from cars and light trucks. EPA is proposing a per-
vehicle N2O emission standard of 0.010 g/mi, measured over 
the traditional FTP vehicle laboratory test cycles. The standard would 
become effective in model year 2012 for all light-duty cars and trucks. 
Averaging between vehicles would not be allowed. The standard is 
designed to prevent increases in N2O emissions from current 
levels, i.e. a no-backsliding standard.
---------------------------------------------------------------------------

    \134\ N2O has a GWP of 310 according to the IPCC 
Second Assessment Report (SAR).
---------------------------------------------------------------------------

    N2O is emitted from gasoline and diesel vehicles mainly 
during specific catalyst temperature conditions conducive to 
N2O formation. Specifically, N2O can be generated 
during periods of emission hardware warm-up when rising catalyst 
temperatures pass through the temperature window when N2O 
formation potential is possible. For current Tier 2 compatible gasoline 
engines with conventional three-way catalyst technology, N2O 
is not generally produced in significant amounts because the time the 
catalyst spends at the critical temperatures during warm-up is short. 
This is largely due to the need to quickly reach the higher 
temperatures necessary for high catalyst efficiency to achieve emission 
compliance of criteria pollutants. N2O is a more significant 
concern with diesel vehicles, and potentially future gasoline lean-burn 
engines, equipped with advanced catalytic NOX emissions 
control systems. These systems can but need not be designed in a way 
that emphasizes efficient NOX control while allowing the 
formation of significant quantities of N2O. Excess oxygen 
present in the exhaust during lean-burn conditions in diesel or lean-
burn gasoline engines equipped with these advanced systems can favor 
N2O formation if catalyst temperatures are not carefully 
controlled. Without

[[Page 49525]]

specific attention to controlling N2O emissions in the 
development of such new NOX control systems, vehicles could 
have N2O emissions many times greater than are emitted by 
current gasoline vehicles.
    EPA is proposing an N2O emission standard that EPA 
believes would be met by current-technology gasoline vehicles at 
essentially no cost. As noted, N2O formation in current 
catalyst systems occurs, but the emission levels are low, because the 
time the catalyst spends at the critical temperatures during warm-up 
when N2O can form is short. At the same time, EPA believes 
that the proposed standard would ensure that the design of advanced 
NOX control systems, especially for future diesel and lean-
burn gasoline vehicles, would control N2O emission levels. 
While current NOX control approaches used on current Tier 2 
diesel vehicles do not tend to form N2O emissions, EPA 
believes that the proposed standards would discourage any new emission 
control designs that achieve criteria emissions compliance at the cost 
of increased N2O emissions. Thus, the proposed standard 
would cap N2O emission levels, with the expectation that 
current gasoline and diesel vehicle control approaches that comply with 
the Tier 2 vehicle emission standards for NOX would not 
increase their emission levels, and that the cap would ensure that 
future vehicle designs would appropriately control their emissions of 
N2O. The proposed N2O level is approximately two 
times the average N2O level of current gasoline passenger 
cars and light-duty trucks that meet the Tier 2 NOX 
standards.\135\ Manufacturers typically use design targets for 
NOX emission levels of about 50% of the standard, to account 
for in-use emissions deterioration and normal testing and production 
variability, and manufacturers are expected to utilize a similar 
approach for N2O emission compliance. EPA is not proposing a 
more stringent standard for current gasoline and diesel vehicles 
because the stringent Tier 2 program and the associated NOX 
fleet average requirement already result in significant N2O 
control, and does not expect current N2O levels to rise for 
these vehicles. EPA requests comment on this technical assessment of 
current and potential future N2O formation in cars and 
trucks.
---------------------------------------------------------------------------

    \135\ Memo to docket ``Deriving the standard from EPA's MOVES 
model emission factors, '' December 2007.
---------------------------------------------------------------------------

    While EPA believes that manufacturers will likely be able to 
acquire and install N2O analytical equipment, the agency 
also recognizes that some companies may face challenges. Given the 
short lead-time for this rule, EPA proposes that manufacturers be able 
to apply for a certificate of conformity with the N2O 
standard for model year 2012 based on a compliance statement based on 
good engineering judgment. For 2013 and later model years, 
manufacturers would need to submit measurements of N2O for 
compliance purposes.
    Diesel cars and light trucks with advanced emission control 
technology are in the early stages of development and 
commercialization. As this segment of the vehicle market develops, the 
proposed N2O standard would require manufacturers to 
incorporate control strategies that minimize N2O formation. 
Available approaches include using electronic controls to limit 
catalyst conditions that might favor N2O formation and 
consider different catalyst formulations. While some of these 
approaches may have modest associated costs, EPA believes that they 
will be small compared to the overall costs of the advanced 
NOX control technologies already required to meet Tier 2 
standards.
    Vehicle emissions regulations do not currently require testing for 
N2O, and most test facilities do not have equipment for its 
measurement. Manufacturers without this capability would need to 
acquire and install appropriate measurement equipment. However, EPA is 
proposing four N2O measurement methods, all of which are 
commercially available today. EPA expects that most manufacturers would 
use photo-acoustic measurement equipment, which the Agency estimates 
would result in a one-time cost of about $50,000-$60,000 for each test 
cell that would need to be upgraded.
    Overall, EPA believes that manufacturers of cars and light trucks, 
both gasoline and diesel, would meet the proposed standard without 
implementing any significantly new technologies, and there are not 
expected to be any significant costs associated with this proposed 
standard.
b. Methane (CH4) Exhaust Emission Standard
    CH4 (or methane) is greenhouse gas with a high global 
warming potential.\136\ It accounts for about 0.2% of the greenhouse 
gases from cars and light trucks.
---------------------------------------------------------------------------

    \136\ CH4 has a GWP of 21 according to the IPCC 
Second Assessment Report (SAR).
---------------------------------------------------------------------------

    EPA is proposing a CH4 emission standard of 0.030 g/mi 
as measured on the FTP, to apply beginning with model year 2012 for 
both cars and trucks. EPA believes that this level for the standard 
would be met by current gasoline and diesel vehicles, and would prevent 
large increases in future CH4 emissions in the event that 
alternative fueled vehicles with high methane emissions, like some past 
dedicated compressed natural gas (CNG) vehicles, become a significant 
part of the vehicle fleet. Currently EPA does not have separate 
CH4 standards because unlike other hydrocarbons it does not 
contribute significantly to ozone formation,\137\ However 
CH4 emissions levels in the gasoline and diesel car and 
light truck fleet have nevertheless generally been controlled by the 
Tier 2 non-methane organic gases (NMOG) emission standards. However, 
without an emission standard for CH4, future emission levels 
of CH4 cannot be guaranteed to remain at current levels as 
vehicle technologies and fuels evolve.
---------------------------------------------------------------------------

    \137\ But see Ford Motor Co. v. EPA, 604 F. 2d 685 (D.C. Cir. 
1979) (permissible for EPA to regulate CH4 under CAA 
section 202 (b)).
---------------------------------------------------------------------------

    The proposed standard would cap CH4 emission levels, 
with the expectation that current gasoline vehicles meeting the Tier 2 
emission standards would not increase their levels, and that it would 
ensure that emissions would be addressed if in the future there are 
increases in the use of natural gas or any other alternative fuel. The 
level of the standard would generally be achievable through normal 
emission control methods already required to meet Tier 2 program 
emission standards for NMOG and EPA is therefore not attributing any 
cost to this part of this proposal. Since CH4 is produced in 
gasoline and diesel engines similar to other hydrocarbon components, 
controls targeted at reducing overall NMOG levels generally also work 
at reducing CH4 emissions. Therefore, for gasoline and 
diesel vehicles, the Tier 2 NMOG standards will generally prevent 
increases in CH4 emissions levels from today. CH4 
from Tier 2 light-duty vehicles is relatively low compared to other 
GHGs largely due to the high effectiveness of previous National Low 
Emission Vehicle (NLEV) and current Tier 2 programs in controlling 
overall HC emissions.
    The level of the proposed standard is approximately two times the 
average Tier 2 gasoline passenger cars and light-duty trucks 
level.\138\ As with N2O, this proposed level recognizes that 
manufacturers typically set emission design targets at about 50% of the 
standard. Thus, EPA believes the proposed standard would be met by

[[Page 49526]]

current gasoline vehicles. Similarly, since current diesel vehicles 
generally have even lower CH4 emissions than gasoline 
vehicles, EPA believes that diesels would also meet the proposed 
standard. However, EPA also believes that to set a CH4 
emission standard more stringent than the proposed standard could 
effectively make the Tier 2 NMOG standard more stringent.
---------------------------------------------------------------------------

    \138\ Memo to docket ``Deriving the standard from EPA's MOVES 
model emission factors, '' December 2007.
---------------------------------------------------------------------------

    In recent model years, a small number of cars and light trucks were 
sold that were designed for dedicated use of compressed natural gas 
(CNG) that met Tier 2 emission standards. While emission control 
designs on these recent dedicated CNG-fueled vehicles demonstrate 
CH4 control as effective as gasoline or diesel equivalent 
vehicles, CNG-fueled vehicles have historically produced significantly 
higher CH4 emissions than gasoline or diesel vehicles. This 
is because their CNG fuel is essentially methane and any unburned fuel 
that escapes combustion and not oxidized by the catalyst is emitted as 
methane. However, even if these vehicles meet the Tier 2 NMOG standard 
and appear to have effective CH4 control by nature of the 
NMOG controls, Tier 2 standards do not require CH4 control. 
While the proposed CH4 cap standard should not require any 
different emission control designs beyond what is already required to 
meet Tier 2 NMOG standards on a dedicated CNG vehicle, the cap will 
ensure that systems maintain the current level of CH4 
control. EPA is not proposing more stringent CH4 standards 
because the same controls that are used to meet Tier 2 NMOG standards 
should result in effective CH4 control. Increased 
CH4 stringency beyond proposed levels could inadvertently 
result in increased Tier 2 NMOG stringency absent an emission control 
technology unique to CH4. Since CH4 is already 
measured under the current Tier 2 regulations (so that it may be 
subtracted to calculate non-methane hydrocarbons), the proposed 
standard would not result in additional testing costs. EPA requests 
comment on whether the proposed cap standard would result in any 
significant technological challenges for makers of CNG vehicles.
7. Small Entity Deferment
    EPA is proposing to defer setting GHG emissions standards for small 
entities meeting the Small Business Administration (SBA) criteria of a 
small business as described in 13 CFR 121.201. EPA would instead 
consider appropriate GHG standards for these entities as part of a 
future regulatory action. This includes small entities in three 
distinct categories of businesses for light-duty vehicles: small volume 
manufacturers, independent commercial importers (ICIs), and alternative 
fuel vehicle converters. EPA has identified about 13 entities that fit 
the Small Business Administration (SBA) criterion of a small business. 
EPA estimates there are 2 small volume manufacturers, 8 ICIs, and 3 
alternative fuel vehicle converters currently 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 proposed deferment will have a negligible impact on the 
GHG emissions reductions from the proposed standards. Further detail is 
provided in Section III.I.3, below.
    To ensure that EPA is aware of which companies would be deferred, 
EPA is proposing that such entities submit a declaration to EPA 
containing a detailed written description of how that manufacturer 
qualifies as a small entity under the provisions of 13 CFR 121.201. 
Because such entities are not automatically exempted from other EPA 
regulations for light-duty vehicles and light-duty trucks, absent such 
a declaration, EPA would assume that the entity was subject to the 
greenhouse gas control requirements in this GHG proposal. The 
declaration would need to be submitted at time of vehicle emissions 
certification under the EPA Tier 2 program. Small entities are 
currently covered by a number of EPA motor vehicle emission 
regulations, and they routinely submit information and data on an 
annual basis as part of their compliance responsibilities. EPA expects 
that the additional paperwork burden associated with completing and 
submitting a small entity declaration to gain deferral from the 
proposed GHG standards would be negligible and easily done in the 
context of other routine submittals to EPA. However, EPA has accounted 
for this cost with a nominal estimate included in the Information 
Collection Request completed under the Paperwork Reduction Act. 
Additional information can be found in the Paperwork Reduction Act 
discussion in Section III.I.2.

C. Additional Credit Opportunities for CO2 Fleet Average 
Program

    The standards being proposed represent a significant multi-year 
challenge for manufacturers, especially in the early years of the 
program. Section III.B.4 described EPA proposals for how manufacturers 
could generate credits by achieving fleet average CO2 
emissions below the fleet average standard, and also how manufacturers 
could use credits to comply with standards. As described in Section 
III.B.4, credits could be carried forward five years, carried back 
three years, transferred between vehicle categories, and traded between 
manufacturers. The credits provisions proposed below would provide 
manufacturers with additional ways to earn credits starting in MY 2012. 
EPA is also proposing early credits provisions for the 2009-2011 model 
years, as described below in Section III.C.5.
    The provisions proposed below would provide additional flexibility, 
especially in the early years of the program. This flexibility helps to 
address issues of lead-time or technical feasibility for various 
manufacturers and in several cases provides an incentive for promotion 
of technology pathways that warrant further development, whether or not 
they are an important or central technology on which critical features 
of this program are premised. EPA is proposing a variety of credit 
opportunities because manufacturers are not likely to be in a position 
to use every credit provision. EPA expects that manufacturers are 
likely to select the credit opportunities that best fit their future 
plans. EPA believes it is critical that manufacturers have options to 
ease the transition to the final MY 2016 standards. At the same time, 
EPA believes these credit programs must be designed in a way to ensure 
that they achieve emission reductions that achieve real-world 
reductions over the full useful life of the vehicle (or, in the case of 
FFV credits and Advanced Technology credits, to incentivize the 
introduction of those vehicle technologies) and are verifiable. In 
addition, EPA wants to ensure these credit programs do not provide an 
opportunity for manufacturers to earn ``windfall'' credits. EPA seeks 
comments on how to best ensure these objectives are achieved in the 
design of the credit programs. EPA requests comment on all aspects of 
these proposed credits provisions.
1. Air Conditioning Related Credits
    EPA proposes that manufacturers be able to generate and use credits 
for improved air conditioner (A/C) systems in complying with the 
CO2 fleetwide average standards described above. EPA expects 
that most manufacturers will choose to utilize the A/C provisions as 
part of its compliance demonstration (and for this reason cost of 
compliance with A/C related emission reductions are assumed in the cost 
analysis). The A/C provisions are structured as credits, unlike the 
CO2 standards for which manufacturers will demonstrate

[[Page 49527]]

compliance using 2-cycle tests (see Sections III.B and III.E.). Those 
tests do not measure either A/C leakage or tailpipe CO2 
emissions attributable to A/C load (see Section III.C.1.b below 
describing proposed alternative test procedures for assessing tailpipe 
CO2 emission attributable to A/C engine load). Thus, it is a 
manufacturer's option to include A/C GHG emission reductions as an 
aspect of its compliance demonstration. Since this is an elective 
alternative, EPA is referring to the A/C part of the proposal as a 
credit.
    EPA estimates that direct A/C GHG emissions--emissions due to the 
leakage of the hydrofluorocarbon refrigerant in common use today--
account for 4.3% of CO2-equivalent GHGs from light-duty cars 
and trucks. This includes the direct leakage of refrigerant as well as 
the subsequent leakage associated with maintenance and servicing, and 
with disposal at the end of the vehicle's life. The emissions that are 
impacted by leakage reductions are the direct leakage and the 
maintenance and servicing. Together these are equivalent to 
CO2 emissions of approximately 13.6 g/mi per vehicle (this 
is 14.9 g/mi if end of life emissions are also included). EPA also 
estimates that indirect GHG emissions (additional CO2 
emitted due to the load of the A/C system on the engine) account for 
another 3.9% of light-duty GHGs.\139\ This is equivalent to 
CO2 emissions of approximately 14.2 g/mi per vehicle. The 
derivation of these figures can be found in the EPA DRIA.
---------------------------------------------------------------------------

    \139\ See Chapter 2, section 2.2.1.2 of the DRIA.
---------------------------------------------------------------------------

    EPA believes that it is important to address A/C direct and 
indirect emissions because the technologies that manufacturers will 
employ to reduce vehicle exhaust CO2 will have little or no 
impact on A/C related emissions. Without addressing A/C-related 
emissions, as vehicles become more efficient, the A/C related 
contribution will become a much larger portion of the overall vehicle 
GHG emissions.
    Over 95% of the new cars and light trucks in the United States are 
equipped with A/C systems and, as noted, there are two mechanisms by 
which A/C systems contribute to the emissions of greenhouse gases: 
through leakage of refrigerant into the atmosphere and through the 
consumption of fuel to provide power to the A/C system. With leakage, 
it is the high global warming potential (GWP) of the current automotive 
refrigerant--R134a, with a GWP of 1430--that results in the 
CO2-equivalent impact of 13.6 g/mi.\140\ Due to the high GWP 
of this HFC, a small leakage of the refrigerant has a much greater 
global warming impact than a similar amount of emissions of 
CO2 or other mobile source GHGs. Manufacturers can choose to 
reduce A/C leakage emissions by using leak-tight components. Also, 
manufacturers can largely eliminate the global warming impact of 
leakage emissions by adopting systems that use an alternative, low-GWP 
refrigerant.\141\ The A/C system also contributes to increased 
CO2 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 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 CO2 by the engine during 
combustion. This incremental CO2 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.\142\
---------------------------------------------------------------------------

    \140\ The global warming potentials (GWP) used in the NPRM 
analysis are consistent with Intergovernmental Panel on Climate 
Change (IPCC) Fourth Assessment Report (AR4). At this time, the IPCC 
Second Assessment Report (SAR) global warming potential values have 
been agreed upon as the official U.S. framework for addressing 
climate change. The IPCC SAR GWP values are used in the official 
U.S. greenhouse gas inventory submission to the climate change 
framework. When inventories are recalculated for the final rule, 
changes in GWP used may lead to adjustments.
    \141\ Refrigerant emissions during maintenance and at the end of 
the vehicle's life (as well as emissions during the initial charging 
of the system with refrigerant) are also addressed by the CAA Title 
VI stratospheric ozone program, as described below.
    \142\ We will not be addressing changes to the weight of the A/C 
system, since the issue of CO2 emissions from the fuel 
consumption of normal (non-A/C) operation, including basic vehicle 
weight, is inherently addressed with the primary CO2 
standards (See III.B above).
---------------------------------------------------------------------------

    Manufacturers can make very feasible improvements to their A/C 
systems to address A/C system leakage and efficiency. EPA proposes two 
separate credit approaches to address leakage reductions and efficiency 
improvements independently. A proposed 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. A proposed efficiency 
improvement credit would account for the various types of hardware and 
control of that hardware available to increase the A/C system 
efficiency. Manufacturers would be required to attest 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 
efficiency are highly cost-effective and technologically feasible. EPA 
expects most manufacturers will choose to use these A/C credit 
provisions, although some may not find it necessary to do so.
a. A/C Leakage Credits
    The refrigerant used in vehicle A/C systems can get into the 
atmosphere by many different means. These refrigerant emissions occur 
from the slow leakage over time that all closed high pressure systems 
will experience. Refrigerant loss occurs from permeation through hoses 
and leakage at connectors and other parts where the containment of the 
system is compromised. The rate of leakage can increase due to 
deterioration of parts and connections as well. In addition, there are 
emissions that occur during accidents and maintenance and servicing 
events. Finally, there are end-of-life emissions if, at the time of 
vehicle scrappage, refrigerant is not fully recovered.
    Because the process of refrigerant leakage has similar root causes 
as those that cause fuel evaporative emissions from the fuel system, 
some of the control technologies are similar (including hose materials 
and connections). There are however, some fundamental differences 
between the systems that require a different approach. The most notable 
difference is that A/C systems are completely closed systems, whereas 
the fuel system is not. Fuel systems are meant to be refilled as liquid 
fuel is consumed by the engine, while the A/C system ideally should 
never require ``recharging'' of the contained refrigerant. Thus it is 
critical that the A/C system leakages be kept to an absolute minimum. 
These emissions are typically too low to accurately measure in most 
current SHED chambers designed for fuel evaporative emissions 
measurement, especially for systems that are new or early in life. 
Therefore, if leakage emissions were to be measured directly, new 
measurement facilities would need to be built by the OEM manufacturers 
and very accurate new test procedures would need to be developed. 
Especially because there are indications that much of the industry is 
moving toward alternative refrigerants (post-2016 for most 
manufacturers), EPA is not proposing such a direct measurement approach 
to addressing refrigerant leakage.

[[Page 49528]]

    Instead, EPA proposes that manufacturers demonstrate improvements 
in their A/C system designs and components through a design-based 
method. Manufacturers implementing systems expected to result in 
reduced refrigerant leakage would be eligible for credits that could 
then be used to meet their CO2 emission compliance 
requirements. The proposed ``A/C Leakage Credit'' provisions would 
generally assign larger credits to system designs that are expected to 
result in greater leakage reduction. In addition, EPA proposes that 
proportionately larger A/C Leakage Credits be available to 
manufacturers that substitute a lower-GWP refrigerant for the current 
R134a refrigerant.
    Our proposed method for calculating A/C Leakage Credits is based 
closely on an industry-consensus leakage scoring method, described 
below. This leakage scoring method is correlated to experimentally-
measured leakage rates from a number of vehicles using the different 
available A/C components. Under the proposed approach, manufacturers 
would choose from a menu of A/C equipment and components used in their 
vehicles in order to establish leakage scores which would characterize 
their A/C system leakage performance. The leakage score can be compared 
to expected fleetwide leakage rates in order to quantify improvements 
for a given A/C system. Credits would be generated from leakage 
reduction improvements that exceeded average fleetwide leakage rates.
    EPA believes that the design-based approach would result in 
estimates of likely leakage emissions reductions that would be 
comparable to those that would eventually result from performance-based 
testing. At the same time, comments are encouraged on all developments 
that may lead to a robust, practical, performance-based test for 
measuring A/C refrigerant leakage emissions.
    The cooperative industry and government Improved Mobile Air 
Conditioning (IMAC) program \143\ has demonstrated that new-vehicle 
leakage emissions can be reduced by 50%. This program has shown that 
this level of improvement can be accomplished by reducing the number 
and improving the quality of the components, fittings, seals, and hoses 
of the A/C system. All of these technologies are already in commercial 
use and exist on some of today's systems.
---------------------------------------------------------------------------

    \143\ Team 1-Refrigerant Leakage Reduction: Final Report to 
Sponsors, SAE, 2007.
---------------------------------------------------------------------------

    EPA is proposing that a manufacturer wishing to earn A/C Leakage 
Credits would compare the components of its A/C system with a set of 
leakage-reduction technologies and actions that is based closely on 
that being developed through IMAC and the Society of Automotive 
Engineers (as SAE Surface Vehicle Standard J2727, August 2008 version). 
The J2727 approach is developed from laboratory testing of a variety of 
A/C related components, and EPA believes that the J2727 leakage scoring 
system generally represents a reasonable correlation with average real-
world leakage in new vehicles. Like the IMAC approach, our proposed 
credit approach would associate each component with a specific leakage 
rate in grams per year identical to the values in J2727. A manufacturer 
choosing to claim Leakage Credits would sum the leakage values for an 
A/C system for a total A/C leakage score. EPA is proposing a formula 
for converting the grams-per-year leakage score to a grams-per-mile 
CO2eq value, taking vehicle miles traveled (VMT) and the GWP 
of the refrigerant into account. This formula is:

Credit = (MaxCredit) * [1 - (LeakScore/AvgImpact) * (GWPRefrigerant/
1430)]

Where:

MaxCredit is 12.6 and 15.7 g/mi CO2eq for cars and trucks 
respectively. These become 13.8 and 17.2 for cars and trucks if 
alternative refrigerants are used since they get additional credits 
for end-of-life emissions reductions.
LeakScore is the leakage score of the A/C system as measured 
according to methods similar to the J2727 procedure in units of g/
yr. The minimum score which is deemed feasible is fixed at 8.3 and 
10.4 g/yr for cars and trucks respectively.
AvgImpact is the average impact of A/C leakage, which is 16.6 and 
20.7 g/yr for cars and trucks respectively.
GWPRefrigerant is the global warming potential for direct radiative 
forcing of the refrigerant as defined by EPA (or IPCC).
All of the parameters and limits of the equation are derived in the 
EPA DRIA.

    For systems using the current refrigerant, EPA proposes that these 
emission rates could at most be feasibly reduced by half, based on the 
conclusions of the IMAC study, and consideration of emission over the 
full life of the vehicle. (This latter point is discussed further in 
the DRIA.)
    As discussed above, EPA recognizes that substituting an alternative 
refrigerant (one with a significantly lower global warming potential, 
GWP), would potentially be a very effective way to reduce the impact of 
all forms of refrigerant emissions, including maintenance, accidents, 
and vehicle scrappage. To address future GHG regulations in Europe and 
California, systems using alternative refrigerants--including 
HFO1234yf, with a GWP of 4--are under serious development and have been 
demonstrated in prototypes by A/C component suppliers. These 
alternative refrigerants have remaining cost, safety and feasibility 
hurdles for commercial applications.\144\ However, the European Union 
has enacted regulations phasing in alternative refrigerants with GWP 
less than 150 starting in 2010, and the State of California proposed 
providing credits for alternative refrigerant use in its GHG rule.
---------------------------------------------------------------------------

    \144\ Although see 71 FR 55140 (Sept. 21, 2006) (proposal 
pursuant to section 612 of the CAA finding CO2 and HFC 
152a as acceptable refrigerant substitutes as replacements for CFC-
12 in motor vehicle air conditioning systems, and stating (at 55142) 
that ``data [hellip] indicate that use of CO2 and HFC 
152a with risk mitigation technologies does not pose greater risks 
compared to other substitutes'').
---------------------------------------------------------------------------

    Within the timeframe of 2012-2016, EPA is not expecting the use of 
low-GWP refrigerants to be widespread. However, EPA believes that these 
developments are promising, and have included in our proposed A/C 
Leakage Credit system provisions to account for the effective 
refrigerant reductions that could be expected from refrigerant 
substitution. The quantity of A/C Leakage Credits that would be 
available would be a function of the GWP of the alternative 
refrigerant, with the largest credits being available for refrigerants 
approaching a GWP of zero.\145\ For a hypothetical alternative 
refrigerant with a GWP of 1, effectively eliminating leakage as a GHG 
concern, our proposed credit calculation method could result in maximum 
credits equal total average emissions, or credits of 13.4 and 17.8 g/mi 
CO2eq for cars and trucks, respectively. This option is also 
captured in the equation above.
---------------------------------------------------------------------------

    \145\ For example, the GWP for R152a is 120, the GWP of HFO-
1234yf is 4, and the GWP of CO2 as a refrigerant is 1.
---------------------------------------------------------------------------

    It is possible that alternative refrigerants could, without 
compensating action by the manufacturer, reduce the efficiency of the 
A/C system (see discussion of the A/C Efficiency Credit below.) 
However, EPA believes that manufacturers will have substantial 
incentives to design their systems to maintain the efficiency of the A/
C system, therefore EPA is not accounting for any potential efficiency 
degradation.
    EPA requests comment on all aspects of our proposed A/C Leakage 
Credit system.

[[Page 49529]]

b. A/C Efficiency Credits
    EPA is proposing that manufacturers that make improvements in their 
A/C systems to increase efficiency and thus reduce CO2 
emissions due to A/C system operation be eligible for A/C Efficiency 
Credits. As with A/C Leakage Credits, manufacturers could apply A/C 
Efficiency Credits toward compliance with their overall CO2 
standards.
    As mentioned above, EPA estimates that the CO2 emissions 
due to A/C related loads on the engine account for approximately 3.9% 
of total greenhouse gas emissions from passenger vehicles in the United 
States. Usage of A/C systems is inherently higher in hotter and more 
humid months and climates; however, vehicle owners may use their A/C 
systems all year round in all parts of the nation. For example, people 
commonly use A/C systems to cool and dehumidify the cabin air for 
passenger comfort on hot humid days, but they also use the systems to 
de-humidify cabin air to assist in defogging/de-icing the front 
windshield and side glass in cooler weather conditions for improved 
visibility. A more detailed discussion of seasonal and geographical A/C 
usage rates can be found in the DRIA.
    Most of the additional load on the engine from A/C system operation 
comes from the compressor, which pumps the refrigerant around the 
system loop. Significant additional load on the engine may also come 
from electric or hydraulic fans, which are used to move air across the 
condenser, and from the electric blower, which is used to move air 
across the evaporator and into the cabin. Manufacturers have several 
currently-existing technology options for improving efficiency, 
including more efficient compressors, fans, and motors, and systems 
controls that avoid over-chilling the air (and subsequently re-heating 
it to provide the desired air temperature with an associated loss of 
efficiency). For vehicles equipped with automatic climate-control 
systems, real-time adjustment of several aspects of the overall system 
(such as engaging the full capacity of the cooling system only when it 
is needed, and maximizing the use of recirculated air) can result in 
improved efficiency. Table III.C.1-1 below lists some of these 
technologies and their respective efficiency improvements.
    As with the A/C Leakage Credit program, EPA is interested in 
performance-based standards (or credits) based on measurement 
procedures whenever possible. While design-based assessments of 
expected emissions can be a reasonably robust way of quantifying 
emission improvements, these approaches have inherent shortcomings, as 
discussed for the case of A/C leakage above. Design-based approaches 
depend on the quality of the data from which they are calibrated, and 
it is possible that apparently proper equipment may function less 
effectively than expected. Therefore, while the proposal uses a design-
based menu approach to quantify improvements in A/C efficiency, it is 
also proposed to begin requiring manufacturers to confirm that 
technologies applying for Efficiency Credits are measurably improving 
system efficiency.
    EPA believes that there is a more critical need for a test 
procedure to quantify A/C Efficiency Credits than for Leakage Credits, 
for two reasons. First, the efficiency gains for various technologies 
are more difficult to quantify using a design-based program (like the 
SAEJ2727-based procedure used to generate Leakage Credits). Second, 
while leakage may disappear as a significant source of GHG emissions if 
a shift toward alternate refrigerants develops, no parallel factor 
exists in the case of efficiency improvements. EPA is thus proposing to 
phase-in a performance-based test procedure over time beginning in 
2014, as discussed below. In the interim, EPA proposes a design-based 
``menu'' approach for estimating efficiency improvements and, thus, 
quantifying A/C Efficiency Credits.
    For model years 2012 and 2013, EPA proposes that a manufacturer 
wishing to generate A/C Efficiency Credits for a group of its vehicles 
with similar A/C systems would compare several of its vehicle A/C-
related components and systems with a ``menu'' of efficiency-related 
technology improvements (see Table III.C.1-1 below). Based on the 
technologies the manufacturer chooses, an A/C Efficiency Credit value 
would be established. This design-based approach would recognize the 
relationships and synergies among efficiency-related technologies. 
Manufacturers could receive credit based on the technologies they chose 
to incorporate in their A/C systems and the associated credit value for 
each technology. The total A/C Efficiency Credit would be the total of 
these values, up to a maximum feasible credit of 5.7 g/mi 
CO2eq. This would be the maximum improvement from current 
average efficiencies for A/C systems (see the DRIA for a full 
discussion of our derivation of the proposed reductions and credit 
values for individual technologies and for the maximum total credit 
available). Although the total of the individual technology credit 
values may exceed 5.7 g/mi CO2eq, synergies among the 
technologies mean that the values are not additive, and thus A/C 
Efficiency credit could not exceed 5.7 g/mi CO2eq.
    The EPA requests comment on adjusting the A/C efficiency credit to 
account for potential decreases (or increases) in efficiency when using 
an alternative refrigerant by using the change in the coefficient of 
performance. The effects may include the impact of a secondary loop 
system (including the incremental effect on tailpipe CO2 
emissions that the added weight of such a system would incur).

    Table III.C.1-1 Efficiency-Improving A/C Technologies and Credits
------------------------------------------------------------------------
                                        Estimated
                                     reduction in A/C    A/C Efficiency
      Technology description          CO2 emissions    credit (g/mi CO2)
                                        (percent)
------------------------------------------------------------------------
Reduced reheat, with externally-                   30                1.7
 controlled, variable-displacement
 compressor.......................
Reduced reheat, with externally-                   20                1.1
 controlled, fixed-displacement or
 pneumatic variable-displacement
 compressor.......................
Default to recirculated air                        30                1.7
 whenever ambient temperature is
 greater than 75 [deg]F...........
Blower motor and cooling fan                       15                0.9
 controls which limit waste energy
 (e.g. pulse width modulated power
 controller)......................
Electronic expansion valve........                 20                1.1
Improved evaporators and                           20                1.1
 condensers (with system analysis
 on each component indicating a
 COP improvement greater than 10%,
 when compared to previous design)
Oil Separator.....................                 10                0.6
------------------------------------------------------------------------


[[Page 49530]]

    For model years 2014 and later, EPA proposes that manufacturers 
seeking to generate A/C Efficiency Credits would need to use a specific 
performance test to confirm that the design changes were also improving 
A/C efficiency. Manufacturers would need to perform an A/C 
CO2 Idle Test for each A/C system (family) for which it 
desired to generate Efficiency Credits. Manufacturers would need to 
demonstrate at least a 30% improvement over current average efficiency 
levels to qualify for credits. Upon qualifying on the Idle Test, the 
manufacturer would be eligible to use the menu approach above to 
quantify the credits it would earn.
    The proposed A/C CO2 Idle Test procedure, which EPA has 
designed specifically to measure A/C CO2 emissions, would be 
performed while the vehicle engine is at idle. This proposed laboratory 
idle test would be similar to the idle carbon monoxide (CO) test that 
was once a part of EPA vehicle certification. The test would determine 
the additional CO2 generated at idle when the A/C system is 
operated. The A/C CO2 Idle Test would be run with and 
without the A/C system cooling the interior cabin while the vehicle's 
engine is operating at idle and with the system under complete control 
of the engine and climate control system
    The proposed A/C CO2 Idle Test is similar to that 
proposed in April 2009 for the Mandatory GHG Reporting Rule, with 
several improvements. These improvements include tighter restrictions 
on test cell temperatures and humidity levels in order to more closely 
control the loads from operation of the A/C system. EPA also made 
additional refinements to the required in-vehicle blower fan settings 
for manually controlled systems to more closely represent ``real 
world'' usage patterns. These details can be found in the DRIA and the 
regulations.
    The design of the A/C CO2 Idle Test represents a 
balancing of the need for performance tests whenever possible to ensure 
the most accurate quantification of efficiency improvements, with 
practical concerns for testing burden and facility requirements. EPA 
believes that the proposed Idle Test adds to the robust quantification 
of A/C credits that will result in real-world efficiency improvements 
and reductions in A/C-related CO2 emissions. EPA is 
proposing that the Idle Test be required in order to qualify for A/C 
Efficiency Credits beginning in 2014 to allow sufficient time for 
manufacturers to make the necessary facilities improvements and to 
establish a comfort level with the test.
    EPA also considered a more comprehensive testing approach to 
quantifying A/C CO2 emissions that could be somewhat more 
technically robust, but would require more test time and test facility 
improvements for many manufacturers. This approach would be to adapt an 
existing test procedure, the Supplemental Federal Test Procedure (SFTP) 
for A/C operation, called the SC03, in specific ways for it to function 
as a tool to evaluate A/C CO2 emissions. The potential test 
method is described in some detail here, and EPA encourages comment on 
how this type of test might or might not accomplish the goals of robust 
performance-based testing and reasonable test burdens.
    EPA designed the SC03 test to measure criteria pollutants under 
severe air conditioning conditions not represented in the FTP and 
Highway Fuel Economy Tests. EPA did not specifically design the SC03 to 
measure incremental reductions in CO2 emissions from more 
efficient A/C technologies. For example, due to the severity of the 
SC03 test environmental conditions and the relatively short duration of 
the SC03 cycle, it is difficult for the A/C system to achieve a 
stabilized interior cabin condition that reflects incremental 
improvements. Many potential efficiency improvements in the A/C 
components and controls (i.e., automatic recirculation and heat 
exchanger fan control) are specifically measured only during stabilized 
conditions, and therefore become difficult or impossible to measure and 
quantify during this test. In addition, SC03 testing is also somewhat 
constrained and costly due to limited number of test facilities 
currently capable of performing testing under the required 
environmental conditions.
    One value of using the SC03 as the basis for a new test to quantify 
A/C-related efficiency improvements would be the significant degree of 
control of test cell ambient conditions. The load placed on an A/C 
system, and thus the incremental CO2 emissions, are highly 
dependent on the ambient conditions in the test cell, especially 
temperature and humidity, as well as simulated solar load. Thus, as 
with the proposed Idle Test, a new SC03-based test would need to 
accurately and reliably control these conditions. (This contrasts with 
FTP testing for criteria pollutants, which does not require precise 
control of cell conditions because test results are generally much less 
sensitive to changes in cell temperature or humidity).
    However, for the purpose of quantifying A/C system efficiency 
improvements, EPA believes a test cell temperature less severe than the 
95[deg]F required by the SC03 would be appropriate. A cell temperature 
of 85[deg]F would better align the initial cooling phase (``pull-
down'') as well as the stabilized phase of A/C operation with real-
world driving conditions.
    Another value of an SC03-based test would be the opportunity to 
create operating conditions for vehicle A/C systems that in some ways 
would better simulate ``real world'' operation than either the proposed 
Idle Test or the current SC03. The SC03 test cycle, roughly 10 minutes 
in length, has a similar average speed, maximum speed, and percentage 
of time at idle as the FTP. However, since the SC03 test cycle was 
designed principally to measure criteria pollutants under maximum A/C 
load conditions, it is not long enough to allow temperatures in the 
passenger cabin to consistently stabilize. EPA believes that once the 
pull-down phase has occurred and cabin temperatures have dropped 
dramatically to a suitable interior comfort level, additional test 
cycle time would be needed to measure how efficiently the A/C system 
operates under stabilized conditions.
    To capture the A/C operation during stabilized operation, EPA would 
consider adding two phases to the SC03 test of roughly 10 minutes each. 
Each additional phase would simply be repeats of the SC03 drive cycle, 
with two exceptions. During the second phase, the A/C system would now 
be operating at cabin temperature at or approaching a stabilized 
condition. During the third phase, the A/C system would be turned off. 
The purpose of the third phase would be to establish the base 
CO2 emissions with no A/C loads on the engine, which would 
provide a baseline for the incremental CO2 due to A/C use. 
EPA would likely weight the CO2 g/mi results for the first 
and second phases of the test as follows: 50% for phase 1, and 50% for 
phase 2. From this average CO2 the methodology would 
subtract the CO2 result from phase 3, yielding an 
incremental CO2 (in g/mi) due to A/C use.
    EPA expects to continue working with industry, the California Air 
Resources Board, and other stakeholders to move toward increasingly 
robust performance tests for A/C and may include such changes in this 
final rule. EPA requests comment on all aspects of our proposed A/C 
Efficiency Credits program.
c. Interaction With Title VI Refrigerant Regulations
    Title VI of the Clean Air Act deals with the protection of 
stratospheric ozone. Section 608 establishes a comprehensive program to 
limit emissions of certain ozone-depleting

[[Page 49531]]

substances (ODS). The rules promulgated under section 608 regulate the 
use and disposal of such substances during the service, repair or 
disposal of appliances and industrial process refrigeration. In 
addition, section 608 and the regulations promulgated under it, 
prohibit knowingly venting or releasing ODS during the course of 
maintaining, servicing, repairing or disposing of an appliance or 
industrial process refrigeration equipment. Section 609 governs the 
servicing of motor vehicle air conditioners (MVACs). The regulations 
promulgated under section 609 (40 CFR part 82, subpart B) establish 
standards and requirements regarding the servicing of MVACs. These 
regulations include establishing standards for equipment that recovers 
and recycles or only recovers refrigerant (CFC-12, HFC 134a, and for 
blends only recovers) from MVACs; requiring technician training and 
certification by an EPA-approved organization; establishing 
recordkeeping requirements; imposing sales restrictions; and 
prohibiting the venting of refrigerants. Section 612 requires EPA to 
review substitutes for class I and class II ozone depleting substances 
and to consider whether such substitutes will cause an adverse effect 
to human health or the environment as compared with other substitutes 
that are currently or potentially available. EPA promulgated 
regulations for this program in 1992 and those regulations are located 
at 40 CFR part 82, subpart G. When reviewing substitutes, in addition 
to finding them acceptable or unacceptable, EPA may also find them 
acceptable so long as the user meets certain use conditions. For 
example, all motor vehicle air conditioning system must have unique 
fittings and a uniquely colored label for the refrigerant being used in 
the system.
    EPA views this proposed rule as complementing these Title VI 
programs, and not conflicting with them. To the extent that 
manufacturers choose to reduce refrigerant leakage in order to earn A/C 
Leakage Credits, this would dovetail with the Title VI section 609 
standards which apply to maintenance events, and to end-of-vehicle life 
disposal. In fact, as noted, a benefit of the proposed A/C credit 
provisions is that there should be fewer and less impactive maintenance 
events for MVACs, since there will be less leakage. In addition, the 
credit provisions would not conflict (or overlap) with the Title VI 
section 609 standards. EPA also believes the menu of leak control 
technologies proposed today would complement the section 612 
requirements, because these control technologies would help ensure that 
R134a (or other refrigerants) would be used in a manner that further 
minimizes potential adverse effects on human health and the 
environment.
2. Flex Fuel and Alternative Fuel Vehicle Credits
    As described in this section, EPA is proposing credits for 
flexible-fuel vehicles (FFVs) and alternative fuel vehicles starting in 
the 2012 model year. FFVs are vehicles that can run both on an 
alternative fuel and conventional fuel. Most FFVs are E-85 vehicles, 
which can run on a mixture of up to 85 percent ethanol and gasoline. 
Dedicated alternative fuel vehicles are vehicles that run exclusively 
on an alternative fuel (e.g., compressed natural gas). EPCA includes an 
incentive under the CAFE program for production of dual-fueled vehicles 
or FFVs, and dedicated alternative fuel vehicles.\146\ EPCA's 
provisions were amended by the EISA to extend the period of 
availability of the FFV credits, but to begin phasing them out by 
annually reducing the amount of FFV credits that can be used in 
demonstrating compliance with the CAFE standards.\147\ EPCA does not 
premise the availability of the FFV credits on actual use of 
alternative fuel. Under EPCA, after MY 2019 no FFV credits will be 
available for CAFE compliance.\148\ Under EPCA, for dedicated 
alternative fuel vehicles, there are no limits or phase-out. EPA is 
proposing that FFV and Alternative Fuel Vehicle Credits be calculated 
as a part of the calculation of a manufacturer's overall fleet average 
fuel economy and fleet average carbon-related exhaust emissions (Sec.  
600.510-12).
---------------------------------------------------------------------------

    \146\ 49 U.S.C 32905.
    \147\ See 49 U.S.C 32906. The mechanism by which EPCA provides 
an incentive for production of FFVs is by specifying that their fuel 
economy is determined using a special calculation procedure that 
results in those vehicles being assigned a higher fuel economy level 
than would otherwise occur. 49 U.S.C. section 32905(b). This is 
typically referred to as an FFV credit.
    \148\ 49 U.S.C 32906.
---------------------------------------------------------------------------

    EPA is not proposing to include electric vehicles (EVs) or plug-in 
hybrid electric vehicles (PHEVs) in these flex fuel and alternative 
fuel provisions. These vehicles would be covered by the proposed 
advanced technology vehicle credits provisions described in Section 
III.C.3, so including them here would lead to a double counting of 
credits.
a. Model Year 2012--2015 Credits
    i. FFVs
    For the GHG program, EPA is proposing to allow FFV credits 
corresponding to the amounts allowed by the amended EPCA only during 
the period from MYs 2012 to 2015. (As discussed below in Section 
III.E., EPA is proposing that CAFE-based FFV credits would not be 
permitted as part of the early credits program.) Several manufacturers 
have already taken the availability of FFV credits into account in 
their near-term future planning for CAFE and this reliance indicates 
that these credits need to be considered in considering adequacy of 
lead time for the CO2 standards. EPA thus believes that 
allowing these credits, in the near term, would help provide adequate 
lead time for manufacturers to implement the new multi-year standards, 
but that for the longer term there is adequate lead time without the 
use of such credits. This will also tend to harmonize the GHG and the 
CAFE program during these interim years. As discussed below, EPA is 
proposing for MY 2016 and later that manufacturers would not receive 
FFV credits unless they reliably estimate the extent the alternative 
fuel is actually being used by vehicles in order to count the 
alternative fuel use in the vehicle's CO2 emissions level 
determination.
    As with the CAFE program, EPA proposes to base credits on the 
assumption that the vehicles would operate 50% of the time on the 
alternative fuel and 50% of the time on conventional fuel, resulting in 
CO2 emissions that are based on an arithmetic average of 
alternative fuel and conventional fuel CO2 emissions.\149\ 
The measured CO2 emissions on the alternative fuel would be 
multiplied by a 0.15 volumetric conversion factor which is included in 
the CAFE calculation as provided by EPCA. Through this mechanism a 
gallon of alternative fuel is deemed to contain 0.15 gallons of fuel. 
EPA is proposing to take the same approach for 2012-2015 model years. 
For example, for a flexible-fuel vehicle that emitted 330 g/mi 
CO2 operating on E-85 and 350 g/mi CO2 operating 
on gasoline, the resulting CO2 level to be used in the 
manufacturer's fleet average calculation would be:
---------------------------------------------------------------------------

    \149\ 49 U.S.C 32905 (b).
    [GRAPHIC] [TIFF OMITTED] TP28SE09.012
    
    EPA understands that by using the CAFE approach--including the 0.15 
factor--the CO2 emissions value for the vehicle is 
calculated to be significantly lower than it actually would be 
otherwise, even if the vehicle were assumed to operate on the 
alternative fuel at all times. This represents a ``credit'' being 
provided to FFVs.

[[Page 49532]]

    EPA notes also that the above equation and example are based on an 
FFV that is an E-85 vehicle. EPCA, as amended by EISA, also establishes 
the use of this approach, including the 0.15 factor, for all 
alternative fuels, not just E-85.\150\ The 0.15 factor is used for B-20 
(20 percent biofuel and 80 percent diesel) FFVs. EPCA also establishes 
this approach, including the 0.15 factor, for gaseous-fueled FFVs such 
as a vehicle able to operate on gasoline and CNG.\151\ (For natural gas 
FFVs, EPCA establishes a factor of 0.823 gallons of fuel for every 100 
cubic feet a natural gas used to calculate a gallons equivalent.) \152\ 
The EISA statute's use of the 0.15 factor in this way provides a 
similar regulatory treatment across the various types of alternative 
fuel vehicles. EPA also proposes to use the 0.15 factor for all FFVs in 
keeping with the goal of not disrupting manufacturers' near-term 
compliance planning. EPA, in any case, expects the vast majority of 
FFVs to be E-85 vehicles, as is the case today.
---------------------------------------------------------------------------

    \150\ 49 U.S.C 32905 (c).
    \151\ 49 U.S.C 32905 (d).
    \152\ 49 U.S.C section 32905 (c).
---------------------------------------------------------------------------

    The FFV credit limits for CAFE are 1.2 mpg for model years 2012-
2014 and 1.0 mpg for model year 2015.\153\ In CO2 terms, 
these CAFE limits translate to declining CO2 credit limits 
over the four model years, as the CAFE standards increase in stringency 
(as the CAFE standard increases numerically, the limit becomes a 
smaller fraction of the standard). EPA proposes credit limits shown in 
Table III.C.2-1 based on the proposed average CO2 standards 
for cars and trucks. These have been calculated by comparing the 
average proposed CAFE standards with and without the FFV credits, 
converted to CO2. EPA requests comments on this proposed 
approach.
---------------------------------------------------------------------------

    \153\ 49 U.S.C section 32906 (a).

        Table III.C.2-1--FFV CO2 Standard Credit Limits (g/mile)
------------------------------------------------------------------------
                    Model year                         Cars      Trucks
------------------------------------------------------------------------
2012..............................................        9.8       17.9
2013..............................................        9.3       17.1
2014..............................................        8.9       16.3
2015..............................................        6.9       12.6
------------------------------------------------------------------------

    EPA also requests comments on basing the calculated CO2 
credit limit on the individual manufacturer standards calculated from 
the footprint curves. For example, if a manufacturer's 2012 car 
standard was 260 g/mile, the credit limit in CO2 terms would 
be 9.5 g/mile and if it were 270 g/mile the limit would be 10.2 g/mile. 
This approach would be somewhat more complex and would mean that the 
FFV CO2 credit limits would vary by manufacturer as their 
footprint based standards vary. However, it would more closely track 
CAFE FFV credit limits.
    ii. Dedicated Alternative Fuel Vehicles
    EPA proposes to calculate CO2 emissions from dedicated 
alternative fuel vehicles for MY 2012--2015 by measuring the 
CO2 emissions over the test procedure and multiplying the 
results by the 0.15 conversion factor described above. For example, for 
a dedicated alternative fuel vehicle that would achieve 330 g/mi 
CO2 while operating on alcohol (ethanol or methanol), the 
effective CO2 emissions of the vehicle for use in 
determining the vehicle's CO2) emissions would be calculated 
as follows:

CO2 = 330 x 0.15 = 49.5 g/mi
b. Model Years 2016 and Later
    i. FFVs
    For 2016 and later model years, EPA proposes to treat FFVs 
similarly to conventional fueled vehicles in that FFV emissions would 
be based on actual CO2 results from emission testing on the 
alternative fuel. The manufacturer would also be required to 
demonstrate that the alternative fuel is actually being used in the 
vehicles. The manufacturer would need to establish the ratio of 
operation that is on the alternative fuel compared to the conventional 
fuel. The ratio would be used to weight the CO2 emissions 
performance over the 2-cycle test on the two fuels. The 0.15 conversion 
factor would no longer be included in the CO2 emissions 
calculation. For example, for a flexible-fuel vehicle that emitted 300 
g/mi CO2 operating on E-85 ten percent of the time and 350 
g/mi CO2 operating on gasoline ninety percent of the time, 
the CO2 emissions for the vehicles to be used in the 
manufacturer's fleet average would be calculated as follows:

CO2 = (300 x 0.10) + (350 x 0.90)= 345 g/mi
    The most complex part of this approach is to establish what data 
are needed for a manufacturer to accurately demonstrate use of the 
alternative fuel. One option EPA is considering is establishing a 
rebuttable presumption using a ``top-down'' approach based on national 
E-85 fuel use to assign credits to FFVs sold by manufacturers under 
this program. For example, national E-85 volumes and national FFV sales 
could be used to prorate E-85 use by manufacturer sales volumes and 
FFVs already in-use. EPA would conduct an analysis of vehicle miles 
travelled (VMT) by year for all FFVs using its emissions inventory 
MOVES model. Using the VMT ratios and the overall E-85 sales, E-85 
usage could be assigned to each vehicle. This method would account for 
the VMT of new FFVs and FFVs already in the existing fleet using VMT 
data in the model. The model could then be used to determine the ratio 
of E-85 and gasoline for new vehicles being sold. Fluctuations in E-85 
sales and FFV sales would be taken into account to adjust the credits 
annually. EPA believes this is a reasonable way to apportion E-85 use 
across the fleet.
    If manufacturers decided not to use EPA's assigned credits based on 
the top-down analysis, they would have a second option of presenting 
their own data for consideration as the basis for credits. 
Manufacturers have suggested demonstrations using vehicle on-board data 
gathering through the use of on-board sensors and computers. 
California's program allows FFV credits based on FFV use and envisioned 
manufacturers collecting fuel use data from vehicles in fleets with on-
site refueling. Any approach must reasonably ensure that no 
CO2 emissions reductions anticipated under the program are 
lost.
    EPA proposes that manufacturers would need to present a statistical 
analysis of alternative fuel usage data collected on actual vehicle 
operation. EPA is not attempting to specify how the data is collected 
or the amount of data needed. However, the analysis must be based on 
sound statistical methodology. Uncertainty in the analysis must be 
accounted for in a way that provides reasonable certainty that the 
program does not result in loss of emissions reductions. EPA requests 
comment on how this demonstration could reasonably be made.
    EPA recognizes that under EPCA FFV credits are entirely phased-out 
of the CAFE program by MY 2020, and apply in the prior years with 
certain limitations, but without a requirement that the manufacturers 
demonstrate actual use of the alternative fuel. Under this proposal EPA 
would treat FFV credits the same as under EPCA for model years 2012-
2015, but would apply a different approach starting with model year 
2016. Unlike EPCA, CAA section 202(a) does not mandate that EPA treat 
FFVs in a specific way. Instead EPA is required to exercise its own 
judgment and determine an appropriate approach that best promotes the 
goals of this CAA section. Under these circumstances, EPA proposes to 
treat FFVs for model years 2012-2015 the same as under EPCA, for the 
lead time reasons described above. Starting

[[Page 49533]]

with model year 2016, EPA believes the appropriate approach is to 
ensure that emissions reduction credits are based upon a demonstration 
that emissions reductions have been achieved, to ensure the credits are 
for real reductions instead of reductions that have not likely 
occurred. This will promote the environmental goals of this proposal. 
At the same time, the ability to generate credits upon a demonstration 
of usage of the alternative fuel will provide an actual incentive to 
see that such fuels are used. Under the EPCA credit provision, there is 
an incentive to produce FFVs but no actual incentive to ensure that the 
alternative fuels are used. GHG and energy security benefits are only 
achieved if the alternative fuel is actually used, and EPA's approach 
will now provide such an incentive. This approach will promote greater 
use of renewable fuels, as compared to a situation where there is a 
credit but no usage requirement. This is also consistent with the 
agency's overall commitment to the expanded use of renewable fuels. 
Therefore EPA is not proposing to phase-out the FFV program for MYs 
2016 and later but instead to base the program on real-world reductions 
(i.e., actual vehicle CO2 emissions levels based on actual 
use of the two fuels, without the 0.15 conversion factor specified 
under EISA). Based on existing certification data, E-85 FFV 
CO2 emissions are typically about 5 percent lower on E-85 
than CO2 emissions on 100 percent gasoline. However, 
currently there is little incentive to optimize CO2 
performance for vehicles when running on E-85. EPA believes the above 
approach would provide such an incentive to manufacturers and that E-85 
vehicles could be optimized through engine redesign and calibration to 
provide additional CO2 reductions. EPA requests comments on 
the above.
    ii. Dedicated Alternative Fuel Vehicles
    EPA proposes that for model years 2016 and later dedicated 
alternative fuel vehicles, CO2 would be measured over the 2-
cycle test in order to be included in a manufacturer's fleet average 
CO2 calculations. As noted above, this is different than 
CAFE methodology which provides a methodology for calculating a 
petroleum-based mpg equivalent for alternative fuel vehicles so they 
can be included in CAFE. However, because CO2 can be 
measured directly from alternative fuel vehicles over the test 
procedure, EPA believes this is the simplest and best approach since it 
is consistent with all other vehicle testing under the proposed 
CO2 program.
3. Advanced Technology Vehicle Credits for Electric Vehicles, Plug-in 
Hybrids, and Fuel Cells
    EPA is proposing additional credit opportunities to encourage the 
early commercialization of advanced vehicle powertrains, including 
electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and 
fuel cell vehicles. These technologies have the potential for more 
significant reductions of GHG emissions than any technology currently 
in commercial use, and EPA believes that encouraging early introduction 
of such technologies will help to enable their wider use in the future, 
promoting the technology-based emission reduction goals of section 
202(a)(1) of the Clean Air Act.
    EPA proposes that these advanced technology credits would take the 
form of a multiplier that would be applied to the number of vehicles 
sold such that they would count as more than one vehicle in the 
manufacturer's fleet average. These advanced technology vehicles would 
then count more heavily when calculating fleet average CO2 
levels. The multiplier would not be applied when calculating the 
manufacturer's foot-print-based standard, only when calculating the 
manufacturer's fleet average levels. EPA proposes to use a multiplier 
in the range of 1.2 to 2.0 for all EVs, PHEVs, and fuel cell vehicles 
produced from MY 2012 through MY 2016. EPA proposes that starting in MY 
2017, the multiplier would no longer be used. As described in Section 
III.C.5, EPA is also proposing to allow early advanced technology 
vehicle credits to be generated for model years 2009-2011. EPA requests 
comment on the level of the multiplier and whether it should be the 
same value for each of these three technologies. Further, if EPA 
determines that a multiplier of 2.0, or another level near the higher 
end of this range, is appropriate for the final rule, EPA requests 
comment on whether the multiplier should be phased down over time, such 
as: 2.0 for MY 2009 through MY 2012, 1.8 in MY 2013, 1.6 in MY 2014, 
1.4 in MY 2015, and 1.2 in MY 2016 (i.e., the multiplier could phase-
down by 0.2 per year). In addition, EPA requests comment on whether or 
not it would be appropriate to differentiate between EVs and PHEVs for 
advanced technology credits. Under such an approach, PHEVs could be 
provided a lesser multiplier compare to EVs. Also, the PHEV multiplier 
could be prorated based on the equivalent electric range (i.e., the 
extent to which the PHEV operates on average as an EV) of the vehicle 
in order to incentivize battery technology development. This approach 
would give more credits to ``stronger'' PHEV technology.
    EPA has provided this type of credit previously, in the Tier 2 
program. This approach provides an incentive for manufacturers to prove 
out ultra-clean technology during the early years of the program. In 
Tier 2, early credits for Tier 2 vehicles certified to the very 
cleanest bins (equivalent to California's standards for super ultra low 
emissions vehicles (SULEVs) and zero emissions vehicles (ZEVs)) had a 
multiplier of 1.5 or 2.0.\154\ The multiplier range of 1.2 to 2.0 being 
proposed for GHGs is consistent with the Tier 2 approach. EPA believes 
it is appropriate to provide incentives to manufacturers to produce 
vehicles with very low emissions levels and that these incentives may 
help pave the way for greater and/or more cost effective emission 
reductions from future vehicles. EPA would like to finalize an approach 
which appropriately balances the benefits of encouraging advanced 
technologies with the overall environmental reductions of the proposed 
standards as a whole.
---------------------------------------------------------------------------

    \154\ See 65 FR 6746, February 10, 2000.
---------------------------------------------------------------------------

    As with other vehicles, CO2 for these vehicles would be 
determined as part of vehicle certification, based on emissions over 
the 2-cycle test procedures, to be included in the fleet average 
CO2 levels.
    For electric vehicles, EPA proposes that manufacturers would 
include them in the average with CO2 emissions of zero 
grams/mile both for early credits, and for the MY 2012-2016 time frame. 
Similarly, EPA proposes to include as zero grams/mile of CO2 
the electric portion of PHEVs (i.e., when PHEVs are operating as 
electric vehicles) and fuel cell vehicles. EPA recognizes that for each 
EV that is sold, in reality the total emissions off-set relative to the 
typical gasoline or diesel powered vehicle is not zero, as there is a 
corresponding increase in upstream CO2 emissions due to an 
increase in the requirements for electric utility generation. However, 
for the time frame of this proposed rule, EPA is also interested in 
promoting very advanced technologies such as EVs which offer the future 
promise of significant reductions in GHG emissions, in particular when 
coupled with a broader context which would include reductions from the 
electricity generation. For the California Paley 1 program, California 
assigned EVs a CO2 performance value of 130 g/mile, which 
was intended to represent the average CO2 emissions required 
to charge an EV using representative CO2 values for the 
California electric utility grid. For this

[[Page 49534]]

proposal, EPA is assigning an EV a value of zero g/mile, which should 
be viewed as an interim solution for how to account for the emission 
reduction potential of this type of vehicle, and may not be the 
appropriate long-term approach. EPA requests comment on this proposal 
and whether alternative approaches to address EV emissions should be 
considered, including approaches for considering the lifecycle 
emissions from such advanced vehicle technologies.
    The criteria and definitions for what vehicles qualify for the 
multiplier are provided in Section III.E. As described in Section 
III.E, EPA is proposing definitions for EVs, PHEVs, and fuel cell 
vehicles to ensure that only credible advanced technology vehicles are 
provided credits.
    EPA requests comments on the proposed approach for advanced 
technology vehicle credits.
4. Off-Cycle Technology Credits
    EPA is proposing an optional credit opportunity intended to apply 
to new and innovative technologies that reduce vehicle CO2 
emissions, but for which the CO2 reduction benefits are not 
captured over the 2-cycle test procedure used to determine compliance 
with the fleet average standards (i.e., ``off-cycle''). Eligible 
innovative technologies would be those that are relatively newly 
introduced in one or more vehicle models, but that are not yet 
implemented in widespread use in the light-duty fleet. EPA will not 
approve credits for technologies that are not innovative or novel 
approaches to reducing greenhouse gas emissions. Further, any credits 
for these off-cycle technologies must be based on real-world GHG 
reductions not captured on the current 2-cycle tests and verifiable 
test methods, and represent average U.S. driving conditions.
    Similar to the technologies used to reduce A/C system indirect 
CO2 emissions such as compressor efficiency improvements, 
eligible technologies would not be active during the 2-cycle test and 
therefore the associated improvements in CO2 emissions would 
not be captured. EPA will not consider technologies to be eligible for 
these credits if the technology has a significant impact on 
CO2 emissions over the FTP and HFET tests. Because these 
technologies are not nearly so well developed and understood, EPA is 
not prepared to require their utilization to meet the CO2 
standards. However, EPA is aware of some emerging and innovative 
technologies and concepts in various stages of development with 
CO2 reduction potential that might not be adequately 
captured on the FTP or HFET, and that some of these technologies might 
merit some additional CO2 credit for the manufacturer. 
Examples include solar panels on hybrids or electric vehicles, adaptive 
cruise control, and active aerodynamics. EPA believes it would be 
appropriate to provide an incentive to encourage the introduction of 
these types of technologies and that a credit mechanism is an effective 
way to do this. This optional credit opportunity would be available 
through the 2016 model year.
    EPA is proposing that manufacturers quantify CO2 
reductions associated with the use of the off-cycle technologies such 
that the credits could be applied on a g/mile equivalent basis, as is 
proposed for A/C system improvements. Credits would have to be based on 
real additional reductions of CO2 emissions and would need 
to be quantifiable and verifiable with a repeatable methodology. Such 
submissions of data should be submitted to EPA subject to public 
scrutiny. EPA proposes that the technologies upon which the credits are 
based would be subject to full useful life compliance provisions, as 
with other emissions controls. Unless the manufacturer can demonstrate 
that the technology would not be subject to in-use deterioration over 
the useful life of the vehicle, the manufacturer would have to account 
for deterioration in the estimation of the credits in order to ensure 
that the credits are based on real in-use emissions reductions over the 
life of the vehicle.
    As discussed below, EPA is proposing a two-tiered process for 
demonstrating the CO2 reductions of an innovative and novel 
technology with benefits not captured by the FTP and HFET test 
procedures. First, a manufacturer would determine whether the benefit 
of the technology could be captured using the 5-cycle methodology 
currently used to determine fuel economy label values. EPA established 
the 5-cycle test methods to better represent real-world factors 
impacting fuel economy, including higher speeds and more aggressive 
driving, colder temperature operation, and the use of air conditioning. 
If this determination is affirmative, the manufacturer would follow the 
protocol laid out below and in the proposed regulations. If the 
manufacturer finds that the technology is such that the benefit is not 
adequately captured using the 5-cycle approach, then the manufacturer 
would have to develop a robust methodology, subject to EPA approval, to 
demonstrate the benefit and determine the appropriate CO2 
gram per mile credit.
a. Technology Demonstration Using EPA 5-Cycle Methodology
    As noted above, the CO2 reduction benefit of some 
innovative technologies could be demonstrated using the 5-cycle 
approach currently used for EPA's fuel economy labeling program. The 5-
cycle methodology was finalized in EPA's 2006 fuel economy labeling 
rule,\155\ which provides a more accurate fuel economy label estimate 
to consumers starting with 2008 model year vehicles. In addition to the 
FTP and HFET test procedures, the 5-cycle approach folds in the test 
results from three additional test procedures to determine fuel 
economy. The additional test cycles include cold temperature operation, 
high temperature, high humidity and solar loading, and aggressive and 
high-speed driving; thus these tests could be used to demonstrate the 
benefit of a technology that reduces CO2 over these types of 
driving and environmental conditions. Using the test results from these 
additional test cycles collectively with the 2-cycle data provides a 
more precise estimate of the average fuel economy and CO2 
emissions of a vehicle for both the city and highway independently. A 
significant benefit of using the 5-cycle methodology to measure and 
quantify the CO2 reductions is that the test cycles are 
properly weighted for the expected average U.S. operation, meaning that 
the test results could be used without further adjustments.
---------------------------------------------------------------------------

    \155\ Fuel Economy Labeling of Motor Vehicles: Revisions to 
Improve Calculation of Fuel Economy Estimates; Final Rule (71 FR 
77872, December 27, 2006).
---------------------------------------------------------------------------

    The use of these supplemental cycles may provide a method by which 
technologies not demonstrated on the baseline 2-cycles can be 
quantified. The cold temperature FTP can capture new technologies that 
improve the CO2 performance of vehicles during colder 
weather operation. These improvements may be related to warm-up of the 
engine or other operation during the colder temperature. An example of 
such a new, innovative technology is a waste heat capture device that 
provides heat to the cabin interior, enabling additional engine-off 
operation during colder weather not previously enabled due to heating 
and defrosting requirements. The additional engine-off time would 
result in additional CO2 reductions that otherwise would not 
have been realized without the heat capture technology.
    While A/C credits for efficiency improvements will largely be 
captured in the A/C credits proposal through the credit menu of known 
efficiency improving components and controls,

[[Page 49535]]

certain new technologies may be able to use the high temperatures, 
humidity, and solar load of the SC03 test cycle to accurately measure 
their impact. An example of a new technology may be a refrigerant 
storage device that accumulates pressurized refrigerant during driving 
operation or uses recovered vehicle kinetic energy during deceleration 
to pressurize the refrigerant. Much like the waste heat capture device 
used in cold weather, this device would also allow additional engine-
off operation while maintaining appropriate vehicle interior occupant 
comfort levels. SC03 test data measuring the relative impact of 
innovative A/C-related technologies could be applied to the 5-cycle 
equation to quantify the CO2 reductions of the technology. 
Another example is glazed windows. This reflects sunlight away from the 
cabin so that the energy required to stabilize the cabin air to a 
comfortable level is decreased. The impact of these windows may be 
measureable on an SC03 test (with and without the window option).
    The US06 cycle may be used to capture innovative technologies 
designed to reduce CO2 emissions during higher speed and 
more aggressive acceleration conditions, but not reflected on the 2-
cycle tests. An example of this is an active aerodynamic technology. 
This technology recognizes the benefits of reduced aerodynamic drag at 
higher speeds and makes changes to the vehicle at those speeds. The 
changes may include active front or grill air deflection devices 
designed to redirect frontal airflow. Certain active suspension devices 
designed primarily to reduce aerodynamic drag by lowering the vehicle 
at higher speeds may also be measured on the US06 cycle. To properly 
measure these technologies on the US06, the vehicle would require 
unique load coefficients with and without the technologies. The 
different load coefficient (properly weighted for the US06 cycle) could 
effectively result in reduced vehicle loads at the higher speeds when 
the technologies are active. Similar to the previously discussed 
cycles, the results from the US06 test with and without the technology 
could then use the 5-cycle methodology to quantify CO2 
reductions.
    If the 5-cycle procedures can be used to demonstrate the innovative 
technology, then the process would be relatively simple. The 
manufacturer would simply test vehicles with and without the technology 
installed or operating and compare results. All 5-cycles would be 
tested with the technology enabled and disabled, and the test results 
would be used to calculate a combined city/highway CO2 value 
with the technology and without the technology. These values would be 
compared to determine the amount of the credit; the combined city/
highway CO2 value with the technology operating would be 
subtracted from the combined city/highway CO2 value without 
the technology operating to determine the gram per mile CO2 
credit. It is likely that multiple tests of each of the five test 
procedures would need to be performed in order to achieve the necessary 
strong degree of statistical significance of the credit determination 
results. This would have to be done for each model type for which a 
credit was being sought, unless the manufacturer could demonstrate that 
the impact of the technology was independent of the vehicle 
configuration on which it was installed. In this case, EPA may consider 
allowing the test to be performed on an engine family basis or other 
grouping. At the end of the model year, the manufacturer would 
determine the number of vehicles produced subject to each credit amount 
and report that to EPA in the final model year report. The gram per 
mile credit value determined with the 5-cycle comparison testing would 
be multiplied by the total production of vehicles subject to that value 
to determine the total number of credits.
b. Alternative Off-Cycle Credit Methodologies
    In cases where the benefit of a technological approach to reducing 
CO2 emissions can not be adequately represented using 
existing test cycles, EPA will work with and advise manufacturers in 
developing test procedures and analytical approaches to estimate the 
effectiveness of the technology for the purpose of generating credits. 
Clearly the first step should be a thorough assessment of whether the 
5-cycle approach can be used, but if the manufacturer finds that the 5-
cycle process is fundamentally inadequate for the specific technology 
being considered by the manufacturer, then an alternative approach may 
be developed and submitted to EPA for approval. The demonstration 
program should be robust, verifiable, and capable of demonstrating the 
real-world emissions benefit of the technology with strong statistical 
significance.
    The CO2 benefit of some technologies may be able to be 
demonstrated with a modeling approach, using engineering principles. An 
example would be where a roof solar panel is used to charge the on-
board vehicle battery. The amount of potential electrical power that 
the panel could supply could be modeled for average U.S. conditions and 
the units of electrical power translated to equivalent fuel energy or 
annualized CO2 emission rate reduction from the captured 
solar energy. The CO2 reductions from other technologies may 
be more challenging to quantify, especially if they are interactive 
with the driver, geographic location, environmental condition, or other 
aspect related to operation on actual roads. In these cases, 
manufacturers might have to design extensive on-road test programs. Any 
such on-road testing programs would need to be statistically robust and 
based on average U.S. driving conditions, factoring in differences in 
geography, climate, and driving behavior across the U.S.
    Whether the approach involves on-road testing, modeling, or some 
other analytical approach, the manufacturer would be required to 
present a proposed methodology to EPA. EPA would approve the 
methodology and credits only if certain criteria were met. Baseline 
emissions and control emissions would need to be clearly demonstrated 
over a wide range of real world driving conditions and over a 
sufficient number of vehicles to address issues of uncertainty with the 
data. Data would need to be on a vehicle model-specific basis unless a 
manufacturer demonstrated model specific data was not necessary. 
Approval of the approach to determining a CO2 benefit would 
not imply approval of the results of the program or methodology; when 
the testing, modeling, or analyses are complete the results would 
likewise be subject to EPA review and approval. EPA believes that 
manufacturers could work together to develop testing, modeling, or 
analytical methods for certain technologies, similar to the SAE 
approach used for A/C refrigerant leakage credits.
    EPA requests comments on the proposed approach for off-cycle 
emissions credits, including comments on how best to structure the 
program. EPA particularly requests comments on how the case-by-case 
approach to assessing off-cycle innovative technology credits could 
best be designed, including ways to ensure the verification of real-
world emissions benefits and to ensure transparency in the process of 
reviewing manufacturer's proposed test methods.
5. Early Credit Options
    EPA is proposing to allow manufacturers to generate early credits 
in model years 2009-2011. As described below, credits could be 
generated through early additional fleet average CO2 
reductions, early A/C system improvements, early advanced

[[Page 49536]]

technology vehicle credits, and early off-cycle credits. As with other 
credits, early credits would be subject to a five year carry-forward 
limit based on the model year in which they are generated. Early 
credits could also be transferred between vehicle categories (e.g., 
between the car and truck fleet) or traded among manufacturers without 
limits. The agencies note that CAFE credits earned in MYs prior to MY 
2011 will still be available to manufacturers for use in the CAFE 
program in accordance with applicable regulations.
    EPA is not proposing certification, compliance, or in-use 
requirements for vehicles generating early credits. MY 2009 would be 
complete and MY 2010 would be well underway by the time the rule is 
promulgated. This would make certification, compliance, and in-use 
requirements unworkable. As discussed below, manufacturers would be 
required to submit an early credits report to EPA for approval no later 
than the time they submit their final CAFE report for MY 2011. This 
report would need to include details on all early credits the 
manufacturer generates, why the credits are bona fide, how they are 
quantified, and how they can be verified.
    As a general principle, EPA believes these early credit programs 
must be designed in a way to ensure that they are capturing real-world 
reductions. In addition, EPA wants to ensure these credit programs do 
not provide an opportunity for manufacturers to earn ``windfall'' 
credits that do not result in actual, surplus CO2 emission 
reductions. EPA seeks comments on how to best ensure these objectives 
are achieved in the design of the early credit program options.
a. Credits Based on Early Fleet Average CO2 Reductions
    EPA is proposing opportunities for early credit generation in MYs 
2009-2011 through over-compliance with a fleet average CO2 
baseline established by EPA. EPA is proposing four pathways for doing 
so. Manufacturers would select one of the four paths for credit 
generation for the entire three year period and could not switch 
between pathways for different model years. For two pathways, the 
baseline would be set by EPA to be equivalent to the California 
standards for the relevant model year. Generally, manufacturers that 
over-comply with those CARB standards would earn credits. Two 
additional pathways, described below, would include credits based on 
over-compliance with CAFE standards in States that have not adopted the 
California standards.
    Pathway 1 would be to earn credits by over-complying with the 
California equivalent baseline over the manufacturer's fleet of 
vehicles sold nationwide. Pathway 2 would be for manufacturers to 
generate credits against the baseline only for the fleet of vehicles 
sold in California and the CAA section 177 States.\156\ This approach 
would include any CAA 177 States as of the date of promulgation of the 
Final Rule in this proceeding. Manufacturers would be required to 
include both cars and trucks in the program. Under Pathways 1 and 2, 
EPA proposes that manufacturers would be required to cover any deficits 
incurred against the baseline levels established by EPA during the 
three year period 2009-2011 before credits could be carried forward 
into the 2012 model year. For example, a deficit in 2011 would have to 
be subtracted from the sum of credits earned in 2009 and 2010 before 
any credits could be applied to 2012 (or later) model year fleets. EPA 
is proposing this provision to help ensure the early credits generated 
under this program are consistent with the credits available under the 
California program during these model years.
---------------------------------------------------------------------------

    \156\ CAA 177 States refers to States that have adopted the 
California GHG standards. At present, there are thirteen CAA 177 
States including New York, Massachusetts, Maryland, Vermont, Maine, 
Connecticut, Arizona, New Jersey, New Mexico, Oregon, Pennsylvania, 
Rhode Island, Washington, and Washington, DC.
---------------------------------------------------------------------------

    Table III.C.5-1 provides the California equivalent baselines EPA 
proposes to use as the basis for CO2 credit generation under 
the California-based pathways. These are the California GHG standards 
for the model years shown, with a 2.0 g/mile adjustment to account for 
the exclusion of N2O and CH4, which are included 
in the California GHG standards, but not included in the credits 
program. Manufacturers would generate CO2 credits by 
achieving fleet average CO2 levels below these baselines. As 
shown in the table, the California-based early credit pathways are 
based on the California vehicle categories. Also, the California-based 
baseline levels are not footprint-based, but universal levels that all 
manufacturers would use. Manufacturers would need to achieve fleet 
levels below those shown in the table in order to earn credits.

        Table III.C.5-1--California Equivalent Baselines CO2 Emissions Levels for Early Credit Generation
----------------------------------------------------------------------------------------------------------------
                                                                                         Light trucks with a LVW
                                                                   Passenger cars and     of 3,751 or more and a
                          Model year                              light trucks with an   GVWR of up to 8,500 lbs
                                                                   LVW of 0-3,750 lbs        plus medium-duty
                                                                                            passenger vehicles
----------------------------------------------------------------------------------------------------------------
2009..........................................................                      321                      437
2010..........................................................                      299                      418
2011..........................................................                      265                      388
----------------------------------------------------------------------------------------------------------------

    EPA proposes that manufacturers using Pathways 1 or 2 above would 
use year end car and truck sales in each category. Although production 
data is used for the program starting in 2012, EPA is proposing to use 
sales data for the early credits program in order to apportion vehicles 
by State. This is described further below. Manufacturers would 
calculate actual fleet average emissions over the appropriate vehicle 
fleet, either for vehicles sold nationwide for Pathway 1, or California 
plus 177 States sales for Pathway 2. Early CO2 credits would 
be based on the difference between the baseline shown in the table 
above and the actual fleet average emissions level achieved. Any early 
A/C credits generated by the manufacturer, described below in Section 
III.C.5.b, would be included in the fleet average level determination. 
In model year 2009, the California CO2 standards for cars 
(321 g/mi CO2) are only slightly more stringent than the 
2009 CAFE car standard of 27.5 mpg, which is approximately equivalent 
to 323 g/mi CO2, and the California light-truck standard 
(437 g/mi CO2) is less stringent than the equivalent CAFE 
standard, recognizing that there are some differences between the way 
the California program and the CAFE

[[Page 49537]]

program categorize vehicles. Under the proposed option, manufacturers 
would have to show that they over comply over the entire three model 
year time period, not just the 2009 model year, to generate early 
credits under either Pathways 1, 2 or 3. A manufacturer cannot use 
credits generated in model year 2009 unless they offset any debits from 
model years 2010 and 2011. EPA expects that the requirement to over 
comply over the entire time period covering these three model years 
should mean that the credits that are generated are real and are in 
excess of what would have otherwise occurred. However, because of the 
circumstances involving the 2009 model year, in particular for 
companies with significant truck sales, there is some concern that 
under Pathways 1, 2, and 3, there is a potential for a large number of 
credits generated in 2009 against the California standard, in 
particular for a number of companies who have significantly over-
achieved on CAFE in recent model years. EPA wants to avoid a situation 
where, contrary to expectation, some part of the early credits 
generated by a manufacturer are in fact not excess, where companies 
could trade such credits to other manufacturers, risking a delay in the 
addition of new technology across the industry from the 2012 and later 
EPA CO2 standards. For this reason, EPA requests comment on 
the merits of prohibiting the trading of model year 2009 generated 
early credits between firms.
    In addition, for Pathways 1 and 2, EPA proposes that manufacturers 
may also include alternative compliance credits earned per the 
California alternative compliance program.\157\ These alternative 
compliance credits are based on the demonstrated use of alternative 
fuels in flex fuel vehicles. As with the California program, the 
credits would be available beginning in MY 2010. Therefore, these early 
alternative compliance credits would be available under EPA's program 
for the 2010 and 2011 model years. FFVs would otherwise be included in 
the early credit fleet average based on their emissions on the 
conventional fuel. This would not apply to EVs and PHEVs. The emissions 
of EVs and PHEVs would be determined as described in Section III.E. 
Manufacturers could choose to either include their EVs and PHEVs in one 
of the four pathways described in this section or under the early 
advanced technology emissions credits described below, but not both due 
to issues of credit double counting.
---------------------------------------------------------------------------

    \157\ See Section 6.6.E, California Environmental Protection 
Agency Air Resources Board, Staff Report: Initial Statement of 
Reasons For Proposed Rulemaking, Public Hearing to Consider Adoption 
of Regulations to Control Greenhouse Gas Emissions From Motor 
Vehicles, August 6, 2004.
---------------------------------------------------------------------------

    EPA is also proposing two additional early credit pathways 
manufacturers could select. Pathways 3 and 4 incorporate credits based 
on over-compliance with CAFE standards for vehicles sold outside of 
California and CAA 177 States in MY 2009-2011. Pathway 3 would allow 
manufacturers to earn credits as under Pathway 2, plus earn CAFE-based 
credits in other States. Credits would not be generated for cars sold 
in California and CAA 177 States unless vehicle fleets in those States 
are performing better than the standards which otherwise would apply in 
those States, i.e. the baselines shown in Table III.C.5-1 above.
    Pathway 4 would be for manufacturers choosing to forego California-
based early credits entirely and earn only CAFE-based credits outside 
of California and CAA 177 States. EPA proposes that manufacturers would 
not be able to include FFV credits under the CAFE-based early credit 
pathways since those credits do not automatically reflect actual 
reductions in CO2 emissions.
    The proposed baselines for CAFE-based early pathways are provided 
in Table III.C.5-2 below. They are based on the CAFE standards for the 
2009-2011 model years. For CAFE standards in 2009-2011 model years that 
are footprint-based, the baseline would vary by manufacturer. 
Footprint-based standards are in effect for the 2011 model year CAFE 
standards.\158\ Additionally, for Reform CAFE truck standards, 
footprint standards are optional for the 2009-2010 model years. Where 
CAFE footprint-based standards are in effect, manufacturers would 
calculate a baseline using the footprints and sales of vehicles outside 
of California and CAA 177 States. The actual fleet CO2 
performance calculation would also only include the vehicles sold 
outside of California and CAA 177 States, and as mentioned above, may 
not include FFV credits.
---------------------------------------------------------------------------

    \158\ 74 FR 14196, March 30, 2009.

   Table III.C.5-2--CAFE Equivalent Baselines CO2 Emissions Levels for
                         Early Credit Generation
------------------------------------------------------------------------
           Model year                    Cars               Trucks
------------------------------------------------------------------------
2009............................  323...............  381.*
2010............................  323...............  376.*
2011............................  Footprint-based     Footprint-based
                                   standard.           standard.
------------------------------------------------------------------------
* Would be footprint-based standard for manufacturers selecting
  footprint option under CAFE.

    For the CAFE-based pathways, EPA proposes to use the NHTSA car and 
truck definitions that are in place for the model year in which credits 
are being generated. EPA understands that the NHTSA definitions change 
starting in the 2011 model year, and would therefore change part way 
through the early credits program. EPA further recognizes that MDPVs 
are not part of the CAFE program until the 2011 model year, and 
therefore would not be part of the early credits calculations for 2009-
2010 under the CAFE-based pathways.
    Pathways 2 through 4 involve splitting the vehicle fleet into two 
groups, vehicles sold in California and CAA 177 States and vehicles 
sold outside of these States. This approach would require a clear 
accounting of location of vehicle sales by the manufacturer. EPA 
believes it will be reasonable for manufacturers to accurately track 
sales by State, based on its experience with the National Low Emissions 
Vehicle (NLEV) Program. NLEV required manufacturers to meet separate 
fleet average standards for vehicles sold in two different regions of 
the country.\159\ As with NLEV, the determination would be based on 
where the completed vehicles are delivered as a point of first sale, 
which in most cases would be the dealer.\160\
---------------------------------------------------------------------------

    \159\ 62 FR 31211, June 6, 1997.
    \160\ 62 FR 31212, June 6, 1997.
---------------------------------------------------------------------------

    As noted above, EPA proposes that manufacturers choosing to 
generate early credits would select one of the four pathways for the 
entire early credits program and would not be able to switch among 
them. EPA proposes that manufacturers would submit their early credits 
report when they submit their final CAFE report for MY 2011 (which is 
required to be submitted no

[[Page 49538]]

later than 90 days after the end of the model year). Manufacturers 
would have until then to decide which pathway to select. This would 
give manufacturers enough time to determine which pathway works best 
for them. This timing may be necessary in cases where manufacturers 
earn credits in MY 2011 and need time to assess data and prepare an 
early credits submittal for final EPA approval.
    The table below provides a summary of the four fleet average-based 
CO2 early credit pathways EPA is proposing. As noted above, 
EPA is concerned with potential ``windfall'' credits and is seeking 
comments on how to best ensure the objective of achieving surplus, 
real-world reductions is achieved in the design of the credit programs. 
In addition, EPA requests comments on the merits of each of these 
pathways. Specifically, EPA requests comment on whether or not any of 
the pathways could be eliminated to simplify the program without 
diminishing its overall flexibility. For example, Pathway 2 may not be 
particularly useful to manufacturers if the California/177 State and 
overall national fleets are projected to be similar during these model 
years. EPA also requests comment on proposed program implementation 
structure and provisions.

   Table III.C.5-3--Summary of Proposed Early Fleet Average CO2 Credit
                                Pathways
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Common Elements...................  --Manufacturers would select a
                                     pathway. Once selected, may not
                                     switch among pathways.
                                    --All credits subject to 5 year
                                     carry-forward restrictions.
                                    --For Pathways 2-4, vehicles
                                     apportioned by State based on point
                                     of first sale.
Pathway 1: California-based         --Manufacturers earn credits based
 Credits for National Fleet..        on fleet average emissions compared
                                     with California equivalent baseline
                                     set by EPA.
                                    --Based on nationwide CO2 sales-
                                     weighted fleet average.
                                    --Based on use of California vehicle
                                     categories.
                                    --FFV alternative compliance credits
                                     per California program may be
                                     included.
                                    --Once in the program, manufacturers
                                     must make up any deficits that are
                                     incurred prior to 2012 in order to
                                     carry credits forward to 2012 and
                                     later.
Pathway 2: California-based         --Same as Pathway 1, but
 Credits for vehicles sold in        manufacturers only includes
 California plus CAA 177 States.     vehicles sold in California and CAA
                                     177 States in the fleet average
                                     calculation.
Pathway 3: Pathway 2 plus CAFE-     --Manufacturer earns credits as
 based Credits outside of            provided by Pathway 2: California-
 California plus CAA 177 States.     based credits for vehicles sold in
                                     California plus CAA 177 States,
                                     plus:
                                    --CAFE-based credits allowed for
                                     vehicles sold outside of California
                                     and CAA 177 States.
                                    --For CAFE-based credits,
                                     manufacturers earn credits based on
                                     fleet average emissions compared
                                     with baseline set by EPA.
                                    --CAFE-based credits based on NHTSA
                                     car and truck definitions.
                                    --FFV credits not allowed to be
                                     included for CAFE-based credits.
Pathway 4: Only CAFE-based Credits  --Manufacturer elects to only earn
 outside of California plus CAA      CAFE-based credits for vehicles
 177 States.                         sold outside of California and CAA
                                     177 States. Earns no California and
                                     177 State credits.
                                    --For CAFE-based credits,
                                     manufacturers earn credits based on
                                     fleet average emissions compared
                                     with baseline set by EPA.
                                    --CAFE-based credits based on NHTSA
                                     car and truck definitions.
                                    --FFV credits not allowed to be
                                     included for CAFE-based credits.
------------------------------------------------------------------------

b. Early A/C Credits
    EPA proposes that manufacturers could earn early A/C credits in MYs 
2009-2011 using the same A/C system design-based EPA provisions being 
proposed for MYs commencing in 2012, as described in Section III.C.1, 
above. Manufacturers would be able to earn early A/C CO2-
equivalent credits by demonstrating improved A/C system performance, 
for both direct and indirect emissions. To earn credits for vehicles 
sold in California and CAA 177 States, the vehicles would need to be 
included in one of the California-based early credit pathways described 
above in III.C.5.a. EPA is proposing this constraint in order to avoid 
credit double counting with the California program in place in those 
States, which also allows A/C system credits in this time frame. 
Manufacturers would fold the A/C credits into the fleet average 
CO2 calculations under the California-based pathway. For 
example, the MY 2009 California-based program car baseline would be 321 
g/mile (see Table III.C.5-1). If a manufacturer under Pathway 1 had a 
MY 2009 car fleet average CO2 level of 320 g/mile and then 
earned an additional 9 g/mile CO2-equivalent A/C credit, the 
manufacturers would earn a total of 10 g/mile of credit. Vehicles sold 
outside of California and 177 States would be eligible for the early A/
C credits whether or not the manufacturers participate in other aspects 
of the early credits program.
c. Early Advanced Technology Vehicle Credits
    EPA is proposing to allow early advanced technology vehicle credits 
for sales of EVs, PHEVs, and fuel cell vehicles. To avoid double-
counting, manufacturers would not be allowed to generate advanced 
technology credits for vehicles they choose to include in Pathways 1 
through 4 described in III.C.5.a, above. EPA proposes to use a similar 
methodology to that proposed for MYs 2012 and later, as described in 
Section III.C.3, above. EPA proposes to use a multiplier in the range 
of 1.2 to 2.0 for all eligible vehicles (i.e., EVs, PHEVs, and fuel 
cells). Manufacturers, however, would track the number of these 
vehicles sold in the model years 2009--2011, and the emissions level of 
the vehicles, rather than a CO2 credit. When a manufacturer 
chooses to use the vehicle credits to comply with 2012 or later 
standards, the vehicle counts including the multiplier would be folded 
into the CO2 fleet average. For example, if a manufacturer 
sells 1,000 EVs in MY 2011, and if the final multiplier level were 2.0, 
the manufacturer would apply the multiplier of 2.0 and then be able to 
include 2,000 vehicles at 0 g/mile in their MY 2012 fleet to decrease 
the fleet average for that model year. As with other early credits, 
these early advanced technology vehicle credits would be tracked by 
model year (2009, 2010, or 2011) and would be subject to 5 year carry-
forward restrictions. Again,

[[Page 49539]]

manufacturers would not be allowed to include the EVs, PHEVs, or fuel 
cell vehicles in the early credit pathways discussed above in Section 
III.C.5.a, otherwise the vehicles would be double counted. As discussed 
in Section III.C.3, EPA is requesting comment on a multiplier in the 
range of 1.2 to 2.0, including a potential phase-down in the multiplier 
by model year 2016, if a multiplier near the higher end of this range 
is determined for the final rule. This request for comment also extends 
to the potential for early advance technology vehicle credits. EPA is 
also requesting comment on the appropriate gram/mile metric for EVs and 
fuel cellvehicles, as well as for the EV-only contribution for a PHEV.
d. Early Off-Cycle Credits
    EPA's proposed off-cycle innovative technology credit provisions 
are provided in Section III.C.4. EPA requests comment on beginning 
these credits in the 2009-2011 time frame, provided manufacturers are 
able to make the necessary demonstrations outlined in Section III.C.4, 
above.

D. Feasibility of the Proposed CO2 Standards

    This proposal is based on the need to obtain significant GHG 
emissions reductions from the transportation sector, and the 
recognition that there are cost-effective technologies to achieve such 
reductions in the 2012-2016 time frame. As in many prior mobile source 
rulemakings, the decision on what standard to set is largely based on 
the effectiveness of the emissions control technology, the cost and 
other impacts of implementing the technology, and the lead time needed 
for manufacturers to employ the control technology. The standards 
derived from assessing these issues are also evaluated in terms of the 
need for reductions of greenhouse gases, the degree of reductions 
achieved by the standards, and the impacts of the standards in terms of 
costs, quantified benefits, and other impacts of the standards. The 
availability of technology to achieve reductions and the cost and other 
aspects of this technology are therefore a central focus of this 
rulemaking.
    EPA is taking the same basic approach in this rulemaking, although 
the technological problems and solutions involved in this rulemaking 
differ in some ways from prior mobile source rulemakings. Here, the 
focus of the emissions control technology is on reducing CO2 
and other greenhouse gases. Vehicles combust fuel to perform two basic 
functions: (1) Transport the vehicle, its passengers and its contents, 
and (2) operate various accessories during the operation of the vehicle 
such as the air conditioner. Technology can reduce CO2 
emissions by either making more efficient use of the energy that is 
produced through combustion of the fuel or reducing the energy needed 
to perform either of these functions.
    This focus on efficiency calls for looking at the vehicle as an 
entire system. In addition to fuel delivery, combustion, and 
aftertreatment technology, any aspect of the vehicle that affects the 
need to produce energy must also be considered. For example, the 
efficiency of the transmission system, which takes the energy produced 
by the engine and transmits it to the wheels, and the resistance of the 
tires to rolling both have major impacts on the amount of fuel that is 
combusted while operating the vehicle. The braking system, the 
aerodynamics of the vehicle, and the efficiency of accessories, such as 
the air conditioner, all affect how much fuel is combusted.
    In evaluating vehicle efficiency, we have excluded fundamental 
changes in vehicles' size and utility. For example, we did not evaluate 
converting minivans and SUVs to station wagons, converting vehicles 
with four wheel drive to two wheel drive, or reducing headroom in order 
to lower the roofline and reduce aerodynamic drag. We have limited our 
assessment of technical feasibility and resultant vehicle cost to 
technologies which maintain vehicle utility as much as possible. 
Manufacturers may decide to alter the utility of the vehicles which 
they sell in response to this rule. Assessing the societal cost of such 
changes is very difficult as it involves assessing consumer preference 
for a wide range of vehicle features.
    This need to focus on the efficient use of energy by the vehicle as 
a system leads to a broad focus on a wide variety of technologies that 
affect almost all the systems in the design of a vehicle. As discussed 
below, there are many technologies that are currently available which 
can reduce vehicle energy consumption. These technologies are already 
being commercially utilized to a limited degree in the current light-
duty fleet. These technologies include hybrid technologies that use 
higher efficiency electric motors as the power source in combination 
with or instead of internal combustion engines. While already 
commercialized, hybrid technology continues to be developed and offers 
the potential for even greater efficiency improvements. Finally, there 
are other advanced technologies under development, such as lean burn 
gasoline engines, which offer the potential of improved energy 
generation through improvements in the basic combustion process. In 
addition, the available technologies are not limited to powertrain 
improvements but also include mass reduction, electrical system 
efficiencies, and aerodynamic improvements.
    The large number of possible technologies to consider and the 
breadth of vehicle systems that are affected mean that consideration of 
the manufacturer's design and production process plays a major role in 
developing the proposed standards. Vehicle manufacturers typically 
develop many different models by basing them on a limited number of 
vehicle platforms. The platform typically consists of a common vehicle 
architecture and structural components. This allows for efficient use 
of design and manufacturing resources. Given the very large investment 
put into designing and producing each vehicle model, manufacturers 
typically plan on a major redesign for the models approximately every 5 
years. At the redesign stage, the manufacturer will upgrade or add all 
of the technology and make most other changes supporting the 
manufacturer's plans for the next several years, including plans 
related to emissions, fuel economy, and safety regulations.
    This redesign often involves a package of changes designed to work 
together to meet the various requirements and plans for the model for 
several model years after the redesign. This often involves significant 
engineering, development, manufacturing, and marketing resources to 
create a new product with multiple new features. In order to leverage 
this significant upfront investment, manufacturers plan vehicle 
redesigns with several model years of production in mind. Vehicle 
models are not completely static between redesigns as limited changes 
are often incorporated for each model year. This interim process is 
called a refresh of the vehicle and generally does not allow for major 
technology changes although more minor ones can be done (e.g., small 
aerodynamic improvements, valve timing improvements, etc). More major 
technology upgrades that affect multiple systems of the vehicle thus 
occur at the vehicle redesign stage and not in the time period between 
redesigns.
    As discussed below, there are a wide variety of CO2 
reducing technologies involving several different systems in the 
vehicle that are available for consideration. Many can involve major 
changes to the vehicle, such as changes to the engine block and 
cylinder heads, redesign of the transmission and its

[[Page 49540]]

packaging in the vehicle, changes in vehicle shape to improve 
aerodynamic efficiency and the application of aluminum in body panels 
to reduce mass. Logically, the incorporation of emissions control 
technologies would be during the periodic redesign process. This 
approach would allow manufacturers to develop appropriate packages of 
technology upgrades that combine technologies in ways that work 
together and fit with the overall goals of the redesign. It also allows 
the manufacturer to fit the process of upgrading emissions control 
technology into its multi-year planning process, and it avoids the 
large increase in resources and costs that would occur if technology 
had to be added outside of the redesign process.
    This proposed rule affects five years of vehicle production, model 
years 2012-2016. Given the now-typical five year redesign cycle, nearly 
all of a manufacturer's vehicles will be redesigned over this period. 
However, this assumes that a manufacturer has sufficient lead time to 
redesign the first model year affected by this proposed rule with the 
requirements of this proposed rule in mind. In fact, the lead time 
available for model year 2012 is relatively short. The time between a 
likely final rule and the start of 2013 model year production is likely 
to be just over two years. At the same time, manufacturer product plans 
indicate that they are planning on introducing many of the technologies 
EPA projects could be used to show compliance with the proposed 
CO2 standards in both 2012 and 2013. In order to account for 
the relatively short lead time available prior to the 2012 and 2013 
model years, albeit mitigated by their existing plans, EPA has factored 
this reality into how the availability is modeled for much of the 
technology being considered for model years 2012-2016 as a whole. If 
the technology to control greenhouse gas emissions is efficiently 
folded into this redesign process, then EPA projects that 85 percent of 
each manufacturer's sales will be able to be redesigned with many of 
the CO2 emission reducing technologies by the 2016 model 
year, and as discussed below, to reduce emissions of HFCs from the air 
conditioner.
    In determining the level of this first ever GHG emissions standard 
under the CAA for light-duty vehicles, EPA proposes to use an approach 
that accounts for and builds on this redesign process. This provides 
the opportunity for several control technologies to be incorporated 
into the vehicle during redesign, achieving significant emissions 
reductions from the model at one time. This is in contrast to what 
would be a much more costly approach of trying to achieve small 
increments of reductions over multiple years by adding technology to 
the vehicle piece by piece outside of the redesign process.
    As described below, the vast majority of technology required by 
this proposal is commercially available and already being employed to a 
limited extent across the fleet. The vast majority of the emission 
reductions which would result from this proposed rule would result from 
the increased use of these technologies. EPA also believes that this 
proposed rule would encourage the development and limited use of more 
advanced technologies, such as PHEVs and EVs.
    In developing the proposed standard, EPA built on the technical 
work performed by the State of California during its development of its 
statewide GHG program. EPA began by evaluating a nationwide CAA 
standard for MY 2016 that would require the levels of technology 
upgrade, across the country, which California standards would require 
for the subset of vehicles sold in California under Pavley 1. In 
essence, EPA evaluated the stringency of the California Pavley 1 
program but for a national standard. As mentioned above, and as 
described in detail in Section II.C of this preamble and Chapter 3 of 
the Joint TSD, one of the important technical documents included in EPA 
and NHTSA's assessment of vehicle technology effectiveness and costs 
was the 2004 NESCCAF report which was the technical foundation for 
California's Pavley 1 standard. However, in order to evaluate the 
impact of standards with similar stringency on a national basis to the 
California program EPA chose not to evaluate the specific California 
standards for several reasons. First, California's standards are 
universal standards (one for cars and one for trucks), while EPA is 
proposing attribute-based standards using vehicle footprint. Second, 
California's definitions of what vehicles are classified as cars and 
which are classified as trucks are different from those used by NHTSA 
for CAFE purposes and different from EPA's proposed classifications in 
this notice (which harmonizes with the CAFE definitions). In addition, 
there has been progress in the refinement of the estimation of the 
effectiveness and cost estimation for technologies which can be applied 
to cars and trucks since the California analysis in 2004 which could 
lead to different relative stringencies between cars and trucks than 
what California determined for its Pavley 1 program. There have also 
been improvements in the fuel economy and CO2 performance of 
the actual new vehicle fleet since California's 2004 analysis which EPA 
wanted to reflect in our current assessment. For these reasons, EPA 
developed an assessment of an equivalent national new vehicle fleet-
wide CO2 performance standards for model year 2016 which 
would result in the new vehicle fleet in the State of California having 
CO2 performance equal to the performance from the California 
Pavley 1 standards. This assessment is documented in Chapter 3.1 of the 
DRIA. The results of this assessment predicts that a national light-
duty vehicle fleet which adopts technology that achieves performance of 
250 g/mile CO2 for model year 2016 would result in vehicles 
sold in California that would achieve the CO2 performance 
equivalent to the Pavley 1 standards.
    EPA then analyzed a level of 250 g/mi CO2 in 2016 using 
the OMEGA model, and the car and truck footprint curves relative 
stringency discussed in Section II to determine what technology would 
be needed to achieve a fleet wide average of 250 g/mi CO2. 
As discussed later in this section we believe this level of technology 
application to the light-duty vehicle fleet can be achieved in this 
time frame, that such standards will produce significant reductions in 
GHG emissions, and that the costs for both the industry and the costs 
to the consumer are reasonable. EPA also developed standards for the 
model years 2012 through 2015 that lead up to the 2016 level.
    EPA's independent technical assessment of the technical feasibility 
of the proposed MY2012-2016 standards is described below. EPA has also 
evaluated a set of alternative standards for these model years, one 
that is more stringent than the proposed standards and one that is less 
stringent. The technical feasibility of these alternative standards is 
discussed at the end of this section.
    Evaluating the feasibility of these standards primarily includes 
identifying available technologies and assessing their effectiveness, 
cost, and impact on relevant aspects of vehicle performance and 
utility. The wide number of technologies which are available and likely 
to be used in combination requires a more sophisticated assessment of 
their combined cost and effectiveness. An important factor is also the 
degree that these technologies are already being used in the current 
vehicle fleet and thus, unavailable for use to improve energy 
efficiency beyond current levels. Finally, the challenge for 
manufacturers to design the technology

[[Page 49541]]

into their products, and the appropriate lead time needed to employ the 
technology over the product line of the industry must be considered.
    Applying these technologies efficiently to the wide range of 
vehicles produced by various manufacturers is a challenging task. In 
order to assist in this task, EPA has developed a computerized model 
called the Optimization Model for reducing Emissions of Greenhouse 
gases from Automobiles (OMEGA) model. Broadly, the model starts with a 
description of the future vehicle fleet, including manufacturer, sales, 
base CO2 emissions, footprint and the extent to which 
emission control technologies are already employed. For the purpose of 
this analysis, over 200 vehicle platforms were used to capture the 
important differences in vehicle and engine design and utility of 
future vehicle sales of roughly 16 million units in the 2016 timeframe. 
The model is then provided with a list of technologies which are 
applicable to various types of vehicles, along with their cost and 
effectiveness and the percentage of vehicle sales which can receive 
each technology during the redesign cycle of interest. The model 
combines this information with economic parameters, such as fuel prices 
and a discount rate, to project how various manufacturers would apply 
the available technology in order to meet various levels of emission 
control. The result is a description of which technologies are added to 
each vehicle platform, along with the resulting cost. While OMEGA can 
apply technologies which reduce CO2 emissions and HFC 
refrigerant emissions associated with air conditioner use, this task is 
currently handled outside of the OMEGA model. The model can be set to 
account for various types of compliance flexibilities, such as FFV 
credits.
    EPA invites comment on all aspects of this feasibility assessment. 
Both the OMEGA model and its inputs have been placed in the docket to 
this proposed rule and available for review.
    The remainder of this section describes the technical feasibility 
analysis in greater detail. Section III.D.1 describes the development 
of our projection of the MY 2012-2016 fleet in the absence of this 
proposed rule. Section III.D.2 describes our estimates of the 
effectiveness and cost of the control technologies available for 
application in the 2012-2016 timeframe. Section III.D.3 combines these 
technologies into packages likely to be applied at the same time by a 
manufacturer. In this section, the overall effectiveness of the 
technology packages vis-[agrave]-vis their effectiveness when combined 
individually is described. Section III.D.4 describes the process which 
manufacturers typically use to apply new technology to their vehicles. 
Section III.D.5 describes EPA's OMEGA model and its approach to 
estimating how manufacturers would add technology to their vehicles in 
order to comply with CO2 emission standards. Section III.D.6 
presents the results of the OMEGA modeling, namely the level of 
technology added to manufacturers' vehicles and its cost. Section 
III.D.7 discusses the feasibility of the alternative 4-percent-per-year 
and 6-percent-per-year standards. Further detail on all of these issues 
can be found in EPA and NHTSA's draft Joint Technical Support Document 
as well as EPA's draft Regulatory Impact Analysis.
1. How Did EPA Develop a Reference Vehicle Fleet for Evaluating Further 
CO2 Reductions?
    In order to calculate the impacts of this proposed regulation, it 
is necessary to project the GHG emissions characteristics of the future 
vehicle fleet absent this proposed regulation. This is called the 
``reference'' fleet. EPA developed this reference fleet by determining 
the characteristics of a specific model year (in this case, 2008) of 
vehicles, called the baseline fleet, and then projecting what changes 
if any would be made to these vehicles to comply with the MY2011 CAFE 
standards. Thus, the MY 2008 fleet is our ``baseline fleet,'' and the 
projection of the baseline to MY 2011-2016 is called the ``reference 
fleet.''
    EPA used 2008 model year vehicles as the basis for its baseline 
fleet. 2008 model year is the most recent model year for which data is 
publicly available. Sources of data for the baseline include the EPA 
vehicle certification data, Ward's Automotive Group data, 
Motortrend.com, Edmunds.com, manufacturer product plans, and other 
sources to a lesser extent (such as articles about specific vehicles) 
revealed from Internet search engine research. EPA then projects this 
fleet out to the 2016 MY, taking into account factors such as changes 
in overall sales volume. Section II.B describes the development of the 
EPA reference fleet, and further details can be found in Section II.B 
of this preamble and Chapter 1 of the Draft Joint TSD.
    The light-duty vehicle market is currently in a state of flux due 
to the volatility in fuel prices over the past several years and the 
current economic downturn. These factors have changed the relative 
sales of the various types of light-duty vehicles marketed, as well as 
total sales volumes. EPA and NHTSA desire to account for these changes 
to the degree possible in our forecast of the make-up of the future 
vehicle fleet. EPA wants to include improvements in fuel economy 
associated with the existing CAFE program. It is possible that 
manufacturers could increase fuel economy beyond the level of the 2011 
MY CAFE standards for marketing purposes. However, it is difficult to 
separate fuel economy improvements in those years for marketing 
purposes from those designed to facilitate compliance with anticipated 
CAFE or CO2 emission standards. Thus, EPA limits fuel 
economy improvements in the reference fleet to those projected to 
result from the existing CAFE standards. The addition of technology to 
the baseline fleet so that it complies with the MY 2011 CAFE standards 
is described later in Section III.D.4, as this uses the same 
methodology used to project compliance with the proposed CO2 
emission standards. In summary, the reference fleet represents vehicle 
characteristics and sales in the 2012 and later model years absent this 
proposed rule. Technology is then added to these vehicles in order to 
reduce CO2 emissions to achieve compliance with the proposed 
CO2 standards. EPA did not factor in any changes to vehicle 
characteristics or sales in projecting manufacturers' compliance with 
this proposal.
    After the reference fleet is created, the next step aggregates 
vehicle sales by a combination of manufacturer, vehicle platform, and 
engine design. As discussed in Section III.D.4 below, manufacturers 
implement major design changes at vehicle redesign and tend to 
implement these changes across a vehicle platform. Because the cost of 
modifying the engine depends on the valve train design (such as SOHC, 
DOHC, etc.), the number of cylinders and in some cases head design, the 
vehicle sales are broken down beyond the platform level to reflect 
relevant engine differences. The vehicle groupings are shown in Table 
III.D.1-1.

[[Page 49542]]



                 Table III.D.1-1--Vehicle Groupings \a\
------------------------------------------------------------------------
                                  Vehicle        Vehicle        Vehicle
      Vehicle description           type       description        type
------------------------------------------------------------------------
Large SUV (Car) V8+ OHV........         13  Subcompact Auto            1
                                             I4.
Large SUV (Car) V6 4v..........         16  Large Pickup V8+          19
                                             DOHC.
Large SUV (Car) V6 OHV.........         12  Large Pickup V8+          14
                                             SOHC 3v.
Large SUV (Car) V6 2v SOHC.....          9  Large Pickup V8+          13
                                             OHV.
Large SUV (Car) I4 and I5......          7  Large Pickup V8+          10
                                             SOHC.
Midsize SUV (Car) V6 2v SOHC...          8  Large Pickup V6           18
                                             DOHC.
Midsize SUV (Car) V6 S/DOHC 4v.          5  Large Pickup V6           12
                                             OHV.
Midsize SUV (Car) I4...........          7  Large Pickup V6           11
                                             SOHC 2v.
Small SUV (Car) V6 OHV.........         12  Large Pickup I4 S/         7
                                             DOHC.
Small SUV (Car) V6 S/DOHC......          4  Small Pickup V6           12
                                             OHV.
Small SUV (Car) I4.............          3  Small Pickup V6            8
                                             2v SOHC.
Large Auto V8+ OHV.............         13  Small Pickup I4..          7
Large Auto V8+ SOHC............         10  Large SUV V8+             17
                                             DOHC.
Large Auto V8+ DOHC, 4v SOHC...          6  Large SUV V8+             14
                                             SOHC 3v.
Large Auto V6 OHV..............         12  Large SUV V8+ OHV         13
Large Auto V6 SOHC 2/3v........          5  Large SUV V8+             10
                                             SOHC.
Midsize Auto V8+ OHV...........         13  Large SUV V6 S/           16
                                             DOHC 4v.
Midsize Auto V8+ SOHC..........         10  Large SUV V6 OHV.         12
Midsize Auto V7+ DOHC, 4v SOHC.          6  Large SUV V6 SOHC          9
                                             2v.
Midsize Auto V6 OHV............         12  Large SUV I4/....          7
Midsize Auto V6 2v SOHC........          8  Midsize SUV V6            12
                                             OHV.
Midsize Auto V6 S/DOHC 4v......          5  Midsize SUV V6 2v          8
                                             SOHC.
Midsize Auto I4................          3  Midsize SUV V6 S/          5
                                             DOHC 4v.
Compact Auto V7+ S/DOHC........          6  Midsize SUV I4 S/          7
                                             DOHC.
Compact Auto V6 OHV............         12  Small SUV V6 OHV.         12
Compact Auto V6 S/DOHC 4v......          4  Minivan V6 S/DOHC         16
Compact Auto I5................          7  Minivan V6 OHV...         12
Compact Auto I4................          2  Minivan I4.......          7
Subcompact Auto V8+ OHV........         13  Cargo Van V8+ OHV         13
Subcompact Auto V8+ S/DOHC.....          6  Cargo Van V8+             10
                                             SOHC.
Subcompact Auto V6 2v SOHC.....          8  Cargo Van V6 OHV.         12
Subcompact Auto I5/V6 S/DOHC 4v          4  .................  .........
------------------------------------------------------------------------
\a\ I4 = 4 cylinder engine, I5 = 5 cylinder engine, V6, V7, and V8 = 6,
  7, and 8 cylinder engines, respectively, DOHC = Double overhead cam,
  SOHC = Single overhead cam, OHV = Overhead valve, v = number of valves
  per cylinder, ``/'' = and, ``+'' = or larger.

    As mentioned above, the second factor which needs to be considered 
in developing a reference fleet against which to evaluate the impacts 
of this proposed rule is the impact of the 2011 MY CAFE standards, 
which were published earlier this year. Since the vehicles which 
comprise the above reference fleet are those sold in the 2008 MY, when 
coupled with our sales projections, they do not necessarily meet the 
2011 MY CAFE standards.
    The levels of the 2011 MY CAFE standards are straightforward to 
apply to future sales fleets, as is the potential fine-paying 
flexibility afforded by the CAFE program (i.e., $55 per mpg of 
shortfall). However, projecting some of the compliance flexibilities 
afforded by EISA and the CAFE program are less clear. Two of these 
compliance flexibilities are relevant to EPA's analysis: (1) The credit 
for FFVs, and (2) the limit on the transferring of credits between car 
and truck fleets. The FFV credit is limited to 1.2 mpg in 2011 and EISA 
gradually reduces this credit, to 1.0 mpg in 2015 and eventually to 
zero in 2020. In contrast, the limit on car truck transfer is limited 
to 1.0 mpg in 2011, and EISA increases this to 1.5 mpg beginning in 
2015 and then to 2.0 mpg beginning in 2020. The question here is 
whether to hold the 2011 MY CAFE provisions constant in the future or 
incorporate the changes in the FFV credit and car-truck credit trading 
limits contained in EISA.
    EPA decided to hold the 2011 MY limits on FFV credit and car-truck 
credit trading constant in projecting the fuel economy and 
CO2 emission levels of vehicles in our reference case. This 
approach treats the changes in the FFV credit and car-truck credit 
trading provisions consistently with the other EISA-mandated changes in 
the CAFE standards themselves. All EISA provisions relevant to 2011 MY 
vehicles are reflected in our reference case fleet, while all post-2011 
MY provisions are not. Practically, relative to the alternative, this 
increases both the cost and benefit of the proposed standards. In our 
analysis of this proposed rule, any quantified benefits from the 
presence of FFVs in the fleet are not considered. Thus, the only impact 
of the FFV credit is to reduce onroad fuel economy. By assuming that 
the FFV credit stays at 1.2 mpg in the future absent this rule, the 
assumed level of onroad fuel economy that would occur absent this 
proposal is reduced. As this proposal eliminates the FFV credit 
starting in 2016, the net result is to increase the projected level of 
fuel savings from our proposed standards. Similarly, the higher level 
of FFV credit reduces projected compliance cost for manufacturers to 
meet the 2011 MY standards in our reference case. This increases the 
projected cost of meeting the proposed 2012 and later standards.
    As just implied, EPA needs to project the technology (and resultant 
costs) required for the 2008 MY vehicles to comply with the 2011 MY 
CAFE standards in those cases where they do not automatically do so. 
The technology and costs are projected using the same methodology that 
projects compliance with the proposed 2012 and later CO2 
standards. The description of this process is described in the 
following four sections.
    A more detailed description of the methodology used to develop 
these sales projections can be found in the Draft Joint TSD. Detailed 
sales projections by model year and manufacturer can also be found in 
the TSD. EPA requests comments on both

[[Page 49543]]

the methodology used to develop the reference fleet, as well as the 
characteristics of the reference fleet.
2. What Are the Effectiveness and Costs of CO2-Reducing 
Technologies?
    EPA and NHTSA worked together to jointly develop information on the 
effectiveness and cost of the CO2-reducing technologies, and 
fuel economy-improving technologies, other than A/C related control 
technologies. This joint work is reflected in Chapter 3 of the Draft 
Joint TSD and in Section II of this preamble. A summary of the 
effectiveness and cost of A/C related technology is contained here. For 
more detailed information on the effectiveness and cost of A/C related 
technology, please refer to Section III.C of this preamble and Chapter 
2 of EPA's DRIA.
    A/C improvements are an integral part of EPA's technology analysis 
and have been included in this section along with the other technology 
options. While discussed in Section III.C as a credit opportunity, air 
conditioning-related improvements are included in Table III.D.2-
1.because A/C improvements are a very cost-effective technology at 
reducing CO2 (or CO2-equivalent) emissions. EPA 
expects most manufacturers will choose to use AC improvement credit 
opportunities as a strategy for meeting compliance with the 
CO2 standards. Note that the costs shown in Table III.D.2-1 
do not include maintenance savings that would be expected from the new 
AC systems. Further, EPA does not include AC-related maintenance 
savings in our cost and benefit analysis presented in Section III.H. 
EPA discusses the likely maintenance savings in Chapter 2 of the DRIA 
and requests comment on that discussion because we may include 
maintenance savings in the final rule and would like to have the best 
information available in order to do so. The EPA approximates that the 
level of the credits earned will increase from 2012 to 2016 as more 
vehicles in the fleet are redesigned. The penetrations and average 
levels of credit are summarized in Table III.D.2-2, though the 
derivation of these numbers (and the breakdown of car vs. truck 
credits) is described in the DRIA. As demonstrated in the IMAC study 
(and described in Section III.C as well as the DRIA), these levels are 
feasible and achievable with technologies that are available and cost-
effective today.
    These improvements are categorized as either leakage reduction, 
including use of alternative refrigerants, or system efficiency 
improvements. Unlike the majority of the technologies described in this 
section, A/C improvements will not be demonstrated in the test cycles 
used to quantify CO2 reductions in this proposal. As 
described earlier, for this analysis A/C-related CO2 
reductions are handled outside of OMEGA model and therefore their 
CO2 reduction potential is expressed in grams per mile 
rather than a percentage used by the OMEGA model. See Section III.C for 
the method by which potential reductions are calculated or measured. 
Further discussion of the technological basis for these improvements is 
included in Chapter 2 of the DRIA.

  Table III.D.2-1--Total CO2 Reduction Potential and 2016 Cost for A/C
              Related Technologies for All Vehicle Classes
                         [Costs in 2007 dollars]
------------------------------------------------------------------------
                                    CO2 reduction         Incremental
                                      potential         compliance costs
------------------------------------------------------------------------
A/C refrigerant leakage         7.5 g/mi \161\.......                $17
 reduction.
A/C efficiency improvements...  5.7 g/mi.............                 53
------------------------------------------------------------------------


 Table III.D.2-2 A/C Related Tech- nology Penetration and Credit Levels
                          Expected To Be Earned
------------------------------------------------------------------------
                                            Technology        Average
                                            penetration    credit  over
                                             (Percent)     entire  fleet
------------------------------------------------------------------------
2012....................................              25             3.1
2013....................................              40             5.0
2014....................................              60             7.5
2015....................................              80            10.0
2016....................................              85            10.6
------------------------------------------------------------------------

3. How Can Technologies Be Combined into ``Packages'' and What Is the 
Cost and Effectiveness of Packages?
    Individual technologies can be used by manufacturers to achieve 
incremental CO2 reductions. However, as mentioned in Section 
III.D.1, EPA believes that manufacturers are more likely to bundle 
technologies into ``packages'' to capture synergistic aspects and 
reflect progressively larger CO2 reductions with additions 
or changes to any given package. In addition, manufacturers would 
typically apply new technologies in packages during model redesigns--
which occur once roughly every five years--rather than adding new 
technologies one at a time on an annual or biennial basis. This way, 
manufacturers can more efficiently make use of their redesign resources 
and more effectively plan for changes necessary to meet future 
standards.
---------------------------------------------------------------------------

    \161\ This represents 50% improvement in leakage and thus 50% of 
the A/C leakage impact potential compared to a maximum of 15 g/mi 
credit that can be achieved through the incorporation of a low very 
GWP refrigerant.
---------------------------------------------------------------------------

    Therefore, the approach taken here is to group technologies into 
packages of increasing cost and effectiveness. EPA determined that 19 
different vehicle types provided adequate representation to accurately 
model the entire fleet. This was the result of analyzing the existing 
light duty fleet with respect to vehicle size and powertrain 
configurations. All vehicles, including cars and trucks, were first 
distributed based on their relative size, starting from compact cars 
and working upward to large trucks. Next, each vehicle was evaluated 
for powertrain, specifically the engine size, I4, V6, and V8, and 
finally by the number of valves per cylinder. Note that each of these 
19 vehicle types was mapped into one of the five classes of vehicles 
mentioned in Section III.D.2. While the five classes provide adequate 
representation for the cost basis associated with most technology 
application, they do not adequately account for all existing vehicle 
attributes such as base vehicle powertrain configuration and mass 
reduction. As an example, costs and effectiveness estimates for engine 
friction reduction for the small car class were used to represent cost 
and effectiveness for three vehicle types: Subcompact cars, compact 
cars, and small multi-purpose vehicles (MPV) equipped with a 4-cylinder 
engine, however the mass reduction associated for each of these vehicle 
types was based on the vehicle type sales-weighted average. In another 
example, a vehicle type for V8 single overhead cam 3-valve engines was 
created to properly account for the incremental cost in moving to a 
dual overhead cam 4-valve

[[Page 49544]]

configuration. Note also that these 19 vehicle types span the range of 
vehicle footprints--smaller footprints for smaller vehicles and larger 
footprints for larger vehicles--which serve as the basis for the 
standards proposed in this rule. A complete list of vehicles and their 
associated vehicle types is shown above in Table III.D.1-1.
    Within each of the 19 vehicle types multiple technology packages 
were created in increasing technology content and, hence, increasing 
effectiveness. Important to note is that the effort in creating the 
packages attempted to maintain a constant utility for each package as 
compared to the baseline package. As such, each package is meant to 
provide equivalent driver-perceived performance to the baseline 
package. The initial packages represent what a manufacturer will most 
likely implement on all vehicles, including low rolling resistance 
tires, low friction lubricants, engine friction reduction, aggressive 
shift logic, early torque converter lock-up, improved electrical 
accessories, and low drag brakes.\162\ Subsequent packages include 
advanced gasoline engine and transmission technologies such as turbo/
downsizing, GDI, and dual-clutch transmission. The most technologically 
advanced packages within a segment included HEV, PHEV and EV designs. 
The end result being a list of several packages for each of 19 
different vehicle types from which a manufacturer could choose in order 
to modify its fleet such that compliance could be achieved.
---------------------------------------------------------------------------

    \162\ When making reference to low friction lubricants, the 
technology being referred to is the engine changes and possible 
durability testing that would be done to accommodate the low 
friction lubricants, not the lubricants themselves.
---------------------------------------------------------------------------

    Before using these technology packages as inputs to the OMEGA 
model, the cost and effectiveness for the package was calculated. The 
first step--mentioned briefly above--was to apply the scaling class for 
each technology package and vehicle type combination. The scaling class 
establishes the cost and effectiveness for each technology with respect 
to the vehicle size or type. The Large Car class was provided as an 
example in Section III.D.2. Additional classes include Small Car, 
Minivan, Small Truck, and Large Truck and each of the 19 vehicle types 
was mapped into one of those five classes. In the next step, the cost 
for a particular technology package, was determined as the sum of the 
costs of the applied technologies. The final step, determination of 
effectiveness, requires greater care due to the synergistic effects 
mentioned in Section III.D.2. This step is described immediately below.
    Usually, the benefits of the engine and transmission technologies 
can be combined multiplicatively. For example, if an engine technology 
reduces CO2 emissions by five percent and a transmission 
technology reduces CO2 emissions by four percent, the 
benefit of applying both technologies is 8.8 percent (100%-(100%-4%) * 
(100%-5%)). In some cases, however, the benefit of the transmission-
related technologies overlaps with many of the engine technologies. 
This occurs because the primary goal of most of the transmission 
technologies is to shift operation of the engine to more efficient 
locations on the engine map. Some of the engine technologies have the 
same goal, such as cylinder deactivation. In order to account for this 
overlap and avoid over-estimating emissions reduction effectiveness, 
EPA has developed a set of adjustment factors associated with specific 
pairs of engine and transmission technologies.
    The various transmission technologies are generally mutually 
exclusive. As such, the effectiveness of each transmission technology 
generally supersedes each other. For example, the 9.5-14.5 percent 
reduction in CO2 emissions associated with the automated 
manual transmission includes the 4.5-6.5 percent benefit of a 6-speed 
automatic transmission. Exceptions are aggressive shift logic and early 
torque converter lock-up. The former can be applied to any vehicle and 
the latter can be applied to any vehicle with an automatic 
transmission.
    EPA has chosen to use an engineering approach known as the lumped-
parameter technique to determine these adjustment factors. The results 
from this approach were then applied directly to the vehicle packages. 
The lumped-parameter technique is well documented in the literature, 
and the specific approach developed by EPA is detailed in Chapter 3 of 
the Draft Joint TSD.
    Table III.D.3-1 presents several examples of the reduction in the 
effectiveness of technology pairs. A complete list and detailed 
discussion of these synergies is presented in Chapter 3 of the Draft 
Joint TSD.

   Table III.D.3-1--Reduction in Effectiveness for Selected Technology
                                  Pairs
------------------------------------------------------------------------
                                                          Reduction in
                                      Transmission          combined
        Engine technology              technology        effectiveness
                                                           (percent)
------------------------------------------------------------------------
Intake cam phasing..............  5 speed automatic..                0.5
Coupled cam phasing.............  5 speed automatic..                0.5
Coupled cam phasing.............  Aggressive shift                   0.5
                                   logic.
Cylinder deactivation...........  5 speed automatic..                1.0
Cylinder deactivation...........  Aggressive shift                   0.5
                                   logic.
------------------------------------------------------------------------

    Table III.D.3-2 presents several examples of the CO2-
reducing technology vehicle packages used in the OMEGA model for the 
large car class. Similar packages were generated for each of the 19 
vehicle types and the costs and effectiveness estimates for each of 
those packages are discussed in detail in Chapter 3 of the Draft Joint 
TSD.

[[Page 49545]]



    Table III.D.3-2--CO2 Reducing Technology Vehicle Packages for a Large Car Effectiveness and Costs in 2016
                                             [Costs in 2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                            Transmission                                    CO2        Package
         Engine  technology                  technology         Additional  technology   reduction       cost
----------------------------------------------------------------------------------------------------------------
3.3L V6.............................  4 speed automatic......  None...................          Baseline
                                                                                       -------------------------
3.0L V6 + GDI + CCP.................  6 speed automatic......  3% Mass Reduction......        17.9%       $1,022
3.0L V6 + GDI + CCP + Deac..........  6 speed automatic......  5% Mass Reduction......         20.6        1,280
3.0L V6 + GDI + CCP + Deac..........  6 speed DCT............  10% Mass Reduction              34.2        2,108
                                                                Start-Stop.
2.2L I4 + GDI + Turbo + DCP.........  6 speed DCT............  10% Mass Reduction              34.3        2,245
                                                                Start-Stop.
----------------------------------------------------------------------------------------------------------------

4. Manufacturers' Application of Technology
    Vehicle manufacturers often introduce major product changes 
together, as a package. In this manner the manufacturers can optimize 
their available resources, including engineering, development, 
manufacturing and marketing activities to create a product with 
multiple new features. In addition, manufacturers recognize that a 
vehicle will need to remain competitive over its intended life, meet 
future regulatory requirements, and contribute to a manufacturer's CAFE 
requirements. Furthermore, automotive manufacturers are largely focused 
on creating vehicle platforms to limit the development of entirely new 
vehicles and to realize economies of scale with regard to variable 
cost. In very limited cases, manufacturers may implement an individual 
technology outside of a vehicle's redesign cycle. In following with 
these industry practices, EPA has created a set of vehicle technology 
packages that represent the entire light duty fleet.
    EPA has historically allowed manufacturers of new vehicles or 
nonroad equipment to phase in available emission control technology 
over a number of years. Examples of this are EPA's Tier 2 program for 
cars and light trucks and its 2007 and later PM and NOX 
emission standards for heavy-duty vehicles. In both of these rules, the 
major modifications expected from the rules were the addition of 
exhaust aftertreatment control technologies. Some changes to the engine 
were expected as well, but these were not expected to affect engine 
size, packaging or performance. The CO2 reduction 
technologies described above potentially involve much more significant 
changes to car and light truck designs. Many of the engine technologies 
involve changes to the engine block and heads. The transmission 
technologies could change the size and shape of the transmission and 
thus, packaging. Improvements to aerodynamic drag could involve body 
design and therefore, the dies used to produce body panels. Changes of 
this sort potentially involve new capital investment and the 
obsolescence of existing investment.
    At the same time, vehicle designs are not static, but change in 
major ways periodically. The manufacturers' product plans indicate that 
vehicles are usually redesigned every 5 years on average. Vehicles also 
tend to receive a more modest ``refresh'' between major redesigns, as 
discussed above. Because manufacturers are already changing their 
tooling, equipment and designs at these times, further changes to 
vehicle design at these times involve a minimum of stranded capital 
equipment. Thus, the timing of any major technological changes is 
projected to coincide with changes that manufacturers would already 
tend to be making to their vehicles. This approach effectively avoids 
the need to quantify any costs associated with discarding equipment, 
tooling, emission and safety certification, etc. when CO2-
reducing equipment is incorporated into a vehicle.
    This proposed rule affects five years of vehicle production, model 
years 2012-2016. Given the now-typical five-year redesign cycle, nearly 
all of a manufacturer's vehicles will be redesigned over this period. 
However, this assumes that a manufacturer has sufficient lead time to 
redesign the first model year affected by this proposed rule with the 
requirements of this proposed rule in mind. In fact, the lead time 
available for model year 2012 is relatively short. The time between a 
likely final rule and the start of 2013 model year production is likely 
to be just over two years. At the same time, the manufacturer product 
plans indicate that they are planning on introducing many of the 
technologies projected to be required by this proposed rule in both 
2012 and 2013. In order to account for the relatively short lead time 
available prior to the 2012 and 2013 model years, albeit mitigated by 
their existing plans, EPA projects that only 85 percent of each 
manufacturer's sales will be able to be redesigned with major 
CO2 emission-reducing technologies by the 2016 model year. 
Less intrusive technologies can be introduced into essentially all a 
manufacturer's sales. This resulted in three levels of technology 
penetration caps, by manufacturer. Common technologies (e.g., low 
friction lubes, aerodynamic improvements) had a penetration cap of 
100%. More advanced powertrain technologies (e.g., stoichiometric GDI, 
turbocharging) had a penetration cap of 85%. The most advanced 
technologies considered in this analysis (e.g., diesel engines, as well 
as IMA, powersplit and 2-mode hybrids) had a 15% penetration cap.
5. How Is EPA Projecting That a Manufacturer Would Decide Between 
Options To Improve CO2 Performance To Meet a Fleet Average 
Standard?
    There are many ways for a manufacturer to reduce CO2-
emissions from its vehicles. A manufacturer can choose from a myriad of 
CO2 reducing technologies and can apply one or more of these 
technologies to some or all of its vehicles. Thus, for a variety of 
levels of CO2 emission control, there are an almost infinite 
number of technology combinations which produce the desired 
CO2 reduction. EPA has created a new vehicle model, the 
Optimization Model for Emissions of Greenhouse gases from Automobiles 
(OMEGA) in order to make a reasonable estimate of how manufacturers 
will add technologies to vehicles in order to meet a fleet-wide 
CO2 emissions level. EPA has described OMEGA's specific 
methodologies and algorithms in a memo to the docket for this 
rulemaking (Docket EPA-HQ-OAR-2009-0472).
    The OMEGA model utilizes four basic sets of input data. The first 
is a description of the vehicle fleet. The key pieces of data required 
for each vehicle are its manufacturer, CO2 emission level, 
fuel type, projected sales and footprint. The model also requires that

[[Page 49546]]

each vehicle be assigned to one of the 19 vehicle types, which tells 
the model which set of technologies can be applied to that vehicle. 
(For a description of how the 19 vehicle types were created, reference 
Section III.D.3.) In addition, the degree to which each vehicle already 
reflects the effectiveness and cost of each available technology must 
also be input. This avoids the situation, for example, where the model 
might try to add a basic engine improvement to a current hybrid 
vehicle. Except for this type of information, the development of the 
required data regarding the reference fleet was described in Section 
III.D.1 above and in Chapter 1 of the Draft Joint TSD.
    The second type of input data used by the model is a description of 
the technologies available to manufacturers, primarily their cost and 
effectiveness. Note that the five vehicle classes are not explicitly 
used by the model, rather the costs and effectiveness associated with 
each vehicle package is based on the associated class. This information 
was described in Sections III.D.2 and III.D.3 above as well as Chapter 
3 of the Draft Joint TSD. In all cases, the order of the technologies 
or technology packages for a particular vehicle type is determined by 
the model user prior to running the model. Several criteria can be used 
to develop a reasonable ordering of technologies or packages. These are 
described in the Draft Joint TSD.
    The third type of input data describes vehicle operational data, 
such as annual scrap rates and mileage accumulation rates, and economic 
data, such as fuel prices and discount rates. These estimates are 
described in Section II.F above, Section III.H below and Chapter 4 of 
the Draft Joint TSD.
    The fourth type of data describes the CO2 emission 
standards being modeled. These include the CO2 emission 
equivalents of the 2011 MY CAFE standards and the proposed 
CO2 standards for 2016. As described in more detail below, 
the application of A/C technology is evaluated in a separate analysis 
from those technologies which impact CO2 emissions over the 
2-cycle test procedure. Thus, for the percent of vehicles that are 
projected to achieve A/C related reductions, the CO2 credit 
associated with the projected use of improved A/C systems is used to 
adjust the proposed CO2 standard which would be applicable 
to each manufacturer to develop a target for CO2 emissions 
over the 2-cycle test which is assessed in our OMEGA modeling.
    As mentioned above for the market data input file utilized by 
OMEGA, which characterizes the vehicle fleet, our modeling must and 
does account for the fact that many 2008 MY vehicles are already 
equipped with one or more of the technologies discussed in Section 
III.D.2 above. Because of the choice to apply technologies in packages, 
and 2008 vehicles are equipped with individual technologies in a wide 
variety of combinations, accounting for the presence of specific 
technologies in terms of their proportion of package cost and 
CO2 effectiveness requires careful, detailed analysis. The 
first step in this analysis is to develop a list of individual 
technologies which are either contained in each technology package, or 
would supplant the addition of the relevant portion of each technology 
package. An example would be a 2008 MY vehicle equipped with variable 
valve timing and a 6-speed automatic transmission. The cost and 
effectiveness of variable valve timing would be considered to be 
already present for any technology packages which included the addition 
of variable valve timing or technologies which went beyond this 
technology in terms of engine related CO2 control 
efficiency. An example of a technology which supplants several 
technologies would be a 2008 MY vehicle which was equipped with a 
diesel engine. The effectiveness of this technology would be considered 
to be present for technology packages which included improvements to a 
gasoline engine, since the resultant gasoline engines have a lower 
CO2 control efficiency than the diesel engine. However, if 
these packages which included improvements also included improvements 
unrelated to the engine, like transmission improvements, only the 
engine related portion of the package already present on the vehicle 
would be considered. The transmission related portion of the package's 
cost and effectiveness would be allowed to be applied in order to 
comply with future CO2 emission standards.
    The second step in this process is to determine the total cost and 
CO2 effectiveness of the technologies already present and 
relevant to each available package. Determining the total cost usually 
simply involves adding up the costs of the individual technologies 
present. In order to determine the total effectiveness of the 
technologies already present on each vehicle, the lumped parameter 
model described above is used. Because the specific technologies 
present on each 2008 vehicle are known, the applicable synergies and 
dis-synergies can be fully accounted for.
    The third step in this process is to divide the total cost and 
CO2 effectiveness values determined in step 2 by the total 
cost and CO2 effectiveness of the relevant technology 
packages. These fractions are capped at a value of 1.0 or less, since a 
value of 1.0 causes the OMEGA model to not change either the cost or 
CO2 emissions of a vehicle when that technology package is 
added.
    As described in Section III.D.3 above, technology packages are 
applied to groups of vehicles which generally represent a single 
vehicle platform and which are equipped with a single engine size 
(e.g., compact cars with four cylinder engine produced by Ford). These 
groupings are described in Table III.D.1-1. Thus, the fourth step is to 
combine the fractions of the cost and effectiveness of each technology 
package already present on the individual 2008 vehicles models for each 
vehicle grouping. For cost, percentages of each package already present 
are combined using a simple sales-weighting procedure, since the cost 
of each package is the same for each vehicle in a grouping. For 
effectiveness, the individual percentages are combined by weighting 
them by both sales and base CO2 emission level. This 
appropriately weights vehicle models with either higher sales or 
CO2 emissions within a grouping. Once again, this process 
prevents the model from adding technology which is already present on 
vehicles, and thus ensures that the model does not double count 
technology effectiveness and cost associated with complying with the 
2011 MY CAFE standards and the proposed CO2 standards.
    Conceptually, the OMEGA model begins by determining the specific 
CO2 emission standard applicable for each manufacturer and 
its vehicle class (i.e., car or truck). Since the proposed rule allows 
for averaging across a manufacturer's cars and trucks, the model 
determines the CO2 emission standard applicable to each 
manufacturer's car and truck sales from the two sets of coefficients 
describing the piecewise linear standard functions for cars and trucks 
in the inputs, and creates a combined car-truck standard. This combined 
standard considers the difference in lifetime VMT of cars and trucks, 
as indicated in the proposed regulations which would govern credit 
trading between these two vehicle classes. For both the 2011 CAFE and 
2016 CO2 standards, these standards are a function of each 
manufacturer's sales of cars and trucks and their footprint values. 
When evaluating the 2011 MY CAFE standards, the car-truck trading was 
limited to 1.2 mpg. When evaluating the proposed CO2 
standards, the OMEGA model was run only for MY 2016. OMEGA is designed 
to evaluate technology addition over a complete

[[Page 49547]]

redesign cycle and 2016 represents the final year of a redesign cycle 
starting with the first year of the proposed CO2 standards, 
2012. Estimates of the technology and cost for the interim model years 
are developed from the model projections made for 2016. This process is 
discussed in Chapter 6 of EPA's DRIA to this proposed rule. When 
evaluating the 2016 standards using the OMEGA model, the proposed 
CO2 standard which manufacturers would otherwise have to 
meet to account for the anticipated level of A/C credits generated was 
adjusted. On an industry wide basis, the projection shows that 
manufacturers would generate 11 g/mi of A/C credit in 2016. Thus, the 
2016 CO2 target for the fleet evaluated using OMEGA was 261 
g/mi instead of 250 g/mi.
    The cost of the improved A/C systems required to generate the 11 g/
mi credit was estimated separately. This is consistent with our 
proposed A/C credit procedures, which would grant manufacturers A/C 
credits based on their total use of improved A/C systems, and not on 
the increased use of such systems relative to some base model year 
fleet. Some manufacturers may already be using improved A/C technology. 
However, this represents a small fraction of current vehicle sales. To 
the degree that such systems are already being used, EPA is over-
estimating both the cost and benefit of the addition of improved A/C 
technology relative to the true reference fleet to a small degree.
    The model then works with one manufacturer at a time to add 
technologies until that manufacturer meets its applicable standard. The 
OMEGA model can utilize several approaches to determining the order in 
which vehicles receive technologies. For this analysis, EPA used a 
``manufacturer-based net cost-effectiveness factor'' to rank the 
technology packages in the order in which a manufacturer would likely 
apply them. Conceptually, this approach estimates the cost of adding 
the technology from the manufacturer's perspective and divides it by 
the mass of CO2 the technology will reduce. One component of 
the cost of adding a technology is its production cost, as discussed 
above. However, it is expected that new vehicle purchasers value 
improved fuel economy since it reduces the cost of operating the 
vehicle. Typical vehicle purchasers are assumed to value the fuel 
savings accrued over the period of time which they will own the 
vehicle, which is estimated to be roughly five years. It is also 
assumed that consumers discount these savings at the same rate as that 
used in the rest of the analysis (3 or 7 percent). Any residual value 
of the additional technology which might remain when the vehicle is 
sold is not considered. The CO2 emission reduction is the 
change in CO2 emissions multiplied by the percentage of 
vehicles surviving after each year of use multiplied by the annual 
miles travelled by age, again discounted to the year of vehicle 
purchase.
    Given this definition, the higher priority technologies are those 
with the lowest manufacturer-based net cost-effectiveness value 
(relatively low technology cost or high fuel savings leads to lower 
values). Because the order of technology application is set for each 
vehicle, the model uses the manufacturer-based net cost-effectiveness 
primarily to decide which vehicle receives the next technology 
addition. Initially, technology package 1 is the only one 
available to any particular vehicle. However, as soon as a vehicle 
receives technology package 1, the model considers the 
manufacturer-based net cost-effectiveness of technology package 
2 for that vehicle and so on. In general terms, the equation 
describing the calculation of manufacturer-based cost effectiveness is 
as follows:
[GRAPHIC] [TIFF OMITTED] TP28SE09.013

Where:

ManufCostEff = Manufacturer-Based Cost Effectiveness (in dollars per 
kilogram CO2),
TechCost = Marked up cost of the technology (dollars),
PP = Payback period, or the number of years of vehicle use over 
which consumers value fuel savings when evaluating the value of a 
new vehicle at time of purchase,
dFSi = Difference in fuel consumption due to the addition 
of technology times fuel price in year i,
dCO2 = Difference in CO2 emissions due to the 
addition of technology
VMTi = product of annual VMT for a vehicle of age i and the 
percentage of vehicles of age i still on the road,
1- Gap = Ratio of onroad fuel economy to two-cycle (FTP/HFET) fuel 
economy

    EPA describes the technology ranking methodology and manufacturer-
based cost effectiveness metric in greater detail in a technical memo 
to the Docket for this proposed rule (Docket EPA-HQ-OAR-2009-0472).
    When calculating the fuel savings, the full retail price of fuel, 
including taxes is used. While taxes are not generally included when 
calculating the cost or benefits of a regulation, the net cost 
component of the manufacturer-based net cost-effectiveness equation is 
not a measure of the social cost of this proposal, but a measure of the 
private cost, (i.e., a measure of the vehicle purchaser's willingness 
to pay more for a vehicle with higher fuel efficiency). Since vehicle 
operators pay the full price of fuel, including taxes, they value fuel 
costs or savings at this level, and the manufacturers will consider 
this when choosing among the technology options.
    This definition of manufacturer-based net cost-effectiveness 
ignores any change in the residual value of the vehicle due to the 
additional technology when the vehicle is five years old. As discussed 
in Chapter 1of the DRIA, based on historic used car pricing, applicable 
sales taxes, and insurance, vehicles are worth roughly 23% of their 
original cost after five years, discounted to year of vehicle purchase 
at 7% per annum. It is reasonable to estimate that the added technology 
to improve CO2 level and fuel economy would retain this same 
percentage of value when the vehicle is five years old. However, it is 
less clear whether first purchasers, and thus, manufacturers would 
consider this residual value when ranking technologies and making 
vehicle purchases, respectively. For this proposal, this factor was not 
included in our determination of manufacturer-based net cost-
effectiveness in the analyses performed in support of this proposed 
rule. Comments are requested on the benefit of including an increase

[[Page 49548]]

in the vehicle's residual value after five years in the calculation of 
effective cost.
    The values of manufacturer-based net cost-effectiveness for 
specific technologies will vary from vehicle to vehicle, often 
substantially. This occurs for three reasons. First, both the cost and 
fuel-saving component cost, ownership fuel-savings, and lifetime 
CO2 effectiveness of a specific technology all vary by the 
type of vehicle or engine to which it is being applied (e.g., small car 
versus large truck, or 4-cylinder versus 8-cylinder engine). Second, 
the effectiveness of a specific technology often depends on the 
presence of other technologies already being used on the vehicle (i.e., 
the dis-synergies. Third, the absolute fuel savings and CO2 
reduction of a percentage an incremental reduction in fuel consumption 
depends on the CO2 level of the vehicle prior to adding the 
technology. Chapter 1 of the DRIA of this proposed rule contains 
further detail on the values of manufacturer-based net cost-
effectiveness for the various technology packages.
    EPA requests comment on the use of manufacturer-based net cost-
effectiveness to rank CO2 emission reduction technologies in 
the context of evaluating alternative fleet average standards for this 
rule. EPA believes this manufacturer-based net cost-effectiveness 
metric is appropriate for ranking technology in this proposed program 
because it considers effectiveness values that may vary widely among 
technology packages when determining the order of technology addition. 
Comments are requested on this option and on any others thought to be 
appropriate.
6. Why Are the Proposed CO2 Standards Feasible?
    The finding that the proposed standards would be technically 
feasible is based primarily on two factors. One is the level of 
technology needed to meet the proposed standards. The other is the cost 
of this technology. The focus is on the proposed standards for 2016, as 
this is the most stringent standard and requires the most extensive use 
of technology.
    With respect to the level of technology required to meet the 
standards, EPA established technology penetration caps. As described in 
Section III.D.4, EPA used two constraints to limit the model's 
application of technology by manufacturer. The first was the 
application of common fuel economy enablers such as low rolling 
resistance tires and transmission logic changes. These were allowed to 
be used on all vehicles and hence had no penetration cap. The second 
constraint was applied to most other technologies and limited their 
application to 85% with the exception of the most advanced technologies 
(e.g., powersplit and 2-mode hybrids) whose application was limited to 
15%.
    EPA used the OMEGA model to project the technology (and resultant 
cost) required for manufacturers to meet the current 2011 MY CAFE 
standards and the proposed 2016 MY CO2 emission standards. 
Both sets of standards were evaluated using the OMEGA model. The 2011 
MY CAFE standards were applied to cars and trucks separately with the 
transfer of credits from one category to the other allowed up to an 
increase in fuel economy of 1.0 mpg. Chrysler, Ford and General Motors 
are assumed to utilize FFV credits up to the maximum of 1.2 mpg for 
both their car and truck sales. Nissan is assumed to utilize FFV 
credits up to the maximum of 1.2 mpg for only their truck sales. The 
use of any banked credits from previous model years was not considered. 
The modification of the reference fleet to comply with the 2011 CAFE 
standards through the application of technology by the OMEGA model is 
the final step in creating the final reference fleet. This final 
reference fleet forms the basis for comparison for the model year 2016 
standards.
    Table III.D.6-1 shows the usage level of selected technologies in 
the 2008 vehicles coupled with 2016 sales prior to projecting their 
compliance with the 2011 MY CAFE standards. These technologies include 
converting port fuel-injected gasoline engines to direct injection 
(GDI), adding the ability to deactivate certain engine cylinders during 
low load operation (Deac), adding a turbocharger and downsizing the 
engine (Turbo), increasing the number of transmission speeds to 6 or, 
converting automatic transmissions to dual-clutch automated manual 
transmissions (Dual-Clutch Trans), adding 42 volt start-stop capability 
(Start-Stop), and converting a vehicle to a intermediate or strong 
hybrid design. This last category includes three current hybrid 
designs: integrated motor assist (IMA), power-split (PS) and 2-mode 
hybrids.

                              Table III.D.6-1--Penetration of Technology in 2008 Vehicles With 2016 Sales: Cars and Trucks
                                                                   [Percent of sales]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       6 Speed or  Dual clutch
                                                      GDI       GDI+ deac    GDI+ turbo     Diesel      CV trans      trans      Start-stop     Hybrid
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.............................................          6.7          0.0          0.0          0.0         98.8          0.8          0.0          0.1
Chrysler........................................          0.0          0.0          0.0          0.0         27.9          0.0          0.0          0.0
Daimler.........................................          6.2          0.0          0.0          6.2         74.7         11.4          0.0          0.0
Ford............................................          0.6          0.0          0.0          0.0         28.1          0.0          0.0          0.0
General Motors..................................          3.3          0.0          0.0          0.0         13.7          0.0          0.1          0.1
Honda...........................................          1.2          0.0          0.0          0.0          4.2          0.0          0.0          2.1
Hyundai.........................................          0.0          0.0          0.0          0.0          4.9          0.0          0.0          0.0
Kia.............................................          0.0          0.0          0.0          0.0          0.9          0.0          0.0          0.0
Mazda...........................................         11.8          0.0          0.0          0.0         37.1          0.0          0.0          0.0
Mitsubishi......................................          0.0          0.0          0.0          0.0         76.1          0.0          0.0          0.1
Nissan..........................................         17.7          0.0          0.0          0.0         33.3          0.0          0.0          0.0
Porsche.........................................          0.0          0.0          0.0          0.0          3.9          0.0          0.0          0.0
Subaru..........................................          0.0          0.0          0.0          0.0         29.0          0.0          0.0          0.0
Suzuki..........................................          0.0          0.0          0.0          0.0        100.0          0.0          0.0          0.0
Tata............................................          0.0          0.0          0.0          0.0          0.0          0.0          0.0          0.0
Toyota..........................................          7.5          0.0          0.0          0.0         30.6          0.0          0.0         12.8
Volkswagen......................................         52.2          0.0          0.0          0.1         82.8         10.9          0.0          0.0
Overall.........................................          6.4          0.0          0.0          0.1         27.1          0.6          0.0          2.8
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 49549]]

    As can be seen, all of these technologies except for the direct 
injection gasoline engines with either cylinder deactivation or 
turbocharging and downsizing, were already being used on some 2008 MY 
vehicles. High speed transmissions were the most prevalent, with some 
manufacturers (e.g., BMW, Suzuki) using them on essentially all of 
their vehicles. Both Daimler and VW equip many of their vehicles with 
automated manual transmissions, while VW makes extensive use of direct 
injection gasoline engine technology. Toyota has converted a 
significant percentage of its 2008 vehicles to strong hybrid design.
    Table III.D.6-2 shows the usage level of the same technologies in 
the reference case fleet after projecting their compliance with the 
2011 MY CAFE standards. Except for mass reduction, the figures shown 
represent the percentages of each manufacturer's sales which are 
projected to be equipped with the indicated technology. For mass 
reduction, the overall mass reduction projected for that manufacturer's 
sales is shown. The last row in Table III.D.6-2 shows the increase in 
projected technology penetration due to compliance with the 2011 MY 
CAFE standards. The results of DOT's Volpe Modeling were used to 
project that all manufacturers would comply with the 2011 MY standards 
in 2016 without the need to pay fines, with one exception. This 
exception was Porsche in the case of their car fleet. When projecting 
Porsche's compliance with the 2011 MY CAFE standard for cars, the car 
fleet was assumed to achieve a CO2 emission level of 293.2 
g/mi instead of the required 285.2 g/mi level (30.3 mpg instead of 31.2 
mpg).

                         Table III.D.6-2--Penetration of Technology Under 2011 MY CAFE Standards in 2016 Sales: Cars and Trucks
                                                                   [Percent of sales]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                 Mass
                                                      GDI       GDI+ deac    GDI+ turbo   6 Speed or  Dual clutch   Start-stop     Hybrid     reduction
                                                                                           CV trans      trans                                (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.............................................          7.3         11.1          0.0         86.3         11.1         11.1          0.1          0.5
Chrysler........................................          0.0          0.0          0.0         27.9          0.0          0.0          0.0          0.0
Daimler.........................................         16.4         10.3         14.3         45.8         36.0         24.6          0.0          0.9
Ford............................................          0.6          0.0          0.0         28.1          0.0          0.0          0.0          0.0
General Motors..................................          3.3          0.0          0.0         13.7          0.0          0.1          0.1          0.0
Honda...........................................          1.2          0.0          0.0          4.2          0.0          0.0          2.1          0.0
Hyundai.........................................          0.0          0.0          0.0          4.9          0.0          0.0          0.0          0.0
Kia.............................................          0.0          0.0          0.0          0.9          0.0          0.0          0.0          0.0
Mazda...........................................         11.8          0.0          0.0         37.1          0.0          0.0          0.0          0.0
Mitsubishi......................................          0.0          2.2          0.0         76.0          2.2          2.2          0.1          0.0
Nissan..........................................         17.7          0.0          0.0         33.3          0.0          0.0          0.0          0.0
Porsche.........................................          0.0         25.0         23.2          0.0         48.2         37.1          0.0          1.2
Subaru..........................................          0.0          0.0          0.0         29.0          0.0          0.0          0.0          0.0
Suzuki..........................................          4.5          0.0          0.0        100.0          0.0          0.0          0.0          0.0
Tata............................................         14.5         60.9          0.0         14.5         60.9         60.9          0.0          2.6
Toyota..........................................          7.5          0.0          0.0         30.6          0.0          0.0         12.8          0.0
Volkswagen......................................         51.2          6.9         11.8         60.8         29.6         18.7          0.0          0.3
Overall.........................................          6.7          1.2          0.8         25.4          2.6          2.0          2.8          0.1
Increase over 2008 MY...........................          0.3          1.2          0.8         -1.7          2.0          2.0          0.0          0.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As can be seen, the 2011 MY CAFE standards, when evaluated on an 
industry wide basis, require only a modest increase in the use of these 
technologies. Higher speed automatic transmission use actually 
decreases due to conversion of these units to more efficient designs 
such as automated manual transmissions and hybrids. However, the impact 
of the 2011 MY CAFE standards is much greater on selected 
manufacturers, particularly BMW, Daimler, Porsche, Tata (Jaguar/Land 
Rover) and VW. All of these manufacturers are projected to increase 
their use of advanced direct injection gasoline engine technology, 
advanced transmission technology, and start-stop technology. It should 
be noted that these manufacturers have traditionally paid fines under 
the CAFE program. However, with higher fuel prices and the lead-time 
available by 2016, these manufacturers would likely find it in their 
best interest to improve their fuel economy levels instead of 
continuing to pay fines (again with the exception of Porsche cars). 
While not shown, no gasoline engines were projected to be converted to 
diesel technology.
    This 2008 baseline fleet, modified to meet 2011 standards, becomes 
our ``reference'' case. This is the fleet by which the control program 
(or 2016 rule) will be compared. Thus, it is also the fleet that would 
be assumed to exist in the absence of this rule. No air conditioning 
improvements are assumed for model year 2011 vehicles. The average 
CO2 emission levels of this reference fleet vary slightly 
from 2012-2016 due to small changes in the vehicle sales by market 
segments and manufacturer. CO2 emissions from cars range 
from 282-284 g/mi, while those from trucks range from 382-384 g/mi. 
CO2 emissions from the combined fleet range from 316-320. 
These estimates are described in greater detail in Section 5.3.2.2 of 
the DRIA.
    Conceptually, both EPA and NHTSA perform the same projection in 
order to develop their respective reference fleets. However, because 
the two agencies use two different models to modify the baseline fleet 
to meet the 2011 CAFE standards, the technology added will be slightly 
different. The differences, however, are small since most manufacturers 
do not require a lot of additional technology to meet the 2011 
standards.
    EPA then used the OMEGA model once again to project the level of 
technology needed to meet the proposed 2016 CO2 emission 
standards. Using the results of the OMEGA model, every manufacturer was 
projected to be able to meet the proposed 2016 standards with the 
technology described above except for four: BMW, VW, Porsche and Tata 
due to the OMEGA cap on technology penetration by manufacturer. For 
these manufacturers, the results presented below are those with the 
fully allowable

[[Page 49550]]

application of technology and not for the technology projected to 
enable compliance with the proposed standards. Described below are a 
number of potential feasible solutions for how these companies can 
achieve compliance. The overall level of technology needed to meet the 
proposed 2016 standards is shown in Table III.D.6-3. As discussed 
above, all manufacturers are projected to improve the air conditioning 
systems on 85% of their 2016 sales.

                               Table III.D.6-3--Penetration of Technology for Proposed 2016 CO2 Standards: Cars and Trucks
                                                                   [Percent of sales]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           6 Speed    Dual clutch                                Mass
                                                      GDI       GDI+ deac    GDI+ turbo   auto trans     trans      Start-stop     Hybrid     reduction
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.............................................            4           35           47           15           71           71           14            5
Chrysler........................................           51           28            3           37           51           51            0            6
Daimler.........................................            3           44           39           11           73           72           13            5
Ford............................................           29           39           13           19           67           67            0            6
General Motors..................................           34           26            7           13           55           55            0            5
Honda...........................................           24            1            2           10           22           22            2            2
Hyundai.........................................           28            3           14            3           43           43            0            3
Kia.............................................           37            0            5            7           35           35            0            3
Mazda...........................................           54            2           16           31           43           43            0            4
Mitsubishi......................................           65            2            7           22           66           66            0            6
Nissan..........................................           29           26            5           34           57           56            1            5
Porsche.........................................            7           36           49           10           70           70           15            4
Subaru..........................................           46            4           14            0           64           51            0            4
Suzuki..........................................           66            5            8            9           69           69            0            4
Tata............................................            4           81            0           14           70           70           15            6
Toyota..........................................           37            2            0           30           33           16           13            2
Volkswagen......................................            9           26           58           12           72           70           15            4
Overall.........................................           30           18           10           19           49           45            4            4
Increase over 2011 CAFE.........................           24           17            9           -7           46           43            1            4
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As can be seen, the overall average reduction in vehicle weight is 
projected to be 4%. This reduction varies across the two vehicle 
classes and vehicle base weight. For cars below 2,950 pounds curb 
weight, the average reduction is 2.3% (62 pounds), while the average 
was 4.4% (154 pounds) for cars above 2,950 curb weight. For trucks 
below 3,850 pounds curb weight, the average reduction is 3.5% (119 
pounds), while it was 4.5% (215 pounds) for trucks above 3,850 curb 
weight. Splitting trucks at a higher weight, for trucks below 5,000 
pounds curb weight, the average reduction is 3.3% (140 pounds), while 
it was 6.7% (352 pounds) for trucks above 5,000 curb weight.
    The levels of requisite technologies differ significantly across 
the various manufacturers. Therefore, several analyses were performed 
to ascertain the cause. Because the baseline case fleet consists of 
2008 MY vehicle designs, these analyses were focused on these vehicles, 
their technology and their CO2 emission levels.
    Comparing CO2 emissions across manufacturers is not a 
simple task. In addition to widely varying vehicle styles, designs, and 
sizes, manufacturers have implemented fuel efficient technologies to 
varying degrees, as indicated in Table III.D.6-1. The projected levels 
of requisite technology to enable compliance with the proposed 2016 
standards shown in Table III.D.6-3 account for two of the major factors 
which can affect CO2 emissions: (1) Level of technology 
already being utilized and (2) vehicle size, as represented by 
footprint.
    For example, the fuel economy of a manufacturer's 2008 vehicles may 
be relatively high because of the use of advanced technology. This is 
the case with Toyota's high sales of their Prius hybrid. However, the 
presence of this technology in a 2008 vehicle eliminates the ability to 
significantly reduce CO2 further through the use of this 
technology. In the extreme, if a manufacturer were to hybridize a high 
level of its sales in 2016, it doesn't matter whether this technology 
was present in 2008 or whether it would be added in order to comply 
with the standards. The final level of hybrid technology would be the 
same. Thus, the level at which technology is present in 2008 vehicles 
does not explain the difference in requisite technology levels shown in 
Table III.D.6-3.
    Similarly, the proposed CO2 emission standards adjust 
the required CO2 level according to a vehicle's footprint, 
requiring lower absolute emission levels from smaller vehicles. Thus, 
just because a manufacturer produces larger vehicles than another 
manufacturer does not explain the differences seen in Table III.D.6-3.
    In order to remove these two factors from our comparison, the EPA 
lumped parameter model described above was used to estimate the degree 
to which technology present on each 2008 MY vehicle in our reference 
fleet was improving fuel efficiency. The effect of this technology was 
removed and each vehicle's CO2 emissions were estimated as 
if it utilized no additional fuel efficiency technology beyond the 
baseline. The differences in vehicle size were accounted for by 
determining the difference between the sales-weighted average of each 
manufacturer's ``no technology'' CO2 levels to their 
required CO2 emission level under the proposed 2016 
standards. The industry-wide difference was subtracted from each 
manufacturer's value to highlight which manufacturers had lower and 
higher than average ``no technology'' emissions. The results are shown 
in Figure III.D.6-1.
BILLING CODE 4910-59-P

[[Page 49551]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.014


[[Page 49552]]


    As can be seen in Table III.D.6-3 the manufacturers projected to 
require the greatest levels of technology also show the highest offsets 
relative to the industry. The greatest offset shown in Figure III.D.6-1 
is for Tata's trucks (Land Rover). These vehicles are estimated to have 
100 g/mi greater CO2 emissions than the average 2008 MY 
truck after accounting for differences in the use of fuel saving 
technology and footprint. The lowest adjustment is for Subaru's trucks, 
which have 50 g/mi CO2 lower emissions than the average 
truck.
    While this comparison confirms the differences in the technology 
penetrations shown in Table III.D.6-3, it does not yet explain why 
these differences exist. Two well known factors affecting vehicle fuel 
efficiency are vehicle weight and performance. The footprint-based form 
of the proposed CO2 standard accounts for most of the 
difference in vehicle weight seen in the 2008 MY fleet. However, even 
at the same footprint, vehicles can have varying weights. Higher 
performing vehicles also tend to have higher CO2 emissions 
over the two-cycle test procedure. So manufacturers with higher average 
performance levels will tend to have higher average CO2 
emissions for any given footprint.
    The impact of these two factors on each manufacturer's ``no 
technology'' CO2 emissions was estimated. First, the ``no 
technology'' CO2 emissions levels were statistically 
analyzed to determine the average impact of weight and the ratio of 
horsepower to weight on CO2 emissions. Both factors were 
found to be statistically significant at the 95 percent confidence 
level. Together, they explained over 80 percent of the variability in 
vehicles' CO2 emissions for cars and over 70 percent for 
trucks. These relationships were then used to adjust each vehicle's 
``no technology'' CO2 emissions to the average weight for 
its footprint value and to the average horsepower to weight ratio of 
either the car or truck fleet. The comparison was repeated as shown in 
Figure III.D.6-1. The results are shown in Figure III.D.6-2.

[[Page 49553]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.015

BILLING CODE 4910-59-C
    First, note that the scale in Figure III.D.6-2 is much smaller by a 
factor of 3 than that in Figure III.D.6-1. In other words, accounting 
for differences in vehicle weight (at constant footprint) and 
performance dramatically reduces the differences in various 
manufacturers' CO2 emissions. Most of the manufacturers with 
high offsets in Figure III.D.6-1 now show low or negative offsets. For 
example, BMW's and VW's trucks show very low CO2 emissions. 
Tata's emissions are very close to the industry average. Daimler's 
vehicles are no more than 10 g/mi above the average for the industry. 
This analysis indicates that the primary reasons for the differences in 
technology penetrations shown for the various manufacturers in Table 
III.D.6-3 are weight and performance. EPA has not determined why some 
manufacturers' vehicle weight is relatively high for its footprint 
value, or whether this weight provides additional utility for the 
consumer. Performance is more

[[Page 49554]]

straightforward. Some consumers desire high performance and some 
manufacturers orient their sales towards these consumers. However, the 
cost in terms of CO2 emissions is clear. Producing 
relatively heavy or high performance vehicles increases CO2 
emissions and will require greater levels of technology in order to 
meet the proposed CO2 standards.
    As can be seen from Table III.D.6-3 above, widespread use of 
several technologies is projected due to the proposed standards. The 
vast majority of engines are projected to be converted to direct 
injection, with some of these engines including cylinder deactivation 
or turbocharging and downsizing. More than 60 percent of all 
transmissions are projected to be either high speed automatic 
transmissions or dual-clutch automated manual transmissions. More than 
one third of the fleet is projected to be equipped with 42 volt start-
stop capability. This technology was not utilized in 2008 vehicles, but 
as discussed above, promises significant fuel efficiency improvement at 
a moderate cost.
    EPA foresees no significant technical or engineering issues with 
the projected deployment of these technologies across the fleet, with 
their incorporation being folded into the vehicle redesign process. All 
of these technologies are commercially available now. The automotive 
industry has already begun to convert its port fuel-injected gasoline 
engines to direct injection. Cylinder deactivation and turbocharging 
technologies are already commercially available. As indicated in Table 
III.D.6-1, high speed transmissions are already widely used. However, 
while more common in Europe, automated manual transmissions are not 
currently used extensively in the U.S. Widespread use of this 
technology would require significant capital investment but does not 
present any significant technical or engineering issues. Start-stop 
systems also represent a significant challenge because of the 
complications involved in a changeover to a higher voltage electrical 
architecture. However, with appropriate capital investments (which are 
captured in the costs), these technology penetration rates are 
achievable within the timeframe of this rule. While most manufacturers 
have some plans for these systems, our projections indicate that their 
use may exceed 35 percent of sales, with some manufacturers requiring 
higher levels.
    Most manufacturers would not have to hybridize any vehicles due to 
the proposed standards. The hybrids shown for Toyota are projected to 
be sold even in the absence of the proposed standards. However the 
relatively high hybrid penetrations (15%) projected for BMW, Daimler, 
Porsche, Tata and Volkswagen deserve further discussion. These 
manufacturers are all projected by the OMEGA model to utilize the 
maximum application of full hybrids allowed by our model in this time 
frame, which is 15 percent.
    As discussed in the EPA DRIA, a 2016 technology penetration rate of 
85% is projected for the vast majority of available technologies, 
however, for full hybrid systems the projection shows that given the 
available lead-time full hybrids can only be applied to approximately 
15% of a manufacturer's fleet. This number of course can vary by 
manufacturer.
    While the hybridization levels of BMW, Daimler, Porsche, Tata and 
Volkswagen are relatively high, the sales levels of these five 
manufacturers are relatively low. Thus, industry-wide, hybridization 
reaches only 8 percent, compared with 3 percent in the reference case. 
This 8 percent level is believed to be well within the capability of 
the hybrid component industry by 2016. Thus, the primary challenge for 
these five companies would be at the manufacturer level, redesigning a 
relatively large percentage of sales to include hybrid technology. The 
proposed TLAAS provisions will provide significant aid to these 
manufacturers in pre-2016 compliance, since all qualified companies are 
expected to be able to take advantage of these provisions. By 2016, it 
is likely that these manufacturers would also be able to change vehicle 
characteristics which currently cause their vehicles to emit much more 
CO2 than similar sized vehicles produced by other 
manufacturers. These factors may include changes in model mix, further 
lightweighting, downpowering, electric and/or plug-in hybrid vehicles, 
or downsizing (our current baseline fleet assumes very little change in 
footprint from 2012-2016), as well as technologies that may not be 
included in our packages. Also, companies may have technology 
penetration rates of less costly technologies (listed in the above 
tables) greater than 85%, and they may also be able to apply hybrid 
technology to more than 15 percent of their fleet (as the 15% for 
hybrid technology is an industry average). For example, a switch to a 
low GWP alternative refrigerant in a large fraction of a fleet can 
replace many other much more costly technologies, but this option is 
not captured in the modeling. In addition, these manufacturers can also 
take advantage of flexibilities, such as early credits for air 
conditioning and trading with other manufacturers. The EPA expects that 
there will be certain high volume manufacturers that will earn a 
significant amount of early GHG credits starting in 2009 and 2010 that 
will expire 5 years later, by 2014 and 2015, unused. The EPA believes 
that these manufacturers will be willing to sell these expiring credits 
to manufacturers with whom there is no direct competition. Furthermore, 
some of these manufacturers have also stated either publicly or in 
confidential discussions with EPA that they will be able to comply with 
2016 standards. Because of the confidential nature of this information 
sharing, EPA is unable to capture these packages specifically in our 
modeling. The following companies have all submitted letters in support 
of the national program, including the 2016 MY levels discussed above: 
BMW, Chrysler, Daimler, Ford, GM, Honda, Mazda, Toyota, and Volkswagen. 
This supports the view that the emissions reductions needed to achieve 
the standards are technically and economically feasible for all these 
companies, and that EPA's projection of non-compliance for four of the 
companies is based on an inability of our model to fully account for 
the full flexibilities of the EPA program as well as the potentially 
unique technology approaches or new product offerings which these 
manufactures are likely to employ.
    In addition, manufacturers do not need to apply technology exactly 
according to our projections. Our projections simply indicate one path 
which would achieve compliance. Those manufacturers whose vehicles are 
heavier and higher performing than average in particular have 
additional options to facilitate compliance and reduce their 
technological burden closer to the industry average. These options 
include decreasing the mass of the vehicles and/or decreasing the power 
output of the engines. Finally, EPA allows compliance to be shown 
through the use of emission credits obtained from other manufacturers. 
Especially for the lower volume sales of some manufacturers that could 
be one component of an effective compliance strategy, reducing the 
technology that needs to be employed on their vehicles.
    For the vast majority of light-duty cars and trucks, manufacturers 
have available to them a range of technologies that are currently 
commercially available and can feasibly be employed in their vehicles 
by MY 2016. Our modeling projects widespread use of these technologies 
as a technologically feasible approach to complying with the proposed 
standards.

[[Page 49555]]

    In sum, EPA believes that the emissions reductions called for by 
the proposed standards are technologically feasible, based on 
projections of widespread use of commercially available technology, as 
well as use by some manufacturers of other technology approaches and 
compliance flexibilities not fully reflected in our modeling.
    EPA also projected the cost associated with these projections of 
technology penetration. Table III.D.6-4 shows the cost of technology in 
order for manufacturers to comply with the 2011 MY CAFE standards, as 
well as those associated with the proposed 2016 CO2 emission 
standards. The latter costs are incremental to those associated with 
the 2011 MY standards and also include $60 per vehicle, on average, for 
the cost of projected use of improved air-conditioning systems.\163\
---------------------------------------------------------------------------

    \163\ Note that the actual cost of the A/C technology is 
estimated at $78 per vehicle as shown in Table III.D.2-3. However, 
we expect only 85 percent of the fleet to add that technology. 
Therefore, the cost of the technology when spread across the entire 
fleet is $66 per vehicle ($78x85%=$66).

                         Table III.D.6-4--Cost of Technology per Vehicle in 2016 ($2007)
----------------------------------------------------------------------------------------------------------------
                                            2011 MY CAFE standards              Proposed 2016 CO2 standards
                                   -----------------------------------------------------------------------------
                                        Cars        Trucks        All          Cars        Trucks        All
----------------------------------------------------------------------------------------------------------------
BMW...............................         $319         $479         $361       $1,701       $1,665       $1,691
Chrysler..........................            7          125           59        1,331        1,505        1,408
Daimler...........................          431          632          495        1,631        1,357        1,543
Ford..............................           28          211          109        1,435        1,485        1,457
General Motors....................           28          136           73          969        1,782        1,311
Honda.............................            0            0            0          606          695          633
Hyundai...........................            0           76           14          739        1,680          907
Kia...............................            0           48            8          741        1,177          812
Mazda.............................            0            0            0          946        1,030          958
Mitsubishi........................           96          322          123        1,067        1,263        1,090
Nissan............................            0           19            6        1,013        1,194        1,064
Porsche...........................          535        1,074          706        1,549          666        1,268
Subaru............................           64          100           77          903        1,329        1,057
Suzuki............................           99          231          133        1,093        1,263        1,137
Tata..............................          691        1,574        1,161        1,270          674          952
Toyota............................            0            0            0          600          436          546
Volkswagen........................          269          758          354        1,626          949        1,509
Overall...........................           47          141           78          968        1,214        1,051
----------------------------------------------------------------------------------------------------------------

    As can be seen, the industry average cost of complying with the 
2011 MY CAFE standards is quite low, $78 per vehicle. The range of 
costs across manufacturers is quite large, however. Honda, Mazda and 
Toyota are projected to face no cost, while Daimler, Porsche and Tata 
face costs of at least $495 per vehicle. As described above, these last 
three manufacturers face such high costs to meet even the 2011 MY CAFE 
standards due to both their vehicles' weight per unit footprint and 
performance. Also, these cost estimates apply to sales in the 2016 MY. 
These three manufacturers, as well as others like Volkswagen, may 
choose to pay CAFE fines prior to this or even in 2016.
    As shown in the last row of Table III.D.6-4, the average cost of 
technology to meet the proposed 2016 standards for cars and trucks 
combined relative to the 2011 MY CAFE standards is $1051 per vehicle. 
The projection shows that the average cost for cars would be slightly 
lower than that for trucks. Toyota and Honda show projected costs 
significantly below the average, while BMW, Porsche, Tata and 
Volkswagen show significantly higher costs. On average, the $1051 per 
vehicle cost is significant, representing roughly 5% of the total cost 
of a new vehicle. However, as discussed below, the fuel savings 
associated with the proposed standards exceeds this cost significantly.
    While the CO2 emission compliance modeling using the 
OMEGA model focused on the proposed 2016 MY standards, EPA believes 
that the proposed standards for 2012-2015 would also be feasible. As 
discussed above, EPA believes that manufacturers develop their vehicle 
designs with several model years in view. Generally, the technology 
estimated above for 2016 MY vehicles represents the technology which 
would be added to those vehicles which are being redesigned in 2012-
2015. The proposed CO2 standards for 2012-2016 reduce 
CO2 emissions at a fairly steady rate. Thus, manufacturers 
which redesign their vehicles at a fairly steady rate will 
automatically comply with the interim standard as they plan for 
compliance in 2016.
    Manufacturers which redesign much fewer than 20% of their sales in 
the early years of the proposed program would face a more difficult 
challenge, as simply implementing the ``2016 MY'' technology as 
vehicles are redesigned may not enable compliance in the early years. 
However, even in this case, manufacturers would have several options to 
enable compliance. One, they could utilize the proposed debit carry-
forward provisions described above. This may be sufficient alone to 
enable compliance through the 2012-2016 MY time period, if their 
redesign schedule exceeds 20% per year prior to 2016. If not, at some 
point, the manufacturer might need to increase their use of technology 
beyond that projected above in order to generate the credits necessary 
to balance the accrued debits. For most manufacturers representing the 
vast majority of U.S. sales, this would simply mean extending the same 
technology to a greater percentage of sales. The added cost of this in 
the later years of the program would be balanced by lower costs in the 
earlier years. Two, the manufacturer could buy credits from another 
manufacturer. As indicated above, several manufacturers are projected 
to require less stringent technology than the average. These 
manufacturers would be in a position to provide credits at a reasonable 
technology cost. Thus, EPA believes the proposed standards for 2012-
2016 would be feasible.
7. What Other Fleet-Wide CO2 Levels Were Considered?
    Two alternative sets of CO2 standards were considered. 
One set would reduce

[[Page 49556]]

CO2 emissions at a rate of 4 percent per year. The second 
set would reduce CO2 emissions at a rate of 6 percent per 
year. The analysis of these standards followed the exact same process 
as described above for the proposed standards. The only difference was 
the level of CO2 emission standards. The footprint-based 
standard coefficients of the car and truck curves for these two 
alternative control scenarios were discussed above. The resultant 
CO2 standards in 2016 for each manufacturer under these two 
alternative scenarios and under the proposal are shown in Table 
III.D.7-1.

 Table III.D.7-1--Overall Average CO2 Emission Standards by Manufacturer
                                 in 2016
------------------------------------------------------------------------
                                           4% per                6% per
                                            year     Proposed     year
------------------------------------------------------------------------
BMW....................................        245        241        222
Chrysler...............................        266        262        241
Daimler................................        257        253        233
Ford...................................        270        266        245
General Motors.........................        272        268        247
Honda..................................        243        239        219
Hyundai................................        235        231        212
Kia....................................        237        234        215
Mazda..................................        231        227        208
Mitsubishi.............................        226        223        204
Nissan.................................        251        247        227
Porsche................................        234        230        210
Subaru.................................        237        233        213
Suzuki.................................        227        223        203
Tata...................................        267        263        241
Toyota.................................        247        243        223
Volkswagen.............................        233        230        211
Overall................................        254        250        230
------------------------------------------------------------------------

    Tables III.D.7-2 and III.D.7-3 show the technology penetration 
levels for the 4 percent per year and 6 percent per year standards in 
2016.

                          Table III.D.7-2--Technology Penetration--4% per Year CO2 Standards in 2016: Cars and Trucks Combined
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                 Mass
                                                      GDI       GDI+ deac    GDI+ turbo    6 Speed    Dual clutch   Start-stop     Hybrid     reduction
                                                                                          auto trans     trans                                   (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.............................................           4%          35%          47%          15%          71%          71%          14%            5
Chrysler........................................           47           25            3           33           48           48            0            5
Daimler.........................................            3           44           39           11           73           72           13            5
Ford............................................           33           32           13           23           61           61            0            5
General Motors..................................           33           25            7           19           48           48            0            5
Honda...........................................           20            1            0            6           19           19            2            2
Hyundai.........................................           27            2           12            2           39           39            0            3
Kia.............................................           31            0            4            1           34           34            0            2
Mazda...........................................           34            2           16           10           43           43            0            3
Mitsubishi......................................           65            2            7           28           60           60            0            6
Nissan..........................................           34           22            2           40           51           51            1            5
Porsche.........................................            7           36           49           10           70           70           15            4
Subaru..........................................           46            4           14           10           54           46            0            3
Suzuki..........................................           72            5            2           15           63           63            0            4
Tata............................................            4           81            0           14           70           70           15            6
Toyota..........................................           25            2            0           30           33            5           13            1
Volkswagen......................................            9           26           58           12           72           70           15            4
Overall.........................................           28           17            9           20           45           40            4            4
Increase over 2011 CAFE.........................           21           15            9           -5           42           38            1            4
--------------------------------------------------------------------------------------------------------------------------------------------------------


                      Table III.D.7-3--Technology Penetration--6% per Year Alternative Standards in 2016: Cars and Trucks Combined
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                Weight
                                                      GDI       GDI+ deac    GDI+ turbo    6 Speed    Dual clutch   Start-stop     Hybrid     reduction
                                                                                          auto trans     trans                                   (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.............................................           4%          35%          47%          15%          71%          71%          14%            5
Chrysler........................................           29           50            6            4           85           85            0            8
Daimler.........................................            3           44           39           11           73           72           13            5
Ford............................................            8           37           40            4           74           74           11            7
General Motors..................................           24           54            8            6           81           81            0            8
Honda...........................................           38            1           15            8           50           50            2            4
Hyundai.........................................           36            9           28            7           66           66            0            5
Kia.............................................           48            0           25           18           55           55            0            4
Mazda...........................................           65            2           16            4           81           76            0            6

[[Page 49557]]

 
Mitsubishi......................................           59            7           19            7           80           80            5            8
Nissan..........................................           34           17           35            9           76           76           10            7
Porsche.........................................            7           36           49           10           70           70           15            4
Subaru..........................................           66            4           14            0           85           80            0            6
Suzuki..........................................            2           12           71            0           80           80            5            7
Tata............................................            4           81            0           14           70           70           15            6
Toyota..........................................           40            7           11           25           50           50           13            3
Volkswagen......................................            9           26           58           12           72           70           15            4
Overall.........................................           28           24           23           11           67           67            7            6
Increase over 2011 CAFE.........................           22           23           22          -15           65           65            4            6
--------------------------------------------------------------------------------------------------------------------------------------------------------

    With respect to the 4 percent per year standards, the levels of 
requisite control technology decreased relative to those under the 
proposed standards, as would be expected. Industry-wide, the largest 
decrease was a 2 percent decrease in the application of start-stop 
technology. On a manufacturer specific basis, the most significant 
decreases were a 6 percent decrease in hybrid penetration for BMW and a 
2 percent drop for Daimler. These are relatively small changes and are 
due to the fact that the 4 percent per year standards only require 4 g/
mi CO2 less control than the proposed standards in 2016. 
Porsche, Tata and Volkswagen continue to be unable to comply with the 
CO2 standards in 2016.
    With respect to the 6 percent per year standards, the levels of 
requisite control technology increased relative to those under the 
proposed standards, as again would be expected. Industry-wide, the 
largest increase was an 8 percent increase in the application of start-
stop technology. On a manufacturer specific basis, the most significant 
increases were a 42 percent increase in hybrid penetration for BMW and 
a 38 percent increase for Daimler. These are more significant changes 
and are due to the fact that the 6 percent per year standards require 
20 g/mi CO2 more control than the proposed standards in 
2016. Porsche, Tata and Volkswagen continue to be unable to comply with 
the CO2 standards in 2016. However, BMW joins this list, as 
well, though just by 1 g/mi. Most manufacturers experience the increase 
in start-stop technology application, with the increase ranging from 5 
to 17 percent.
    Table III.D.7-4 shows the projected cost of the two alternative 
sets of standards.

               Table III.D.7-4--Technology Cost per Vehicle in 2016--Alternative Standards ($2007)
----------------------------------------------------------------------------------------------------------------
                                         4 Percent per year standards           6 Percent per year standards
                                   -----------------------------------------------------------------------------
                                        Cars        Trucks        All          Cars        Trucks        All
----------------------------------------------------------------------------------------------------------------
BMW...............................       $1,701       $1,665       $1,691       $1,701       $1,665       $1,691
Chrysler..........................        1,340        1,211        1,283        1,642        2,211        1,893
Daimler...........................        1,631        1,357        1,543        1,631        1,357        1,543
Ford..............................        1,429        1,305        1,374        2,175        2,396        2,273
General Motors....................          969        1,567        1,221        1,722        2,154        1,904
Honda.............................          633          402          564          777        1,580        1,016
Hyundai...........................          685        1,505          832        1,275        1,680        1,347
Kia...............................          741          738          741        1,104        1,772        1,213
Mazda.............................          851          914          860        1,369        1,030        1,320
Mitsubishi........................        1,132          247        1,028        1,495        2,065        1,563
Nissan............................          910        1,194          991        1,654        2,274        1,830
Porsche...........................        1,549          666        1,268        1,549          666        1,268
Subaru............................          903        1,131          985        1,440        1,615        1,503
Suzuki............................        1,093        1,026        1,076        1,718        2,219        1,846
Tata..............................        1,270          674          952        1,270          674          952
Toyota............................          518          366          468          762        1,165          895
Volkswagen........................        1,626          949        1,509        1,626          949        1,509
Overall...........................          940        1,054          978        1,385        1,859        1,544
----------------------------------------------------------------------------------------------------------------

    As can be seen, the average cost of the 4 percent per year 
standards is only $73 per vehicle less than that for the proposed 
standards. In contrast, the average cost of the 6 percent per year 
standards is nearly $500 per vehicle more than that for the proposed 
standards. Compliance costs are entering the region of non-linearity. 
The $73 cost savings of the 4 percent per year standards relative to 
the proposal represents $18 per g/mi CO2 increase. The $493 
cost increase of the 6 percent per year standards relative to the 
proposal represents $25 per g/mi CO2 increase.
    EPA does not believe the 4% per year alternative is an appropriate 
standard for the MY2012-2016 time frame. As discussed above, the 250 g/
mi proposal is technologically feasible in this time frame at 
reasonable costs, and provides higher GHG emission reductions at a 
modest cost increase over the 4% per year alternative (less than $100 
per vehicle). In addition, the 4% per year alternative does not result 
in a harmonized National Program for the country. Based on California's 
letter of May 18, 2009, the emission standards under this alternative 
would not result in the State of California revising its regulations 
such that compliance with

[[Page 49558]]

EPA's GHG standards would be deemed to be in compliance with 
California's GHG standards for these model years. Thus, the consequence 
of promulgating a 4% per year standard would be to require 
manufacturers to produce two vehicle fleets: a fleet meeting the 4% per 
year Federal standard, and a separate fleet meeting the more stringent 
California standard for sale in California and the section 177 States. 
This further increases the costs of the 4% per year standard and could 
lead to additional difficulties for the already stressed automotive 
industry.
    EPA also does not believe the 6% per year alternative is an 
appropriate standard for the MY 2012-2016 time frame. As shown in 
Tables III.D.7-3 and III.D.7-4, the 6% per year alternative represents 
a significant increase in both the technology required and the overall 
costs compared to the proposed standards. In absolute percent increases 
in the technology penetration, compared to the proposed standards the 
6% per year alternative requires for the industry as a whole: an 18% 
increase in GDI fuel systems, an 11% increase in turbo-downsize 
systems, a 6% increase in dual-clutch automated manual transmissions 
(DCT), and a 9% increase in start-stop systems. For a number of 
manufacturers the expected increase in technology is greater: for GM, a 
15% increase in both DCTs and start-stop systems, for Nissan a 9% 
increase in full hybrid systems, for Ford an 11% increase in full 
hybrid systems, for Chrysler a 34% increase in both DCT and start-stop 
systems and for Hyundai a 23% increase in the overall penetration of 
DCT and start-stop systems. For the industry as a whole, the per-
vehicle cost increase for the 6% per year alternative is nearly $500. 
On average this is a 50% increase in costs compared to the proposed 
standards. At the same time, CO2 emissions would be reduced 
by about 8%, compared to the 250 g/mi target level.
    These technology and cost increases are significant, given the 
amount of lead-time between now and model years 2012-2016. In order to 
achieve the levels of technology penetration for the proposed 
standards, the industry needs to invest significant capital and product 
development resources right away, in particular for the 2012 and 2013 
model year, which is only 2-3 years from now. For the 2014-2016 time 
frame, significant product development and capital investments will 
need to occur over the next 2-3 year in order to be ready for launching 
these new products for those model years. Thus a major part of the 
required capital and resource investment will need to occur in the next 
few years, under the proposed standards. EPA believes that the proposal 
(a target of 250 gram/mile in 2016) already requires significant 
investment and product development costs for the industry, focused on 
the next few years.
    It is important to note, and as discussed later in this preamble, 
as well as in the draft Joint Technical Support Document and the draft 
EPA Regulatory Impact Analysis document, the average model year 2016 
per-vehicle cost increase of nearly $500 includes an estimate of both 
the increase in capital investments by the auto companies and the 
suppliers as well as the increase in product development costs. These 
costs can be significant, especially as they must occur over the next 
2-3 years. Both the domestic and transplant auto firms, as well as the 
domestic and world-wide automotive supplier base, is experiencing one 
of the most difficult markets in the U.S. and internationally that has 
been seen in the past 30 years. One major impact of the global downturn 
in the automotive industry and certainly in the U.S. is the significant 
reductions in product development engineers and staffs, as well as a 
tightening of the credit markets which allow auto firms and suppliers 
to make the near-term capital investments necessary to bring new 
technology into production. EPA is concerned that the significantly 
increased pressure on capital and other resources from the 6% per year 
alternative may be too stringent for this time frame, given both the 
relatively limited amount of lead-time between now and model years 
2012-2016, the need for much of these resources over the next few 
years, as well the current financial and related circumstances of the 
automotive industry. EPA is not concluding that the 6% per year 
alternative standards are technologically infeasible, but EPA believes 
such standards for this time frame would be overly stringent given the 
significant strain it would place on the resources of the industry 
under current conditions. EPA believes this degree of stringency is not 
warranted at this time. Therefore EPA does not believe the 6% per year 
alternative would be an appropriate balance of various relevant factors 
for model years 2012-1016.
    These alternative standards represent two possibilities out of 
many. The EPA believes that the current proposed standards represent an 
appropriate balance of the factors relevant under section 202(a). For 
further discussion of this issue, see Chapter 4 of the DRIA.

E. Certification, Compliance, and Enforcement

1. Compliance Program Overview
    This section of the preamble describes EPA's proposal for a 
comprehensive program to ensure compliance with EPA's proposed emission 
standards for carbon dioxide (CO2), nitrous oxide 
(N2O), and methane (CH4), as described in Section 
III.B. An effective compliance program is essential to achieving the 
environmental and public health benefits promised by these mobile 
source GHG standards. EPA's proposal for a GHG compliance program is 
designed around two overarching priorities: (1) To address Clean Air 
Act (CAA) requirements and policy objectives; and (2) to streamline the 
compliance process for both manufacturers and EPA by building on 
existing practice wherever possible, and by structuring the program 
such that manufacturers can use a single data set to satisfy both the 
new GHG and Corporate Average Fuel Economy (CAFE) testing and reporting 
requirements. The program proposed by EPA and NHTSA recognizes, and 
replicates as closely as possible, the compliance protocols associated 
with the existing CAA Tier 2 vehicle emission standards, and with CAFE 
standards. The certification, testing, reporting, and associated 
compliance activities closely track current practices 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 proposed coordinated 
approach, the compliance mechanisms for both programs are consistent 
and non-duplicative.
    Vehicle emission standards established under the CAA apply 
throughout a vehicle's full useful life. In this case EPA is proposing 
fleet average standards where compliance with the fleet average is 
determined based on the testing performed at time of production, as 
with the current CAFE fleet average. EPA is also proposing in-use 
standards that apply throughout a vehicle's useful life, with the 
standard determined by adding a 10% adjustment factor to the model-
level emission results used to calculate the fleet average. Therefore, 
EPA's proposed program must not only assess compliance with the fleet 
average standards described in Section III.B, but must also assess 
compliance with the in-use standards. As it does now, EPA would use a 
variety of compliance mechanisms to conduct these assessments, 
including pre-production certification and post-production, in-use

[[Page 49559]]

monitoring once vehicles enter customer service. Specifically, EPA is 
proposing a compliance program for the fleet average that utilizes CAFE 
program protocols with respect to testing, a certification procedure 
that operates in conjunction with the existing CAA Tier 2 certification 
procedures, and assessment of compliance with the in-use standards 
concurrent with existing EPA and manufacturer Tier 2 emission 
compliance testing programs. Under the proposed compliance program 
manufacturers would also be afforded numerous flexibilities to help 
achieve compliance, both stemming from the program design itself in the 
form of a manufacturer-specific CO2 fleet average standard, 
as well as in various credit banking and trading opportunities, as 
described in Section III.C. EPA's proposed compliance program is 
outlined in further detail below. EPA requests comment on all aspects 
of the compliance program design including comments about whether 
differences between the proposed compliance scheme for GHG and the 
existing compliance scheme for other regulated pollutants are 
appropriate.
2. Compliance With Fleet-Average CO2 Standards
    Fleet average emission levels can only be determined when a 
complete fleet profile becomes available at the close of the model 
year. Therefore, EPA is proposing to determine compliance with the 
fleet average CO2 standards when the model year closes out, 
as is currently the protocol under EPA's Tier 2 program as well as 
under the current CAFE program. The compliance determination would be 
based on actual production figures for each model and on model-level 
emissions data collected through testing over the course of the model 
year. Manufacturers would submit this information to EPA in an end-of-
year report which is discussed in detail in Section III.E.5.h below.
    Manufacturers currently conduct their CAFE testing over an entire 
model year to maximize efficient use of testing and engineering 
resources. Manufacturers submit their CAFE test results to EPA and EPA 
conducts confirmatory fuel economy testing at its laboratory on a 
subset of these vehicles under EPA's Part 600 regulations. EPA is 
proposing that manufacturers continue to perform the model level 
testing currently required for CAFE fuel economy performance and 
measure and report the CO2 values for all tests conducted. 
Thus, manufacturers will submit one data set in satisfaction of both 
CAFE and GHG requirements such that EPA's proposed program would not 
impose additional timing or testing requirements on manufacturers 
beyond that required by the CAFE program. For example, manufacturers 
currently submit fuel economy test results at the subconfiguration and 
configuration levels to satisfy CAFE requirements. Under this proposal 
manufacturers would also submit CO2 values for the same 
vehicles. Section III.E.3 discusses how this will be implemented in the 
certification process.
a. Compliance Determinations
    As described in Section III.B above, the fleet average standards 
would be determined on a manufacturer by manufacturer basis, separately 
for cars and trucks, using the proposed footprint attribute curves. 
Under this proposal, EPA would calculate the fleet average emission 
level using actual production figures and, for each model type, 
CO2 emission test values generated at the time of a 
manufacturer's CAFE testing. EPA would then compare the actual fleet 
average to the manufacturer's footprint standard to determine 
compliance, taking into consideration use of averaging and/or other 
types of credits.
    Final determination of compliance with fleet average CO2 
standards may not occur until several years after the close of the 
model year due to the flexibilities of carry-forward and carry-back 
credits and the remediation of deficits (see Section III.C). A failure 
to meet the fleet average standard after credit opportunities have been 
exhausted could ultimately result in penalties and injunctive orders 
under the CAA as described in Section III.E.6 below.
    EPA periodically provides mobile source emissions and fuel economy 
information to the public, for example through the annual Compliance 
Report \164\ and Fuel Economy Trends Report.\165\ EPA plans to expand 
these reports to include GHG performance and compliance trends 
information, such as annual status of credit balances or debits, use of 
various credit programs, attained versus projected fleet average 
emission levels, and final compliance status for a model year after 
credit reconciliation occurs. We seek comment on all aspects of public 
dissemination of GHG compliance information
---------------------------------------------------------------------------

    \164\ 2007 Progress Report Vehicle and Engine Compliance 
Activities; EPA-420-R-08-011; October 2008. This document is 
available electronically at http://www.epa.gov/otaq/about/420r08011.pdf.
    \165\ Light-Duty Automotive Technology and Fuel-Economy Trends: 
1975 Through 2008; EPA-420-S-08-003; September 2008. This document 
is available electronically at http://www.epa.gov/otaq/fetrends.htm.
---------------------------------------------------------------------------

b. Required Minimum Testing for Fleet Average CO2
    As noted, EPA is proposing that the same test data required for 
determining a manufacturer's compliance with the CAFE standard also be 
used to determine the manufacturer's compliance with the fleet average 
CO2 emissions standard. CAFE requires manufacturers to 
submit test data representing at least 90% of the manufacturer's model 
year production, by configuration.\166\ The CAFE testing covers the 
vast majority of models in a manufacturer's fleet. Manufacturers 
industry-wide currently test more than 1,000 vehicles each year to meet 
this requirement. EPA believes this minimum testing requirement is 
necessary and applicable for calculating accurate CO2 fleet 
average emissions. Manufacturers may test additional vehicles, at their 
option. As described above, EPA would use the emissions results from 
the model-level testing to calculate a manufacturer's fleet average 
CO2 emissions and to determine compliance with the 
CO2 standard.
---------------------------------------------------------------------------

    \166\ See 40 CFR 600.010-08(d).
---------------------------------------------------------------------------

    EPA is proposing to continue to allow certain testing flexibilities 
that exist under the CAFE program. EPA has always permitted 
manufacturers some ability to reduce their test burden in tradeoff for 
lower fuel economy numbers. Specifically the practice of ``data 
substitution'' enables manufacturers to apply fuel economy test values 
from a ``worst case'' configuration to other configurations in lieu of 
testing them. The substituted values may only be applied to 
configurations that would be expected to have better fuel economy and 
for which no actual test data exist. Substituted data would only be 
accepted for the GHG program if it is also used for CAFE purposes.
    EPA's regulations for CAFE fuel economy testing permit the use of 
analytically derived fuel economy data in lieu of an actual fuel 
economy test in certain situations.\167\ Analytically derived data is 
generated mathematically using expressions determined by EPA and is 
allowed on a limited basis when a manufacturer has not tested a 
specific vehicle configuration. This has been done as a means to reduce 
some of the testing burden on manufacturers without sacrificing 
accuracy in fuel economy measurement. EPA has issued guidance that 
provides details on analytically

[[Page 49560]]

derived data and that specifies the conditions when analytically 
derived fuel economy may be used. EPA would also apply the same 
guidance to the GHG program and would allow any analytically derived 
data used for CAFE to also satisfy the GHG data reporting requirements. 
EPA would, however, need to revise the terms in the current equations 
for analytically derived fuel economy to specify them in terms of 
CO2. Analytically derived CO2 data would not be 
permitted for the Emission Data Vehicle representing a test group for 
pre-production certification, only for the determination of the model 
level test results used to determine actual fleet-average 
CO2 levels.
---------------------------------------------------------------------------

    \167\ 40 CFR 600.006-08(e).
---------------------------------------------------------------------------

    EPA is retaining the definitions needed to determine CO2 
levels of each model type (such as ``subconfiguration,'' 
``configuration,'' ``base level,'' etc.) as they are currently defined 
in EPA's fuel economy regulations.
3. Vehicle Certification
    CAA section 203(a)(1) prohibits manufacturers from introducing a 
new motor vehicle into commerce unless the vehicle is covered by an 
EPA-issued certificate of conformity. Section 206(a)(1) of the CAA 
describes the requirements for EPA issuance of a certificate of 
conformity, based on a demonstration of compliance with the emission 
standards established by EPA under section 202 of the Act. The 
certification demonstration requires emission testing, and must be done 
for each model year.\168\
---------------------------------------------------------------------------

    \168\ CAA section 206(a)(1).
---------------------------------------------------------------------------

    Under Tier 2 and other EPA emission standard programs, vehicle 
manufacturers certify a group of vehicles called a test group. A test 
group typically includes multiple vehicle car lines and model types 
that share critical emissions-related features.\169\ The manufacturer 
generally selects and tests one vehicle to represent the entire test 
group for certification purposes. The test vehicle is the one expected 
to be the worst case for the emission standard at issue. Emission 
results from the test vehicle are used to assign the test group to one 
of several specified bins of emissions levels, identified in the Tier 2 
rule, and this bin level becomes the in-use emissions standard for that 
test group.\170\
---------------------------------------------------------------------------

    \169\ The specific test group criteria are described in 40 CFR 
86.1827-01, car lines and model types have the meaning given in 40 
CFR 86.1803-01.
    \170\ Initially in-use standards were different from the bin 
level determined at certification as the useful life level. The 
current in-use standards, however, are the same as the bin levels. 
In all cases, the bin level, reflecting useful life levels, has been 
used for determining compliance with the fleet average.
---------------------------------------------------------------------------

    Since compliance with the Tier 2 fleet average depends on actual 
test group sales volumes and bin levels, it is not possible to 
determine compliance at the time the manufacturer applies for and 
receives a certificate of conformity for a test group. Instead, EPA 
requires the manufacturer to make a good faith demonstration in the 
certification application that vehicles in the test group will both (1) 
comply throughout their useful life with the emissions bin assigned, 
and (2) contribute to fleetwide compliance with the Tier 2 average when 
the year is over. EPA issues a certificate for the vehicles included in 
the test group based on this demonstration, and includes a condition in 
the certificate that if the manufacturer does not comply with the fleet 
average, then production vehicles from that test group will be treated 
as not covered by the certificate to the extent needed to bring the 
manufacturer's fleet average into compliance with Tier 2.
    The certification process often occurs several months prior to 
production and manufacturer testing may occur months before the 
certificate is issued. The certification process for the Tier 2 program 
is an efficient way for manufacturers to conduct the needed testing 
well in advance of certification, and to receive the needed 
certificates in a time frame which allows for the orderly production of 
vehicles. The use of a condition on the certificate has been an 
effective way to ensure compliance with the Tier 2 fleet average.
    EPA is proposing to similarly condition each certificate of 
conformity for the GHG program upon a manufacturer's good faith 
demonstration of compliance with the manufacturer's fleetwide average 
CO2 standard. The following discussion explains how EPA 
proposes to integrate the proposed vehicle certification program into 
the existing certification program.
a. Compliance Plans
    EPA is proposing that manufacturers submit a compliance plan to EPA 
prior to the beginning of the model year and prior to the certification 
of any test group. This plan would include the manufacturer's estimate 
of its footprint-based standard (Section III.B), along with a 
demonstration of compliance with the standard based on projected model-
level CO2 emissions, and production estimates. Manufacturers 
would submit the same information to NHTSA in the pre-model year report 
required for CAFE compliance. However, the GHG compliance plan could 
also include additional information relevant only to the EPA program. 
For example, manufacturers seeking to take advantage of air 
conditioning or other credit flexibilities (Section III.C) would 
include these in their compliance demonstration. Similarly, the 
compliance demonstration would need to include a credible plan for 
addressing deficits accrued in prior model years. EPA would review the 
compliance plan for technical viability and conduct a certification 
preview discussion with the manufacturer. EPA would view the compliance 
plan as part of the manufacturer's good faith demonstration, but 
understands that initial projections can vary considerably from the 
reality of final production and emission results. EPA requests comment 
on the proposal to evaluate manufacturer compliance plans prior to the 
beginning of model year certification. EPA also requests comment on 
what criteria the agency should use to evaluate the sufficiency of the 
plan and on what steps EPA should take if it determines that a plan is 
unlikely to offset a deficit.
b. Certification Test Groups and Test Vehicle Selection
    Manufacturers currently divide their fleet into ``test groups'' for 
certification purposes. The test group is EPA's unit of certification; 
one certificate is issued per test group. These groupings cover 
vehicles with similar emission control system designs expected to have 
similar emissions performance.\171\ The factors considered for 
determining test groups include combustion cycle, engine type, engine 
displacement, number of cylinders and cylinder arrangement, fuel type, 
fuel metering system, catalyst construction and precious metal 
composition, among others. Vehicles having these features in common are 
generally placed in the same test group.\172\ Cars and trucks may be 
included in the same test group as long as they have similar emissions 
performance (manufacturers frequently produce cars and trucks that have 
identical engine designs and emission controls).
---------------------------------------------------------------------------

    \171\ 40 CFR 86.1827-01.
    \172\ EPA provides for other groupings in certain circumstances, 
and can establish its own test groups in cases where the criteria do 
not apply. 40 CFR 86.1827-01(b), (c) and (d).
---------------------------------------------------------------------------

    EPA is proposing to retain the current Tier 2 test group structure 
for cars and light trucks in the certification requirements for 
CO2. At the time of certification, manufacturers would use 
the CO2 emission level from the Tier 2 Emission Data Vehicle 
as a surrogate to represent all of the models in the test group. 
However, following certification

[[Page 49561]]

further testing would generally be required for compliance with the 
fleet average CO2 standard as described below. EPA's 
issuance of a certificate would be conditioned upon the manufacturer's 
subsequent model level testing and attainment of the actual fleet 
average. Further discussion of these requirements is presented in 
Section III.E.6.
    EPA recognizes that the Tier 2 test group criteria do not 
necessarily relate to CO2 emission levels. For instance, 
while some of the criteria, such as combustion cycle, engine type and 
displacement, and fuel metering, may have a relationship to 
CO2 emissions, others, such as those pertaining to the 
catalyst, may not. In fact, there are many vehicle design factors that 
impact CO2 generation and emission but are not included in 
EPA's test group criteria.\173\ Most important among these may be 
vehicle weight, horsepower, aerodynamics, vehicle size, and performance 
features.
---------------------------------------------------------------------------

    \173\ EPA noted this potential lack of connection between fuel 
economy testing and testing for emissions standard purposes when it 
first adopted fuel economy test procedures. See 41 FR at 38677 
(Sept. 10, 1976).
---------------------------------------------------------------------------

    EPA considered, but is not proposing, a requirement for separate 
CO2 test groups established around criteria more directly 
related to CO2 emissions. Although CO2-specific 
test groups might more consistently predict CO2 emissions of 
all vehicles in the test group, the addition of a CO2 test 
group requirement would greatly increase the pre-production 
certification burden for both manufacturers and EPA. For example, a 
current Tier 2 test group would need to be split into two groups if 
automatic and manual transmissions models had been included in the same 
group. Two- and four-wheel drive vehicles in a current test group would 
similarly require separation, as would weight differences among 
vehicles. This would at least triple the number of test groups. EPA 
believes that the added burden of creating separate CO2 test 
groups is not warranted or necessary to maintain an appropriately 
rigorous certification program because the test group data are later 
replaced by model specific data which are used as the basis for 
determining compliance with a manufacturer's fleet average standard.
    EPA believes that the current test group concept is appropriate for 
N2O and CH4 because the technologies that would 
be employed to control N2O and CH4 emissions 
would generally be the same as those used to control the criteria 
pollutants.
    As just discussed, the ``worst case'' vehicle a manufacturer 
selects as the Emissions Data Vehicle to represent a test group under 
Tier 2 (40 CFR 86.1828-01) may not have the highest levels of 
CO2 in that group. For instance, there may be a heavier, 
more powerful configuration that would have higher CO2, but 
may, due to the way the catalytic converter has been matched to the 
engine, actually have lower NOX, CO, PM or HC.
    Therefore, in lieu of a separate CO2-specific test 
group, EPA considered requiring manufacturers to select a 
CO2 test vehicle from within the Tier 2 test group that 
would be expected, based on good engineering judgment, to have the 
highest CO2 emissions within that test group. The 
CO2 emissions results from this vehicle would be used to 
establish an in-use CO2 emission standard for the test 
group. The requirement for a separate, worst case CO2 
vehicle would provide EPA with some assurance that all vehicles within 
the test group would have CO2 emission levels at or below 
those of the selected vehicle, even if there is some variation in the 
CO2 control strategies within the test group (such as 
different transmission types). Under this approach, the test vehicle 
might or might not be the same one that would be selected as worst case 
for criteria pollutants. Thus, manufacturers might be required to test 
two vehicles in each test group, rather than a single vehicle. This 
would represent an added timing burden to manufacturers because they 
might need to build additional test vehicles at the time of 
certification that previously weren't required to be tested.
    Instead, EPA is proposing to require a single Emission Data Vehicle 
that would represent the test group for both Tier 2 and CO2 
certification. The manufacturer would be allowed to initially apply the 
Emission Data Vehicle's CO2 emissions value to all models in 
the test group, even if other models in the test group are expected to 
have higher CO2 emissions. However, as a condition of the 
certificate, this surrogate CO2 emissions value would 
generally be replaced with actual, model-level CO2 values 
based on results from CAFE testing that occurs later in the model year. 
This model level data would become the official certification test 
results (as per the conditioned certificate) and would be used to 
determine compliance with the fleet average. Only if the test vehicle 
is in fact the worst case CO2 vehicle for the test group 
could the manufacturer elect to apply the Emission Data Vehicle 
emission levels to all models in the test group for purposes of 
calculating fleet average emissions. Manufacturers would be unlikely to 
make this choice, because doing so would ignore the emissions 
performance of vehicle models in their fleet with lower CO2 
emissions and would unnecessarily inflate their CO2 fleet 
average. Testing at the model level already occurs and data are already 
being submitted to EPA for CAFE and labeling purposes, so it would be 
an unusual situation that would cause a manufacturer to ignore these 
data and choose to accept a higher CO2 fleet average.
    EPA requests comment regarding whether the Tier 2 test group can 
adequately represent CO2 emissions for certification 
purposes, and whether the Emission Data Vehicle's CO2 
emission level is an appropriate surrogate for all vehicles in a test 
group at the time of certification, given that the certificate would be 
conditioned upon additional model level testing occurring during the 
year (see Section III.E.6) and that the surrogate CO2 
emission values would be replaced with model-level emissions data from 
those tests. Comments should also address EPA's desire to minimize the 
up-front pre-production testing burden and whether the proposed 
efficiencies would be balanced by the requirement to test all model 
types in the fleet by the conclusion of the model year in order to 
establish the fleet average CO2 levels.
    There are two standards that the manufacturer would be subject to, 
the fleet average standard and the in-use standard for the useful life 
of the vehicle. Compliance with the fleet average standard is based on 
production-weighted averaging of the test data that applies for each 
model. For each model, the in-use standard is set at 10% higher than 
the level used for that model in calculating the fleet average. The 
certificate would cover both of these standards, and the manufacturer 
would have to demonstrate compliance with both of these standards for 
purposes of receiving a certificate of conformity. The certification 
process for the in-use standard is discussed below in Section III.E.4.
c. Certification Testing Protocols and Procedures
    To be consistent with CAFE, EPA proposes to combine the 
CO2 emissions results from the FTP and HFET tests using the 
same calculation method used to determine fuel economy for CAFE 
purposes. This approach is appropriate for CO2 because 
CO2 and fuel economy are so closely related. Other than the 
fact that fuel economy is calculated using a harmonic average and 
CO2 emissions can be calculated using a conventional 
average, the calculation methods are very similar. The FTP 
CO2

[[Page 49562]]

data will be weighted at 55%, and the highway CO2 data at 
45%, and then averaged to determine the combined number. See Section 
III.B.1 for more detailed information on CO2 test 
procedures, Section III.C.1 on Air Conditioning Emissions, and Section 
III.B.6 for N2O and CH4 test procedures.
    For the purposes of compliance with the fleet average and in-use 
standards, the emissions measured from each test vehicle will include 
hydrocarbons (HC) and carbon monoxide (CO), in addition to 
CO2. All three of these exhaust constituents are currently 
measured and used to determine the amount of fuel burned over a given 
test cycle using a ``carbon balance equation'' defined in the 
regulations, and thus measurement of these is an integral part of 
current fuel economy testing. As explained in Section III.C, it is 
important to account for the total carbon content of the fuel. 
Therefore the carbon-related combustion products HC and CO must be 
included in the calculations along with CO2. CO emissions 
are adjusted by a coefficient that reflects the carbon weight fraction 
(CWF) of the CO molecule, and HC emissions are adjusted by a 
coefficient that reflects the CWF of the fuel being burned (the 
molecular weight approach doesn't work since there are many different 
hydrocarbons being accounted for). Thus, EPA is proposing that the 
carbon-related exhaust emissions of each test vehicle be calculated 
according to the following formula, where HC, CO, and CO2 
are in units of grams per mile:

Carbon-related exhaust emissions (grams/mile) = CWF*HC + 1.571*CO + 
CO2

    As part of the current CAFE and Tier 2 compliance programs, EPA 
selects a subset of vehicles for confirmatory testing at its National 
Vehicle and Fuel Emissions Laboratory. The purpose of confirmatory 
testing is to validate the manufacturer's emissions and/or fuel economy 
data. Under this proposal, EPA would add CO2, 
N2O, and CH4 to the emissions measured in the 
course of Tier 2 and CAFE confirmatory testing. The emission values 
measured at the EPA laboratory would continue to stand as official, as 
under existing regulatory programs.
    As is the current practice with fuel economy testing, if during 
EPA's confirmatory testing the EPA CO2 value differs from 
the manufacturer's value by more than 3%, manufacturers could request a 
re-test. Also as with current practice, the results of the re-test 
would stand as official, even if they differ from the manufacturer 
value by more than 3%. EPA is proposing to allow a re-test request 
based on a 3% or greater disparity since a manufacturer's fleet average 
emissions level would be established on the basis of model level 
testing only (unlike Tier 2 for which a fixed bin standard structure 
provides the opportunity for a compliance buffer). EPA requests comment 
on whether the 3% value currently used during CAFE confirmatory testing 
is appropriate and should be retained under the proposed GHG program.
4. Useful Life Compliance
    Section 202(a)(1) of the CAA requires emission standards to apply 
to vehicles throughout their statutory useful life, as further 
described in Section III.A. For emission programs that have fleet 
average standards, such as Tier 2 and the proposed CO2 
standards, the useful life requirement applies to individual vehicles 
rather than to the fleet average standard. For example, in Tier 2 the 
useful life requirements apply to the individual emission standard 
levels or ``bins'' that the vehicles are certified to, not the fleet 
average standard. For Tier 2, the useful life requirement is 10 years 
or 120,000 miles with an optional 15 year or 150,000 mile provision. 
For each model, the proposed CO2 standards in-use are the 
model specific levels used in calculating the fleet average, adjusted 
to be 10% higher. EPA is proposing the 10% adjustment factor to provide 
some margin for production and test-to-test variability that could 
result in differences between initial model-level emission results used 
in calculating the fleet average and any subsequent in-use testing. EPA 
requests comment on whether a separate in-use standard is an 
appropriate means of addressing issues of variability and whether 10% 
is an appropriate adjustment.
    This in-use standard would apply for the same useful life period as 
in Tier 2. Section 202(i)(3)(D) of the CAA allows EPA to adopt useful 
life periods for light-duty vehicles and light-duty trucks which differ 
from those in section 202(d). Similar to Tier 2, the useful life 
requirements would be applicable to the model-level CO2 
certification values (similar to the Tier 2 bins), not to the fleet 
average standard.
    EPA believes that the useful life period established for criteria 
pollutants under Tier 2 is also appropriate for CO2. Data 
from EPA's current in-use compliance test program indicate that 
CO2 emissions from current technology vehicles increase very 
little with age and in some cases may actually improve slightly. The 
stable CO2 levels are expected because unlike criteria 
pollutants, CO2 emissions in current technology vehicles are 
not controlled by after treatment systems that may fail with age. 
Rather, vehicle CO2 emission levels depend primarily on 
fundamental vehicle design characteristics that do not change over 
time. Therefore, vehicles designed for a given CO2 emissions 
level would be expected to sustain the same emissions profile over 
their full useful life.
    The CAA requires emission standards to be applicable for the 
vehicle's full useful life. Under Tier 2 and other vehicle emission 
standard programs, EPA requires manufacturers to demonstrate at the 
time of certification that the new vehicles being certified will 
continue to meet emission standards throughout their useful life. EPA 
allows manufacturers several options for predicting in-use 
deterioration, including full vehicle testing, bench-aging specific 
components, and application of a deterioration factor based on data 
and/or engineering judgment.
    In the specific case of CO2, EPA does not currently 
anticipate notable deterioration and is therefore proposing that an 
assigned deterioration factor be applied at the time of certification. 
EPA is further proposing an additive assigned deterioration factor of 
zero, or a multiplicative factor of one. EPA anticipates that the 
deterioration factor would be updated from time to time, as new data 
regarding emissions deterioration for CO2 are obtained and 
analyzed. Additionally, EPA may consider technology-specific 
deterioration factors, should data indicate that certain CO2 
control technologies deteriorate differently than others.
    During compliance plan discussions prior to the beginning of the 
certification process, EPA would explore with each manufacturer any new 
technologies that could warrant use of a different deterioration 
factor. Manufacturers would not be allowed to use the assigned 
deterioration factor but rather would be required to establish an 
appropriate factor for any vehicle model determined likely to 
experience increases in CO2 emissions over the vehicle's 
useful life. If such an instance were to occur, EPA is also proposing 
to allow manufacturers to use the whole-vehicle mileage accumulation 
method currently offered in EPA's regulations.
    EPA requests comments on the proposal to allow manufacturers to use 
an EPA-assigned deterioration factor for CO2 useful life 
compliance, and to set that factor at zero (additive) or one 
(multiplicative). Particularly helpful would be data from in-use 
vehicles that demonstrate the rate of change in CO2 
emissions over a vehicle's useful life,

[[Page 49563]]

separated according to vehicle technology.
    N2O and CH4 emissions are directly affected 
by vehicle emission control systems. Any of the durability options 
offered under EPA's current compliance program can be used to determine 
how emissions of N2O and CH4 change over time.
a. Ensuring Useful Life Compliance
    The CAA requires a vehicle to comply with emission standards over 
its regulatory useful life and affords EPA broad authority for the 
implementation of this requirement. As such, EPA has authority to 
require a manufacturer to remedy any noncompliance issues. The remedy 
can range from the voluntary or mandatory recall of any noncompliant 
vehicles to the recalculation of a manufacturers fleet average 
emissions level. This provides manufacturers with a strong incentive to 
design and build complying vehicles.
    Currently, EPA regulations require manufacturers to conduct in-use 
testing as a condition of certification. Specifically, manufacturers 
must commit to later procure and test privately-owned vehicles that 
have been normally used and maintained. The vehicles are tested to 
determine the in-use levels of criteria pollutants when they are in 
their first and third years of service. This testing is referred to as 
the In-Use Verification Program (IUVP) testing, which was first 
implemented as part of EPA's CAP 2000 certification program.\174\ The 
emissions data collected from IUVP serves several purposes. It provides 
EPA with annual real-world in-use data representing the majority of 
certified vehicles. EPA uses IUVP data to identify in-use problems, 
validate the accuracy of the certification program, verify the 
manufacturer's durability processes, and support emission modeling 
efforts. Manufacturers are required to test low mileage and high 
mileage vehicles over the FTP and US06 test cycles. They are also 
required to provide evaporative emissions and on-board diagnostics 
(OBD) data.
---------------------------------------------------------------------------

    \174\ 64 FR 23906, May 4, 1999.
---------------------------------------------------------------------------

    Manufacturers are required to provide data for all regulated 
criteria pollutants. Some manufacturers voluntarily submit 
CO2 data as part of IUVP. EPA is proposing that for IUVP 
testing, all manufacturers will provide emission data for 
CO2 and also for N2O and CH4. EPA is 
also proposing that manufacturers perform the highway test cycle as 
part of IUVP. Since the proposed CO2 standard reflects a 
combined value of FTP and highway results, it is necessary to include 
the highway emission test in IUVP to enable EPA to compare an in-use 
CO2 level with a vehicle's in-use standard. EPA requests 
comments on adding the highway test cycle as part of the IUVP 
requirements.
    Another component of the CAP 2000 certification program is the In-
Use Confirmatory Program (IUCP). This is a manufacturer-conducted 
recall quality in-use test program that can be used as the basis for 
EPA to order an emission recall. In order to qualify for IUCP, there is 
a threshold of 1.30 times the certification emission standard and an 
additional requirement that at least 50% of the test vehicles for the 
test group fail for the same pollutant. EPA is proposing to exclude 
IUVP data for CO2, N2O, and CH4 
emissions from the IUCP thresholds. At this time, EPA does not have 
sufficient data to determine if the existing thresholds are appropriate 
or even applicable to those emissions. Once EPA can gather more data 
from the IUVP program and from EPA's internal surveillance program 
described below, EPA will reassess the need to exclude IUCP thresholds, 
and if warranted, propose a separate rulemaking establishing IUCP 
threshold criteria which may include CO2, N2O, 
and CH4 emissions. EPA requests comment on the proposal to 
exclude CO2, N2O, and CH4 from the 
IUCP threshold.
    EPA has also administered its own in-use testing program for light-
duty vehicles under authority of section 207(c) of the CAA for more 
than 30 years. In this program, EPA procures and tests representative 
privately owned vehicles to determine whether they are complying with 
emission standards. When testing indicates noncompliance, EPA works 
with the manufacturer to determine the cause of the problem and to 
conduct appropriate additional testing to determine its extent or the 
effectiveness of identified remedies. This program operates in 
conjunction with the IUVP program and other sources of information to 
provide a comprehensive picture of the compliance profile for the 
entire fleet and address compliance problems that are identified. EPA 
proposes to add CO2, N2O, and CH4 to 
the emissions measurements it collects during surveillance testing.
b. In-Use Compliance Standard
    For Tier 2, the in-use standard and the certification standard are 
the same. In-use compliance for an individual vehicle is determined by 
comparing the vehicle's in-use emission results with the emission 
standard levels or ``bin'' to which the vehicle is certified rather 
than to the Tier 2 fleet average standard for the manufacturer. This is 
because as part of a fleet average standard, individual vehicles can be 
certified to various emission standard levels, which could be higher or 
lower than the fleet average standard. Thus, comparing an individual 
vehicle to the fleet average, where that vehicle was certified to an 
emission level that could be different than the fleet average level, 
would be inappropriate.
    This would also be true for the proposed CO2 fleet 
average standard. Therefore, to ensure that an individual vehicle 
complies with the proposed CO2 standards in-use, it is 
necessary to compare the vehicle's in-use CO2 emission 
result with the appropriate model-level certification CO2 
level used in determining the manufacturer's fleet average result.
    There is a fundamental difference between the proposed 
CO2 standards and Tier 2 standards. For Tier 2, the 
certification standard is one of eight different emission levels, or 
``bins,'' whereas for the proposed CO2 fleet average 
standard, the certification standard is the model-level certification 
CO2 result. The Tier 2 fleet average standard is calculated 
using the ``bin'' emission level or standard, not the actual 
certification emission level of the certification test vehicle. So no 
matter how low a manufacturer's actual certification emission results 
are, the fleet average is still calculated based on the ``bin'' level 
rather than the lower certification result. In contrast, EPA is 
proposing that the CO2 fleet average standard would be 
calculated using the actual vehicle model-level CO2 values 
from the certification test vehicles. With a known certification 
emission standard, such as the Tier 2 ``bins,'' manufacturers typically 
attempt to over-comply with the standard to give themselves some 
cushion for potentially higher in-use testing results due to emissions 
performance deterioration and/or variability that could result in 
higher emission levels during subsequent in-use testing. For our 
proposed CO2 standards, the certification standard is the 
actual certification vehicle test result, thus manufacturers cannot 
over comply since the certification test vehicle result will always be 
the value used in determining the CO2 fleet average. If the 
manufacturer attempted to design the vehicle to achieve a lower 
CO2 value, similar to Tier 2 for in-use purposes, the new 
lower CO2 value would simply become the new certification 
standard.
    The CO2 fleet average standard is based on the 
performance of pre-production technology that is

[[Page 49564]]

representative of the point of production, and while there is expected 
to be limited if any deterioration in effectiveness for any vehicle 
during the useful life, the fleet average standard does not take into 
account the test to test variability or production variability that can 
affect in-use levels. Therefore, EPA believes that unlike Tier 2, it is 
necessary to have a different in-use standard for CO2 to 
account for these variabilities. EPA is proposing to set the in-use 
standard at 10% higher than the appropriate model-level certification 
CO2 level used in determining the manufacturer's fleet 
average result.
    As described above, manufacturers typically design their vehicles 
to emit at emission levels considerably below the standards. This 
intentional difference between the actual emission level and the 
emission standard is referred to as ``certification margin,'' since it 
is typically the difference between the certification emission level 
and the emission standard. The certification margin can provide 
manufacturers with some protection from exceeding emission standards 
in-use, since the in-use standards are typically the same as the 
certification standards. For Tier 2, the certification margin is the 
delta between the specific emission standard level, or ``bin,'' to 
which the vehicle is certified, and the vehicle's certification 
emission level.
    Since the level of the fleet average standard does not reflect this 
kind of variability, EPA believes it is appropriate to set an in-use 
standard that provides manufacturers with an in-use compliance factor 
of 10% that will act as a surrogate for a certification margin. The 
factor would only be applicable to CO2 emissions, and would 
be applied to the model-level test results that are used to establish 
the model-level in-use standard.
    If the in-use emission result for the vehicle exceeds the model-
level CO2 certification result multiplied by the in-use 
compliance factor of 10%, then the vehicle would have exceeded the in-
use emission standard. The in-use compliance factor would apply to all 
in-use compliance testing including IUVP, selective enforcement audits, 
and EPA's internal test program.
    The intent of the separate in-use standard, based on a 10% 
compliance factor adjustment, is to provide a reasonable margin such 
that vehicles are not automatically deemed as exceeding standards 
simply because of normal variability in test results. EPA has some 
concerns however that this in-use compliance factor could be perceived 
as providing manufacturers with the ability to design their fleets to 
generate CO2 emissions up to 10% higher than the actual 
values they use to certify and to calculate the year end fleet average 
value that determines compliance with the fleet average standard. This 
concern provides additional rationale for requiring FTP and HFET IUVP 
data for CO2 emissions to ensure that in-use values are not 
regularly 10% higher than the values used in the fleet average 
calculation. If in the course of reviewing a manufacturer's IUVP data 
it becomes apparent that a manufacturer's CO2 results are 
consistently higher than the values used for certification, EPA would 
discuss the matter with the manufacturer and consider possible 
resolutions such as changes to ensure that the emissions test data more 
accurately reflects the emissions level of vehicles at the time of 
production, increased EPA confirmatory testing, and other similar 
measures.
    EPA selected a value of 10% for the in-use standard based on a 
review of EPA's fuel economy labeling and CAFE confirmatory test 
results for the past several vehicle model years. The EPA data indicate 
that it is common for test variability to range between three to six 
percent and only on rare occasions to exceed 10%. EPA believes that a 
value of 10% should be sufficient to account for testing variability 
and any production variability that a manufacturer may encounter. EPA 
considered both higher and lower values. The Tier 2 fleet as a whole, 
for example, has a certification margin approaching 50%.\175\ However, 
there are some fundamental differences between CO2 emissions 
and other criteria pollutants in the magnitude of the pollutants. Tier 
2 NMOG and NOX emission standards are hundredths of a gram 
per mile (e.g., 0.07 g/mi NOX & 0.09 g/mi NMOG), whereas the 
CO2 standards are four orders of magnitude greater (e.g., 
250 g/mi). Thus EPA does not believe it is appropriate to consider a 
value on the order of 50 percent. In addition, little deterioration in 
emissions control is expected in-use. The adjustment factor addresses 
only one element of what is usually built into a compliance margin.
---------------------------------------------------------------------------

    \175\ See pages 39-41 of EPA's Vehicle and Engine Compliance 
Activities 2007 Progress Report (EPA-420-R-08-011) published in 
October 2008. This document is available electronically at http://epa.gov/otaq/about/420r08011.pdf.
---------------------------------------------------------------------------

    EPA requests comments regarding a proposed in-use standard that 
uses an in-use compliance factor. Specifically, is a factor the best 
way to address the technical and other feasibility of the in-use 
standard; is 10% the appropriate factor; can EPA expect variability to 
decrease as manufacturing experience increases, in which case would it 
be appropriate for the in-use compliance factor of 10% to decrease over 
time? EPA especially requests any data to support such comments.
5. Credit Program Implementation
    As described in Section III.E.2 above, for each manufacturer's 
model year production, EPA is proposing that the manufacturer would 
average the CO2 emissions within each of the two averaging 
sets (passenger cars and trucks) and compare that with its respective 
fleet average CO2 standards (which in turn would have been 
determined from the appropriate footprint curve applicable to that 
model year). In addition to this within-company averaging, EPA is 
proposing that when a manufacturer's fleet average CO2 
emissions of vehicles produced in an averaging set over-complies 
compared to the applicable fleet average standard, the manufacturer 
could generate credits that it could save for later use (banking) or 
could transfer to another manufacturer (trading). Section III.C 
discusses opportunities that EPA is proposing for manufacturers to earn 
additional credits, beyond those simply calculated by ``over-
achieving'' their applicable standard. Implementation of the credit 
program generally involves two steps: calculation of the credit amount 
and reporting the amount and the associated data and calculations to 
EPA.
    Of the various credit programs being proposed by EPA, there are two 
broad types. One type of credit directly lowers a manufacturer's actual 
fleet average by virtue of being applied to the methodology for 
calculating the fleet average emissions. Examples of this type of 
credit include the credits available for alternative fuel vehicles and 
for advanced technology vehicles. The second type of credit is 
independent of the calculation of a manufacturer's fleet average. 
Rather than giving credit by lowering a manufacturer's fleet average 
via a credit mechanism, these credits (in megagrams) are calculated 
separately and are simply added to the manufacturer's overall ``bank'' 
of credits (or debits). Using a fictional example, the remainder of 
this section will step through the different types of credits and show 
where and how they are calculated and how they impact a manufacturer's 
available credits.
a. Basic Credits for a Fleet With Average CO2 Emissions 
Below the Standard
    Basic credits are earned by doing better than the applicable 
standard. Manufacturers calculate their standards

[[Page 49565]]

(separate standards are calculated for cars and trucks) using the 
footprint-based equations described in Section III.B. A manufacturer's 
actual end-of-year fleet average CO2 is calculated similarly 
to the way in which CAFE values are currently calculated; in fact, the 
regulations are essentially identical. The current CAFE calculation 
methods are in 40 CFR Part 600. EPA is proposing to amend key subparts 
and sections of Part 600 to require that fleet average CO2 
be calculated in a manner parallel to the way CAFE values are 
calculated. First manufacturers would determine a CO2-
equivalent value for each model type. The CO2-equivalent 
value is a summation of the carbon-containing constituents of the 
exhaust emissions, with each weighted by a coefficient that reflects 
the carbon weight fraction of that constituent. For gasoline and diesel 
vehicles this simply involves measurement of total hydrocarbons and 
carbon monoxide in addition to CO2, but becomes somewhat 
more complex for alternative fuel vehicles due to the different nature 
of their exhaust emissions. For example, for ethanol-fueled vehicles, 
the emission tests must measure ethanol, methanol, formaldehyde, and 
acetaldehyde in addition to CO2. However, all these 
measurements are necessary to determine fuel economy and thus no new 
testing or data collection would be required. Second, manufacturers 
would calculate a fleet average by weighting the CO2-
equivalent value for each model type by the production of that model 
type, as they currently do for the CAFE program. Again, this would be 
done separately for cars and trucks. Finally, the manufacturer would 
compare the calculated standard with the average that is actually 
achieved to determine the credits (or debits). Both the determination 
of the applicable standard and the actual fleet average would be done 
after the model year is complete and using final model year production 
data.
    Consider a basic example where Manufacturer ``A'' has calculated a 
car standard of 300 grams/mile and a fleet average of 290 grams/mile 
(Figure III.E.5-1). Further assume that the manufacturer produced 
500,000 cars. The credit is calculated by taking the difference between 
the standard and the fleet average (300-290=10) and multiplying it by 
the production of 500,000. This result is then multiplied by the 
lifetime vehicle miles travelled (for cars this is 190,971 miles), then 
finally divided by 1,000,000 to convert from grams to total megagrams. 
The result is the number of CO2 megagrams of credit (or 
deficit, if the manufacturer was not able to comply with the fleet 
average standard) generated by the manufacturer's car fleet. In this 
example, the result is 954,855 megagrams.
BILLING CODE 4910-59-P


[[Page 49566]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.016

b. Advanced Technology Credits
    Advanced technology credits directly impact a manufacturer's fleet 
average, thus increasing the amount of credits they earn (or reducing 
the amount of debits that would otherwise accrue). To earn these 
credits, manufacturers that produce electric vehicles, plug-in hybrid 
electric vehicles, or fuel cell electric vehicles would include these 
vehicles in the fleet average calculation with their model type 
emission values (0 g/m for electric vehicles and fuel cell electric 
vehicles, and a measured CO2 value for plug-in hybrid 
electric vehicles), but would apply the proposed multiplier of 2.0 to 
the production volume of each of these vehicles. This approach would 
thus enhance the impact that each of these low-CO2 advanced 
technology vehicles has on the manufacturer's fleet average.
    EPA is proposing to limit availability of advanced technology 
credits to the technologies noted above, with the additional limitation 
that the vehicles must be certified to Tier 2 Bin 5 emission standards 
or cleaner (this obviously applies primarily to plug-in hybrid electric 
vehicles). EPA is proposing to use the following definitions to 
determine which vehicles

[[Page 49567]]

are eligible for the advanced technology credits:
     Electric vehicle means a motor vehicle that is powered 
solely by an electric motor drawing current from a rechargeable energy 
storage system, such as from storage batteries or other portable 
electrical energy storage devices, including hydrogen fuel cells, 
provided that:
    [cir] (1) Recharge energy must be drawn from a source off the 
vehicle, such as residential electric service; and
    [cir] (2) The vehicle must be certified to the emission standards 
of Bin 1 of Table S04-1 in paragraph (c)(6) of Sec.  86.1811.
     Fuel cell electric vehicle means a motor vehicle propelled 
solely by an electric motor where energy for the motor is supplied by a 
fuel cell.
     Fuel cell means an electrochemical cell that produces 
electricity via the reaction of a consumable fuel on the anode with an 
oxidant on the cathode in the presence of an electrolyte.
     Plug-in hybrid electric vehicle (PHEV) means a hybrid 
electric vehicle that: (1) Has the capability to charge the battery 
from an off-vehicle electric source, such that the off-vehicle source 
cannot be connected to the vehicle while the vehicle is in motion, and 
(2) has an equivalent all-electric range of no less than 10 miles.
    With some simplifying assumptions, assume that 25,000 of 
Manufacturer A's fleet are now plug-in hybrid electric vehicles with 
CO2 emissions of 100 g/mi, and the remaining 475,000 are 
conventional technology vehicles with average CO2 emissions 
of 290 grams/mile. By applying the factor of 2.0 to the electric 
vehicle production numbers in the appropriate places in the fleet 
average calculation formula Manufacturer A now has more than 2.6 
million credits (Figure III.E.5-2). Without the use of the multiplier 
Manufacturer A's fleet average would be 281 instead of 272, which would 
generate about 1.8 million credits.

[[Page 49568]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.017

c. Flexible-Fuel Vehicle Credits
    As noted in Section III.C, treatment of flexible-fuel vehicle (FFV) 
credits differs between 2012 to 2015 and 2016 and later. For the 2012 
through 2015 model years the FFV credits will be calculated as they are 
in the CAFE program for the same model years, except that formulae in 
the regulations would be modified as needed to do the calculations in 
terms of grams per mile of CO2 rather than miles per gallon. 
Like the advanced technology vehicle credits, these credits are 
integral to the fleet average calculation, but rather than crediting 
the vehicles with an artificially inflated quantity as in the advanced 
technology credit program described above, the FFV credit program 
allows the vehicles to be represented by artificially reduced 
emissions. To use this credit program, the CO2 emissions of 
FFVs will be represented by the average of two things: the 
CO2 emissions while operating on gasoline, and the 
CO2 emissions operating on the alternative fuel multiplied 
by 0.15.
    For example, Manufacturer A now makes 30,000 FFVs with 
CO2 emissions of 280 g/mi using gasoline and 260 g/mi using 
ethanol. The CO2 emissions that would represent the FFVs in 
the fleet average calculation would be calculated as follows:

FFV emissions = (280 + 260x0.15) / 2 = 160 g/mi


[[Page 49569]]


    Including these FFVs with the applicable credit in Manufacturer A's 
fleet average, as shown below in Figure III.E.5-3, further reduces the 
fleet average to 256 grams/mile and increases the manufacturer's 
credits to about 4.2 million megagrams.
[GRAPHIC] [TIFF OMITTED] TP28SE09.018

    In the 2016 and later model years the calculation of FFV emissions 
would be much the same except that the determination of the 
CO2 value to represent an FFV model type would be based upon 
the actual use of the alternative fuel and on actual CO2 
emissions while operating on that fuel. EPA's default assumption in the 
regulations is that the alternative fuel is used negligibly, and the 
CO2 value that would apply to an FFV by default would be the 
value determined for operation on conventional fuel. However, if the 
manufacturer believes

[[Page 49570]]

that the alternative fuel is used in real-world driving and that 
accounting for this use could improve the fleet average, the 
manufacturer would have two options. First, the regulations would allow 
a manufacturer to request that EPA determine an appropriate weighting 
value for an alternative fuel to reflect the degree of use of that fuel 
in FFVs relative to real-world use of the conventional fuel. Section 
III.C describes how EPA might make this determination. Any value 
determined by EPA would be published via guidance letter to 
manufacturers, and that weighting value would be available for all 
manufacturers to use for that fuel. A second option proposed in the 
regulations would allow a manufacturer to determine the degree of 
alternative fuel use for their own vehicle(s), using a variety of 
potential methods. Both the method and the use of the final results 
would have to be approved by EPA before their use would be allowed. In 
either case, whether EPA supplies the weighting factors or the 
manufacturer determines them, the CO2 emissions of an FFV in 
2016 and later would be as follows (assuming non-zero use of the 
alternative fuel):

(W1xCO2conv)+(W2xCO2alt),

Where,

W1 and W2 are the proportion of miles driven using conventional fuel 
and alternative fuel, respectively, CO2conv is the 
CO2 value while using conventional fuel, and 
CO2alt is the CO2 value while using the 
alternative fuel.
d. Dedicated Alternative Fuel Vehicle Credits
    Like the FFV credit program described above, these credits would be 
treated differently in the first years of the program than in the 2016 
and later model years. In fact, these credits are essentially identical 
to the FFV credits except for two things: (1) There is no need to 
average CO2 values for gasoline and alternative fuel, and 
(2) in 2016 and later there is no demonstration needed to get a benefit 
from the alternative fuel. The CO2 values are essentially 
determined the same way they are for FFVs operating on the alternative 
fuel. For the 2012 through 2015 model years the CO2 test 
results are multiplied by the credit adjustment factor of 0.15, and the 
result is production-weighted in the fleet average calculation. For 
example, assume that Manufacturer A now produces 20,000 dedicated CNG 
vehicles with CO2 emissions of 220 grams/mile, in addition 
to the FFVs and PHEVs already included in their fleet (Figure III.E.5-
4). Prior to the 2016 model year the CO2 emissions 
representing these CNG vehicles would be 33 grams/mile (220 x 0.15).

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[GRAPHIC] [TIFF OMITTED] TP28SE09.019

BILLING CODE 4910-59-C
    The calculation for 2016 and later would be exactly the same except 
the 0.15 credit adjustment factor would be removed from the equation, 
and the CNG vehicles would simply be production-weighted in the 
equation using their actual emissions value of 220 grams/mile instead 
of the ``credited'' value of 33 grams/mile.
e. Air Conditioning Leakage Credits
    Unlike the credit programs described above, air conditioning-
related credits do not affect the overall calculation of the fleet 
average. Whether a manufacturer generates zero air conditioning credits 
or many, the calculated fleet average remains the same. Air 
conditioning credits are calculated and added to any credits (or 
deficit) that results from the fleet average calculation. Thus, these 
credits can increase a manufacturer's credit balance or offset a 
deficit, but their calculation is external to the fleet average 
calculation. As noted in Section III.C, manufacturers could generate 
credits for reducing the leakage of refrigerant from their air 
conditioning systems. To do this the manufacturer would identify an air 
conditioning system improvement, indicate that they

[[Page 49572]]

intend to use the improvement to generate credits, and then calculate 
an annual leakage rate (grams/year) for that system based on the method 
defined by the proposed regulations. Air conditioning credits would be 
determined separately for cars and trucks using the car and truck-
specific equations described in Section III.C.
    In order to put these credits on the same basis as the basic and 
other credits describe above, the air conditioning leakage credits 
would need to be calculated separately for cars and trucks. Thus, the 
resulting grams per mile credit determined from the appropriate car or 
truck equation would be multiplied by the lifetime VMT (190,971 for 
cars; 221,199 for trucks), and then divided by 1,000,000 to get the 
total megagrams of CO2 credits generated by the improved air 
conditioning system. Although the calculations are done separately for 
cars and trucks, the total megagrams would be summed and then added to 
the overall credit balance maintained by the manufacturer.
    For example, assume that Manufacturer A has improved an air 
conditioning system that is installed in 250,000 cars and that the 
calculated leakage rate is 12 grams/year. Assume that the manufacturer 
has also implemented a new refrigerant with a Global Warming Potential 
of 850. In this case the credit per air conditioning unit, rounded to 
the nearest gram per mile would be:

[13.8 x [1--(12/16.6 x 850/1430)] = 7.9 g/mi.

    Total megagrams of credits would then be:

[ 7.9 x 250,000 x 190971 ] / 1,000,000 = 377,168 Mg.

    These credits would be added directly to a manufacturer's total 
balance; thus in this example Manufacturer A would now have, after 
consideration of all the above credits, a total of 5,437,900 Megagrams 
of credits.
f. Air Conditioning Efficiency Credits
    As noted in Section III.C.1.b, manufacturers could earn credits for 
improvements in air conditioning efficiency that reduce the impact of 
the air conditioning system on fuel consumption. These credits are 
similar to the air conditioning leakage credits described above, in 
that these credits are determined independently from the manufacturer's 
fleet average calculation, and the resulting credits are added to the 
manufacturer's overall balance for the respective model year. Like the 
air conditioning leakage credits, these credits can increase a 
manufacturer's credit balance or offset a deficit, but their 
calculation is external to the fleet average calculation.
    In order to put these credits on the same basis as the basic and 
other credits describe above, the air conditioning leakage credits 
would need to be calculated separately for cars and trucks. Thus, the 
resulting grams per mile credit determined in the above equation would 
be multiplied by the lifetime VMT (190,971 for cars; 221,199 for 
trucks), and then divided by 1,000,000 to get the total megagrams of 
CO2 credits generated by the improved air conditioning 
system. Although the calculations are done separately for cars and 
trucks, the total megagrams can be summed and then added to the overall 
credit balance maintained by the manufacturer.
    As described in Section III.C, manufacturers would determine their 
credit based on selections from a menu of technologies, each of which 
provides a gram per mile credit amount. The credits would be summed for 
all the technologies implemented by the manufacturer, but could not 
exceed 5.7 grams per mile. Once this is done, the calculation is a 
straightforward translation of a gram per mile credit to total car or 
truck megagrams, using the same methodology described above. For 
example, if Manufacturer A implements enough technologies to get the 
maximum 5.7 grams per mile for an air conditioning system that sells 
250,000 units in cars, the calculation of total credits would be as 
follows:

[5.7 x 250,000 x 190971] / 1,000,000 = 272,134 Mg.

    These credits would be added directly to a manufacturer's total 
balance; thus in this example Manufacturer A would now have, after 
consideration of all the above credits, a total of 5,710,034 Megagrams 
of credits.
g. Off-Cycle Technology Credits
    As described in Section III.C, these credits would be available for 
certain technologies that achieve real-world CO2 reductions 
that aren't adequately captured on the city or highway test cycles used 
to determine compliance with the fleet average standards. Like the air 
conditioning credits, these credits are independent of the fleet 
average calculation. Section III.C.4 describes two options for 
generating these credits: either using EPA's 5-cycle fuel economy 
labeling methodology, or if that method fails to capture the 
CO2-reducing impact of the technology, the manufacturer 
could propose and use, with EPA approval, a different analytical 
approach to determining the credit amount. Like the air conditioning 
credits above, these credits would have to be determined separately for 
cars and trucks because of the differing lifetime mileage assumptions 
between cars and trucks.
    Using the 5-cycle approach would be relatively straightforward, and 
because the 5-cycle formulae account for nationwide variations in 
driving conditions, no additional adjustments to the test results would 
be necessary. The manufacturer would simply calculate a 5-cycle 
CO2 value with the technology installed and operating and 
compare it with a 5-cycle CO2 value determined without the 
technology installed and/or operating. Existing regulations describe 
how to calculate 5-cycle fuel economy values, and the proposed 
regulations contain provisions that describe how to calculate 5-cycle 
CO2 values. The manufacturer would have to design a test 
program that accounts for vehicle differences if the technology is 
installed in different vehicle types, and enough data would have to be 
collected to address data uncertainty issues. A description of such a 
test program and the results would be submitted to EPA for approval.
    As noted in Section III.C.4, a manufacturer-developed testing, data 
collection and analysis program would require some additional EPA 
approval and oversight. Once the demonstration of the CO2 
reduction of an off-cycle technology is complete, however, and the 
resulting value accounts for variations in driving, climate and other 
conditions across the country, the two approaches are treated 
fundamentally the same way and in a way that parallels the approach for 
determining the air conditioning credits described above. Once a gram 
per mile value is approved by the EPA, the manufacturer would determine 
the total credit value by multiplying the gram per mile per vehicle 
credit by the volume of vehicles with that technology and approved for 
use of the credit. This would then be multiplied by the lifetime 
vehicle miles for cars or trucks, whichever applies, and divided by 
1,000,000 to obtain total Megagrams of CO2 credits. These 
credits would then be added to the manufacturer's total balance for the 
given model year. Just like the above air conditioning case, an off-
cycle technology that is demonstrated to achieve an average 
CO2 reduction of 4 grams/mile and that is installed in 
175,000 cars would generate credits as follows:

[4 x 175,000 x 190971] / 1,000,000 = 133,680 Mg.

[[Page 49573]]

h. End-of-Year Reporting
    In general, implementation of the averaging, banking, and trading 
(ABT) program, including the calculation of credits and deficits, would 
be accomplished via existing reporting mechanisms. EPA's existing 
regulations define how manufacturers calculate fleet average miles per 
gallon for CAFE compliance purposes, and EPA is proposing to modify 
these regulations to also require the parallel calculation of fleet 
average CO2 levels for car and light truck compliance 
categories. These regulations already require an end-of-year report for 
each model year, submitted to EPA, which details the test results and 
calculations that determine each manufacturer's CAFE levels. EPA is 
proposing to require that this report also include fleet average 
CO2 levels. In addition to requiring reporting of the actual 
fleet average achieved, this end-of-year report would also contain the 
calculations and data determining the manufacturer's applicable fleet 
average standard for that model year. As under the existing Tier 2 
program, the report would be required to contain the fleet average 
standard, all values required to calculate the fleet average standard, 
the actual fleet average CO2 that was achieved, all values 
required to calculate the actual fleet average, the number of credits 
generated or debits incurred, all the values required to calculate the 
credits or debits, and the resulting balance of credits or debits.
    Because of the multitude of credit programs that are available, the 
end-of-year report will be required to have more data and a more 
defined and specific structure than the CAFE end-of-year report does 
today. Although requiring ``all the data required'' to calculate a 
given value should be inclusive, the proposed report would contain some 
requirements specific to certain types of credits.
    For advanced technology credits that apply to vehicles like 
electric vehicles and plug-in hybrid electric vehicles, manufacturers 
would be required to identify the number and type of these vehicles and 
the effect of these credits on their fleet average. The same would be 
true for credits due to flexible-fuel and alternative-fuel vehicles, 
although for 2016 and later flexible-fuel credits manufacturers would 
also have to provide a demonstration of the actual use of the 
alternative fuel in-use and the resulting calculations of 
CO2 values for such vehicles. For air conditioning leakage 
credits manufacturers would have to include a summary of their use of 
such credits that would include which air conditioning systems were 
subject to such credits, information regarding the vehicle models which 
were equipped with credit-earning air conditioning systems, the 
production volume of these air conditioning systems, the leakage score 
of each air conditioning system generating credits, and the resulting 
calculation of leakage credits. Air conditioning efficiency reporting 
will be somewhat more complicated given the phase-in of the efficiency 
test, and reporting would have to detail compliance with the phase-in 
as well as the test results and the resulting efficiency credits 
generated. Similar reporting requirements would also apply to the 
variety of possible off-cycle credit options, where manufacturers would 
have to report the applicable technology, the amount of credit per 
unit, the production volume of the technology, and the total credits 
from that technology.
    Although it is the final end-of-year report, when final production 
numbers are known, that will determine the degree of compliance and the 
actual values of any credits being generated by manufacturers, EPA is 
also proposing that manufacturers be prepared to discuss their 
compliance approach and their potential use of the variety of credit 
options in pre-certification meetings that EPA routinely has with 
manufacturers. In addition, and in conjunction with a pre-model year 
report required under the CAFE program, the manufacturer would be 
required to submit projections of all of the elements described above.
    Finally, to the extent that there are any credit transactions, the 
manufacturer would have to detail in the end-of-year report 
documentation on all credit transactions that the manufacturer has 
engaged in. Information for each transaction would include: The name of 
the credit provider, the name of the credit recipient, the date the 
transfer occurred, the quantity of credits transferred, and the model 
year in which the credits were earned. Failure by the manufacturer to 
submit the annual report in the specified time period would be 
considered to be a violation of section 203(a)(1) of the Clean Air Act.
6. Enforcement
    As discussed above in Section III.E.5 under the proposed program, 
manufacturers would report to EPA their fleet average standard for a 
given model year (reporting separately for each of the car and truck 
averaging sets), the credits or deficits generated in the current year, 
the balance of credit balances or deficits (taking into account banked 
credits, deficit carry-forward, etc. see Section III.E.5), and whether 
they were in compliance with the fleet average standard under the terms 
of the regulations. EPA would review the annual reports, figures, and 
calculations submitted by the manufacturer to determine any 
nonconformance. EPA requests comments on the above approach for 
monitoring and enforcement of the fleet average standard.
    Each certificate, required prior to introduction into commerce, 
would be conditioned upon the manufacturer attaining the CO2 
fleet average standard. If a manufacturer failed to meet this condition 
and had not generated or purchased enough credits to cover the fleet 
average exceedance following the three year deficit carry-forward 
(Section III.B.4, then EPA would review the manufacturer's sales for 
the most recent model year and designate which vehicles caused the 
fleet average standard to be exceeded. EPA would designate as 
nonconforming those vehicles with the highest emission values first, 
continuing until a number of vehicles equal to the calculated number of 
non-complying vehicles as determined above is reached and those 
vehicles would be considered to be not covered by the certificates of 
conformity covering those model types. In a test group where only a 
portion of vehicles would be deemed nonconforming, EPA would determine 
the actual nonconforming vehicles by counting backwards from the last 
vehicle sold in that model type. A manufacturer would be subject to 
penalties and injunctive orders on an individual vehicle basis for sale 
of vehicles not covered by a certificate. This is the same general 
mechanism used for the National LEV and Tier 2 corporate average 
standards, except that these programs operate slightly differently in 
that the non-compliant vehicles would be designated not in the most 
recent model year, but in the model year in which the deficit 
originated. EPA requests comment on which approach is most appropriate; 
the Tier 2 approach of penalizing vehicles from the year in which the 
deficit was generated, or the proposed approach that would penalize 
vehicles from the year in which the manufacturer failed to make up the 
deficit as required.
    Section 205 of the CAA authorizes EPA to assess penalties of up to 
$37,500 per vehicle for violations of the requirements or prohibitions 
of this proposed rule.\176\ This section of the

[[Page 49574]]

CAA provides that the agency shall take the following penalty factors 
into consideration in determining the appropriate penalty for any 
specific case: The gravity of the violation, the economic benefit or 
savings (if any) resulting from the violation, the size of the 
violator's business, the violator's history of compliance with this 
title, action taken to remedy the violation, the effect of the penalty 
on the violator's ability to continue in business, and such other 
matters as justice may require.
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    \176\ 42 U.S.C. 7524(a), Civil Monetary Penalty Inflation 
Adjustment, 69 FR 7121 (Feb. 13, 2004) and Civil Monetary Penalty 
Inflation Adjustment Rule, 73 FR 75340 (Dec. 11, 2008).
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    EPA recognizes that it may be appropriate, should a manufacturer 
fail to comply with the NHTSA fuel economy standards as well as the 
CO2 standard proposed today in a case arising out of the 
same facts and circumstances, to take into account the civil penalties 
that NHTSA has assessed for violations of the CAFE standards when 
determining the appropriate penalty amount for violations of the 
CO2 emissions standards. This approach is consistent with 
EPA's broad discretion to consider ``such other matters as justice may 
require,'' and will allow EPA to exercise its discretion to prevent 
injustice and ensure that penalties for violations of the 
CO2 rule are assessed in a fair and reasonable manner.
    The statutory penalty factor that allows EPA to consider ``such 
other matters as justice may require'' vests EPA with broad discretion 
to reduce the penalty when other adjustment factors prove insufficient 
or inappropriate to achieve justice.\177\ The underlying principle of 
this penalty factor is to operate as a safety mechanism when necessary 
to prevent injustice.\178\
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    \177\ In re Spang & Co., 6 E.A.D. 226, 249 (EAB 1995).
    \178\ B.J. Carney Industries, 7 E.A.D. 171, 232, n. 82 (EAB 
1997).
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    In other environmental statutes, Congress has specifically required 
EPA to consider penalties assessed by other government agencies where 
violations arise from the same set of facts. For instance, section 
311(b)(8) of the Clean Water Act, 33 U.S.C. 1321(b)(8) authorizes EPA 
to consider any other penalty for the same incident when determining 
the appropriate Clean Water Act penalty. Likewise, section 113(e) of 
the CAA authorizes EPA to consider ``payment by the violator of 
penalties previously assessed for the same violation'' when assessing 
penalties for certain violations of Title I of the Act.
7. Prohibited Acts in the CAA
    Section 203 of the Clean Air Act describes acts that are prohibited 
by law. This section and associated regulations apply equally to the 
greenhouse standards proposed today as to any other regulated 
pollutant.
8. Other Certification Issues
a. Carryover/Carry Across Certification Test Data
    EPA's certification program for vehicles allows manufacturers to 
carry certification test data over and across certification testing 
from one model year to the next, when no significant changes to models 
are made. EPA expects that this policy could also apply to 
CO2, N2O and CH4 certification test 
data. A manufacturer may also be eligible to use carryover and carry 
across data to demonstrate CO2 fleet average compliance if 
they had done so for CAFE purposes.
b. Compliance Fees
    The CAA allows EPA to collect fees to cover the costs of issuing 
certificates of conformity for the classes of vehicles and engines 
covered by this proposal. On May 11, 2004, EPA updated its fees 
regulation based on a study of the costs associated with its motor 
vehicle and engine compliance program (69 FR 51402). At the time that 
cost study was conducted the current rulemaking was not considered.
    At this time the extent of any added costs to EPA as a result of 
this proposal is not known. EPA will assess its compliance testing and 
other activities associated with the proposed rule and may amend its 
fees regulations in the future to include any warranted new costs.
c. Small Entity Deferment
    EPA is proposing to defer CO2 standards for certain 
small entities, and these entities (necessarily) would not be subject 
to the certification requirements of this proposal.
    As discussed in Section III.B.7, businesses meeting the Small 
Business Administration (SBA) criterion of a small business as 
described in 13 CFR 121.201 would not be subject to the proposed GHG 
requirements, pending future regulatory action. EPA is proposing that 
such entities submit a declaration to EPA containing a detailed written 
description of how that manufacturer qualifies as a small entity under 
the provisions of 13 CFR 121.201 in order to ensure EPA is aware of the 
deferred companies. This declaration would have to be signed by a chief 
officer of the company, and would have to be made at least 30 days 
prior to the introduction into commerce of any vehicles for each model 
year for which the small entity status is requested, but not later than 
December of the calendar year prior to the model year for which 
deferral is requested. For example, if a manufacturer will be 
introducing model year 2012 vehicles in October of 2011, then the small 
entity declaration would be due in September of 2011. If 2012 model 
year vehicles are not planned for introduction until March of 2012, 
then the declaration would have to be submitted in December of 2011. 
Such entities are not automatically exempted from other EPA regulations 
for light-duty vehicles and light-duty trucks; therefore, absent this 
annual declaration EPA would assume that each entity was not deferred 
from compliance with the proposed greenhouse gas standards.
d. Onboard Diagnostics (OBD) and CO2 Regulations
    The light-duty on-board diagnostics (OBD) regulations require 
manufacturers to detect and identify malfunctions in all monitored 
emission-related powertrain systems or components.\179\ Specifically, 
the OBD system is required to monitor catalysts, oxygen sensors, engine 
misfire, evaporative system leaks, and any other emission control 
systems directly intended to control emissions, such as exhaust gas 
recirculation (EGR), secondary air, and fuel control systems. The 
monitoring threshold for all of these systems or components is 1.5 
times the applicable standards, which typically include NMHC, CO, 
NOX, and PM. EPA is confident that many of the emission-
related systems and components currently monitored would effectively 
catch any malfunctions related to CO2 emissions. For 
example, malfunctions resulting from engine misfire, oxygen sensors, 
the EGR system, the secondary air system, and the fuel control system 
would all have an impact on CO2 emissions. Thus, repairs 
made to any of these systems or components should also result in an 
improvement in CO2 emissions. In addition, EPA does not have 
data on the feasibility or effectiveness of monitoring various emission 
systems and components for CO2 emissions and does not 
believe it would be prudent to include CO2 emissions without 
such information. Therefore, at this time, EPA does not plan to require 
CO2 emissions as one of the applicable standards required 
for the OBD monitoring threshold. EPA plans to evaluate OBD monitoring 
technology, with regard to monitoring CO2 emissions-related 
systems and components, and may choose to propose to include 
CO2 emissions as part of the OBD requirements in a future 
regulatory

[[Page 49575]]

action. EPA requests comment as to whether this is appropriate at this 
time, and specifically requests any data that would support the need 
for CO2-related components that could or should be monitored 
via an OBD system.
---------------------------------------------------------------------------

    \179\ 40 CFR 86.1806-04.
---------------------------------------------------------------------------

e. Applicability of Current High Altitude Provisions to Greenhouse 
Gases
    EPA is proposing that vehicles covered by this proposal meet the 
CO2, N2O and CH4 standard at altitude. 
The CAA requires emission standards under section 202 to apply at all 
altitudes.\180\ EPA does not expect vehicle CO2, 
CH4, or N2O emissions to be significantly 
different at high altitudes based on vehicle calibrations commonly used 
at all altitudes. Therefore, EPA is proposing to retain its current 
high altitude regulations so manufacturers would not normally be 
required to submit vehicle CO2 test data for high altitude. 
Instead, they would submit an engineering evaluation indicating that 
common calibration approaches will be utilized at high altitude. Any 
deviation in emission control practices employed only at altitude would 
need to be included in the auxiliary emission control device (AECD) 
descriptions submitted by manufacturers at certification. In addition, 
any AECD specific to high altitude would be required to include 
emissions data to allow EPA evaluate and quantify any emission impact 
and validity of the AECD. EPA requests comment on this approach, and 
specifically requests data on impact of altitude on FTP and HFET 
CO2 emissions.
---------------------------------------------------------------------------

    \180\ See CAA 206(f).
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f. Applicability of Standards to Aftermarket Conversions
    With the exception of the small entity deferment option EPA is 
proposing, EPA's emission standards, including the proposed greenhouse 
gas standards, would continue to apply as stated in the applicability 
sections of the relevant regulations. The proposed greenhouse gas 
standards are being incorporated into 40 CFR part 86, subpart S, the 
provisions of which include exhaust and evaporative emission standards 
for criteria pollutants. Subpart S includes requirements for new light-
duty vehicles, light-duty trucks, medium-duty passenger vehicles, Otto-
cycle complete heavy-duty vehicles, and some incomplete light-duty 
trucks. Subpart S is currently specifically applicable to aftermarket 
conversion systems, aftermarket conversion installers, and aftermarket 
conversion certifiers, as those terms are defined in 40 CFR 85.502. EPA 
expects that some aftermarket conversion companies would qualify for 
and seek the small entity deferment, but those that do not qualify 
would be required to meet the applicable emission standards, including 
the proposed greenhouse gas standards.
9. Miscellaneous Revisions to Existing Regulations
a. Revisions and Additions to Definitions
    EPA is proposing to amend its definitions of ``engine code,'' 
``transmission class,'' and ``transmission configuration'' in its 
vehicle certification regulations (Part 86) to conform with the 
definitions for those terms in its fuel economy regulations (Part 600). 
The exact terms in Part 86 are used for reporting purposes and are not 
used for any compliance purpose (e.g., an engine code would not 
determine which vehicle was selected for emission testing). However, 
the terms are used for this purpose in Part 600 (e.g., engine codes, 
transmission class, and transmission configurations are all criteria 
used to determine which vehicles are to be tested for the purposes of 
establishing corporate average fuel economy). Here, EPA is proposing 
that the same vehicles tested to determine corporate average fuel 
economy also be tested to determine fleet average CO2, so 
the same definitions should apply. Thus EPA is proposing to amend its 
Part 86 definitions of the above terms to conform to the definitions in 
Part 600.
    To bring EPA's fuel economy regulations in Part 600 into conformity 
with this proposal for fleet average CO2 and NHTSA's reform 
truck regulations two amendments are proposed. First, the definition of 
``footprint'' that is proposed in this rule is also being proposed for 
addition to EPA's Part 86 and 600 regulations. This definition is based 
on the definition promulgated by NHTSA at 49 CFR 523.2. Second, EPA is 
proposing to amend its model year CAFE reporting regulations to include 
the footprint information necessary for EPA to determine the reformed 
truck standards and the corporate average fuel economy. This same 
information is proposed to be included in this proposal for fleet 
average CO2 and fuel economy compliance.
b. Addition of Ethanol Fuel Economy Calculation Procedures
    EPA is proposing to add calculation procedures to part 600 for 
determining the carbon-related exhaust emissions and calculating the 
fuel economy of vehicles operating on ethanol fuel. Manufacturers have 
been using these procedures as needed, but the regulatory language--
which specifies how to determine the fuel economy of gasoline, diesel, 
compressed natural gas, and methanol fueled vehicles--has not 
previously been brought up-to-date to provide procedures for vehicles 
operating on ethanol. Thus EPA is proposing a carbon balance approach 
similar to other fuels for the determination of carbon-related exhaust 
emissions for the purpose of determining fuel economy and for 
compliance with the proposed fleet average CO2 standards. 
The carbon balance formula is similar to that for methanol, except that 
ethanol-fueled vehicles must also measure the emissions of ethanol and 
acetaldehyde. The proposed carbon balance equation for determining fuel 
economy is as follows, where CWF is the carbon weight fraction of the 
fuel and CWFexHC is the carbon weight fraction of the 
exhaust hydrocarbons:

mpg = (CWF x SG x 3781.8)/((CWFexHCx HC) + (0.429 x CO) + 
(0.273 x CO2) + (0.375 x CH3OH) + (0.400 x 
HCHO) + (0.521 x C2H5OH) + (0.545 x 
C2H4O))

    The proposed equation for determining the total carbon-related 
exhaust emissions for compliance with the CO2 fleet average 
standards is the following, where CWFexHC is the carbon 
weight fraction of the exhaust hydrocarbons:

CO2-eq = (CWFexHCx HC) + (0.429 x CO) + (0.375 
x CH3OH) + (0.400 x HCHO) + (0.521 x 
C2H5OH) + (0.545 x 
C2H4O) + CO2.

    EPA requests comment on the use of these formulae to determine fuel 
economy and carbon emissions.
c. Revision of Electric Vehicle Applicability Provisions
    In 1980 EPA issued a rule that provided for the inclusion of 
electric vehicles in the CAFE program.\181\ EPA now believes that 
certain provisions of the regulations should be updated to reflect the 
current state of motor vehicle emission and fuel economy regulations. 
In particular, EPA believes that the exemption of electric vehicles in 
certain cases from fuel economy labeling and CAFE requirements should 
be reevaluated and revised.
---------------------------------------------------------------------------

    \181\ 45 FR 49256, July 24, 1980.
---------------------------------------------------------------------------

    The rule created an exemption for electric vehicles from fuel 
economy labeling in the following cases: (1) If the electric vehicles 
are produced by a company that produces only electric vehicles; and (2) 
if the electric vehicles are produced by a company that

[[Page 49576]]

produces fewer than 10,000 vehicles of all kinds worldwide. EPA 
believes that this exemption language is no longer appropriate and 
proposes to delete it from the affected regulations. First, since 1980 
many regulatory provisions have been put in place to address the 
concerns of small manufacturers and enable them to comply with fuel 
economy and emission programs with reduced burden. EPA believes that 
all small volume manufacturers should compete on a fair and level 
regulatory playing field and that there is no longer a need to treat 
small volume electric vehicles any differently than small volume 
manufacturers of other types of vehicles. Current regulations contain 
streamlined certification procedures for small companies, and because 
electric vehicles emit no direct pollution there is effectively no 
certification emission testing burden. For example, the proposed 
greenhouse gas regulations contain a provision allowing the exemption 
of certain small entities. Meeting the requirements for fuel economy 
labeling and CAFE will entail a testing, reporting, and labeling 
burden, but these burdens are not extraordinary and should be applied 
equally to all small volume manufacturers, regardless of the fuel that 
moves their vehicles. EPA has been working with existing electric 
vehicle manufacturers on fuel economy labeling, and EPA believes it is 
important for the consumer to have impartial, accurate, and useful 
label information regarding the energy consumption of these vehicles. 
Second, EPCA does not provide for an exemption of electric vehicles 
from NHTSA's CAFE program, and NHTSA regulations regarding the 
applicability of the CAFE program do not provide an exemption for 
electric vehicles. Third, the blanket exemption for any manufacturer of 
only electric vehicles assumed at the time that these companies would 
all be small, but the exemption language inappropriately did not 
account for size and would allow large manufacturers to be exempt as 
well. Finally, because of growth expected in the electric vehicle 
market in the future, EPA believes that the labeling and CAFE 
regulations need to be designed to more specifically accommodate 
electric vehicles and to require that consumers be provided with 
appropriate information regarding these vehicles. For these reasons EPA 
is proposing revisions to 40 CFR Part 600 applicability regulations 
such that these electric vehicle exemptions are deleted starting with 
the 2012 model year.
d. Miscellaneous Conforming Regulatory Amendments
    Throughout the regulations EPA has made a number of minor 
amendments to update the regulations as needed or to conform with 
amendments discussed in this preamble. For example, for consistency 
with the ethanol fuel economy calculation procedures discussed above, 
EPA has amended regulations where necessary to require the collection 
of emissions of ethanol and acetaldehyde. Other changes are made to 
applicability sections to remove obsolete regulatory requirements such 
as phase-ins related to EPA's Tier 2 emission standards program, and 
still other changes are made to better accommodate electric vehicles in 
EPA emission control regulations. Not all of these minor amendments are 
noted in this preamble, thus the reader should carefully evaluate the 
proposed regulatory text to ensure a complete understanding of the 
regulatory changes being proposed by EPA.
10. Warranty, Defect Reporting, and Other Emission-Related Components 
Provisions
    Under section 207(a) of the CAA, manufacturers must warrant that a 
vehicle is designed to comply with the standards and will be free from 
defects that may cause it to not comply over the specified period which 
is 2 years/24,000 miles (whichever is first) or, for major emission 
control components, 8 years/80,000 miles. Under certain conditions, 
manufacturers may be liable to replace failed emission components at no 
expense to the owner. EPA regulations define ``emission related parts'' 
for the purpose of warranty. This definition includes parts which must 
function properly to assure continued compliance with the emission 
standards.\182\
---------------------------------------------------------------------------

    \182\ 40 CFR 85.2102(14).
---------------------------------------------------------------------------

    The air conditioning system and its components have not previously 
been covered under the CAA warranty provisions. However, the proposed 
A/C leakage and A/C-related CO2 emission standards are 
dependent upon the proper functioning of a number of components on the 
A/C system, such as rings, fittings, compressors, and hoses. Therefore, 
EPA is proposing that these components be included under the CAA 
section 207(a) emission warranty provisions, with a warranty of 2 
years/24,000 miles.
    EPA requests comment as to whether any other parts or components 
should be designated as ``emission related parts'' subject to warranty 
and defect reporting provisions under this proposal.
11. Light Duty Vehicles and Fuel Economy Labeling
    American consumers need accurate and meaningful information about 
the environmental and fuel economy performance of new light vehicles. 
EPA believes it is important that the fuel-economy label affixed to the 
new vehicles provide consumers with the critical information they need 
to make smart purchase decisions. This is a special challenge in light 
of the expected increase in market share of electric and other advanced 
technology vehicles. Consumers may need new and different information 
than today's vehicle labels provide in order to help them understand 
the energy use and associated cost of owning these electric and 
advanced technology vehicles. As discussed below, these two issues are 
key to determining whether the current MPG-based fuel-economy label is 
adequate.
    Therefore, as part of this action, EPA seeks comments on issues 
surrounding consumer vehicle labeling in general, and labeling of 
advanced technology vehicles in particular. EPA also plans to initiate 
a separate rulemaking to explore in detail the information displayed on 
the fuel economy label and the methodology for deriving that 
information. The purposes of this new rulemaking would be to ensure 
that American consumers continue to have the most accurate, meaningful, 
and useful information available to them when purchasing new vehicles, 
and that the information is presented to them in clear and 
understandable terms.
a. Background
    EPA has considerable experience in providing vehicle information to 
consumers through its fuel-economy labeling activities and related web-
based programs. Under 49 U.S.C. 32908(b) EPA is responsible for 
developing the fuel economy labels that are posted on window stickers 
of all new light duty cars and trucks sold in the U.S. and, beginning 
with the 2011 model year, on all new medium-duty passenger vehicles (a 
category that includes large sport-utility vehicles and passenger 
vans). The statutory requirements established by EPCA require that the 
label contain the following:
     The fuel economy of the vehicle; \183\
---------------------------------------------------------------------------

    \183\ ``Fuel economy'' per the statute is miles per gallon of 
gasoline (or equivalent amount of other fuel).
---------------------------------------------------------------------------

     The estimated annual fuel cost of operating the vehicle;

[[Page 49577]]

     The range of fuel economy of comparable vehicles among all 
manufacturers;
     A statement that a fuel economy booklet is available from 
the dealer; \184\ and
---------------------------------------------------------------------------

    \184\ EPA and DOE jointly publish the annual Fuel Economy Guide 
and distribute it to dealers.
---------------------------------------------------------------------------

     The amount of the ``gas guzzler'' tax imposed on the 
vehicle by the Internal Revenue Service.
     Other information required or authorized by EPA that is 
related to the information required above.
    Fuel economy is defined as the number of miles traveled by an 
automobile for each gallon of gasoline (or equivalent amount of other 
fuel). It is relatively easy to determine the miles per gallon (MPG) 
for vehicles that use liquid fuels (e.g., gasoline or diesel), but an 
expression that uses gallons--whether miles per gallon or gallons per 
mile--may not be a useful metric for vehicles that have limited to no 
operation on liquid fuel such as electric or compressed natural gas 
vehicles. The mpg metric is the one generally used today to provide 
comparative fuel economy information to consumers.
    As part of its vehicle certification, CAFE, and fuel economy 
labeling authorities, EPA works with stakeholders on the testing and 
other regulatory requirements necessary to bring advanced technology 
vehicles to market. With increasing numbers of advanced technology 
vehicles beginning to be sold, EPA believes it is now appropriate to 
address potential regulatory and certification issues associated with 
these technologies including how best to provide relevant consumer 
information about their environmental impact, energy consumption, and 
cost.
b. Test Procedures
    As discussed in this notice, there are explicit and very long-
standing test procedures and calculation methodologies associated with 
CAFE that EPA uses to test conventionally-fueled vehicles and to 
calculate their fuel economy. These test procedures and calculations 
also generally apply to advanced technology vehicles (e.g., an electric 
(EV) or plug-in hybrid vehicle (PHEV)).
    The basic test procedure for an electric vehicle follows a 
standardized practice--an EV is fully charged and then driven over the 
city cycle (Urban Dynamometer Drive Schedule) until the vehicle can no 
longer maintain the required drive cycle vehicle speed. For some 
vehicles, this could require operation over multiple drive cycles. The 
EV is then fully recharged and the AC energy to the charger is 
recorded.
    To derive the CAFE value for electric vehicles, the amount of AC 
energy needed to recharge the battery is divided by the range the 
vehicle reached in the repeated city drive cycle. This calculation 
provides a raw CAFE energy consumption value expressed in kilowatt 
hours per 100 miles. The raw CAFE number is then converted to miles per 
gallon of equivalent gasoline using a Department of Energy (DOE) 
conversion factor of 82,700 Kwhr/gallon of gasoline.\185\ The DOE 
conversion factor combines several adjustments including: an adjustment 
similar to the statutory 6.67 multiplier credit \186\ used in deriving 
the final CAFE value for alternative fueled vehicles; a factor 
representing the gasoline-equivalent energy content of electricity; and 
various adjustments to account for the relative efficiency of producing 
and transporting the electricity. The resulting value after the DOE 
conversion factor is applied becomes the final CAFE city value.
---------------------------------------------------------------------------

    \185\ 49 U.S.C. 32904 and 10 CFR 474.3.
    \186\ 49 U.S.C. 32905.
---------------------------------------------------------------------------

    The label value calculation for an EV uses a different conversion 
factor than the CAFE value calculation. To come up with the final city 
fuel economy label value for an EV, a conversion factor of 33,705 Kwhr/
gallon of gasoline equivalent is applied to the raw consumption number 
instead of the 82,700 Kwhr/gallon used for CAFE. The conversion factor 
used for labeling purposes represents only the gasoline-equivalent 
energy content of electricity, without the multiplier credit and other 
adjustments used in the CAFE calculation. The consumption, now 
expressed as a fuel economy in miles per gallon equivalent, is then 
applied to the derived 5-cycle equation required under EPA's fuel 
economy labeling regulations. The above process is then repeated for 
the EV highway fuel economy label number. Finally, the combined city/
highway numbers for the EV use the same 55/45 weighting as conventional 
vehicles to determine the final fuel economy label values. CAFE numbers 
end up being significantly higher for EVs than the associated fuel 
economy label values, both because a higher adjustment factor applies 
under CAFE regulations and also because other real-world adjustments 
such as the 5-cycle test are not applied to the CAFE values.
    For PHEVs, a similar process would be followed, except that PHEVs 
require testing in both charge sustain (CS) and charge depleting (CD) 
modes to capture how these vehicles operate. For charge sustain modes, 
PHEVs essentially operate as conventional Hybrid Electric Vehicles 
(HEVs). PHEVs therefore test in all 5-cycles (for further information 
on these test cycles, see Section III.C.4) just as HEVs do for CS fuel 
economy. For CD fuel economy, PHEVs are only required to test on the 
Urban Dynamometer Drive Schedule and Highway Fuel Economy cycles just 
like other alternative fueled vehicles--the 5-cycle fuel economy 
testing is optional in the CD mode. There are additional processes that 
address different PHEV modes, such as for PHEVs that operate solely on 
electricity throughout the CD mode.
    As this discussion shows, the CAFE and fuel economy labeling test 
procedures and calculations for advanced technology vehicles such as 
EVs and PHEVs can be very complicated. EPA is interested in comments on 
these processes, including views on the appropriate use of adjustment 
factors. Currently in guidance, EPA references SAE J1634 for EV range 
and consumption test procedures. EPA currently includes the 
``California Exhaust Emission Standards and Test Procedures for 2003 
and Subsequent Model Zero-Emission Vehicles, in the Passenger Car, 
Light Truck, and Medium-duty Vehicle Classes'' by reference in 40 CFR 
86.1. As California requirements and SAE test procedures are updated 
these may be included by reference in the future.
c. Current Fuel Economy Label
    In 2006 EPA redesigned the window stickers to make them more 
informative for consumers. More particular, the redesigned stickers 
more prominently feature annual fuel cost information, to provide 
contemporary and easy-to-use graphics for comparing the fuel economy of 
different vehicles, to use clearer text, and to include a Web site 
reference to www.fueleconomy.gov which provides additional information. 
In addition, EPA updated how the city and highway fuel economy values 
were calculated, to reflect typical real-world driving patterns.\187\ 
This rulemaking involved significant stakeholder outreach in 
determining how best to calculate and display this new information. The 
feedback EPA has received to date on the new label design and values 
has been generally very positive.
---------------------------------------------------------------------------

    \187\ 71 FR 77872 (December 27, 2006). Fuel Economy Labeling of 
Motor Vehicles: Revisions to Improve Calculations of Fuel Economy 
Estimates. U.S. EPA.
---------------------------------------------------------------------------

    During the 2006 label rulemaking process EPA requested comments on

[[Page 49578]]

how a fuel consumption metric (such as gallons per 100 miles) could be 
used and represented to the public, including presentation in the 
annual Fuel Economy Guide. EPA received a number of comments from both 
vehicle manufacturers and consumer organizations, suggesting that the 
MPG measures can be misleading and that a fuel consumption metric might 
be more meaningful to consumers than the established MPG metric found 
on fuel economy labels. The reason is that fuel consumption metric, 
directly measures the amount of fuel used and is thus directly related 
to cost that consumers incur when filling up.
    The problem with the MPG metric is that it is inversely related to 
fuel consumption and cost. As higher MPG values are reached, the 
relative impact of these higher values on fuel consumption and fuel 
costs decreases. For example, a 25 percent increase in gallons per 100 
miles will always lead to a 25 percent increase in the fuel cost, but a 
similar 25 percent increase in MPG will have varying impacts on actual 
fuel cost depending on whether the percent increase occurs to a low or 
high MPG value. Many consumers do not understand this nonlinear 
relationship between MPG and fuel costs. Evidence suggest that people 
tend to see the MPG as being linear with fuel cost, which will lead to 
erroneous decisions regarding vehicle purchases. Figure III.E.11-1 
below illustrates the issue; one can see that changes in MPG at low MPG 
levels can result in large changes in the fuel cost, while changes in 
MPG values at high MPG levels result in small changes in the fuel cost. 
For example, a change from 10 to 15 MPG will reduce the 10-mile fuel 
cost from $2.50 to $1.60, but a similar increase in MPG from 20 to 25 
MPG will only reduce the 10-mile fuel cost by less than $0.30.

[[Page 49579]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.020

    Because of the potential for consumers to misunderstand this MPG/
cost relationship, commenters on the 2006 labeling rule universally 
agreed that any change to the label metric should involve a significant 
public education campaign directed toward both dealers and consumers.
    In 2006, EPA did not include a consumption-based metric on the 
redesigned fuel economy label in 2006. It was concerned about potential 
confusion associated with introducing a second metric on the label (MPG 
is a required element, as noted above). EPA has developed an 
interactive feature on www.fueleconomy.gov which allows consumers, 
while viewing data on a specific vehicle, to switch units between the 
MPG and gallons per 100 miles metrics. The tool also displays the cost 
and the amount of fuel needed to drive 25 miles. As indicated above, 
however, EPA is alert to the problems with the MPG measure and the 
importance of providing consumers with a clear sense

[[Page 49580]]

of the consequences of their purchasing decisions; a gallon-per mile 
measure would have significant advantages. EPA plans to seek comment 
and engage in extensive public debate about fuel consumption and other 
appropriate consumer information metrics as part of a new labeling rule 
initiative. EPA also welcomes comments on this topic in response to 
this GHG proposal.
d. Labeling for Advanced Technology Vehicles
    Even though a fuel consumption metric may more directly represent 
likely fuel costs than a fuel economy metric, any expression that uses 
gallons--whether miles per gallon or gallons per mile--is not a useful 
metric for vehicles that have limited to no operation on liquid fuel 
(e.g., electricity or compressed natural gas). For example, PHEVs and 
extended range electric vehicles (EREVs) can use two types of energy 
sources: (1) An onboard battery, charged by plugging the vehicle into 
the electrical grid via a conventional wall outlet, to power an 
electric motor, as well as (2) a gas or diesel-powered engine to propel 
the vehicle or power a generator used to provide electricity to the 
electric motor. Depending on how these vehicles are operated, they can 
use electricity exclusively, never use electricity and operate like a 
conventional hybrid, or operate in some combination of these two modes. 
The use of a MPG figure alone would not account for the electricity 
used to propel the vehicle.
    EPA has worked closely with numerous stakeholders including vehicle 
manufacturers, the Society of Automotive Engineers (SAE), the State of 
California, the Department of Energy (DOE) and others to develop 
possible approaches for both estimating fuel economy and labeling 
vehicles that can operate using more than one energy source. At the 
present time, EPA believes the appropriate method for estimating fuel 
economy of PHEVs and EREVs would be a weighted average of fuel economy 
for the two modes of operation. A methodology developed by SAE and DOE 
to predict the fractions of total distance driven in each mode of 
operation (electricity and gas) uses a term known as a utility factor 
(UF). By using a utility factor, it is possible to determine a weighted 
average for fuel economy of the electric and gasoline modes. For 
example, a UF of 0.8 would indicate that a PHEV or EREV operates in an 
all electric mode 80% of the time and uses the gasoline engine the 
other 20% of the time. In this example, the weighted average fuel 
economy value would be influenced more by the electrical operation than 
the gasoline operation.
    Under this approach, a UF could be assigned to each successive fuel 
economy test until the battery charge was depleted and the PHEV or EREV 
needed power from the gasoline engine to propel the vehicle or to 
recharge the battery. One minus the sum of all the utility factors 
would then represent the fraction of driving performed in this 
``gasoline mode.'' Fuel economy could then be expressed as:
[GRAPHIC] [TIFF OMITTED] TP28SE09.021

    Likewise, the electrical consumption would be expressed by adding 
the fuel consumption from each mode. Since there is no electrical 
consumption in hybrid mode, the equation for electricity consumption 
would be as follows:
[GRAPHIC] [TIFF OMITTED] TP28SE09.074

    Utility factors could be cycle specific not only due to different 
battery ranges on different test cycles but also due to the fact that 
``highway'' type driving may imply longer trips than urban driving. 
That is to say that the average city trip could be shorter than the 
average highway trip.
e. Request for Comments
    EPA is interested in comments on both topics raised in this 
section. For the methodology, we are interested in comments addressing 
how the utility factor is calculated and which data should be used in 
establishing the UF. Additionally, commenters should address: The 
appropriateness of this approach for estimating fuel economy for PHEVs 
and EREVs, including the concept of using a UF to determine the fuel 
economy for vehicles operated in multiple modes; the appropriate form 
and value of the factor, including the type of data that would be 
necessary to confidently develop it accurately; and availability of 
other potential methodologies for determining fuel economy for vehicles 
that can operate in multiple modes, such as ``all electric'' and 
``hybrid,'' including the use of fuel consumption, cost, GHG emissions, 
or other metrics in addition to miles per gallon.
    EPA is also requesting comment on how the agency can satisfy 
statutory labeling requirements while providing relevant information to 
consumers. For example, the statute indicates that EPA may provide 
other related items on the label beyond those that are required.\188\ 
EPA is interested in receiving comments on the potential approaches and 
supporting data we might consider for adding additional information 
regarding fuel economics while maintaining our statutory obligation to 
report MPG on the label.
---------------------------------------------------------------------------

    \188\ 49 U.S.C. 3290(b)(F).
---------------------------------------------------------------------------

    There are a number of different metrics that are available that 
could be useful in this regard. Two possible options would be to show 
consumption in fuel use per distance (e.g., gallons/100 miles) or in 
cost per distance (e.g., $/100 miles). As discussed above, these two 
metrics have benefits over a straight mpg value in showing a more 
direct relationship between fuel consumption and cost. The cost/
distance metric has an added potential benefit of providing a common 
basis for comparing differently fueled or powered vehicles, for example 
being able to show the cost of gasoline used over a specified distance 
or time for a conventional gasoline-powered vehicle in comparison to 
the gasoline and electricity used over the same period for a plug-in 
hybrid vehicle. Another approach would be to use a metric that provides 
information about a vehicle's greenhouse gas emissions per unit of 
travel, such as carbon dioxide equivalent grams per mile (g 
CO2e/mi). This type of metric would allow consumers to 
directly compare among vehicles on the basis of their overall 
greenhouse gas impact. A total annual energy cost would be another way 
to look at this information, and is currently used on the fuel economy 
label. As is currently done, EPA would need to determine and show a 
common set of fuel costs used to calculate such values, recognizing 
that energy costs vary across the country.
    The Agency is also interested in comments on the usefulness of 
adding other types of information, such as an estimated driving range 
for electric vehicles. The label design is also an important issue to 
consider and any changes to the existing label would need to show 
information in a technologically accurate, meaningful and 
understandable manner, while ensuring that the label does not become 
overcrowded and difficult for consumers to comprehend. EPA is also 
interested in what and how other information paths, such as web-based 
programs, could be used to enhance the consumer education process.

[[Page 49581]]

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

    This action is an important step towards curbing steady growth of 
GHG emissions from cars and light trucks. In the absence of control, 
GHG emissions worldwide and in the U.S. are projected to continue 
steady growth; Table III.F-1 shows emissions of CO2, 
methane, nitrous oxide and air conditioning refrigerants on a 
CO2-equivalent basis for calendar years 2010, 2020, 2030, 
2040 and 2050. U.S. GHGs are estimated to make up roughly 15 percent of 
total worldwide emissions, and the contribution of direct emissions 
from cars and light trucks to this U.S. share is growing over time, 
reaching an estimated 20 percent of U.S. emissions by 2030 in the 
absence of control. As discussed later in this section, this steady 
rise in GHG emissions is associated with numerous adverse impacts on 
human health, food and agriculture, air quality, and water and forestry 
resources.

                          Table III.F-1--Reference Case GHG Emissions by Calendar Year
                                                   [MMTCO2 Eq]
----------------------------------------------------------------------------------------------------------------
                                                              2010       2020       2030       2040       2050
----------------------------------------------------------------------------------------------------------------
All Sectors (Worldwide) a................................     41,016     48,059     52,870     56,940     60,209
All Sectors (U.S. Only) a................................      7,118      7,390      7,765      8,101      8,379
U.S. Cars/Light Truck Only b.............................      1,359      1,332      1,516      1,828      2,261
----------------------------------------------------------------------------------------------------------------
a ADAGE model projections, U.S. EPA.\189\
b MOVES (2010), OMEGA Model (2020-50) U.S. EPA. See DRIA Chapter 5.3 for modeling details.

    EPA's proposed GHG rule, if finalized, will result in significant 
reductions as newer, cleaner vehicles come into the fleet, and the rule 
is estimated to have a measurable impact on world global temperatures. 
As discussed in Section I, this GHG proposal is part of a joint 
National Program such that a large majority of the projected benefits 
would be achieved jointly with NHTSA's proposed CAFE standards which 
are described in detail in Section IV of this preamble. EPA estimates 
the reductions attributable to the GHG program over time assuming the 
proposed 2016 standards continue indefinitely post-2016,\190\ compared 
to a baseline scenario in which the 2011 model year fuel economy 
standards continue beyond 2011.
---------------------------------------------------------------------------

    \189\ U.S. EPA (2009). ``EPA Analysis of the American Clean 
Energy and Security Act of 2009: H.R. 2454 in the 111th Congress.'' 
U.S. Environmental Protection Agency, Washington, DC, USA. 
(www.epa.gov/climatechange/economics/economicanalyses.html)
    \190\ This analysis does not include the EISA requirement for 35 
MPG through 2020 or California's Pavley 1 GHG standards. The 
proposed standards are intended to supersede these requirements, and 
the baseline case for comparison is the emissions that would result 
without further action above the currently promulgated fuel economy 
standards.
---------------------------------------------------------------------------

    Using this approach, EPA estimates these standards would cut annual 
fleetwide car and light truck tailpipe CO2 emissions 21 
percent by 2030, when 90 percent of car and light truck miles will be 
travelled by vehicles meeting the new standards. Roughly 20 percent of 
these reductions are due to emission reductions from gasoline 
extraction, production and distribution processes as a result of 
reduced gasoline demand associated with this proposal. Some of the 
overall emission reductions also come from projected improvements in 
the efficiency of vehicle air conditioning systems, which will 
substantially reduce direct emissions of HFCs, one of the most potent 
greenhouse gases, as well as indirect emissions of tailpipe 
CO2 emissions attributable to reduced engine load from air 
conditioning. In total, EPA estimates that compared to a baseline of 
indefinite 2011 model year standards, net GHG emission reductions from 
the proposed program would be 325 million metric tons CO2-
equivalent (MMTCO2eq) annually by 2030, which represents a 
reduction of 4 percent of total U.S. GHG emissions and 0.6 percent of 
total worldwide GHG emissions projected in that year. This estimate 
accounts for all upstream fuel production and distribution emission 
reductions, vehicle tailpipe emission reductions including air 
conditioning benefits, as well as increased vehicle miles travelled 
(VMT) due to the ``rebound'' effect discussed in Section III.H. EPA 
estimates this would be the equivalent of removing nearly 60 million 
cars and light trucks from the road in this timeframe.
    EPA projects the total reduction of the program over the full life 
of model year 2012-2016 vehicles is about 950 MMTCO2eq, with 
fuel savings of 76 billion gallons (1.8 billion barrels) of gasoline 
over the life of these vehicles, assuming that some manufacturers take 
advantage of low-cost HFC reduction strategies to help meet these 
proposed standards.
    These reductions are projected to reduce global mean temperature by 
approximately 0.007-0.016[deg]C by 2100, and global mean sea level rise 
is projected to be reduced by approximately 0.06-0.15 cm by 2100.
1. Impact on GHG Emissions
a. Calendar Year Reductions Due to GHG Standards
    This action, if finalized, will reduce GHG emissions emitted 
directly from vehicles due to reduced fuel use and more efficient air 
conditioning systems. In addition to these ``downstream'' emissions, 
reducing CO2 emissions translates directly to reductions in 
the emissions associated with the processes involved in getting 
petroleum to the pump, including the extraction and transportation of 
crude oil, and the production and distribution of finished gasoline 
(termed ``upstream'' emissions). Reductions from tailpipe GHG standards 
grow over time as the fleet turns over to vehicles affected by the 
standards, meaning the benefit of the program will continue as long as 
the oldest vehicles in the fleet are replaced by newer, lower 
CO2 emitting vehicles.
    EPA is not projecting any reductions in tailpipe CH4 or 
N2O emissions as a result of these proposed emission caps, 
which are meant to prevent emission backsliding and to bring diesel 
vehicles equipped with advanced technology aftertreatment into 
alignment with current gasoline vehicle emissions.
    As detailed in the DRIA, EPA estimated calendar year tailpipe 
CO2 reductions based on pre- and post-control CO2 
gram per mile levels from EPA's OMEGA model and assumed to continue 
indefinitely into the future, coupled with VMT projections from 
AEO2009. These estimates reflect the real-world CO2 
emissions reductions projected for the entire U.S. vehicle fleet in a 
specified calendar year, including the projected effect of air 
conditioning credits, TLAASP credits and FFV credits. EPA also 
estimated full lifetime reductions for model years 2012-2016

[[Page 49582]]

using pre- and post-control CO2 levels projected by the 
OMEGA model, coupled with projected vehicle sales and lifetime mileage 
estimates. These estimates reflect the real-world CO2 
emissions reductions projected for model years 2012 through 2016 
vehicles over their entire life.
    This proposal would allow manufacturers to earn credits for 
improved vehicle air conditioning efficiency. Since these improvements 
are relatively low cost, EPA projects that manufacturers will take 
advantage of this flexibility, leading to reductions from emissions 
associated with vehicle air conditioning systems. As explained above, 
these reductions will come from both direct emissions of air 
conditioning refrigerant over the life of the vehicle and tailpipe 
CO2 emissions produced by the increased load of the A/C 
system on the engine. In particular, EPA estimates that direct 
emissions of HFCs, one of the most potent greenhouse gases, would be 
reduced 40 percent from light-duty vehicles when the fleet has turned 
over to more efficient vehicles. The fuel savings derived from lower 
tailpipe CO2 would also lead to reductions in upstream 
emissions. Our estimated reductions from the A/C credits program are 
based on our analysis of how manufacturers are expected to take 
advantage of this credit opportunity in complying with the 
CO2 fleetwide average tailpipe standards.
    Upstream emission reductions associated with the production and 
distribution of fuel were estimated using emission factors from DOE's 
GREET1.8 model, with some modifications as detailed in the DRIA. These 
estimates include both international and domestic emission reductions, 
since reductions in foreign exports of finished gasoline and/or crude 
would make up a significant share of the fuel savings resulting from 
the proposed GHG standards. Thus, significant portions of the upstream 
GHG emission reductions will occur outside of the U.S.; a breakdown of 
projected international versus domestic reductions is included in the 
DRIA.
    Table III.F.1-1 shows reductions estimated from these proposed GHG 
standards assuming a pre-control case of 2011 MY standards continuing 
indefinitely beyond 2011, and a post-control case in which 2016 MY 
standards continue indefinitely beyond 2016. These reductions are 
broken down by upstream and downstream components, including air 
conditioning improvements, and also account for the offset from a 10 
percent VMT ``rebound'' effect as discussed in Section III.H. Including 
the reductions from upstream emissions, total reductions are estimated 
to reach 325 MMTCO2eq annually by 2030 (a 21 percent 
reduction in U.S. car and light truck emissions), and grow to over 500 
MMTCO2eq in 2050 as cleaner vehicles continue to come into 
the fleet (a 23 percent reduction in U.S. car and light truck 
emissions).

                                  Table III.F.1-1--Projected Net GHG Reductions
                                              [MMTCO2 Eq per year]
----------------------------------------------------------------------------------------------------------------
                                                                           Calendar year
                                                 ---------------------------------------------------------------
                                                       2020            2030            2040            2050
----------------------------------------------------------------------------------------------------------------
Net Reduction Due to Tailpipe Standards *.......           165.2           324.6           417.5           518.5
Tailpipe Standards..............................           107.7           211.4           274.1           344.0
A/C--indirect CO2...............................            11.0            21.1            27.3            34.2
A/C--direct HFCs................................            13.5            27.2            32.1            34.9
Upstream........................................            33.1            64.9            84.1           105.5
Percent reduction relative to U.S. reference               12.4%           21.4%           22.8%           22.9%
 (cars + light trucks)..........................
Percent reduction relative to U.S. reference                2.2%            4.2%            5.2%            6.2%
 (all sectors)..................................
Percent reduction relative to worldwide                     0.3%            0.6%            0.7%            0.9%
 reference......................................
----------------------------------------------------------------------------------------------------------------
* Includes impacts of 10% VMT rebound rate presented in Table III.F.1-3.

b. Lifetime Reductions for 2012-2016 Model Years
    EPA also analyzed the emission reductions over the full life of the 
2012-2016 model year cars and trucks affected by this proposal.\191\ 
These results, including both upstream and downstream GHG 
contributions, are presented in Table III.F.1-2, showing lifetime 
reductions of nearly 950 MMTCO2eq, with fuel savings of 76 
billion gallons (1.8 billion barrels) of gasoline.
---------------------------------------------------------------------------

    \191\ As detailed in the DRIA, for this analysis the full life 
of the vehicle is represented by average lifetime mileages for cars 
(190,000 miles) and trucks (221,000 miles) averaged over calendar 
years 2012 through 2030, a function of how far vehicles drive per 
year and scrappage rates.

              Table III.F.1-2--Projected Net GHG Reductions
                          [MMTCO2 Eq per year]
------------------------------------------------------------------------
                                        Lifetime GHG      Lifetime fuel
             Model year                reduction (MMT   savings (billion
                                           CO2 EQ)          gallons)
------------------------------------------------------------------------
2012................................              81.4               6.6
2013................................             125.0              10.0
2014................................             174.1              13.9
2015................................             243.2              19.5
2016................................             323.6              26.3
                                     -----------------------------------
    Total Program Benefit...........             947.4              76.2
------------------------------------------------------------------------


[[Page 49583]]

c. Impacts of VMT Rebound Effect
    As noted above and discussed more fully in Section III.H., the 
effect of fuel cost on VMT (``rebound'') was accounted for in our 
assessment of economic and environmental impacts of this proposed rule. 
A 10 percent rebound case was used for this analysis, meaning that VMT 
for affected model years is modeled as increasing by 10 percent as much 
as the increase in fuel economy; i.e., a 10 percent increase in fuel 
economy would yield a 1.0 percent increase in VMT. Results are shown in 
Table III.F.1-3; using the 10 percent rebound rate results in an 
overall emission increase of 26.4 MMTCO2eq annually in 2030 
(this increase is accounted for in the reductions presented in Tables 
III.F.1-1 and III.F.1-2). Our estimated changes in CH4 or 
N2O emissions as a result of these proposed vehicle GHG 
standards are attributed solely to this rebound effect.
    As discussed in Section III.H, EPA will be reassessing the 
appropriate rate of VMT rebound for the final rule. Although EPA has 
not directly quantified the GHG emissions effect of using a lower 
rebound rate for this analysis, lowering the rebound rate would reduce 
the emission increases in Tables III.F.1-1 and III.F.1-2 in proportion 
(i.e., zero rebound equals zero emissions effect), and, thus, would 
increase our estimates of emission reductions due to these proposed 
standards.

                                Table III.F.1-3--GHG Impact of 10% VMT Rebound a
                                              [MMTCO2 Eq per year]
----------------------------------------------------------------------------------------------------------------
                                                       2020            2030            2040            2050
----------------------------------------------------------------------------------------------------------------
Total GHG Increase..............................          13.6            26.4            34.2            42.9
Tailpipe & Indirect A/C CO2.....................          10.6            20.6            26.6            33.4
Upstream GHGs b.................................           2.95            5.74            7.43            9.32
Tailpipe N2O....................................           0.040           0.085           0.113           0.142
Tailpipe CH4....................................           0.008           0.016           0.021           0.027
----------------------------------------------------------------------------------------------------------------
a These impacts are included in the reductions shown in Table III.F.1-1 and III.F.1-2.
b Upstream rebound impact calculated as upstream total CO2 effect times ratio of downstream tailpipe rebound CO2
  effect to downstream tailpipe total CO2 effect.

d. Analysis of Alternatives
    EPA analyzed two alternative scenarios, including 4% and 6% annual 
increases in 2 cycle (CAFE) fuel economy. In addition to this annual 
increase, EPA assumed that manufacturers would use air conditioning 
improvements in identical penetrations as in the primary scenario. 
Under these assumptions, EPA expects achieved fleetwide average 
emission levels of 254 g/mile CO2 EQ (4%), and 230 g/mile 
CO2 EQ (6%) in 2016.
    As in the primary scenario, EPA assumed that the fleet complied 
with the standards. For full details on modeling assumptions, please 
refer to DRIA Chapter 5.

                         Table III.F.1-4--Calendar Year Impacts of Alternative Scenarios
----------------------------------------------------------------------------------------------------------------
                                                  Calendar year
-----------------------------------------------------------------------------------------------------------------
                                             Scenario           CY 2020      CY 2030      CY 2040      CY 2050
----------------------------------------------------------------------------------------------------------------
Total GHG Reductions (MMT CO2EQ)....  Primary...............        165.2        324.6        417.5        518.5
                                      4%....................        152.8        305.9        394.1        489.3
                                      6%....................        215.2        426.2        549.3        683.9
Fuel Savings (Billion Gallons         Primary...............         13.4         26.2         33.9         42.6
 Gasoline Equivalent).
                                      4%....................         12.2         24.5         31.8         39.9
                                      6%....................         17.8         35.1         45.5         57.1
----------------------------------------------------------------------------------------------------------------


                                              Table III.F.1-5--Model Year Impacts of Alternative Scenarios
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Model year lifetime
---------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Scenario              MY 2012      MY 2013      MY 2014      MY 2015      MY 2016       Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total GHG Reductions (MMT CO2EQ)...........  Primary......................         81.4        125.0        174.1        243.2        323.6        947.4
                                             4%...........................         41.8         93.5        160.8        231.0        305.2        832.3
                                             6%...........................         60.2        146.4        239.9        333.3        424.9      1,204.7
Fuel Savings (Billion Gallons Gasoline       Primary......................          6.6         10.0         13.9         19.5         26.3         76.2
 Equivalent).
                                             4%...........................          3.1          7.2         12.7         18.4         24.7         66.1
                                             6%...........................          4.7         11.9         19.7         27.4         35.2         99.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. Overview of Climate Change Impacts From GHG Emissions
    Once emitted, greenhouse gases (GHG) that are the subject of this 
regulation can remain in the atmosphere for decades to centuries, 
meaning that (1) their concentrations become well-mixed throughout the 
global atmosphere regardless of emission origin, and (2) their effects 
on climate are long lasting. Greenhouse gas emissions come mainly from 
the combustion of fossil fuels (coal, oil, and gas), with additional 
contributions from the clearing of

[[Page 49584]]

forests and agricultural activities. The transportation sector accounts 
for a portion, 28%, of US GHG emissions.\192\
---------------------------------------------------------------------------

    \192\ U.S. EPA (2008) Inventory of U.S. Greenhouse Gas Emissions 
and Sinks: 1990-2006. EPA-430-R-08-005, Washington, DC. http://www.epa.gov/climatechange/emissions/usgginv_archive.html.
---------------------------------------------------------------------------

    This section provides a broad overview of some of the impacts of 
GHG emissions. The best sources of information include the major 
assessment reports of both the Intergovernmental Panel on Climate 
Change (IPCC) and the U.S. Global Change Research Program (USGCRP, 
formerly referred to as the U.S. Climate Change Science Program). The 
IPCC and USGCRP assessments base their findings on the large body of 
individual, peer- reviewed studies in the literature, and then the IPCC 
and USGCRP assessments themselves go through a transparent peer-
reviewed process. The USGCRP reports, where possible, are specific to 
impacts in the U.S. and therefore represent the best available 
syntheses of relevant impacts.
    Most recently, the USGCRP released a report entitled ``Global 
Climate Change Impacts in the United States''.\193\ The report 
summarizes the science and the impacts of climate change on the United 
States, now and in the future. It focuses on climate change impacts in 
different regions of the U.S. and on various aspects of society and the 
economy such as energy, water, agriculture, and human health. It's also 
a report written in plain language, with the goal of better informing 
public and private decision making at all levels. The foundation of 
this report is a set of 21 Synthesis and Assessment Products (SAPs), 
which were designed to address key policy-relevant issues in climate 
science. The report was extensively reviewed and revised based on 
comments from experts and the public. The report was approved by its 
lead USGCRP Agency, the National Oceanic and Atmospheric 
Administration, the other USGCRP agencies, and the Committee on the 
Environment and Natural Resources on behalf of the National Science and 
Technology Council. This report meets all Federal requirements 
associated with the Information Quality Act, including those pertaining 
to public comment and transparency. Readers are encouraged to review 
this report.
---------------------------------------------------------------------------

    \193\ Global Climate Change Impacts in the United States, Thomas 
R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge 
University Press, 2009. http://www.globalchange.gov/publications/reports/scientific-assessments/us-impacts.
---------------------------------------------------------------------------

    The source document for the section below is the draft endangerment 
Technical Support Document (TSD). In EPA's Proposed Endangerment and 
Cause or Contribute Findings Under the Clean Air Act,\194\ EPA provides 
a summary of the USGCRP and IPCC reports in a draft TSD. The draft TSD 
reviews observed and projected changes in climate based on current and 
projected atmospheric GHG concentrations and emissions, as well as the 
related impacts and risks from climate change that are projected in the 
absence of GHG mitigation actions, including this proposal and other 
U.S. and global actions. The TSD serves as an important support 
document to EPA's proposed Endangerment Finding; however, the document 
is a draft and is still undergoing comment and review as part of EPA's 
rulemaking process, and is subject to change based upon comments to the 
final endangerment finding.
---------------------------------------------------------------------------

    \194\ See Federal Register/Vol. 74, No. 78/Friday, April 24, 
2009/Proposed Rules; also Docket Number EPA-HQ-OAR-2009-0171; FRL-
8895-5.
---------------------------------------------------------------------------

a. Changes in Atmospheric Concentrations of GHGs From Global and U.S. 
Emissions
    Concentrations of six key GHGs (carbon dioxide, methane, nitrous 
oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride) 
are at unprecedented levels compared to the recent and distant past. 
The global atmospheric CO2 concentration has increased about 
38% from pre-industrial levels to 2009, and almost all of the increase 
is due to anthropogenic emissions.
    Based on data from the most recent Inventory of U.S. Greenhouse Gas 
Emissions and Sinks (2008),\195\ total U.S. GHG emissions increased by 
905.9 teragrams of CO2-equivalent (Tg CO2 Eq), or 
14.7%, between 1990 and 2006. U.S. transportation sources subject to 
control under section 202(a) of the Clean Air Act (passenger cars, 
light duty trucks, other trucks and buses, motorcycles, and cooling 
\196\) emitted 1665 Tg CO2 Eq in 2006, representing almost 
24% of the total U.S. GHG emissions. Total global emissions, calculated 
by summing emissions of the six greenhouse gases by country, for 2005 
was 38,725.9 Tg CO2 Eq. This represents an increase of 26% 
from the 1990 level. See the EPA report ``Inventory of U.S. Greenhouse 
Gas Emissions and Sinks: 1990-2006'',\197\ Section 2 of the proposed 
Endangerment TSD, and IPCC's Working Group I (WGI) Fourth Assessment 
Report (AR4) \198\ for a more complete discussion of GHG emissions and 
concentrations.
---------------------------------------------------------------------------

    \195\ U.S. EPA (2008) Inventory of U.S. Greenhouse Gas Emissions 
and Sinks: 1990-2006. EPA-430-R-08-005, Washington, DC.
    \196\ Cooling refers to refrigerants/air conditioning from all 
transportation sources and is related to HFCs.
    \197\ U.S. EPA (2008) Inventory of U.S. Greenhouse Gas Emissions 
and Sinks: 1990-2006. EPA-430-R-08-005, Washington, DC. http://www.epa.gov/climatechange/emissions/usgginv_archive.html.
    \198\ Climate Change 2007: The Physical Science Basis. 
Contribution of Working Group I to the Fourth Assessment Report of 
the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, 
M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. 
Miller (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
---------------------------------------------------------------------------

b. Observed Changes in Climate
i. Temperature
    The warming of the climate system is unequivocal, as is now evident 
from observations of increases in global air and ocean temperatures, 
widespread melting of snow and ice, and rising global average sea 
level. The global average net effect of the increase in atmospheric GHG 
concentrations, plus other human activities (e.g., land use change and 
aerosol emissions), on the global energy balance since 1750 has been 
one of warming. The global mean surface temperature \199\ over the last 
100 years (1906-2005) has risen by about 0.74 [deg]C (1.5 [deg]F) +/- 
0.18 [deg]C, and climate model simulations suggest that natural 
variation alone (e.g., changes in solar irradiance) cannot explain the 
observed warming. The rate of warming over the last 50 years is almost 
double that over the last 100 years. Most of the observed increase in 
global mean surface temperature since the mid-20th century is very 
likely due to the observed increase in anthropogenic GHG 
concentrations.
---------------------------------------------------------------------------

    \199\ Surface temperature is calculated by processing data from 
thousands of world-wide observation sites on land and sea.
---------------------------------------------------------------------------

    It can be stated with confidence that global mean surface 
temperature was higher during the last few decades of the 20th century 
than during any comparable period during the preceding four centuries. 
Like global mean surface temperatures, U.S. surface temperatures also 
warmed during the 20th and into the 21st century. U.S. average annual 
temperatures are now approximately 0.69[deg]C (1.25[deg]F) warmer than 
at the start of the 20th century, with an increased rate of warming 
over the past 30 years. Temperatures in winter have risen more than any 
other season, with winters in the Midwest and northern Great Plains 
increasing more than 7 [deg]F.\200\ Some of these changes have been 
faster than previous assessments had suggested.
---------------------------------------------------------------------------

    \200\ Global Climate Change Impacts in the United States, Thomas 
R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.) Cambridge 
University Press, 2009.
---------------------------------------------------------------------------

    For additional information, please see Section 4 of the proposed 
Endangerment

[[Page 49585]]

TSD, IPCC WGI AR4,\201\ and the report ``Global Climate Change Impacts 
in the United States''.\202\
---------------------------------------------------------------------------

    \201\ Climate Change 2007: The Physical Science Basis. 
Contribution of Working Group I to the Fourth Assessment Report of 
the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, 
M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. 
Miller (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
    \202\ Global Climate Change Impacts in the United States, Thomas 
R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge 
University Press, 2009. http://www.globalchange.gov/publications/reports/scientific-assessments/us-impacts.
---------------------------------------------------------------------------

ii. Precipitation
    Observations show that changes are occurring in the amount, 
intensity, frequency and type of precipitation. Global, long-term 
trends from 1900 to 2005 have been observed in the amount of 
precipitation over many large regions. Patterns in precipitation change 
are more spatially and seasonally variable than temperature change, but 
where significant precipitation changes do occur they are consistent 
with measured changes in stream flow. Significantly increased 
precipitation has been observed in eastern parts of North and South 
America, northern Europe and northern and central Asia.\200\ More 
intense and longer droughts have been observed over wider areas since 
the 1970s, particularly in the tropics and subtropics. It is likely 
there has been an increase in heavy precipitation events (e.g., 95th 
percentile) within many land regions, even in those where there has 
been a reduction in total precipitation amount, consistent with a 
warming climate and observed significant increasing amounts of water 
vapor in the atmosphere. Rising temperatures have generally resulted in 
rain rather than snow in locations and seasons such as in northern and 
mountainous regions where the average (1961-1990) temperatures were 
close to 0 [deg]C. Over the contiguous U.S., total annual precipitation 
increased at an average rate of 6.5% from 1901-2006, with the greatest 
increases in precipitation in the East and North Central climate 
regions (11.2% per century).
    For additional information, please see Section 4 of the proposed 
Endangerment TSD, IPCC WGI AR4,\203\ and the USGCRP report ``Global 
Climate Change Impacts in the United States''.\204\
---------------------------------------------------------------------------

    \203\ Climate Change 2007: The Physical Science Basis. 
Contribution of Working Group I to the Fourth Assessment Report of 
the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, 
M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. 
Miller (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
    \204\ Global Climate Change Impacts in the United States, Thomas 
R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge 
University Press, 2009. http://www.globalchange.gov/publications/reports/scientific-assessments/us-impacts.
---------------------------------------------------------------------------

iii. Extreme Events
    Changes in climate extremes have been observed related to 
temperature, precipitation, tropical cyclones, and sea level. In the 
last 50 years, there have been widespread changes in extreme 
temperatures observed across the globe. For example, cold days, cold 
nights, and frost have become less frequent, while hot days, hot 
nights, and heat waves have become more frequent. Globally, a reduction 
in the number of daily cold extremes has been observed in 70 to 75% of 
the land regions where data is available. Cold nights (lowest or 
coldest 10% of nights, based on the period 1961-1990) have become rarer 
over the last 50 years.
    Observational evidence indicates an increase in intense tropical 
cyclone (i.e., tropical storms and/or hurricanes) activity in the North 
Atlantic. Since about 1970, increases in cyclone developments that 
affect the U.S. East and Gulf Coasts have been correlated with 
increases of tropical sea surface temperatures In the contiguous U.S., 
studies find statistically significant increases in heavy precipitation 
(the heaviest 5%) and very heavy precipitation (the heaviest 1%) of 14 
and 20%, respectively. Much of this increase occurred during the last 
three decades of the 20th century and is most apparent over the eastern 
parts of the country. Trends in drought also have strong regional 
variations. In much of the Southeast and large parts of the western 
U.S., the frequency of drought has increased coincident with rising 
temperatures over the past 50 years. Although there has been an overall 
increase in precipitation and no clear trend in drought for the nation 
as a whole, increasing temperatures have made droughts more severe and 
widespread than they would have otherwise been.
    For additional information, please see Section 4 of the proposed 
Endangerment TSD, the CCSP report ``Weather and Climate Extremes in a 
Changing Climate. Regions of Focus: North America, Hawaii, Caribbean, 
and U.S. Pacific Islands'',\205\ IPCC WGI AR4,\206\ and the report 
``Global Climate Change Impacts in the United States''.\207\
---------------------------------------------------------------------------

    \205\ Weather and Climate Extremes in a Changing Climate. 
Regions of Focus: North America, Hawaii, Caribbean, and U.S. Pacific 
Islands. A Report by the U.S. Climate Change Science Program and the 
Subcommittee on Global Change Research. [Thomas R. Karl, Gerald A. 
Meehl, Christopher D. Miller, Susan J. Hassol, Anne M. Waple, and 
William L. Murray (eds.)]. Department of Commerce, NOAA's National 
Climatic Data Center, Washington, D.C., USA, 164 pp.
    \206\ Climate Change 2007: The Physical Science Basis. 
Contribution of Working Group I to the Fourth Assessment Report of 
the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, 
M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. 
Miller (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
    \207\ Global Climate Change Impacts in the United States, Thomas 
R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge 
University Press, 2009. http://www.globalchange.gov/publications/reports/scientific-assessments/us-impacts.
---------------------------------------------------------------------------

iv. Physical and Biological Changes
    Observations show that climate change is currently affecting U.S. 
physical and biological systems in significant ways. Observations of 
the cryosphere (the ``frozen'' component of the climate system) have 
revealed changes in sea ice, glaciers and snow cover, freezing and 
thawing, and permafrost. Satellite data since 1978 show that annual 
average Arctic sea ice extent has shrunk by 2.7% (+/- 0.6%) per decade, 
with larger decreases in summer. Subtropical and tropical corals in 
shallow waters have already suffered major bleaching events that are 
primarily driven by increases in sea surface temperatures. Heat stress 
from warmer ocean water can cause corals to expel the microscopic algae 
that live inside them which are essential to their survival. Another 
stressor on coral populations is ocean acidification which occurs as 
CO2 is absorbed from the atmosphere by the oceans. About 
one-third of the carbon dioxide emitted by human activities has been 
absorbed by the ocean, resulting in a decrease in the ocean's pH. A 
lower pH affects the ability of living things to create and maintain 
shells or skeletons of calcium carbonate. Other documented bio-physical 
impacts include a significant lengthening of the growing season and 
increase in net primary productivity \208\ in higher latitudes of North 
America. Over the last 19 years, global satellite data indicate an 
earlier onset of spring across the temperate latitudes by 10 to 14 
days.
---------------------------------------------------------------------------

    \208\ Net primary productivity is the rate at which an ecosystem 
accumulates energy or biomass, excluding the energy it uses for the 
process of respiration.

---------------------------------------------------------------------------

[[Page 49586]]

    For additional information, please see Section 4 of the proposed 
Endangerment TSD and IPCC WGI AR4.\209\
---------------------------------------------------------------------------

    \209\ IPCC (2007a) Climate Change 2007: The Physical Science 
Basis. Contribution of Working Group I to the Fourth Assessment 
Report of the Intergovernmental Panel on Climate Change [Solomon, 
S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor 
and H.L. Miller (eds.)]. Cambridge University Press, Cambridge, 
United Kingdom and New York, NY, USA.
---------------------------------------------------------------------------

c. Projected Changes in Climate
    Most future scenarios that assume no explicit GHG mitigation 
actions (beyond those already enacted) project increasing global GHG 
emissions over the century, with corresponding climbing GHG 
concentrations. Carbon dioxide is expected to remain the dominant 
anthropogenic GHG over the course of the 21st century. The radiative 
forcing \210\ associated with the non-CO2 GHGs is still 
significant and increasing over time. As a result, warming over this 
century is projected to be considerably greater than over the last 
century and climate related changes are expected to continue while new 
ones develop. Described below are projected changes in climate for the 
U.S.
---------------------------------------------------------------------------

    \210\ Radiative forcing is a measure of the change that a factor 
causes in altering the balance of incoming (solar) and outgoing 
(infrared and reflected shortwave) energy in the Earth-atmosphere 
system and thus shows the relative importance of different factors 
in terms of their contribution to climate change.
---------------------------------------------------------------------------

    See Section 6 of the proposed Endangerment TSD, IPCC WGI AR4,\211\ 
the USGCRP report ``Global Climate Change Impacts in the United 
States'',\212\ and the CCSP report ``Weather and Climate Extremes in a 
Changing Climate, Regions of Focus: North America, Hawaii, Caribbean, 
and U.S. Pacific Islands'' \213\ for a more complete discussion of 
projected changes in climate.
---------------------------------------------------------------------------

    \211\ Climate Change 2007: The Physical Science Basis. 
Contribution of Working Group I to the Fourth Assessment Report of 
the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, 
M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. 
Miller (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
    \212\ Global Climate Change Impacts in the United States, Thomas 
R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge 
University Press, 2009. http://www.globalchange.gov/publications/reports/scientific-assessments/us-impacts.
    \213\ Weather and Climate Extremes in a Changing Climate. 
Regions of Focus: North America, Hawaii, Caribbean, and U.S. Pacific 
Islands. A Report by the U.S. Climate Change Science Program and the 
Subcommittee on Global Change Research. [Thomas R. Karl, Gerald A. 
Meehl, Christopher D. Miller, Susan J. Hassol, Anne M. Waple, and 
William L. Murray (eds.)]. Department of Commerce, NOAA's National 
Climatic Data Center, Washington, DC, USA, 164 pp.
---------------------------------------------------------------------------

i. Temperature
    Future warming over the course of the 21st century, even under 
scenarios of low emissions growth, is very likely to be greater than 
observed warming over the past century. The range of IPCC SRES 
scenarios provides a global warming range of 1.8 [deg]C to 4.0 [deg]C 
(3.2 [deg]F to 7.2 [deg]F) with an uncertainty range of 1.1 [deg]C to 
6.4 [deg]C (2.0 [deg]F to 11.5 [deg]F). All of the U.S. is very likely 
to warm during this century, and most areas of the U.S. are expected to 
warm by more than the global average. The average warming in the U.S. 
through 2100 is projected by nearly all the models used in the IPCC 
assessment to exceed 2 [deg]C (3.6 [deg]F) for all scenarios, with 5 
out of 21 models projecting average warming in excess of 4 [deg]C (7.2 
[deg]F) for the mid-range emissions scenario. The number of days with 
high temperatures above 90 [deg]F is projected to increase throughout 
the U.S. Temperature increases in the next couple of decades will be 
primarily determined by past emissions of heat-trapping gases. As a 
result, there is less difference in projected temperature scenarios in 
the near-term (around 2020) than in the middle (2050) and end of the 
century, which will be determined more by future emissions.
ii. Precipitation
    Increases in the amount of precipitation are very likely in higher 
latitudes, while decreases are likely in most subtropical latitudes and 
the southwestern U.S., continuing observed patterns. The mid-
continental area is expected to experience drying during the summer, 
indicating a greater risk of drought. Climate models project continued 
increases in the heaviest downpours during this century, while the 
lightest precipitation is projected to decrease. With more intense 
precipitation expected to increase, the risk of flooding and greater 
runoff and erosion will also increase. In contrast, droughts are likely 
to become more frequent and severe in some regions. The Southwest, in 
particular, is expected to experience increasing drought as changes in 
atmospheric circulation patterns cause the dry zone just outside the 
tropics to expand farther northward into the United States.
iii. Extreme Events
    It is likely that hurricanes will become more intense, especially 
along the Gulf and Atlantic coasts, with stronger peak winds and more 
heavy precipitation associated with ongoing increases of tropical sea 
surface temperatures. Heavy rainfall events are expected to increase, 
increasing the risk of flooding, greater runoff and erosion, and thus 
the potential for adverse water quality effects. These projected trends 
can increase the number of people at risk from suffering disease and 
injury due to floods, storms, droughts, and fires. Severe heat waves 
are projected to intensify, which can increase heat-related mortality 
and sickness.
iv. Physical and Biological Changes
    IPCC projects a six-inch to two-foot rise in sea level during the 
21st century from processes such as thermal expansion of sea water and 
the melting of land-based polar ice sheets. Ocean acidification is 
projected to continue, resulting in the reduced biological production 
of marine calcifiers, including corals. In addition to ocean 
acidification, coastal waters are very likely to continue to warm by as 
much as 4 to 8 [deg]F in this century, both in summer and winter. This 
will result in a northward shift in the geographic distribution of 
marine life along the coasts. Warmer ocean temperatures will also 
contribute to increased coral bleaching.
d. Key Climate Change Impacts and Risks
    The effects of climate changes observed to date and/or projected to 
occur in the future include: More frequent and intense heat waves, more 
wildfires, degraded air quality, more heavy downpours and flooding, 
increased drought, greater sea level rise, more intense storms, water 
quantity and quality problems, and negative impacts to human health, 
water supply, agriculture, forestry, coastal areas, wildlife and 
ecosystems, and many other aspects of society and the natural 
environment.
i. Human Health
    Warm temperatures and extreme weather already cause and contribute 
to adverse human health outcomes through heat-related mortality and 
morbidity, storm-related fatalities and injuries, and disease. In the 
absence of effective adaptation, these effects are likely to increase 
with climate change. Health effects related to climate change include 
increased deaths, injuries, infectious diseases, and stress-related 
disorders and other adverse effects associated with social disruption 
and migration from more frequent extreme weather. Severe heat waves are 
projected to intensify in magnitude and duration over the portions of 
the U.S. where these events already occur, with potential increases in 
mortality and morbidity, especially among the elderly, young and other 
sensitive populations.

[[Page 49587]]

However, reduced human mortality from cold exposure is projected 
through 2100. It is not clear whether reduced mortality from cold will 
be greater or less than increased heat-related mortality, especially 
among the elderly, young and frail. Public health effects from climate 
change will likely disproportionately impact the health of certain 
segments of the population, such as the poor, the very young, the 
elderly, those already in poor health, the disabled, those living alone 
and/or indigenous populations dependent on one or a few resources. 
Increases are expected in potential ranges and exposure of certain 
diseases affected by temperature and precipitation changes, including 
vector and waterborne diseases (i.e., malaria, dengue fever, West Nile 
virus). See the CCSP Report ``Analyses of the effects of global change 
on human health and welfare and human systems'',\214\ IPCC's Working 
Group II (WG2) AR4,\215\ and Section 7 of the proposed Endangerment TSD 
for a more complete discussion regarding climate change and impacts on 
human health.
---------------------------------------------------------------------------

    \214\ Analyses of the effects of global change on human health 
and welfare and human systems. A Report by the U.S. Climate Change 
Science Program and the Subcommittee on Global Change Research. 
[Gamble, J.L. (ed.), K.L. Ebi, F.G. Sussman, T.J. Wilbanks, 
(Authors)]. U.S. Environmental Protection Agency, Washington, DC, 
USA.
    \215\ Climate Change 2007: Impacts, Adaptation and 
Vulnerability. Contribution of Working Group II to the Fourth 
Assessment Report of the Intergovernmental Panel on Climate Change 
[M.L. Parry, O.F. Canziani, J.P. Palutikof, P.J. van der Linden and 
C.E. Hanson (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
---------------------------------------------------------------------------

ii. Air Quality
    Climate change can be expected to influence the concentration and 
distribution of air pollutants through a variety of direct and indirect 
processes, including the modification of biogenic emissions, the change 
of chemical reaction rates, wash-out of pollutants by precipitation, 
and modification of weather patterns that influence pollutant build-up. 
Higher temperatures and weaker circulation patterns associated with 
climate change are expected to worsen regional ozone pollution in the 
U.S., with associated risks in respiratory infection, aggravation of 
asthma, and premature death. In addition to human health effects, 
elevated levels of tropospheric ozone have significant adverse effects 
on crop yields, pasture and forest growth, and species composition. See 
Section 8 of the proposed Endangerment TSD, EPA's report ``Assessment 
of the Impacts of Global Change on Regional U.S. Air Quality: A 
Synthesis of Climate Change Impacts on Ground-Level Ozone'', \216\ the 
CCSP report ``Analyses of the effects of global change on human health 
and welfare and human systems'' \217\ and IPCC WGII AR4 \218\ for a 
more complete discussion regarding human health impacts resulting from 
climate change effects on air quality.
---------------------------------------------------------------------------

    \216\ EPA (2009) Assessment of the Impacts of Global Change on 
Regional U.S. Air Quality: A Synthesis of Climate Change Impacts on 
Ground-Level Ozone. An Interim Report of the U.S. EPA Global Change 
Research Program. U.S. Environmental Protection Agency, Washington, 
DC, EPA/600/R-07/094.
    \217\ Analyses of the effects of global change on human health 
and welfare and human systems. A Report by the U.S. Climate Change 
Science Program and the Subcommittee on Global Change Research. 
[Gamble, J.L. (ed.), K.L. Ebi, F.G. Sussman, T.J. Wilbanks, 
(Authors)]. U.S. Environmental Protection Agency, Washington, DC, 
USA.
    \218\ Climate Change 2007: Impacts, Adaptation and 
Vulnerability. Contribution of Working Group II to the Fourth 
Assessment Report of the Intergovernmental Panel on Climate Change 
[M.L. Parry, O.F. Canziani, J.P. Palutikof, P.J. van der Linden and 
C.E. Hanson (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
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iii. Food and Agriculture
    The CCSP concluded that, with increased CO2 and 
temperature, the life cycle of grain and oilseed crops will likely 
progress more rapidly. But, as temperature rises, these crops will 
increasingly begin to experience failure, especially if climate 
variability increases and precipitation lessens or becomes more 
variable. Furthermore, the marketable yield of many horticultural crops 
(e.g., tomatoes, onions, fruits) is very likely to be more sensitive to 
climate change than grain and oilseed crops. Higher temperatures will 
very likely reduce livestock production during the summer season, but 
these losses will very likely be partially offset by warmer 
temperatures during the winter season. Cold water fisheries will likely 
be negatively affected; warm-water fisheries will generally benefit; 
and the results for cool-water fisheries will be mixed, with gains in 
the northern and losses in the southern portions of ranges. See Section 
9 of the proposed Endangerment TSD, the CCSP report ``The Effects of 
Climate Change on Agriculture, Land Resources, Water Resources, and 
Biodiversity in the United States'', and the USGCRP report ``Global 
Climate Change Impacts in the United States'' for a more complete 
discussion regarding climate science and impacts to food production and 
agriculture.
iv. Forestry
    Climate change has very likely increased the size and number of 
forest fires, insect outbreaks, and tree mortality in the interior 
west, the Southwest, and Alaska, and will continue to do so. 
Disturbances like wildfire and insect outbreaks are increasing and are 
likely to intensify in a warmer future with drier soils and longer 
growing seasons. Although recent climate trends have increased 
vegetation growth, continuing increases in disturbances are likely to 
limit carbon storage, facilitate invasive species, and disrupt 
ecosystem services. Overall forest growth for North America as a whole 
will likely increase modestly (10-20%) as a result of extended growing 
seasons and elevated CO2 over the next century, but with 
important spatial and temporal variation. Forest growth is slowing in 
areas subject to drought and has been subject to significant loss due 
insect infestations such as the spruce bark beetle in Alaska. See 
Section 10 of the proposed Endangerment TSD, the CCSP report ``The 
Effects of Climate Change on Agriculture, Land Resources, Water 
Resources, and Biodiversity in the United States'', IPCC WGII, and the 
USGCRP report ``Global Climate Change Impacts in the United States'' 
for a more complete discussion regarding climate science and impacts to 
forestry.
v. Water Resources
    The vulnerability of freshwater resources in the United States to 
climate change varies from region to region. Climate change will likely 
further constrain already over-allocated water resources in some 
sections of the U.S., increasing competition among agricultural, 
municipal, industrial, and ecological uses. Although water management 
practices in the U.S. are generally advanced, particularly in the 
western U.S climate change may increasingly create conditions well 
outside of historic observations impacting managed water systems. 
Rising temperatures will diminish snowpack and increase evaporation, 
affecting seasonal availability of water. Groundwater systems generally 
respond more slowly to climate change than surface water systems. In 
semi-arid and arid areas, groundwater resources are particularly 
vulnerable because of precipitation and stream flow are concentrated 
over a few months, year-to-year variability is high, and deep 
groundwater wells or reservoirs generally do not exist. Availability of 
groundwater is likely to be influenced by changes in withdrawals 
(reflecting development, demand, and availability of other sources).
    In the Great Lakes and major river systems, lower levels are likely 
to exacerbate challenges relating to water quality, navigation, 
recreation,

[[Page 49588]]

hydropower generation, water transfers, and bi-national relationships. 
Decreased water supply and lower water levels are likely to exacerbate 
challenges relating to aquatic navigation. Higher water temperatures, 
increased precipitation intensity, and longer periods of low flows will 
exacerbate many forms of water pollution, potentially making attainment 
of water quality goals more difficult. As waters become warmer, the 
aquatic life they now support will be replaced by other species better 
adapted to warmer water. In the long-term, warmer water and changing 
flow may result in deterioration of aquatic ecosystems. See Section 11 
of the proposed Endangerment TSD, the CCSP report ``The Effects of 
Climate Change on Agriculture, Land Resources, Water Resources, and 
Biodiversity in the United States'', IPCC WGII, and the USGCRP report 
``Global Change Impacts in the United States'' for a more complete 
discussion regarding climate science and impacts to water resources.
vi. Sea Level Rise and Coastal Areas
    Warmer temperatures raise sea level by expanding ocean water, 
melting glaciers, and possibly increasing the rate at which ice sheets 
discharge ice and water into the oceans. Rising sea level and the 
potential for stronger storms pose an increasing threat to coastal 
cities, residential communities, infrastructure, beaches, wetlands, and 
ecosystems. Coastal communities and habitats will be increasingly 
stressed by climate change effects interacting with development and 
pollution. Sea level is rising along much of the U.S. coast, and the 
rate of change will increase in the future, exacerbating the impacts of 
progressive inundation, storm-surge flooding, and shoreline erosion. 
Studies find 75% of the shoreline removed from the influence of spits, 
tidal inlets and engineering structures is eroding along the U.S. East 
Coast probably due to sea level rise. Storm impacts are likely to be 
more severe, especially along the Gulf and Atlantic coasts. Salt 
marshes, estuaries, other coastal habitats, and dependent species will 
be further threatened by sea level rise. The interaction with coastal 
zone development and climate change effects such as sea level rise will 
further stress coastal communities and habitats. Population growth and 
rising value of infrastructure in coastal areas increases vulnerability 
and risk of climate variability and future climate change. Sea level 
rise and high rates of water withdrawal promote the intrusion of saline 
water in to groundwater supplies, which adversely affects water 
quality. See Section 12 of the proposed Endangerment TSD, the CCSP 
report ``Coastal Sensitivity to Sea Level Rise: A Focus on the Mid-
Atlantic Region'',\219\ the USGCRP report ``Global Change Impacts in 
the United States'', and IPCC WGII for a more complete discussion 
regarding climate science and impacts to sea level rise and coastal 
areas.
---------------------------------------------------------------------------

    \219\ CCSP (2009) Coastal Sensitivity to Sea-Level Rise: A Focus 
on the Mid-Atlantic Region. A report by the U.S. Climate Change 
Science Program and the Subcommittee on Global Change Research. 
[James G. Titus (Coordinating Lead Author), K. Eric Anderson, Donald 
R. Cahoon, Dean B. Gesch, Stephen K. Gill, Benjamin T. Gutierrez, E. 
Robert Thieler, and S. Jeffress Williams (Lead Authors)], U.S. 
Environmental Protection Agency, Washington DC, USA, 320 pp.
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vii. Energy, Infrastructure and Settlements
    Most of the effects of climate change on the U.S. energy sector 
will be related to energy use and production. The research evidence is 
relatively clear that climate warming will mean reductions in total 
U.S. heating requirements and increases in total cooling requirements 
for building. These changes will vary by region and by season and will 
affect household and business energy costs. Studies project that 
temperature increases due to global warming are very likely to increase 
peak demand for electricity in most regions of the country as rising 
temperatures are expected to increase energy requirements for cooling 
residential and commercial buildings. An increase in peak demand for 
electricity can lead to a disproportionate increase in energy 
infrastructure investment. Extreme weather events can threaten coastal 
energy infrastructures and electricity transmission and distribution in 
the U.S. Increases in hurricane intensity are likely to cause further 
disruptions to oil and gas operations in the Gulf, like those 
experienced in 2005 with Hurricane Katrina. Climate change is likely to 
affect some renewable energy sources across the nation, such as 
hydropower production in regions subject to changing patterns of 
precipitation or snowmelt. The U.S. energy sector, which relies heavily 
on water for both hydropower and cooling capacity, may be adversely 
impacted by changes to water supply and quality in reservoirs and other 
water bodies.
    Water infrastructure, including drinking water and wastewater 
treatment plants, and sewer and storm water management systems, will be 
at greater risk of flooding, sea level rise and storm surge, low flows, 
and other factors that could impair performance. In addition, as water 
supply is constrained and demand increases it will become more likely 
that water will have to be transported and moved which will require 
additional energy capacity. See Section 13 of the proposed Endangerment 
TSD, the CCSP reports ``the Effects of Climate Change on Energy 
Production in the United States'' \220\ and ``Impacts of Climate Change 
and Variability on Transportation Systems and Infrastructure'',\221\ 
and the USGCRP report ``Global Change Impacts in the United States'' 
for a more complete discussion regarding climate science and impacts to 
energy, infrastructure and settlements.
---------------------------------------------------------------------------

    \220\ CCSP (2007): Effects of Climate Change on Energy 
Production and Use in the United States. A Report by the U.S. 
Climate Change Science Program and the subcommittee on Global Change 
Research. Thomas J. Wilbanks, Vatsal Bhatt, Daniel E. Bilello, 
Stanley R. Bull, James Ekmann, William C. Horak, Y. Joe Huang, Mark 
D. Levine, Michael J. Sale, David K. Schmalzer, and Michael J. 
Scott). Department of Energy, Office of Biological & Environmental 
Research, Washington, DC, USA, 160 pp.
    \221\ CCSP (2008) Impacts of Climate Change and Variability on 
Transportation Systems and Infrastructure: Gulf Coast Study, Phase 
I. A Report by the U.S. Climate Change Science Program and the 
Subcommittee on Global Change Research [Savonis, M.J., V.R. Burkett, 
and J.R. Potter (eds.)]. Department of Transportation, Washington, 
DC, USA, 445 pp.
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viii. Ecosystems and Wildlife
    Disturbances such as wildfires and insect outbreaks are increasing 
in the U.S. and are likely to intensify in a warmer future with drier 
soils and longer growing seasons. Although recent climate trends have 
increased vegetation growth, continuing increases in disturbances are 
likely to limit carbon storage, facilitate invasive species, and 
disrupt ecosystem services. Over the 21st century, changes in climate 
will cause species to shift north and to higher elevations and 
fundamentally rearrange U.S. ecosystems. Differential capacities for 
range shifts are constrained by development, habitat fragmentation, 
invasive species, and broken ecological connections. IPCC consequently 
predicts significant disruption of ecosystem structure, function, and 
services. See Section 14 of the proposed Endangerment TSD, IPCC WGII, 
the CCSP report ``The Effects of Climate Change on Agriculture, Land 
Resources, Water Resources, and Biodiversity in the United States'', 
and the USGCRP report ``Global Change Impacts in the United States'' 
for a more complete discussion regarding climate science and impacts to 
ecosystems and wildlife.

[[Page 49589]]

3. Changes in Global Mean Temperature and Sea Level Rise Associated 
With the Proposal's GHG Emissions Reductions
    EPA examined \222\ the reductions in CO2 and other GHGs 
associated with the proposal and analyzed the projected effects on 
global mean surface temperature and sea level, two common indicators of 
climate change. The analysis projects that the proposal will reduce 
climate warming and sea level rise. Although the projected reductions 
are small in overall magnitude by themselves, they are quantifiable and 
would contribute to reducing climate change risks.
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    \222\ Using the Model for the Assessment of Greenhouse Gas 
Induced Climate Change (MAGICC, http://www.cgd.ucar.edu/cas/wigley/magicc/), EPA estimated the effects of this action's greenhouse gas 
emissions reductions on global mean temperature and sea level. 
Please refer to Chapter 7.4 of the DRIA for additional information.
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a. Estimated Projected Reductions in Global Mean Surface Temperatures 
and Sea Level Rise
    EPA estimated changes in the atmospheric CO2 
concentration, global mean surface temperature and sea level to 2100 
resulting from the emissions reductions in this proposal using the 
Model for the Assessment of Greenhouse Gas Induced Climate Change 
(MAGICC, version 5.3). This widely used, peer reviewed modeling tool 
was also used to project temperature and sea level rise under different 
emissions scenarios in the Third and Fourth Assessments of the 
Intergovernmental Panel on Climate Change (IPCC).
    GHG emissions reductions from Section III.F.1a were applied as net 
reductions to a peer reviewed global reference case (or baseline) 
emissions scenario to generate an emissions scenario specific to this 
proposal. For the proposal scenario, all emissions reductions were 
assumed to begin in 2012, with zero emissions change in 2011 (from the 
reference case) followed by emissions linearly increasing to equal the 
value supplied in Section III.F.1.a for 2020 and then continuing to 
2100. Details about the reference case scenario and how the emissions 
reductions were applied to generate the proposal scenario can be found 
in the DRIA Chapter 7.
    The atmospheric CO2 concentration, temperature, and sea-
level increases for both the reference case and the proposal emissions 
scenarios were computed using MAGICC. To compute the reductions in the 
atmospheric CO2 concentrations as well as in temperature and 
sea level resulting from the proposal, the output from the proposal 
scenario was subtracted from an existing MiniCAM emission scenario. To 
capture some key uncertainties in the climate system with the MAGICC 
model, changes in temperature and sea-level rise were projected across 
the most current IPCC range for climate sensitivities which ranges from 
1.5 [deg]C to 6.0 [deg]C (representing the 90% confidence 
interval).\223\ This wide range reflects the uncertainty in this 
measure of how much the global mean temperature would rise if the 
concentration of carbon dioxide in the atmosphere were to double. 
Details about this modeling analysis can be found in the DRIA Chapter 
7.4.
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    \223\ In IPCC reports, equilibrium climate sensitivity refers to 
the equilibrium change in the annual mean global surface temperature 
following a doubling of the atmospheric equivalent carbon dioxide 
concentration. The IPCC states that climate sensitivity is 
``likely'' to be in the range of 2 [deg]C to 4.5 [deg]C, ``very 
unlikely'' to be less than 1.5 [deg]C, and ``values substantially 
higher than 4.5 [deg]C cannot be excluded.'' IPCC WGI, 2007, Climate 
Change 2007--The Physical Science Basis, Contribution of Working 
Group I to the Fourth Assessment Report of the IPCC, http://www.ipcc.ch/.
---------------------------------------------------------------------------

    The results of this modeling show small, but quantifiable, 
reductions in the atmospheric CO2 concentration, the 
projected global mean surface temperature and sea level resulting from 
this proposal (assuming it is finalized), across all climate 
sensitivities. As a result of this proposal's emission reductions, the 
atmospheric CO2 concentration is projected to be reduced by 
approximately 2.9 to 3.2 parts per million (ppm), the global mean 
temperature is projected to be reduced by approximately 0.007-0.016 
[deg]C by 2100, and global mean sea level rise is projected to be 
reduced by approximately 0.06-0.15cm by 2100. The reductions are small 
relative to the IPCC's 2100 ``best estimates'' for global mean 
temperature increases (1.8-4.0 [deg]C) and sea level rise (0.20-0.59m) 
for all global GHG emissions sources for a range of emissions 
scenarios. EPA used a peer reviewed model, the MAGICC model, to do this 
analysis. This analysis is specific to the proposed rule and therefore 
cannot come from some previously published work. The Agency welcomes 
comment on the use of the MAGICC model for these purposes. Further 
discussion of EPA's modeling analysis is found in Chapter 7 of the 
Draft RIA.
    As a substantial portion of CO2 emitted into the 
atmosphere is not removed by natural processes for millennia, each unit 
of CO2 not emitted into the atmosphere avoids essentially 
permanent climate change on centennial time scales. Though the 
magnitude of the avoided climate change projected here is small, these 
reductions would represent a reduction in the adverse risks associated 
with climate change (though these risks were not formally estimated for 
this proposal) across all climate sensitivities.
4. Weight Reduction and Potential Safety Impacts
    In this section, EPA will discuss potential safety impacts of the 
proposed standards. In the joint technology analysis, EPA and NHTSA 
agree that automakers could reduce weight as one part of the industry's 
strategy for meeting the proposed standards. As shown in table III.D.6-
3, of this Preamble, EPA's modeling projects that vehicle manufacturers 
will reduce the weight of their vehicles by 4% on average between 2011 
and 2016 although individual vehicles may have greater or smaller 
weight reduction (NHTSA's results are similar using the Volpe model). 
The penetration and magnitude of these modeled changes are consistent 
with the public announcements made by many manufacturers since early 
2008 and are consistent with meetings that EPA has had with senior 
engineers and technical leadership at many of the automotive companies 
during 2008 and 2009.
    EPA also projects that automakers will not reduce footprint in 
order to meet the proposed CO2 standards in our modeling 
analysis. NHTSA and EPA have taken two measures to help ensure that the 
proposed rules provide no incentive for mass reduction to be 
accompanied by a corresponding decrease in the footprint of the vehicle 
(with its concomitant decrease in crush and crumple zones). The first 
design feature of the proposed rule is that the CO2 or fuel 
economy targets are based on the attribute of footprint (which is a 
surrogate for vehicle size).\224\ The second design feature is that the 
shape of the footprint curve (or function) has been carefully chosen 
such that it neither encourages manufacturers to increase, nor decrease 
the footprint of their fleet. Thus, the standard curves are designed to 
be approximately ``footprint neutral'' within the sloped portion of the 
function.\225\ For further discussion on this, refer to Section II.C of 
the preamble, or Chapter 2 of the joint TSD. Thus the agencies are 
assuming in their

[[Page 49590]]

modeling analysis that the manufacturers could reduce vehicle mass 
without reducing vehicle footprint as one way to respond to the 
proposed rule.\226\
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    \224\ As the footprint attribute is defined as wheelbase times 
track width, the footprint target curves do not discourage 
manufacturers from reducing vehicle size by reducing front, rear, or 
side overhang, which can impact safety by resulting in less crush 
space.
    \225\ This neutrality with respect to footprint does not extend 
to the smallest and largest vehicles, because the function is 
limited, or flattened, in these footprint ranges.
    \226\ See Chapter 1 of the joint TSD for a description of 
potential footprint changes in the 2016 reference fleet.
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    In Section IV of this preamble, NHTSA presents a safety analysis of 
the proposed CAFE standards based on the 2003 Kahane analysis. As 
discussed in Section IV, NHTSA has developed a worse case estimate of 
the impact of weight reductions on fatalities. The underlying data used 
for that analysis does not allow NHTSA to analyze the specific impact 
of weight reduction at constant footprint because historically there 
have not been a large number of vehicles produced that relied 
substantially on material substitution. Rather, the data set includes 
vehicles that were either smaller and lighter or larger and heavier. 
The numbers in the NHTSA analysis predict the safety-related fatality 
consequences that would occur in the unlikely event that weight 
reduction for model years 2012-2016 is accomplished by reducing mass 
and reducing footprint. EPA concurs with NHTSA that the safety analysis 
conducted by NHTSA and presented in Section IV is a worst case analysis 
for fatalities, and that the actual impacts on vehicle safety could be 
much less. However, EPA and NHTSA are not able to quantify the lower-
bound potential impacts at this time.
    The agencies believe that reducing vehicle mass without reducing 
the size of the vehicle or the structural integrity is technically 
feasible in the rulemaking time frame. Many of the technical options 
for doing so are outlined in Chapter 3 of the joint TSD and in EPA's 
DRIA. Weight reduction can be accomplished by the proven methods 
described below. Every manufacturer will employ these methodologies to 
some degree, the magnitude to which each will be used will depend on 
opportunities within individual vehicle design.
     Material Substitution: Substitution of lower density and/
or higher strength materials in a manner that preserves or improves the 
function of the component. This includes substitution of high-strength 
steels, aluminum, magnesium or composite materials for components 
currently fabricated from mild steel (e.g., the magnesium-alloy front 
structure used on the 2009 Ford F150 pickups).\227\ Light-weight 
materials with acceptable energy absorption properties can maintain 
structural integrity and absorption of crash energy relative to 
previous designs while providing a net decrease in component weight.
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    \227\ We note that since these MY 2009 F150s have only begun to 
enter the fleet, there is little real-world crash data available to 
evaluate the safety impacts of this new design.
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     Smart Design: Computer aided engineering (CAE) tools can 
be used to better optimize load paths within structures by reducing 
stresses and bending moments without adversely affecting structural 
integrity. This allows better optimization of the sectional thicknesses 
of structural components to reduce mass while maintaining or improving 
the function of the component. Smart designs also integrate separate 
parts in a manner that reduces mass by combining functions or the 
reduced use of separate fasteners. In addition, some ``body on frame'' 
vehicles are redesigned with a lighter ``unibody'' construction with 
little compromise in vehicle functionality.
     Reduced Powertrain Requirements: Reducing vehicle weight 
sufficiently can allow for the use of a smaller, lighter and more 
efficient engine while maintaining or even increasing performance. 
Approximately half of the reduction is due to these reduced powertrain 
output requirements from reduced engine power output and/or 
displacement, lighter weight transmission and final drive gear ratios. 
The subsequent reduced rotating mass (e.g. transmission, driveshafts/
halfshafts, wheels and tires) via weight and/or size reduction of 
components are made possible by reduced torque output requirements.
     Mass Compounding: Following from the point above, the 
compounded weight reductions of the body, engine and drivetrain can 
reduce stresses on the suspension components, steering components, 
brakes, and thus allow further reductions in the weight of these 
subsystems. The reductions in weight for unsprung masses such as 
brakes, control arms, wheels and tires can further reduce stresses in 
the suspension mounting points which can allow still further reductions 
in weight. For example, lightweighting can allow for the reduction in 
the size of the vehicle brake system, while maintaining the same 
stopping distance.
    Therefore, EPA believes it is both technically feasible to reduce 
weight without reducing vehicle size, footprint or structural strength 
and manufacturers have indicated to the agencies that they will use 
these approaches to accomplish these tasks. We request written comment 
on this assessment and this projection, including up-to-date plans 
regarding the extent of use by each manufacturer of each of the 
methodologies described above.
    For this proposed rule, as noted earlier, EPA's modeling analysis 
projects that weight reduction by model year 2016 on the order of 4% on 
average for the fleet will occur (see Section III.D.6 for details on 
our estimated mass reduction). EPA believes that such modeled changes 
in the fleet could result in much smaller fatality impacts than those 
in the worst case scenario presented in Section IV by NHTSA, since 
manufacturers have many safer options for reducing vehicle weight than 
doing so by simultaneously reducing footprint. The NHTSA analysis, 
based solely on 4-door vehicles, does not independently differentiate 
between weight reduction which comes from vehicle downsizing (a 
physically smaller vehicle) and vehicle weight reduction solely through 
design and material changes (i.e., making a vehicle weigh less without 
changing the size of the vehicle or reducing structural integrity).
    Dynamic Research Incorporated (DRI) has assessed the independent 
effects of vehicle weight and size on safety in order to determine if 
there are tradeoffs between improving vehicle safety and fuel 
consumption. In their 2005 studies 228 229 one of which was 
published as a Society of Automotive Engineers Technical Paper and 
received peer review through that body, DRI presented results that 
indicate that vehicle weight reduction tends to decrease fatalities, 
but vehicle wheelbase and track reduction tends to increase fatalities. 
The DRI work focused on four major points, with 1 and 
4 being discussed with additional detail below:
---------------------------------------------------------------------------

    \228\ ``Supplemental Results on the Independent Effects of Curb 
Weight, Wheelbase and Track on Fatality Risk'', Dynamic Research, 
Inc., DRI-TR-05-01, May 2005.
    \229\ ``An Assessment of the Effects of Vehicle Weight and Size 
on Fatality Risk in 1985 to 1998 Model Year Passenger Cars and 1985 
to 1997 Model Year'', M. Van Auken and J. Zellner, Dynamic Research 
Inc., Society of Automotive Engineers Technical Paper 2005-01-1354.
---------------------------------------------------------------------------

    1. 2-Door vehicles represented a significant portion of the light 
duty fleet and should not be ignored.
    2. Directional control and therefore crash avoidance improves with 
a reduction in curb weight.
    3. The occupants of the impacted vehicle, or ``collision partner'' 
benefit from being impacted by a lighter vehicle.
    4. Rollover fatalities are reduced by a reduction in curb weight 
due to lower centers of gravity and lower loads on the roof structures.

[[Page 49591]]

    The data used for the DRI analysis was similar to NHTSA's 2003 
Kahane study, using Fatality Analysis Reporting System (FARS) data for 
vehicle model years 1985 through 1998 for cars, and 1985 through 1997 
trucks. This data overlaps Kahane's FARS data on model year 1991 to 
1999 vehicles. However, DRI included 2-door passenger cars, whereas the 
Kahane study excluded all 2-door vehicles. The 2003 Kahane study 
excluded 2-door passenger cars because it found that for MY 1991-1999 
vehicles, sports and muscle cars constituted a significant proportion 
of those vehicles. These vehicles have relatively high weight relative 
to their wheelbase, and are also disproportionately involved in 
crashes. Thus, Kahane concluded that including these vehicles in the 
analysis excessively skewed the regression results. However, as of July 
1, 1999, 2-door passenger cars represented 29% of the registered cars 
in the United States. DRI's position was that this is a significant 
portion of the light duty fleet, too large to be ignored, and 
conclusions regarding the effects of weight and safety should be based 
on data for all cars, not just 4-doors. DRI did state in their 
conclusions that the results are sensitive to removing data for 2-doors 
and wagons, and that the results for 4-door cars with respect to the 
effects of wheelbase and track width were no longer statistically 
significant when 2-door cars were removed. EPA and NHTSA recognize that 
it is important to properly account for 2-door cars in a regression 
analysis evaluating the impacts of vehicle weight on safety. Thus, the 
agencies seek comment on how to ensure that any analysis supporting the 
final rule accounts as fully as possible for the range of safety 
impacts due to weight reduction on the variety of vehicles regulated 
under these proposed standards.
    The DRI and Kahane studies also differ with respect to the impact 
of vehicle weight on rollover fatalities. The Kahane study treated curb 
weight as a surrogate for size and weight and analyzed them as a single 
variable. Using this method, the 2003 Kahane analysis indicates that 
curb weight reductions would increase fatalities due to rollovers. The 
DRI study differed by analyzing curb weight, wheelbase, and track as 
multiple variables and concluded that curb weight reduction would 
decrease rollover fatalities, and wheelbase and track reduction would 
increase rollover fatalities. DRI offers two potential root causes for 
higher curb weight resulting in higher rollover fatalities. The first 
is that a taller vehicle tends to be heavier than a shorter vehicle; 
therefore heavier vehicles may be more likely to rollover because the 
vehicle height and weight are correlated with vehicle center of gravity 
height. The second is that FMVSS 216 for roof crush strength 
requirements for passenger cars of model years 1995 through 1999 were 
proportional to the unloaded vehicle weight if the weight is less than 
3,333 lbs, however they were a constant if the weight is greater than 
3,333 lbs. Therefore heavier vehicles may have had relatively less 
rollover crashworthiness.
    NHTSA has rejected the DRI analysis, and has not relied on it for 
its evaluation of safety impact changes in CAFE standards. See Section 
IV.G.6 of this Notice, as well as NHTSA's March 2009 Final Rulemaking 
for MY2011 CAFE standards (see 74 FR at 14402-05).
    The DRI and Kahane analyses of the FARS data appear similar in one 
respect because the results are reproducible between the two studies 
when using aggregated vehicle attributes for 4-door 
cars.230 231 232 However, when DRI and NHTSA separately 
analyzed individual vehicle attributes of mass, wheelbase and track 
width, DRI and NHTSA obtained different results for passenger cars. 
NHTSA has raised this as a concern with the DRI study. When 2-door 
vehicles are removed from the data set EPA is concerned that the 
results may no longer be statistically significant with respect to 
independent vehicle attributes due to the small remaining data set, as 
DRI stated in the 2005 study.
---------------------------------------------------------------------------

    \230\ ``Supplemental Results on the Independent Effects of Curb 
Weight, Wheelbase and Track on Fatality Risk'', Dynamic Research, 
Inc., DRI-TR-05-01, May 2005.
    \231\ ``An Assessment of the Effects of Vehicle Weight and Size 
on Fatality Risk in 1985 to 1998 Model Year Passenger Cars and 1985 
to 1997 Model Year'', M. Van Auken and J. Zellner, Dynamic Research 
Inc., Society of Automotive Engineers Technical Paper 2005-01-1354.
    \232\ FR Vol. 74, No. 59, beginning on pg. 14402.
---------------------------------------------------------------------------

    The DRI analysis concluded that there would be a small reduction in 
fatalities for cars and for trucks for a 100 pound reduction in curb 
weight without accompanied vehicle footprint or size changes. EPA notes 
that if DRI's results were to be applied using the curb weight 
reductions predicted by the OMEGA model, an overall reduction in 
fatalities would be predicted. EPA invites comment on all aspects of 
the issue of the impact of this kind of weight reduction on safety, 
including the usefulness of the DRI study in evaluating this issue.
    The agencies are committed to continuing to analyze vehicle safety 
issues so a more informed evaluation can be made. We request comment on 
this issue. These comments should include not only further discussion 
and analysis of the relevant studies but data and analysis which can 
allow the agencies to more accurately quantify any potential safety 
issues with the proposed standards.

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

    In addition to reducing the emissions of greenhouse gases, this 
proposal would influence the emissions of ``criteria'' air pollutants 
and air toxics (i.e., hazardous air pollutants). The criteria air 
pollutants include carbon monoxide (CO), fine particulate matter 
(PM2.5), sulfur dioxide (SOX) and the ozone 
precursors hydrocarbons (VOC) and oxides of nitrogen (NOX); 
the air toxics include benzene, 1,3-butadiene, formaldehyde, 
acetaldehyde, and acrolein. Our estimates of these non-GHG emission 
impacts from the proposed program are shown by pollutant in Table 
III.G-1 and Table III.G-2 in total, and broken down by the two drivers 
of these changes: (a) ``Upstream'' emission reductions due to decreased 
extraction, production and distribution of motor gasoline; and (b) 
``downstream'' emission increases, reflecting the effects of VMT 
rebound (discussed in Sections III.F and III.H). Total program impacts 
on criteria and toxics emissions are discussed below, followed by 
individual discussions of the upstream and downstream impacts. Those 
are followed by discussions of the effects on air quality, health, and 
other environmental concerns.
    As discussed in Chapter 5 of the DRIA, the impacts presented here 
are only from petroleum (i.e., EPA assumes that total volumes of 
ethanol and other renewable fuels will remain unchanged due to this 
program). Ethanol use was modeled at the volumes projected in AEO2007 
for the reference and control case; thus no changes are projected in 
upstream emissions related to ethanol production and distribution. 
However, due to the decreased gasoline volume associated with this 
proposal, a greater market share of E10 is expected relative to E0, 
which would be expected to have some effect on fleetwide average non-
GHG emission rates. This effect, which is likely small relative to the 
other effects considered here, has not been accounted for in the 
downstream emission modeling conducted for this proposal, but EPA does 
plan to address it in the final rule air quality analysis, for which 
localized impacts could be more significant. A more comprehensive 
analysis of the impacts of different

[[Page 49592]]

ethanol and gasoline volume scenarios is being prepared as part of 
EPA's RFS2 rulemaking package.\233\
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    \233\ 74 FR 24904. See also Docket EPA-HQ-OAR-2005-0161.
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    As shown in Table III.G-1, EPA estimates that this program would 
result in reductions of NOX, VOC, PM and SOX, but 
would increase CO emissions. For NOX, VOC, PM and 
SOX, we estimate net reductions in criteria pollutant 
emissions because the emissions reductions from upstream sources are 
larger than the emission increases due to additional driving (i.e., the 
``rebound effect''). In the case of CO, we estimate slight emission 
increases, because there are relatively small reductions in upstream 
emissions, and thus the projected emission increases due to additional 
driving are greater than the projected emission decreases due to 
reduced fuel production. EPA estimates that the proposed program would 
result in small changes for toxic emissions compared to total U.S. 
inventories across all sectors. For all pollutants the overall impact 
of the program would be relatively small compared to total U.S. 
inventories across all sectors. In 2030 EPA estimates the proposed 
program would reduce these total NOX, PM and SOX 
inventories by 0.2 to 0.3 percent and reduce the VOC inventory by 1.2 
percent, while increasing the total national CO inventory by 0.4 
percent.
    As shown in Table III.G-2, EPA estimates that the proposed program 
would result in small changes for toxic emissions compared to total 
U.S. inventories across all sectors. In 2030 EPA estimates the program 
would reduce total benzene and formaldehyde by 0.04 percent. Total 
acrolein, acetaldehyde, and 1,3-butadiene would increase by 0.03 to 0.2 
percent.
    Other factors which may impact non-GHG emissions, but are not 
estimated in this analysis, include:
     Vehicle technologies used to reduce tailpipe 
CO2 emissions; because the regulatory standards for non-GHG 
emissions are the primary driver for these emissions, EPA expects the 
impact of this program to be negligible on non-GHG emission rates per 
mile.
     The potential for increased market penetration of diesel 
vehicles; because these vehicles would be held to the same 
certification and in-use standards for criteria pollutants as their 
gasoline counterparts, EPA expects their impact to be negligible on 
criteria pollutants and other non-GHG emissions.
     Early introduction of electric vehicles and plug-in hybrid 
electric vehicles, which would reduce criteria emissions in cases where 
they are able to certify to lower certification standards. It would 
also likely reduce gaseous air toxics.
     Reduced refueling emissions due to less frequent refueling 
events and reduced annual refueling volumes resulting from the GHG 
standards.
     Increased hot soak evaporative emissions due to the likely 
increase in number of trips associated with VMT rebound modeled in this 
proposal.
     Increased market share of E10 relative to E0 due to the 
decreased overall gasoline consumption of this proposal combined with 
an unchanged fuel ethanol volume.
    EPA invites comments on the possible contribution of these factors 
to non-GHG emissions.
BILLING CODE 4910-59-P

[[Page 49593]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.022

BILLING CODE 4910-59-C
1. Upstream Impacts of Program
    Reducing tailpipe CO2 emissions from light-duty cars and 
trucks through tailpipe standards and improved A/C efficiency will 
result in reduced fuel demand and reductions in the emissions 
associated with all of the processes involved in getting petroleum to 
the pump. These upstream emission impacts on criteria pollutants are 
summarized in Table III.G-1. The upstream reductions grow over time as 
the fleet turns over to cleaner CO2 vehicles, so that by 
2030 VOC would decrease by 148,000 tons, NOX by 43,000 tons, 
and PM2.5 by 6,000 tons. Table III.G-2 shows the corresponding impacts 
on upstream air toxic emissions in 2030. Formaldehyde decreases by 112 
tons, benzene by 320 tons, acetaldehyde by 15 tons, acrolein by 2 tons, 
and 1,3-butadiene by 3 tons.
    To determine these impacts, EPA estimated the impact of reduced 
petroleum volumes on the extraction and transportation of crude oil as 
well as the production and distribution of finished gasoline. For the 
purpose of assessing domestic-only emission reductions it was necessary 
to estimate the fraction of fuel savings attributable to domestic 
finished gasoline, and of this gasoline what fraction is produced from 
domestic crude. For this analysis EPA estimated that 50 percent of fuel 
savings is attributable to domestic finished gasoline and that 90 
percent of this gasoline originated from imported crude. Emission 
factors for most upstream emission sources are based on the GREET1.8 
model, developed by DOE's Argonne National Laboratory,\234\ but in some 
cases the GREET values were modified or updated by EPA to be consistent 
with the National Emission Inventory (NEI).\235\ The primary updates 
for this analysis were to incorporate newer information on gasoline 
distribution emissions for VOC from the NEI, which were significantly 
higher than GREET estimates; and the incorporation of upstream emission 
factors for the air toxics estimated in this analysis: benzene, 1,3-
butadiene, acetaldehyde, acrolein, and

[[Page 49594]]

formaldehyde. The development of these emission factors is detailed in 
DRIA Chapter 5.
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    \234\ Greenhouse Gas, Regulated Emissions, and Energy Use in 
Transportation model (GREET), U.S. Department of Energy, Argonne 
National Laboratory, http://www.transportation.anl.gov/modeling_simulation/GREET/.
    \235\ EPA. 2002 National Emissions Inventory (NEI) Data and 
Documentation, http://www.epa.gov/ttn/chief/net/2002inventory.html.
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2. Downstream Impacts of Program
    As discussed in more detail in Section III.H, the effect of fuel 
cost on VMT (``rebound'') was accounted for in our assessment of 
economic and environmental impacts of this proposed rule. A 10 percent 
rebound case was used for this analysis, meaning that VMT for affected 
model years is modeled as increasing by 10 percent as much as the 
increase in fuel economy; i.e., a 10 percent increase in fuel economy 
would yield a 1.0 percent increase in VMT.
    Downstream emission impacts of the rebound effect are summarized in 
Table III.G-1 for criteria pollutants and precursors and Table III.G-2 
for air toxics. The emission increases from the rebound effect grow 
over time as the fleet turns over to cleaner CO2 vehicles, 
so that by 2030 VOC would increase by 5,500 tons, NOX by 
16,000 tons, and PM2.5 by 570 tons. Table III.G-2 shows the 
corresponding impacts on air toxic emissions. The most noteworthy of 
these impacts in 2030 are 40 additional tons of 1,3-butadiene, 75 tons 
of acetaldehyde, 240 tons of benzene, 96 tons of formaldehyde, and 4 
tons of acrolein.
    For this analysis the reference case non-GHG emissions for light 
duty vehicles and trucks were derived using EPA's MOtor Vehicle 
Emission Simulator (MOVES) model for VOC, CO, NOX, PM and 
air toxics. PM2.5 emission estimates include additional adjustments for 
low temperatures, discussed in detail in the DRIA. Because this 
modeling was based on calendar year estimates, estimating the rebound 
effect required a fleet-weighted rebound factor to be calculated for 
calendar years 2020 and 2030; these factors are presented in DRIA 
Chapter 5.
    As discussed in Section III.H, EPA will be taking comment on the 
appropriate level of rebound rate for this analysis. The sensitivity of 
the downstream emission increases shown in Tables III.G-1 and III.G-2 
to the level of rebound would be in direct proportion to the rebound 
rate itself; since zero rebound would result in zero emission increase, 
the downstream results presented in Table III.G-1 and Table III.G-2 can 
be directly scaled to estimate the effect of lower rebound rates.
3. Health Effects of Non-GHG Pollutants
a. Particulate Matter
i. Background
    Particulate matter is a generic term for a broad class of 
chemically and physically diverse substances. It can be principally 
characterized as discrete particles that exist in the condensed (liquid 
or solid) phase spanning several orders of magnitude in size. Since 
1987, EPA has delineated that subset of inhalable particles small 
enough to penetrate to the thoracic region (including the 
tracheobronchial and alveolar regions) of the respiratory tract 
(referred to as thoracic particles). Current NAAQS use PM2.5 
as the indicator for fine particles (with PM2.5 referring to 
particles with a nominal mean aerodynamic diameter less than or equal 
to 2.5 [micro]m), and use PM10 as the indicator for purposes 
of regulating the coarse fraction of PM10 (referred to as 
thoracic coarse particles or coarse-fraction particles; generally 
including particles with a nominal mean aerodynamic diameter greater 
than 2.5 [micro]m and less than or equal to 10 [micro]m, or 
PM10-2.5). Ultrafine particles are a subset of fine 
particles, generally less than 100 nanometers (0.1 [mu]m) in 
aerodynamic diameter.
    Fine particles are produced primarily by combustion processes and 
by transformations of gaseous emissions (e.g., SOX, 
NOX and VOC) in the atmosphere. The chemical and physical 
properties of PM2.5 may vary greatly with time, region, 
meteorology, and source category. Thus, PM2.5 may include a 
complex mixture of different pollutants including sulfates, nitrates, 
organic compounds, elemental carbon and metal compounds. These 
particles can remain in the atmosphere for days to weeks and travel 
hundreds to thousands of kilometers.
ii. Health Effects of PM
    Scientific studies show ambient PM is associated with a series of 
adverse health effects. These health effects are discussed in detail in 
EPA's 2004 Particulate Matter Air Quality Criteria Document (PM AQCD) 
and the 2005 PM Staff Paper. 236 237 238 Further discussion 
of health effects associated with PM can also be found in the DRIA for 
this rule.
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    \236\ U.S. EPA (2004). Air Quality Criteria for Particulate 
Matter. Volume I EPA600/P-99/002aF and Volume II EPA600/P-99/002bF. 
Retrieved on March 19, 2009 from Docket EPA-HQ-OAR-2003-0190 at 
http://www.regulations.gov/.
    \237\ U.S. EPA. (2005). Review of the National Ambient Air 
Quality Standard for Particulate Matter: Policy Assessment of 
Scientific and Technical Information, OAQPS Staff Paper. EPA-452/R-
05-005a. Retrieved March 19, 2009 from http://www.epa.gov/ttn/naaqs/standards/pm/data/pmstaffpaper_20051221.pdf.
    \238\ The PM NAAQS is currently under review and the EPA is 
considering all available science on PM health effects, including 
information which has been published since 2004, in the development 
of the upcoming PM Integrated Science Assessment Document (ISA). A 
second draft of the PM ISA was completed in July 2009 and was 
submitted for review by the Clean Air Scientific Advisory Committee 
(CASAC) of EPA's Science Advisory Board. Comments from the general 
public have also been requested. For more information, see http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=210586.
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    Health effects associated with short-term exposures (hours to days) 
to ambient PM include premature mortality, aggravation of 
cardiovascular and lung disease (as indicated by increased hospital 
admissions and emergency department visits), increased respiratory 
symptoms including cough and difficulty breathing, decrements in lung 
function, altered heart rate rhythm, and other more subtle changes in 
blood markers related to cardiovascular health.\239\ Long-term exposure 
to PM2.5 and sulfates has also been associated with 
mortality from cardiopulmonary disease and lung cancer, and effects on 
the respiratory system such as reduced lung function growth or 
development of respiratory disease. A new analysis shows an association 
between long-term PM2.5 exposure and a measure of 
atherosclerosis development.240 241
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    \239\ U.S. EPA. (2006). National Ambient Air Quality Standards 
for Particulate Matter; Proposed Rule. 71 FR 2620, January 17, 2006.
    \240\ K[uuml]nzli, N., Jerrett, M., Mack, W.J., et al. (2004). 
Ambient air pollution and atherosclerosis in Los Angeles. Environ 
Health Perspect., 113, 201-206.
    \241\ This study is included in the 2006 Provisional Assessment 
of Recent Studies on Health Effects of Particulate Matter Exposure. 
The provisional assessment did not and could not (given a very short 
timeframe) undergo the extensive critical review by CASAC and the 
public, as did the PM AQCD. The provisional assessment found that 
the ``new'' studies expand the scientific information and provide 
important insights on the relationship between PM exposure and 
health effects of PM. The provisional assessment also found that 
``new'' studies generally strengthen the evidence that acute and 
chronic exposure to fine particles and acute exposure to thoracic 
coarse particles are associated with health effects. Further, the 
provisional science assessment found that the results reported in 
the studies did not dramatically diverge from previous findings, and 
taken in context with the findings of the AQCD, the new information 
and findings did not materially change any of the broad scientific 
conclusions regarding the health effects of PM exposure made in the 
AQCD. However, it is important to note that this assessment was 
limited to screening, surveying, and preparing a provisional 
assessment of these studies. For reasons outlined in Section I.C of 
the preamble for the final PM NAAQS rulemaking in 2006 (see 71 FR 
61148-49, October 17, 2006), EPA based its NAAQS decision on the 
science presented in the 2004 AQCD.
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    Studies examining populations exposed over the long term (one or 
more years) to different levels of air pollution, including the Harvard 
Six Cities Study

[[Page 49595]]

and the American Cancer Society Study, show associations between long-
term exposure to ambient PM2.5 and both total and 
cardiopulmonary premature mortality.242 243 244 In addition, 
an extension of the American Cancer Society Study shows an association 
between PM2.5 and sulfate concentrations and lung cancer 
mortality.\245\
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    \242\ Dockery, D.W., Pope, C.A. III, Xu, X, et al. (1993). An 
association between air pollution and mortality in six U.S. cities. 
N Engl J Med, 329, 1753-1759. Retrieved on March 19, 2009 from 
http://content.nejm.org/cgi/content/full/329/24/1753.
    \243\ Pope, C.A., III, Thun, M.J., Namboodiri, M.M., Dockery, 
D.W., Evans, J.S., Speizer, F.E., and Heath, C.W., Jr. (1995). 
Particulate air pollution as a predictor of mortality in a 
prospective study of U.S. adults. Am. J. Respir. Crit. Care Med, 
151, 669-674.
    \244\ Krewski, D., Burnett, R.T., Goldberg, M.S., et al. (2000). 
Reanalysis of the Harvard Six Cities study and the American Cancer 
Society study of particulate air pollution and mortality. A special 
report of the Institute's Particle Epidemiology Reanalysis Project. 
Cambridge, MA: Health Effects Institute. Retrieved on March 19, 2009 
from http://es.epa.gov/ncer/science/pm/hei/Rean-ExecSumm.pdf.
    \245\ Pope, C.A., III, Burnett, R.T., Thun, M. J., Calle, E.E., 
Krewski, D., Ito, K., Thurston, G.D., (2002). Lung cancer, 
cardiopulmonary mortality, and long-term exposure to fine 
particulate air pollution. J. Am. Med. Assoc., 287, 1132-1141.
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b. Ozone
i. Background
    Ground-level ozone pollution is typically formed by the reaction of 
VOC and NOX in the lower atmosphere in the presence of heat 
and sunlight. These pollutants, often referred to as ozone precursors, 
are emitted by many types of pollution sources, such as highway and 
nonroad motor vehicles and engines, power plants, chemical plants, 
refineries, makers of consumer and commercial products, industrial 
facilities, and smaller area sources.
    The science of ozone formation, transport, and accumulation is 
complex.\246\ Ground-level ozone is produced and destroyed in a 
cyclical set of chemical reactions, many of which are sensitive to 
temperature and sunlight. When ambient temperatures and sunlight levels 
remain high for several days and the air is relatively stagnant, ozone 
and its precursors can build up and result in more ozone than typically 
occurs on a single high-temperature day. Ozone can be transported 
hundreds of miles downwind of precursor emissions, resulting in 
elevated ozone levels even in areas with low local VOC or 
NOX emissions.
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    \246\ U.S. EPA. (2006). Air Quality Criteria for Ozone and 
Related Photochemical Oxidants (Final). EPA/600/R-05/004aF-cF. 
Washington, DC: U.S. EPA. Retrieved on March 19, 2009 from Docket 
EPA-HQ-OAR-2003-0190 at http://www.regulations.gov/.
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ii. Health Effects of Ozone
    The health and welfare effects of ozone are well documented and are 
assessed in EPA's 2006 Air Quality Criteria Document (ozone AQCD) and 
2007 Staff Paper.247 248 Ozone can irritate the respiratory 
system, causing coughing, throat irritation, and/or uncomfortable 
sensation in the chest. Ozone can reduce lung function and make it more 
difficult to breathe deeply; breathing may also become more rapid and 
shallow than normal, thereby limiting a person's activity. Ozone can 
also aggravate asthma, leading to more asthma attacks that require 
medical attention and/or the use of additional medication. In addition, 
there is suggestive evidence of a contribution of ozone to 
cardiovascular-related morbidity and highly suggestive evidence that 
short-term ozone exposure directly or indirectly contributes to non-
accidental and cardiopulmonary-related mortality, but additional 
research is needed to clarify the underlying mechanisms causing these 
effects. In a recent report on the estimation of ozone-related 
premature mortality published by the National Research Council (NRC), a 
panel of experts and reviewers concluded that short-term exposure to 
ambient ozone is likely to contribute to premature deaths and that 
ozone-related mortality should be included in estimates of the health 
benefits of reducing ozone exposure.\249\ Animal toxicological evidence 
indicates that with repeated exposure, ozone can inflame and damage the 
lining of the lungs, which may lead to permanent changes in lung tissue 
and irreversible reductions in lung function. People who are more 
susceptible to effects associated with exposure to ozone can include 
children, the elderly, and individuals with respiratory disease such as 
asthma. Those with greater exposures to ozone, for instance due to time 
spent outdoors (e.g., children and outdoor workers), are of particular 
concern.
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    \247\ U.S. EPA. (2006). Air Quality Criteria for Ozone and 
Related Photochemical Oxidants (Final). EPA/600/R-05/004aF-cF. 
Washington, DC: U.S. EPA. Retrieved on March 19, 2009 from Docket 
EPA-HQ-OAR-2003-0190 at http://www.regulations.gov/.
    \248\ U.S. EPA. (2007). Review of the National Ambient Air 
Quality Standards for Ozone: Policy Assessment of Scientific and 
Technical Information, OAQPS Staff Paper. EPA-452/R-07-003. 
Washington, DC. U.S. EPA. Retrieved on March 19, 2009 from Docket 
EPA-HQ-OAR-2003-0190 at http://www.regulations.gov/.
    \249\ National Research Council (NRC), 2008. Estimating 
Mortality Risk Reduction and Economic Benefits from Controlling 
Ozone Air Pollution. The National Academies Press: Washington, DC.
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    The 2006 ozone AQCD also examined relevant new scientific 
information that has emerged in the past decade, including the impact 
of ozone exposure on such health effects as changes in lung structure 
and biochemistry, inflammation of the lungs, exacerbation and causation 
of asthma, respiratory illness-related school absence, hospital 
admissions and premature mortality. Animal toxicological studies have 
suggested potential interactions between ozone and PM with increased 
responses observed to mixtures of the two pollutants compared to either 
ozone or PM alone. The respiratory morbidity observed in animal studies 
along with the evidence from epidemiologic studies supports a causal 
relationship between acute ambient ozone exposures and increased 
respiratory-related emergency room visits and hospitalizations in the 
warm season. In addition, there is suggestive evidence of a 
contribution of ozone to cardiovascular-related morbidity and non-
accidental and cardiopulmonary mortality.
c. NOX and SOX
i. Background
    Nitrogen dioxide (NO2) is a member of the NOX 
family of gases. Most NO2 is formed in the air through the 
oxidation of nitric oxide (NO) emitted when fuel is burned at a high 
temperature. SO2, a member of the sulfur oxide 
(SOX) family of gases, is formed from burning fuels 
containing sulfur (e.g., coal or oil derived), extracting gasoline from 
oil, or extracting metals from ore.
    SO2 and NO2 can dissolve in water vapor and 
further oxidize to form sulfuric and nitric acid which react with 
ammonia to form sulfates and nitrates, both of which are important 
components of ambient PM. The health effects of ambient PM are 
discussed in Section III.G.3.a of this preamble. NOX along 
with non-methane hydrocarbon (NMHC) are the two major precursors of 
ozone. The health effects of ozone are covered in Section III.G.3.b.
ii. Health Effects of NO2
    Information on the health effects of NO2 can be found in 
the U.S. Environmental Protection Agency Integrated Science Assessment 
(ISA) for Nitrogen Oxides.\250\ The U.S. EPA has concluded that the 
findings of epidemiologic, controlled human

[[Page 49596]]

exposure, and animal toxicological studies provide evidence that is 
sufficient to infer a likely causal relationship between respiratory 
effects and short-term NO2 exposure. The ISA concludes that 
the strongest evidence for such a relationship comes from epidemiologic 
studies of respiratory effects including symptoms, emergency department 
visits, and hospital admissions. The ISA also draws two broad 
conclusions regarding airway responsiveness following NO2 
exposure. First, the ISA concludes that NO2 exposure may 
enhance the sensitivity to allergen-induced decrements in lung function 
and increase the allergen-induced airway inflammatory response at 
exposures as low as 0.26 ppm NO2 for 30 minutes. Second, 
exposure to NO2 has been found to enhance the inherent 
responsiveness of the airway to subsequent nonspecific challenges in 
controlled human exposure studies of asthmatic subjects. Enhanced 
airway responsiveness could have important clinical implications for 
asthmatics since transient increases in airway responsiveness following 
NO2 exposure have the potential to increase symptoms and 
worsen asthma control. Together, the epidemiologic and experimental 
data sets form a plausible, consistent, and coherent description of a 
relationship between NO2 exposures and an array of adverse 
health effects that range from the onset of respiratory symptoms to 
hospital admission.
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    \250\ U.S. EPA (2008). Integrated Science Assessment for Oxides 
of Nitrogen--Health Criteria (Final Report). EPA/600/R-08/071. 
Washington, DC: U.S. EPA. Retrieved on March 19, 2009 from http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645.
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    Although the weight of evidence supporting a causal relationship is 
somewhat less certain than that associated with respiratory morbidity, 
NO2 has also been linked to other health endpoints. These 
include all-cause (nonaccidental) mortality, hospital admissions or 
emergency department visits for cardiovascular disease, and decrements 
in lung function growth associated with chronic exposure.
iii. Health Effects of SO2
    Information on the health effects of SO2 can be found in 
the U.S. Environmental Protection Agency Integrated Science Assessment 
for Sulfur Oxides.\251\ SO2 has long been known to cause 
adverse respiratory health effects, particularly among individuals with 
asthma. Other potentially sensitive groups include children and the 
elderly. During periods of elevated ventilation, asthmatics may 
experience symptomatic bronchoconstriction within minutes of exposure. 
Following an extensive evaluation of health evidence from epidemiologic 
and laboratory studies, the EPA has concluded that there is a causal 
relationship between respiratory health effects and short-term exposure 
to SO2. Separately, based on an evaluation of the 
epidemiologic evidence of associations between short-term exposure to 
SO2 and mortality, the EPA has concluded that the overall 
evidence is suggestive of a causal relationship between short-term 
exposure to SO2 and mortality.
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    \251\ U.S. EPA. (2008). Integrated Science Assessment (ISA) for 
Sulfur Oxides--Health Criteria (Final Report). EPA/600/R-08/047F. 
Washington, DC: U.S. Environmental Protection Agency. Retrieved on 
March 18, 2009 from http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=198843.
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d. Carbon Monoxide
    Carbon monoxide (CO) forms as a result of incomplete fuel 
combustion. CO enters the bloodstream through the lungs, forming 
carboxyhemoglobin and reducing the delivery of oxygen to the body's 
organs and tissues. The health threat from CO is most serious for those 
who suffer from cardiovascular disease, particularly those with angina 
or peripheral vascular disease. Healthy individuals also are affected, 
but only at higher CO levels. Exposure to elevated CO levels is 
associated with impairment of visual perception, work capacity, manual 
dexterity, learning ability and performance of complex tasks. Carbon 
monoxide also contributes to ozone nonattainment since carbon monoxide 
reacts photochemically in the atmosphere to form ozone.\252\ Additional 
information on CO related health effects can be found in the Carbon 
Monoxide Air Quality Criteria Document (CO AQCD).253 254
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    \252\ U.S. EPA (2000). Air Quality Criteria for Carbon Monoxide, 
EPA/600/P-99/001F. This document is available in Docket EPA-HQ-OAR-
2004-0008.
    \253\ U.S. EPA (2000). Air Quality Criteria for Carbon Monoxide, 
EPA/600/P-99/001F. This document is available in Docket EPA-HQ-OAR-
2004-0008.
    \254\ The CO NAAQS is currently under review and the EPA is 
considering all available science on CO health effects, including 
information which has been published since 2000, in the development 
of the upcoming CO Integrated Science Assessment Document (ISA). A 
first draft of the CO ISA was completed in March 2009 and was 
submitted for review by the Clean Air Scientific Advisory Committee 
(CASAC) of EPA's Science Advisory Board. For more information, see 
http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=203935.
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e. Air Toxics
    Motor vehicle emissions contribute to ambient levels of air toxics 
known or suspected as human or animal carcinogens, or that have 
noncancer health effects. The population experiences an elevated risk 
of cancer and other noncancer health effects from exposure to air 
toxics. \255\ These compounds include, but are not limited to, benzene, 
1,3-butadiene, formaldehyde, acetaldehyde, acrolein, polycyclic organic 
matter (POM), and naphthalene. These compounds, except acetaldehyde, 
were identified as national or regional risk drivers in the 2002 
National-scale Air Toxics Assessment (NATA) and have significant 
inventory contributions from mobile sources.\256\ Emissions and ambient 
concentrations of compounds are discussed in the DRIA chapter on 
emission inventories and air quality (Chapters 5 and 7, respectively).
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    \255\ U. S. EPA. 2002 National-Scale Air Toxics Assessment. 
http://www.epa.gov/ttn/atw/nata12002/risksum.html.
    \256\ U.S. EPA. 2009. National-Scale Air Toxics Assessment for 
2002. http://www.epa.gov/ttn/atw/nata2002/.
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    i. Benzene
    The EPA's IRIS database lists benzene as a known human carcinogen 
(causing leukemia) by all routes of exposure, and concludes that 
exposure is associated with additional health effects, including 
genetic changes in both humans and animals and increased proliferation 
of bone marrow cells in mice.257 258 259 EPA states in its 
IRIS database that data indicate a causal relationship between benzene 
exposure and acute lymphocytic leukemia and suggest a relationship 
between benzene exposure and chronic non-lymphocytic leukemia and 
chronic lymphocytic leukemia. The International Agency for Research on 
Carcinogens (IARC) has determined that benzene is a human carcinogen 
and the U.S. Department of Health and Human Services (DHHS) has 
characterized benzene as a known human carcinogen.260 261
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    \257\ U.S. EPA. 2000. Integrated Risk Information System File 
for Benzene. This material is available electronically at http://www.epa.gov/iris/subst/0276.htm.
    \258\ International Agency for Research on Cancer (IARC). 1982. 
Monographs on the evaluation of carcinogenic risk of chemicals to 
humans, Volume 29. Some industrial chemicals and dyestuffs, World 
Health Organization, Lyon, France, p. 345-389.
    \259\ Irons, R.D.; Stillman, W.S.; Colagiovanni, D.B.; Henry, 
V.A. 1992. Synergistic action of the benzene metabolite hydroquinone 
on myelopoietic stimulating activity of granulocyte/macrophage 
colony-stimulating factor in vitro, Proc. Natl. Acad. Sci. 89:3691-
3695.
    \260\ International Agency for Research on Cancer (IARC). 1987. 
Monographs on the evaluation of carcinogenic risk of chemicals to 
humans, Volume 29. Supplement 7, Some industrial chemicals and 
dyestuffs, World Health Organization, Lyon, France.
    \261\ U.S. Department of Health and Human Services National 
Toxicology Program 11th Report on Carcinogens available at http://www.ntp.niehs.nih.gov/go/16183.
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    A number of adverse noncancer health effects including blood 
disorders, such as preleukemia and aplastic anemia, have also been 
associated with

[[Page 49597]]

long-term exposure to benzene.262 263 The most sensitive 
noncancer effect observed in humans, based on current data, is the 
depression of the absolute lymphocyte count in blood.264 265 
In addition, recent work, including studies sponsored by the Health 
Effects Institute (HEI), provides evidence that biochemical responses 
are occurring at lower levels of benzene exposure than previously know 
266 267 268 269 EPA's IRIS program has not yet evaluated 
these new data.
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    \262\ Aksoy, M. (1989). Hematotoxicity and carcinogenicity of 
benzene. Environ. Health Perspect. 82: 193-197.
    \263\ Goldstein, B.D. (1988). Benzene toxicity. Occupational 
medicine. State of the Art Reviews. 3: 541-554.
    \264\ Rothman, N., G.L. Li, M. Dosemeci, W.E. Bechtold, G.E. 
Marti, Y.Z. Wang, M. Linet, L.Q. Xi, W. Lu, M.T. Smith, N. Titenko-
Holland, L.P. Zhang, W. Blot, S.N. Yin, and R.B. Hayes (1996) 
Hematotoxicity among Chinese workers heavily exposed to benzene. Am. 
J. Ind. Med. 29: 236-246.
    \265\ U.S. EPA (2002) Toxicological Review of Benzene (Noncancer 
Effects). Environmental Protection Agency, Integrated Risk 
Information System (IRIS), Research and Development, National Center 
for Environmental Assessment, Washington DC. This material is 
available electronically at http://www.epa.gov/iris/subst/0276.htm.
    \266\ Qu, O.; Shore, R.; Li, G.; Jin, X.; Chen, C.L.; Cohen, B.; 
Melikian, A.; Eastmond, D.; Rappaport, S.; Li, H.; Rupa, D.; 
Suramaya, R.; Songnian, W.; Huifant, Y.; Meng, M.; Winnik, M.; Kwok, 
E.; Li, Y.; Mu, R.; Xu, B.; Zhang, X.; Li, K. (2003) HEI Report 115, 
Validation & Evaluation of Biomarkers in Workers Exposed to Benzene 
in China.
    \267\ Qu, Q., R. Shore, G. Li, X. Jin, L.C. Chen, B. Cohen, et 
al. (2002) Hematological changes among Chinese workers with a broad 
range of benzene exposures. Am. J. Industr. Med. 42: 275-285.
    \268\ Lan, Qing, Zhang, L., Li, G., Vermeulen, R., et al. (2004) 
Hematotoxically in Workers Exposed to Low Levels of Benzene. Science 
306: 1774-1776.
    \269\ Turtletaub, K.W. and Mani, C. (2003) Benzene metabolism in 
rodents at doses relevant to human exposure from Urban Air. Research 
Reports Health Effect Inst. Report No.113.
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ii. 1,3-Butadiene
    EPA has characterized 1,3-butadiene as carcinogenic to humans by 
inhalation.270 271 The IARC has determined that 1,3-
butadiene is a human carcinogen and the U.S. DHHS has characterized 
1,3-butadiene as a known human carcinogen.272 273 There are 
numerous studies consistently demonstrating that 1,3-butadiene is 
metabolized into genotoxic metabolites by experimental animals and 
humans. The specific mechanisms of 1,3-butadiene-induced carcinogenesis 
are unknown; however, the scientific evidence strongly suggests that 
the carcinogenic effects are mediated by genotoxic metabolites. Animal 
data suggest that females may be more sensitive than males for cancer 
effects associated with 1,3-butadiene exposure; there are insufficient 
data in humans from which to draw conclusions about sensitive 
subpopulations. 1,3-butadiene also causes a variety of reproductive and 
developmental effects in mice; no human data on these effects are 
available. The most sensitive effect was ovarian atrophy observed in a 
lifetime bioassay of female mice.\274\
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    \270\ U.S. EPA (2002) Health Assessment of 1,3-Butadiene. Office 
of Research and Development, National Center for Environmental 
Assessment, Washington Office, Washington, DC. Report No. EPA600-P-
98-001F. This document is available electronically at http://www.epa.gov/iris/supdocs/buta-sup.pdf.
    \271\ U.S. EPA (2002) Full IRIS Summary for 1,3-butadiene (CASRN 
106-99-0). Environmental Protection Agency, Integrated Risk 
Information System (IRIS), Research and Development, National Center 
for Environmental Assessment, Washington, DC http://www.epa.gov/iris/subst/0139.htm.
    \272\ International Agency for Research on Cancer (IARC) (1999) 
Monographs on the evaluation of carcinogenic risk of chemicals to 
humans, Volume 71, Re-evaluation of some organic chemicals, 
hydrazine and hydrogen peroxide and Volume 97 (in preparation), 
World Health Organization, Lyon, France.
    \273\ U.S. Department of Health and Human Services (2005) 
National Toxicology Program 11th Report on Carcinogens available at: 
ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E-7FCE50709CB4C932.
    \274\ Bevan, C.; Stadler, J.C.; Elliot, G.S.; et al. (1996) 
Subchronic toxicity of 4-vinylcyclohexene in rats and mice by 
inhalation. Fundam. Appl. Toxicol. 32:1-10.
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iii. Formaldehyde
    Since 1987, EPA has classified formaldehyde as a probable human 
carcinogen based on evidence in humans and in rats, mice, hamsters, and 
monkeys.\275\ EPA is currently reviewing recently published 
epidemiological data. For instance, research conducted by the National 
Cancer Institute (NCI) found an increased risk of nasopharyngeal cancer 
and lymphohematopoietic malignancies such as leukemia among workers 
exposed to formaldehyde.276 277 In an analysis of the 
lymphohematopoietic cancer mortality from an extended follow-up of 
these workers, NCI confirmed an association between lymphohematopoietic 
cancer risk and peak exposures.\278\ A recent National Institute of 
Occupational Safety and Health (NIOSH) study of garment workers also 
found increased risk of death due to leukemia among workers exposed to 
formaldehyde.\279\ Extended follow-up of a cohort of British chemical 
workers did not find evidence of an increase in nasopharyngeal or 
lymphohematopoietic cancers, but a continuing statistically significant 
excess in lung cancers was reported.\280\ Recently, the IARC re-
classified formaldehyde as a human carcinogen (Group 1).\281\
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    \275\ U.S. EPA (1987) Assessment of Health Risks to Garment 
Workers and Certain Home Residents from Exposure to Formaldehyde, 
Office of Pesticides and Toxic Substances, April 1987.
    \276\ Hauptmann, M.; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.; 
Blair, A. 2003. Mortality from lymphohematopeotic malignancies among 
workers in formaldehyde industries. Journal of the National Cancer 
Institute 95: 1615-1623.
    \277\ Hauptmann, M.; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.; 
Blair, A. 2004. Mortality from solid cancers among workers in 
formaldehyde industries. American Journal of Epidemiology 159: 1117-
1130.
    \278\ Beane Freeman, L. E.; Blair, A.; Lubin, J. H.; Stewart, P. 
A.; Hayes, R. B.; Hoover, R. N.; Hauptmann, M. 2009. Mortality from 
lymphohematopoietic malignancies among workers in formaldehyde 
industries: The National Cancer Institute cohort. J. National Cancer 
Inst. 101: 751-761.
    \279\ Pinkerton, L. E. 2004. Mortality among a cohort of garment 
workers exposed to formaldehyde: an update. Occup. Environ. Med. 61: 
193-200.
    \280\ Coggon, D, EC Harris, J Poole, KT Palmer. 2003. Extended 
follow-up of a cohort of British chemical workers exposed to 
formaldehyde. J National Cancer Inst. 95:1608-1615.
    \281\ International Agency for Research on Cancer (IARC). 2006. 
Formaldehyde, 2-Butoxyethanol and 1-tert-Butoxypropan-2-ol. Volume 
88. (in preparation), World Health Organization, Lyon, France.
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    Formaldehyde exposure also causes a range of noncancer health 
effects, including irritation of the eyes (burning and watering of the 
eyes), nose and throat. Effects from repeated exposure in humans 
include respiratory tract irritation, chronic bronchitis and nasal 
epithelial lesions such as metaplasia and loss of cilia. Animal studies 
suggest that formaldehyde may also cause airway inflammation--including 
eosinophil infiltration into the airways. There are several studies 
that suggest that formaldehyde may increase the risk of asthma--
particularly in the young.282 283
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    \282\ Agency for Toxic Substances and Disease Registry (ATSDR). 
1999. Toxicological profile for Formaldehyde. Atlanta, GA: U.S. 
Department of Health and Human Services, Public Health Service. 
http://www.atsdr.cdc.gov/toxprofiles/tp111.html.
    \283\ WHO (2002) Concise International Chemical Assessment 
Document 40: Formaldehyde. Published under the joint sponsorship of 
the United Nations Environment Programme, the International Labour 
Organization, and the World Health Organization, and produced within 
the framework of the Inter-Organization Programme for the Sound 
Management of Chemicals. Geneva.
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iv. Acetaldehyde
    Acetaldehyde is classified in EPA's IRIS database as a probable 
human carcinogen, based on nasal tumors in rats, and is considered 
toxic by the inhalation, oral, and intravenous routes.\284\ 
Acetaldehyde is reasonably anticipated to be a human carcinogen by the 
U.S. DHHS in the 11th Report on Carcinogens and is classified as 
possibly carcinogenic to humans (Group 2B) by

[[Page 49598]]

the IARC.285 286 EPA is currently conducting a reassessment 
of cancer risk from inhalation exposure to acetaldehyde. The primary 
noncancer effects of exposure to acetaldehyde vapors include irritation 
of the eyes, skin, and respiratory tract.\287\ In short-term (4 week) 
rat studies, degeneration of olfactory epithelium was observed at 
various concentration levels of acetaldehyde 
exposure.288 289 Data from these studies were used by EPA to 
develop an inhalation reference concentration. Some asthmatics have 
been shown to be a sensitive subpopulation to decrements in functional 
expiratory volume (FEV1 test) and bronchoconstriction upon acetaldehyde 
inhalation.\290\ The agency is currently conducting a reassessment of 
the health hazards from inhalation exposure to acetaldehyde.
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    \284\ U.S. EPA. 1991. Integrated Risk Information System File of 
Acetaldehyde. Research and Development, National Center for 
Environmental Assessment, Washington, DC. This material is available 
electronically at http://www.epa.gov/iris/subst/0290.htm.
    \285\ U.S. Department of Health and Human Services National 
Toxicology Program 11th Report on Carcinogens available at: 
ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E-7FCE50709CB4C932.
    \286\ International Agency for Research on Cancer (IARC). 1999. 
Re-evaluation of some organic chemicals, hydrazine, and hydrogen 
peroxide. IARC Monographs on the Evaluation of Carcinogenic Risk of 
Chemical to Humans, Vol. 71. Lyon, France.
    \287\ U.S. EPA. 1991. Integrated Risk Information System File of 
Acetaldehyde. This material is available electronically at http://www.epa.gov/iris/subst/0290.htm.
    \288\ Appleman, L. M., R. A. Woutersen, V. J. Feron, R. N. 
Hooftman, and W. R. F. Notten. 1986. Effects of the variable versus 
fixed exposure levels on the toxicity of acetaldehyde in rats. J. 
Appl. Toxicol. 6: 331-336.
    \289\ Appleman, L.M., R.A. Woutersen, and V.J. Feron. 1982. 
Inhalation toxicity of acetaldehyde in rats. I. Acute and subacute 
studies. Toxicology. 23: 293-297.
    \290\ Myou, S.; Fujimura, M.; Nishi K.; Ohka, T.; and Matsuda, 
T. 1993. Aerosolized acetaldehyde induces histamine-mediated 
bronchoconstriction in asthmatics. Am. Rev. Respir. Dis.148(4 Pt 1): 
940-3.
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v. Acrolein
    Acrolein is extremely acrid and irritating to humans when inhaled, 
with acute exposure resulting in upper respiratory tract irritation, 
mucus hypersecretion and congestion. Levels considerably lower than 1 
ppm (2.3 mg/m3) elicit subjective complaints of eye and 
nasal irritation and a decrease in the respiratory 
rate.291 292 Lesions to the lungs and upper respiratory 
tract of rats, rabbits, and hamsters have been observed after 
subchronic exposure to acrolein. Based on animal data, individuals with 
compromised respiratory function (e.g., emphysema, asthma) are expected 
to be at increased risk of developing adverse responses to strong 
respiratory irritants such as acrolein. This was demonstrated in mice 
with allergic airway-disease by comparison to non-diseased mice in a 
study of the acute respiratory irritant effects of acrolein.\293\ The 
intense irritancy of this carbonyl has been demonstrated during 
controlled tests in human subjects, who suffer intolerable eye and 
nasal mucosal sensory reactions within minutes of exposure.\294\
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    \291\ Weber-Tschopp, A; Fischer, T; Gierer, R; et al. (1977) 
Experimentelle reizwirkungen von Acrolein auf den Menschen. Int Arch 
Occup Environ Hlth 40(2):117-130. In German
    \292\ Sim, VM; Pattle, RE. (1957) Effect of possible smog 
irritants on human subjects. J Am Med Assoc 165(15):1908-1913.
    \293\ Morris JB, Symanowicz PT, Olsen JE, et al. 2003. Immediate 
sensory nerve-mediated respiratory responses to irritants in healthy 
and allergic airway-diseased mice. J Appl Physiol 94(4):1563-1571.
    \294\ Sim VM, Pattle RE. Effect of possible smog irritants on 
human subjects JAMA165: 1980-2010, 1957.
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    EPA determined in 2003 that the human carcinogenic potential of 
acrolein could not be determined because the available data were 
inadequate. No information was available on the carcinogenic effects of 
acrolein in humans and the animal data provided inadequate evidence of 
carcinogenicity.\295\ The IARC determined in 1995 that acrolein was not 
classifiable as to its carcinogenicity in humans.\296\
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    \295\ U.S. EPA. 2003. Integrated Risk Information System File of 
Acrolein. Research and Development, National Center for 
Environmental Assessment, Washington, DC. This material is available 
at http://www.epa.gov/iris/subst/0364.htm.
    \296\ International Agency for Research on Cancer (IARC). 1995. 
Monographs on the evaluation of carcinogenic risk of chemicals to 
humans, Volume 63, Dry cleaning, some chlorinated solvents and other 
industrial chemicals, World Health Organization, Lyon, France.
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vi. Polycyclic Organic Matter (POM)
    POM is generally defined as a large class of organic compounds 
which have multiple benzene rings and a boiling point greater than 100 
degrees Celsius. Many of the compounds included in the class of 
compounds known as POM are classified by EPA as probable human 
carcinogens based on animal data. One of these compounds, naphthalene, 
is discussed separately below. Polycyclic aromatic hydrocarbons (PAHs) 
are a subset of POM that contain only hydrogen and carbon atoms. A 
number of PAHs are known or suspected carcinogens. Recent studies have 
found that maternal exposures to PAHs (a subclass of POM) in a 
population of pregnant women were associated with several adverse birth 
outcomes, including low birth weight and reduced length at birth, as 
well as impaired cognitive development at age three.297 298 
EPA has not yet evaluated these recent studies.
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    \297\ Perera, F.P.; Rauh, V.; Tsai, W-Y.; et al. (2002) Effect 
of transplacental exposure to environmental pollutants on birth 
outcomes in a multiethnic population. Environ Health Perspect. 111: 
201-205.
    \298\ Perera, F.P.; Rauh, V.; Whyatt, R.M.; Tsai, W.Y.; Tang, 
D.; Diaz, D.; Hoepner, L.; Barr, D.; Tu, Y.H.; Camann, D.; Kinney, 
P. (2006) Effect of prenatal exposure to airborne polycyclic 
aromatic hydrocarbons on neurodevelopment in the first 3 years of 
life among inner-city children. Environ Health Perspect 114: 1287-
1292.
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vii. Naphthalene
    Naphthalene is found in small quantities in gasoline and diesel 
fuels. Naphthalene emissions have been measured in larger quantities in 
both gasoline and diesel exhaust compared with evaporative emissions 
from mobile sources, indicating it is primarily a product of 
combustion. EPA released an external review draft of a reassessment of 
the inhalation carcinogenicity of naphthalene based on a number of 
recent animal carcinogenicity studies.\299\ The draft reassessment 
completed external peer review.\300\ Based on external peer review 
comments received, additional analyses are being undertaken. This 
external review draft does not represent official agency opinion and 
was released solely for the purposes of external peer review and public 
comment. Once EPA evaluates public and peer reviewer comments, the 
document will be revised. The National Toxicology Program listed 
naphthalene as ``reasonably anticipated to be a human carcinogen'' in 
2004 on the basis of bioassays reporting clear evidence of 
carcinogenicity in rats and some evidence of carcinogenicity in 
mice.\301\ California EPA has released a new risk assessment for 
naphthalene, and the IARC has reevaluated naphthalene and re-classified 
it as Group 2B: possibly carcinogenic to humans.\302\ Naphthalene also 
causes a number of chronic non-cancer effects in animals, including

[[Page 49599]]

abnormal cell changes and growth in respiratory and nasal tissues.\303\
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    \299\ U. S. EPA. 2004. Toxicological Review of Naphthalene 
(Reassessment of the Inhalation Cancer Risk), Environmental 
Protection Agency, Integrated Risk Information System, Research and 
Development, National Center for Environmental Assessment, 
Washington, DC. This material is available electronically at http://www.epa.gov/iris/subst/0436.htm.
    \300\ Oak Ridge Institute for Science and Education. (2004). 
External Peer Review for the IRIS Reassessment of the Inhalation 
Carcinogenicity of Naphthalene. August 2004. http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=84403.
    \301\ National Toxicology Program (NTP). (2004). 11th Report on 
Carcinogens. Public Health Service, U.S. Department of Health and 
Human Services, Research Triangle Park, NC. Available from: http://ntp-server.niehs.nih.gov.
    \302\ International Agency for Research on Cancer (IARC). 
(2002). Monographs on the Evaluation of the Carcinogenic Risk of 
Chemicals for Humans. Vol. 82. Lyon, France.
    \303\ U. S. EPA. 1998. Toxicological Review of Naphthalene, 
Environmental Protection Agency, Integrated Risk Information System, 
Research and Development, National Center for Environmental 
Assessment, Washington, DC. This material is available 
electronically at http://www.epa.gov/iris/subst/0436.htm.
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viii. Other Air Toxics
    In addition to the compounds described above, other compounds in 
gaseous hydrocarbon and PM emissions from vehicles will be affected by 
this proposed action. Mobile source air toxic compounds that would 
potentially be impacted include ethylbenzene, polycyclic organic 
matter, propionaldehyde, toluene, and xylene. Information regarding the 
health effects of these compounds can be found in EPA's IRIS 
database.\304\
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    \304\ U.S. EPA Integrated Risk Information System (IRIS) 
database is available at: www.epa.gov/iris.
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4. Environmental Effects of Non-GHG Pollutants
a. Visibility
    Visibility can be defined as the degree to which the atmosphere is 
transparent to visible light. Airborne particles degrade visibility by 
scattering and absorbing light. Visibility is important because it has 
direct significance to people's enjoyment of daily activities in all 
parts of the country. Individuals value good visibility for the well-
being it provides them directly, where they live and work and in places 
where they enjoy recreational opportunities. Visibility is also highly 
valued in significant natural areas such as national parks and 
wilderness areas and special emphasis is given to protecting visibility 
in these areas. For more information on visibility, see the final 2004 
PM AQCD as well as the 2005 PM Staff Paper.305 306
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    \305\ U.S. EPA. (2004). Air Quality Criteria for Particulate 
Matter (AQCD). Volume I Document No. EPA600/P-99/002aF and Volume II 
Document No. EPA600/P-99/002bF. Washington, DC: U.S. Environmental 
Protection Agency. Retrieved on March 18, 2009 from http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=87903.
    \306\ U.S. EPA. (2005). Review of the National Ambient Air 
Quality Standard for Particulate Matter: Policy Assessment of 
Scientific and Technical Information, OAQPS Staff Paper. EPA-452/R-
05-005. Washington, DC: U.S. Environmental Protection Agency.
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    EPA is pursuing a two-part strategy to address visibility. First, 
to address the welfare effects of PM on visibility, EPA has set 
secondary PM2.5 standards which act in conjunction with the 
establishment of a regional haze program. In setting this secondary 
standard, EPA has concluded that PM2.5 causes adverse 
effects on visibility in various locations, depending on PM 
concentrations and factors such as chemical composition and average 
relative humidity. Second, section 169 of the Clean Air Act provides 
additional authority to address existing visibility impairment and 
prevent future visibility impairment in the 156 national parks, forests 
and wilderness areas categorized as mandatory class I Federal areas (62 
FR 38680-81, July 18, 1997).\307\ In July 1999, the regional haze rule 
(64 FR 35714) was put in place to protect the visibility in mandatory 
class I Federal areas. Visibility can be said to be impaired in both 
PM2.5 nonattainment areas and mandatory class I Federal 
areas.
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    \307\ These areas are defined in section 162 of the Act as those 
national parks exceeding 6,000 acres, wilderness areas and memorial 
parks exceeding 5,000 acres, and all international parks which were 
in existence on August 7, 1977.
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b. Plant and Ecosystem Effects of Ozone
    Elevated ozone levels contribute to environmental effects, with 
impacts to plants and ecosystems being of most concern. Ozone can 
produce both acute and chronic injury in sensitive species depending on 
the concentration level and the duration of the exposure. Ozone effects 
also tend to accumulate over the growing season of the plant, so that 
even low concentrations experienced for a longer duration have the 
potential to create chronic stress on vegetation. Ozone damage to 
plants includes visible injury to leaves and impaired photosynthesis, 
both of which can lead to reduced plant growth and reproduction, 
resulting in reduced crop yields, forestry production, and use of 
sensitive ornamentals in landscaping. In addition, the impairment of 
photosynthesis, the process by which the plant makes carbohydrates (its 
source of energy and food), can lead to a subsequent reduction in root 
growth and carbohydrate storage below ground, resulting in other, more 
subtle plant and ecosystems impacts.
    These latter impacts include increased susceptibility of plants to 
insect attack, disease, harsh weather, interspecies competition and 
overall decreased plant vigor. The adverse effects of ozone on forest 
and other natural vegetation can potentially lead to species shifts and 
loss from the affected ecosystems, resulting in a loss or reduction in 
associated ecosystem goods and services. Lastly, visible ozone injury 
to leaves can result in a loss of aesthetic value in areas of special 
scenic significance like national parks and wilderness areas. The final 
2006 ozone AQCD presents more detailed information on ozone effects on 
vegetation and ecosystems.
c. Atmospheric Deposition
    Wet and dry deposition of ambient particulate matter delivers a 
complex mixture of metals (e.g., mercury, zinc, lead, nickel, aluminum, 
cadmium), organic compounds (e.g., POM, dioxins, furans) and inorganic 
compounds (e.g., nitrate, sulfate) to terrestrial and aquatic 
ecosystems. The chemical form of the compounds deposited depends on a 
variety of factors including ambient conditions (e.g., temperature, 
humidity, oxidant levels) and the sources of the material. Chemical and 
physical transformations of the compounds occur in the atmosphere as 
well as the media onto which they deposit. These transformations in 
turn influence the fate, bioavailability and potential toxicity of 
these compounds. Atmospheric deposition has been identified as a key 
component of the environmental and human health hazard posed by several 
pollutants including mercury, dioxin and PCBs.\308\
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    \308\ U.S. EPA (2000) Deposition of Air Pollutants to the Great 
Waters: Third Report to Congress. Office of Air Quality Planning and 
Standards. EPA-453/R-00-0005. This document is available in Docket 
EPA-HQ-OAR-2003-0190.
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    Adverse impacts on water quality can occur when atmospheric 
contaminants deposit to the water surface or when material deposited on 
the land enters a water body through runoff. Potential impacts of 
atmospheric deposition to water bodies include those related to both 
nutrient and toxic inputs. Adverse effects to human health and welfare 
can occur from the addition of excess nitrogen via atmospheric 
deposition. The nitrogen-nutrient enrichment contributes to toxic algae 
blooms and zones of depleted oxygen, which can lead to fish kills, 
frequently in coastal waters. Deposition of heavy metals or other 
toxins may lead to the human ingestion of contaminated fish, human 
ingestion of contaminated water, damage to the marine ecology, and 
limits to recreational uses. Several studies have been conducted in 
U.S. coastal waters and in the Great Lakes Region in which the role of 
ambient PM deposition and runoff is 
investigated.309 310 311 312 313
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    \309\ U.S. EPA (2004) National Coastal Condition Report II. 
Office of Research and Development/Office of Water. EPA-620/R-03/
002. This document is available in Docket EPA-HQ-OAR-2003-0190.
    \310\ Gao, Y., E.D. Nelson, M.P. Field, et al. 2002. 
Characterization of atmospheric trace elements on PM2.5 
particulate matter over the New York-New Jersey harbor estuary. 
Atmos. Environ. 36: 1077-1086.
    \311\ Kim, G., N. Hussain, J.R. Scudlark, and T.M. Church. 2000. 
Factors influencing the atmospheric depositional fluxes of stable 
Pb, 210Pb, and 7Be into Chesapeake Bay. J. Atmos. Chem. 36: 65-79.
    \312\ Lu, R., R.P. Turco, K. Stolzenbach, et al. 2003. Dry 
deposition of airborne trace metals on the Los Angeles Basin and 
adjacent coastal waters. J. Geophys. Res. 108(D2, 4074): AAC 11-1 to 
11-24.
    \313\ Marvin, C.H., M.N. Charlton, E.J. Reiner, et al. 2002. 
Surficial sediment contamination in Lakes Erie and Ontario: A 
comparative analysis. J. Great Lakes Res. 28(3): 437-450.

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[[Page 49600]]

    Atmospheric deposition of nitrogen and sulfur contributes to 
acidification, altering biogeochemistry and affecting animal and plant 
life in terrestrial and aquatic ecosystems across the U.S. The 
sensitivity of terrestrial and aquatic ecosystems to acidification from 
nitrogen and sulfur deposition is predominantly governed by geology. 
Prolonged exposure to excess nitrogen and sulfur deposition in 
sensitive areas acidifies lakes, rivers and soils. Increased acidity in 
surface waters creates inhospitable conditions for biota and affects 
the abundance and nutritional value of preferred prey species, 
threatening biodiversity and ecosystem function. Over time, acidifying 
deposition also removes essential nutrients from forest soils, 
depleting the capacity of soils to neutralize future acid loadings and 
negatively affecting forest sustainability. Major effects include a 
decline in sensitive forest tree species, such as red spruce (Picea 
rubens) and sugar maple (Acer saccharum), and a loss of biodiversity of 
fishes, zooplankton, and macro invertebrates.
    In addition to the role nitrogen deposition plays in acidification, 
nitrogen deposition also causes ecosystem nutrient enrichment leading 
to eutrophication that alters biogeochemical cycles. Excess nitrogen 
also leads to the loss of nitrogen sensitive lichen species as they are 
outcompeted by invasive grasses as well as altering the biodiversity of 
terrestrial ecosystems, such as grasslands and meadows. For a broader 
explanation of the topics treated here, refer to the description in 
Chapter 7 of the DRIA.
    Adverse impacts on soil chemistry and plant life have been observed 
for areas heavily influenced by atmospheric deposition of nutrients, 
metals and acid species, resulting in species shifts, loss of 
biodiversity, forest decline and damage to forest productivity. 
Potential impacts also include adverse effects to human health through 
ingestion of contaminated vegetation or livestock (as in the case for 
dioxin deposition), reduction in crop yield, and limited use of land 
due to contamination.
    Atmospheric deposition of pollutants can reduce the aesthetic 
appeal of buildings and culturally important articles through soiling, 
and can contribute directly (or in conjunction with other pollutants) 
to structural damage by means of corrosion or erosion. Atmospheric 
deposition may affect materials principally by promoting and 
accelerating the corrosion of metals, by degrading paints, and by 
deteriorating building materials such as concrete and limestone. 
Particles contribute to these effects because of their electrolytic, 
hygroscopic, and acidic properties, and their ability to adsorb 
corrosive gases (principally sulfur dioxide). The rate of metal 
corrosion depends on a number of factors, including the deposition rate 
and nature of the pollutant; the influence of the metal protective 
corrosion film; the amount of moisture present; variability in the 
electrochemical reactions; the presence and concentration of other 
surface electrolytes; and the orientation of the metal surface.
d. Environmental Effects of Air Toxics
    Fuel combustion emissions contribute to ambient levels of 
pollutants that contribute to adverse effects on vegetation. Volatile 
organic compounds (VOCs), some of which are considered air toxics, have 
long been suspected to play a role in vegetation damage.\314\ In 
laboratory experiments, a wide range of tolerance to VOCs has been 
observed.\315\ Decreases in harvested seed pod weight have been 
reported for the more sensitive plants, and some studies have reported 
effects on seed germination, flowering and fruit ripening. Effects of 
individual VOCs or their role in conjunction with other stressors 
(e.g., acidification, drought, temperature extremes) have not been well 
studied. In a recent study of a mixture of VOCs including ethanol and 
toluene on herbaceous plants, significant effects on seed production, 
leaf water content and photosynthetic efficiency were reported for some 
plant species.\316\
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    \314\ U.S. EPA. 1991. Effects of organic chemicals in the 
atmosphere on terrestrial plants. EPA/600/3-91/001.
    \315\ Cape JN, ID Leith, J Binnie, J Content, M Donkin, M 
Skewes, DN Price AR Brown, AD Sharpe. 2003. Effects of VOCs on 
herbaceous plants in an open-top chamber experiment. Environ. 
Pollut. 124:341-343.
    \316\ Cape JN, ID Leith, J Binnie, J Content, M Donkin, M 
Skewes, DN Price AR Brown, AD Sharpe. 2003. Effects of VOCs on 
herbaceous plants in an open-top chamber experiment. Environ. 
Pollut. 124:341-343.
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    Research suggests an adverse impact of vehicle exhaust on plants, 
which has in some cases been attributed to aromatic compounds and in 
other cases to nitrogen oxides.317 318 319 The impacts of 
VOCs on plant reproduction may have long-term implications for 
biodiversity and survival of native species near major roadways. Most 
of the studies of the impacts of VOCs on vegetation have focused on 
short-term exposure and few studies have focused on long-term effects 
of VOCs on vegetation and the potential for metabolites of these 
compounds to affect herbivores or insects.
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    \317\ Viskari E-L. 2000. Epicuticular wax of Norway spruce 
needles as indicator of traffic pollutant deposition. Water, Air, 
and Soil Pollut. 121:327-337.
    \318\ Ugrekhelidze D, F Korte, G Kvesitadze. 1997. Uptake and 
transformation of benzene and toluene by plant leaves. Ecotox. 
Environ. Safety 37:24-29.
    \319\ Kammerbauer H, H Selinger, R Rommelt, A Ziegler-Jons, D 
Knoppik, B Hock. 1987. Toxic components of motor vehicle emissions 
for the spruce Pciea abies. Environ. Pollut. 48:235-243.
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5. Air Quality Impacts of Non-GHG Pollutants
a. Current Levels of PM2.5, Ozone, CO and Air Toxics
    This proposal may have impacts on levels of PM2.5, 
ozone, CO and air toxics. Nationally, levels of PM2.5, 
ozone, CO and air toxics are declining.320 321 However, in 
2005 EPA designated 39 nonattainment areas for the 1997 
PM2.5 National Ambient Air Quality Standard (NAAQS) (70 FR 
943, January 5, 2005). These areas are composed of 208 full or partial 
counties with a total population exceeding 88 million. The 1997 
PM2.5 NAAQS was recently revised and the 2006 24-hour 
PM2.5 NAAQS became effective on December 18, 2006. The 
numbers above likely underestimate the number of counties that are not 
meeting the PM2.5 NAAQS because the nonattainment areas 
associated with the more stringent 2006 24-hour PM2.5 NAAQS 
have not yet been designated. Area designations for the 2006 24-hour 
PM2.5 NAAQS are expected to be promulgated in 2009 and 
become effective 90 days after publication in the Federal Register.
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    \320\ U.S. EPA (2008) National Air Quality Status and Trends 
through 2007. Office of Air Quality Planning and Standards, Research 
Triangle Park, NC. Publication No. EPA 454/R-08-006. http://epa.gov/airtrends/2008/index.html.
    \321\ U.S. EPA (2007) Final Regulatory Impact Analysis: Control 
of Hazardous Air Pollutants from Mobile Sources, Office of 
Transportation and Air Quality, Ann Arbor, MI, Publication No. 
EPA420-R-07-002. http://www.epa.gov/otaq/toxics.htm.
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    In addition, the U.S. EPA has recently amended the ozone NAAQS (73 
FR 16436, March 27, 2008). That final 2008 ozone NAAQS rule set forth 
revisions to the previous 1997 NAAQS for ozone to provide increased 
protection of public health and welfare. As of June 5, 2009, there are 
55 areas designated as

[[Page 49601]]

nonattainment for the 1997 8-hour ozone NAAQS, comprising 290 full or 
partial counties with a total population of approximately 132 million 
people. These numbers do not include the people living in areas where 
there is a future risk of failing to maintain or attain the 1997 8-hour 
ozone NAAQS. The numbers above likely underestimate the number of 
counties that are not meeting the ozone NAAQS because the nonattainment 
areas associated with the more stringent 2008 8-hour ozone NAAQS have 
not yet been designated.
    The proposed vehicle standards may also impact levels of ambient 
CO, a criteria pollutant (see Table III.G-1 above for co-pollutant 
emission impacts). As of June 5, 2009 there are approximately 479,000 
people living in a portion of Clark Co., NV which is currently the only 
area in the country that is designated as nonattainment for CO.\322\
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    \322\ Carbon Monoxide Nonattainment Area Summary: http://www.epa.gov/air/oaqps/greenbk/cnsum.html.
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    Further, the majority of Americans continue to be exposed to 
ambient concentrations of air toxics at levels which have the potential 
to cause adverse health effects.\323\ The levels of air toxics to which 
people are exposed vary depending on where people live and work and the 
kinds of activities in which they engage, as discussed in detail in 
U.S. EPA's recent mobile source air toxics rule.\324\
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    \323\ U.S. Environmental Protection Agency (2007). Control of 
Hazardous Air Pollutants from Mobile Sources; Final Rule. 72 FR 
8434, February 26, 2007.
    \324\ U.S. Environmental Protection Agency (2007). Control of 
Hazardous Air Pollutants from Mobile Sources; Final Rule. 72 FR 
8434, February 26, 2007.
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b. Impacts of Proposed Standards on Future Ambient PM2.5, 
Ozone, CO and Air Toxics
    Full-scale photochemical air quality modeling is necessary to 
accurately project levels of PM2.5, ozone, CO and air 
toxics. For the final rule, a national-scale air quality modeling 
analysis will be performed to analyze the impacts of the vehicle 
standards on PM2.5, ozone, and selected air toxics (i.e., 
benzene, formaldehyde, acetaldehyde, acrolein and 1,3-butadiene). The 
length of time needed to prepare the necessary emissions inventories, 
in addition to the processing time associated with the modeling itself, 
has precluded us from performing air quality modeling for this 
proposal.
    Section III.G.1 of the preamble presents projections of the changes 
in criteria pollutant and air toxics emissions due to the proposed 
vehicle standards; the basis for those estimates is set out in Chapter 
5 of the DRIA. The atmospheric chemistry related to ambient 
concentrations of PM2.5, ozone and air toxics is very 
complex, and making predictions based solely on emissions changes is 
extremely difficult. However, based on the magnitude of the emissions 
changes predicted to result from the proposed vehicle standards, EPA 
expects that there will be an improvement in ambient air quality, 
pending a more comprehensive analysis for the final rule.
    For the final rule, EPA intends to use a 2005-based Community 
Multi-scale Air Quality (CMAQ) modeling platform as the tool for the 
air quality modeling. The CMAQ modeling system is a comprehensive 
three-dimensional grid-based Eulerian air quality model designed to 
estimate the formation and fate of oxidant precursors, primary and 
secondary PM concentrations and deposition, and air toxics, over 
regional and urban spatial scales (e.g. over the contiguous 
U.S.).325 326 327 The CMAQ model is a well-known and well-
established tool and is commonly used by EPA for regulatory analyses, 
for instance the recent ozone NAAQS proposal, and by States in 
developing attainment demonstrations for their State Implementation 
Plans.\328\ The CMAQ model (version 4.6) was peer-reviewed in February 
of 2007 for EPA as reported in ``Third Peer Review of CMAQ Model,'' and 
the EPA Office of Research and Development (ORD) peer review report 
which includes version 4.7 is currently being finalized.\329\
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    \325\ U.S. Environmental Protection Agency, Byun, D.W., and 
Ching, J.K.S., Eds, 1999. Science algorithms of EPA Models-3 
Community Multiscale Air Quality (CMAQ modeling system, EPA/600/R-
99/030, Office of Research and Development).
    \326\ Byun, D.W., and Schere, K.L., 2006. Review of the 
Governing Equations, Computational Algorithms, and Other Components 
of the Models-3 Community Multiscale Air Quality (CMAQ) Modeling 
System, J. Applied Mechanics Reviews, 59 (2), 51-77.
    \327\ Dennis, R.L., Byun, D.W., Novak, J.H., Galluppi, K.J., 
Coats, C.J., and Vouk, M.A., 1996. The next generation of integrated 
air quality modeling: EPA's Models-3, Atmospheric Environment, 30, 
1925-1938.
    \328\ U.S. EPA (2007). Regulatory Impact Analysis of the 
Proposed Revisions to the National Ambient Air Quality Standards for 
Ground-Level Ozone. EPA document number 442/R-07-008, July 2007.
    \329\ Aiyyer, A., Cohan, D., Russell, A., Stockwell, W., 
Tanrikulu, S., Vizuete, W., Wilczak, J., 2007. Final Report: Third 
Peer Review of the CMAQ Model. p. 23.
---------------------------------------------------------------------------

    CMAQ includes many science modules that simulate the emission, 
production, decay, deposition and transport of organic and inorganic 
gas-phase and particle-phase pollutants in the atmosphere. EPA intends 
to use the most recent CMAQ version (version 4.7), which was officially 
released by EPA's Office of Research and Development (ORD) in December 
2008 and reflects updates to earlier versions in a number of areas to 
improve the underlying science. These include (1) enhanced secondary 
organic aerosol (SOA) mechanism to include chemistry of isoprene, 
sesquiterpene, and aged in-cloud biogenic SOA in addition to terpene; 
(2) improved vertical convective mixing; (3) improved heterogeneous 
reaction involving nitrate formation; and (4) an updated gas-phase 
chemistry mechanism, Carbon Bond 05 (CB05), with extensions to model 
explicit concentrations of air toxic species as well as chlorine and 
mercury. This mechanism, CB05-toxics, also computes concentrations of 
species that are involved in aqueous chemistry and that are precursors 
to aerosols.

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

    In this section, EPA presents the costs and impacts of EPA's 
proposed GHG program. 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 CO2 emissions 
reductions. The two agencies' standards comprise the National Program, 
and this discussion of costs and benefits of EPA's GHG standard 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.
    This section outlines the basis for assessing the benefits and 
costs of these standards and provides estimates of these costs and 
benefits. Some of these effects are private, meaning that they affect 
consumers and producers directly in their sales, purchases, and use of 
vehicles. These private effects include the costs of the technology, 
fuel savings, and the benefits of additional driving and reduced 
refueling. Other costs and benefits affect people outside the markets 
for vehicles and their use; these effects are termed external costs, 
because they affect people external to the market. The external effects 
include the climate impacts, the effects on non-GHG pollutants, and the 
effects on traffic, accidents, and noise due to additional driving. The 
sum of the private and external benefits and costs is the net social 
benefits of the program. There is some debate about the role of private 
benefits in assessing the benefits and costs of the program: If 
consumers have full information and perfect foresight in their vehicle 
purchase decisions, it is possible that they have

[[Page 49602]]

already considered these benefits in their vehicle purchase decisions. 
If so, then the inclusion of private benefits in the net benefits 
calculation may be inappropriate. If these conditions do not hold, then 
the private benefits may be a part of the net benefits. Section III.H.1 
discusses this issue more fully.
    EPA's proposed program costs consist of the vehicle program costs 
(costs of complying with the vehicle CO2 standards, taking 
into account FFV credits through 2015, the temporary lead-time 
alternative allowance standard program (TLAASP), full car/truck 
trading, and the A/C credit program), along with the fuel savings 
associated with reduced fuel usage resulting from the proposed program. 
These proposed program costs also include external costs associated 
with noise, congestion, accidents, time spent refueling vehicles, and 
energy security impacts. EPA also presents the cost-effectiveness of 
the proposed standards and our analysis of the expected economy-wide 
impacts. The projected monetized benefits of reducing GHG emissions and 
co-pollutant health and environmental impacts are also presented. EPA 
also presents our estimates of the impact on vehicle miles traveled and 
the impacts associated with those miles as well as other societal 
impacts of the proposed program, including energy security impacts.
    The total monetized benefits (excluding fuel savings) under the 
proposed program are projected to be $21 to $54 billion in 2030, 
assuming a 3 percent discount rate and depending on the value used for 
the social cost of carbon. The costs of the proposed program in 2030 
are estimated to be approximately $18 billion for new vehicle 
technology less $90 billion in savings realized by consumers through 
fewer fuel expenditures (calculated using pre-tax fuel prices).
    EPA has undertaken an analysis of the economy-wide impacts of the 
proposed GHG tailpipe standards as an exploratory exercise that EPA 
believes could provide additional insights into the potential impacts 
of the proposal.\330\ These results were not a factor regarding the 
appropriateness of the proposed GHG tailpipe standards. It is important 
to note that the results of this modeling exercise are dependent on the 
assumptions associated with how consumers will respond to increases in 
higher vehicle costs and improved vehicle fuel economy as a result of 
the proposal. Section III.H.1 discusses the underlying distinctions and 
implications of the role of consumer response in economic impacts.
---------------------------------------------------------------------------

    \330\ See Memorandum to Docket, ``Economy-Wide Impacts of 
Proposed Greenhouse Gas Tailpipe Standards,'' September 14, 2009 
(Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    Further information on these and other aspects of the economic 
impacts of our proposed rule are summarized in the following sections 
and are presented in more detail in the DRIA for this rulemaking. EPA 
requests comment on all aspects of the cost, savings, and benefits 
analysis presented here and in the DRIA. EPA also requests comment on 
the inputs used in these analyses as described in the Draft Joint TSD.
1. Conceptual Framework for Evaluating Consumer Impacts
    For this proposed rule, EPA projects significant private gains to 
consumers in three major areas: (1) Reductions in spending on fuel, (2) 
time saved due to less refueling, and (3) welfare gains from additional 
driving that results from the rebound effect. In combination, these 
private savings, mostly from fuel savings, appear to outweigh by a 
large margin the costs of the program, even without accounting for 
externalities.
    Admittedly, these findings pose a conundrum. On the one hand, 
consumers are expected to gain significantly from the proposed rules, 
as the increased cost of fuel efficient cars appears to be far smaller 
than the fuel savings (assuming modest discount rates). Yet fuel 
efficient cars are currently offered for sale, and consumers' 
purchasing decisions may suggest a preference for lower fuel economy 
than the proposed rule mandates. Assuming full information and perfect 
foresight, standard economic theory suggests that the private gains to 
consumers, large as they are, must therefore be accompanied by a 
consumer welfare loss. This calculation assumes that consumers 
accurately predict all the benefits they will get from a new vehicle, 
even if they underestimated fuel savings at the time of purchase. Even 
if there is some such loss, EPA believes that under realistic 
assumptions, the private gains from the proposed rule, together with 
the social gains (in the form of reduction of externalities), 
significantly outweigh the costs. But EPA seeks comments on the 
underlying issue.
    The central conundrum has been referred to as the Energy Paradox in 
this setting (and in several others).\331\ In short, the problem is 
that consumers appear not to purchase products that are in their 
economic self-interest. There are strong theoretical reasons why this 
might be so.\332\ Consumers might be myopic and hence undervalue the 
long-term; they might lack information or a full appreciation of 
information even when it is presented; they might be especially averse 
to the short-term losses associated with energy efficient products (the 
behavioral phenomenon of ``loss aversion''); even if consumers have 
relevant knowledge, the benefits of energy efficient vehicles might not 
be sufficiently salient to them at the time of purchase. A great deal 
of work in behavioral economics identifies factors of this sort, which 
help account for the Energy Paradox.\333\ This point holds in the 
context of fuel savings (the main focus here), but it applies equally 
to the other private benefits, including reductions in refueling time 
and additional driving.\334\
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    \331\ Jaffe, A.B., & Stavins, R.N. (1994). The Energy Paradox 
and the Diffusion of Conservation Technology. Resource and Energy 
Economics, 16(2), 91-122.
    \332\ For an overview, see id.
    \333\ Id.; Thaler, Richard. Quasi-Rational Economics. New York: 
Russell Sage, 1993.
    \334\ For example, it might be maintained that at the time of 
purchase, consumers take full account of the time potentially saved 
by fuel-efficient cars, but it might also be questioned whether they 
have adequate information to do so, or whether that factor is 
sufficiently salient to play the proper role in purchasing 
decisions.
---------------------------------------------------------------------------

    Considerable research suggests that the Energy Paradox is real and 
significant due to consumers' inability to value future fuel savings 
appropriately. For example, Sanstad and Howarth (1994) argue that 
consumers optimize behavior without full information by resorting to 
imprecise but convenient rules of thumb. Larrick and Soll (2008) find 
evidence that consumers do not understand how to translate changes in 
miles-per-gallon into fuel savings (a concern that EPA is continuing to 
attempt to address).\335\ If these arguments are valid, then there will 
be significant gains to consumers of the government mandating 
additional fuel economy.
---------------------------------------------------------------------------

    \335\ Sanstad, A., and R. Howarth (1994). `` `Normal' Markets, 
Market Imperfections, and Energy Efficiency.'' Energy Policy 22(10): 
811-818; Larrick, R.P., and J.B. Soll (2008). ``The MPG illusion.'' 
Science 320: 1593-1594.
---------------------------------------------------------------------------

    The evidence from consumer vehicle choice models indicates a huge 
range of estimates for consumers' willingness to pay for additional 
fuel economy. Because consumer surplus estimates from consumer vehicle 
choice models depend critically on this value, EPA would consider any 
consumer surplus estimates of the effect of our rule from such models 
to be unreliable. In addition, the predictive ability of consumer 
vehicle choice models may be limited. While vehicle choice models

[[Page 49603]]

are based on sales of existing vehicles, vehicle models are likely to 
change, both independently and in response to this proposed rule; the 
models may not predict well in response to these changes. Instead, EPA 
compares the value of the fuel savings associated with this rule with 
the increase in technology costs. EPA will continue its efforts to 
review the literature, but, given the known difficulties, EPA has not 
conducted an analysis using these models for this proposal.
    Consumer vehicle choice models (referred to as ``market shift'' 
models by NHTSA in Section IV.C.4.c) are a tool that attempts to 
estimate how consumers decide what vehicles they buy. The models 
typically take into consideration both household characteristics (such 
as income, family size, and age) and vehicle characteristics (including 
a vehicle's power, price, and fuel economy). These models are often 
used to examine how a consumer's vehicle purchase decision is affected 
by a change in vehicle or personal characteristics. Although these 
models focus on the consumer, some have also linked consumer choice 
models with information on vehicle technologies and costs, to estimate 
an integrated system of consumer and auto maker response.
    The outputs from consumer vehicle choice models typically include 
the market shares of each category of vehicle in the model. In 
addition, consumer vehicle choice models are often used to estimate the 
effect of market or regulatory changes on consumer surplus. Consumer 
surplus is the benefit that a consumer gets over and above the market 
price paid for the good. For instance, if a consumer is willing to pay 
up to $30,000 for a car but is able to negotiate a price of $25,000, 
the $5,000 difference is consumer surplus. Information on consumer 
surplus can be used in benefit-cost analysis to measure whether 
consumers are likely to consider themselves better or worse off due to 
the changes.
    Consumer vehicle choice modeling has not previously been applied in 
Federal regulatory analysis of fuel economy, and EPA has not used a 
consumer vehicle choice model in its analysis of the effects of this 
proposed rule. EPA has not done so, to this point, due to concern over 
the wide variation in the methods and results of existing models, as 
well as some of the limitations of existing applications of consumer 
choice modeling. Our preliminary review of the literature indicates 
that these models vary in a number of dimensions, including data 
sources used, modeling methods, vehicle characteristics included in the 
analysis, and the research questions for which they were designed. 
These dimensions are likely to affect the models' results and their 
interpretation. In addition, their ability to incorporate major changes 
in the vehicle fleet appears unproven.
    One problem for this rule is the variation in the value that 
consumers place on fuel economy in their vehicle purchase decisions. A 
number of consumer vehicle choice models make the assumption that auto 
producers provide as much fuel economy in their vehicles as consumers 
are willing to purchase, and consumers are satisfied with the current 
combinations of vehicle fuel economy and price in the marketplace.\336\ 
If this assumption is true, then consumers will not benefit from 
required improvements in fuel economy, even if the fuel savings that 
they receive exceed the additional costs from the fuel-saving 
technology. Other vehicle choice models, in contrast, find that 
consumers are willing to pay more for additional fuel economy than the 
costs to auto producers of installing that technology.\337\ If this 
result is true, then both consumers and producers would benefit from 
increased fuel economy. This result leaves open the question why auto 
producers do not follow the market incentive to provide more fuel 
economy, and why consumers do not seek out more fuel-efficient 
vehicles.
---------------------------------------------------------------------------

    \336\ E.g., Kleit, Andrew N. (2004). ``Impacts of Long-Range 
Increases in the Fuel Economy (CAFE) Standard.'' Economic Inquiry 
42(2): 279-294 (Docket EPA-HQ-OAR-2009-0472); Austin, David, and 
Terry Dinan (2005). ``Clearing the Air: The Costs and Consequences 
of Higher CAFE Standards and Increased Gasoline Taxes.'' Journal of 
Environmental Economics and Management 50: 562-582 (Docket EPA-HQ-
OAR-2009-0472); Klier, Thomas, and Joshua Linn (2008). ``New Vehicle 
Characteristics and the Cost of the Corporate Average Fuel Economy 
Standard,'' working paper. http://www.chicagofed.org/publications/workingpapers/wp2008_13.pdf (Docket EPA-HQ-OAR-2009-0472); 
Jacobsen, Mark. ``Evaluating U.S. Fuel Economy Standards In a Model 
with Producer and Household Heterogeneity,'' http://
www.econ.ucsd.edu/~m3jacobs/Jacobsen--CAFE.pdf, accessed 5/11/09 
(Docket EPA-HQ-OAR-2009-0472).
    \337\ E.g., Gramlich, Jacob (2008). ``Gas Prices and Endogenous 
Product Selection in the U.S. Automobile Industry,'' http://www.econ.yale.edu/seminars/apmicro/am08/gramlich-081216.pdf, 
accessed 5/11/09 (Docket EPA-HQ-OAR-2009-0472); McManus, Walter M. 
(2007). ``The Impact of Attribute-Based Corporate Average Fuel 
Economy (CAFE) Standards: Preliminary Findings.'' University of 
Michigan Transportation Research Institute paper UMTRI-2007-31 
(Docket EPA-HQ-OAR-2009-0472); McManus, W. and R. Kleinbaum (2009). 
``Fixing Detroit: How Far, How Fast, How Fuel Efficient.'' Working 
Paper, Transportation Research Institute, University of Michigan 
(Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    Whether consumers and producers will benefit from improved fuel 
economy depends on the value of improved fuel economy to consumers. 
There may be a difference between the fuel savings that consumers would 
receive from improved fuel economy, and the amount that consumers would 
be willing to spend on a vehicle to get improved fuel economy. A 1988 
review of consumers' willingness to pay for improved fuel economy found 
estimates that varied by more than an order of magnitude: for a $1 per 
year reduction in vehicle operating costs, consumers would be willing 
to spend between $0.74 and $25.97 in increased vehicle price.\338\ For 
comparison, the present value of saving $1 per year on fuel for 15 
years at a 3% discount rate is $11.94, while a 7% discount rate 
produces a present value of $8.78. Thus, this study finds that 
consumers may be willing to pay either far too much or far too little 
for the fuel savings they will receive.
---------------------------------------------------------------------------

    \338\ Greene, David L., and Jin-Tan Liu (1988). ``Automotive 
Fuel Economy Improvements and Consumers' Surplus.'' Transportation 
Research Part A 22A(3): 203-218 (Docket EPA-HQ-OAR-2009-0472). The 
study actually calculated the willingness to pay for reduced vehicle 
operating costs, of which vehicle fuel economy is a major component.
---------------------------------------------------------------------------

    Although EPA has not found an updated survey of these values, a few 
examples suggest that the existing consumer vehicle choice models still 
demonstrate wide variation in estimates of how much people are willing 
to pay for fuel savings. For instance, Espey and Nair (2005) and 
McManus (2006) find that consumers are willing to pay around $600 for 
one additional mile per gallon.\339\ In contrast, Gramlich (2008) finds 
that consumers' willingness to pay for an increase from 25 mpg to 30 
mpg varies between $4,100 (for luxury cars when gasoline costs $2/
gallon) to $20,560 (for SUVs when gasoline costs $3.50/gallon).\340\
---------------------------------------------------------------------------

    \339\ Espey, Molly, and Santosh Nair (2005). ``Automobile Fuel 
Economy: What is it Worth?'' Contemporary Economic Policy 23(3): 
317-323 (Docket EPA-HQ-OAR-2009-0472); McManus, Walter M. (2006). 
``Can Proactive Fuel Economy Strategies Help Automakers Mitigate 
Fuel-Price Risks?'' University of Michigan Transportation Research 
Institute (Docket EPA-HQ-OAR-2009-0472).
    \340\ Gramlich, Jacob (2008). ``Gas Prices and Endogenous 
Product Selection in the U.S. Automobile Industry,'' http://www.econ.yale.edu/seminars/apmicro/am08/gramlich-081216.pdf, 
accessed 5/11/09 (Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    As noted, lack of information is one possible reason for the 
variation. Consumers face difficulty in predicting the fuel savings 
that they are likely to get from a vehicle, for a number of reasons. 
For instance, the calculation of fuel savings is complex, and consumers

[[Page 49604]]

may not make it correctly.\341\ In addition, future fuel price (a major 
component of fuel savings) is highly uncertain. Consumer fuel savings 
also vary across individuals, who travel different amounts and have 
different driving styles. Studies regularly show that fuel economy 
plays a role in consumers' vehicle purchases, but modeling that role 
may still be in development.\342\
---------------------------------------------------------------------------

    \341\ Turrentine, T. and K. Kurani (2007). ``Car Buyers and Fuel 
Economy?'' Energy Policy 35: 1213-1223 (Docket EPA-HQ-OAR-2009-
0472); Larrick, R.P., and J.B. Soll (2008). ``The MPG illusion.'' 
Science 320: 1593-1594 (Docket EPA-HQ-OAR-2009-0472).
    \342\ Busse, Meghan R., Christopher R. Knittel, and Florian 
Zettelmeyer (2009). ``Pain at the Pump: How Gasoline Prices Affect 
Automobile Purchasing in New and Used Markets,'' Working paper 
(accessed 6/30/09), available at http://www.econ.ucdavis.edu/faculty/knittel/papers/gaspaper_latest.pdf (Docket EPA-HQ-OAR-2009-
0472).
---------------------------------------------------------------------------

    If there is a difference between fuel savings and consumers' 
willingness to pay for fuel savings, the next question is, which is the 
appropriate measure of consumer benefit? Fuel savings measure the 
actual monetary value that consumers will receive after purchasing a 
vehicle; the willingness to pay for fuel economy measures the value 
that, before a purchase, consumers place on additional fuel economy. As 
noted, there are a number of reasons that consumers may incorrectly 
estimate the benefits that they get from improved fuel economy, 
including risk or loss aversion, poor ability to estimate savings, and 
a lack of salience of fuel economy savings.
    Considerable evidence suggests that consumers discount future 
benefits more than the government when evaluating energy efficiency 
gains. The Energy Information Agency (1996) has used discount rates as 
high as 111 percent for water heaters and 120 percent for electric 
clothes dryers.\343\ In the transportation sector, evidence also points 
to high private discount rates: Kubik (2006) conducts a representative 
survey that finds consumers are impatient or myopic (e.g., use a high 
discount rate) with regard to vehicle fuel savings.\344\ On average, 
consumers indicated that fuel savings would have to pay back the 
additional cost in only 2.9 years to persuade them to buy a higher 
fuel-economy vehicle. EPA also incorporate a relatively short ``payback 
period'' into OMEGA to evaluate and order technologies that can be used 
to increase fuel economy, assuming that buyers value the resulting fuel 
savings over the first five years of a new vehicle's lifetime. This 
assumption is based on the current average term of consumer loans to 
finance the purchase of new vehicles. That said, there is no consensus 
in the literature on what the private discount rate is or should be in 
this context.
---------------------------------------------------------------------------

    \343\ Energy Information Administration, U.S. Department of 
Energy (1996). Issues in Midterm Analysis and Forecasting 1996, DOE/
EIA-0607(96), Washington, DC., http://www.osti.gov/bridge/purl.cover.jsp?purl=/366567-BvCFp0/webviewable/, accessed 7/7/09.
    \344\ Kubik, M. (2006). Consumer Views on Transportation and 
Energy. Second Edition. Technical Report: National Renewable Energy 
Laboratory.
---------------------------------------------------------------------------

    One possibility is that the discounting framework may not be a good 
model for consumer decision-making and for determining consumer welfare 
regarding fuel economy. Buying a vehicle involves trading off among 
dozens of vehicle characteristics, including price, vehicle class, 
safety, performance, and even audio systems and cupholders. Fuel 
economy is only one of these attributes, and its role in consumer 
vehicle purchase decisions is not well understood (see DRIA Section 
8.1.2 for further discussion). As noted above, if consumers do not 
fully consider fuel economy at the time of vehicle purchase, then the 
fuel savings from this rule provide a realized benefit to consumers 
after purchase. There are two distinct ideas at work here: one is that 
efficiency improvements change the nature of the cost of the car, 
requiring higher up-front vehicle costs while enabling lower long-run 
fuel costs; the other is that while consumers may benefit from the 
lower long-run fuel costs, they may also experience some loss in 
welfare on account of the possible change in vehicle mix.
    A second problem with use of consumer vehicle choice models, as 
they now stand, is that they are even less reliable in the face of 
significant changes otherwise occurring in fleet composition. One 
attempt to analyze the effect of the oil shock of 1973 on consumer 
vehicle choice found that, after two years, the particular model did 
not predict well due to changes in the vehicle fleet.\345\ It is likely 
that, in the next few years, many of the vehicles that will be offered 
for sale will change. In coming years, new vehicles will be developed, 
and existing vehicles will be redesigned. For instance, over the next 
few years, new vehicles that have both high fuel economy and high 
safety factors, in combinations that consumers have not previously been 
offered, are likely to appear in the market. Models based on the 
existing vehicle fleet may not do well in predicting consumers' choices 
among the new vehicles offered. Given that consumer vehicle choice 
models appear to be less effective in predicting vehicle choices when 
the vehicles are likely to change, EPA is reluctant to use the models 
for this proposed rulemaking.
---------------------------------------------------------------------------

    \345\ Berry, Steven, James Levinsohn, and Ariel Pakes (July 
1995). ``Automobile Prices in Market Equilibrium,'' Econometrica 
63(4): 841-940 (Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    In sum, the estimates of consumer surplus from consumer vehicle 
choice models depend heavily on the value to consumers of improved fuel 
economy, a value for which estimates are highly varied. In addition, 
the predictive ability of consumer vehicle choice models may be limited 
as consumers face new vehicle choices that they previously did not 
have.
    Nonetheless, because there are potential advantages to using 
consumer vehicle choice models if these difficulties can be addressed, 
EPA plans to continue our investigation and evaluation of consumer 
vehicle choice models. This effort includes further review of existing 
consumer vehicle choice models and the estimates of consumers' 
willingness to pay for increased fuel economy. In addition, EPA is 
developing capacity to examine the factors that may affect the results 
of consumer vehicle choice models, and to explore their impact on 
analysis of regulatory scenarios.
    A detailed discussion of the state of the art of consumer choice 
modeling is provided in the DRIA. For this rulemaking, EPA is not able 
to estimate the consumer welfare loss which may accompany the actual 
fuel savings from the proposal, and so any such loss must remain 
unquantified. EPA seeks comments on how to assess these difficult 
questions in the future.
2. Costs Associated With the Vehicle Program
    In this section EPA presents our estimate of the costs associated 
with the proposed vehicle program. The presentation here summarizes the 
costs associated with the new vehicle technology expected to be added 
to meet the proposed GHG standards, including hardware costs to comply 
with the proposed A/C credit program. The analysis summarized here 
provides our estimate of incremental costs on a per vehicle basis and 
on an annual total basis.
    The presentation here summarizes the outputs of the OMEGA model 
that was discussed in some detail in Section III.D of this preamble. 
For details behind the analysis such as the OMEGA model inputs and the 
estimates of costs associated with individual technologies, the reader 
is directed to Chapters 1 and 2 of the DRIA, and Chapter 3 of the Draft 
Joint TSD. For more detail on the

[[Page 49605]]

outputs of the OMEGA model and the overall vehicle program costs 
summarized here, the reader is directed to Chapters 4 and 7 of the 
DRIA.
    With respect to the cost estimates for vehicle technologies, EPA 
notes that, because these estimates relate to technologies which are in 
most cases already available, these cost estimates are technically 
robust. EPA notes further that, in all instances, its estimates are 
within the range of estimates in the most widely-utilized sources and 
studies. In that way, EPA believes that we have been conservative in 
estimating the vehicle hardware costs associated with this proposal.
    With respect to the aggregate cost estimations presented in Section 
III.H.2.b, EPA notes that there are a number of areas where the results 
of our analysis may be conservative and, in general, EPA believes we 
have directionally overestimated the costs of compliance with these 
proposed standards, especially in not accounting for the full range of 
credit opportunities available to manufacturers. For example, some cost 
saving programs are considered in our analysis, such as full car/truck 
trading, while others are not, such as cross-manufacturer trading and 
advanced technology credits.
a. Vehicle Compliance Costs Associated With the Proposed CO2 
Standards
    For the technology and vehicle package costs associated with adding 
new CO2-reducing technology to vehicles, EPA began with 
EPA's 2008 Staff Report and NHTSA's 2011 CAFE FRM both of which 
presented costs generated using existing literature, meetings with 
manufacturers and parts suppliers, and meetings with other experts in 
the field of automotive cost estimation.\346\ EPA has updated some of 
those technology costs with new information from our contract with FEV, 
through further discussion with NHTSA, and by converting from 2006 
dollars to 2007 dollars using the GDP price deflator. The estimated 
costs presented here represent the incremental costs associated with 
this proposal relative to what the future vehicle fleet would be 
expected to look like absent this proposed rule. A more detailed 
description of the factors considered in our reference case is 
presented in Section III.D.
---------------------------------------------------------------------------

    \346\ ``EPA Staff Technical Report: Cost and Effectiveness 
Estimates of Technologies Used to Reduce Light-duty Vehicle Carbon 
Dioxide Emissions,'' EPA 420-R-08-008; NHTSA 2011 CAFE FRM is at 74 
FR 14196; both documents are contained in Docket EPA-HQ-OAR-2009-
0472.
---------------------------------------------------------------------------

    The estimates of vehicle compliance costs cover the years of 
implementation of the program--2012 through 2016. EPA has also 
estimated compliance costs for the years following implementation so 
that we can shed light on the long term--2022 and later--cost impacts 
of the proposal.\347\ EPA used the year 2022 here because our short-
term and long-term markup factors described shortly below are applied 
in five year increments with the 2012 through 2016 implementation span 
and the 2017 through 2021 span both representing the short-term. Some 
of the individual technology cost estimates are presented in brief in 
Section III.D, and account for both the direct and indirect costs 
incurred in the automobile manufacturing and dealer industries (for a 
complete presentation of technology costs, please refer to Chapter 3 of 
the Draft Joint TSD). To account for the indirect costs, EPA has 
applied an indirect cost markup (ICM) factor to all of our direct costs 
to arrive at the estimated technology cost.\348\ The ICM factors used 
range from 1.11 to 1.64 in the short-term (2012 through 2021), 
depending on the complexity of the given technology, to account for 
differences in the levels of R&D, tooling, and other indirect costs 
that would be incurred. Once the program has been fully implemented, 
some of the indirect costs would no longer be attributable to these 
proposed standards and, as such, a lower ICM factor is applied to 
direct costs in years following full implementation. The ICM factors 
used range from 1.07 to 1.39 in the long-term (2022 and later) 
depending on the complexity of the given technology.\349\ Note that the 
short-term ICMs are used in the 2012 through 2016 years of 
implementation and continue through 2021. EPA does this since the 
proposed standards are still being implemented during the 2012 through 
2016 model years. Therefore, EPA considers the five year period 
following full implementation also to be short-term.
---------------------------------------------------------------------------

    \347\ Note that the assumption made here is that the standards 
proposed would continue to apply for years beyond 2016 so that new 
vehicles sold in model years 2017 and later would continue to incur 
costs as a result of this rule. Those costs are estimated to get 
lower in 2022 because some of the indirect costs attributable to 
this proposal in the years prior to 2022 would be eliminated in 2022 
and later.
    \348\ Alex Rogozhin et al., Automobile Industry Retail Price 
Equivalent and Indirect Cost Multipliers. Prepared for EPA by RTI 
International and Transportation Research Institute, University of 
Michigan. EPA-420-R-09-003, February 2009 (Docket EPA-HQ-OAR-2009-
0472).
    \349\ Gloria Helfand and Todd Sherwood, ``Documentation of the 
Development of Indirect Cost Multipliers for Three Automotive 
Technologies,'' Office of Transportation and Air Quality, USEPA, 
August 2009 (Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    The argument has been made that the ICM approach may be more 
appropriate for regulatory cost estimation than the more traditional 
retail price equivalent, or RPE, markup. The RPE is based on the 
historical relationship between direct costs and consumer prices; it is 
intended to reflect the average markup over time required to sustain 
the industry as a viable operation. Unlike the RPE approach, the ICM 
focuses more narrowly on the changes that are required in direct 
response to regulation-induced vehicle design changes which may not 
directly influence all of the indirect costs that are incurred in the 
normal course of business. For example, an RPE markup captures all 
indirect costs including costs such as the retirement benefits of 
retired employees. However, the retirement benefits for retired 
employees are not expected to change as a result of a new GHG 
regulation and, therefore, those indirect costs should not increase in 
relation to newly added hardware in response to a regulation. So, under 
the ICM approach, if a newly added piece of technology has an 
incremental direct cost of $1, its direct plus indirect costs should 
not be $1 multiplied by an RPE markup of say 1.5, or $1.50, but rather 
something less since the manufacturer is not paying more for retired-
employee retirement benefits as a direct result of adding the new piece 
of technology. Further, as noted above, the indirect cost multiplier 
can be adjusted for different levels of technological complexity. For 
example, a move to low rolling resistance tires is less complex than 
converting a gasoline vehicle to a plug-in hybrid. Therefore, the 
incremental indirect costs for the tires should be lower in magnitude 
than those for the plug-in hybrid. For the analysis underlying these 
proposed standards, the agencies have based our estimates on the ICM 
approach, but EPA notes that discussion continues about the use of the 
RPE approach and the ICM approach for safety and environmental 
regulations. We discuss our ICM factors and the complexity levels used 
in our analysis in more detail in Chapter 3 of the Draft Joint TSD and 
EPA requests comment on the approach described there as well as the 
general concepts of both the ICM and RPE approaches.
    EPA has also considered the impacts of manufacturer learning on the 
technology cost estimates. Consistent with past EPA rulemakings, EPA 
has estimated that some costs would decline by 20 percent with each of 
the first two doublings of production beginning with the first year of 
implementation. These

[[Page 49606]]

volume-based cost declines--which EPA calls ``volume'' based learning--
take place after manufacturers have had the opportunity to find ways to 
improve upon their manufacturing processes or otherwise manufacture 
these technologies in a more efficient way. After two 20 percent cost 
reduction steps, the cost reduction learning curve flattens out 
considerably as only minor improvements in manufacturing techniques and 
efficiencies remain to be had. By then, costs decline roughly three 
percent per year as manufacturers and suppliers continually strive to 
reduce costs. These time-based cost declines--which EPA calls ``time'' 
based learning--take place at a rate of three percent per year. EPA has 
considered learning impacts 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, learning 
impacts have already occurred. EPA has considered volume-based learning 
for only a handful of technologies that EPA considers to be new or 
emerging technologies such as the hybrids and electric vehicles. For 
most technologies, EPA has considered them to be more established given 
their current use in the fleet and, hence, we have applied the lower 
time based learning. We have more discussion of our learning approach 
and the technologies to which we have applied which type of learning in 
the Draft Joint TSD.
    The technology cost estimates discussed in Section III.D and 
detailed in Chapter 3 of the Draft Joint TSD are used to build up 
package cost estimates which are then used as inputs to the OMEGA 
model. EPA discusses our packages and package costs in Chapter 1 of the 
DRIA. The model determines what level of CO2 improvement is 
required considering the reference case for each manufacturer's fleet. 
The vehicle compliance costs are the outputs of the model and take into 
account FFV credits through 2015, TLAASP, full car/truck trading, and 
the A/C credit program. Table III.H.2-1 presents the fleet average 
incremental vehicle compliance costs for this proposal. As the table 
indicates, 2012-2016 costs increase every year as the standards become 
more stringent. Costs per car and per truck then remain stable through 
2021 while cost per vehicle (car/truck combined) decline slightly as 
the fleet mix trends slowly to increasing car sales. In 2022, costs per 
car and per truck decline as the long-term ICM kicks in because some 
indirect costs are no longer considered attributable to the proposed 
program. Costs per car and per truck remain constant thereafter while 
the cost per vehicle declines slightly as the fleet continues to trend 
toward cars. By 2030, projections of fleet mix changes become static 
and the cost per vehicle remains constant. EPA has a more detailed 
presentation of vehicle compliance costs on a manufacturer by 
manufacturer basis in the DRIA.

 Table III.H.2-1--Industry Average Vehicle Compliance Costs Associated With the Proposed Tailpipe CO2 Standards
                                           [$/vehicle in 2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                                  $/vehicle (car
                          Calendar year                                $/car          $/truck         & truck
                                                                                                     combined)
----------------------------------------------------------------------------------------------------------------
2012............................................................             374             358             368
2013............................................................             531             539             534
2014............................................................             663             682             670
2015............................................................             813             886             838
2016............................................................             968           1,213           1,050
2017............................................................             968           1,213           1,047
2018............................................................             968           1,213           1,044
2019............................................................             968           1,213           1,042
2020............................................................             968           1,213           1,040
2021............................................................             968           1,213           1,039
2022............................................................             890           1,116             955
2030............................................................             890           1,116             953
2040............................................................             890           1,116             953
2050............................................................             890           1,116             953
----------------------------------------------------------------------------------------------------------------

b. Annual Costs of the Proposed Vehicle Program
    The costs presented here represent the incremental costs for newly 
added technology to comply with the proposed program. Together with the 
projected increases in car and light-truck sales, the increases in per-
vehicle average costs shown in Table III.H.2-1 above result in the 
total annual costs reported in Table III.H.2-2 below. Note that the 
costs presented in Table III.H.2-2 do not include the savings that 
would occur as a result of the improvements to fuel consumption. Those 
impacts are presented in Section III.H.4.

  Table III.H.2-2--Quantified Annual Costs Associated With the Proposed
                             Vehicle Program
                       [$Millions of 2007 dollars]
------------------------------------------------------------------------
                                                            Quantified
                          Year                             annual costs
------------------------------------------------------------------------
2012....................................................          $5,400
2013....................................................          $8,400
2014....................................................         $10,900
2015....................................................         $13,900
2016....................................................         $17,500
2020....................................................         $18,000
2030....................................................         $17,900
2040....................................................         $19,300
2050....................................................         $20,900
NPV, 3%.................................................        $390,000
NPV, 7%.................................................        $216,600
------------------------------------------------------------------------

3. Cost per Ton of Emissions Reduced
    EPA has calculated the cost per ton of GHG (CO2-
equivalent, or CO2e) reductions associated with this 
proposal using the above costs and the emissions reductions described 
in Section III.F. More detail on the costs, emission reductions, and 
the cost per ton can be found in the DRIA and Draft Joint TSD. EPA has 
calculated the cost per metric ton of GHG emissions reductions in the 
years 2020, 2030, 2040, and 2050 using the annual vehicle compliance 
costs and emission reductions for each of those years. The value in 
2050 represents the long-term cost per ton of the emissions reduced. 
Note that EPA has not included the savings associated with

[[Page 49607]]

reduced fuel consumption, nor any of the other benefits of this 
proposal in the cost per ton calculations. If EPA were to include fuel 
savings in the cost estimates, the cost per ton would be less than $0, 
since the estimated value of fuel savings outweighs these costs. With 
regard to the proposed CH4 and N2O standards, 
since these standards would be emissions caps designed to ensure 
manufacturers do not backslide from current levels, EPA has not 
estimated costs associated with the standards (since the standards 
would not require any change from current practices nor does EPA 
estimate they would result in emissions reductions).
    The results for CO2e costs per ton under the proposed 
vehicle program are shown in Table III.H.3-1.

                  Table III.H.3-1--Annual Cost Per Metric Ton of CO2e Reduced, in $2007 Dollars
----------------------------------------------------------------------------------------------------------------
                                                                                   CO2e  Reduced
                              Year                                   Cost \a\        (million      Cost per ton
                                                                    ($millions)    metric tons)
----------------------------------------------------------------------------------------------------------------
2020............................................................         $18,000             170            $110
2030............................................................          17,900             320              60
2040............................................................          19,300             420              50
2050............................................................          20,900             520              40
----------------------------------------------------------------------------------------------------------------
\a\ Costs here include vehicle compliance costs and do not include any fuel savings (discussed in Section
  III.H.4) or other benefits of this proposal (discussed in Sections III.H.6 through III.H 10).

4. Reduction in Fuel Consumption and Its Impacts
a. What Are the Projected Changes in Fuel Consumption?
    The proposed CO2 standards would result in significant 
improvements in the fuel efficiency of affected vehicles. Drivers of 
those vehicles would see corresponding savings associated with reduced 
fuel expenditures. EPA has estimated the impacts on fuel consumption 
for both the proposed tailpipe CO2 standards and the 
proposed A/C credit program. To do this, fuel consumption is calculated 
using both current CO2 emission levels and the proposed 
CO2 standards. The difference between these estimates 
represents the net savings from the proposed CO2 standards. 
Note that the total number of miles that vehicles are driven each year 
is different under each of the control case scenarios than in the 
reference case due to the ``rebound effect,'' which is discussed in 
Section III.H.4.c.
    The expected impacts on fuel consumption are shown in Table 
III.H.4-1. The gallons shown in the tables reflect impacts from the 
proposed CO2 standards, including the proposed A/C credit 
program, and include increased consumption resulting from the rebound 
effect.

    Table III.H.4-1--Fuel Consumption Impacts of the Proposed Vehicle
                    Standards and A/C Credit Programs
                            [Million gallons]
------------------------------------------------------------------------
                             Year                                Total
------------------------------------------------------------------------
2012.........................................................        530
2013.........................................................      1,320
2014.........................................................      2,410
2015.........................................................      3,910
2016.........................................................      5,930
2020.........................................................     13,350
2030.........................................................     26,180
2040.........................................................     33,930
2050.........................................................     42,570
------------------------------------------------------------------------

b. What Are the Fuel Savings to the Consumer?
    Using the fuel consumption estimates presented in Section 
III.H.4.a, EPA can calculate the monetized fuel savings associated with 
the proposed CO2 standards. To do this, we multiply reduced 
fuel consumption in each year by the corresponding estimated average 
fuel price in that year, using the reference case taken from the AEO 
2009.\350\ AEO is the government consensus estimate used by NHTSA and 
many other government agencies to estimate the projected price of fuel. 
EPA has included all fuel taxes in these estimates since these are the 
prices paid by consumers. As such, the savings shown reflect savings to 
the consumer. These results are shown in Table III.H.4-2. Note that EPA 
presents the monetized fuel savings using pre-tax fuel prices in 
Section III.H.10. The fuel savings based on pre-tax fuel prices reflect 
the societal savings in contrast to the consumer savings presented in 
Table III.H.4-2. Also in Section III.H.10, EPA presents the benefit-
cost of the proposal and, for that reason, present the fuel impacts as 
negative costs of the program while here EPA presents them as positive 
savings.
---------------------------------------------------------------------------

    \350\ Energy Information Administration, Supplemental tables to 
the Annual Energy Outlook 2009, Updated Reference Case with American 
Recovery and Reinvestment Act. Available http://www.eia.doe.gov/oiaf/aeo/supplement/stimulus/regionalarra.html. April 2009.

 Table III.H.4-2--Estimated Fuel Consumption Savings to the Consumer \a\
                       [Millions of 2007 dollars]
------------------------------------------------------------------------
                      Calendar year                            Total
------------------------------------------------------------------------
2012....................................................          $1,400
2013....................................................           3,800
2014....................................................           7,200
2015....................................................          12,400
2016....................................................          19,400
2020....................................................          48,400
2030....................................................         100,000
2040....................................................         136,800
2050....................................................         181,000
NPV, 3%.................................................       1,850,200
NPV, 7%.................................................         826,900
------------------------------------------------------------------------
\a\ Fuel consumption savings calculated using taxed fuel prices. Fuel
  consumption impacts using pre-tax fuel prices are presented in Section
  III.H.10 as negative costs of the vehicle program

    As shown in Table III.H.4-2, EPA is projecting that consumers would 
realize very large fuel savings as a result of the standards contained 
in this proposal. There are several ways to view this value. Some, as 
demonstrated below in Section III.H.5, view these fuel savings as a 
reduction in the cost of owning a vehicle, whose full benefits 
consumers realize. This approach assumes that, regardless how consumers 
in fact make their decisions on how much fuel economy to purchase, they 
will gain these fuel savings. Another view says that consumers do not 
necessarily value fuel savings as equal to the results of this 
calculation. Instead, consumers may either undervalue or overvalue fuel 
economy relative to these savings, based

[[Page 49608]]

on their personal preferences. This issue is discussed further in 
Section III.H.5 and in Chapter 8 of the DRIA.
c. VMT Rebound Effect
    The fuel economy rebound effect refers to the fraction of fuel 
savings expected to result from an increase in vehicle fuel economy--
particularly one required by higher fuel efficiency standards--that is 
offset by additional vehicle use. The increase in vehicle use occurs 
because higher fuel economy reduces the fuel cost of driving, which is 
typically the largest single component of the monetary cost of 
operating a vehicle, and vehicle owners respond to this reduction in 
operating costs by driving slightly more.
    For this proposal, EPA is using an estimate of 10% for the rebound 
effect. This value is based on the most recent time period analyzed in 
the Small and Van Dender 2007 paper,\351\ and falls within the range of 
the larger body of historical work on the rebound effect.\352\ Recent 
work by David Greene on the rebound effect for light-duty vehicles in 
the U.S. further supports the hypothesis that the rebound effect is 
decreasing over time.\353\ If we were to use a dynamic estimate of the 
future rebound effect, our analysis shows that the rebound effect could 
be in the range of 5% or lower.\354\ The rebound effect is also 
discussed in Section II.F of the preamble; the TSD, Section 4.2.5, 
reviews the relevant literature and discusses in more depth the 
reasoning for the rebound values used here.
---------------------------------------------------------------------------

    \351\ Small, K. and K. Van Dender, 2007a. ``Fuel Efficiency and 
Motor Vehicle Travel: The Declining Rebound Effect'', The Energy 
Journal, vol. 28, no. 1, pp. 25-51 (Docket EPA-HQ-OAR-2009-0472).
    \352\ Sorrell, S. and J. Dimitropoulos, 2007. ``UKERC Review of 
Evidence for the Rebound Effect, Technical Report 2: Econometric 
Studies'', UKERC/WP/TPA/2007/010, UK Energy Research Centre, London, 
October (Docket EPA-HQ-OAR-2009-0472).
    \353\ Report by Kenneth A. Small of University of California at 
Irvine to EPA, ``The Rebound Effect from Fuel Efficiency Standards: 
Measurement and Projection to 2030'', June 12, 2009 (Docket EPA-HQ-
OAR-2009-0472).
    \354\ Report by David Greene of Oak Ridge National Laboratory to 
EPA, ``Rebound 2007: Analysis of National Light-Duty Vehicle Travel 
Statistics,'' March 24, 2009 (Docket EPA-HQ-OAR-2009-0472). Note, 
this report has been submitted for peer review. Completion of the 
peer review process is expected prior to the final rule.
---------------------------------------------------------------------------

    EPA also invites comments on other alternatives for estimating the 
rebound effect. As one illustration, variation in the price per gallon 
of gasoline directly affects the per-mile cost of driving, and drivers 
may respond just as they would to a change in the cost of driving 
resulting from a change in fuel economy, by varying the number of miles 
they drive. Because vehicles' fuel economy is fixed in the short run, 
variation in the number of miles driven in response to changes in fuel 
prices will be reflected in changes in gasoline consumption. Under the 
assumption that drivers respond similarly to changes in the cost of 
driving whether they are caused by variation in fuel prices or fuel 
economy, the short-run price elasticity of demand for gasoline--which 
measures the sensitivity of gasoline consumption to changes in its 
price per gallon--may provide some indication about the magnitude of 
the rebound effect itself. EPA invites comment on the extent to which 
the short run elasticity of demand for gasoline with respect to its 
price can provide useful information about the size of the rebound 
effect. Specifically, we seek comment on whether it would be 
appropriate to use the price elasticity of demand for gasoline, or 
other alternative approaches, to guide the choice of a value for the 
rebound effect.
5. Impacts on U.S. Vehicle Sales and Payback Period
a. Vehicle Sales Impacts
    The methodology EPA used for estimating the impact on vehicle sales 
is relatively straightforward, but makes a number of simplifying 
assumptions. According to the literature, the price elasticity of 
demand for vehicles is commonly estimated to be -1.0.\355\ In other 
words, a one percent increase in the price of a vehicle would be 
expected to decrease sales by one percent, holding all other factors 
constant. For our estimates, EPA calculated the effect of an increase 
in vehicle costs due to the proposed standards and assume that 
consumers will face the full increase in costs, not an actual 
(estimated) change in vehicle price. (The estimated increases in 
vehicle cost due to the rule are discussed in Section III.H.2) This is 
a conservative methodology, since an increase in cost may not pass 
fully into an increase in market price in an oligopolistic industry 
such as the automotive sector.\356\ EPA also notes that we have not 
used these estimated sales impacts in the OMEGA Model.
---------------------------------------------------------------------------

    \355\ Kleit A.N., 1990. ``The Effect of Annual Changes in 
Automobile Fuel Economy Standards.'' Journal of Regulatory Economics 
2: 151-172 (Docket EPA-HQ-OAR-2009-0472); McCarthy, Patrick S., 
1996. ``Market Price and Income Elasticities of New Vehicle 
Demands.'' Review of Economics and Statistics 78: 543-547 (Docket 
EPA-HQ-OAR-2009-0472); Goldberg, Pinelopi K., 1998. ``The Effects of 
the Corporate Average Fuel Efficiency Standards in the U.S.,'' 
Journal of Industrial Economics 46(1): 1-33 (Docket EPA-HQ-OAR-2009-
0472).
    \356\ See, for instance, Gron, Ann, and Deborah Swenson, 2000. 
``Cost Pass-Through in the U.S. Automobile Market,'' Review of 
Economics and Statistics 82: 316-324 (Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    Although EPA uses the one percent price elasticity of demand for 
vehicles as the basis for our vehicle sales impact estimates, we 
assumed that the consumer would take into account both the higher 
vehicle purchasing costs as well as some of the fuel savings benefits 
when deciding whether to purchase a new vehicle. Therefore, the 
incremental cost increase of a new vehicle would be offset by reduced 
fuel expenditures over a certain period of time (i.e., the ``payback 
period''). For the purposes of this rulemaking, EPA used a five-year 
payback period, which is consistent with the length of a typical new 
light-duty vehicle loan.\357\ This approach may not accurately reflect 
the role of fuel savings in consumers' purchase decisions, as the 
discussion in Section III.H.1 suggests. If consumers consider fuel 
savings in a different fashion than modeled here, then this approach 
will not accurately reflect the impact of this rule on vehicle sales.
---------------------------------------------------------------------------

    \357\ There is not a consensus in the literature on how 
consumers consider fuel economy in their vehicle purchases. Results 
are inconsistent, possibly due to fuel economy not being a major 
focus of many of the studies. Espey, Molly, and Santosh Nair (1995, 
``Automobile Fuel Economy: What Is It Worth?'' Contemporary Economic 
Policy 23: 317-323, (Docket EPA-HQ-OAR-2009-0472) find that their 
results are consistent with consumers using the lifetime of the 
vehicle, not just the first five years, in their fuel economy 
purchase decisions. This result suggests that the five-year time 
horizon used here may be an underestimate.
---------------------------------------------------------------------------

    This increase in costs has other effects on consumers as well: If 
vehicle prices increase, consumers will face higher insurance costs and 
sales tax, and additional finance costs if the vehicle is bought on 
credit. In addition, the resale value of the vehicles will increase. 
EPA estimates that, with corrections for these factors, the effect on 
consumer expenditures of the cost of the new technology should be 0.932 
times the cost of the technology at a 3% discount rate, and 0.892 times 
the cost of the technology at a 7% discount rate. The details of this 
calculation are in the DRIA, Chapter 8.l.
    Once the cost estimates are adjusted for these additional factors, 
the fuel cost savings associated with the rule, discussed in Section 
III.H.4, are subtracted to get the net effect on consumer expenditures 
for a new vehicle. With the assumed elasticity of demand of -1, the 
percent change in this ``effective price,'' estimated as the adjusted 
increase in cost, is equal to the negative of the percent change in 
vehicle purchases. The net effect of this calculation is in Table 
III.H.5-1 and Table III.H.5-2.

[[Page 49609]]

    The estimates provided in Table III.H.5-1 and Table III.H.5-2 are 
meant to be illustrative rather than a definitive prediction. When 
viewed at the industry-wide level, they give a general indication of 
the potential impact on vehicle sales. As shown below, the overall 
impact is positive and growing over time for both cars and trucks, 
because the estimated value of fuel savings exceeds the costs of 
meeting the higher standards. If, however, consumers do not take fuel 
savings and other costs into account as modeled here when they purchase 
vehicles, the results presented here may not reflect actual impacts on 
vehicle sales.

                         Table III.H.5-1--Vehicle Sales Impacts Using a 3% Discount Rate
----------------------------------------------------------------------------------------------------------------
                                            Change in car                      Change in truck
                                                sales        Percent change         sales        Percent change
----------------------------------------------------------------------------------------------------------------
2012....................................            66,600               0.7            27,300               0.5
2013....................................            93,300               0.9           161,300               2.8
2014....................................           134,400               1.3           254,400               4.4
2015....................................           236,300               2.2           368,400               6.5
2016....................................           375,400               3.4           519,000               9.4
----------------------------------------------------------------------------------------------------------------

    Table III.H.5-1 shows the impacts on new vehicle sales using a 3% 
discount rate. The fuel savings are always higher than the technology 
costs. Although both cars and trucks show very small effects initially, 
over time vehicle sales become increasingly positive, as increased fuel 
prices make improved fuel economy more desirable. The increases in 
sales for trucks are larger than the increases for trucks (except in 
2012) in both absolute numbers and percentage terms.

                       Table III.H.5-2--New Vehicle Sales Impacts Using a 7% Discount Rate
----------------------------------------------------------------------------------------------------------------
                                          Change in car                       Change in truck
                                              sales         Percent change         sales         Percent change
----------------------------------------------------------------------------------------------------------------
2012..................................            61,900                0.7            25,300                0.5
2013..................................            86,600                0.9            60,000                1
2014..................................           125,200                1.2           122,900                2.1
2015..................................           221,400                2             198,100                3.5
2016..................................           353,100                3.2           291,500                5.3
----------------------------------------------------------------------------------------------------------------

    Table III.H.5-2 shows the impacts on new vehicle sales using a 7% 
interest rate. While a 7% interest rate shows slightly lower impacts 
than using a 3% discount rate, the results are qualitatively similar to 
those using a 3% discount rate. Sales increase for every year. For both 
cars and trucks, sales become increasingly positive over time, as 
higher fuel prices make improved fuel economy more valuable. The car 
market grows more than the truck market in absolute numbers, but less 
on a percentage basis.
    The effect of this rule on the use and scrappage of older vehicles 
will be related to its effects on new vehicle prices, the fuel 
efficiency of new vehicle models, and the total sales of new vehicles. 
If the value of fuel savings resulting from improved fuel efficiency to 
the typical potential buyer of a new vehicle outweighs the average 
increase in new models' prices, sales of new vehicles will rise, while 
scrappage rates of used vehicles will increase slightly. This will 
cause the ``turnover'' of the vehicle fleet--that is, the retirement of 
used vehicles and their replacement by new models--to accelerate 
slightly, thus accentuating the anticipated effect of the rule on 
fleet-wide fuel consumption and CO2 emissions. However, if 
potential buyers value future fuel savings resulting from t