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

AGENCIES:

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

ACTION:

Final rule.

SUMMARY:

EPA and NHTSA, on behalf of the Department of Transportation, are issuing final rules to further reduce greenhouse gas emissions and improve fuel economy for light-duty vehicles for model years 2017 and beyond. On May 21, 2010, President Obama issued a Presidential Memorandum requesting that NHTSA and EPA develop through notice and comment rulemaking a coordinated National Program to improve fuel economy and reduce greenhouse gas emissions of light-duty vehicles for model years 2017-2025, building on the success of the first phase of the National Program for these vehicles for model years 2012-2016. This final rule, consistent with the President's request, responds to the country's critical need to address global climate change and to reduce oil consumption. NHTSA is finalizing Corporate Average Fuel Economy standards for model years 2017-2021 and issuing augural standards for model years 2022-2025 under the Energy Policy and Conservation Act, as amended by the Energy Independence and Security Act. NHTSA will set final standards for model years 2022-2025 in a future rulemaking. EPA is finalizing greenhouse gas emissions standards for model years 2017-2025 under the Clean Air Act. These standards apply to passenger cars, light-duty trucks, and medium-duty passenger vehicles, and represent the continuation of a harmonized and consistent National Program. Under the National Program automobile manufacturers will be able to continue building a single light-duty national fleet that satisfies all requirements under both programs while ensuring that consumers still have a full range of vehicle choices that are available today. EPA is also finalizing minor changes to the regulations applicable to model years 2012-2016, with respect to air conditioner performance, nitrous oxides measurement, off-cycle technology credits, and police and emergency vehicles.

DATES:

This final rule is effective on December 14, 2012, sixty days after date of publication in theFederal Register. The incorporation by reference of certain publications listed in this regulation is approved by the Director of the Federal Register as of December 14, 2012.

ADDRESSES:

EPA and NHTSA have established dockets for this action under Docket ID No. EPA-HQ-OAR-2010-0799 and NHTSA 2010-0131, respectively. All documents in the docket are listed in the http://www.regulations.gov index. Although listed in the index, some information is not publicly available, e.g., confidential business information (CBI) or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available in hard copy in EPA's docket, and electronically in NHTSA's online docket. Publicly available docket materials can be found either electronically in www.regulations.gov by searching for the dockets using the Docket ID numbers above, 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 (DOT), West Building, Ground Floor, Rm. W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590. The DOT 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: Christopher Lieske, Office of Transportation and Air Quality, Assessment and Standards Division, Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor MI 48105; telephone number: 734-214-4584; fax number: 734-214-4816; email address: lieske.christopher@epa.gov, or contact the Assessment and Standards Division; email address: otaqpublicweb@epa.gov. NHTSA: Rebecca Yoon, Office of the Chief Counsel, National Highway Traffic Safety Administration, 1200 New Jersey Avenue SE., Washington, DC 20590. Telephone: (202) 366-2992.

SUPPLEMENTARY INFORMATION:

A. Does this action apply to me?

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

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.

Table of Contents

I. Overview of Joint EPA/NHTSA Final 2017-2025 National Program

A. Executive Summary

1. Purpose of the Regulatory Action

2. Summary of the Major Provisions of the Final Rule

3. Costs and Benefits of National Program

B. Introduction

1. Continuation of the National Program

2. Additional Background on the National Program and Stakeholder Engagement Prior to the NPRM

3. Public Participation and Stakeholder Engagement Since the NPRM Was Issued

4. California's Greenhouse Gas Program

C. Summary of the Final 2017-2025 National Program

1. Joint Analytical Approach

2. Level of the Standards

3. Form of the Standards

4. Program Flexibilities for Achieving Compliance

5. Mid-Term Evaluation

6. Coordinated Compliance

7. Additional Program Elements

D. Summary of Costs and Benefits for the National Program

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

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

3. Why are the EPA and NHTSA MY 2025 estimated per-vehicle costs different?

E. Background and Comparison of NHTSA and EPA Statutory Authority

1. NHTSA Statutory Authority

2. EPA Statutory Authority

3. Comparing the Agencies' Authority

II. Joint Technical Work Completed for This Final Rule

A. Introduction

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

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

2. What comments did the agencies receive regarding fleet projections for the NPRM?

3. Why were two fleet projections created for the FRM?

4. How did the agencies develop the MY 2008 baseline vehicle fleet?

5. How did the agencies develop the projected MY 2017-2025 vehicle reference fleet for the 2008 model year based fleet?

6. How did the agencies develop the model year 2010 baseline vehicle fleet as part of the 2010 based fleet projection?

7. How did the agencies develop the projected my 2017-2025 vehicle reference fleet for the 2010 model year based fleet?

8. What are the differences in the sales volumes and characteristics of the MY 2008 based and the MY 2010 based fleets projections?

C. Development of Attribute-Based Curve Shapes

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

2. What attribute are the agencies adopting, and why?

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

4. What curves are the agencies promulgating for MYs 2017-2025?

5. Once the agencies determined the slope, how did the agencies determine the rest of the mathematical function?

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

D. Joint Vehicle Technology Assumptions

1. What technologies did the agencies consider?

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

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

4. How did the agencies consider real-world limits when defining the rate at which technologies can be deployed?

5. Maintenance and Repair Costs Associated With New Technologies

E. Joint Economic and Other Assumptions

F. CO₂ Credits and Fuel Consumption Improvement Values for Air Conditioning Efficiency, Off-cycle Reductions, and Full-size Pickup Trucks

1. Air Conditioning Efficiency Credits and Fuel Consumption Improvement Values

2. Off-Cycle CO₂ Credits

3. Advanced Technology Incentives for Full-Size Pickup Trucks

G. Safety Considerations in Establishing CAFE/GHG Standards

1. Why do the agencies consider safety?

2. How do the agencies consider safety?

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

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

5. How have the agencies estimated safety effects for the final rule?

III. EPA MYs 2017-2025 Light-Duty Vehicle Greenhouse Gas Emissions Standards

A. Overview of EPA Rule

1. Introduction

2. Why is EPA establishing MYs 2017-2025 standards for light-duty vehicles?

3. What is EPA finalizing?

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

5. Other Related EPA Motor Vehicle Regulations

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

1. What fleet-wide emissions levels correspond to the CO₂ standards?

2. What are the CO₂ attribute-based standards?

3. Mid-Term Evaluation

4. Averaging, Banking, and Trading Provisions for CO₂ Standards

5. Small Volume Manufacturer Standards

6. Additional Lead Time for Intermediate Volume Manufacturers

7. Small Business Exemption

8. Police and Emergency Vehicle Exemption From GHG Standards

9. Nitrous Oxide, Methane, and CO₂-equivalent Approaches

10. Test Procedures

C. Additional Manufacturer Compliance Flexibilities

1. Air Conditioning Related Credits

2. Incentives for Electric Vehicles, Plug-in Hybrid Electric Vehicles, Fuel Cell Vehicles, and Dedicated and Dual Fuel Compressed Natural Gas Vehicles

3. Incentives for Using Advanced “Game-Changing” Technologies in Full-Size Pickup Trucks

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

5. Off-cycle Technology Credits

D. Technical Assessment of the CO₂ Standards

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

2. What are the effectiveness and costs of CO₂-reducing technologies?

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

4. How does EPA project how a manufacturer would decide between options to improve CO₂ performance to meet a fleet average standard?

5. Projected Compliance Costs and Technology Penetrations

6. How does the technical assessment support the final CO₂ standards as compared to the alternatives has EPA considered?

7. Comments Received on the Analysis of Technical Feasibility and Appropriateness of the Standards

8. To what extent do any of today's vehicles meet or surpass the final MY 2017-2025 CO₂ footprint-based targets with current powertrain designs?

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. Other Certification Issues

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

9. Miscellaneous Technical Amendments and Corrections

10. Base Tire Definition

11. Treatment of Driver-Selectable Modes and Conditions

12. Publication of GHG Compliance Information

F. How will this rule reduce GHG emissions and their associated effects?

1. Impact on GHG Emissions

2. Climate Change Impacts From GHG Emissions

3. Changes in Global Climate Indicators Associated With This Rule's GHG Emissions Reductions

G. How will the rule impact Non-GHG emissions and their associated effects?

1. Inventory

2. Health Effects of Non-GHG Pollutants

3. Environmental Effects of Non-GHG Pollutants

4. Air Quality Impacts of Non-GHG Pollutants

5. Other Unquantified Health and Environmental Effects

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

1. Conceptual Framework for Evaluating Consumer Impacts

2. Costs Associated With the Vehicle Standards

3. Cost per Ton of Emissions Reduced

4. Reduction in Fuel Consumption and its Impacts

5. Cost of Ownership, Payback Period and Lifetime Savings on New Vehicle Purchases

6. CO₂ Emission Reduction Benefits

7. Non-Greenhouse Gas Health and Environmental Impacts

8. Energy Security Impacts

9. Additional Impacts

10. Summary of Costs and Benefits

11. U.S. Vehicle Sales Impacts and Affordability of New Vehicles

12. Employment Impacts

I. Statutory and Executive Order Reviews

J. Statutory Provisions and Legal Authority

IV. NHTSA Final Rule for Passenger Car and Light Truck CAFE Standards for Model Years 2017 and Beyond

A. Executive Overview of NHTSA Final Rule

1. Introduction

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

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

B. Background

1. Chronology of Events Since the MY 2012-2016 Final Rule was Issued

2. How has NHTSA developed the CAFE standards since the President's announcement, and what has changed between the proposal and the final rule?

C. Development and Feasibility of the Proposed Standards

1. How was the baseline vehicle fleet developed?

2. How were the technology inputs developed?

3. How did NHTSA develop its economic assumptions?

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

D. Statutory Requirements

1. EPCA, as Amended by EISA

2. Administrative Procedure Act

3. National Environmental Policy Act

E. What are the CAFE standards?

1. Form of the Standards

2. Passenger Car Standards for MYs 2017-2025

3. Minimum Domestic Passenger Car Standards

4. Light Truck Standards

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

1. Overview

2. What are NHTSA's statutory obligations?

3. How did the agency balance the factors for the NPRM?

4. What comments did the agency receive regarding the proposed maximum feasible levels?

5. How has the agency balanced the factors for this final rule?

G. Impacts of the Final CAFE Standards

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

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

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

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

5. How would these final standards impact vehicle sales and employment?

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

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

H. Vehicle Classification

I. Compliance and Enforcement

1. Overview

2. How does NHTSA determine compliance?

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

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

5. Other CAFE Enforcement Issues

J. Record of Decision

1. The Agency's Decision

2. Alternatives NHTSA Considered in Reaching its Decision

3. NHTSA's Environmental Analysis, Including Consideration of the Environmentally Preferable Alternative

4. Factors Balanced by NHTSA in Making its Decision

5. How the Factors and Considerations Balanced by NHTSA Entered Into its Decision

6. The Agency's Preferences Among Alternatives Based on Relevant Factors, Including Economic and Technical Considerations and Agency Statutory Missions

7. Mitigation

K. Regulatory Notices and Analyses

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

2. National Environmental Policy Act

3. Clean Air Act (CAA) as Applied to NHTSA's Action

4. National Historic Preservation Act (NHPA)

5. Fish and Wildlife Conservation Act (FWCA)

6. Coastal Zone Management Act (CZMA)

7. Endangered Species Act (ESA)

8. Floodplain Management (Executive Order 11988 and DOT Order 5650.2)

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

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

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

12. Regulatory Flexibility Act

13. Executive Order 13132 (Federalism)

14. Executive Order 12988 (Civil Justice Reform)

15. Unfunded Mandates Reform Act

16. Regulation Identifier Number

17. Executive Order 13045

18. National Technology Transfer and Advancement Act

19. Executive Order 13211

20. Department of Energy Review

21. Privacy Act

I. Overview of Joint EPA/NHTSA Final 2017-2025 National Program

A. Executive Summary

1. Purpose of the Regulatory Action

a. The Need for the Action and How the Action Addresses the Need

NHTSA, on behalf of the Department of Transportation, and EPA are issuing final rules to further reduce greenhouse gas emissions and improve fuel economy for light-duty vehicles for model years 2017 and beyond. On May 21, 2010, President Obama issued a Presidential Memorandum requesting that EPA and NHTSA develop through notice and comment rulemaking a coordinated National Program to improve fuel economy and reduce greenhouse gas emissions of light-duty vehicles for model years 2017-2025, building on the success of the first phase of the National Program for these vehicles for model years 2012-2016. These final rules are consistent with the President's request and respond to the country's critical need to address global climate change and to reduce oil consumption.

These standards apply to passenger cars, light-duty trucks, and medium-duty passenger vehicles (i.e. sport utility vehicles, cross-over utility vehicles, and light trucks), and represent the continuation of a harmonized and consistent National Program for these vehicles. Under the National Program automobile manufacturers will be able to continue building a single light-duty national fleet that satisfies all requirements under both programs.

The National Program is estimated to save approximately 4 billion barrels of oil and to reduce GHG emissions by the equivalent of approximately 2 billion metric tons over the lifetimes of those light duty vehicles produced in MYs 2017-2025. The agencies project that fuel savings will far outweigh higher vehicle costs, and that the net benefits to society of the MYs 2017-2025 National Program will be in the range of $326 billion to $451 billion (7 and 3 percent discount rates, respectively) over the lifetimes of those light duty vehicles sold in MYs 2017-2025.

The National Program is projected to provide significant savings for consumers due to reduced fuel use. Although the agencies estimate that technologies used to meet the standards will add, on average, about $1,800 to the cost of a new light duty vehicle in MY 2025, consumers who drive their MY 2025 vehicle for its entire lifetime will save, on average, $5,700 to $7,400 (7 and 3 percent discount rates, respectively) in fuel, for a net lifetime savings of $3,400 to $5,000. This estimate assumes gasoline prices of $3.87 per gallon in 2025 with small increases most years throughout the vehicle's lifetime.

b. Legal Authority

EPA and NHTSA are finalizing separate sets of standards for passenger cars and for light trucks, under their respective statutory authority. EPA is setting national CO₂ emissions standards for passenger cars and light-trucks under section 202 (a) of the Clean Air Act (CAA) ((42 U.S.C. 7521 (a)), and under its authority to measure passenger car and passenger car fleet fuel economy pursuant to the Energy Policy and Conservation Act (EPCA) 49 U.S.C. 32904 (c). NHTSA is setting national corporate average fuel economy (CAFE) standards under the Energy Policy and Conservation Act (EPCA), as amended by the Energy Independence and Security Act (EISA) of 2007 (49 U.S.C. 32902).

Section 202 (a) of the Clean Air Act requires EPA to establish standards for emissions of pollutants from new motor vehicles which emissions cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare. See Coalition for Responsible Regulation v. EPA, No. 09-1322 (D.C. Cir. June 26, 2012) slip op. p. 41 (“'[i]f EPA makes a finding of endangerment, the Clean Air Act requires the [a]gency to regulate emissions of the deleterious pollutant from new motor vehicles. `* * * Given the non-discretionary duty in Section 202 (a)(1) and the limited flexibility available under Section 202 (a)(2), which this court has held relates only to the motor-vehicle industry,* * * EPA had no statutory basis on which it could `ground [any] reasons for further inaction” (quoting State of Massachusetts v. EPA, 549 U.S. 497, 533, 535 (2007). In establishing such standards, EPA must consider issues of technical feasibility, cost, and available lead time. Standards under section 202 (a) thus 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” (CAA section 202 (a)(2) (42 U.S.C. 7512 (a)(2)).

EPCA, as amended by EISA, contains a number of provisions regarding how NHTSA must set CAFE standards. EPCA requires that NHTSA establish separate passenger car and light truck standards (49 U.S.C. 32902(b)(1)) at “the maximum feasible average fuel economy level that it decides the manufacturers can achieve in that model year (49 U.S.C. 32902(a)),” 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 (49 U.S.C. 32902(f)). EPCA does not define these terms or specify what weight to give each concern in balancing them; thus, NHTSA defines them and determines the appropriate weighting that leads to the maximum feasible standards given the circumstances in each CAFE standard rulemaking. 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 (49 U.S.C. 32902(b)(2)(A))]. For model years 2021-2030, standards need simply be set at the maximum feasible level (49 U.S.C.32903(b)(2)(B).

Section I.E of the preamble contains a detailed discussion of both agencies' statutory authority.

2. Summary of the Major Provisions of the Final Rule

NHTSA and EPA are finalizing rules for light-duty vehicles that the agencies believe represent the appropriate levels of fuel economy and GHG emissions standards for model years 2017 and beyond pursuant to their respective statutory authorities.

a. Standards

EPA is establishing standards that are projected to require, on an average industry fleet wide basis, 163 grams/mile of carbon dioxide (CO₂) in model year 2025, which is equivalent to 54.5 mpg if this level were achieved solely through improvements in fuel efficiency. Consistent with its statutory authority, NHTSA has developed two phases of passenger car and light truck standards in this rulemaking action. The first phase, from MYs 2017-2021, includes final standards that are projected to require, on an average industry fleet wide basis, a range from 40.3-41.0 mpg in MY 2021. The second phase of the CAFE program, from MYs 2022-2025, includes standards that are not final, due to the statutory requirement that NHTSA set average fuel economy standards not more than 5 model years at a time. Rather, those standards are augural, meaning that they represent NHTSA's current best estimate, based on the information available to the agency today, of what levels of stringency might be maximum feasible in those model years. NHTSA projects that those standards could require, on an average industry fleet wide basis, a range from 48.7-49.7 mpg in model year 2025.

Both the CO₂ and CAFE standards are footprint-based, as are the standards currently in effect for these vehicles through model year 2016. The standards will become more stringent on average in each model year from 2017 through 2025. Generally, the larger the vehicle footprint, the less numerically stringent the corresponding vehicle CO₂ emissions and MPG targets. As a result of the footprint-based standards, the burden of compliance is distributed across all vehicle footprints and across all manufacturers. Manufacturers are not compelled to build vehicles of any particular size or type (nor do the rules create an incentive to do so), and each manufacturer will have its own fleet-wide standard that reflects the light duty vehicles it chooses to produce.

b. Mid-Term Evaluation

The agencies will conduct a comprehensive mid-term evaluation and agency decision-making process for the MYs 2022-2025 standards as described in the proposal. The mid-term evaluation reflects the rules' long time frame and, for NHTSA, the agency's statutory obligation to conduct a de novo rulemaking in order to establish final standards for MYs 2022-2025. In order to align the agencies' proceedings for MYs 2022-2025 and to maintain a joint national program, EPA and NHTSA will finalize their actions related to MYs 2022-2025 standards concurrently. If the EPA determination is that standards may change, the agencies will issue a joint NPRM and joint final rules. NHTSA and EPA fully expect to conduct this mid-term evaluation in coordination with the California Air Resources Board, given our interest in maintaining a National Program to address GHG emissions and fuel economy. Further discussion of the mid-term evaluation is found in Sections III.B.3 and IV.A.3.b.

c. Compliance Flexibilities

As proposed, the agencies are finalizing several provisions which provide compliance flexibility to manufacturers to meet the standards without compromising the program's overall environmental and energy security objectives. Further discussion of compliance flexibilities is in Section C.4, II.F, III.B, III.C, IV.I.

Credit Averaging, Banking and Trading

The agencies are continuing to allow manufacturers to generate credits for over-compliance with the CO₂ and CAFE standards. A manufacturer will generate credits if its car and/or truck fleet achieves a fleet average CO₂/CAFE level better than its car and/or truck standards. Conversely, a manufacturer will incur a debit/shortfall if its fleet average CO₂/CAFE level does not meet the standard when all credits are taken into account. As in the prior CAFE and GHG programs, a manufacturer whose fleet generates credits in a given model year would have several options for using those credits, including credit carry-back, credit carry-forward, credit transfers, and credit trading.

Air Conditioning Improvement Credits

As proposed, EPA is establishing that the maximum total A/C credits available for cars will be 18.8 grams/mile CO₂-equivalent and 24.4 grams/mile for trucks CO₂-equivalent. The approaches used to calculate these credits for direct and indirect A/C improvement (i.e., improvements to A/C leakage (including substitution of low GHG refrigerant) and A/C efficiency) are generally consistent with those of the MYs 2012-2016 program, although there are several revisions. Most notably, a new test for A/C efficiency, optional under the GHG program starting in MY 2014, will be used exclusively in MY 2017 and beyond. Under its EPCA authority, EPA proposed and is finalizing provisions to allow manufacturers to generate fuel consumption improvement values for purposes of CAFE compliance based on these same improvements in air conditioner efficiency.

Off-Cycle Credits

EPA proposed and is finalizing provisions allowing manufacturers to continue to generate and use off-cycle credits to demonstrate compliance with the GHG standards. These credits are for measureable GHG emissions and fuel economy improvements attributable to use of technologies whose benefits are not measured by the two-cycle test mandated by EPCA. Under its EPCA authority, EPA proposed and is finalizing provisions to allow manufacturers to generate fuel consumption improvement values for purposes of CAFE compliance based on the use of off-cycle technologies.

Incentives for Electric Vehicles, Plug-in Hybrid Electric Vehicles, Fuel Cell Vehicles and Compressed Natural Gas Vehicles

In order to provide temporary regulatory incentives to promote the penetration of certain “game changing” advanced vehicle technologies into the light duty vehicle fleet, EPA is finalizing, as proposed, an incentive multiplier for CO₂ emissions compliance purposes for all electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs) sold in MYs 2017 through 2021. The incentives are expected to promote increased application of these advanced technologies in the program's early model years, which could achieve economies of scale that will support the wider application of these technologies to help achieve the more stringent standards in MYs 2022-2025. In addition, in response to public comments persuasively explaining how infrastructure for compressed natural gas (CNG) vehicles could serve as a bridge to use of advanced technologies such as hydrogen fuel cells, EPA is finalizing an incentive multiplier for CNG vehicles sold in MYs 2017 through 2021.

NHTSA currently interprets EPCA and EISA as precluding it from offering incentives for the alternative fuel operation of EVs, PHEVs, FCVs, and NGVs, except as specified by statute, and thus did not propose and is not including incentive multipliers comparable to the EPA incentive multipliers described above.

Incentives for Use of Advanced Technologies Including Hybridization for full-Size Pick-up Trucks

The agencies recognize that the standards presented in this final rule for MYs 2017-2025 will be challenging for large vehicles, including full-size pickup trucks. To help address this challenge, the program will, as proposed, contain incentives for the use of hybrid electric and other advanced technologies in full-size pickup trucks.

3. Costs and Benefits of National Program

It is important to note that NHTSA's CAFE standards and EPA's GHG standards will both be in effect, and both will lead to increases in average fuel economy and reductions in GHGs. The two agencies' standards together comprise the National Program, and the following discussions of the respective costs and benefits of NHTSA's CAFE standards and 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.

The costs and benefits projected by NHTSA to result from the CAFE standards are presented first, followed by those projected by EPA to result from the GHG emissions standards. For several reasons, the estimates for costs and benefits presented by NHTSA and EPA for their respective rules, while consistent, are not directly comparable, and thus should not be expected to be identical. See Section I.D of the preamble for further details and discussion.

NHTSA has analyzed in detail the projected costs and benefits for the 2017-2025 CAFE standards for light-duty vehicles. NHTSA estimates that the fuel economy increases would lead to fuel savings totaling about 170 billion gallons throughout the lives of light duty vehicles sold in MYs 2017-2025. At a 3 percent discount rate, the present value of the economic benefits resulting from those fuel savings is between $481 billion and $488 billion; at a 7 percent private discount rate, the present value of the economic benefits resulting from those fuel savings is between $375 billion and $380 billion. The agency further estimates that these new CAFE standards will lead to corresponding reductions in CO₂ emissions totaling 1.8 billion metric tons during the lives of light duty vehicles sold in MYs 2017-2025. The present value of the economic benefits from avoiding those emissions is approximately $49 billion, based on a global social cost of carbon value of about $26 per metric ton (in 2017, and growing thereafter).

The Table below shows NHTSA's estimated overall lifetime discounted costs and benefits, and net benefits for the model years 2017-2025 CAFE standards.

EPA has analyzed in detail the projected costs and benefits of the 2017-2025 GHG standards for light-duty vehicles. The Table below shows EPA's estimated lifetime discounted cost, fuel savings, and benefits for all such vehicles projected to be sold in model years 2017-2025. The benefits include impacts such as climate-related economic benefits from reducing emissions of CO₂ (but not other GHGs), reductions in energy security externalities caused by U.S. petroleum consumption and imports, the value of certain particulate matter-related health benefits (including premature mortality), the value of additional driving attributed to the VMT rebound effect, the value of reduced refueling time needed to fill up a more fuel efficient vehicle. The analysis also includes estimates of economic impacts stemming from additional vehicle use, such as the economic damages caused by accidents, congestion and noise (from increased VMT rebound driving).

B. Introduction

EPA is announcing final greenhouse gas emissions standards for model years 2017-2025 and NHTSA is announcing final Corporate Average Fuel Economy standards for model years 2017-2021 and issuing augural standards for model years (MYs) 2022-2025. These rules establish strong and coordinated Federal greenhouse gas and fuel economy standards for passenger cars, light-duty trucks, and medium-duty passenger vehicles (hereafter light-duty vehicles or LDVs). Together, these vehicle categories, which include passenger cars, sport utility vehicles, crossover utility vehicles, minivans, and pickup trucks, among others, are presently responsible for approximately 60 percent of all U.S. transportation-related greenhouse gas (GHG) emissions and fuel consumption. These final rules extend the MYs 2012-2016 National Program by establishing more stringent Federal light-duty vehicle GHG emissions and corporate average fuel economy (CAFE) standards in MYs 2017 and beyond. This coordinated program will achieve important reductions in GHG emissions and fuel consumption from the light-duty vehicle part of the transportation sector, based on technologies that either are commercially available or that the agencies project will be commercially available in the rulemaking timeframe and that can be incorporated at a reasonable cost. Higher initial vehicle costs will be more than offset by significant fuel savings for consumers over the lives of the vehicles covered by this rulemaking. NHTSA's final rule also constitutes the agency's Record of Decision for purposes of its NEPA analysis.

This joint rulemaking builds on the success of the first phase of the National Program to regulate fuel economy and GHG emissions from U.S. light-duty vehicles, which established strong and coordinated standards for MYs 2012-2016. As with the MY 2012-2016 final rules, a key element in developing this rulemaking was the agencies' discussions with automobile manufacturers, the California Air Resources Board (CARB) and many other stakeholders. During the extended public comment period, the agencies received nearly 300,000 written comments (and nearly 400 oral comments through testimony at three public hearings held in Detroit, Philadelphia and San Francisco) on this rule and received strong support from most auto manufacturers, the United Auto Workers (UAW), nongovernmental organizations (NGOs), consumer groups, national security experts and veterans, State/local government and auto suppliers.

Continuing the National Program in coordination with California will help to ensure that all manufacturers can build a single fleet of vehicles that satisfy all requirements under both federal programs as well as under California's program, which will in turn help to reduce costs and regulatory complexity while providing significant energy security, consumer savings, and environmental benefits.

Combined with the standards already in effect for MYs 2012-2016, as well as the MY 2011 CAFE standards, the final standards will result in MY 2025 light-duty vehicles with nearly double the fuel economy, and approximately one-half of the GHG emissions compared to MY 2010 vehicles—representing the most significant federal actions ever taken to reduce GHG emissions and improve fuel economy in the U.S.

EPA is establishing standards that are projected to require, on an average industry fleet wide basis, 163 grams/mile of carbon dioxide (CO₂) in model year 2025, which is equivalent to 54.5 mpg if this level were achieved solely through improvements in fuel efficiency. Consistent with its statutory authority, NHTSA has developed two phases of passenger car and light truck standards in this rulemaking action. The first phase, from MYs 2017-2021, includes final standards that are projected to require, on an average industry fleet wide basis, a range from 40.3-41.0 mpg in MY 2021. The second phase of the CAFE program, from MYs 2022-2025, includes standards that are not final due to the statutory provision that NHTSA shall issue regulations prescribing average fuel economy standards for at least 1 but not more than 5 model years at a time. The MYs 2022-2025 CAFE standards, then, are not final based on this rulemaking, but rather augural, meaning that they represent the agency's current judgment, based on the information available to the agency today, of what levels of stringency would be maximum feasible in those model years. NHTSA projects that those standards could require, on an average industry fleet wide basis, a range from 48.7-49.7 mpg in model year 2025. The agencies note that these estimated combined fleet average mpg levels are projections and, in fact the agencies are establishing separate standards for passenger cars and trucks, based on a vehicle's size or “footprint,” and the actual average achieved fuel economy and GHG emissions levels will be determined by the actual footprints and production volumes of the vehicle models that are produced. NHTSA will undertake a de novo rulemaking at a later date to set legally binding CAFE standards for MYs 2022-2025. SeeSection IV for more information. The agencies will conduct a comprehensive mid-term evaluation and agency decision-making process for the MYs 2022-2025 standards as described in the proposal. The mid-term evaluation reflects the rules' long time frame and, for NHTSA, the agency's statutory obligation to conduct de novo rulemaking in order to establish final standards for vehicles for those model years. In order to align the agencies' proceedings for MYs 2022-2025 and to maintain a joint national program, EPA and NHTSA will finalize their actions related to MYs 2022-2025 standards concurrently.

The agencies project that manufacturers will comply with the final rules by using a range of technologies, including improvements in air conditioning efficiency, which reduce both GHG emissions and fuel consumption. Compliance with EPA's GHG standards is also likely to be achieved through improvements in air conditioning system leakage and through the use of alternative air conditioning refrigerants with a lower global warming potential (GWP), which reduce GHGs (i.e., hydrofluorocarbons) but which do not generally improve fuel economy. The agencies believe there is a wide range of technologies already available to reduce GHG emissions and improve fuel economy from both passenger cars and trucks. The final rules facilitate long-term planning by manufacturers and suppliers for the continued development and deployment across their fleets of fuel saving and GHG emissions-reducing technologies. The agencies believe that advances in gasoline engines and transmissions will continue for the foreseeable future, and that there will be continual improvement in other technologies, including vehicle weight reduction, lower tire rolling resistance, improvements in vehicle aerodynamics, diesel engines, and more efficient vehicle accessories. The agencies also expect to see increased electrification of the fleet through the expanded production of stop/start, hybrid, plug-in hybrid and electric vehicles. Finally, the agencies expect that vehicle air conditioners will continue to improve by becoming more efficient and by increasing the use of alternative refrigerants and lower leakage air conditioning systems. Many of these technologies are already available today, some on a limited number of vehicles while others are more widespread in the fleet, and manufacturers will be able to meet the standards through significant efficiency improvements in these technologies, as well as through a significant penetration of these and other technologies across the fleet. Auto manufacturers may also introduce new technologies that we have not considered for this rulemaking analysis, which could result in possible alternative, more cost-effective paths to compliance.

From a societal standpoint, this second phase of the National Program is estimated to save approximately 4 billion barrels of oil and to reduce GHG emissions by the equivalent of approximately 2 billion metric tons over the lifetimes of those light duty vehicles produced in MYs 2017-2025. These savings and reductions come on top of those that are being achieved through the MYs 2012-2016 standards. The agencies project that fuel savings will far outweigh higher vehicle costs, and that the net benefits to society of the MYs 2017-2025 National Program will be in the range of $326 billion to $451 billion (7 and 3 percent discount rates, respectively) over the lifetimes of those light duty vehicles sold in MY 2017-2025.

These final standards are projected to provide significant savings for consumers due to reduced fuel use. Although the agencies estimate that technologies used to meet the standards will add, on average, about $1,800 to the cost of a new light duty vehicle in MY 2025, consumers who drive their MY 2025 vehicle for its entire lifetime will save, on average, $5,700 to $7,400 (7 and 3 percent discount rates, respectively) in fuel, for a net lifetime savings of $3,400 to $5,000. This estimate assumes gasoline prices of $3.87 per gallon in 2025 with small increases most years throughout the vehicle's lifetime. For those consumers who purchase their new MY 2025 vehicle with cash, the discounted fuel savings will offset the higher vehicle cost in roughly 3.3 years, and fuel savings will continue for as long as the consumer owns the vehicle. Those consumers that buy a new vehicle with a typical 5-year loan will immediately benefit from an average monthly cash flow savings of about $12 during the loan period, or about $140 per year, on average. So this type of consumer would benefit immediately from the time of purchase: the increased monthly fuel savings would more than offset the higher monthly payment. Section I.D provides a detailed discussion of the projected costs and benefits of the MYs 2017-2025 for CAFE and GHG emissions standards for light-duty vehicles.

In addition to saving consumers money at the pump, the agencies have designed their final standards to preserve consumer choice—that is, the standards should not affect consumers' opportunity to purchase the size of vehicle with the performance, utility and safety features that meets their needs. The standards are based on a vehicle's size (technically they are based on vehicle footprint, which is the area defined by the points where the tires contact the ground), and larger vehicles have numerically less stringent fuel economy/GHG emissions targets and smaller vehicles have numerically more stringent fuel economy/GHG emissions targets. Footprint based standards promote fuel economy and GHG emissions improvements in vehicles of all sizes, and are not expected to create incentives for manufacturers to change the size of their vehicles in order to comply with the standards. Moreover, since the standards are fleet average standards for each manufacturer, no specific vehicle must meet a target. Thus, nothing in these rules prevents consumers in the 2017 to 2025 timeframe from choosing from the same mix of vehicles that are currently in the marketplace.

1. Continuation of the National Program

EPA is adopting final greenhouse gas emissions standards for model years 2017-2025 and NHTSA is adopting final Corporate Average Fuel Economy standards for model years 2017-2021 and presenting augural standards for model years 2022-2025. These rules will implement strong and coordinated Federal greenhouse gas and fuel economy standards for passenger cars, light-duty trucks, and medium-duty passenger vehicles. Together, these vehicle categories, which include passenger cars, sport utility vehicles, crossover utility vehicles, minivans, and pickup trucks, are presently responsible for approximately 60 percent of all U.S. transportation-related greenhouse gas emissions and fuel consumption. The final rules continue the National Program by setting more stringent standards for MY 2017 and beyond light duty vehicles. This coordinated program will achieve important reductions of greenhouse gas (GHG) emissions and fuel consumption from the light-duty vehicle part of the transportation sector, based on technologies that either are commercially available or that the agencies project will be commercially available in the rulemaking timeframe and that can be incorporated at a reasonable cost.

In working together to finalize these standards, NHTSA and EPA are building on the success of the first phase of the National Program to regulate fuel economy and GHG emissions from U.S. light-duty vehicles, which established the strong and coordinated light duty vehicle standards for model years (MY) 2012-2016. As with the MY 2012-2016 final rules, a key element in developing the final rules was the agencies' collaboration with the California Air Resources Board (CARB) and discussions with automobile manufacturers and many other stakeholders. Continuing the National Program will help to ensure that all manufacturers can build a single fleet of U.S. light duty vehicles that satisfy all requirements under both federal programs as well as under California's program, helping to reduce costs and regulatory complexity while providing significant energy security, consumer savings and environmental benefits.

The agencies have been developing the basis for these final standards almost since the conclusion of the rulemaking establishing the first phase of the National Program. Consistent with Executive Order 13563, this rule was developed with early consultation with stakeholders, employs flexible regulatory approaches to reduce burdens, maintains freedom of choice for the public, and helps to harmonize federal and state regulations. After much research and deliberation by the agencies, along with CARB and other stakeholders, on July 29, 2011 President Obama announced plans for extending the National Program to MY 2017-2025 light duty vehicles and NHTSA and EPA issued a Supplemental Notice of Intent (NOI) outlining the agencies' plans for proposing the MY 2017-2025 standards and program. This July NOI built upon the extensive analysis conducted by the agencies during 2010 and 2011, including an initial technical assessment report and NOI issued in September 2010, and a supplemental NOI issued in December 2010. The State of California and thirteen auto manufacturers representing over 90 percent of U.S. vehicle sales provided letters of support for the program concurrent with the Supplemental NOI. The United Auto Workers (UAW) also supported the announcement, as did many consumer and environmental groups. As envisioned in the Presidential announcement, Supplemental NOI, and the December 2011 Notice of Proposed Rulemaking (NPRM), these final rules establish standards for MYs 2017- and beyond light duty vehicles. These standards take into consideration significant public input that was received in response to the NPRM from the regulated industry, consumer groups, labor unions, states, environmental organizations, national security experts and veterans, industry suppliers and dealers, as well as other organizations and by thousands of U.S. citizens. The agencies anticipate that these final standards will spur the development of a new generation of clean and more fuel efficient cars and trucks through innovative technologies and manufacturing that will, in turn, spur economic growth and create high-quality domestic jobs, enhance our energy security, and improve our environment.

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

These final rules allow for long-term planning by manufacturers and suppliers for the continued development and deployment across their fleets of fuel saving and emissions-reducing technologies. NHTSA's and EPA's technology assessment indicates there is a wide range of technologies available for manufacturers to consider utilizing to reduce GHG emissions and improve fuel economy. The agencies believe that advances in gasoline engines and transmissions will continue during these model years and that these technologies are likely to play a key role in compliance strategies for the MYs 2017-2025 standards, which is a view that is supported in the literature, among the vehicle manufacturers, suppliers, and by public comments. The agencies also believe that there will be continued improvement in diesel engines, vehicle aerodynamics, and tires as well as the use of lighter weight materials and optimized designs that will reduce vehicle mass. The agencies also expect to see increased electrification of the fleet through the expanded production of stop/start, hybrid, plug-in hybrid and electric vehicles. Finally, the agencies expect that vehicle air conditioners will continue to become more efficient, thereby improving fuel efficiency. The agencies also expect that air conditioning leakage will be reduced and that manufacturers will use reduced global warming refrigerants. Both of these improvements will reduce GHG emissions.

Although a number of these technologies are available today, the agencies' assessments support that there will be continuing improvements in the efficiency of some of the technologies and that the cost of many of the technologies will be lower in the future. We anticipate that the standards will require most manufacturers to considerably increase the application of these technologies across their light duty vehicle fleets in order to comply with the standards. Manufacturers may also develop and introduce other technologies that we have not considered for this rulemaking analysis, which could play important roles in compliance with the standards and potentially offer more cost effective alternatives. Due to the relatively long lead time for the later model years in this rule, it is quite possible that innovations may arise that the agencies (and the automobile manufacturers) are not considering today, which may even become commonplace by MY 2025.

As discussed further below, and as with the standards for MYs 2012-2016, the agencies believe that the final standards help to preserve consumer choice, that is, the standards should not affect consumers' opportunity to purchase the size and type of vehicle that meets their needs, and should not otherwise affect vehicles' performance attributes. NHTSA and EPA are finalizing standards based on vehicle footprint, which is the area defined by the points where the tires contact the ground, where smaller vehicles have relatively more stringent targets, and larger vehicles have less stringent targets. Footprint based standards promote fuel economy and GHG emissions improvements in vehicles of all sizes, and are not expected to create incentives for manufacturers to change the size of their vehicles in order to comply with the standards. Consequently, these rules should not have a significant effect on the relative availability of different size vehicles in the fleet. The agencies' analyses used a constraint of preserving all other aspects of vehicles' functionality and performance, and the technology cost and effectiveness estimates developed in the analyses reflect this constraint. In addition, as with the standards for MYs 2012-2016, the agencies believe that the standards should not have a negative effect on vehicle safety, as it relates to vehicle size and mass as described in Section II.C and II.G below, respectively. Because the standards are fleet average standards for each manufacturer, no specific vehicle must meet a target. Thus, nothing in these rules prevents consumers in the 2017 to 2025 timeframe from choosing from the same mix of vehicles that are currently in the marketplace.

Given the long time frame at issue in setting standards for MYs 2022-2025 light-duty vehicles, and given NHTSA's statutory obligation to conduct a de novo rulemaking in order to establish final standards for vehicles for the 2022-2025 model years, the agencies will conduct a comprehensive mid-term evaluation and agency decision-making process for the MYs 2022-2025 standards, as described in the proposal. As stated in the proposal, both NHTSA and EPA will develop and compile up-to-date information for the mid-term evaluation, through a collaborative, robust and transparent process, including public notice and comment. The mid-term evaluation will assess the appropriateness of the MYs 2022-2025 standards, based on information available at the time of the mid-term evaluation and an updated assessment of all the factors considered in setting the standards and the impacts of those factors on the manufacturers' ability to comply. NHTSA and EPA fully expect to conduct this mid-term evaluation in coordination with the California Air Resources Board, given our interest in maintaining a National Program to address GHG emissions and fuel economy. NHTSA's rulemaking, which will incorporate findings from the mid-term evaluation, will be a totally fresh consideration of all relevant information and fresh balancing of statutory and other relevant factors in order to determine the maximum feasible CAFE standards for MYs 2022-2025. In order to align the agencies proceedings for MYs 2022-2025 and to maintain a joint national program, if the EPA determination is that its standards will not change, NHTSA will issue its final rule concurrently with the EPA determination. If the EPA determination is that standards may change, the agencies will issue a joint NPRM and joint final rule. Further discussion of the mid-term evaluation is found later in this section, as well as in Sections III.B.3 and IV.A.3.b.

The 2017-2025 National Program is estimated to reduce GHGs by approximately 2 billion metric tons and to save 4 billion barrels of oil over the lifetime of MYs 2017-2025 vehicles relative to the MY 2016 standard curves already in place. The average cost for a MY 2025 vehicle to meet the standards is estimated to be about $1800 compared to a vehicle that meets the level of the MY 2016 standards in MY 2025. Fuel savings for consumers are expected to more than offset the higher vehicle costs. The typical driver will save a total of $5,700 to $7,400 (7 percent and 3 percent discount rate, respectively) in fuel costs over the lifetime of a MY 2025 vehicle and, even after accounting for the higher vehicle cost, consumers will save a net $3,400 to $5,000 (7 percent and 3 percent discount rate, respectively) over the vehicle's lifetime. This estimate assumes a gasoline price of $3.87 per gallon in 2025 with small increases most years over the vehicle's lifetime. Further, the payback period for a consumer purchasing a 2025 light-duty vehicle with cash would be, on average, 3.4 years at a 7 percent discount rate or 3.2 years at a 3 percent discount rate, while consumers who buy with a 5-year loan would save more each month on fuel than the increased amount they will spend on the higher monthly loan payment, beginning in the first month of ownership.

Continuing the National Program has both energy security and climate change benefits. Climate change is a significant long-term threat to the global environment. EPA has found that elevated atmospheric concentrations of six greenhouse gases—carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride—taken in combination endanger both the public health and the public welfare of current and future generations. EPA further found that the combined emissions of these greenhouse gases from new motor vehicles and new motor vehicle engines contribute to the greenhouse gas air pollution that endangers public health and welfare. 74 FR 66496 (Dec. 15, 2009). As summarized in EPA's Endangerment and Cause or Contribute Findings under Section 202(a) of the Clean Air Act, anthropogenic emissions of GHGs are very likely (90 to 99 percent probability) the cause of most of the observed global warming over the last 50 years. Mobile sources emitted 30 percent of all U.S. GHGs in 2010 (transportation sources, which do not include certain off-highway sources, account for 27 percent) and have been the source of the largest absolute increases in U.S. GHGs since 1990. Mobile sources addressed in the endangerment and contribution findings under CAA section 202(a)—light-duty vehicles, heavy-duty trucks, buses, and motorcycles—accounted for 23 percent of all U.S. GHG emissions in 2010. Light-duty vehicles emit CO₂, methane, nitrous oxide, and hydrofluorocarbons and were responsible for nearly 60 percent of all mobile source GHGs and over 70 percent of Section 202(a) mobile source GHGs in 2010. For light-duty vehicles in 2010, CO₂ emissions represented about 94 percent of all greenhouse emissions (including HFCs), and similarly, the CO₂ emissions measured over the EPA tests used for fuel economy compliance represent about 90 percent of total light-duty vehicle GHG emissions.

Improving our energy and national security by reducing our dependence on foreign oil has been a national objective since the first oil price shocks in the 1970s. Although our dependence on foreign petroleum has declined since peaking in 2005, net petroleum imports accounted for approximately 45 percent of U.S. petroleum consumption in 2011. World crude oil production is highly concentrated, exacerbating the risks of supply disruptions and price shocks as the recent unrest in North Africa and the Persian Gulf highlights. Recent tight global oil markets led to prices over $100 per barrel, with gasoline reaching over $4 per gallon in many parts of the U.S., causing financial hardship for many families and businesses. The export of U.S. assets for oil imports continues to be an important component of the historically unprecedented U.S. trade deficits. Transportation accounted for about 72 percent of U.S. petroleum consumption in 2010. 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.

2. Additional Background on the National Program and Stakeholder Engagement Prior to the NPRM

Following the successful adoption of a National Program for model years (MY) 2012-2016 light duty vehicles, President Obama issued a Memorandum on May 21, 2010 requesting that the NHTSA, on behalf of the Department of Transportation, and the U.S. EPA develop “* * * a coordinated national program under the CAA [Clean Air Act] and the EISA [Energy Independence and Security Act of 2007] to improve fuel efficiency and to reduce greenhouse gas emissions of passenger cars and light-duty trucks for model years 2017-2025.” Among other things, the agencies were tasked with researching and then developing standards for MYs 2017 through 2025 that would be appropriate and consistent with EPA's and NHTSA's respective statutory authorities. Several major automobile manufacturers and CARB sent letters to EPA and NHTSA in support of a MYs 2017 to 2025 rulemaking initiative as outlined in the President's announcement.

The President's memorandum requested that the agencies, “work with the State of California to develop by September 1, 2010, a technical assessment to inform the rulemaking process * * *”. Together, NHTSA, EPA, and CARB issued the joint Technical Assessment Report (TAR) consistent with Section 2(a) of the Presidential Memorandum. In developing this assessment, the agencies and CARB held numerous meetings with a wide variety of stakeholders including the automobile original equipment manufacturers (OEMs), automotive suppliers, non-governmental organizations, states and local governments, infrastructure providers, and labor unions. Concurrent with issuing the TAR, NHTSA and EPA also issued a joint Notice of Intent to Issue a Proposed Rulemaking (NOI) which highlighted the results of the TAR analyses, provided an overview of key program design elements, and announced plans for initiating the joint rulemaking to improve the fuel efficiency and reduce the GHG emissions of passenger cars and light-duty trucks built in MYs 2017-2025.

The TAR evaluated a range of potential stringency scenarios through model year 2025, representing a 3, 4, 5, and 6 percent per year estimated decrease in GHG levels from a model year 2016 fleet-wide average of 250 gram/mile (g/mi), which was intended to represent a reasonably broad range of stringency increases for potential future GHG emissions standards, and was also consistent with the increases suggested by CARB in its letter of commitment in response to the President's memorandum. For each of these scenarios, the TAR also evaluated four illustrative “technological pathways” by which these levels could be attained, each pathway offering a different mix of advanced technologies and assuming various degrees of penetration of advanced gasoline technologies, mass reduction, hybrid electric vehicles (HEVs), plug-in hybrids (PHEVs), and electric vehicles (EVs). These pathways were meant to represent ways that the industry as a whole could increase fuel economy and reduce greenhouse gas emissions, and did not represent ways that individual manufacturers would be required to or necessarily would employ in responding to future standards.

Manufacturers and others commented extensively on a variety of topics in the TAR, including the stringency of the standards, program design elements, the effect of potential standards on vehicle safety, and the TAR's discussion of technology costs, effectiveness, and feasibility. In response, the agencies and CARB spent the next several months continuing to gather information from the industry and others in response to the agencies' initial analytical efforts. EPA and NHTSA issued a follow-on Supplemental NOI in November 2010, highlighting many of the key comments the agencies received in response to the September NOI and TAR, and summarized some of the key themes from the comments and the additional stakeholder meetings.

The agencies' stakeholder engagement between December 2010 and July 29, 2011 focused on ensuring that the agencies possessed the most complete and comprehensive set of information to inform the proposed rulemaking. Information that the agencies presented to stakeholders is posted in the NPRM docket and referenced in multiple places in the NPRM. Throughout this period, the stakeholders repeated many of the broad concerns and suggestions described in the TAR, NOI, and November 2010 SNOI. For example, stakeholders uniformly expressed interest in maintaining a harmonized and coordinated national program that would be supported by CARB and allow auto makers to build one fleet and preserve consumer choice. The stakeholders also raised concerns about potential stringency levels, consumer acceptance of some advanced technologies and the potential structure of compliance flexibilities available under EPCA (as amended by EISA) and the CAA. In addition, most of the stakeholders wanted to discuss issues concerning technology availability, cost and effectiveness and economic practicability. The auto manufacturers, in particular, sought to provide the agencies with a better understanding of their respective strategies (and associated costs) for improving fuel economy while satisfying consumer demand in the coming years. Additionally, some stakeholders expressed concern about potential safety impacts associated with the standards, consumer costs and consumer acceptance, and potential disparate treatment of cars and trucks. Some stakeholders also stressed the importance of investing in infrastructure to support more widespread deployment of alternative vehicles and fuels. Many stakeholders also asked the agencies to acknowledge prevailing economic uncertainties in developing proposed standards. In addition, many stakeholders discussed the number of years to be covered by the program and what they considered to be important features of a mid-term review of any standards set or proposed for MY 2022-2025. In all of these meetings, NHTSA and EPA sought additional data and information from the stakeholders that would allow them to refine their initial analyses and determine proposed standards that are consistent with the agencies' respective statutory and regulatory requirements. The general issues raised by those stakeholders are addressed in the sections of this final rule discussing the topics to which the issues pertain (e.g., the form of the standards, technology cost and effectiveness, safety impacts, impact on U.S. vehicle sales and other economic considerations, costs and benefits).

The first stage of the meetings occurred between December 2010 and June 20, 2011. These meetings covered topics that were generally similar to the meetings that were held prior to the publication of the November 2010 Supplemental NOI and that were summarized in that document. Manufacturers provided the agencies more detailed information related to their product plans for vehicle models and fuel efficiency improving technologies and associated cost estimates, as well as more detailed feedback regarding the potential program design elements to be included in the program. The second stage of meetings occurred between June 21, 2011 and July 14, 2011, during which EPA, NHTSA, CARB and several components of the Executive Office of the President kicked-off an intensive series of meetings, primarily with manufacturers, to share tentative regulatory concepts including concept stringency curves and program flexibilities based on the analyses completed by the agencies as of June 21, 2011 and requested manufacturer feedback; specifically detailed and reliable information on how they might comply with the concepts, potential changes to the concept stringency levels and program flexibilities available under EPA's and NHTSA's respective authority that might facilitate compliance, and if they projected they could not comply, information supporting that belief. In these second stage meetings, the agencies received considerable input from the manufacturers related to the questions asked by the agencies and also related to consumer acceptance and adoption of some advanced technologies and program costs based on their independent assessment or information previously submitted to the agencies. The third stage of meetings occurred between July 15, 2011 and July 28, 2011 during which the agencies continued to refine concept stringencies and compliance flexibilities based on further consideration of the information available to them as well as meeting with manufacturers who expressed ongoing interest in engaging with the agencies.

Throughout all three stages, EPA and NHTSA continued to engage other stakeholders to ensure that the agencies were obtaining the most comprehensive and reliable information possible to guide the agencies in developing proposed standards for MY 2017-2025. Environmental organizations consistently stated that stringent standards are technically achievable and critical to important national interests. Labor interests stressed the need to carefully consider economic impacts and the opportunity to create and support new jobs, and consumer advocates emphasized the economic and practical benefits to consumers of improved fuel economy and the need to preserve consumer choice.

On July 29, 2011, President Obama with the support of thirteen major automakers, announced plans to pursue the next phase in the Administration's national vehicle program, increasing fuel economy and reducing GHG emissions for passenger cars and light trucks built in MYs 2017-2025. The President was joined by Ford, GM, Chrysler, BMW, Honda, Hyundai, Jaguar/Land Rover, Kia, Mazda, Mitsubishi, Nissan, Toyota and Volvo, which together account for over 90 percent of all vehicles sold in the United States. The California Air Resources Board (CARB), the United Auto Workers (UAW) and a number of environmental and consumer groups, also announced their support.

On the same day as the President's announcement, EPA and NHTSA released a second SNOI (published in the Federal Register on August 9, 2011) describing the joint proposal that the agencies expected to issue to establish the National Program for model years 2017-2025. The agencies received letters of support for the concepts laid out in the SNOI from BMW, Chrysler, Ford, General Motors, Global Automakers, Honda, Hyundai, Jaguar/Land Rover, Kia, Mazda, Mitsubishi, Nissan, Toyota, Volvo and CARB. The input of stakeholders, which is encouraged by Executive Order 13563, was invaluable to the agencies in developing the NPRM. A more detailed summary of the process leading to the proposed rulemaking is found at 76 FR 74862-865.

3. Public Participation and Stakeholder Engagement Since the NPRM Was Issued

The agencies signed their respective proposed rules on November 16, 2011 (76 FR 74854 (December 1, 2011)), and subsequently received a large number of comments representing many perspectives. Between January 17 and 24, 2012 the EPA and NHTSA held three public hearings in Detroit, Philadelphia and San Francisco. Nearly 400 people testified and many more attended the hearings. In response to requests, the written comment period was extended by two weeks for a total of 74 days from Federal Register publication, closing on February 13, 2012. The agencies received extensive written comments from more than 140 organizations, including auto manufacturers and suppliers, State and local governments and their associations, consumer groups, labor unions, fuels and energy providers, auto dealers, academics, national security experts and veterans, environmental and other non-governmental organizations (NGOs), and nearly 300,000 comments from private individuals. In addition to comments received on the proposal, the agencies met with many different stakeholder groups between issuance of the NPRM and this final rule. Generally, the agencies met with nearly all automakers individually to discuss flexibilities such as the A/C, off-cycle, and pickup truck incentives, as well as different ways to meet the standards; with suppliers to discuss the same flexibilities; with environmental groups to discuss flexibilities and that the agencies maintain strong standards for the final rule; and with the natural gas interests to discuss incentives for natural gas in the final rule. Memoranda summarizing these meetings can be found in the EPA and NHTSA dockets for this rulemaking. EPA-HQ-OAR-2010-0799 and NHTSA-2010-0131.

An overwhelming majority of commenters supported the proposed 2017-2025 CAFE and GHG standards with most organizations and nearly all of the private individuals expressing broad support for the program and for the continuation of the National Program to model years (MY) 2017-2025 light-duty vehicles, and the Program's projected achievement of an emissions level of 163 gram/mile fleet average CO₂, which would be equivalent to 54.5 miles per gallon if the automakers were to meet this CO₂ level solely through fuel economy improvements.

In general, more than a dozen automobile manufacturers supported the proposed standards as well as the credit opportunities and other provisions that provide compliance flexibility, while also recommending some changes to the credit and flexibility provisions—in fact, a significant majority of comments from industry focused on the credit and flexibility provisions. Nearly all automakers stressed the importance of the mid-term evaluation to assess the progress of technology development and cost, and the accuracy of the agencies' assumptions due to the long time-frame of the rule. Many industry commenters expressly predicated their support of the 2017-2025 National Program on the existence of this evaluation. Environmental and public interest non-governmental organizations (NGOs), as well as States that commented were also very supportive of extending the National Program to MYs 2017-2025 passenger vehicles and light trucks. Many of these organizations expressed concern that the mid-term evaluation might be used as an opportunity to weaken standards or to delay the environmental benefits of the National Program.

The agencies also received comments that either opposed the issuance of the standards, or that argued that they should be modified in various ways. The Center for Biological Diversity (CBD) commented that the proposed standards were not sufficiently stringent, recommending that the agencies increase the standards to 60-70 mpg in 2025. CBD, as well as several other organizations, also argued that minimum standards (“backstops”) were necessary for all fleets in order to ensure anticipated fuel economy gains. Several environmental groups expressed concern that flexibilities, such as off-cycle credits, could result in significantly lower gains through double-counting and allowing manufacturers to avoid making fuel economy improvements.

Some car-focused manufacturers objected to the truck curves, which they considered lenient while some small truck manufacturers objected to the large truck targets, which they considered lenient; and some intermediate and small volume manufacturers with limited product lines requested additional lead time, as well as less stringent standards for their vehicles. Manufacturers in general argued that backstops were not necessary for fuel economy gains and would be outside NHTSA's authority. Manufacturers also commented extensively on the programs' flexibilities, such as off-cycle credits, generally requesting more permissive applications and requirements.

The National Automobile Dealers Association (NADA) opposed the MYs 2017-2025 proposed standards, arguing that the agencies should delay rulemaking since they believe there was no need to set standards so far in advance, that the costs of the proposed program are higher than agencies have projected, and that some (mostly low income) consumers will not be able to acquire financing for new cars meeting these more stringent standards.

Many environmental and consumer groups commented that the benefits of the rule were understated and the costs overstated, arguing that several potential benefits had not been included and the technology effectiveness estimates were overly conservative. Some environmental groups also expressed concern that the benefits of the rule could be eroded if the agencies' assumptions about the market do not come to pass or if manufacturers build larger vehicles. Other groups, such as NADA, Competitive Enterprise Institute, and the Institute for Energy Research, argued that the benefits of the rule were overstated and the costs understated, asserting that manufacturers would have already made improvements if the agencies' calculations were correct.

Many commenters discussed potential environmental and health aspects of the rule. Producers of specific materials, such as aluminum, steel, or plastic, commented that standards should ultimately reflect a life cycle analysis that accounts for the greenhouse gas emissions attributable to the materials from which vehicles are manufactured. Some environmental groups requested that standards for electrified vehicles reflect emissions attributable to upstream electricity generation. Many commenters expressed support for the rule and its health benefits, while other commenters were concerned about possible negative health impacts due to assumptions about future fuel properties.

Many commenters also addressed issues relating to safety, with most generally supporting the agencies' efforts to continue to improve their understanding of the relationship between mass reduction and safety. Consistent with their comments in prior rulemakings, several environmental and consumer organizations commented that data exist that mass reduction does not have adverse safety impacts, and stated that the use of better designs and materials can improve both fuel economy and safety. Dynamic Research Institute (DRI) submitted a study, and other commenters pointed to DRI's work and additional studies for the agencies' consideration, as discussed in more detail in Section II.G below. Materials producers (aluminum, steel, composite, etc.) commented that their respective materials can be used to improve safety. The Alliance commented that while some recent mass reduction vehicle design concept studies have created designs that perform well in simulation modeling of safety standard and voluntary safety guideline tests, the design concepts yield aggressively stiffer crash pulses may be detrimental to rear seat occupants, vulnerable occupants and potential crash partners. The Alliance also commented that there are simulation model uncertainties with respect to advanced materials, and the real-world crash behavior of these concepts may not match that predicted in those studies. The Alliance and Volvo commented that it is important to monitor safety trends, and the Alliance urged that the agencies revisit this topic during the mid-term evaluation.

Additional comments touched on the use of “miles per gallon” to describe the standards, the agencies' baseline market forecast, consumer welfare and trends in consumer preferences for fuel economy, and a wide range of other topics.

Throughout this notice, the agencies discuss key issues arising from the public comments and the agencies' responses to those comments. The agencies also respond to comments in the Joint TSD and in their respective RIAs. In addition, EPA has addressed all of the public comments specific to the GHG program in a Response to Comments document.

4. California's Greenhouse Gas Program

In 2004, the California Air Resources Board (CARB) approved standards for new light-duty vehicles, regulating the emission of CO₂ and other GHGs. On June 30, 2009, EPA granted California's request for a waiver of preemption under the CAA with respect to these standards. Thirteen states and the District of Columbia, comprising approximately 40 percent of the light-duty vehicle market, adopted California's standards. The granting of the waiver permits California and the other states to proceed with implementing the California emission standards for MYs 2009 and later. After EPA and NHTSA issued their MYs 2012-2016 standards, CARB revised its program such that compliance with the EPA greenhouse gas standards will be deemed to be compliance with California's GHG standards. This facilitates the National Program by allowing manufacturers to meet all of the standards with a single national fleet.

As requested by the President and in the interest of maximizing regulatory harmonization, NHTSA and EPA worked closely with CARB throughout the development of the proposed rules. CARB staff released its proposal for MYs 2017-2025 GHG emissions standards consistent with the standards proposed by EPA on December 9, 2011 and the California Air Resources Board adopted these standards at its January 26, 2012 Board meeting, with final approval at its March 22, 2012 Board meeting. In adopting their GHG standards the California Air Resources Board directed the Executive Officer to “continue collaborating with EPA and NHTSA as their standards are finalized and in the mid-term review to minimize potential lost benefits from federal treatment of upstream emissions of electricity and hydrogen fueled vehicles,” and also, “to participate in U.S. EPA's review of the 2022 through 2025 model year passenger vehicle greenhouse gas standards being proposed under the 2017 through 2025 MY National Program.” CARB also reconfirmed its commitment, previously made in July 2011 in conjunction with release of the Supplemental NOI, to propose to revise its GHG emissions standards for MYs 2017-2025 such that compliance with EPA GHG emissions standards shall be deemed compliance with the California GHG emissions standards. The Board directed CARB's Executive Officer that, “it is appropriate to accept compliance with the 2017 through 2025 model year National Program as compliance with California's greenhouse gas emission standards in the 2017 through 2025 model years, once United States Environmental Protection Agency (U.S. EPA) issues their final rule on or after its current July 2012 planned release, provided that the greenhouse gas reductions set forth in U.S. EPA's December 1, 2011 Notice of Proposed Rulemaking for 2017 through 2025 model year passenger vehicles are maintained, except that California shall maintain its own reporting requirements.”

C. Summary of the Final 2017-2025 National Program

1. Joint Analytical Approach

These final rules continue the collaborative analytical effort between NHTSA and EPA, which began with the MYs 2012-2016 rulemaking for light-duty vehicles. NHTSA and EPA have worked together on nearly every aspect of the technical analysis supporting these joint rules. The results of this collaboration are reflected in key elements of the respective NHTSA and EPA rules, as well as in the analytical work contained in the Joint Technical Support Document (Joint TSD). The agencies have continued to develop and refine the supporting analyses since issuing the proposed rule last December. The Joint TSD, in particular, describes important details of the analytical work that are common to both agencies' rules, and also explains any key differences in approach. The joint analyses addressed in the TSD include the build-up of the baseline and reference fleets, the derivation of the shape of the footprint-based attribute curves that define the agencies' respective standards, a detailed description of the estimated costs and effectiveness of the technologies that are available to vehicle manufacturers, the economic inputs used to calculate the costs and benefits of the final rules, a description of air conditioner and other off-cycle technologies, and the agencies' assessment of the impacts of hybrid technology incentive provisions for full-size pick-up trucks. This comprehensive joint analytical approach has provided a sound and consistent technical basis for both agencies in developing their final standards, which are summarized in the sections below.

2. Level of the Standards

EPA and NHTSA are finalizing separate sets of standards for passenger cars and for light trucks, each under its respective statutory authority. EPA is setting national CO₂ emissions standards for passenger cars and light-trucks under section 202(a) of the Clean Air Act (CAA), while NHTSA is setting national corporate average fuel economy (CAFE) standards under the Energy Policy and Conservation Act (EPCA), as amended by the Energy Independence and Security Act (EISA) of 2007 (49 U.S.C. 32902). Both the CO₂ and CAFE standards for passenger cars and standards for light trucks are footprint-based, similar to the standards currently in effect for these vehicles through model year 2016, and will become more stringent on average in each model year from 2017 through 2025. The basis for measuring performance relative to standards continues to be based predominantly on the EPA city and highway test cycles (2-cycle test). However, EPA is finalizing optional air conditioning and off-cycle credits for the GHG program and adjustments to calculated fuel economy for the CAFE program that are based on test procedures other than the 2-cycle tests.

As proposed, EPA is finalizing standards that are projected to require, on an average industry fleet wide basis, 163 grams/mile of CO₂ in model year 2025. This is projected to be achieved through improvements in fuel efficiency and improvements in non-CO₂ GHG emissions from reduced air conditioning (A/C) system leakage and use of lower global warming potential (GWP) refrigerants. The level of 163 grams/mile CO₂ is equivalent on a mpg basis to 54.5 mpg, if this level was achieved solely through improvements in fuel efficiency.

Consistent with the proposal, for passenger cars, the CO₂ compliance values associated with the footprint curves will be reduced on average by 5 percent per year from the model year 2016 projected passenger car industry-wide compliance level through model year 2025. In recognition of manufacturers' unique challenges in improving the fuel economy and GHG emissions of full-size pickup trucks as the fleet transitions from the MY 2016 standards to MY 2017 and later, while preserving the utility (e.g., towing and payload capabilities) of those vehicles, EPA is finalizing standards reflecting an annual rate of improvement for light-duty trucks which is lower than that for passenger cars in the early years of the program. For light-duty trucks, the average annual rate of CO₂ emissions reduction in model years 2017 through 2021 is 3.5 percent per year. As proposed, EPA is also changing the slopes of the CO₂-footprint curves for light-duty trucks from those in the 2012-2016 rule, in a manner that effectively means that the annual rate of improvement for smaller light-duty trucks in model years 2017 through 2021 will be higher than 3.5 percent, and the annual rate of improvement for larger light-duty trucks over the same time period will be lower than 3.5 percent. For model years 2022 through 2025, EPA is finalizing an average annual rate of CO₂ emissions reduction for light-duty trucks of 5 percent per year.

Consistent with its statutory authority, NHTSA has developed two phases of passenger car and light truck standards in this rulemaking action. The first phase, from MYs 2017-2021, includes final standards that are projected to require, on an average industry fleet wide basis, a range from 40.3 to 41 mpg in MY 2021. For passenger cars, the annual increase in the stringency of the target curves between model years 2017 to 2021 is expected to average 3.8 to 3.9 percent. In recognition of manufacturers' unique challenges in improving the fuel economy and GHG emissions of full-size pickup trucks as the fleet transitions from the MY 2016 standards to MY 2017 and later, while preserving the utility (e.g., towing and payload capabilities) of those vehicles, NHTSA is also finalizing a lower annual rate of improvement for light trucks in the first phase of the program. For light trucks, the annual increase in the stringency of the target curves in model years 2017 through 2021 is 2.5 to 2.7 percent per year on average. NHTSA is changing the slopes of the fuel economy footprint curves for light trucks from those in the MYs 2012-2016 final rule, which effectively make the annual rate of improvement for smaller light trucks in MYs 2017-2021 higher than 2.5 or 2.7 percent per year, and the annual rate of improvement for larger light trucks over that time period lower than 2.5 or 2.7 percent per year.

The second phase of the CAFE program, from MYs 2022-2025, includes standards that are not final due to the statutory provision that NHTSA shall issue regulations prescribing average fuel economy standards for at least 1 but not more than 5 model years at a time. The MYs 2022-2025 standards, then, are not final as part of this rulemaking, but rather augural, meaning that they represent the agency's current judgment, based on the information available to the agency today, of what levels of stringency would be maximum feasible in those model years. NHTSA projects that those standards would require, on an average industry fleet wide basis, a range from 48.7 to 49.7 mpg in model year 2025. NHTSA will undertake a de novo rulemaking at a later date to set legally binding standards for MYs 2022-2025. See Section IV for more information. For passenger cars, the annual increase in the stringency of the target curves between model years 2022 and 2025 is expected to average 4.7 percent, and for light trucks, the annual increase during those model years is expected to average 4.8 to 4.9 percent.

NHTSA notes that for the first time in this rulemaking, EPA is finalizing, under its EPCA authority, rules allowing the impact of air conditioning system efficiency improvements to be included in the calculation of fuel economy for CAFE compliance. Given that these real-world improvements will be available to manufacturers for compliance, NHTSA has accounted for this by determining the amount that industry is expected to improve air conditioning system efficiency in each model year from 2017-2025, and setting the CAFE standards to reflect these improvements, in a manner consistent with EPA's GHG standards. See Sections III.B.10 and IV.I.4.b of this final rule preamble for more information.

NHTSA also notes that the rates of increase in stringency for CAFE standards are lower than EPA's rates of increase in stringency for GHG standards. As in the MYs 2012-2016 rulemaking, this is for purposes of harmonization and in reflection of several statutory constraints in EPCA/EISA. As a primary example, NHTSA's standards, unlike EPA's, do not reflect the inclusion of air conditioning system refrigerant and leakage improvements, but EPA's standards allows consideration of such A/C refrigerant improvements which reduce GHGs but do not affect fuel economy. As another example, the Clean Air Act allows various compliance flexibilities (among them certain credit generating mechanisms) not present in EPCA.

As with the MYs 2012-2016 standards, NHTSA and EPA's final MYs 2017-2025 passenger car and light truck standards are expressed as mathematical functions depending on the vehicle footprint attribute. Footprint is one measure of vehicle size, and is determined by multiplying the vehicle's wheelbase by the vehicle's average track width. The standards that must be met by each manufacturer's fleet will be determined by computing the production-weighted average of the targets applicable to each of the manufacturer's fleet of passenger cars and light trucks. Under these footprint-based standards, the average levels required of individual manufacturers will depend, as noted above, on the mix and volume of vehicles the manufacturer produces in any given model year. The values in the tables below reflect the agencies' projection of the range of the corresponding average fleet levels that will result from these attribute-based curves given the agencies' current assumptions about the mix of vehicles that will be sold in the model years covered by these standards. EPA and NHTSA have each finalized the attribute-based curves, as proposed, for the model years covered by these final rules, as discussed in detail in Section II.B of this preamble and Chapter 2 of the Joint TSD. The agencies have updated their projections of the impacts of the final rule standards since the proposal, as discussed in Sections III and IV of this preamble and in the agencies' respective RIAs.

As shown in Table I-1 NHTSA's fleet-wide estimated required CAFE levels for passenger cars would increase from between 40.1 and 39.6 mpg in MY 2017 to between 55.3 and 56.2 mpg in MY 2025. Fleet-wide required CAFE levels for light trucks, in turn, are estimated to increase from between 29.1 and 29.4 mpg in MY 2017 and between 39.3 and 40.3 mpg in MY 2025. For the reader's reference, Table I-1 also provides the estimated average fleet-wide required levels for the combined car and truck fleets, culminating in an estimated overall fleet average required CAFE level of a range from 48.7 to 49.7 mpg in MY 2025. Considering these combined car and truck increases, the standards together represent approximately a 4.0 percent annual rate of increase, on average, relative to the MY 2016 required CAFE levels.

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

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

Based on NHTSA's current market forecast, the agency is finalizing minimum standards for domestic passenger cars for MYs 2017-2021 and providing augural standards for MYs 2022-2025 as presented below in Table I-3.

EPA is finalizing GHG emissions standards, and Table I-4 provides estimates of the projected overall fleet-wide CO₂ emission compliance target levels. The values reflected in Table I-4 are those that correspond to the manufacturers' projected CO₂ compliance target levels from the passenger car and truck footprint curves, but do not account for EPA's projection of how manufacturers will implement two of the incentive programs being finalized in today's rulemaking (advanced technology vehicle multipliers, and hybrid and performance-based incentives for full-size pickup trucks). Table I-4 also does not account for the intermediate volume manufacturer lead-time provisions that EPA is adopting. EPA's projection of fleet-wide emissions levels that do reflect these provisions is shown in Table I-5 below.

As shown in Table I-4, projected fleet-wide CO₂ emission compliance targets for cars increase in stringency from 212 to 143 g/mi between MY 2017 and MY 2025. Similarly, projected fleet-wide CO₂ equivalent emission compliance targets for trucks increase in stringency from 295 to 203 g/mi. As shown, the overall fleet average CO₂ level targets are projected to increase in stringency from 243 g/mi in MY 2017 to 163 g/mi in MY 2025, which is equivalent to 54.5 mpg if all reductions are made with fuel economy improvements.

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

A more detailed description of how the agency arrived at the year by year progression of both the projected compliance targets and the achieved CO₂ emission levels can be found in Sections III of this preamble.

As previously stated, there was broad support for the proposed standards by auto manufacturers including BMW, Chrysler, Ford, GM, Honda, Hyundai, Kia, Jaguar/Land Rover, Mazda, Mitsubishi, Nissan, Tesla, Toyota, Volvo, as well as the Global Automakers. Of the larger manufacturers, Volkswagen and Mercedes commented that the proposed passenger car standards were relatively too stringent while light truck standards were relatively too lenient and suggested several alternatives to the proposed standards. Toyota also commented that lower truck stringency puts more burdens on small cars. Honda was concerned that small light trucks face disproportionate stringency compared to larger footprint trucks under the proposed standards. The agencies' consideration of these and other comments and of the updated technical analyses did not lead to changes to the stringency of the standards nor in the shapes of the curves discussed above. These issues are discussed in more detail in Sections II, III and IV.

NHTSA and EPA reviewed the technology assessment employed in the proposal in developing this final rule, and concluded that there is a wide range of technologies available in the MY 2017-2025 timeframe for manufacturers to consider in upgrading light-duty vehicles to reduce GHG emissions and improve fuel economy. Commenters generally agreed with this assessment and conclusion. The final technology assessment relied on our joint analyses for the proposed rule, as well as some new information and analyses, including information we received during the public comment period, as discussed in Section II.D below. The analyses performed for this final rule included an updated assessment of the cost, effectiveness and availability of several technologies.

As noted further in Section II.D, for this final rule, the agencies considered over 40 current and evolving vehicle and engine technologies that manufacturers could use to improve the fuel economy and reduce CO₂ emissions of their vehicles during the MYs 2017-2025 timeframe. Many of the technologies we considered are available today, some on a limited number of vehicles and others more widespread throughout the fleet, and the agencies believe they could be incorporated into vehicles as manufacturers make their product development decisions. These “near-term” technologies are identical or very similar to those anticipated in the agencies' analyses of compliance strategies for the MYs 2012-2016 final rule, but we believe they can achieve wider penetration throughout the vehicle fleet during the MYs 2017-2025 timeframe. For this rulemaking, given its timeframe, we also considered other technologies that are not currently in production, but that are beyond the initial research phase, and are under development and expected to be in production in the next 5-10 years. Examples of these technologies are downsized and turbocharged engines operating at combustion pressures even higher than today's turbocharged engines, and emerging hybrid architecture combined with an 8-speed dual clutch transmission, a combination that is not available today. These are technologies that the agencies believe that manufacturers can, for the most part, apply both to cars and trucks, and that we expect will achieve significant improvements in fuel economy and reductions in CO₂ emissions at reasonable cost in the MYs 2017-2025 timeframe. Chapter 3 of the joint TSD provides the full assessment of these technologies. Due to the relatively long lead time before MY 2017, the agencies expect that manufacturers will be able to employ combinations of these and potentially other technologies and that manufacturers and the supply industry will be able to produce them in sufficient volumes to comply with the final standards.

A number of commenters suggested that the proposed standards were either too stringent or not stringent enough (either in some model years or in all model years, depending on the commenter), and nearly all auto manufacturers and their associations stressed the importance of the mid-term evaluation of the MYs 2022-2025 standards in their comments due to the long timeframe of the rule and uncertainty in assumptions given this timeframe. Our consideration of these comments as well as our revised analyses, leads us to conclude that the general rate of increase in the stringency of the standards as proposed remains appropriate. The comprehensive mid-term evaluation process being finalized and our evaluation of the stringency of the standards is discussed further in Sections III and IV.

Both agencies also considered other alternative standards as part of their respective Regulatory Impact Analyses that span a reasonable range of alternative stringencies both more and less stringent than the final standards. EPA's and NHTSA's analyses of these regulatory alternatives (and explanation of why we are finalizing the standards) are contained in Sections III and IV of this preamble, respectively, as well as in the agencies' respective Regulatory Impact Analyses (RIAs).

3. Form of the Standards

NHTSA and EPA are finalizing attribute-based standards for passenger cars and light trucks, as required by EISA and as allowed by the CAA, and will continue to use vehicle footprint as the attribute. Footprint is defined as a vehicle's wheelbase multiplied by its average track width—in other words, the area enclosed by the points at which the wheels meet the ground. NHTSA and EPA adopted an attribute-based approach based on vehicle footprint for MYs 2012-2016 light-duty vehicle standards. The agencies continue to believe that footprint is the most appropriate attribute on which to base the proposed standards, as discussed in Section II.C and in Chapter 2 of the Joint TSD. The majority of commenters supported the continued use of footprint as the vehicle attribute; those comments and the agencies' response are discussed in Section II.C below.

Under the footprint-based standards, the curve defines a GHG or fuel economy performance target for each separate car or truck footprint. Using the curves, each manufacturer thus will have a GHG and CAFE average standard that is unique to each of its fleets, depending on the footprints and production volumes of the vehicle models produced by that manufacturer. A manufacturer will have separate footprint-based standards for cars and for trucks. The curves are mostly sloped, so that generally, larger vehicles (i.e., vehicles with larger footprints) will be subject to higher CO₂ grams/mile targets and lower CAFE mpg targets than smaller vehicles. This is because, generally speaking, smaller vehicles are more capable of achieving lower levels of CO₂ and higher levels of fuel economy than larger vehicles. Although a manufacturer's fleet average standards could be estimated throughout the model year based on the projected production volume of its vehicle fleet (and are estimated as part of the EPA certification process), the standards to which the manufacturer must comply will be determined by its final model year production figures. A manufacturer's calculation of its fleet average standards as well as its fleets' average performance at the end of the model year will thus be based on the production-weighted average target and performance of each model in its fleet.

The final footprint-based standards are identical to those proposed. The passenger car curves are also similar in shape to the car curves for MYs 2012-2016. However, as proposed, the final light truck curves for MYs 2017-2025 reflect more significant changes compared to the light truck curves for MYs 2012-2016; specifically, the agencies have increased the slope and extended the large-footprint cutpoint for the light truck curves over time to larger footprints. We continue to believe that these changes from the MYs 2012-2016 curves represent an appropriate balance of both technical and policy issues, as discussed in Section II.C below and Chapter 2 of the Joint TSD.

NHTSA is adopting the attribute curves below for model years 2017 through 2021 and presenting the augural attribute curves below for model years 2022-2025. As just explained, these targets, expressed as mpg values, will be production-weighted to determine each manufacturer's fleet average standard for cars and trucks. Although the general model of the target curve equation is the same for each vehicle category and each year, the parameters of the curve equation differ for cars and trucks. Each parameter also changes on a model year basis, resulting in the yearly increases in stringency. Figure I-1 below illustrates the passenger car CAFE curves for model years 2017 through 2025 while Figure I-2 below illustrates the light truck CAFE curves for model years 2017 through 2025.

EPA is finalizing the attribute curves shown in Figure I-3 and Figure I-4 below, for model years 2017 through 2025. As with the CAFE curves, the general form of the equation is the same for each vehicle category and each year, but the parameters of the equation differ for cars and trucks. Again, each parameter also changes on a model year basis, resulting in the yearly increases in stringency. Figure I-3 below illustrates the CO₂ car standard curves for model years 2017 through 2025 while Figure I-4 shows the CO₂ truck standard curves for model years 2017-2025.

EPA and NHTSA received a number of comments about the shape of the car and truck curves. Some commenters, including Honda, Toyota and Volkswagen, stated that the light truck curve was too lenient for large trucks, while Nissan and Honda stated the light truck curve was too stringent for small trucks; Porsche and Volkswagen stated the car curve was too stringent generally, and Toyota stated it was too stringent for small cars. A number of NGOs (Center for Biological Diversity, International Council on Clean Transportation, Natural Resources Defense Council, Sierra Club, Union of Concerned Scientists) also commented on the truck curves as well as the relationship between the car and truck curves. We address all these comments further in Section II.C as well as in Sections III and IV.

Generally speaking, a smaller footprint vehicle will tend to have higher fuel economy and lower CO₂ emissions relative to a larger footprint vehicle when both have a comparable level of fuel efficiency improvement technology. Since the finalized standards apply to a manufacturer's overall passenger car fleet and overall light truck fleet, not to an individual vehicle, if one of a manufacturer's fleets is dominated by small footprint vehicles, then that fleet will have a higher fuel economy requirement and a lower CO₂ requirement than a manufacturer whose fleet is dominated by large footprint vehicles. Compared to the non-attribute based CAFE standards in place prior to MY 2011, the final standards more evenly distribute the compliance burdens of the standards among different manufacturers, based on their respective product offerings. With this footprint-based standard approach, EPA and NHTSA continue to believe that the rules will not create significant incentives to produce vehicles of particular sizes, and thus there should be no significant effect on the relative availability of different vehicle sizes in the fleet due to these standards, which will help to maintain consumer choice during the MY 2017 to MY 2025 rulemaking timeframe. Consumers should still be able to purchase the size of vehicle that meets their needs. Table I-6 helps to illustrate the varying CO₂ emissions and fuel economy targets under the final standards that different vehicle sizes will have, although we emphasize again that these targets are not actual standards—the standards are manufacturer-specific, rather than vehicle-specific.

4. Program Flexibilities for Achieving Compliance

a. CO₂/CAFE Credits Generated Based on Fleet Average Over-Compliance

As proposed, the agencies are finalizing several provisions which provide compliance flexibility to manufacturers to meet the standards. Many of the provisions are also found in the MYs 2012-2016 rules. For example, the agencies are continuing to allow manufacturers to generate credits for over-compliance with the CO₂ and CAFE standards. As noted above, under the footprint-based standards, a manufacturer's ultimate compliance obligations are determined at the end of each model year, when production of vehicles for that model year is complete. Since the fleet average standards that apply to a manufacturer's car and truck fleets are based on the applicable footprint-based curves, a production volume-weighted fleet average requirement will be calculated for each averaging set (cars and trucks) based on the mix and volumes of the models manufactured for sale by the manufacturer. If a manufacturer's car and/or truck fleet achieves a fleet average CO₂/CAFE level better than its car and/or truck standards, then the manufacturer generates credits. Conversely, if the fleet average CO₂/CAFE level does not meet the standard, the fleet would incur debits (also referred to as a shortfall). As in the MY 2011 CAFE program under EPCA/EISA, and also in MYs 2012-2016 for the light-duty vehicle GHG and CAFE program, a manufacturer whose fleet generates credits in a given model year would have several options for using those credits, including credit carry-back, credit carry-forward, credit transfers, and credit trading.

Credit “carry-back” means that manufacturers are able to use credits to offset a deficit that had accrued in a prior model year, while credit “carry-forward” means that manufacturers can bank credits and use them toward compliance in future model years. EPCA, as amended by EISA, requires NHTSA to allow manufacturers to carry back credits for up to three model years, and to carry forward credits for up to five model years. EPA's MYs 2012-2016 light duty vehicle GHG program includes the same limitations and, as proposed, EPA is continuing this limitation in the MY 2017-2025 program. In its comments, Volkswagen requested that credits under the GHG rules be allowed to be carried back for five model years rather than three as proposed. A five year carry back could create a perverse incentive for shortfalls to accumulate past the point where they can be rectified by later model year performance. EPA is therefore adopting the three year carry back period in its rule. NHTSA is required to allow a three year carry-back period by statute.

However, to facilitate the transition to the increasingly more stringent standards, EPA proposed, and is finalizing under its CAA authority a one-time CO₂ carry-forward beyond 5 years, such that any credits generated from MYs 2010 through 2016 will be able to be used to comply with light duty vehicle GHG standards at any time through MY 2021. This provision does not apply to early credits generated in MY 2009. EPA received comments from the Alliance of Automobile Manufacturers and several individual manufacturers supporting the proposed additional credit carry-forward flexibility and also comments from the Center for Biological Diversity opposing the additional credit carry-forward provisions which are addressed in section III.B.4. NHTSA's program will continue the 5-year carry-forward and 3-year carry-back, as required by statute.

Credit “transfer” means the ability of manufacturers to move credits from their passenger car fleet to their light truck fleet, or vice versa. As part of the EISA amendments to EPCA, NHTSA was required to establish by regulation a CAFE credit transferring program, now codified at 49 CFR Part 536, to allow a manufacturer to transfer credits between its car and truck fleets to achieve compliance with the standards. For example, credits earned by over-compliance with a manufacturer's car fleet average standard could be used to offset debits incurred due to that manufacturer's not meeting the truck fleet average standard in a given year. However, EISA imposed a cap on the amount by which a manufacturer could raise its CAFE standards through transferred credits: 1 mpg for MYs 2011-2013; 1.5 mpg for MYs 2014-2017; and 2 mpg for MYs 2018 and beyond. These statutory limits will continue to apply to the determination of compliance with the CAFE standards. EISA also prohibits the use of transferred credits to meet the minimum domestic passenger car fleet CAFE standard.

Under section 202 (a) of the CAA there is no statutory limitation on car-truck credit transfers, and EPA's GHG program allows unlimited credit transfers across a manufacturer's car-light truck fleet to meet the GHG standard. This is based on the expectation that this flexibility will facilitate setting appropriate GHG standards that manufacturers can comply with in the lead time provided, and will allow the required GHG emissions reductions to be achieved in the most cost effective way. Therefore, EPA did not constrain the magnitude of allowable car-truck credit transfers in the MY 2012-2016 rule, as doing so would reduce the flexibility to achieve the standards in the lead time provided, and would increase costs with no corresponding environmental benefit. EPA did not propose and is not finalizing any constraints on credit transfers for MY 2017 and later, consistent with the MY 2012-2016 program. As discussed in Section III.B.4, EPA received one comment from Center for Biological Diversity that it should be consistent with EISA and establish limitations on credit transfers. EPA disagrees with the commenter and continues to believe that limiting transfers and trading would unnecessarily constrain program flexibility as discussed in section III.B.4 below.

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

b. Air Conditioning Improvement Credits/Fuel Economy Value Increases

Air conditioning (A/C) systems contribute to GHG emissions in two ways. The primary refrigerant used in automotive air conditioning systems today—a hydrofluorocarbon (HFC) refrigerant and potent GHG called HFC-134a—can leak directly from the A/C system (direct A/C emissions). In addition, operation of the A/C system places an additional load on the engine that increases fuel consumption and thus results in additional CO₂ tailpipe emissions (indirect A/C emissions). In the MY 2012-2016 program, EPA allows manufacturers to generate credits by reducing either or both types of GHG emissions related to A/C systems. For those model years, EPA anticipated that manufacturers would pursue these relatively inexpensive reductions in GHGs due to improvements in A/C systems and accounted for generation and use of both of these credits in setting the levels of the CO₂ standards.

For this rule, as with the MYs 2012-2016 program, EPA is finalizing its proposal to allow manufacturers to generate CO₂-equivalent credits to use in complying with the CO₂ standards by reducing direct and/or indirect A/C emissions. These reductions can be achieved by improving A/C system efficiency (and thus reducing tailpipe CO₂ and improving fuel consumption), by reducing refrigerant leakage, and by using refrigerants with lower global warming potentials (GWPs) than HFC-134a. As proposed, EPA is establishing that the maximum total A/C credits available for cars will be 18.8 grams/mile CO₂-equivalent and for trucks will be 24.4 grams/mile CO₂-equivalent. The approaches to be used to calculate these direct and indirect A/C credits are generally consistent with those of the MYs 2012-2016 program, although there are several revisions, including as proposed the introduction of a new A/C efficiency test procedure that will be applicable starting in MY 2014 for compliance with EPA's GHG standards.

In addition to the grams-per-mile CO₂-equivalent credits, for the first time the agencies are establishing provisions in the CAFE program that would account for improvements in air conditioner efficiency. Improving A/C efficiency leads to real-world fuel economy benefits, because as explained above, A/C operation represents an additional load on the engine. Thus, more efficient A/C operation imposes less of a load and allows the vehicle to go farther on a gallon of gas. Under EPCA, EPA has authority to adopt procedures to measure fuel economy and to calculate CAFE compliance values. Under this authority, EPA is establishing that manufacturers can generate fuel consumption improvement values for purposes of CAFE compliance based on air conditioning system efficiency improvements for cars and trucks. An increase in a vehicle's CAFE grams-per-mile value would be allowed up to a maximum based on 0.000563 gallon/mile for cars and on 0.000810 gallon/mile for trucks. This is equivalent to the A/C efficiency CO₂ credit allowed by EPA under the GHG program. For the CAFE program, EPA would use the same methods to calculate the values for air conditioning efficiency improvements for cars and trucks as are used in EPA's GHG program. Additionally, given that these real-world improvements will be available to manufacturers for compliance, NHTSA has accounted for this by determining the amount that industry is expected to improve air conditioning system efficiency in each model year from 2017-2025, and setting the CAFE standards to reflect these improvements, in a manner consistent with EPA's GHG standards. EPA is not allowing generation of fuel consumption improvement values for CAFE purposes, nor is NHTSA increasing stringency of the CAFE standard, for the use of A/C systems that reduce leakage or employ alternative, lower GWP refrigerant. This is because those changes do not generally affect fuel economy. Most industry commenters supported this proposal, while one NGO noted that the inclusion of air conditioning improvements for purposes of CAFE car compliance was a change from prior interpretations.

c. Off-cycle Credits/Fuel Economy Value Increases

For MYs 2012-2016, EPA provided an option for manufacturers to generate credits for utilizing new and innovative technologies that achieve CO₂ reductions that are not reflected on current test procedures. EPA noted in the MYs 2012-2016 rulemaking that examples of such “off-cycle” technologies might include solar panels on hybrids and active aerodynamics, among other technologies. See generally 75 FR 25438-39. EPA's current program allows off-cycle credits to be generated through MY 2016.

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

Many automakers indicated that they had a strong interest in pursuing off-cycle technologies, and encouraged the agencies to refine and simplify the evaluation process to provide more certainty as to the types of technologies the agencies would approve for credit generation. Other commenters, such as suppliers and some NGOs, also provided technical input on various aspects of the off-cycle credit program. Some environmental groups expressed concerns about the uncertainties in calculating off-cycle credits and that the ability for manufacturer's to earn credits from off-cycle technologies should not be a disincentive for implementing other (2-cycle) technologies. For MY 2017 and later, EPA is finalizing several proposed provisions to expand and streamline the MYs 2012-2016 off-cycle credit provisions, including an approach by which the agencies will provide default values, which will eliminate the need for case-by-case-testing, for a subset of off-cycle technologies whose benefits are reliably and conservatively quantified. EPA is finalizing a list of technologies and default credit values for these technologies, as well as capping the maximum amount of these credits which can be utilized unless a manufacturer demonstrates through testing that greater amounts are justified. The agencies believe that our assessment of off-cycle technologies and associated credit values on this list is conservative, and emphasize that automakers may apply for additional off-cycle credits beyond the minimum credit value and cap if they present sufficient supporting data. Manufacturers may also apply to receive credit for off-cycle technologies besides those listed, again, if they have sufficient data. EPA received several comments regarding the list of technologies and associated credit values and has modified the list somewhat in response to these comments, as discussed in Section II.F.2. EPA was also persuaded by the public comments that the default credit values should not be contingent upon a minimum penetration of the technology into a manufacturer's fleet, and so is not adopting this aspect of the proposal. Manufacturers often apply new technologies on a limited basis to gain experience, gauge consumer acceptance, allow refinement of the manufacturing and production processes for quality and cost, and other legitimate reasons. The proposed minimum penetration requirement might have discouraged introduction of off-cycle technologies in these legitimate circumstances.

In addition, as requested by commenters, EPA is providing additional detail on the process and timing for the credit/fuel consumption improvement values application and approval process for those instances where manufacturers seek off-cycle credits rather than using the default values from the list provided, or seek credits for technologies other than those provided through the list. EPA is finalizing a timeline for the approval process, including a 60-day EPA decision process from the time a manufacturer submits a complete application for credits based on 5-cycle testing. As proposed, EPA is also finalizing a detailed, step-by-step process, including a specification of the data that manufacturers must submit. EPA will also consult with NHTSA during the review process. For off-cycle technologies that are both not covered by the pre-approved off-cycle credit/fuel consumption improvement values list and that are not quantifiable based on the 5-cycle test cycle option provided in the 2012-2016 rulemaking, EPA is retaining the public comment process from the MYs 2012-2016 rule, and will consult with NHTSA during the review process.

Finally, in response to many OEM and supplier comments encouraging EPA to allow access to the pre-defined credit menu earlier than MY 2017, EPA is allowing use of the credit menu for the GHG program beginning in MY 2014 to facilitate compliance with the GHG standards for MYs 2014-2016. This provision is for the GHG rules only, and does not apply to the 2012-2016 CAFE standards; the off-cycle credit program will not begin until MY 2017 for the CAFE program, as discussed in Section IV.I.4.c. A full description of the program, including an overview of key comments and responses, is provided in Section III.C.5. A number of technical comments were also submitted by a variety of stakeholders, which are addressed in Chapter 5 of the joint TSD.

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

In order to provide temporary regulatory incentives to promote advanced vehicle technologies, EPA is finalizing, as proposed, an incentive multiplier for CO₂ emissions compliance purposes for all electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs) sold in MYs 2017 through 2021. In addition, in response to public comments explaining how infrastructure and technologies for compressed natural gas (CNG) vehicles could serve as a bridge to use of advanced technologies such as hydrogen fuel cells, EPA is finalizing an incentive multiplier for CNG vehicles sold in MYs 2017 through 2021. This multiplier approach means that each EV/PHEV/FCV/CNG vehicle would count as more than one vehicle in the manufacturer's compliance calculation. EPA is finalizing, as proposed, that EVs and FCVs start with a multiplier value of 2.0 in MY 2017 and phase down to a value of 1.5 in MY 2021, and that PHEVs would start at a multiplier value of 1.6 in MY 2017 and phase down to a value of 1.3 in MY 2021. EPA is finalizing multiplier values for both dedicated and dual fuel CNG vehicles for MYs 2017-2021 that are equivalent to the multipliers for PHEVs. All incentive multipliers in EPA's program expire at the end of MY 2021. See Section III.C.2 for more discussion of these incentive multipliers.

NHTSA currently interprets EPCA and EISA as precluding it from offering additional incentives for the alternative fuel operation of EVs, PHEVs, FCVs, and NGVs, except as specified by statute, and thus did not propose and is not including incentive multipliers comparable to the EPA incentive multipliers described above.

For EVs, PHEVs and FCVs, EPA is also finalizing, as proposed, to set a value of 0 g/mile for the tailpipe CO₂ emissions compliance value for EVs, PHEVs (electricity usage) and FCVs for MY 2017-2021, with no limit on the quantity of vehicles eligible for 0 g/mi tailpipe emissions accounting. For MY 2022-2025, EPA is finalizing, as proposed, that 0 g/mi only be allowed up to a per-company cumulative sales cap, tiered as follows: 1) 600,000 EV/PHEV/FCVs for companies that sell 300,000 EV/PHEV/FCVs in MYs 2019-2021; or 2) 200,000 EV/PHEV/FCVs for all other manufacturers. Starting with MY 2022, the compliance value for EVs, FCVs, and the electric portion of PHEVs in excess of individual automaker cumulative production caps must be based on net upstream accounting. These provisions are discussed in detail in Section III.C.2.

As proposed and as discussed above, for EVs and other dedicated alternative fuel vehicles, EPA will calculate fuel economy for the CAFE program (under its EPCA statutory authority, as further described in Section I.E.2.a) using the same methodology as in the MYs 2012-2016 rulemaking. For liquid alternative fuels, this methodology generally counts 15 percent of the volume of fuel used in determining the mpg-equivalent fuel economy. For gaseous alternative fuels (such as natural gas), the methodology generally determines a gasoline equivalent mpg based on the energy content of the gaseous fuel consumed, and then adjusts the fuel consumption by effectively only counting 15 percent of the actual energy consumed. For electricity, the methodology generally determines a gasoline equivalent mpg by measuring the electrical energy consumed, and then uses a petroleum equivalency factor to convert to a mpg-equivalent value. The petroleum equivalency factor for electricity includes an adjustment that effectively only counts 15 percent of the actual energy consumed. Counting 15 percent of the fuel volume or energy provides an incentive for alternative fuels in the CAFE program.

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

e. Incentives for Using Advanced, “Game-Changing” Technologies in Full-Size Pickup Trucks

The agencies recognize that the standards presented in this final rule for MYs 2017-2025 will be challenging for large vehicles, including full-size pickup trucks often used in commercial applications. To help address this challenge, the program will, as proposed, adopt incentives for the use of hybrid electric and non-hybrid electric “game changing” technologies in full-size pickup trucks.

EPA is providing the incentive for the GHG program under EPA's CAA authority, and for the CAFE program under EPA's EPCA authority. EPA's GHG and NHTSA's CAFE standards are set at levels that take into account this flexibility as an incentive for the introduction of advanced technology. This provides the opportunity in the program's early model years to begin penetration of advanced technologies into this category of vehicles, and in turn creates more opportunities for achieving the more stringent MYs 2022-2025 truck standards.

EPA is providing a per-vehicle CO₂ credit in the GHG program and an equivalent fuel consumption improvement value in the CAFE program for manufacturers that sell significant numbers of large pickup trucks that are mild or strong hybrid electric vehicles (HEVs). To qualify for these incentives, a truck must meet minimum criteria for bed size, and for towing or payload capability. In order to encourage rapid penetration of these technologies in this vehicle segment, the final rules also establish minimum HEV sales thresholds, in terms of a percentage of a manufacturer's full-size pickup truck fleet, which a manufacturer must satisfy in order to qualify for the incentives.

The program requirements and incentive amounts differ somewhat for mild and strong HEV pickup trucks. As proposed, mild HEVs will be eligible for a per-vehicle CO₂ credit of 10 g/mi (equivalent to 0.0011 gallon/mile for a gasoline-fueled truck) during MYs 2017-2021. To be eligible a manufacturer would have to show that the mild hybrid technology is utilized in a specified portion of its truck fleet beginning with at least 20% of a company's full-size pickup production in MY 2017 and ramping up to at least 80% in MY 2021. The final rule specifies a lower level of technology penetration for MYs 2017 and 2018 than the 30% and 40% penetration rates proposed, based on our consideration of industry comments that too high a penetration requirement could discourage introduction of the technology. The lower required rates will help factor in the early experience gained with this technology and allow for a more efficient ramp up in manufacturing capacity. As proposed, strong HEV pickup trucks will be eligible for a 20 g/mi credit (0.0023 gallon/mile) during MYs 2017-2025 if the technology is used on at least 10% of a company's full-size pickups in that model year. EPA and NHTSA are adopting specific definitions for mild and strong HEV pickup trucks, based on energy flow to the high-voltage battery during testing. These definitions are slightly different from those proposed—reflecting the agencies' consideration of public comments and additional pertinent data. The details of this program are described in Sections II.F.3 and III.C.3, as well as in Chapter 5.3 of the joint TSD.

Because there are other promising technologies besides hybridization that can provide significant reductions in GHG emissions and fuel consumption from full size pickup trucks, EPA is also adopting, as proposed, a performance-based CO₂ emissions credit and equivalent fuel consumption improvement value for full-size pickup trucks. Eligible pickup trucks certified as performing 15 percent better than their applicable CO₂ target will receive a 10 g/mi credit (0.0011 gallon/mile), and those certified as performing 20 percent better than their target will receive a 20 g/mi credit (0.0023 gallon/mile). The 10 g/mi performance-based credit will be available for MYs 2017 to 2021 and, once qualifying; a vehicle model will continue to receive the credit through MY 2021, provided its CO₂ emissions level does not increase. The 20 g/mi performance-based credit will be provided to a vehicle model for a maximum of 5 years within the 2017 to 2025 model year period provided its CO₂ emissions level does not increase. Minimum sales penetration thresholds apply for the performance-based credits, similar to those adopted for HEV credits.

To avoid double-counting, no truck will receive credit under both the HEV and the performance-based approaches. Further details on the full-size truck technology credit program are provided in sections II.F.3 and III.C.3, as well as in Chapter 5.3 of the joint TSD.

The agencies received a variety of comments on the proposal for this technology incentive program for full size pickup trucks. Some environmental groups and manufacturers questioned the need for it, arguing that this vehicle segment is not especially challenged by the standards, that hybrid systems would readily transfer to it from other vehicle classes, and that the credit essentially amounts to an economic advantage for manufacturers of these trucks. Other industry commenters requested that it be made available to a broader class of vehicles, or that the minimum penetration thresholds be removed or relaxed. There were also a number of comments on the technical requirements defining eligibility and mild/strong HEV performance. In response to the comments, the agencies made some changes to the proposed program, including adjustments to the penetration thresholds for mild HEVs, clarification that non-gasoline HEVs can qualify, and improvements to the technical criteria for mild and strong hybrids. The comments and changes are discussed in detail in sections II.F.3, and III.C.3, and in Chapter 5 of the TSD.

5. Mid-Term Evaluation

Given the long time frame at issue in setting standards for MYs 2022-2025, and given NHTSA's obligation to conduct a de novo rulemaking in order to establish final standards for vehicles for those model years, the agencies will conduct a comprehensive mid-term evaluation and agency decision-making process for the MYs 2022-2025 standards, as described in the proposal.

The agencies received many comments about the importance of the proposed mid-term evaluation due to the long time-frame of the rule and the uncertainty in assumptions due to this long timeframe. Nearly all auto manufacturers and associations predicated their support of the MY 2017-2025 National Program on the agencies conducting this evaluation and decision-making process. In addition, a number of auto manufacturers suggested additional factors that the agencies should consider during the evaluation process and also stressed the importance of completing the evaluation no later than April 1, 2018, the timeframe proposed by the agencies. Several associations also asked for more detail to be codified regarding the timeline, content and procedures of the review process. Several automakers and organizations suggested that the agencies also conduct a series of smaller, focused evaluations or “check-ins” on key issues and technological and market trends. Several organizations and associations stressed the importance of involving CARB and broad public participation in the review process.

The agencies also received a number of comments from environmental and consumer organizations expressing concerns about the mid-term evaluation—that it could occur too early, before reliable data on the new standards is available, be disruptive to auto manufacturers' product planning and add uncertainty, and that it should not be used as an opportunity to delay benefits or weaken the overall National Program for MY 2022-2025. Those organizations commented that if the agencies determined that a mid-term evaluation was necessary, it should be used as an opportunity to increase the stringency of the 2022-2025 standards. Some environmental groups opposed the concept of the agencies performing additional interim reviews. Finally, several environmental organizations urged transparency and recommended that the agencies provide periodic updates on technology progress and compliance trends. One commenter, NADA, stated that the rule should not be organized in a way that would require a mid-term evaluation and that the agencies should wait to set standards for MYs 2017-2021 until more information is available. The mid-term evaluation comments are discussed in detail in sections III.B.3 and IV.A.3.b.

The agencies are finalizing the mid-term evaluation and agency decision-making process as proposed. As stated in the proposal, both NHTSA and EPA will develop and compile up-to-date information for the mid-term evaluation, through a collaborative, robust and transparent process, including public notice and comment. The evaluation will be based on (1) a holistic assessment of all of the factors considered by the agencies in setting standards, including those set forth in this final rule and other relevant factors, and (2) the expected impact of those factors on the manufacturers' ability to comply, without placing decisive weight on any particular factor or projection. In order to align the agencies' rulemaking for MYs 2022-2025 and to maintain a joint national program, if the EPA determination is that standards will not change, NHTSA will issue its final rule concurrently with the EPA determination. If the EPA determination is that standards may change, the agencies will issue a joint NPRM and joint final rule. The comprehensive evaluation process will lead to final agency action by both agencies, as described in sections III.B.3 and IV.A.3 of this Notice.

NHTSA's final action will be a de novo rulemaking conducted, as explained, with fresh inputs and a fresh consideration and balancing of all relevant factors, based on the best and most current information before the agency at that time. EPA will conduct a mid-term evaluation of the later model year light-duty GHG standards (MY2022-2025). The evaluation will determine what standards are appropriate for those model years.

Consistent with the agencies' commitment to maintaining a single national framework for regulation of vehicle GHG emissions and fuel economy, the agencies fully expect to conduct the mid-term evaluation in close coordination with the California Air Resources Board (CARB). In adopting their GHG standards on March 22, 2012, the California Air Resources Board directed the Executive Officer to continue collaborating with EPA and NHTSA as the Federal GHG standards were finalized and also “to participate in U.S. EPA's mid-term review of the 2022 through 2025 model year passenger vehicle greenhouse gas standards being proposed under the 2017 through 2025 MY National Program”. In addition, in order to align the agencies' proceedings for MYs 2022-2025 and to maintain a joint national program, if the EPA determination is that standards will not change, NHTSA will issue its final rule concurrently with the EPA determination. If the EPA determination is that standards may change, the agencies will issue a joint NPRM and joint final rule.

Further discussion of the mid-term evaluation can be found in Sections III.B.3 and IV.A.3.b of this final rule preamble.

6. Coordinated Compliance

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

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

7. Additional Program Elements

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

As proposed, EPA is finalizing provisions which state that CO₂ emissions compliance values for plug-in hybrid electric vehicles (PHEVs) and dual fuel compressed natural gas (CNG) vehicles will be based on estimated use of the alternative fuels, recognizing that if a consumer incurs significant cost for a dual fuel vehicle and can use an alternative fuel that has significantly lower cost than gasoline, it is very likely that the consumer will seek to use the lower cost alternative fuel whenever possible. Accordingly, for CO₂ emissions compliance, EPA is using the Society of Automotive Engineers “utility factor” methodology (based on vehicle range on the alternative fuel and typical daily travel mileage) to determine the assumed percentage of operation on gasoline and percentage of operation on the alternative fuel for both PHEVs and dual fuel CNG vehicles, along with the CO₂ emissions test values on the alternative fuel and gasoline. Dual fuel CNG vehicles must have a minimum natural gas range-to-gasoline range of 2.0 in order to use this utility factor approach. Any dual fuel CNG vehicles that do not meet this requirement would use a utility factor of 0.50, the value that has been used in the past for dual fuel vehicles under the CAFE program. EPA is also finalizing, as proposed, an option allowing the manufacturer to use this utility factor methodology for CO₂ emissions compliance for dual fuel CNG vehicles for MY 2012 and later model years.

As proposed, EPA is accounting for E85 use by flexible fueled vehicles (FFVs) as in the existing MY 2016 and later program, based on actual usage of E85 which represents a real-world tailpipe emissions reduction attributed to alternative fuels. Unlike PHEV and dual fuel CNG vehicles, there is not a significant cost differential between an FFV and a conventional gasoline vehicle and historically consumers have fueled these vehicles with E85 a very small percentage of the time. But E85 use in FFVs is expected to rise in the future due to Renewable Fuel Standard program requirements. GHG emissions compliance issues for dual fuel vehicles are discussed further in Section III.C.4.a.

In the CAFE program for MYs 2017-2019, the fuel economy of dual fuel vehicles will be determined in the same manner as specified in the MY 2012-2016 rule, and as defined by EISA. Beginning in MY 2020, EISA does not specify how to measure the fuel economy of dual fuel vehicles, and EPA is finalizing its proposal, under its EPCA authority, to use the “utility factor” methodology for PHEV and CNG vehicles described above to determine how to apportion the fuel economy when operating on gasoline or diesel fuel and the fuel economy when operating on the alternative fuel. For FFVs under the CAFE program, EPA is using the same methodology it uses for the GHG program to apportion the fuel economy, namely based on actual usage of E85. As proposed, EPA is continuing to use Petroleum Equivalency Factors and the 0.15 divisor used in the MY 2012-2016 rule for the alternative fuels, however with no cap on the amount of fuel economy increase allowed. This issue is discussed further in Section III.C.4.b and in Section IV.I.3.a.

b. Exclusion of Emergency and Police Vehicles

Under EPCA, manufacturers are allowed to exclude emergency vehicles from their CAFE fleet and all manufacturers that produce emergency vehicles have historically done so. In the MYs 2012-2016 program, EPA's GHG program applies to these vehicles. However, after further consideration of this issue, EPA proposed and is finalizing the same type of exclusion provision for these vehicles for MY 2012 and later because of their unique features. Law enforcement and emergency vehicles are necessarily equipped with features which reduce the ability of manufacturers to sufficiently improve the emissions control without compromising necessary vehicle utility. Manufacturers commented in support of this provision and EPA received only one comment against exempting emergency vehicles. These comments are addressed in Section III.B.8.

c. Small Businesses, Small Volume Manufacturers, and Intermediate Volume Manufacturers

As proposed, EPA is finalizing provisions to address two categories of smaller manufacturers. The first category is small businesses as defined by the Small Business Administration (SBA). For vehicle manufacturers, SBA's definition of small business is any firm with less than 1,000 employees. As with the MYs 2012-2016 program, EPA is exempting small businesses—that is, any company that meets the SBA's definition of a small business—from the MY 2017 and later GHG standards. EPA believes this exemption is appropriate given the unique challenges small businesses would face in meeting the GHG standards, and since these businesses make up less than 0.1% of total U.S. vehicle sales, there is no significant impact on emission reductions. As proposed, EPA is also finalizing an opt-in provision that will allow small businesses wishing to waive their exemption and comply with the GHG standards to do so. EPA received no adverse comments on its proposed approach for small businesses.

EPA's final rule also addresses small volume manufacturers, those with U.S. annual sales of less than 5,000 vehicles. Under the MYs 2012-2016 program, these small volume manufacturers are eligible for an exemption from the CO₂ standards. As proposed, EPA will bring small volume manufacturers into the CO₂ program for the first time starting in MY 2017, and allow them to petition EPA for alternative standards to be developed manufacturer-by-manufacturer in a public process. EPCA provides NHTSA with the authority to exempt from the generally applicable CAFE standards manufacturers that produce fewer than 10,000 passenger cars worldwide in the model year each of the two years prior to the year in which they seek an exemption. If NHTSA exempts a manufacturer, it must establish an alternate standard for that manufacturer for that model year, at the level that the agency decides is maximum feasible for that manufacturer. The exemption and alternative standard apply only if the exempted manufacturer also produces fewer than 10,000 passenger cars worldwide in the year for which the exemption was granted. NHTSA is not changing its regulations pertaining to exemptions and alternative standards (49 CFR Part 525) as part of this rulemaking.

Also, EPA requested comment on allowing manufacturers able to demonstrate that they are operationally independent from a parent company (defined as 10% or greater ownership), to also be eligible for small volume manufacturer alternative standards and treatment under the GHG program. Under the current program, the vehicle sales of such companies must be aggregated with the parent company in determining eligibility for small volume manufacturer provisions. The only comments addressing this issue supported including a provision recognizing operational independence in the rules. EPA has continued to evaluate the issue and the final GHG rule includes provisions allowing manufacturers to demonstrate to EPA that they are operationally independent. This is different from the CAFE program, which aggregates manufacturers for compliance purposes if a control relationship exists, either in terms of stock ownership or design control, or both.

EPA sought comment on whether additional lead-time is needed for niche intermediate sized manufacturers. Under the Temporary Lead-time Allowance Alternative Standards (TLAAS) provisions in the MYs 2012-2016 GHG rules (see 75 FR 25414-417), manufacturers with sales of less than 50,000 vehicles were provided additional flexibility through MY 2016. EPA invited comment on whether this or some other form of flexibility is warranted for niche intermediate volume, limited line manufacturers (see section III.B.7).

NRDC commented in support of EPA's proposal not to extend the TLAAS program. EPA received comments from Jaguar Land Rover, Porsche and Suzuki that the standards will raise significant feasibility concerns for some intermediate volume manufacturers that will be part of the expanded TLAAS program in MY 2016, especially in the early transition years of the program. Porsche commented that they would need to meet standards up to 25 percent more stringent in MY 2017 compared to MY 2016, requiring utilization of advanced technologies at rates wholly disproportionate to rates expected for larger manufacturers with more diverse product lines. EPA is persuaded that these manufacturers require additional lead-time to make the transition from the TLAAS regime to the more stringent standards. To provide this needed lead-time, EPA is finalizing provisions for manufacturers with sales below 50,000 vehicles per year that are part of the TLAAS program through MY 2016, which will allow eligible manufacturers to remain at their MY 2016 standards through MY 2018 and then begin making the transition to more stringent standards. The manufacturers that utilize this added lead time will be required to meet the primary program standards in MY 2021 and later. The intermediate volume manufacturer lead-time provisions are discussed in detail in Section III.B.8.

d. Nitrous Oxide and Methane Standards

As proposed, EPA is extending to MY 2017 and later the flexibility for manufacturers to use CO₂ credits on a CO₂-equivalent basis to comply with the nitrous oxides (N₂ O) and methane (CH₄) cap standards. These cap standards, established in the MYs 2012-2016 rulemaking were intended to prevent future emissions increases and were generally not expected to result in the application of new technologies or significant costs for manufacturers using current vehicle designs. EPA is also finalizing additional lead time for manufacturers to use compliance statements in lieu of N₂ O testing through MY 2016, as proposed. In addition, in response to comments, EPA is allowing the continued use of compliance statements in MYs 2017-2018 in cases where manufacturers are not conducting new emissions testing for a test group, but rather carrying over certification data from a previous year. EPA is also clarifying that manufacturers will not be required to conduct in-use testing for N₂ O in cases where a compliance statement has been used for certification. All of these provisions are discussed in detail below in section III.B.9.

D. Summary of Costs and Benefits for the National Program

This section summarizes the projected costs and benefits of the MYs 2017-2025 CAFE and GHG emissions standards for light-duty vehicles. These projections helped inform the agencies' choices among the alternatives considered and provide further confirmation that the final standards are appropriate under the agencies' respective statutory authorities. The costs and benefits projected by NHTSA to result from the CAFE standards are presented first, followed by those projected by EPA to result from the GHG emissions standards.

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. NHTSA and EPA's standards are projected to result in slightly different fuel efficiency improvements. EPA's GHG standard is more stringent in part due to its assumptions about manufacturers' use of air conditioning leakage/refrigerant replacement credits, which will result in reduced emissions of HFCs. NHTSA's final standards are at levels of stringency that assume improvements in the efficiency of air conditioning systems, but these standards do not require reductions in HFC emissions, which are generally not related to fuel economy or energy conservation. In addition, as noted above, the CAFE and GHG standards offer somewhat different program flexibilities and provisions, and the agencies' analyses differ in their accounting for these flexibilities, 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.

Specifically, the projected costs and benefits presented by NHTSA and EPA are not directly comparable because EPA's standards include air conditioning-related improvements in HFC reductions, and reflect compliance with the GHG standards, whereas NHTSA projects some manufacturers will pay civil penalties as part of their compliance strategy, as allowed by EPCA. EPCA also prohibits NHTSA from considering manufacturers' ability to earn, transfer or trade credits earned for over-compliance when setting standards. The Clean Air Act imposes no such limitations. The Clean Air Act also allows EPA to provide incentives for particular technologies, such as for electric vehicles and dual fueled vehicles. For these reasons, EPA's estimates of GHG reductions and fuel savings achieved by the GHG standards are higher than those projected by NHTSA for the CAFE standards. For these same reasons, EPA's estimates of manufacturers' costs for complying with the passenger car and light truck GHG standards are slightly higher than NHTSA's estimates for complying with the CAFE standards.

It also bears discussion here that, for this final rulemaking, the agencies have analyzed the costs and benefits of the standards using two different forecasts of the light vehicle fleet through MY 2025. The agencies have concluded that the significant uncertainty associated with forecasting sales volumes, vehicle technologies, fuel prices, consumer demand, and so forth out to MY 2025, make it reasonable and appropriate to evaluate the impacts of the final CAFE and GHG standards using two baselines. One market forecast (or fleet projection), very similar to the one used for the NPRM, uses (corrected) MY 2008 CAFE certification data, information from AEO 2011, and information purchased from CSM in December of 2009. The agencies received comments regarding the market forecast used in the NPRM suggesting that updates in several respects could be helpful to the agencies' analysis of final standards; given those comments and since the agencies were already considering producing an updated fleet projection, the final rulemakings also utilize a second market forecast using MY 2010 CAFE certification data, information from AEO 2012, and information purchased from LMC Automotive (formerly J.D. Power Forecasting).

These two market forecasts contain certain differences, although as will be discussed below, the differences are not significant enough to change the agencies' decision as to the structure and stringency of the final standards, and indeed corroborate the reasonableness of the EPA final GHG standards and that the NHTSA standards are the maximum feasible. For example, the 2008 based fleet forecast uses the MY 2008 “baseline” fleet, which represents the most recent model year for which the industry had sales data that was not affected by the subsequent economic recession. On the other hand, the 2010 based fleet projection employs a market forecast (provided by LMC Automotive) which is more current than the projection provided by CSM (utilized for the MY 2008 based fleet projection). The CSM forecast appears to have been particularly influenced by the recession, showing major declines in market share for some manufacturers (e.g., Chrysler) which the agencies do not believe are reasonably reflective of future trends.

However, the MY 2010 based fleet projection also is highly influenced by the economic recession. The MY 2010 CAFE certification data has become available since the proposal (see section 1.2.1 of the Joint TSD for the proposed rule, which noted the possibility of these data becoming available), and is used in EPA's alternative analysis, and continues to show the effects of the recession. For example, industry-wide sales were skewed down 20% compared to pre-recession MY 2008 levels. For some companies like Chrysler, Mitsubishi, and Subaru, sales were down 30-40% from MY 2008 levels. For BMW, General Motors, Jaguar/Land Rover, Porsche, and Suzuki, sales were down more than 40% from 2008 levels. Using the MY 2008 vehicle data avoids projecting these abnormalities in predicting the future fleet, although it also perpetuates vehicle brands and models (and thus, their outdated fuel economy levels and engineering characteristics) that have since been discontinued. The MY 2010 CAFE certification data accounts for the phase-out of some brands (e.g., Saab) and the introduction of some technologies (e.g., Ford's Ecoboost engine), which may be more reflective of the future fleet in this respect.

Thus, given the volume of information that goes into creating a baseline forecast and given the significant uncertainty in any projection out to MY 2025, the agencies think that the best way to illustrate the possible impacts of that uncertainty for purposes of this rulemaking is the approach taken here of analyzing the effects of the final standards under both the MY 2008-based and the MY 2010-based fleet projections. EPA is presenting its primary analysis of the standards using the same baseline/future fleet projection that was used in the NPRM (i.e., corrected MY 2008 CAFE certification data, information from AEO 2011, and a future fleet forecast purchased from CSM). EPA also conducted an alternative analysis of the standards based on MY 2010 CAFE certification data, updated AEO 2012 (early release) projections of the future fleet sales volumes, and a forecast of the future fleet mix projections to MY 2025 purchased from LMC Automotive. At the same time, given that EPA believes neither projection is strongly superior to the other, EPA has performed a detailed analysis of the final standards using the MY 2010 baseline, and we have concluded that the final standards are likewise appropriate using this alternative baseline/fleet projection. EPA's analysis of the alternative baseline/future fleet (based on MY 2010) is presented in EPA's Final Regulatory Impact Analysis (RIA), Chapter 10. NHTSA's primary analysis uses both market forecasts, and accordingly presents values from both in tables throughout this preamble and in NHTSA's FRIA. Joint TSD Chapter 1 includes a full description of the two market projections and their derivation.

As with the MYs 2012-2016 standards, and the MYs 2014-2018 standards for heavy duty vehicles and engines, NHTSA and EPA have harmonized the programs as much as possible, and continuing the National Program to MYs 2017-2025 will result in significant cost savings and other advantages for the automobile industry by allowing them to manufacture and sell one fleet of vehicles across the U.S., rather than potentially having to comply with multiple state standards that may occur in the absence of the National Program. It is also important to note that NHTSA's CAFE standards and EPA's GHG standards will both be in effect, and each will lead to increases in average fuel economy and reductions in GHGs. The two agencies' standards together comprise the National Program, and the following discussions of the respective costs and benefits of NHTSA's CAFE standards and EPA's GHG standards do not change the fact that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program.

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

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

To illustrate the effects of the flexibilities and technologies that NHTSA is prohibited from including in its primary analysis, NHTSA performed a supplemental analysis of these effects on benefits and costs of the CAFE standards that helps to illustrate their real-world impacts. As an example of one of the effects, including the use of FFV credits reduces estimated per-vehicle compliance costs of the program, but does not significantly change the projected fuel savings and CO₂ reductions, because FFV credits reduce the fuel economy levels that manufacturers achieve not only under the standards, but also under the baseline MY 2016 CAFE standards. As another example, including the operation of PHEV vehicles on both electricity and gasoline, and the expected use of EVs for compliance may raise the fuel economy levels that manufacturers achieve under the proposed standards. The supplemental analysis is generally identified in tables throughout this document by the term “estimated achieved CAFE levels.”

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

Without accounting for the compliance flexibilities and advanced technologies that NHTSA is prohibited from considering when determining the maximum feasible level of new CAFE standards, since manufacturers' decisions to use those flexibilities and technologies are voluntary, NHTSA estimates that the required fuel economy increases would lead to fuel savings totaling a range from 180 billion to 184 billion gallons throughout the lives of light duty vehicles sold in MYs 2017-2025. At a 3 percent discount rate, the present value of the economic benefits resulting from those fuel savings is between $513 billion and $525 billion; at a 7 percent private discount rate, the present value of the economic benefits resulting from those fuel savings is between $400 billion and $409 billion.

The agency further estimates that these new CAFE standards will lead to corresponding reductions in CO₂ emissions totaling 1.9 billion metric tons during the lives of light duty vehicles sold in MYs 2017-2025. The present value of the economic benefits from avoiding those emissions is approximately $53 billion, based on a global social cost of carbon value of about $26 per metric ton (in 2017, and growing thereafter). All costs are in 2010 dollars.

Accounting for compliance flexibilities reduces the fuel savings achieved by the standards, as manufacturers are able to comply through credit mechanisms that reduce the amount of fuel economy technology that must be added to new vehicles in order to meet the targets set by the standards. NHTSA estimates that the fuel economy increases would lead to fuel savings totaling about 170 billion gallons throughout the lives of light duty vehicles sold in MYs 2017-2025, when compliance flexibilities are considered. At a 3 percent discount rate, the present value of the economic benefits resulting from those fuel savings is between $481 billion and $488 billion; at a 7 percent private discount rate, the present value of the economic benefits resulting from those fuel savings is between $375 billion and $380 billion. The agency further estimates that these new CAFE standards will lead to corresponding reductions in CO₂ emissions totaling 1.8 billion metric tons during the lives of light duty vehicles sold in MYs 2017-2025. The present value of the economic benefits from avoiding those emissions is approximately $49 billion, based on a global social cost of carbon value of about $26 per metric ton (in 2017, and growing thereafter).

Considering manufacturers' ability to employ compliance flexibilities and advanced technologies for meeting the standards, NHTSA estimates the following for fuel savings and avoided CO₂ emissions, assuming FFV credits will be used toward both the baseline and final standards:

NHTSA estimates that the fuel economy increases resulting from the standards will produce other benefits both to drivers (e.g., reduced time spent refueling) and to the U.S. as a whole (e.g., reductions in the costs of petroleum imports beyond the direct savings from reduced oil purchases), as well as some disbenefits (e.g., increased traffic congestion) caused by drivers' tendency to travel more when the cost of driving declines (as it does when fuel economy increases). NHTSA has estimated the total monetary value to society of these benefits and disbenefits, and estimates that the standards will produce significant net benefits to society. Using a 3 percent discount rate, NHTSA estimates that the present value of these net benefits will range from $498 billion to $507 billion over the lives of the vehicles sold during MYs 2017-2025; using a 7 percent discount rate a narrower range from $372 billion to $377 billion. More discussion regarding monetized benefits can be found in Section IV of this preamble and in NHTSA's FRIA. Note that the benefit calculation in the following tables includes the benefits of reducing CO₂ emissions, but not the benefits of reducing other GHG emissions (those have been addressed in a sensitivity analysis discussed in Section IV of this preamble and in NHTSA's FRIA).

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

NHTSA attributes most of these benefits (between $513 billion and $525 billion at a 3 percent discount rate, or between $400 billion and $409 billion at a 7 percent discount rate, excluding consideration of compliance flexibilities and advanced technologies for meeting the standards) to reductions in fuel consumption, valuing fuel (for societal purposes) at the future pre-tax prices projected in the Energy Information Administration's (EIA) reference case forecast from the Annual Energy Outlook (AEO) 2012. NHTSA's RIA accompanying this rulemaking presents a detailed analysis of specific benefits of the rule.

NHTSA estimates that the increases in technology application necessary to achieve the projected improvements in fuel economy will entail considerable monetary outlays. The agency estimates that the incremental costs for achieving the CAFE standards—that is, outlays by vehicle manufacturers over and above those required to comply with the MY 2016 CAFE standards—will total between about $134 billion and $140 billion.

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

NHTSA projects that manufacturers will recover most or all of these additional costs through higher selling prices for new cars and light trucks. To allow manufacturers to recover these increased outlays (and, to a much less extent, the civil penalties that some manufacturers are expected to pay for non-compliance), the agency estimates that the standards will lead to increase in average new vehicle prices ranging from $183 to $287 per vehicle in MY 2017 to between $1,461 and $1,616 per vehicle in MY 2025:

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

Despite estimated increases in average vehicle prices of between $183 to $287 per vehicle in MY 2017 to between $1,461 and $1,616 per vehicle in MY 2025, NHTSA estimates that discounted fuel savings over the vehicles' lifetimes will be sufficient to offset initial costs. Even discounted at 7%, lifetime fuel savings are estimated to be more than 2.5 times the incremental price increase induced by manufacturers' compliance with the standards. Although NHTSA estimates lifetime fuel cost savings using 3% and 7% discount rates based on OMB guidance, it is possible that consumers use different discount rates when valuing fuel savings, or value savings over a period of time shorter than the vehicle's full useful life. A more nuanced discussion of consumer valuation of fuel savings appears in Section IV.G.6.

As is the case with technology costs, accounting for the program's compliance flexibilities reduces savings in lifetime fuel expenditures due to lower levels of achieved fuel economy than are required under the standards.

The CAFE standards are projected to produce net benefits in a range from $498 billion to $507 billion at a 3 percent discount rate (a range of $476 billion to $483 billion, with compliance flexibilities), or between $372 billion and $377 billion at a 7 percent discount rate (a range of $356 billion to $362 billion, with compliance flexibilities), over the useful lives of the light duty vehicles sold during MYs 2017-2025.

While the estimated incremental technology outlays and incremental increases in average vehicle costs for the final MYs 2017-2021 standards in today's analysis are similar to the estimates in the proposal, we note for the reader's reference that the incremental cost estimates for the augural standards in MYs 2022-2025 are lower than in the proposal. The lower costs in those later model years result from the updated analysis used in this final rule. In MY 2021, the estimated incremental technology outlays for the combined fleet range from $14.9 billion to $16.5 billion as compared to $17 billion in the proposal, while the estimated incremental increases in average vehicle costs range from $964 to $1,043, as compared to $1,104 in the proposal. In MY 2025, the estimated incremental technology outlays for the combined fleet range from $23.3 billion to $26.8 billion, as compared to $32.4 billion in the proposal, while the estimated incremental increases in average vehicle costs range from $1,461 to $1,616, as compared to $1,988 in the proposal. The changes in the MY 2025 incremental costs reflect the combined result of a number of changes and corrections to the CAFE model and inputs, including (but not limited to) the following items:

• Focused corrections were made to the MY2008-based market forecast;
• A new MY2010-based market forecast was introduced;
• Mild HEV technology and off-cycle technologies are now available in the analysis;
• The amount of mass reduction applied in the analysis has changed;

• The effectiveness of advanced transmissions when applied to conventional naturally aspirated engines has been revised based on a study completed by Argonne National Laboratory for NHTSA;
• Estimates of future fuel prices were updated;
• The model was corrected to ensure that post-purchase fuel prices are applied when calculating the effective cost of available options to add technologies to specific vehicle models; and
• The model was corrected to ensure that the incremental costs and fuel savings are fully accounted for when applying diesel engines.

These changes to the model and inputs are discussed in detail in Sections II.G, IV.C.2, and IV.C.4 of the preamble; Chapter V of NHTSA's FRIA, and Chapters 3 and 4 of the joint TSD.

Acting together, these changes and corrections caused technology costs attributable to the baseline MYs 2009-2016 CAFE standards to increase for both fleets in most model years. In addition, the changes and corrections had the combined effect of reducing the total technology costs (i.e., including technology attributable to the baseline standards) in MYs 2022-2025, when greater levels of fuel economy-improving technologies would be required to comply with the augural standards. Because today's analysis applies these changes simultaneously, and because they likely interact in ways that would complicate attribution of impact, the agency has not attempted to quantify the extent to which each change impacted results. The combined effect of the increase in the baseline technology costs and reduction in the total technology costs in MYs 2022-2025 led to a reduction in the estimated incremental technology cost in MYs 2022-2025 in NHTSA's analysis, although estimated incremental technology costs were higher than or very similar to those reported in the NPRM for model years prior to MY 2022.

While the incremental costs for MYs 2022-2025 are lower than in the NPRM, the total estimated costs for compliance (inclusive of baseline costs) were reduced to a lesser extent. In assessing the appropriate level for maximum feasible standards, NHTSA takes into consideration a number of factors, including technological feasibility, economic practicability (which includes the consideration of cost as well as many other factors), the effect of other motor vehicle standards of the Government on fuel economy, the need of the United States to conserve energy, and safety, as well as other factors. Considering all of these factors, NHTSA continues to believe that the final standards are maximum feasible, as discussed below in Section IV.F.

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

EPA has analyzed in detail the projected costs and benefits of the 2017-2025 GHG standards for light-duty vehicles. Table I-19 shows EPA's estimated lifetime discounted cost, fuel savings, and benefits for all such vehicles projected to be sold in model years 2017-2025. The benefits include impacts such as climate-related economic benefits from reducing emissions of CO₂ (but not other GHGs), reductions in energy security externalities caused by U.S. petroleum consumption and imports, the value of certain particulate matter-related health benefits (including premature mortality), the value of additional driving attributed to the VMT rebound effect, the value of reduced refueling time needed to fill up a more fuel efficient vehicle. The analysis also includes estimates of economic impacts stemming from additional vehicle use, such as the economic damages caused by accidents, congestion and noise (from increased VMT rebound driving).

Table I-20 shows EPA's estimated lifetime fuel savings and CO₂ equivalent emission reductions for all light-duty vehicles sold in the model years 2017-2025. The values in Table I-20 are projected lifetime totals for each model year and are not discounted. As documented in EPA's RIA, the potential credit transfer between cars and trucks may change the distribution of the fuel savings and GHG emission impacts between cars and trucks.

Table I-21 shows EPA's estimated lifetime discounted benefits for all light-duty vehicles sold in model years 2017-2025. Although EPA estimated the benefits associated with four different values of a one ton CO₂ reduction ($6, $26, $41, $79 in CY 2017 and in 2010 dollars, see Section III.H), for the purposes of this overview presentation of estimated benefits EPA is showing the benefits associated with one of these marginal values, $26 per ton of CO₂, in 2010 dollars and 2017 emissions. The values in Table I-21 are discounted values for each model year of vehicles throughout their projected lifetimes. The estimated benefits include GHG reductions, particulate matter-related health impacts (including premature mortality), energy security, reduced refueling time and additional driving as well as the impacts of accidents, congestion and noise from VMT rebound driving. The values in Table I-21 do not include costs associated with new technology projected to be needed to meet the GHG standards and they do not include the fuel savings expected from that technology.

Table I-22 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 fuel savings and CO₂ emission reductions are projected lifetime values for all light-duty vehicles sold in the model years 2017-2025. The estimated fuel savings in billions of gallons and the GHG reductions in million metric tons of CO₂ shown in Table I-22 are totals for the nine model years throughout these vehicles' projected lifetime and are not discounted. The monetized values shown in Table I-22 are the summed values of the discounted monetized fuel savings and monetized CO₂ reductions for the model years 2017-2025 vehicles throughout their lifetimes. The monetized values in Table I-22 reflect both a 3 percent and a 7 percent discount rate as noted.

Table I-23 shows EPA's estimated incremental and total technology outlays for cars and trucks for each of the model years 2017-2025. The technology outlays shown in Table I-21 are for the industry as a whole and do not account for fuel savings associated with the program. Also, the technology outlays shown in Table I-21 do not include the estimated maintenance costs which are included in the program costs presented in Table I-19. Table I-24 shows EPA's estimated incremental cost increase of the average new vehicle for each model year 2017-2025. The values shown are incremental to a baseline vehicle and are not cumulative. In other words, the estimated increase for 2017 model year cars is $206 relative to a 2017 model year car meeting the MY 2016 standards. The estimated increase for a 2018 model year car is $374 relative to a 2018 model year car meeting the MY 2016 standards (not $206 plus $374).

3. Why are the EPA and NHTSA MY 2025 Estimated Per-Vehicle Costs Different?

In Section I.C.1 and I.C.2 NHTSA and EPA present the agencies' estimates of the incremental costs and benefits of the final CAFE and GHG standards, relative to costs and benefits estimated to occur absent the new standards. Taken as a whole, these represent the incremental costs and benefits of the National Program for Model Years 2017-2025. On a year-by-year comparison for model years 2017-2025, the two agencies' per-vehicle cost estimates are similar for the beginning years of the program, but in the last few model years, EPA's cost estimates are significantly higher than the NHTSA cost estimates. When comparing the CAFE required new vehicle cost estimate in Table I-15 with the GHG standard new vehicle cost estimate in Table I-24, we see that the model year 2025 CAFE incremental new vehicle cost estimate is $1,461-$1,616 per vehicle (when, as required by EISA/EPCA, NHTSA sets aside EVs, pre-MY2019 PHEVs, and credit-based CAFE flexibilities), and the GHG standard incremental cost estimate is $1,836 per vehicle—a difference of $220-$375. The agencies have examined these cost estimate differentials, and as discussed below, it is principally explained by how the two agencies modeled future compliance with their respective standards, and by the application of low-GWP refrigerants attributable only to EPA's standards. As also described below, in reality auto companies will build a single fleet of vehicles to comply with both the CAFE and GHG standards, and the only significant real-world difference in the program costs are is limited to the hydrofluorocarbon (HFC) reductions expected under the GHG standards, which EPA estimates at $68/vehicle cost.

As documented below in Section IV, although NHTSA is precluded by EISA/EPCA from considering CAFE credits, EVs, and pre-MY2019 PHEVs when determining the maximum feasible stringency of new CAFE standards, NHTSA has conducted additional analysis that accounts for EISA/EPCA's provisions regarding CAFE credits, EVs, and PHEVs. Under that analysis, as shown in Table I-16, NHTSA's estimate of the incremental new vehicle costs attributable to the new CAFE standards ranges from $1,257 to $1,400. Insofar as EPA's analysis focuses on the agencies' MY 2008-based market forecast and attempts to account for some CAA-based flexibilities (most notably, unlimited credit transfers between the PC and LT fleets), NHTSA's $1,400 result is based on methods conceptually more similar to those applied by EPA. Therefore, although the difference in MY 2025 is considerably greater than differences in earlier model years, the agencies have focused on understanding the $436 difference between NHTSA's $1,400 result and EPA's $1,836 result, both for the MY 2008-based market forecast.

Of this $436 difference, $247 is explained by NHTSA's simulation of EISA/EPCA's credit carry-forward provisions. EISA/EPCA allows manufacturers to “carry forward” credits up to five model years, applying those credits to offset compliance shortfalls and thereby avoid civil penalties. In meetings with the agency, some manufacturers have indicated that, even under the preexisting MY 2012-2016 standards, they would make full use of these provisions, effectively entering MY 2017 with little, if any, credit “in reserve.” As in the NPRM, NHTSA's analysis exercises its CAFE model in a manner that simulates manufacturers' carrying-forward and use of CAFE credits. This simulation of credit carry-forward acts in combination with the model's explicit simulation of multiyear planning—that is, the tendency of manufacturers to apply “extra” technology in earlier model years if doing so would economically facilitate compliance in later model years, considering estimated product cadence (i.e., estimated timing of vehicle redesigns) facilitate. When the potential to carry forward CAFE credits is also simulated, multiyear planning simulation estimates the extent to which manufacturers could generate CAFE credits in earlier model years and use those credits in later model years. In meetings with the agency, manufacturers have often provided forward-looking plans exhibiting this type of strategic timing of investment in technology. For the NPRM, NHTSA estimated that in MY 2025, accounting for credit carry-forward (and other flexibilities offered under EISA/EPCA), manufacturers could, on average, achieve 47.0 mpg, 2.6 mpg less than the agency's 49.6 mpg estimate of the average of manufacturers' fuel economy requirements in that model year. Using the corrected MY 2008-based market forecast, NHTSA today estimates that in MY 2025, manufacturers could achieve 47.4 mpg, 2.3 mpg less than the agency's current 49.7 mpg estimate (also under the corrected MY 2008-based market forecast) of the average of the manufacturers' fuel economy requirements in MY 2025. This 47.4 mpg estimate corresponds to the incremental cost estimate of $1,400 cited above. When credit carry-forward is excluded from this analysis, NHTSA's estimate of manufacturers' average achieved fuel economy in MY 2025 increases to 49.0 mpg, and NHTSA's estimate of the average incremental cost in MY 2025 increases to $1,647, an increase of $247. Although EPA's GHG standards allow manufacturers to bank (i.e., carry forward) GHG-based credits up to five years, EPA's OMEGA model was designed to estimate the costs of a specific standard in a specific year and EPA for this action did not estimate the potential credit bank companies could have on a year-by-year basis. As explained, this difference in simulation capabilities explains $247 of the $436 difference mentioned above.

As it has in past rulemakings and in the NPRM preceding today's final rule, NHTSA has also applied its CAFE model in a manner that simulates the potential that, as allowed under EISA/EPCA and as suggested by their past CAFE levels, some manufacturers could elect to pay civil penalties rather than achieving compliance with future CAFE standards. EISA/EPCA allows NHTSA to take this flexibility into account when determining the maximum feasible stringency of future CAFE standards. As in the NPRM, simulating this flexibility leads NHTSA to estimate that, under EISA/EPCA, some manufacturers (e.g., BMW, Mercedes, Porsche, and Volkswagen) could achieve fuel economy levels 6 to 9 mpg or more short of their respective required CAFE levels in MY 2025. Having set aside the potential to carry forward CAFE credits, when NHTSA also sets aside the potential to pay civil penalties, NHTSA estimates that manufacturers could achieve a fuel economy average of 49.7 mpg in MY 2025, reflecting, on average, manufacturers' achievement of their respective required CAFE levels. For MY 2025, this analysis shows this 0.7 mpg increase in average achieved fuel economy accompanied by a $119 increase in average incremental cost, increasing the average incremental cost to $1,766. Because the Clean Air Act, unlike EISA/EPCA, does not allow manufacturers to pay civil penalties rather than achieving compliance with GHG standards, EPA's OMEGA model does not simulate this type of flexibility. Therefore, this further difference in simulation capabilities explains $119 of the $436 difference mentioned above, and results in an estimated average incremental cost of $1,766 in MY 2025.

In addition to these differences in modeling of programmatic features, EPA projects that manufacturers will achieve significant GHG emissions reductions through the use of different air conditioning refrigerants (the HFC refrigerant in today's vehicles is a powerful greenhouse gas, with a global warming potential 1,430 times that of CO2). EPA estimates that in 2025, the incremental cost of the substitute is $68/vehicle. While all other technologies in the agencies' analyses are equally relevant to compliance with both CAFE and GHG standards, CAFE standards do not address HFC emissions, and NHTSA's analysis therefore does not include the costs of this HFC substitution. This factor results in the EPA 2025 cost estimate being $68/vehicle higher than the NHTSA MY 2025 per-vehicle cost estimate.

Taken together, as shown in Table I-25, these three factors suggest a difference of $434, based on $247 and $119 for NHTSA's simulation of EISA/EPCA's credit carry-forward and civil penalty provisions, respectively, and $68 for EPA's estimate of HFC costs. While $2 lower than the $436 difference mentioned above, the agencies consider this remaining difference to be small (about 0.1% of average incremental cost) and well within the range of differences to be anticipated given other structural differences between the agencies analyses and modeling systems.

The agencies' estimates are based on each agency's different modeling tools for forecasting costs and benefits between now and MY 2025. As described in detail in the Joint Technical Support Document, the agencies harmonized inputs for our modeling tools. However, our modeling tools (the NHTSA-developed CAFE model and the EPA-developed OMEGA model), while similar in core function, were developed to estimate the program costs based on each agencies' respective statutory authorities, which in some cases include specific constraints. It is important to note that these are modeling tool differences, but that, while the models result in different estimates of the costs of compliance, manufacturers will ultimately produce a single fleet of vehicles to be sold in the United States that considers both EPA greenhouse gas emissions standards and NHTSA CAFE standards. Manufacturers are currently selling MY2012 and MY2013 vehicles based on considering these standards. Every technology an automotive company applies to its vehicles that improves fuel economy will also lower CO₂ emissions—thus each dollar of technology investment will count towards the company's overall compliance with the CAFE standard as well as the CO₂ standard. The agencies' final footprint curve standards for passenger cars and for light trucks have been closely coordinated, with the principle difference being EPA's estimate of the application of HFC air conditioning refrigerant technology across a company's fleet of vehicles. Thus, within the entire fleet of vehicle models ultimately produced for sale in the United States, the agencies expect the only technology attributable solely to EPA's standards will be the low-GWP refrigerants, which EPA estimates at an average incremental unit cost of $68 in 2025.

E. Background and Comparison of NHTSA and EPA Statutory Authority

Section I.E of the preamble contains a detailed overview discussion of the NHTSA and EPA respective statutory authorities. In addition, each agency discusses comments pertaining to its statutory authority and the agencies' responses in Sections III and IV, respectively and EPA responds as well in its response to comment documents.

1. NHTSA Statutory Authority

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

a. Standard Setting

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

Because EPCA states that standards must be set for “* * * automobiles manufactured by manufacturers,” and because Congress provided specific direction on how small-volume manufacturers could obtain exemptions from the passenger car standards, NHTSA has long interpreted its authority as pertaining to setting standards for the industry as a whole. Prior to this NPRM, some manufacturers raised with NHTSA the possibility of NHTSA and EPA setting alternate standards for part of the industry that met certain (relatively low) sales volume criteria—specifically, that separate standards be set so that “intermediate-size,” limited-line manufacturers do not have to meet the same levels of stringency that larger manufacturers have to meet until several years later. NHTSA sought comment in the NPRM on whether or how EPCA, as amended by EISA, could be interpreted to allow such alternate standards for certain parts of the industry. Suzuki requested that NHTSA and EPA both adopt an approach similar to California's of providing more lead time to manufacturers with national average sales below 50,000 units, by allowing those “limited line manufacturers” to meet the MY 2017 standards in MY 2020, the MY 2018 standards in MY 2021, and so on, with a 3-year time lag in complying with the standards generally applicable for a compliance category. Suzuki stated simply that the standards are harder for small manufacturers to meet than for larger manufacturers, because the per-vehicle cost of developing or purchasing the necessary technology is higher, and that since the GHG emissions attributable to vehicles built by manufacturers who would be eligible for this option represent a very small portion of overall emissions, the impact should be minimal.

Although EPA is adopting such an approach as part of its final rule (see Section I.C.7.c above and III.X), no commenter provided legal analysis that might lead NHTSA to change its current interpretation of EPCA/EISA. Thus, NHTSA is not finalizing such an option for purposes of this rulemaking.

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

(1) Technological Feasibility

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

(2) Economic Practicability

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

It is important to note, however, that the law does not preclude a CAFE standard that poses considerable challenges to any individual manufacturer. The Conference Report for EPCA, as enacted in 1975, makes clear, and the case law affirms, “a determination of maximum feasible average fuel economy should not be keyed to the single manufacturer which might have the most difficulty achieving a given level of average fuel economy.” Instead, NHTSA is compelled “to weigh the benefits to the nation of a higher fuel economy standard against the difficulties of individual automobile manufacturers.” The law permits CAFE standards exceeding the projected capability of any particular manufacturer as long as the standard is economically practicable for the industry as a whole. Thus, while a particular CAFE standard may pose difficulties for one manufacturer, it may also present opportunities for another. NHTSA has long held that the CAFE program is not necessarily intended to maintain the competitive positioning of each particular company. Rather, it is intended to enhance the fuel economy of the vehicle fleet on American roads, while protecting motor vehicle safety and being mindful of the risk to the overall United States economy.

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

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

In the wake of Massachusetts v. EPA, 549 U.S. 497 (2007), and of EPA's endangerment finding, granting of a waiver to California for its motor vehicle GHG standards, and its own establishment of GHG standards, NHTSA is confronted with the issue of how to treat those standards under EPCA/EISA, such as in the context of the “other motor vehicle standards” provision. To the extent the GHG standards result in increases in fuel economy, they would do so almost exclusively as a result of inducing manufacturers to install the same types of technologies used by manufacturers in complying with the CAFE standards.

In the NPRM, NHTSA sought comment on whether and in what way the effects of the California and EPA standards should be considered under EPCA/EISA, e.g., under the “other motor vehicle standards” provision, consistent with NHTSA's independent obligation under EPCA/EISA to issue CAFE standards. NHTSA explained that the agency had already considered EPA's proposal and the harmonization benefits of the National Program in developing its own proposal. The only comment received was from the Sierra Club, noting that the structure of the National Program accounts for both NHTSA's and EPA's authority and requires no separate action. NHTSA agrees that no further action is required as part of this rulemaking.

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

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

(5) Fuel Prices and the Value of Saving Fuel

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

(6) Petroleum Consumption and Import Externalities

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

(7) Air Pollutant Emissions

While reductions in domestic fuel refining and distribution that result from lower fuel consumption will reduce U.S. emissions of various pollutants, additional vehicle use associated with the rebound effect from higher fuel economy will increase emissions of these pollutants. Thus, the net effect of stricter CAFE standards on emissions of each pollutant depends on the relative magnitudes of its reduced emissions in fuel refining and distribution, and increases in its emissions from vehicle use. Fuel savings from stricter CAFE standards also result in lower emissions of CO₂, the main greenhouse gas emitted as a result of refining, distribution, and use of transportation fuels. Reducing fuel consumption reduces carbon dioxide emissions directly, because the primary source of transportation-related 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, 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.” In 1988, NHTSA included climate change concepts in its CAFE notices and prepared its first environmental assessment addressing that subject. It cited concerns about climate change as one of its reasons for limiting the extent of its reduction of the CAFE standard for MY 1989 passenger cars. Since then, NHTSA has considered the benefits of reducing tailpipe carbon dioxide emissions in its fuel economy rulemakings pursuant to the statutory requirement to consider the nation's need to conserve energy by reducing fuel consumption.

ii. Other Factors Considered by NHTSA

NHTSA considers the potential for adverse safety consequences when establishing CAFE standards. This practice is recognized approvingly in case law. 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 presented in this final rule, that risk is reduced because building smaller vehicles tends to raise a manufacturer's overall CAFE obligation, rather than only raising its fleet average CAFE. However, even under attribute-based standards, there is still risk that manufacturers will rely on down-weighting to improve their fuel economy (for a given vehicle at a given footprint target) in ways that may reduce safety.

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

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

iv. Weighing and Balancing of Factors

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

v. Other Requirements Related to Standard Setting

The standards for passenger cars and for light trucks must increase ratably each year through MY 2020. 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. Standards after 2020 must simply be set at the maximum feasible level.

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

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

b. Test Procedures for Measuring Fuel Economy

EPCA provides EPA with the responsibility for establishing procedures to measure fuel economy and to calculate CAFE. Current test procedures measure the effects of nearly all fuel saving technologies. EPA is revising the procedures for measuring fuel economy and calculating average fuel economy for the CAFE program, however, to account for certain impacts on fuel economy not currently included in these procedures, specifically increases in fuel economy because of increases in efficiency of the air conditioning system; increases in fuel economy because of technology improvements that achieve “off-cycle” benefits; incentives for use of certain hybrid technologies in a significant percentage of pick-up trucks; and incentives for achieving fuel economy levels in a significant percentage pick-up trucks that exceeds the target curve by specified amounts, in the form of increased values assigned for fuel economy. NHTSA has considered manufacturers' ability to comply with the CAFE standards using these efficiency improvements in determining the stringency of the fuel economy standards presented in this final rule. These changes would be the same as program elements that are part of EPA's greenhouse gas performance standards, discussed in Section III.B.10. As discussed below, these three elements will be implemented in the same manner as in the EPA's greenhouse gas program—a vehicle manufacturer would have the option to generate these fuel economy values for vehicle models that meet the criteria for these elements and to use these values in calculating their fleet average fuel economy. This revision to the CAFE calculations is discussed in more detail in Sections III.B.10 and III.C and IV.I.4 below.

c. Enforcement and Compliance Flexibility

NHTSA determines compliance with the CAFE standards based on measurements of automobile manufacturers' CAFE from EPA. If a manufacturer's passenger car or light truck CAFE level exceeds the applicable standard for that model year, the manufacturer earns credits for over-compliance. The amount of credit earned is determined by multiplying the number of tenths of a mpg by which a manufacturer exceeds a standard for a particular category of automobiles by the total volume of automobiles of that category manufactured by the manufacturer for a given model year. As discussed in more detail in Section IV.I, credits can be carried forward for 5 model years or back for 3, and can also be transferred between a manufacturer's fleets or traded to another manufacturer.

If a manufacturer's passenger car or light truck CAFE level does not meet the applicable standard for that model year, NHTSA notifies the manufacturer. The manufacturer may use “banked” credits to make up the shortfall, but if there are no (or not enough) credits available, then the manufacturer has the option to submit a “carry back plan” to NHTSA. A carry back plan describes what the manufacturer plans to do in the following three model years to earn enough credits to make up for the shortfall through future over-compliance. NHTSA must examine and determine whether to approve the plan.

In the event that a manufacturer does not comply with a CAFE standard, even after the consideration of credits, EPCA provides for the assessing of civil penalties. The Act specifies a precise formula for determining the amount of civil penalties for such a noncompliance. The penalty, as adjusted for inflation by law, is $5.50 for each tenth of a mpg that a manufacturer's average fuel economy falls short of the standard for a given model year multiplied by the total volume of those vehicles in the affected fleet (i.e., import or domestic passenger car, or light truck), manufactured for that model year. The amount of the penalty may not be reduced except under the unusual or extreme circumstances specified in the statute, which have never been exercised by NHTSA in the history of the CAFE program.

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

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

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

2. EPA Statutory Authority

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

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

As a result of Title II requirements, new cars and SUVs sold today have emissions levels of hydrocarbons, oxides of nitrogen, and carbon monoxide that are 98-99% lower than new vehicles sold in the 1960s, on a per mile basis. Similarly, standards established for heavy-duty highway and nonroad sources require emissions rate reductions on the order of 90% or more for particulate matter and oxides of nitrogen. Overall ambient levels of automotive-related pollutants are lower now than in 1970, even as economic growth and vehicle miles traveled have nearly tripled. These programs have resulted in millions of tons of pollution reduction and major reductions in pollution-related deaths (estimated in the tens of thousands per year) and illnesses. The net societal benefits of the mobile source programs are large. In its annual reports on federal regulations, the Office of Management and Budget reports that many of EPA's mobile source emissions standards typically have projected benefit-to-cost ratios of 5:1 to 10:1 or more. Follow-up studies show that long-term compliance costs to the industry are typically lower than the cost projected by EPA at the time of regulation, which result in even more favorable real world benefit-to-cost ratios. Pollution reductions attributable to Title II mobile source controls are critical components to attainment of primary National Ambient Air Quality Standards, significantly reducing the national inventory and ambient concentrations of criteria pollutants, especially PM_2.5 and ozone. See e.g. 69 FR 38958, 38967-68 (June 29, 2004) (controls on non-road diesel engines expected to reduce entire national inventory of PM_2.5 by 3.3% (86,000 tons) by 2020). Title II controls have also made enormous reductions in air toxics emitted by mobile sources. For example, as a result of EPA's 2007 mobile source air toxics standards, the cancer risk attributable to total mobile source air toxics will be reduced by 30% in 2030 and the risk from mobile source benzene (a leukemogen) will be reduced by 37% in 2030. (reflecting reductions of over three hundred thousand tons of mobile source air toxic emissions) 72 FR 8428, 8430 (Feb. 26, 2007).

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

This final rule implements a specific provision from Title II, section 202(a). Section 202(a)(1) of the Clean Air Act (CAA) states that “the Administrator shall by regulation prescribe (and from time to time revise) * * * standards applicable to the emission of any air pollutant from any class or classes of new motor vehicles * * * which in his judgment cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare.” If EPA makes the appropriate endangerment and cause or contribute findings, then section 202(a) authorizes EPA to issue standards applicable to emissions of those pollutants. Indeed, EPA's obligation to do so is mandatory: “Coalition for Responsible Regulation v. EPA, No. 09-1322, slip op. at pp. 40-1 (D.C. Cir. June 26, 2012); Massachusetts v. EPA, 549 U.S. at 533. Moreover, EPA's mandatory legal duty to promulgate these emission standards derives from “a statutory obligation wholly independent of DOT's mandate to promote energy efficiency.” Massachusetts, 549 U.S. at 532. Consequently, EPA has no discretion to decline to issue greenhouse standards under section 202(a), or to defer issuing such standards due to NHTSA's regulatory authority to establish fuel economy standards. Rather, “[j]ust as EPA lacks authority to refuse to regulate on the grounds of NHTSA's regulatory authority, EPA cannot defer regulation on that basis.” Coalition for Responsible Regulation v. EPA, slip op. at p. 41.

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 must consider costs to those entities which are directly subject to the standards. Motor & Equipment Mfrs. Ass'n Inc. v. EPA, 627 F. 2d 1095, 1118 (D.C. Cir. 1979). Thus, “the [s]ection 202 (a)(2) reference to compliance costs encompasses only the cost to the motor-vehicle industry to come into compliance with the new emission standards.” Coalition for Responsible Regulation v. EPA, slip op. p. 44; see also id. at pp. 43-44 rejecting arguments that EPA was required to, or should have considered costs to other entities, such as stationary sources, which are not directly subject to the emission standards. 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). Finally, with respect to regulation of vehicular greenhouse gas emissions, EPA is not “required to treat NHTSA's * * * regulations as establishing the baseline for the [section 202 (a) standards].” Coalition for Responsible Regulation v. EPA, slip op. at p. 42 (noting further that “the [section 202 (a) standards] provid[e] benefits above and beyond those resulting from NHTSA's fuel-economy standards”.)

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).

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

While the statutory language of section 231 is not identical to other provisions in title II of the CAA that direct EPA to establish technology-based standards for various types of engines, EPA interprets its authority under section 231 to be somewhat similar to those provisions that require us to identify a reasonable balance of specified emissions reduction, cost, safety, noise, and other factors. See, e.g., Husqvarna AB v. EPA, 254 F.3d 195 (D.C. 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.

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).

One commenter mistakenly characterized section 202(a) as a “technology-forcing” provision. Comments of CBD p. 5. As just explained, it is not, but even if it were, EPA retains considerable discretion to balance the various relevant statutory factors, again as just explained. The same commenter maintained that the GHG standards should “protect the public health and welfare with an adequate margin of safety.” Id. p. 2. The commenter paraphrases the statutory standard for issuing health-based National Ambient Air Quality Standards under section 109(b) of the CAA. Section 202(a) is a technology-based provision with an entirely different legal standard. Moreover, the commenter's assertion that the standards must reduce the amount of greenhouse gases emitted by light duty motor vehicles (id. pp. 2-3) has no statutory basis. Section 202(a)(2) does not spell out any minimum level of effectiveness for standards, but instead directs EPA to set the standards at a level that is reasonable in light of applicable compliance costs and technology considerations. Nor is there any requirement that the GHG standards result in some specific quantum of amelioration of the endangerment to which light-duty vehicle emissions contribute. See Coalition for Responsible Regulation v. EPA, slip op. pp. 42-43. In addition, substantial GHG emission reductions required by section 202(a) standards in and of themselves constitute “meaningful mitigation of greenhouse gas emissions” without regard to the extent to which these reductions ameliorate the endangerment to public health and welfare caused by greenhouse gas emissions. Coalition for Responsible Regulation v. EPA, slip op. p. 43.

a. EPA's Testing Authority

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

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

b. EPA Enforcement Authority

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

c. Compliance

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

d. Test Procedures

EPA establishes the test procedures under which compliance with both the CAA GHG standards and the EPCA fuel economy standards are measured. EPA's testing authority under the CAA is flexible, but testing for fuel economy for passenger cars is by statute is limited to the Federal Test procedure (FTP) or test procedures which provide results which are equivalent to the FTP. 49 U.S.C. § 32904 and section III.B, below. EPA developed and established the FTP in the early 1970s and, after enactment of EPCA in 1976, added the Highway Fuel Economy Test (HFET) to be used in conjunction with the FTP for fuel economy testing. EPA has also developed tests with additional cycles (the so-called 5-cycle test) which test is used for purposes of fuel economy labeling and is also used in the EPA program for extending off-cycle credits under both the light-duty and (along with NHTSA) heavy-duty vehicle GHG programs. See 75 FR 25439; 76 FR 57252. In this rule, EPA is retaining the FTP and HFET for purposes of testing the fleetwide average standards, and is further modifying the N2O measurement test procedures and the A/C CO₂ efficiency test procedures EPA initially adopted in the 2012-2016 rule.

3. Comparing the Agencies' Authority

As the above discussion makes clear, there are both important differences between the statutes under which each agency is acting as well as several important areas of similarity. One important difference is that EPA's authority addresses various GHGs, while NHTSA's authority addresses fuel economy as measured under specified test procedures and calculated by EPA. This difference is reflected in this rulemaking in the scope of the two standards: EPA's rule takes into account reductions of direct air conditioning emissions, and establishes standards for methane and N₂ O, but NHTSA's do not, because these emissions generally do not relate to fuel economy. A second important difference is that EPA is adopting certain compliance flexibilities, such as the multiplier for advanced technology vehicles, and has taken those flexibilities into account in its technical analysis and modeling supporting the GHG standards. EPCA specifies a number of particular compliance flexibilities for CAFE, and expressly prohibits NHTSA from considering the impacts of those statutory compliance flexibilities in setting the CAFE standard so that the manufacturers' election to avail themselves of the permitted flexibilities remains strictly voluntary. The Clean Air Act, on the other hand, contains no such prohibition. As explained earlier, these considerations result in some differences in the technical analysis and modeling used to support the agencies' respective standards.

Another important area where the two agencies' authorities are similar but not identical involves the transfer of credits between a single firm's car and truck fleets. EISA revised EPCA to allow for such credit transfers, but placed a cap on the amount of CAFE credits which can be transferred between the car and truck fleets. 49 U.S.C. 32903(g)(3). Under CAA section 202(a), EPA is continuing to allow CO₂ credit transfers between a single manufacturer's car and truck fleets, with no corresponding limits on such transfers. In general, the EISA limit on CAFE credit transfers is not expected to have the practical effect of limiting the amount of CO₂ emission credits manufacturers may be able to transfer under the CAA program, recognizing that manufacturers must comply with both the CAFE standards and the GHG standards. However, it is possible that in some specific circumstances the EPCA limit on CAFE credit transfers could constrain the ability of a manufacturer to achieve cost savings through unlimited use of GHG emissions credit transfers under the CAA program.

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

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

In this context, it is in the Nation's interest for the two agencies to continue to work together in developing these 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 GHG and CAFE standards should not be surprising, however, as each agency is using a jointly developed technical basis to address the closely intertwined challenges of energy security and climate change.

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

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

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

II. Joint Technical Work Completed for This Final Rule

A. Introduction

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

The agencies have based this final rule on a very significant body of data and analysis that we believe is the best information currently available on the full range of technical and other inputs utilized in our respective analyses. As noted in various places throughout this preamble, the Joint TSD, the NHTSA RIA, and the EPA RIA, new information has become available since the proposal from a range of sources. These include work the agencies have completed (e.g., work on technology costs and effectiveness and creating a second future fleet forecast based on model year 2010 baseline data). In addition, information from other sources is now incorporated into our analyses, including the Energy Information Agency's Annual Energy Outlook 2012 Early Release, as well as other information from the public comment process. Wherever appropriate, and as summarized throughout this preamble, we have used inputs for the final rule based on information from the proposal as well as new data and information that has become available since the proposal (either through the comments or through the agencies' analyses).

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

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

In order to calculate the impacts of the EPA and NHTSA regulations, it is necessary to estimate the composition of the future vehicle fleet absent regulatory action, to provide a reference point relative to which costs, benefits, and effects of the regulations are assessed. As in the NPRM, EPA and NHTSA have developed comparison fleets in two parts. The first step was to develop baseline estimates of the fleets of new vehicles to be produced for sale in the U.S. through MY2025, one starting with the actual MY 2008 fleet, and one starting with the actual MY 2010 fleet. These baselines include vehicle sales volumes, GHG/fuel economy performance levels, and contain listings of the base technologies on every MY 2008 or MY 2010 vehicle sold. This information comes from CAFE certification data submitted by manufacturers to EPA, and for purposes of rulemaking analysis, was supplemented with publicly and commercially available information regarding some vehicle characteristics (e.g., footprint). The second step was to project the baseline fleet volumes into model years 2017-2025. The vehicle volumes projected out to MY 2025 are referred to as the reference fleet volumes. The third step was to modify those MY 2017-2025 reference fleets such that they reflect the technology that manufacturers could apply if the MY 2016 standards were extended without change through MY 2025. Each agency used its modeling system to develop modified or final reference fleets, or adjusted baselines, for use in its analysis of regulatory alternatives, as discussed below and in each agency's RIA. All of the agencies' estimates of emission reductions, fuel economy improvements, costs, and societal impacts are developed in relation to the respective reference fleets. This section discusses the first two steps, development of the baseline fleets and the reference fleets.

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

2. What comments did the agencies receive regarding fleet projections for the NPRM?

During the comment period, the agencies also received formal comments regarding the NPRM baseline and reference fleets. Chrysler questioned the agencies' assumption that the company's sales would decline by 53% over 17 years, and stated that the forecast had implications not just for the agencies' analysis, but also, indirectly, for Chrysler's competitiveness, because suppliers and customers who “see [such] projections supported by Federal agencies * * * are potentially given a highly negative view of the viability of the company * * * [which] may result in less favorable contracts with suppliers and lower sales to customers.” Chrysler requested that the agencies update their volume projections for the final rule.

The agencies' projection that Chrysler's sales would steadily decline was primarily attributable to the manufacturer- and segment-level forecasts provided in December 2009 by CSM. The agencies thought that forecast to have been credible at the time considering economic and industry conditions during the months before CSM provided the agencies with a long-range forecast, when the overall light vehicle market was severely depressed and Chrysler and GM were—with nascent federal assistance—in the process of reorganizing. We recognize that Chrysler's production has since recovered to levels suggesting much better long-term prospects than forecast by CSM in 2009. While the agencies are continuing to use the market forecast developed for the NPRM (after minor corrections unrelated to Chrysler's comments), we are also using a second market forecast we have developed for today's final rule, making use of a newer forecast (in this case, from LMC) of manufacturer- and segment-level shares, a forecast that shows significantly higher sales (more than double that of the earlier forecast) for Chrysler in 2025.

Environmental Consultants of Michigan commented that use of 4-year-old certification data was “unconscionable” and unreflective of technology improvements already made to vehicles since then, requesting that the agencies delay the final rule until the market forecast can be updated with appropriate data. As described in this chapter, even though the year of publication of this rule is 2012, model year 2010 was the most recent baseline dataset available due to the lag between the actual conclusion of a given model year and the submission (for CAFE compliance purposes) of production volumes for that model year. Moreover, as explained below in the joint TSD and in our respective RIAs, EPA and NHTSA measure the costs and benefits of new standards as incremental levels beyond those that would result from the application of technology given continuation of baseline standards (i.e., continuation of the standards that will be in place in MY 2016). Therefore, our analysis of manufacturers' capabilities is informed by analysis of technology that could be applied in the future even absent the new standards, not just technology that had been applied in 2008 or 2010. We further note that, while NHTSA has, in the past, made use of confidential product planning information provided to the agency by many manufacturers—information that typically extended roughly five years into the future—other stakeholders previously commented negatively regarding the agency's resultant inability to publish some of the detailed inputs to and outputs of its analysis. As during the rulemaking establishing the MYs 2012-2016 standards, EPA and NHTSA have determined that the benefits of a fully transparent market forecast outweigh the disbenefits of a market forecast that may not fully reflect likely forthcoming changes in manufacturers' products.

The agencies also received a comment from Volkswagen, stating that “Volkswagen sees no evidence that would suggest a near 30% decline in truck market share from domestic OEMs[original emphasis].” Volkswagen further suggested that the agencies' forecast was based on confidential “strategic plans by [Volkswagen's] competitors”. On the contrary, the agencies' forecast was based on public and commercial information made fully available to all stakeholders, including Volkswagen. Also, while the agencies' 2008 based fleet projection showed a decline in the share of light trucks expected to be produced by the aggregate of Chrysler, Ford, and General Motors, Volkswagen's statement mischaracterized the magnitude and nature of the decline. Between MY2008 and MY2025, the agencies' forecast showed declines from 17.8% to 5.8% for Chrysler, from 14.5% to 12.0% for Ford, from 26.8% to 27.8% from General Motors, and from 58.3% to 44.5% for the aggregate of these three manufacturers. The latter represents a 22.5% reduction, not the 30% reduction cited by Volkswagen, and is dominated by the underlying forecast regarding Chrysler's overall position in the market; for General Motors, the agencies' forecast showed virtually no loss of share in the light truck market. As discussed above, the agencies' market forecast for the NPRM was informed by CSM's forecast of manufacturer- and segment-level shares, and by EIA's forecast of overall volumes of the passenger car and light truck markets, and CSM's forecast, in particular, was provided at a time when market conditions were economically severe. While the agencies are continuing to use this forecast, this agency is also using a second forecast, informed by MY 2010 certification data, an updated AEO-based forecast of overall volumes of passenger cars and light trucks, and an updated manufacturer- and segment-level market forecast from LMC Automotive.

The Union of Concerned Scientists (UCS) expressed concern that if the light vehicle market does not shift toward passenger cars as indicated in the agencies' market forecast, energy and environmental benefits of the new standards could be less than projected. As discussed below, our MY 2008-based and MY 2010-based market forecasts, while both subject to uncertainty, reflect passenger car market shares estimated using EIA's National Energy Modeling System (NEMS). For both market forecasts, we re-ran NEMS by holding standards constant after MY 2016 and also preventing the model from increasing the passenger car market share to achieve increases in fleetwide average fuel economy levels. Having done so, we obtained a somewhat lower passenger car market share than EIA obtained for AEO 2011 and AEO 2012, respectively. In our judgment, this approach provides a reasonable basis for developing a forecast of the overall sales of passenger cars and light trucks, while remaining consistent with our use of EIA's reference case estimates of future fuel prices. In any event, we note that EPCA/EISA requires NHTSA to ensure that the overall new vehicle fleet achieves average fuel economy of at least 35 mpg by MY 2020. Our analysis, discussed below, indicates based on the information currently before us that the fleet could achieve 39.9-40.8 mpg by MY 2020 (accounting for flexibilities available under EPCA)—well above the 35 mpg statutory requirement. However, NHTSA will monitor the fleet's progress and, if necessary, adjust standards to ensure that EPCA/EISA's “35-by-2020” requirement is met, even if this requires issuing revised fuel economy standards before the planned joint mid-term evaluation process has been completed. However, insofar as NHTSA's current analysis indicates the fleet could achieve 40-41 mpg by MY 2020, NHTSA currently expects the need for such a rulemaking to be unlikely. Beyond MY 2020, EPCA/EISA does not provide a minimum requirement for the overall fleet, but requires NHTSA to continue setting separate standards for passenger cars and light trucks, such that each standard is at the maximum feasible level in each model year. In other words, as long as the “35-by-2020” requirement is achieved, NHTSA is required to consider stringency for passenger cars and light trucks separately, not to set those standards at levels achieving any particular level of average performance for the overall fleet.

Nonetheless, the agencies recognize that overall fuel consumption and GHG emissions by the light vehicle fleet will depend on, among many other things, the relative market shares of passenger cars and light trucks. In its probabilistic uncertainty analysis, presented in NHTSA's RIA accompanying today's notice as required by OMB for significant rulemakings, NHTSA has varied the passenger car share (as a function of fuel price), such that the resultant distributions of estimated model results—including fuel savings and CO₂ emission reductions—reflect uncertainty regarding the relative market shares of passenger cars and light trucks. The results of the probabilistic uncertainty analysis along with the other analysis in this rulemaking support that the NHTSA standards are maximum feasible standards. The probabilistic uncertainty analysis is discussed in NHTSA's RIA Chapter XII. Like all other aspects of the outlook for the future light vehicle market, the agencies will closely monitor the relative market shares of passenger cars and light trucks in preparation for the planned midterm review.

3. Why were two fleet projections created for the FRM?

Although much of the discussion in this and following sections describes the methodology for creating a single baseline and reference fleet, for this final rule the agencies actually developed two baseline and reference fleets. In the NPRM, the agencies used MY 2008 CAFE certification data to establish the “2008-based fleet projection.” The agencies noted that MY 2009 CAFE certification data was not likely to be representative of future conditions since it was so dramatically influenced by the economic recession (Joint Draft TSD section 1.2.1). The agencies further noted that MY 2010 CAFE certification data might be available for use in the final rulemaking for purposes of developing a baseline fleet. The agencies stated that a copy of the MY 2010 CAFE certification data would be put in the public docket if it became available during the comment period. The MY 2010 data was reported by the manufacturers throughout calendar year 2011 as the final sales figures were compiled and submitted to the EPA database. Due to the lateness of the CAFE data submissions, however, it was not possible to submit the new 2010 data into the docket during the public comment period. As explained below, however, consistent with the agencies' expectations at proposal, and with the agencies' standard practice of updating relevant information as practicable between proposals and final rules, the agencies are using these data in one of the two fleet-based projections we are using to estimate the impacts of the final rules.

For analysis supporting the NPRM, the agencies developed a forecast of the light vehicle market through MY 2025 based on (a) the vehicle models in the MY 2008 CAFE certification data, (b) the AEO 2011 interim projection of future fleet sales volumes, and (c) the future fleet forecast conducted by CSM in 2009. In the proposal, the agencies stated we would consider using MY 2010 CAFE certification data, if available, for analysis supporting the final rule (Joint Draft TSD, p. 1-2). Shortly after the NPRM was issued, the agencies reiterated this intention in statements to Automotive News in response to a pending article by that publication. The agencies also indicated our intention to, for analysis supporting the final rule, use the most recent version of EIA's AEO available, and a market forecast updated relative to that purchased from CSM (Joint Draft TSD section 1.3.5).

For this final rulemaking, the agencies have analyzed the costs and benefits of the standards using two different forecasts of the light vehicle fleet through MY 2025. The agencies have concluded that the significant uncertainty associated with forecasting sales volumes, vehicle technologies, fuel prices, consumer demand, and so forth out to MY 2025 makes it reasonable and appropriate to evaluate the impacts of the final CAFE and GHG standards using two baselines. One market forecast, similar to the one used for the NPRM, uses corrected data regarding the MY 2008 fleet, information from AEO 2011, and information purchased from CSM. As noted above, the agencies received comments regarding the market forecast used in the NPRM suggesting that updates in several respects could be helpful to the agencies' analysis of final standards; given those comments and since the agencies were already planning to produce an updated market forecast, the final rule also contains another market forecast using MY 2010 CAFE certification data, information from AEO 2012, and information purchased from LMC Automotive (formerly JD Powers Automotive).

The two market forecasts contain certain differences, although as will be discussed below, the differences are not significant enough to change the agencies' decision as to the structure and stringency of the final standards. For example, MY 2008 certification data represents the most recent model year for which the industry's offerings were not strongly affected by the subsequent economic recession, which may make it reasonable to use if we believe that the future vehicle mix of models are more likely to be reflective of the pre-recession mix than mix of models produced after MY 2008 (e.g., in MY 2010). Also, the MY 2010-based fleet projection employs a future fleet forecast provided by LMC Automotive, which is more current than the projection provided by CSM in 2009. The CSM forecast, utilized for the MY 2008-based fleet projection, appears to have been influenced by the recession, in particular in predicting major declines in market share for some manufacturers (e.g., Chrysler) which the agencies do not believe are reasonably reflective of future trends.

The MY 2010 based fleet projection, which is used in EPA's alternative analysis and in NHTSA's co-analysis, employs a future fleet forecast provided by LMC Automotive, which is more current than the projection provided by CSM in 2009, and which reflects the post-proposal MY 2010 CAFE certification data. However, this MY 2010 CAFE data also shows effects of the economic recession. For example, industry-wide sales were skewed down 20% compared to MY 2008 levels. For some companies like Chrysler, Mitsubishi, and Subaru, sales were down by 30-40% from MY 2008 levels, as documented in today's joint TSD. For BMW, General Motors, Jaguar/Land Rover, Porsche, and Suzuki, sales were down by more than 40%. Employing the MY 2008 vehicle data avoids using these baseline market shifts when projecting the future fleet. On the other hand, it also perpetuates vehicle brands and models (and thus, their outdated fuel economy levels and engineering characteristics) that have since been discontinued. The MY 2010 CAFE certification data accounts for the phase-out of some brands (e.g., Saab, Pontiac, Hummer) and the introduction of some technologies (e.g., Ford's Ecoboost engine), which may be more reflective of the future fleet in this respect.

Thus, given the volume of information that goes into creating a baseline forecast and given the significant uncertainty in any projection out to MY 2025, the agencies think that a reasonable way to illustrate the possible impacts of that uncertainty for purposes of this rulemaking is the approach taken here of analyzing the effects of the final standards under both the MY 2008-based baseline and the MY 2010-based baseline. The agencies' analyses are presented in our respective RIAs and preamble sections.

4. How did the Agencies develop the MY 2008 baseline vehicle fleet?

NHTSA and EPA developed a baseline fleet comprised of model year 2008 data gathered from EPA's emission and fuel economy database. This baseline fleet was used for the NPRM and was updated for this FRM.

There was only one change since the NPRM. A contractor working on a market share model noted some problems with some of the 2008 MY vehicle wheelbase data. Each of the affected vehicle's wheelbase and footprint were corrected for the MY 2008-based fleet used for this final rule. A more complete discussion of these changes is available in Chapter 1.3.1 of the TSD.

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

5. How did the Agencies develop the projected MY 2017-2025 vehicle reference fleet for the 2008 model year based fleet?

As in the NPRM, EPA and NHTSA have based the projection of total car and total light truck sales for MYs 2017-2025 on projections made by the Department of Energy's Energy Information Administration (EIAEIA publishes a mid-term projection of national energy use called the Annual Energy Outlook (AEO). This projection utilizes a number of technical and econometric models which are designed to reflect both economic and regulatory conditions expected to exist in the future. In support of its projection of fuel use by light-duty vehicles, EIA projects sales of new cars and light trucks. EIA published its Early Annual Energy Outlook for 2011 in December 2010. EIA released updated data to NHTSA in February (Interim AEO). The final release of AEO for 2011 came out in May 2011 and early release AEO came out in December of 2011, but for consistency with the NPRM, EPA and NHTSA chose to use the data from February 2011.

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

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

In addition to a shift towards more car sales, sales of segments within both the car and truck markets have been changing and are expected to continue to change. Manufacturers are introducing more crossover utility vehicles (CUVs), which offer much of the utility of sport utility vehicles (SUVs) but use more car-like designs. The AEO 2011 report does not, however, distinguish such changes within the car and truck classes. In order to reflect these changes in fleet makeup, EPA and NHTSA used a long range forecast from CSM Worldwide (CSM) the firm which, at the time of proposal development, offered the most detailed forecasting for the model years in question. The long range forecast from CSM Worldwide is a custom forecast covering the years 2017-2025 which the agencies purchased from CSM in December of 2009. Since proposal, the agencies have worked with LMC Automotive (formerly J.D. Powers Forecasting) and found them to be capable of doing forecasting of equivalent detail and are using the LMC forecast for the 2010 baseline fleet projection.

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

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

The CSM forecast provides estimates of car and truck sales by segment and by manufacturer separately. The forecast was broken up into two tables: one table with manufacturer volumes by year and the other with vehicle segments percentages by year. Table II-4 and

Table II—5 are examples of the data received from CSM. The task of estimating future sales using these tables is complex. We used the same methodology as in the previous rulemaking. A detailed description of how the projection process was done is found in Chapter 1.3.2 of the TSD.

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

Given publicly- and commercially-available sources that can be made equally transparent to all reviewers, the forecast described above represented the agencies' best forecast available at the time of its publishing regarding the likely composition direction of the fleet. EPA and NHTSA recognize that it is impossible to predict with certainty how manufacturers' product offerings and sales volumes will evolve through MY 2025 under baseline conditions—that is, without further changes in standards after MY 2016. While the agencies have not included variations in the market forecast as aspects of our respective sensitivity analyses, we have conducted our central analyses twice—once each for the MY 2008- and MY 2010-based market forecasts that reflect differences in available vehicle models, differences in manufacturer- and segment-level market shares, and differences in the overall volumes of passenger cars and light trucks. In addition, as discussed above, NHTSA's probabilistic uncertainty analysis accounts for uncertainty regarding the relative market shares of passenger cars and light trucks.

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

6. How did the agencies develop the model year 2010 baseline vehicle fleet as part of the 2010 based fleet projection?

NHTSA and EPA also developed a baseline fleet comprised of model year 2010 data gathered from EPA's emission and fuel economy database. This alternative baseline fleet has the model year 2010 vehicle volumes and attributes. The 2010 baseline fleet reflects all fuel economy technologies in use on MY 2010 light duty vehicles as reported by manufacturers in their CAFE certification data. The 2010 emission and fuel economy database included data on vehicle production volume, fuel economy, engine size, number of engine cylinders, transmission type, fuel type, etc.; however it did not contain complete information on technologies. Thus, as with the 2008 baseline fleet, the agencies relied on publicly available data like the more complete technology descriptions from Ward's Automotive Group. In a few instances when required vehicle information (such as vehicle footprint) was not available from these two sources, the agencies obtained this information from publicly accessible internet sites such as Motortrend.com and Edmunds.com. A description of all of the technologies used in modeling the 2010 vehicle fleet and how it was constructed are available in Chapter 1.4 of the Joint TSD.

7. How did the Agencies develop the projected my 2017-2025 vehicle reference fleet for the 2010 model year based fleet?

EPA and NHTSA have based the projection of total car and total light truck sales for MYs 2017-2025 on projections made by the Department of Energy's Energy Information Administration (EIA). EIA published its Early Annual Energy Outlook for 2012 in December 2011. EIA released updated data to NHTSA in February (AEO Early Release). The final version of AEO 2012 was released June 25, 2012, after the agencies had already completed our analyses using the early release results.

As the we did with the Interim 2011 AEO data, the agencies developed a new projection of passenger car and light truck sales shares by running scenarios from the Early Release AEO 2012 reference case that first deactivate the above-mentioned sales-volume shifting methodology and then hold post-2017 CAFE standards constant at MY 2016 levels. As discussed in Chapter 1 of the agencies' joint Technical Support Document, incorporating these changes reduced the NEMS-projected passenger car share of the light vehicle market by an average of about 5% during 2017-2025.

In the AEO 2012 Early Release data, EIA projects that total light-duty vehicle sales will gradually recover from their currently depressed levels by around 2013. In 2017, car sales are projected to be 8.7 million (55 percent) and truck sales are projected to be 7.1 million (45 percent). Although the total level of sales of 15.8 million units is similar to pre-2008 levels, the fraction of car sales is projected to be higher than that existing in the 2000-2007 timeframe. This projection reflects the impact of assumed higher fuel prices. Sales projections of cars and trucks for future model years can be found in Chapter 1.4.3 of the joint TSD.

In addition to a shift towards more car sales, sales of segments within both the car and truck markets have been changing and are expected to continue to change. Manufacturers are introducing more crossover utility vehicles (CUVs), which offer much of the utility of sport utility vehicles (SUVs) but use more car-like designs. The AEO 2012 report does not, however, distinguish such changes within the car and truck classes. In order to reflect these changes in fleet makeup, EPA and NHTSA used a custom long range forecast purchased from LMC Automotive (formerly J.D. Powers Forecasting). NHTSA and EPA decided to use the forecast from LMC for the 2010 model year based fleet for several reasons discussed in Chapter 1 of the Joint TSD, and believe the projection provides a useful cross-check for the forecast used for the projections reflected in the 2008 model year based fleet. For the public's reference, a copy of LMC's long range forecast has been placed in the docket for this rulemaking.

The next step was to project the LMC forecasts for relative sales of cars and trucks by manufacturer and by market segment onto the total sales estimates of AEO 2012. Table II-7 and Table II-8 show the resulting projections for the reference 2025 model year and compare these to actual sales that occurred in the baseline 2010 model year. Both tables show sales using the traditional definition of cars and light trucks. As discussed above, the new forecast from LMC shown in Table II-7 shows a significant increase in Chrysler/Fiat's sales (1.6 million) from those projected by CSM (768 thousand).

NHTSA has changed the definition of a truck for 2011 model year and beyond. The new definition has moved some 2 wheel drive SUVs and CUVs to the car category. Table II-9 shows the different volumes for car and trucks based on the new and old NHTSA definition. The table shows the difference in 2010, 2021, and 2025 to give a feel for how the change in definition changes the car/truck split.

The LMC forecast provides estimates of car and truck sales by manufacturer segment and by manufacturer separately. The forecast was broken up into two tables: one table with manufacturer volumes by year and the other with vehicle segments percentages by year. Table II-10 is an example of the data received from LMC. The task of estimating future sales using these tables is complex. Table II-11 is the LMC projected volumes for each manufacturer.

Table II-12 has the LMC segment percentages for 2016, 2021, and 2025. We used a new methodology that is different than we used for the 2008 fleet projection. A detailed description of how the projection process was done is found in Chapter 1 of the TSD.

The overall result was a projection of car and truck sales for model years 2017-2025—the reference fleet—which matched the total sales projections of the AEO forecast and the manufacturer and segment splits of the LMC forecast. These sales splits are shown in Table II-13 below.

The final step in the construction of the 2010 model year based fleet involves applying additional technology to individual vehicle models—that is, technology beyond that already present in MY 2010——reflecting already-promulgated standards through MY 2016, and reflecting the assumption that MY 2016 standards would continue to apply in each model year through MY 2025. A description of the agencies' modeling work to develop their respective final reference (or adjusted baseline) fleets appear in the agencies' respective RIAs.

8. What are the Differences in the Sales Volumes and Characteristics of the MY 2008 Based and the MY 2010 Based Fleets Projections?

Table II-14 is the difference in actual and projected sales volumes between the 2010 based and the 2008 based fleet forecast. This summary table is the most convenient way to compare the projections from CSM and LMC, since the forecasting companies use different segmentations of vehicles. It also provides a comparison of the two AEO forecasts since the projections are normalized to AEO's total volume of cars and trucks in each year of the projection. The table shows a total projected reduction from the 2008 fleet to the 2010 fleet in 2025 of .5 million cars and .8 million trucks. The largest manufacturer changes in the 2025 model projections are for Chrysler and Toyota. The newer projection increases Chrysler's total vehicles by .9 million vehicles, while it decreases Toyota's total vehicles by .8 million.

The table also shows that the total actual reduction in cars from 2008 MY to 2010 MY is 1.0 million vehicles, and the reduction in trucks is 1.6 million vehicles.

Table II-15 shows the change in volumes between the two forecasts for cars and trucks based on the new and old NHTSA definition. The table shows the change to give a feel for how the change in definition impacts the car/truck split. Many factors impact the changes shown here including differences in AEO, differences in the number of SUV and CUV vehicles becoming cars, and the future volume projected by CSM and LMC.

Table II-16 is the changes in car and truck split due to the difference between the 2010 and 2008 forecast. The table shows that the different AEO forecasts, CSM and LMC projections have an insignificant impact on the car and truck split.

The joint TSD contains further comparisons of the two projections at the end of Chapter 1.

So, given all of the discussion above, the agencies have created these two baselines to illustrate possible uncertainty in the future market forecast. The industry-wide differences between the forecasts are relatively minor, even if there are some fairly significant differences for individual manufacturers. Analysis under both baselines supports the agencies' respective decisions as to the stringency of the final standards, as discussed further in Sections III and IV below.

C. Development of Attribute-Based Curve Shapes

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

As in the MYs 2012-2016 CAFE/GHG rules, and as NHTSA did in the MY 2011 CAFE rule, NHTSA and EPA are promulgating attribute-based CAFE and CO₂ standards that are defined by a mathematical function. EPCA, as amended by EISA, expressly requires that CAFE standards for passenger cars and light trucks be based on one or more vehicle attributes related to fuel economy, and be expressed in the form of a mathematical function. The CAA has no such requirement, although such an approach is permissible under section 202 (a) and EPA has used the attribute-based approach in issuing standards under analogous provisions of the CAA (e.g., criteria pollutant standards for non-road diesel engines using engine size as the attribute, in the recent GHG standards for heavy duty pickups and vans using a work factor attribute, and in the MYs 2012-2016 GHG rule itself which used vehicle footprint as the attribute). As for the MYs 2012-2016 rulemaking, public comments on the MYs 2017-2025 proposal widely supported attribute-based standards for both agencies' standards as further discussed in section II.C.2.

Under an attribute-based standard, every vehicle model has a performance target (fuel economy and CO₂ emissions for CAFE and CO₂ emissions standards, respectively), the level of which depends on the vehicle's attribute (for this final rule, footprint, as discussed below). Each manufacturers' fleet average standard is determined by the production-weighted average (for CAFE, harmonic average) of those targets.

The agencies believe that an attribute-based standard is preferable to a single-industry-wide average standard in the context of CAFE and CO₂ standards for several reasons. First, if the shape is chosen properly, every manufacturer is more likely to be required to continue adding more fuel efficient technology each year across their fleet, because the stringency of the compliance obligation will depend on the particular product mix of each manufacturer. Therefore a maximum feasible attribute-based standard will tend to require greater fuel savings and CO₂ emissions reductions overall than would a maximum feasible flat standard (that is, a single mpg or CO₂ level applicable to every manufacturer).

Second, depending on the attribute, attribute-based standards reduce the incentive for manufacturers to respond to CAFE and CO₂ standards in ways harmful to safety. Because each vehicle model has its own target (based on the attribute chosen), properly fitted attribute-based standards provide little, if any, incentive to build smaller vehicles simply to meet a fleet-wide average, because the smaller vehicles will be subject to more stringent compliance targets.

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

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

2. What attribute are the agencies adopting, and why?

As in the MYs 2012-2016 CAFE/GHG rules, and as NHTSA did in the MY 2011 CAFE rule, NHTSA and EPA are promulgating CAFE and CO₂ standard curves that are based on vehicle footprint, which has an observable correlation to fuel economy and emissions. There are several policy and technical reasons why NHTSA and EPA believe that footprint is the most appropriate attribute on which to base the standards for the vehicles covered by this rulemaking, even though some other vehicle attributes (notably curb weight) are better correlated to fuel economy and emissions.

First, in the agencies' judgment, from the standpoint of vehicle safety, it is important that the CAFE and CO₂ standards be set in a way that does not encourage manufacturers to respond by selling vehicles that are less safe. While NHTSA's research of historical crash data also indicates that reductions in vehicle mass tend to compromise overall highway safety, reductions in vehicle footprint do so to a much greater extent. If footprint-based standards are defined in a way that creates a relatively uniform burden for compliance for vehicles of all sizes, then footprint-based standards should not create incentives for manufacturers to downsize their fleets as a strategy for compliance which could compromise societal safety, or to upsize their fleets which might reduce the program's fuel savings and GHG emission reduction benefits. Footprint-based standards also enable manufacturers to apply weight-efficient materials and designs to their vehicles while maintaining footprint, as an effective means to improve fuel economy and reduce GHG emissions. On the other hand, depending on their design, weight-based standards can create disincentives for manufacturers to apply weight-efficient materials and designs. This is because weight-based standards would become more stringent as vehicle mass is reduced. The agencies discuss mass reduction and its relation to safety in more detail in Preamble section II.G.

Further, although we recognize that weight is better correlated with fuel economy and CO₂ emissions than is footprint, we continue to believe that there is less risk of “gaming” (changing the attribute(s) to achieve a more favorable target) by increasing footprint under footprint-based standards than by increasing vehicle mass under weight-based standards—it is relatively easy for a manufacturer to add enough weight to a vehicle to decrease its applicable fuel economy target a significant amount, as compared to increasing vehicle footprint. We also continue to agree with concerns raised in 2008 by some commenters to the MY 2011 CAFE rulemaking that there would be greater potential for gaming under multi-attribute standards, such as those that also depend on weight, torque, power, towing capability, and/or off-road capability. The agencies agree with the assessment first presented in NHTSA's MY 2011 CAFE final rule that the possibility of gaming an attribute-based standard is lowest with footprint-based standards, as opposed to weight-based or multi-attribute-based standards. Specifically, standards that incorporate weight, torque, power, towing capability, and/or off-road capability in addition to footprint would not only be more complex, but by providing degrees of freedom with respect to more easily-adjusted attributes, they could make it less certain that the future fleet would actually achieve the average fuel economy and CO₂ reduction levels projected by the agencies. This is not to say that a footprint-based system will eliminate gaming, or that a footprint-based system eliminates the possibility that manufacturers will change vehicles in ways that compromise occupant protection. Such risks cannot be completely avoided, and in the agencies' judgment, footprint-based standards achieved the best balance among affected considerations.

The agencies recognize that based on economic and consumer demand factors that are external to this rule, the distribution of footprints in the future may be different (either smaller or larger) than what is projected in this rule. The agencies recognize that a recent independent analysis, discussed below, suggests that the NPRM form of the MY 2014 standards could, under some circumstances posited by the authors, induce some increases in vehicle footprint. Underlining the potential uncertainty, considering a range of scenarios, the authors obtained a wide range of results in their analyses. As discussed in later in this section, slopes of the linear relationships underlying today's standards are within the range of technically reasonable analyses of the relationships between fuel consumption and footprint, and the agencies continue to expect that there will not be significant shifts in the distribution of footprints as a direct consequence of this final rule. The agencies also recognize that some attribute-based standards in other countries/regions use attributes other than footprint and that there could be benefits for some manufacturers if there was greater international harmonization of fuel economy and GHG standards for light-duty vehicles, but this is largely a question of how stringent standards are and how they are tested and enforced. It is entirely possible that footprint-based and weight-based systems can coexist internationally and not present an undue burden for manufacturers if they are carefully crafted. Different countries or regions may find different attributes appropriate for basing standards, depending on the particular challenges they face—from fuel prices, to family size and land use, to safety concerns, to fleet composition and consumer preference, to other environmental challenges besides climate change. The agencies anticipate working more closely with other countries and regions in the future to consider how fuel economy and related GHG emissions test procedures and standards might be approached in ways that least burden manufacturers while respecting each country's need to meet its own particular challenges.

In the NPRM, the agencies stated that we continue to find that footprint is the most appropriate attribute upon which to base the proposed standards, but recognizing strong public interest in this issue, we sought comment on whether the agencies should consider setting standards for the final rule based on another attribute or another combination of attributes. The agencies also specifically requested that the commenters address the concerns raised in the paragraphs above regarding the use of other attributes, and explain how standards should be developed using the other attribute(s) in a way that contributes more to fuel savings and CO₂ reductions than the footprint-based standards, without compromising safety.

The agencies received several comments regarding the attribute(s) upon which post-MY 2016 CAFE and GHG standards should be based. The National Auto Dealers Association (NADA) and the Consumer Federation of America (CFA) expressed support for attribute-based standards, generally, indicating that such standards accommodate consumer preferences, level the playing field between manufacturers, and remove the incentive to push consumers into smaller vehicles. Many commenters, including automobile manufacturers, NGOs, trade associations and parts suppliers (e.g., General Motors, Ford, American Chemistry Council, Alliance of Automobile Manufacturers, International Council on Clean Transportation, Insurance Institute for Highway Safety, Society of the Plastics Industry, Aluminum Association, Motor and Equipment Manufacturers Association, and others) expressed support for the continued use of vehicle footprint as the attribute upon which to base CAFE and CO₂ standards, citing advantages similar to those mentioned by NADA and CFA. Conversely, the Institute for Policy Integrity (IPI) at the New York University School of Law questioned whether non-attribute-based (flat) or an alternative attribute basis would be preferable to footprint-based standards as a means to increase benefits, improve safety, reduce “gaming,” and/or equitably distribute compliance obligations. IPI argued that, even under flat standards, credit trading provisions would serve to level the playing field between manufacturers. IPI acknowledged that NHTSA, unlike EPA, is required to promulgate attribute-based standards, and agreed that a footprint-based system could be at much less risk of gaming than a weight-based system. IPI suggested that the agencies consider a range of options, including a fuel-based system, and select the approach that maximizes net benefits. Ferrari and BMW suggested that the agencies consider weight-based standards, citing the closer correlation between fuel economy and footprint, and BMW further suggested that weight-based standards might facilitate international harmonization (i.e., between U.S. standards and related standards in other countries). Porsche commented that the footprint attribute is not well suited for manufacturers of high performance vehicles with a small footprint.

Regarding the comments from IPI, as IPI appears to acknowledge, EPCA/EISA expressly requires that CAFE standards be attribute-based and defined in terms of mathematical functions. Also, NHTSA has, in fact, considered and reconsidered options other than footprint, over the course of multiple CAFE rulemakings conducted throughout the past decade. When first contemplating attribute-based systems, NHTSA considered attributes such as weight, “shadow” (overall area), footprint, power, torque, and towing capacity. NHTSA also considered approaches that would combine two or potentially more than two such attributes. To date, every time NHTSA (more recently, with EPA) has considered options for light-duty vehicles, the agency has concluded that a properly designed footprint-based approach provides the best means of achieving the basic policy goals (i.e., by reducing disparities between manufacturers' compliance burdens, increasing the likelihood of improved fuel economy and reduced GHG emissions across the entire spectrum of footprint targets; and by reducing incentives for manufacturers to respond to standards by reducing vehicle size in ways that could compromise overall highway safety) involved in applying an attribute-based standards, and at the same time structuring footprint-based standards in a way that furthers the energy and environmental policy goals of EPCA and the CAA by not creating inappropriate incentives to increase vehicle size in ways that could increase fuel consumption and GHG emissions. As to IPI's suggestion to use fuel type as an attribute, although neither NHTSA nor EPA have presented quantitative analysis of standards that differentiate between fuel type, such standards would effectively use fuel type to identify different subclasses of vehicles, thus requiring mathematical functions—not addressed by IPI's comments—to recombine these fuel types into regulated classes. Insofar as EPCA/EISA already specifies how different fuel types are to be treated for purposes of calculating fuel economy and CAFE levels, and moreover, insofar as the EISA revisions to EPCA removed NHTSA's previously-clear authority to set separate CAFE standards for different classes of light trucks, using fuel type to further differentiate subclasses of vehicles could conflict with the intent, and possibly the letter, of NHTSA's governing statute. Finally, in the agencies' judgment, while regarding IPI's suggestion that the agencies select the attribute-based approach that maximizes net benefits may have merit, net benefits are but one of many considerations which lead to the setting of the standard. Also, such an undertaking would be impracticable at this time, considering that the mathematical forms applied under each attribute-based approach would also need to be specified, and that the agencies lack methods to reliably quantify the relative potential for induced changes in vehicle attributes.

Regarding Ferrari's and BMW's comments, as stated previously, in the agencies' judgment, footprint-based standards (a) discourage vehicle downsizing that might compromise occupant protection, (b) encourage the application of technology, including weight-efficient materials (e.g., high-strength steel, aluminum, magnesium, composites, etc.), and (c) are less susceptible than standards based on other attributes to “gaming” that could lead to less-than-projected energy and environmental benefits. It is also important to note that there are many differences between both the standards and the on-road light-duty vehicle fleets in Europe and the United States. The stringency of standards, independent of the attribute used, is another factor that influences harmonization. While the agencies agree that international harmonization of test procedures, calculation methods, and/or standards could be a laudable goal, again, harmonization is not simply a function of the attribute upon which the standards are based. Given the differences in the on-road fleet, in fuel composition and availability, in regional consumer preferences for different vehicle characteristics, in other vehicle regulations besides for fuel economy/CO₂ emissions, and in the balance of program goals given all of these factors in the model years affected, among other things, it would not necessarily be expected that the CAFE and GHG emission standards would align with standards of other countries. Thus, the agencies continue to judge vehicle footprint to be a preferable attribute for the same reasons enumerated in the proposal and reiterated above.

Finally, as explained in section III.B.6 and documented in section III.D.6 below, EPA agrees with Porsche that the MY2017 GHG standards, and the GHG standards for the immediately succeeding model years, pose special challenges of feasibility and (especially) lead time for intermediate volume manufacturers, in particular for limited-line manufacturers of smaller footprint, high performance passenger cars. It is for this reason that EPA has provided additional lead time to these manufacturers. NHTSA, however, is providing no such additional lead time. As required under EISA/EPCA, manufacturers continue—as since the 1970s—to have the option of paying civil penalties in lieu of achieving compliance with the standards, and NHTSA is uncertain as to what authority would allow it to promulgate separate standards for different classes of manufacturers, having raised this issue in the proposal and having received no legal analysis with suggestions from Porsche or other commenters.

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

By requiring NHTSA to set CAFE standards that are attribute-based and defined by a mathematical function, NHTSA interprets Congress as intending that the post-EISA standards to be data-driven—a mathematical function defining the standards, in order to be “attribute-based,” should reflect the observed relationship in the data between the attribute chosen and fuel economy. EPA is also setting attribute-based CO₂ standards defined by similar mathematical functions, for the reasonable technical and policy grounds discussed below and in Section II of the preamble to the proposed rule, and which supports a harmonization with the CAFE standards.

The relationship between fuel economy (and GHG emissions) and footprint, though directionally clear (i.e., fuel economy tends to decrease and CO₂ emissions tend to increase with increasing footprint), is theoretically vague and quantitatively uncertain; in other words, not so precise as to a priori yield only a single possible curve. There is thus a range of legitimate options open to the agencies in developing curve shapes. The agencies may of course consider statutory objectives in choosing among the many reasonable alternatives since the statutes do not dictate a particular mathematical function for curve shape. For example, curve shapes that might have some theoretical basis could lead to perverse outcomes contrary to the intent of the statutes to conserve energy and reduce GHG emissions. Thus, the decision of how to set the target curves cannot always be just about most “clearly” using a mathematical function to define the relationship between fuel economy and the attribute; it often has to reflect legitimate policy judgments, where the agencies adjust the function that would define the relationship in order to achieve environmental goals, reduce petroleum consumption, encourage application of fuel-saving technologies, not adversely affect highway safety, reduce disparities of manufacturers' compliance burdens (increasing the likelihood of improved fuel economy and reduced GHG emissions across the entire spectrum of footprint targets), preserve consumer choice, etc. This is true both for the decisions that guide the mathematical function defining the sloped portion of the target curves, and for the separate decisions that guide the agencies' choice of “cutpoints” (if any) that define the fuel economy/CO₂ levels and footprints at each end of the curves where the curves become flat. Data informs these decisions, but how the agencies define and interpret the relevant data, and then the choice of methodology for fitting a curve to the data, must include a consideration of both technical data and policy goals.

The next sections examine the policy concerns that the agencies considered in developing the target curves that define the MYs 2017-2025 CAFE and CO₂ standards presented in this final rule, and the technical work supporting selection of the curves defining those standards.

4. What curves are the agencies promulgating for MYs 2017-2025?

The mathematical functions for the MYs 2017-2025 curves are somewhat changed from the functions for the MYs 2012-2016 curves, in response to comments received from stakeholders pre-proposal in order to address technical concerns and policy goals that the agencies judge more significant in this rulemaking than in the prior one, given their respective timeframes, and have retained those same mathematical functions for the final rule as supported by commenters. This section discusses the methodology the agencies selected as, at this time, best addressing those technical concerns and policy goals, given the various technical inputs to the agencies' current analyses. Below the agencies discuss how the agencies determined the cutpoints and the flat portions of the MYs 2017-2025 target curves. We also note that both of these sections address only how the curves were fit to fuel consumption and CO₂ emission values determined using the city and highway test procedures, and that in determining respective regulatory alternatives, the agencies made further adjustments to the curves to account for improvements to mobile air conditioners.

Thus, recognizing that there are many reasonable statistical methods for fitting curves to data points that define vehicles in terms of footprint and fuel economy, as in past rules, the agencies added equivalent levels of technology to the baseline fleet as a starting point for the curve analysis. The agencies continue to believe that this is a valid method to adjust for technology differences between actual vehicle models in the MY 2008 and MY 2010 fleets. The statistical method for fitting that curve, however, was revisited by the agencies in this rule. For the NPRM, the agencies chose to fit the proposed standard curves using an ordinary least-squares formulation, on sales-weighted data, using a fleet that has had technology applied, and after adjusting the data for the effects of weight-to-footprint, as described below. This represented a departure from the statistical approach for fitting the curves in MYs 2012-2016, as explained in the next section. The agencies considered a wide variety of reasonable statistical methods in order to better understand the range of uncertainty regarding the relationship between fuel consumption (the inverse of fuel economy), CO₂ emission rates, and footprint, thereby providing a range within which decisions about standards would be potentially supportable. In preparing for analysis supporting today's final rule, the agencies updated analytical inputs, including by developing two market forecasts (as discussed above in Section II.B of the preamble and in Chapter 1 of the joint TSD). Using all of this information, the agencies repeated the curve fitting analysis, once for each market forecast. The agencies obtained results that were broadly similar, albeit not identical, to those supporting the NPRM. Results obtained for the NPRM and for today's final rule span similar regions in footprint—fuel economy space, areas within which it would be technically reasonable to select specific linear relationships upon which to base new attribute-based standards. The agencies thus believe it is reasonable to finalize the curves as proposed. This updated analysis is presented in Chapter 2 of the joint TSD.

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

During the year and a half between when the MYs 2012-2016 final rule was issued and when the MYs 2017-2025 NPRM was issued, NHTSA and EPA received a number of comments from stakeholders on how curves should be fitted to the passenger car and light truck fleets. Some limited-line manufacturers have argued that curves should generally be flatter in order to avoid discouraging production of small vehicles, because steeper curves tend to result in more stringent targets for smaller vehicles. Most full-line manufacturers have argued that a passenger car curve similar in slope to the MY 2016 passenger car curve would be appropriate for future model years, but that the light truck curve should be revised to be less difficult for manufacturers selling the largest full-size pickup trucks. These manufacturers argued that the MY 2016 light truck curve was not “physics-based,” and that in order for future tightening of standards to be feasible for full-line manufacturers, the truck curve for later model years should be steeper and extended further (i.e., made less stringent) into the larger footprints. The agencies do not agree that the MY 2016 light truck curve was somehow deficient in lacking a “physics basis,” or that it was somehow overly stringent for manufacturers selling large pickups—manufacturers making these arguments presented no “physics-based” model to explain how fuel economy should depend on footprint. The same manufacturers indicated that they believed that the light truck standard should be somewhat steeper after MY 2016, primarily because, after more than ten years of progressive increases in the stringency of applicable CAFE standards, large pickups would be less capable of achieving further improvements without compromising load carrying and towing capacity. The related issue of the stringency of the CAFE and GHG standards for light trucks is discussed in sections and III.D and IV.F of the preamble to this final rule.

In developing the curve shapes for the proposed rule, the agencies were aware of the current and prior technical concerns raised by OEMs concerning the effects of the stringency on individual manufacturers and their ability to meet the standards with available technologies, while producing vehicles at a cost that allowed them to recover the additional costs of the technologies being applied. Although we continued to believe that the methodology for fitting curves for the MYs 2012-2016 standards was technically sound, we recognized manufacturers' concerns regarding their abilities to comply with a similarly shallow curve after MY 2016 given the anticipated mix of light trucks in MYs 2017-2025. As in the MYs 2012-2016 rules, the agencies considered these concerns in the analysis of potential curve shapes. The agencies also considered safety concerns which could be raised by curve shapes creating an incentive for vehicle downsizing as well the economic losses that could be incurred if curve shapes unduly discourage market shifts—including vehicle upsizing—that have vehicle buyers value. In addition, the agencies sought to improve the balance of compliance burdens among manufacturers, and thereby increase the likelihood of improved fuel economy and reduced GHG emissions across the entire spectrum of footprint targets. Among the technical concerns and resultant policy trade-offs the agencies considered were the following:

• Flatter standards (i.e., curves) increase the risk that both the weight and size of vehicles will be reduced, potentially compromising highway safety.
• Flatter standards potentially impact the utility of vehicles by providing an incentive for vehicle downsizing.
• Steeper footprint-based standards may create incentives to upsize vehicles, thus increasing the possibility that fuel economy and greenhouse gas reduction benefits will be less than expected.
• Given the same industry-wide average required fuel economy or CO₂ level, flatter standards tend to place greater compliance burdens on full-line manufacturers.
• Given the same industry-wide average required fuel economy or CO₂ level, steeper standards tend to place greater compliance burdens on limited-line manufacturers (depending of course, on which vehicles are being produced).
• If cutpoints are adopted, given the same industry-wide average required fuel economy, moving small-vehicle cutpoints to the left (i.e., up in terms of fuel economy, down in terms of CO₂ emissions) discourages the introduction of small vehicles, and reduces the incentive to downsize small vehicles in ways that could compromise overall highway safety.
• If cutpoints are adopted, given the same industry-wide average required fuel economy, moving large-vehicle cutpoints to the right (i.e., down in terms of fuel economy, up in terms of CO₂ emissions) better accommodates the design requirements of larger vehicles—especially large pickups—and extends the size range over which downsizing is discouraged.

All of these were policy goals that required weighing and consideration. Ultimately, the agencies did not agree that the MY 2017 target curves for the proposal, on a relative basis, should be made significantly flatter than the MY 2016 curve, as we believed that this would undo some of the safety-related incentives and balancing of compliance burdens among manufacturers—effects that attribute-based standards are intended to provide.

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

The Alliance, GM, and the UAW commented in support of the reasonableness of the agencies' proposals regarding the shape and slope of the curves and how they were developed, although the Alliance stated that the weighting and regression analysis used to develop the curves for MYs 2022-2025 should be reviewed during the mid-term evaluation process.

Other commenters objected to specific aspects of the agencies' approach to developing the curves. ACEEE provided extensive comments, arguing generally that agencies appeared to be proposing curve choices in response to subjective policy concerns (namely, protecting large trucks) rather than on a sound technical basis. ACEEE recommended that the agencies choose “the most robust technical approach,” and then make policy-driven adjustments to the curves for a limited time as necessary, and explain the curves in those terms, revisiting this issue for the final rule.

The agencies reaffirm the reasonable technical and policy basis for selecting the truck curve. Three primary drivers form this technical basis: (a) The largest trucks have unique equipment and design, as described in the Ford comment referenced below in section II.C.4.f; (b) the agencies agree with those large truck manufacturers who indicated in discussions prior to the proposal that they believed that the light truck standard should be somewhat steeper after MY 2016, primarily because, after more than ten recent years of progressive increases in the stringency of applicable CAFE standards (after nearly ten years during which Congress did not allow NHTSA to increase light truck CAFE standards), manufacturers of large pickups would have limited options to comply with more stringent standards without resorting to compromising large truck load carrying and towing capacity; and (c) given the relatively few platforms which comprise the majority of the sales at the largest truck footprints, the agencies were concerned about requiring levels of average light truck performance that might lead to overly aggressive technology penetration rates in this important segment of the work fleet. Specifically, the agencies were concerned at proposal, and remain concerned about issues of lead time and cost with regard to manufacturers of these work vehicles. As noted later in this chapter, while the largest trucks are a small segment of the overall truck fleet, and an even smaller segment of the overall fleet, these changes to the truck slope have been made in order to provide a clearer path toward compliance for manufacturers of these vehicles, and reduce the potential that new standards would lead these manufacturers to choose to downpower, modify the structure, or otherwise reduce the utility of these work vehicles.

As discussed in the NPRM and in Chapter 2 of the TSD, as well as in section III.D and IV.E below, we considered all of the utilized methods of normalizing (including not normalizing) fuel economy levels and the different methods for fitting functional forms to the footprint and fuel economy and CO₂ levels, to be technically reasonable options. We indicated that, within the range spanned by these technically reasonable options, the selection of curves for purposes of specifying standards involves consideration of technical concerns and policy implications. Having considered the above comments on the estimation and selection of curves, we have not changed our judgment about the process—that is, that the agencies can make of policy-informed selection within the range spanned by technically reasonable quantitative methods. We disagree with ACEEE's portrayal of this involving the “protection” of large trucks. We have selected a light truck slope that addresses real engineering aspects of large light trucks and real fleet aspects of the manufacturers producing these trucks, and sought to avoid creating an incentive for such manufacturers to reduce the hauling and towing capacity of these vehicles, an undesirable loss of utility. Such concerns are applicable much more directly to light trucks than to passenger cars. The resulting curves are well within the range of curves we have estimated. The steeper slope at the right hand of the truck curve recognizes the physical differences in these larger vehicles and the fleet differences in manufacturers that produce them. Further, we disagree with ACEEE's suggestion that the agencies should commit to a particular method for selecting curves; as the approaches we have considered demonstrate that the range of technically reasonable curve fitting methods spans a wide range, indicating uncertainty that could make it unwise to “lock in” a particular method for all future rulemakings. The agencies plan on observing fleet trends in the future to see if there are any unexpected shifts in the distribution of technology and utility within the footprint range for both cars and trucks.

We note that comments by CBD, ACEEE, NACAA, and an individual, Yegor Tarazevich, referenced a 2011 study by Whitefoot and Skerlos, “Design incentives to increase vehicle size created from the U.S. footprint-based fuel economy standards.” This study concluded that MY 2014 standards, as proposed, “create an incentive to increase vehicle size except when consumer preference for vehicle size is near its lower bound and preference for acceleration is near its upper bound.” The commenters who cited this study generally did so as part of arguments in favor of flatter standards (i.e., curves that are flatter across the range of footprints) for MYs 2017-2025. While the agencies consider the concept of the Whitefoot and Skerlos analysis to have some potential merits, it is also important to note that, among other things, the authors assumed different inputs than the agencies actually used in the MYs 2012-2016 rule regarding the baseline fleet, the cost and efficacy of potential future technologies, and the relationship between vehicle footprint and fuel economy.

Were the agencies to use the Whitefoot and Skerlos methodology (e.g., methods to simulate manufacturers' potential decisions to increase vehicle footprint) with the actual inputs to the MYs 2012-2016 rules, the agencies would likely obtain different findings. Underlining the potential uncertainty, the authors obtained a wide range of results in their analyses. Insofar as Whitefoot and Skerlos found, for some scenarios, that manufacturers might respond to footprint-based standards by deliberately increasing vehicle footprint, these findings are attributable to a combination of (a) the assumed baseline market characteristics, (b) the assumed cost and fuel economy impacts involved in increasing vehicle footprint, (c) the footprint-based fuel economy targets, and (d) the assumed consumer preference for vehicle size. Changes in any of these assumptions could yield different analytic results, and potentially result in different technical implications for agency action. As the authors note when interpreting their results: “Designing footprint-based fuel-economy standards in practice such that manufacturers have no incentive to adjust the size of their vehicles appears elusive at best and impossible at worst.”

Regarding the cost impacts of footprint increases, that authors make an ad hoc assumption that changes in footprint would incur costs linearly, such that a 1% change in footprint would entail a 1% increase in production costs. The authors refer to this as a conservative assumption, but present no supporting evidence. The agencies have not attempted to estimate the engineering cost to increase vehicle footprint, but we expect that it would be considerably nonlinear, with costs increasing rapidly once increases available through small incremental changes—most likely in track width—have been exhausted. Moreover, we expect that were a manufacturer to deliberately increase footprint in order to ease compliance burdens, it would confine any significant changes to coincide with vehicle redesigns, and engaging in multiyear planning, would consider how the shifts would impact compliance burdens and consumer desirability in ensuing model years. With respect to the standards promulgated today, the standards become flatter over time, thereby diminishing any “reward” for deliberately increasing footprint beyond normal market expectations.

Regarding the fuel economy impacts of footprint increases, the authors present a regression analysis based on which increases in footprint are estimated to entail increases in weight which are, in turn, estimated to entail increases in fuel consumption. However, this relationship was not the relationship the agencies used to develop the MY 2014 standards the authors examine in that study. Where the target function's slope is similar to that of the tendency for fuel consumption to increase with footprint, fuel economy should tend to decrease approximately in parallel with the fuel economy target, thereby obviating the “benefit” of deliberate increases in vehicle footprint. The agencies' analysis supporting today's final rule indicates relatively wide ranges wherein the relationship between fuel consumption and footprint may reasonably be specified.

As part of the mid-term evaluation and future NHTSA rulemaking, the agencies plan to further investigate methods to estimate the potential that standards might tend to induce changes in the footprint. The agencies will also continue to closely monitor trends in footprint (and technology penetration) as manufacturers come into compliance with increasing levels of the footprint standards.

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

In considering how to address the various policy concerns discussed in the previous sections, the agencies revisited the data and performed a number of analyses using different combinations of the various statistical methods, weighting schemes, adjustments to the data and the addition of technologies to make the fleets less technologically heterogeneous. As discussed above, in the agencies' judgment, there is no single “correct” way to estimate the relationship between CO₂ or fuel consumption and footprint—rather, each statistical result is based on the underlying assumptions about the particular functional form, weightings and error structures embodied in the representational approach. These assumptions are the subject of the following discussion. This process of performing many analyses using combinations of statistical methods generates many possible outcomes, each embodying different potentially reasonable combinations of assumptions and each thus reflective of the data as viewed through a particular lens. The choice of a proposed standard developed by a given combination of these statistical methods was consequently a decision based upon the agencies' determination of how, given the policy objectives for this rulemaking and the agencies' MY 2008-based forecast of the market through MY 2025, to appropriately reflect the current understanding of the evolution of automotive technology and costs, the future prospects for the vehicle market, and thereby establish curves (i.e., standards) for cars and light trucks. As discussed below, for today's final rule, the agencies used updated information to repeat these analyses, found that results were generally similar and spanned a similarly wide range, and found that the curves underlying the proposed standards were well within this range.

c. What information did the agencies use to estimate a relationship between fuel economy, CO₂ and footprint?

For each fleet, the agencies began with the MY 2008-based market forecast developed to support the proposal (i.e., the baseline fleet), with vehicles' fuel economy levels and technological characteristics at MY 2008 levels. For today's final rule, the agencies made minor corrections to this market forecast, and also developed a MY 2010-based market forecast. The development, scope, and content of these market forecasts are discussed in detail in Chapter 1 of the joint Technical Support Document supporting the rulemaking.

d. What adjustments did the agencies evaluate?

The agencies believe one possible approach is to fit curves to the minimally adjusted data shown above (the approach still includes sales mix adjustments, which influence results of sales-weighted regressions), much as DOT did when it first began evaluating potential attribute-based standards in 2003. However, the agencies have found, as in prior rulemakings, that the data are so widely spread (i.e., when graphed, they fall in a loose “cloud” rather than tightly around an obvious line) that they indicate a relationship between footprint and CO₂ and fuel consumption that is real but not particularly strong. Therefore, as discussed below, the agencies also explored possible adjustments that could help to explain and/or reduce the ambiguity of this relationship, or could help to support policy outcomes the agencies judged to be more desirable.

i. Adjustment to Reflect Differences in Technology

As in prior rulemakings, the agencies consider technology differences between vehicle models to be a significant factor producing uncertainty regarding the relationship between CO₂/fuel consumption and footprint. Noting that attribute-based standards are intended to encourage the application of additional technology to improve fuel efficiency and reduce CO₂ emissions, the agencies, in addition to considering approaches based on the unadjusted engineering characteristics of MY 2008 vehicle models, therefore also considered approaches in which, as for previous rulemakings, technology is added to vehicles for purposes of the curve fitting analysis in order to produce fleets that are less varied in technology content.

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

ii. Adjustments Reflecting Differences in Performance and “Density”

For the reasons discussed above regarding revisiting the shapes of the curves, the agencies considered adjustments for other differences between vehicle models (i.e., inflating or deflating the fuel economy of each vehicle model based on the extent to which one of the vehicle's attributes, such as power, is higher or lower than average). Previously, NHTSA had rejected such adjustments because they imply that a multi-attribute standard may be necessary, and the agencies judged most multi-attribute standards to be more subject to gaming than a footprint-only standard. Having considered this issue again for purposes of this rulemaking, NHTSA and EPA conclude the need to accommodate in the target curves the challenges faced by manufacturers of large pickups currently outweighs these prior concerns. Therefore, the agencies also evaluated curve fitting approaches through which fuel consumption and CO₂ levels were adjusted with respect to weight-to-footprint alone, and in combination with power-to-weight. While the agencies examined these adjustments for purposes of fitting curves, the agencies are not promulgating a multi-attribute standard; the proposed fuel economy and CO₂ targets for each vehicle are still functions of footprint alone. No adjustment will be used in the compliance process.

For the proposal, the agencies also examined some differences between the technology-adjusted car and truck fleets in order to better understand the relationship between footprint and CO₂/fuel consumption in the agencies' MY 2008 based forecast. The agencies investigated the relationship between HP/WT and footprint in the agencies' MY 2008-based market forecast. On a sales weighted basis, cars tend to become proportionally more powerful as they get larger. In contrast, there is a minimally positive relationship between HP/WT and footprint for light trucks, indicating that light trucks become only slightly more powerful as they get larger.

This analysis, presented in chapter 2.4.1.2 of the joint TSD, indicated that vehicle performance (power-to-weight ratio) and “density” (curb weight divided by footprint) are both correlated to fuel consumption (and CO₂ emission rate), and that these vehicle attributes are also both related to vehicle footprint. Based on these relationships, the agencies explored adjusting the fuel economy and CO₂ emission rates of individual vehicle models based on deviations from “expected” performance or weight/footprint at a given footprint; the agencies inflated fuel economy levels of vehicle models with higher performance and/or weight/footprint than the average of the fleet would indicate at that footprint, and deflated fuel economy levels with lower performance and/or weight. While the agencies considered this technique for purposes of fitting curves, the agencies are not promulgating a multi-attribute standard, as the proposed fuel economy and CO₂ targets for each vehicle are still functions of footprint alone. No adjustment will be used in the compliance process.

For today's final rule, the agencies repeated the above analyses, using the corrected MY 2008-based market forecast and, separately, the MY 2010-based market forecasts. As discussed in section 2.6 of the joint TSD and further detailed in a memorandum available at Docket No. NHTSA-2010-0131-0325, doing so produced results similar to the analysis used in the proposal.

The agencies sought comment on the appropriateness of the adjustments described in Chapter 2 of the joint TSD, particularly regarding whether these adjustments suggest that standards should be defined in terms of other attributes in addition to footprint, and whether they may encourage changes other than encouraging the application of technology to improve fuel economy and reduce CO₂ emissions. The agencies also sought comment regarding whether these adjustments effectively “lock in” through MY 2025 relationships that were observed in MY 2008.

ACEEE objected to the agencies' adjustments to the truck curves, arguing that if the truck slope needs to be adjusted for “density,” then that suggests that the MY 2008-based market forecast used to build up the reference fleet must be “incorrect and show * * * unrealistically low pickup truck fuel consumption, due to the overstatement of the benefits of certain technologies.” ACEEE stated that “If that is the case, the agencies should revisit the adjustments made to generate the reference fleet and remove technologies from pickups that are not suited to those trucks,” which “would be a far more satisfactory approach than the speculative and non-quantitative approach of adjusting for vehicle density.”

ACEEE further stated that “the fuel consumption trend that the density adjustment is meant to correct appears in the unadjusted fleet as well as the technology-adjusted fleet of light trucks (TSD Figures 2-1 and 2-2),” which they argued is evidence that “the flattening of fuel consumption at higher footprints is not a byproduct of unrealistic technology adjustments, but rather a reflection of actual fuel economy trends in today's market.” ACEEE stated that therefore it did not make sense to adjust the fuel consumption of “low-density” trucks upwards before fitting the curve. ACEEE pointed out that it would appear that trucks' HP-to-weight ratio should be higher than the agencies' analysis indicated, and stated that the weight-based EU CO₂ standard curves are adjusted for HP-to-weight, which resulted in flatter curves, and which are intended to avoid incentivizing up-weighting. ACEEE argued that by not choosing this approach and by adjusting for density, along with using sales-weighting and an OLS method instead of MAD, the proposed curves encourage vehicle upsizing.

Thus, ACEEE stated, the deviations from the analytical approach previously adopted were not justified with data provided in the NPRM, and the resulting “ad hoc adjustments” to the curve-fitting process detracted from the agencies' argument for the proposals. ACEEE further commented that increasing the slope of the truck curve would be “counter-productive” from a policy perspective as well, implying that challenging light truck standards have helped manufacturers of light trucks to recover from the recent downturn in the light vehicle market. The Sierra Club and CBD also opposed increasing the slope of the truck curve for MYs 2017 and beyond as compared to the MY 2016 truck curve, on the basis that it would encourage upsizing and reduce fuel economy and CO₂ emissions improvements.

Conversely, the UAW strongly supported the agencies' balancing of “the challenges of adding fuel-economy improving technologies to the largest light trucks with the need to maintain the full functionality of these vehicles across a wide range of applications” through their approach to curve fitting. The Alliance also expressed support for the agencies' analyses (including the consideration of different weightings), and the selected relationships between the fuel consumption and footprint for MYs 2017-2021. Both ACEEE and the Alliance urged the agencies to revisit the estimation and selection of curves during the mid-term evaluation, and the agencies plan to do so.

In response, the agencies maintain that the adjustments (including no adjustments) considered in the NPRM are all reasonable to apply for purposes of developing potential fuel economy and GHG target curves, and that it is left to policy makers to determine an appropriate perspective involved in selecting weights (if any) to be applied, and to interpret the consequences of various alternatives. As described above and in Chapter 2 of the TSD, the agencies believe that the adjustments made to the truck curve are appropriate because work trucks provide utility (towing and load-carrying capability) that requires more torque and power, more cooling and braking capability, and more fuel-carrying capability (i.e., larger fuel tanks) than would be the case for other vehicles of similar size and curb weight. Continuing the 2016 truck curve would disadvantage full-line manufacturers active in this portion of the fleet disproportionately to the rest of the trucks. The agencies do not include power to weight, density, towing, or hauling, as a technology. Neither does the agency consider them as part of a multi-attribute standard. Considering these factors, the agencies believe that the “density” adjustment, as applied to the data developed for the NPRM, provided a reasonable basis to develop curves for light trucks. Having repeated our analysis using a corrected MY 2008-based market forecast and, separately, a new MY 2010-based market forecast, we obtained results spanning ranges similar to those covered by the analysis we performed for the NPRM. See section 2.6 of the Joint TSD. In the agencies' judgment, considering the above comments (and others), the curves proposed in the NPRM strike a sound balance between the legitimate policy considerations discussed in section II.C. 2—the interest in discouraging manufacturers from responding to standards by reducing vehicle size in ways that might compromise highway safety, the interest in more equitably balancing compliance burdens among limited- and full-line manufacturers, and the interest in avoiding excessive risk that projected energy and environmental benefits might be less than expected due to regulation-incented increases in vehicle size.

Regarding ACEEE's specific comments about the application of these adjustments to the light truck fleet, we disagree with the characterization of the adjustments as ad hoc. Choosing from among a range of legitimate possibilities based on relevant policy and technical considerations is not an arbitrary, ad hoc exercise. Throughout multiple rulemaking analyses, NHTSA (more recently, with EPA) has applied normalization to adjust for differences in technologies. Also, while the agencies have previously considered and declined to apply normalizations to reflect differences in other characteristics, such as power, our judgment that some such normalizations could be among the set of technically reasonable approaches was not ad hoc, but in fact based on further technical analysis and reconsideration. Moreover, that reconsideration occurred with respect to passenger cars as well as light trucks. Still, we recognize that results of the different methods we have examined depend on inputs that are subject to uncertainty; for example, normalization to adjust for differences in technology depend on uncertain estimates of technology efficacy, and sales-weighted regressions depend on uncertain forecasts of future market volumes. Such uncertainties support the agencies' strong preference to avoid permanently “locking in” any particular curve estimation technique.

e. What statistical methods did the agencies evaluate?

For the NPRM, the above approaches resulted in three data sets each for (a) vehicles without added technology and (b) vehicles with technology added to reduce technology differences, any of which may provide a reasonable basis for fitting mathematical functions upon which to base the slope of the standard curves: (1) Vehicles without any further adjustments; (2) vehicles with adjustments reflecting differences in “density” (weight/footprint); and (3) vehicles with adjustments reflecting differences in “density,” and adjustments reflecting differences in performance (power/weight). Using these data sets, the agencies tested a range of regression methodologies, each judged to be possibly reasonable for application to at least some of these data sets. Beginning with the corrected MY 2008-based market forecast and the MY 2010-based market forecast developed for today's final rule, the above approaches resulted in six data sets—three for each of the two market forecasts.

i. Regression Approach

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

As noted, one of the reasons stated for choosing MAD over least square regression in the MYs 2012-2016 rulemaking was that MAD reduced the weight placed on outliers in the data. However, the agencies have further considered whether it is appropriate to classify these vehicles as outliers. Unlike in traditional datasets, these vehicles' performance is not mischaracterized due to errors in their measurement, a common reason for outlier classification. Being certification data, the chances of large measurement errors should be near zero, particularly towards high CO₂ or fuel consumption. Thus, they can only be outliers in the sense that the vehicle designs are unlike those of other vehicles. These outlier vehicles may include performance vehicles, vehicles with high ground clearance, 4WD, or boxy designs. Given that these are equally legitimate on-road vehicle designs, the agencies concluded that it would appropriate to reconsider the treatment of these vehicles in the regression techniques.

Based on these considerations as well as the adjustments discussed above, the agencies concluded it was not meaningful to run MAD regressions on gpm data that had already been adjusted in the manner described above. Normalizing already reduced the variation in the data, and brought outliers towards average values. This was the intended effect, so the agencies deemed it unnecessary to apply an additional remedy to resolve an issue that had already been addressed, but we sought comment on the use of robust regression techniques under such circumstances. ACEEE stated that either MAD (i.e., one robust regression technique) or OLS was “technically sound,” and other stakeholders that commented on the agencies' analysis supporting the selection of curves did not comment specifically on robust regression techniques. On the other hand, ACEEE did suggest that the application of multiple layers of normalization may provide tenuous results. For this rulemaking, we consider the range of methods we have examined to be technically reasonable, and our selected curves fall within those ranges. However, all else being equal, we agree that simpler or more stable methods are likely preferable to more complex or unstable methods, and as mentioned above, we agree with ACEEE and the Alliance that revisiting the selection of curves would be appropriate as part of the required future NHTSA rulemaking and mid-term evaluation.

ii. Sales Weighting

Likewise, the agencies reconsidered employing sales-weighting to represent the data. As explained below, the decision to sales weight or not is ultimately based upon a choice about how to represent the data, and not by an underlying statistical concern. Sales weighting is used if the decision is made to treat each (mass produced) unit sold as a unique physical observation. Doing so thereby changes the extent to which different vehicle model types are emphasized as compared to a non-sales weighted regression. For example, while total General Motors Silverado (332,000) and Ford F-150 (322,000) sales differed by less than 10,000 in the MY 2021 market forecast (in the MY 2008-based forecast), 62 F-150s models and 38 Silverado models were reported in the agencies baselines. Without sales-weighting, the F-150 models, because there are more of them, were given 63 percent more weight in the regression despite comprising a similar portion of the marketplace and a relatively homogenous set of vehicle technologies.

The agencies did not use sales weighting in the MYs 2012-2016 rulemaking analysis of the curve shapes. A decision to not perform sales weighting reflects judgment that each vehicle model provides an equal amount of information concerning the underlying relationship between footprint and fuel economy. Sales-weighted regression gives the highest sales vehicle model types vastly more emphasis than the lowest-sales vehicle model types thus driving the regression toward the sales-weighted fleet norm. For unweighted regression, vehicle sales do not matter. The agencies note that the MY 2008-based light truck market forecast shows MY 2025 sales of 218,000 units for Toyota's 2WD Sienna, and shows 66 model configurations with MY 2025 sales of fewer than 100 units. Similarly, the agencies' MY 2008-based market forecast shows MY 2025 sales of 267,000 for the Toyota Prius, and shows 40 model configurations with MY2025 sales of fewer than 100 units. Sales-weighted analysis would give the Toyota Sienna and Prius more than a thousand times the consideration of many vehicle model configurations. Sales-weighted analysis would, therefore, cause a large number of vehicle model configurations to be virtually ignored in the regressions. The MY 2010-based market forecast includes similar examples of extreme disparities in production volumes, and therefore, degree of influence over sales-weighted regression results. Moreover, unlike unweighted approaches, sales-weighted approaches are subject to more uncertainties surrounding sales volumes. For example, in the MY 2008-based market forecast, Chrysler's production volumes are projected to decline significantly through MY 2025, in stark contrast to the prediction for that company in the MY 2010-based market forecast. Therefore, under a sales-weighted approach, Chrysler's vehicle models have considerably less influence on regression results for the MY 2008-based fleet than for the MY 2010-based fleet.

However, the agencies did note in the MYs 2012-2016 final rules that, “sales weighted regression would allow the difference between other vehicle attributes to be reflected in the analysis, and also would reflect consumer demand.” In reexamining the sales-weighting for this analysis, the agencies note that there are low-volume model types account for many of the passenger car model types (50 percent of passenger car model types account for 3.3 percent of sales), and it is unclear whether the engineering characteristics of these model types should equally determine the standard for the remainder of the market. To expand on this point, low volume cars in the agencies' MY 2008 and 2010 baseline include specialty vehicles such as the Bugatti Veyron, Rolls Royce Phantom, and General Motors Funeral Coach Hearse. These vehicle models all represent specific engineering designs, and in a regression without sales weighting, they are given equal weighting to other vehicles with single models with more relevance to the typical vehicle buyer including mass market sedans like the Toyota Prius referenced above. Similar disparities exist on the truck side, where small manufacturers such as Roush manufacturer numerous low sale vehicle models that also represent specific engineering designs. Given that the curve fit is ultimately used in compliance, and compliance is based on sales-weighted average performance, although the agencies are not currently attempting to estimate consumer responses to today's standards, sales weighting could be a reasonable approach to fitting curves.

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

iii. Analyses Performed

For the NPRM, we performed regressions describing the relationship between a vehicle's CO₂/fuel consumption and its footprint, in terms of various combinations of factors: Initial (raw) fleets with no technology, versus after technology is applied; sales-weighted versus non-sales weighted; and with and without two sets of normalizing factors applied to the observations. The agencies excluded diesels and dedicated AFVs because the agencies anticipate that advanced gasoline-fueled vehicles are likely to be dominant through MY 2025, based both on our own assessment of potential standards (see Sections III.D and IV.G below) as well as our discussions with large number of automotive companies and suppliers. Supporting today's final rule, we repeated all of this analysis twice—once for the corrected MY 2008-based market forecast, and once for the MY 2010-based market forecast. Doing so produced results generally similar to those documented in the joint TSD supporting the NPRM. See section 2.6 of the joint TSD and the docket memo.

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

We sought comments on the application of the weights as described above, and the implications for interpreting the relationship between fuel efficiency (or CO₂) and footprint. As discussed above, ACEEE questioned adjustment of the light truck data. The Alliance, in contrast, generally supported the weightings applied by the agencies, and the resultant relationships between fuel efficiency and footprint. Both ACEEE and the Alliance commented that the agencies should revisit the application of weights—and broader aspects of analysis to develop mathematical functions—in the future. We note that although ACEEE expressed concern regarding the outcomes of the application of the weight/footprint adjustment, ACEEE did not indicate that all adjustment would be problematic, rather, they endorsed the method of adjusting fuel economy data based on differences in vehicle models' levels of applied technology. As we have indicated above, considering the policy implications, the agencies have selected curves that fall within the range spanned by the many methods we have evaluated and consider to be technically reasonable. We disagree with ACEEE that we have selected curves that are, for light trucks, too steep. However, recognizing uncertainties in the estimates underlying our analytical results, and recognizing that our analytical results span a range of technically reasonable outcomes, we agree with ACEEE and the Alliance that revisiting the curve shape would be appropriate as part of the required future NHTSA rulemaking and planned mid-term evaluation.

f. What results did the agencies obtain and why were the selected curves reasonable?

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

For the curves presented in the NPRM and finalized today, the choice among the alternatives presented in Chapter 2 of the draft Joint TSD was to use the OLS formulation, on sales-weighted data developed for the NPRM (with some errors not then known to the agencies), using a fleet that has had technology applied, and after adjusting the data for the effect of weight-to-footprint, as described above. The agencies believe that this represented a technically reasonable approach for purposes of developing target curves to define the proposed standards, and that it represented a reasonable trade-off among various considerations balancing statistical, technical, and policy matters, which include the statistical representativeness of the curves considered and the steepness of the curve chosen. The agencies judge the application of technology prior to curve fitting to have provided a reasonable means—one consistent with the rule's objective of encouraging manufacturers to add technology in order to increase fuel economy—of reducing variation in the data and thereby helping to estimate a relationship between fuel consumption/CO₂ and footprint.

Similarly, for the agencies' MY 2008-based market-forecast and the agencies' current estimates of future technology effectiveness, the inclusion of the weight-to-footprint data adjustment prior to running the regression also helped to improve the fit of the curves by reducing the variation in the data, and the agencies believe that the benefits of this adjustment for the proposed rule likely outweigh the potential that resultant curves might somehow encourage reduced load carrying capability or vehicle performance (note that we are not suggesting that we believe these adjustments will reduce load carrying capability or vehicle performance). In addition to reducing the variability, the truck curve is also steepened, and the car curve flattened compared to curves fitted to sales weighted data that do not include these normalizations. The agencies agreed with manufacturers of full-size pick-up trucks that in order to maintain towing and hauling utility, the engines on pick-up trucks must be more powerful, than their low “density” nature would statistically suggest based on the agencies' current MY 2008-based market forecast and the agencies' current estimates of the effectiveness of different fuel-saving technologies. Therefore, it may be more equitable (i.e., in terms of relative compliance challenges faced by different light truck manufacturers) to have adjusted the slope of the curve defining fuel economy and CO₂ targets.

Several comments were submitted subsequent to the NPRM with regard to the non-homogenous nature of the truck fleet, and the “unique” attributes of pickup trucks. As noted above, Ford described the attributes of these vehicles, noting that “towing capability generally requires increased aerodynamic drag caused by a modified frontal area, increased rolling resistance, and a heavier frame and suspension to support this additional capability.” Ford further noted that these vehicles further require auxiliary transmission oil coolers, upgraded radiators, trailer hitch connectors and wiring harness equipment, different steering ratios, upgraded rear bumpers and different springs for heavier tongue load (for upgraded towing packages), body-on-frame (vs. unibody) construction (also known as ladder frame construction) to support this capability and an aggressive duty cycle, and lower axle ratios for better pulling power/capability. ACEEE, as discussed above, objected to the adjustments to the truck curves.

In the agencies' judgment, the curves and cutpoints defining the light truck standards appropriately account for engineering differences between different types of vehicles. For example, the agencies' estimates of the applicability, cost, and effectiveness of different fuel-saving technologies differentiate between small, medium, and large light trucks. While we acknowledge that uncertainties regarding technology efficacy affect the outcome of methods including normalization to account for differences in technology, the other normalizations we have considered are not intended to somehow compensate for this uncertainty, but rather to reflect other analytical concepts that could be technically reasonable for purposes of estimating relationships between footprint and fuel economy. Furthermore, we agree with Ford that pickup trucks have distinct attributes that warrant consideration of slopes other than the flattest within the range spanned by technically reasonable options. We also note that, as documented in the joint TSD, even without normalizing light truck fuel economy values for any differences (even technology), unweighted MAD and OLS yielded slopes close to or steeper than those underlying today's light truck standards. We will revisit the estimation and selection of these curves as part of NHTSA's future rulemaking and the mid-term evaluation.

As described above, however, other approaches are also technically reasonable, and also represent a way of expressing the underlying relationships. The agencies revisited the analysis for the final rule, having corrected the underlying 2008-based market forecast, having developed a MY 2010-based market forecast, having updated estimates of technology effectiveness, and having considered relevant public comments. In addition, the agencies updated the technology cost estimates, which altered the NPRM analysis results, but not the balance of the trade-offs being weighed to determine the final curves.

As discussed above, based in part on the Whitefoot/Skerlos paper and its findings regarding the implied potential for vehicle upsizing, some commenters, such as NACAA and Center for Biological Diversity, considered the slopes for both the car and truck curves to be too steep, and ACEEE, Sierra Club, Volkswagen, Toyota, and Honda more specifically commented that the truck slope was too steep. On the other hand, the UAW, Ford, GM, and Chrysler supported the slope of both the car and truck curves. ICCT commented, as they have in prior rulemakings, that the car and the truck curve should be identical, and UCS commented that the curves should be adjusted to minimize the “gap” in target stringency in the 45 ft (+/− 3 ft) range to avoid giving manufacturers an incentive to classify CUVs as trucks rather than as cars.

As also discussed above, the agencies continue to believe that the slopes for both the car and the truck curves finalized in this rulemaking remain appropriate. There is also good reason for the slopes of the car and truck curves potentially to be distinct from one another—for one, our analysis produces different results for these fleets based on their different characteristics, and more importantly for NHTSA, EPCA/EISA requires that standards for passenger cars and light trucks be established separately. The agencies agree with Ford (and others) that the properties of cars and trucks are different. The agencies agree with Ford's observation (and illustration) that “* * * cars and trucks have different functional characteristics, even if they have the same footprint and nearly the same base curb weights. For example, the Ford Edge and the Ford Taurus have the same footprint, but vastly different capabilities with respect to cargo space and towing capacity. Some of the key features incorporated on the Edge that enable the larger tow capability include an engine oil cooler, larger radiator and updated cooling fans. This is just one of the many examples that show the functional difference between cars and trucks * * *” On balance, given the agencies' analysis, and all of the issues the agencies have taken into account, we believe that the slopes of cars and trucks have been selected with proper consideration and represent a reasonable and appropriate balance of technical and policy factors.

g. Implications of the slope compared to MY 2016

The slope has several implications relative to the MY 2016 curves, with the majority of changes on the truck curve. For the NPRM, the agencies selected a car curve slope similar to that finalized in the MYs 2012-2016 final rulemaking (4.7 g/mile-ft² in MY 2016, vs. 4.5 g/mile-ft² proposed in MY 2017). By contrast, the selected truck curve is steeper in MY 2017 than in MY 2016 (4.0 g/mile-ft² in MY 2016 vs. 4.9 g/mile-ft² in MY 2017). As discussed previously, a steeper slope relaxes the stringency of targets for larger vehicles relative to those for smaller vehicles, thereby shifting relative compliance burdens among manufacturers based on their respective product mix.

5. Once the agencies determined the slope, how did the agencies determine the rest of the mathematical function?

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

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

a. Cutpoints for Passenger Car Curve

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

Above 56 square feet, the only passenger car models present in the MY 2008 fleet were four luxury vehicles with extremely low sales volumes—the Bentley Arnage and three versions of the Rolls Royce Phantom. The MY 2010 fleet was similar, with three BMW models, the Maybach 57S, the Rolls Royce Ghost, and four versions of the Rolls Royce Phantom in this size range. As in the MYs 2012-2016 rulemaking, NHTSA and EPA therefore proposed again to cut off the sloped portion of the passenger car function at 56 square feet.

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

The agencies sought comment on setting cutpoints for the MYs 2017-2025 passenger car curves at 41 square feet and 56 square feet. IIHS expressed some concern regarding the “breakpoint” of the fuel economy curve at the lower extreme where footprint is the smallest-that is, the leveling-off point on the fuel economy curve where the fuel economy requirement ceases to increase as footprint decreases. IIHS stated that moving this breakpoint farther to the left so that even smaller vehicles have increasing fuel economy targets would reduce the chance that manufacturers would downsize the lightest vehicles for further fuel economy credits.

The agencies agree with IIHS that moving the 41 square foot cutpoint to an even smaller value would additionally discourage downsizing of the smallest vehicles—that is, the vehicles for which downsizing would be most likely to compromise occupant protection. However, in the agencies' judgment, notwithstanding narrow market niches for some types vehicles (exemplified by, e.g., the Smart Fortwo), consumer preferences are likely to remain such that manufacturers will be unlikely to deliberately respond to today's standards by downsizing the smallest vehicles. However, the agencies will monitor developments in the passenger car market and revisit this issue as part of NHTSA's future rulemaking to establish final MYs 2022-2025 standards and the concurrent mid-term evaluation process.

b. Cutpoints for Light Truck Curve

The light truck fleet upon which the agencies based the proposed target curves for MYs 2017-2025, like the passenger car fleet, was derived from MY 2008 data, as discussed in Section 2.4 above. In MY 2008, light truck footprints ranged from 41.0 square feet, the Jeep Wrangler, to 77.5 square feet, the Toyota Tundra. For consistency with the curve for passenger cars, the agencies proposed to cut off the sloped portion of the light truck function at the same footprint, 41 square feet, although we recognized that no light trucks are currently offered below 41 square feet. With regard to the upper cutpoint, the agencies heard from a number of manufacturers during the discussions leading up to the proposal of the MY 2017-2025 standards that the location of the cutpoint in the MYs 2012-2016 rules, 66 square feet, resulted in challenging targets for the largest light trucks in the later years of that rulemaking. See 76 FR 74864-65. Those manufacturers requested that the agencies extend the cutpoint to a larger footprint, to reduce targets for the largest light trucks which represent a significant percentage of those manufacturers light truck sales. At the same time, in re-examining the light truck fleet data, the agencies concluded that aggregating pickup truck models in the MYs 2012-2016 rule had led the agencies to underestimate the impact of the different pickup truck model configurations above 66 square feet on manufacturers' fleet average fuel economy and CO₂ levels (as discussed immediately below). In disaggregating the pickup truck model data, the impact of setting the cutpoint at 66 square feet after model year 2016 became clearer to the agencies.

In the agencies' view, there was legitimate basis for these comments. The agencies' MY 2008-based market forecast supporting the NPRM included about 24 vehicle configurations above 74 square feet with a total volume of about 50,000 vehicles or less during any MY in the 2017-2025 time frame. While a relatively small portion of the overall truck fleet, for some manufacturers, these vehicles are a non-trivial portion of sales. As noted above, the very largest light trucks have significant load-carrying and towing capabilities that make it particularly challenging for manufacturers to add fuel economy-improving/CO₂-reducing technologies in a way that maintains the full functionality of those capabilities.

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

The agencies proposed to phase in the higher cutpoint for the truck curve in order to avoid any backsliding from the MY 2016 standard. A target that is feasible in one model year should never become less reasonable in a subsequent model year—manufacturers should have no reason to remove fuel economy-improving/CO₂-reducing technology from a vehicle once it has been applied. Put another way, the agencies proposed to not allow “curve crossing” from one model year to the next. In proposing MYs 2011-2015 CAFE standards and promulgating MY 2011 standards, NHTSA proposed and requested comment on avoiding curve crossing, as an “anti-backsliding measure.” The MY 2016 2-cycle test curves are therefore a floor for the MYs 2017-2025 curves. For passenger cars, which have minimal change in slope from the MY 2012-2016 rulemakings and no change in cut points, there were no curve crossing issues in the proposed (or final) standards.

The agencies received some comments on the selection of these cutpoints. ACEEE commented that the extension of the light truck cutpoint upward from 66 square feet to 74 square feet. would reduce stringency for large trucks even though there is no safety-related reason to discourage downsizing of these trucks. Sierra Club and Volkswagen commented that moving this cutpoint could encourage trucks to get larger and may be detrimental to societal fatalities, and the Sierra Club suggested that the agencies could mitigate this risk by providing an alternate emissions target for light trucks of 60 square feet or more that exceed the sales projected in the rule in the year that sales exceed the projection. ACEEE similarly suggested that the agencies include a provision to fix the upper bound for the light truck targets at the 66 square foot target once sales of trucks larger than that in a given year reach the level of MY 2008 sales, to discourage upsizing. Global Automakers commented that the cutpoint for the smallest light trucks should be set at approximately ten percent of sales (as for passenger cars) rather than at 41 square feet. Conversely, IIHS commented that, for both passenger cars and light trucks, the 41 square foot cutpoint should be moved further to the left (i.e., to even smaller footprints), to reduce the incentive for manufacturers to downsize the lightest vehicles.

The agencies have considered these comments regarding the cutpoint applied to the high footprint end of the target function for light trucks, and we judge there to be minimal risk that manufacturers would respond to this upward extension of the cutpoint by deliberately increasing the size of light trucks that are already at the upper end of marketable vehicle sizes. Such vehicles have distinct size, maneuverability, fuel consumption, storage, and other characteristics as opposed to the currently more popular vehicles between 43 and 48 square feet, and are likely not suited for all consumers in all usage scenarios. Further, larger vehicles typically also have additional production costs that make it unlikely that these vehicles will become the predominant vehicles in the fleet. Therefore, we remain concerned that not to extend this cutpoint to 74 square feet would fail to take into adequate consideration the challenges to improving fuel economy and CO₂ emissions to the levels required by this final rule for vehicles with footprints larger than 66 square feet, given their increased utility. As noted above, because CAFE and GHG standards are based on average performance, manufacturers need not ensure that every vehicle model meets its CAFE and GHG targets. Still, the agencies are concerned that standards with stringent targets for large trucks would unduly burden full-line manufacturers active in the market for full-size pickups and other large light trucks, as discussed earlier, and evidenced by the agencies' estimates of differences between compliance burdens faced by OEMs active and not active in the market for full-size pickups. While some manufacturers have recently indicated that buyers are currently willing to pay a premium for fuel economy improvements, the agencies are concerned that disparities in long-term regulatory requirements could lead to future market distortions undermining the economic practicability of the standards. Absent an upward extension of the cutpoint, such disparities would be even greater. For these reasons, the agencies do not expect that gradually extending the cutpoint to 74 square feet will create incentives to upsize large trucks and, thus, believe there will be no adverse effects on societal safety. Therefore, we are promulgating standards that, as proposed, gradually extend the cutpoint to 74 square feet We have also considered the above comments by Global Automakers and IIHS on the cutpoints for the smallest passenger cars and light trucks. In our judgment, placing these cutpoints at 41 square feet continues to strike an appropriate balance between (a) not discouraging manufacturers from introducing new small vehicle models in the U.S. and (b) not encouraging manufacturers to downsize small vehicles.

We have considered the Sierra Club and ACEEE suggestion that the agencies provide an alternate emissions target for light trucks larger than 60 square feet (Sierra Club) or 66 square feet (ACEEE) that exceed the sales projected in the rule in the year that sales exceed the projection. Doing so would effectively introduce sales volume as a second “attribute”; in our judgment, this would introduce additional uncertainty regarding outcomes under the standards, and would not clearly be within the scope of notice provided by the NPRM.

6. Once the Agencies Determined the Complete Mathematical Function Shape, How Did the Agencies Adjust the Curves To Develop the Proposed Standards and Regulatory Alternatives?

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

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

a. Adjusting for Year Over Year Stringency

As in the MYs 2012-2016 rules, the agencies developed curves defining regulatory alternatives for consideration by “shifting” these curves. For the MYs 2012-2016 rules, the agencies did so on an absolute basis, offsetting the fitted curve by the same value (in gpm or g/mi) at all footprints. In developing the proposal for MYs 2017-2025, the agencies reconsidered the use of this approach, and concluded that after MY 2016, curves should be offset on a relative basis—that is, by adjusting the entire gpm-based curve (and, equivalently, the CO₂ curve) by the same percentage rather than the same absolute value. The agencies' estimates of the effectiveness of these technologies are all expressed in relative terms—that is, each technology (with the exception of A/C) is estimated to reduce fuel consumption (the inverse of fuel economy) and CO₂ emissions by a specific percentage of fuel consumption without the technology. It is, therefore, more consistent with the agencies' estimates of technology effectiveness to develop standards and regulatory alternatives by applying a proportional offset to curves expressing fuel consumption or emissions as a function of footprint. In addition, extended indefinitely (and without other compensating adjustments), an absolute offset would eventually (i.e., at very high average stringencies) produce negative (gpm or g/mi) targets. Relative offsets avoid this potential outcome. Relative offsets do cause curves to become, on a fuel consumption and CO₂ basis, flatter at greater average stringencies; however, as discussed above, this outcome remains consistent with the agencies' estimates of technology effectiveness. In other words, given a relative decrease in average required fuel consumption or CO₂ emissions, a curve that is flatter by the same relative amount should be equally challenging in terms of the potential to achieve compliance through the addition of fuel-saving technology.

On this basis, and considering that the “flattening” occurs gradually for the regulatory alternatives the agencies have evaluated, the agencies tentatively concluded that this approach to offsetting the curves to develop year-by-year regulatory alternatives neither re-creates a situation in which manufacturers are likely to respond to standards in ways that compromise highway safety, nor undoes the attribute-based standard's more equitable balancing of compliance burdens among disparate manufacturers. The agencies invited comment on these conclusions, and on any other means that might avoid the potential outcomes—in particular, negative fuel consumption and CO₂ targets—discussed above. As indicated earlier, ACEEE and the Alliance both expressed support for the application of relative adjustments in order to develop year-over-year increases in the stringency of fuel consumption and CO₂ targets, although the Alliance also commented that this approach should be revisited as part of the mid-term evaluation. EPCA/EISA requires NHTSA to establish the maximum feasible passenger car and light truck standards separately in each specific model year—a requirement that is not necessarily compatible with any predetermined approach to year-over-year changes in stringency. As part of the future NHTSA rulemaking to finalize standards for MYs 2022-2025 and the concurrent mid-term evaluation, the agencies plan to reexamine potential approaches to developing regulatory options for successive model years.

b. Adjusting for Anticipated Improvements to Mobile Air Conditioning Systems

The fuel economy values in the agencies' market forecasts are based on the 2-cycle (i.e., city and highway) fuel economy test and calculation procedures that do not reflect potential improvements in air conditioning system efficiency, refrigerant leakage, or refrigerant Global Warming Potential (GWP). Recognizing that there are significant and cost effective potential air conditioning system improvements available in the rulemaking timeframe (discussed in detail in Chapter 5 of the draft joint TSD), the agencies are increasing the stringency of the target curves based on the agencies' assessment of the capability of manufacturers to implement these changes. For the proposed CAFE standards and alternatives, an offset was included based on air conditioning system efficiency improvements, as these improvements are the only improvements that effect vehicle fuel economy. For the proposed GHG standards and alternatives, a stringency increase was included based on air conditioning system efficiency, leakage and refrigerant improvements. As discussed above in Chapter 5 of the joint TSD, the air conditioning system improvements affect a vehicle's fuel efficiency or CO₂ emissions performance as an additive stringency increase, as compared to other fuel efficiency improving technologies which are multiplicative. Therefore, in adjusting target curves for improvements in the air conditioning system performance, the agencies adjusted the target curves by additive stringency increases (or vertical shifts) in the curves.

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

While the agencies received many comments regarding the provisions for determining adjustments to reflect improvements to air conditioners, the agencies received no comments regarding how curves developed considering 2-cycle fuel economy and CO₂ values should be adjusted to reflect the inclusion of A/C adjustments in fuel economy and CO₂ values used to determine compliance with corresponding standards. For today's final rule, the agencies have maintained the same approach as applied for the NPRM.

D. Joint Vehicle Technology Assumptions

For the past five years, the agencies have been working together closely to follow the development of fuel consumption- and GHG-reducing technologies, which continue to evolve rapidly. We based the proposed rule on the results of two major joint technology analyses that EPA and NHTSA had recently completed—the Technical Support Document to support the MYs 2012-2016 final rule and the 2010 Technical Analysis Report (which supported the 2010 Notice of Intent and was also done in conjunction with CARB). For this final rule, we relied on our joint analyses for the proposed rule, as well as new information and analyses, including information we received during the public comment period.

In the proposal, we presented our assessments of the costs and effectiveness of all the technologies that we believe manufacturers are likely to use to meet the requirements of this rule, including the latest information on several quickly-changing technologies. The proposal included new estimates for hybrid costs based on a peer-reviewed ANL battery cost model. We also presented in the proposal new cost data and analyses relating to several technologies based on a study by FEV: an 8-speed automatic transmission replacing a 6-speed automatic transmission; an 8-speed dual clutch transmission replacing a 6-speed dual clutch transmission; a power-split hybrid powertrain with an I4 engine replacing a conventional engine powertrain with V6 engine; a mild hybrid with stop-start technology and an I4 engine replacing a conventional I4 engine; and the Fiat Multi-Air engine technology. Also in the proposal, we presented an updated assessment of our estimated costs associated with mass reduction.

As would be expected given that some of our cost estimates were developed several years ago, we have also updated all of our base direct manufacturing costs to put them in terms of more recent dollars (2010 dollars are used in this final rule while 2009 dollars were used in the proposal). As proposed, we have also updated our methodology for calculating indirect costs associated with new technologies since completing both the MYs 2012-2016 final rule and the TAR. We continue to use the indirect cost multiplier (ICM) approach used in those analyses, but have made important changes to the calculation methodology—changes done in response to ongoing staff evaluation and public input.

Since the MYs 2012-2016 rule and TAR, the agencies have updated many of the technologies' effectiveness estimates largely based on new vehicle simulation work conducted by Ricardo Engineering. This simulation work provides the effectiveness estimates for a number of the technologies most heavily relied on in the agencies' analysis of potential standards for MYs 2017-2025. Additionally for the final rule, NHTSA conducted a vehicle simulation project with Argonne National Laboratory (ANL), as described in NHTSA's FRIA, that performed additional analyses on mild hybrid technologies and advanced transmissions to help NHTSA develop effectiveness values better tailored for the CAFE model's incremental structure. The effectiveness values for the mild hybrid vehicles were applied by both agencies for the final rule. Additionally, NHTSA updated the effectiveness values of advanced transmissions coupled with naturally-aspirated engines for the final rule.

The agencies also reviewed the findings and recommendations in the updated NAS report “Assessment of Fuel Economy Technologies for Light-Duty Vehicles” that was completed and issued after the MYs 2012-2016 final rule. NHTSA's sensitivity analysis examining the impact of using some of the NAS cost and effectiveness estimates on the proposed standards is presented in NHTSA's final RIA.

The agencies received comments to the proposal on some of these assessments as discussed further below. Also, since the time of the proposal, in some cases we have been able to improve on our earlier assessments. We note these comments and the improvements made in the assessments in the discussion of each technology, below. However, the agencies did not receive comments for most of the technical and cost assessments presented in the proposal, and the agencies have concluded the assessments in the proposal remain valid for this final rule.

Key changes in the final rule relative to the proposal are the use of 2010 dollars rather than 2009 dollars, updates to all battery pack and non-battery costs for hybrids, plug-in hybrids and full electric vehicles (because an updated version of the Argonne National Labs BatPaC model was available which more appropriately included a battery discharge safety system in the costs), and the inclusion of a mild hybrid technology that was not included in the proposal. NHTSA updated the effectiveness values of advanced transmissions coupled with naturally-aspirated engines based on ANL's simulation work. We describe these changes below and in Chapter 3 of the Joint TSD. We next provide a brief summary of the technologies that we considered for this final rule; Chapter 3 of the Joint TSD presents our assessments of these technologies in much greater detail.

1. What technologies did the agencies consider?

The agencies conclude that manufacturers can add a variety of technologies to each of their vehicle models and/or platforms in order to improve the vehicles' fuel economy and GHG performance. In order to analyze a variety of regulatory alternative scenarios, it was essential to have a thorough understanding of the technologies available to the manufacturers. As was the case for the proposal, the analyses we performed for this final rule included an assessment of the cost, effectiveness, availability, development time, and manufacturability of various technologies within the normal redesign and refresh periods of a vehicle line (or in the design of a new vehicle). As we describe in the Joint TSD, the point in time when we project that a technology can be applied affects our estimates of the costs as well as the technology penetration rates (“phase-in caps”).

The agencies considered dozens of vehicle technologies that manufacturers could use to improve the fuel economy and reduce CO₂ emissions of their vehicles during the MYs 2017-2025 timeframe. Many of the technologies we considered are available today, are in production of some vehicles, and could be incorporated into vehicles more widely as manufacturers make their product development decisions. These are “near-term” technologies and are identical or very similar to those anticipated in the agencies' analyses of compliance strategies for the MYs 2012-2016 final rule. For this rulemaking, given its time frame, we also considered other technologies that are not currently in production, but that are beyond the initial research phase, and are under development and expected to be in production in the next 5-10 years. Examples of these technologies are downsized and turbocharged engines operating at combustion pressures even higher than today's turbocharged engines, and an emerging hybrid architecture combined with an 8-speed dual clutch transmission, a combination that is not available today. These are technologies that the agencies believe that manufacturers can, for the most part, apply both to cars and trucks, and that we expect will achieve significant improvements in fuel economy and reductions in CO₂ emissions at reasonable costs in the MYs 2017 to 2025 timeframe. The agencies did not consider technologies that are currently in an initial stage of research because of the uncertainty involved in the availability and feasibility of implementing these technologies with significant penetration rates for this analysis. The agencies recognize that due to the relatively long time frame between the date of this final rule and 2025, it is very possible that new and innovative technologies will make their way into the fleet, perhaps even in significant numbers, that we have not considered in this analysis. We expect to reconsider such technologies as part of the mid-term evaluation, as appropriate, and manufacturers may be able to use them to generate credits under a number of the flexibility and incentive programs provided in this final rule.

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

Few comments were received specific to these technologies. The Alliance emphasized the agencies should examine the progress in the development of powertrain improvements as part of the mid-term evaluation and determine if researchers are making the kind of breakthroughs anticipated by the agencies for technologies like high-efficiency transmissions. VW cautioned the agencies about the uncertainties with high BMEP engines, including the possible costs due to increased durability requirements and questioned the potential benefit for this type of engine of engine technology. VW commented that additional development is necessary to overcome the significant obstacles of these types of engines. ICCT emphasized that many of the powertrain effectiveness values, derived by Ricardo, were too conservative as technology in this area is expected to improve at a faster pace during the rulemaking period. As described in the joint TSD, the agencies relied on a number of technical sources for this engine technology. Additionally as described in the Ricardo report, Ricardo was tasked with extrapolating technologies to their expected performance and efficiency levels in the 2020-2025 timeframe to account for future improvements. The agencies continue to believe that the modeling and simulation conducted by Ricardo is robust, as they have built prototypes of these engines and used their knowledge to help inform the modeling. The agencies will, of course, continue to watch the development of this key technology in the future. For transparency purposes and full disclosure, it is important to note the ICCT partially funded the Ricardo study.

a. Types of Engine Technologies Considered

Low-friction lubricants including low viscosity and advanced low friction lubricant oils are now available with improved performance. If manufacturers choose to make use of these lubricants, they may need to make engine changes and conduct durability testing to accommodate the lubricants. The costs in our analysis consider these engine changes and testing requirements. This level of low friction lubricants is expected to exceed 85 percent penetration by MY 2017 and reach nearly 100 percent in MY 2025.

Reduction of engine friction losses (first level) 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 the efficiency of engine operation. This level of engine friction reduction is expected to exceed 70 percent penetration by MY 2017

Advanced low friction lubricants and reduction of engine friction losses (second level) are new for our analysis for the proposal and this final rule. As technologies advance in the coming years, we expect that there will be further development in both low friction lubricants and engine friction reductions. The agencies grouped the development in these two related areas into a single technology and applied them for MY 2017 and beyond.

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

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

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

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

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

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

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

Diesel engines have several characteristics that give superior fuel efficiency, including reduced pumping losses due to lack of (or greatly reduced) throttling, high pressure direct injection of fuel, a combustion cycle that operates at a higher compression ratio, and a very lean air/fuel mixture relative to an equivalent-performance gasoline engine. This technology requires additional enablers, such as a NO_X adsorption catalyst system or a urea/ammonia selective catalytic reduction system for control of NO_X emissions during lean (excess air) operation.

b. Types of Transmission Technologies Considered

Improved automatic transmission controls optimize the shift schedule to maximize fuel efficiency under wide ranging conditions and minimizes losses associated with torque converter slip through lock-up or modulation. This technology is included because it exists in the baseline fleets, but its penetration is expected to decrease over time as it is replaced by other more efficient technologies.

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

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

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

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

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

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

c. Types of Vehicle Technologies Considered

Lower-rolling-resistance tires have characteristics that reduce frictional losses associated with the energy dissipated mainly in the deformation of the tires under load, thereby improving fuel economy and reducing CO₂ emissions. For the proposal and final rule, we considered two levels of lower rolling resistance tires that reduce frictional losses even further. The first level of low rolling resistance tires would have 10 percent rolling resistance reduction while the 2nd level would have 20 percent rolling resistance reduction compared to 2008 baseline vehicle. This second level of development marks an advance over low rolling resistance tires considered during the MYs 2014-2018 medium- and heavy- duty vehicle greenhouse gas emissions and fuel efficiency rulemaking, see 76 FR 57207, 57229.) The first level of lower rolling resistance tires is expected to exceed 90 percent penetration by the 2017.

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

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

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

Mass Reduction can be achieved through either substitution of lower density and/or higher strength materials, or changing the design to use less material. With design optimization, part consolidation, and improved manufacturing processes, these strategies can be applied while maintaining the performance attributes of the component, system, or vehicle. The agencies applied mass reduction of up to 20 percent relative to MY 2008 levels in this final rule compared to only 10 percent in the MYs 2012-2016 final rule. The agencies also determined effectiveness values for hybrid, plug-in and electric vehicles based on net mass reduction, or the difference between the applied mass reduction (capped at 20 percent) and the added mass of electrification components. In assessing compliance strategies and in structuring the standards, the agencies only considered levels of vehicle mass reduction that, in our estimation, would not adversely affect overall fleet safety. An extensive discussion of mass reduction technologies and their associated costs is provided in Chapter 3 of the Joint TSD, and the discussion on safety is in Section II.G of the Preamble.

d. Types of Electrification/Accessory and Hybrid Technologies Considered

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

Improved accessories (IACC) may include high efficiency alternators and electrically driven (i.e., on-demand) water pumps and cooling fans. This excludes other electrical accessories such as electric oil pumps and electrically driven air conditioner compressors. New for this rule is a second level of IACC (IACC2), which consists of the IACC technologies with the addition of a mild regeneration strategy and a higher efficiency alternator. The first level of IACC improvements is expected to be at more than 50 percent penetration by the 2017MY.

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

Higher Voltage Stop-Start/Belt Integrated Starter Generator (BISG) sometimes referred to as a mild hybrid, provides idle-stop capability and uses a higher voltage battery with increased energy capacity over typical automotive batteries. The higher system voltage allows the use of a smaller, more powerful electric motor. This system replaces a standard alternator with an enhanced power, higher voltage, higher efficiency starter-alternator that is belt driven and that can recover braking energy while the vehicle slows down (regenerative braking). This technology was mentioned but not included in the proposal because the agencies had incomplete information at that time. Since the proposal, the agencies have obtained better data on the costs and effectiveness of this technology (see Chapter 3.4.3 of the joint TSD). Therefore, the agencies have revised their technical analysis on both the cost and effectiveness and found that the technology is now competitive with the others in NHTSA's technology decision trees and EPA's technology packages. EPA and NHTSA are providing incentives to encourage this and other hybrid technologies on full-size pick-up trucks, as described in Section II.F.3.

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 and higher efficiency starter-alternator that is crankshaft mounted and can recover braking energy while the vehicle slows down (regenerative braking). The IMA technology is not included by either agency as an enabling technology in the analysis supporting this rule because we believe that other technologies provide better cost effectiveness, although it is included as a baseline technology because it exists in our 2008 and 2010 baseline fleets.

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

2-Mode Hybrid is a hybrid electric drive system that uses an adaptation of a conventional stepped-ratio automatic transmission by replacing some of the transmission clutches with two electric motors that control the ratio of engine speed to vehicle speed, while clutches allow the motors to be bypassed. This improves both the transmission torque capacity for heavy-duty applications and reduces fuel consumption and CO₂ emissions at highway speeds relative to other types of hybrid electric drive systems. The 2-mode hybrid technology is not included by either agency as an enabling technology in the analysis supporting this rule because we believe that other technologies provide better cost effectiveness, although it is included as a baseline technology because it exists in our 2008 and 2010 baseline fleets.

Power-split Hybrid is a hybrid electric drive system that replaces the traditional transmission with a single planetary gearset and two motor/generators. One motor/generator uses the engine to either charge the battery or supply additional power to the drive motor. A second, more powerful motor/generator is permanently connected to the vehicle's final drive and always turns with the wheels. The planetary gear splits engine power between the first motor/generator and the drive motor to either charge the battery or supply power to the wheels. The power-split hybrid technology is not included by either agency as an enabling technology in the analysis supporting this rule because we believe that other technologies provide better cost effectiveness, although it is included as a baseline technology because it exists in our 2008 baseline fleet.

Plug-in hybrid electric vehicles (PHEV) are hybrid electric vehicles with the means to charge their battery packs from an outside source of electricity (usually the electric grid). These vehicles have larger battery packs with more energy storage and a greater capability to be discharged than other hybrid electric vehicles. They also use a control system that allows the battery pack to be substantially depleted under electric-only or blended mechanical/electrical operation and batteries that can be cycled in charge-sustaining operation at a lower state of charge than is typical of other hybrid electric vehicles. These vehicles are sometimes referred to as Range Extended Electric Vehicles (REEV). In this MYs 2017-2025 analysis, the agencies have included PHEVs with several all-electric ranges as potential technologies. EPA's analysis includes a 20-mile and 40-mile range PHEVs, while NHTSA's analysis only includes a 30-mile PHEV.

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

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

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

There are a number of other potential technologies available to manufacturers in meeting the 2017-2025 standards that the agencies have evaluated but have not considered in our final analyses. These include HCCI, “multi-air”, and camless valve actuation, and other advanced engines currently under development.

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

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

New for the final rule relative to the proposal are the use of 2010 dollars rather than 2009 dollars, updates to all battery pack and non-battery costs for hybrids, plug-in and full electric vehicles because an updated version of the ANL BatPaC model was available and because we wanted to include a battery discharge safety system in the costs, and the inclusion of a mild hybrid technology that was not included in the proposal. We describe these changes below and in Chapter 3 of the Joint TSD.

The agencies note that the technology costs included in this final rule take into account those associated with the initial build of the vehicle. We received comments on the proposal for this rule suggesting that there could be additional maintenance required with some new technologies, and that additional maintenance costs could occur as a result because “the technology will be more complicated and time consuming for mechanics to repair.” For this final rule, the agencies have estimated such maintenance costs. The maintenance costs are not included as new vehicle costs and are not, therefore, used in either agency's modeling work. However, the maintenance costs are included when estimating costs to society in each agency's benefit-cost analyses. We discuss these maintenance costs briefly in section II.D.5 below, and in detail in Chapter 3 of the final Joint TSD and in sections III and IV of this preamble.

a. Direct Manufacturing Costs (DMC)

For direct manufacturing costs (DMC) related to turbocharging, downsizing, gasoline direct injection, transmissions, as well as non-battery-related costs on hybrid, plug-in hybrid, and electric vehicles, the agencies have relied on costs derived from “tear-down” studies (see below). For battery-related DMC for HEVs, PHEVs, and EVs, the agencies have relied on the BatPaC model developed by Argonne National Laboratory for the Department of Energy. For mass reduction DMC, the agencies have relied on several studies as described in detail in Chapter 3 of the Joint TSD. We discuss each of these briefly here and in more detail in the Joint TSD. For the majority of the other technologies considered in this rule and described above, and where no new data were available, the agencies have relied on the MYs 2012-2016 final rule and sources described there for estimates of DMC.

i. Costs From Tear-Down Studies

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

Over the past several years, EPA has contracted with FEV, Inc. and its subcontractor Munro & Associates, to conduct tear-down cost studies for a number of key technologies evaluated by the agencies in assessing the feasibility of future GHG and CAFE standards. The analysis methodology included procedures to scale the tear-down results to smaller and larger vehicles, and also to different technology configurations. EPA documented FEV's methodology in a report published as part of the MYs 2012-2016 rulemaking, detailing the costing of the first tear-down conducted in this work (#1 in the list below).This report was peer reviewed by experts in the industry, who focused especially on the methodology used in the tear-down study, and revised by FEV in response to the peer review comments. EPA documented subsequent tear-down studies (#2-#5 in the list below) using the peer reviewed methodology in follow-up FEV reports made available in the public docket for the MYs 2012-2016 rulemaking, although the results for some of these additional studies were not peer reviewed.

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

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

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

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

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

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

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

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

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

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

9. Mild hybrid with stop-start technology (Saturn Vue with I4 engine), replacing a conventional I4 engine. New for this final rule, the agencies have used portions of this tear-down study in estimating mild hybrid costs.

10. Fiat Multi-Air engine technology. (Although results from this cost study are included in the rulemaking docket, they were not used by the agencies in this rulemaking's technical analyses because the technology is under a very recently awarded patent and we have chosen not to base our analyses on its widespread use across the industry in the 2017-2025 timeframe.)

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

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

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

2. Downsizing a DOHC V8 to a DOHC V6.

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

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

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

ii. Costs of HEVs, EVs & PHEVs

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

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

Subsequent to the proposal for this rule, the agencies requested changes to the BatPaC model. These requests were that an option be added to select between liquid or air thermal management and that adequate surface area and cell spacing be determined accordingly. Also, the agencies requested a feature to allow battery packs to be configured as subpacks in parallel or modules in parallel, as additional options for staying within voltage and cell size limits for large packs. ANL added these features in a version of the model distributed March 1, 2012. This version of the model is used for the battery cost estimates in the final rule.

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

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

As we did in the proposal, we have also estimated the costs (hardware and labor) associated with in-home electric vehicle charging equipment, which we expect to be necessary for PHEVs and EVs, and their installation. New for the final rule are costs associated with an on-vehicle battery discharge system. These battery discharge systems allow the batteries in HEVs, PHEVs and EVs to be discharged safely at the site of an accident prior to moving affected vehicles to storage or repair facilities. Charging equipment and battery discharge system costs are covered in more detail in Chapter 3 of the Joint TSD.

iii. Mass Reduction Costs

The agencies have revised the costs for mass reduction from the MYs 2012-2016 rule and the 2010 Technical Assessment Report. For this rule, the agencies are relying on a wide assortment of sources from the literature as well as data provided from a number of OEMs. Based on this review, the agencies have estimated a new cost curve such that the costs increase as the levels of mass reduction increase. Both agencies have mass reduction feasibility and cost studies that were completed in time for the final rule. However the results from these studies were not employed in the rulemaking analysis because the peer reviews had not been completed and changes to the studies based on the peer reviews were not completed. Both have since been completed. For the primary analyses, both agencies use the same mass reduction costs as were used in the proposal, although they have been updated to 2010 dollars. All of these studies are discussed in Chapter 3 of the Joint TSD as well as in the respective publications. The use of the new cost results from the studies would have made little difference to the final rule cost analysis for two reasons:

(1) The NPRM (+/− 40%) sensitivity analysis conducted by the agencies showed little difference in overall costs due to the change in mass reduction costs;

(2) The agencies project even less mass reduction levels in the final rule compared to the NPRM based on the use of revised fatality coefficients from NHTSA's updated study of the effects on vehicle mass and size on highway safety, which is discussed in section II.G of this preamble.

b. Indirect Costs (IC)

i. Markup Factors To Estimate Indirect Costs

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

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

There is some level of uncertainty surrounding both the ICM and RPE markup factors. The ICM estimates used in this rule group all technologies into four broad categories in terms of complexity and treat them as if individual technologies within each of the categories (“low”, “medium”, “high1” and “high2” complexity) will have the same ratio of indirect costs to direct costs. This simplification means it is likely that the direct cost for some technologies within a category will be higher and some lower than the estimate for the category in general. More importantly, the ICM estimates have not been validated through a direct accounting of actual indirect costs for individual technologies. Rather, the ICM estimates were developed using adjustment factors developed in two separate occasions: the first, a consensus process, was reported in the RTI report; the second, a modified Delphi method, was conducted separately and reported in an EPA memo. Both of these processes were carried out by panels composed of EPA staff members with previous background in the automobile industry; the memberships of the two panels overlapped but were not identical. The panels evaluated each element of the industry's RPE estimates and estimated the degree to which those elements would be expected to change in proportion to changes in direct manufacturing costs. The method used in the RTI report were peer reviewed by three industry experts and subsequently by reviewers for the International Journal of Production Economics.

RPEs themselves are inherently difficult to estimate because the accounting statements of manufacturers do not neatly categorize all cost elements as either direct or indirect costs. Hence, each researcher developing an RPE estimate must apply a certain amount of judgment to the allocation of the costs. Since empirical estimates of ICMs are ultimately derived from the same data used to measure RPEs, this affects both measures. However, the value of RPE has not been measured for specific technologies, or for groups of specific technologies. Thus applying a single average RPE to any given technology by definition overstates costs for very simple technologies, or understates them for advanced technologies.

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

As EPA has developed its ICM approach to indirect cost estimation, the agency has publicly discussed and responded to comment on its approach during the MYs 2012-2016 light-duty GHG rule, and also in the more recent heavy-duty GHG rule (see 76 FR 57106) and in the 2010 TAR. The agency published its work in the Journal of Production Economics and has also published a memorandum furthering the development of ICMs. As thinking has matured, we have adjusted our ICM factors such that they are slightly higher and, importantly, we have changed the way in which the factors are applied. For the proposal for this rule, EPA concluded that ICMs are fully developed for regulatory purposes and used these factors in developing the indirect costs presented in the proposal.

The agencies received comments on the approach used to estimate indirect costs in the proposal. One commenter (NADA) argued that the ICM approach was not valid and an RPE approach was the only appropriate approach. Further, that commenter argued that the RPE factor should be 2.0 times direct costs rather than the 1.5 factor that is supported by filings to the Securities and Exchange Commission. Another commenter (ICCT) commented positively on the new ICM approach as presented in the proposal, but argued that sensitivity analyses examining the impact of using an RPE should be deleted from the final rule. Both agencies have conducted thorough analysis of the comments received on the RPE versus ICM approach. Regarding NADA's concerns about the accuracy of ICMs, although the agencies recognize that there is uncertainty regarding the impact of indirect costs on vehicle prices, they have retained ICMs for use in the central analysis because it offers advantages of focusing cost estimates on only those costs impacted by a regulatory imposed change, and it provides a disaggregated approach that better differentiates among technologies. The agencies disagree with NADA's contention that the correct factor to reflect the RPE should be 2.0, and we cite data in Chapter 3 of the joint TSD that demonstrates that the overall RPE should average about 1.5. Regarding ICCTs contention that NHTSA should delete sensitivity analyses examining the impact of using an RPE, NHTSA rejects this proposal. OMB Circular No. A-94 establishes guidelines for conducting benefit-cost analysis of Federal programs and recommends sensitivity analyses to address uncertainty and imprecision in both underlying data and modeling assumptions. The agencies have addressed uncertainty in separate sensitivity analyses, with NHTSA examining uncertainty stemming from the shift away from the use of the RPE and EPA examining uncertainty around the ICM values. Further analysis of NADA's comments is summarized in Chapter 3 of the Joint TSD and in Chapter 7 of NHTSA's FRIA and in EPA's Response to Comments document. NHTSA's full response to ICCT is also presented in chapter 7 of NHTSA's FRIA. For this final rule, each agency is using an ICM approach with ICM factors identical to those used in the proposal. The impact of using an RPE rather than ICMs to calculate indirect costs is examined in sensitivity and uncertainty analyses in chapters 7, 10, and 12 of NHTSA's FRIA where NHTSA shows that even under the higher cost estimates that result using the RPE, the rulemaking is highly cost beneficial. The impact of alternate ICMs is examined in Chapter 3 of EPA's RIA.

Note that our ICM, while identical to those used in the proposal, have changed since the MYs 2012-2016 rule. The first change—increased ICM factors—was done as a result of further thought among EPA and NHTSA that the ICM factors presented in the original RTI report for low and medium complexity technologies should no longer be used and that we should rely solely on the modified-Delphi values for these complexity levels. For that reason, we eliminated the averaging of original RTI values with modified-Delphi values and instead are relying solely on the modified-Delphi values for low and medium complexity technologies. The second change was a re-evaluation by agency staff of the complexity classification of each of the technologies that were not directly examined in the RTI and modified Delphi studies. As a result, more technologies have been classified as medium complexity and fewer as low complexity. The third change—the way the factors are applied—resulted in the warranty portion of the indirect costs being applied as a multiplicative factor (thereby decreasing going forward as direct manufacturing costs decrease due to learning), and the remainder of the indirect costs being applied as an additive factor (thereby remaining constant year-over-year and not being reduced due to learning). This third change has a comparatively large impact on the resultant technology costs and, we believe, more appropriately estimates costs over time. In addition to these changes, a secondary-level change was made as part of this ICM recalculation. That change was to revise upward the RPE level reported in the original RTI report from an original value of 1.46 to 1.5, to reflect the long term average RPE. The original RTI study was based on 2008 data. However, an analysis of historical RPE data indicates that, although there is year to year variation, the average RPE has remained roughly constant at 1.5. ICMs are applied to future years' data and, therefore, NHTSA and EPA staffs believed that it would be appropriate to base ICMs on the historical average rather than a single year's result. Therefore, ICMs were adjusted to reflect this average level. These changes to the ICMs since the MYs 2012-2016 rule and the methodology are described in greater detail in Chapter 3 of the Joint TSD. NHTSA also has further discussion of ICMs in Chapter 7 of NHTSA's FRIA.

ii. Stranded Capital

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

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

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

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

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

In their written comments on the proposal, the Center for Biological Diversity and the International Council on Clean Transportation argued that the long lead times being provided for the phase-in of new standards, stretching out as they do over two complete redesign cycles, will virtually eliminate any capital stranding, making it inappropriate to carry over what they consider to be a “relic” from shorter-term rulemakings. As discussed above, it is difficult to quantify accurately any capital stranding associated with new technology phase-ins, especially given the projected and unprecedented deployment of technologies in the rulemaking timeframe. The FEV analysis attempted to define the possible stranded capital costs, for a select set of technologies, using the above set of assumptions. Since the direct manufacturing costs developed by FEV assumed a 10 year production life (i.e., capital costs amortized over 10 years) the agencies applied the FEV derived stranded capital costs whenever technologies were replaced prior to being utilized for the full 10 years. The other option would be to assume a 5 year product life (i.e., capital costs amortized over 5 years), which would have increased the direct manufacturing costs. It seems only reasonable to account for stranded capital costs in the instances where the fleet modeling performed by the agencies replaced technologies before the capital costs were fully amortized. The agencies did not derive or apply stranded capital costs to all technologies only the ones analyzed by FEV. While there is uncertainty about the possible stranded capital costs (i.e., understated or overstated), their impact would not call into question the overall results of our cost analysis or otherwise affect the stringency of the standards, since costs of stranded capital are a relatively minor component of the total estimated costs of the rules.

c. Cost Adjustment to 2010 Dollars

This simple change from the earlier analyses and from the proposal is to update any costs presented in earlier analyses to 2010 dollars using the GDP price deflator as reported by the Bureau of Economic Analysis on January 27, 2011. The factors used to update costs from 2007, 2008 and 2009 dollars to 2010 dollars are shown below.

d. Cost Effects Due to Learning

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

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

Learning impacts have been considered on most but not all of the technologies expected to be used because some of the expected technologies are already used rather widely in the industry and, presumably, quantifiable learning impacts have already occurred. The agencies have applied the steep learning algorithm for only a handful of technologies considered to be new or emerging technologies such as PHEV and EV batteries which are experiencing heavy development and, presumably, rapid cost declines in coming years. For most technologies, the agencies have considered them to be more established and, hence, the agencies have applied the lower flat learning algorithm. For more discussion of the learning approach and the technologies to which each type of learning has been applied the reader is directed to Chapter 3 of the Joint TSD. NHTSA has further discussion in Chapter 7 of the NHTSA FRIA. Note that, since the agencies had to project how learning will occur with new technologies over a long period of time, we request comments on the assumptions of learning costs and methodology. In particular, we are interested in input on the assumptions for advanced 27-bar BMEP cooled exhaust gas recirculation (EGR) engines, which are currently still in the experimental stage and not expected to be available in volume production until 2017. For our analysis, we have based estimates of the costs of this engine on current (or soon to be current) production technologies (e.g., gasoline direct injection fuel systems, engine downsizing, cooled EGR, 18-bar BMEP capable turbochargers), and assumed that, since learning (and the associated cost reductions) begins in 2012 for them that it also does for the similar technologies used in 27-bar BMEP engines.

The agencies did not receive comments on the issue of manufacturer learning.

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

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

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

The agencies note that the effectiveness values estimated for the technologies considered in the modeling analyses may represent average values, and do not reflect the virtually unlimited spectrum of possible values that could result from adding the technology to different vehicles. For example, while the agencies have estimated an effectiveness of 0.6 to 0.8 percent for low-friction lubricants, depending on the vehicle class, 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 that 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 rule, NHTSA and EPA believe that employing average values for technology effectiveness estimates, as adjusted depending on vehicle class, 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.

As discussed in the proposal, the U.S. D.O.T. Volpe Center entered into a contract with Argonne National Laboratory (ANL) to provide full vehicle simulation modeling support for this MYs 2017-2025 rulemaking. While modeling was not complete in time for use in the NPRM, the ANL results were available for the final rule and were used to define the effectiveness of mild hybrids for both agencies, and NHTSA used the results to update the effectiveness of advanced transmission technologies coupled with naturally-aspirated engines for the CAFE analysis, as discussed in the Joint TSD and more fully in NHTSA's RIA. This simulation modeling was accomplished using ANL's full vehicle simulation tool called “Autonomie,” which is the successor to ANL's Powertrain System Analysis Toolkit (PSAT) simulation tool, and that includes sophisticated models for advanced vehicle technologies. The ANL simulation modeling process and results are documented in multiple reports and are peer reviewed. Both the ANL reports and peer review report can be found in NHTSA's docket.

4. How did the agencies consider real-world limits when defining the rate at which technologies can be deployed?

a. Refresh and Redesign Schedules

During MYs 2017-2025 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 in the market today. The MYs 2017-2025 standards timeframe allows manufacturers the time needed to incorporate GHG reduction and fuel-saving technologies into their normal business cycle while considering the requirements of the MYs 2012-2016 standards. This is important because it has the potential to avoid the much higher costs that could occur if manufacturers need to add or change technology at times other than their scheduled vehicle redesigns. This time period also provides manufacturers the opportunity to plan for compliance using a multi-year time frame, again consistent with normal business practice. Over these 9 model years, and the 5 prior model years that make up the MYs 2012-2016 standards, there will be an opportunity for manufacturers to evaluate, presumably, every one of their vehicle platforms and models and add technology in a cost effective way to control GHG emissions and improve fuel economy. This includes all the technologies considered here and the redesign of the air conditioner systems in ways that will further reduce GHG emissions and improve fuel economy.

Because of the complexities of the automobile manufacturing process, manufacturers are generally only able to add new technologies to vehicles on a specific schedule; just because a technology exists in the marketplace or is made available, does not mean that it is immediately available for applications on all of a manufacturer's vehicles. In the automobile industry there are two terms that describe when technology changes to vehicles occur: redesign and refresh (i.e., freshening). Vehicle redesign usually refers to significant changes to a vehicle's appearance, shape, dimensions, and powertrain. Redesign is traditionally associated with the introduction of “new” vehicles into the market, often characterized as the “next generation” of a vehicle, or a new platform. Across the industry, redesign of models generally takes place about every 5 years. However, while 5 years is a typical design period, there are many instances where redesign cycles can be longer or shorter. For example, it has generally been the case that pickup trucks and full size vans have longer redesign cycles (e.g., 6 to 7 years), while high-volume cars have shorter redesign cycles in order to remain competitive in the market. There are many other factors that can also affect redesign such as availability of capital and engineering resources and the extent of platform and component sharing between models, or even manufacturers.

We have a more detailed discussion in Chapter 3.4 of the joint TSD that describes how refresh and redesign cycles play into the modeling each agency has done in support of the final standards.

b. Vehicle Phase-In Caps

GHG-reducing and fuel-saving technologies for vehicle applications vary widely in function, cost, effectiveness and availability. Some of these attributes, like cost and availability vary from year to year. New technologies often take several years to become available across the entire market. The agencies use phase-in caps to manage the maximum rate that the CAFE and OMEGA models can apply new technologies.

Phase-in caps are intended to function as a proxy for a number of real-world limitations in deploying new technologies in the auto industry. These limitations can include but are not limited to, engineering resources at the OEM or supplier level, restrictions on intellectual property that limit deployment, and/or limitations in material or component supply as a market for a new technology develops. Without phase-in caps, the models may apply technologies at rates that are not representative of what the industry is actually capable of producing, which would suggest that more stringent standards might be feasible than actually would be.

EPA applies the caps on an OEM vehicle platform basis for most technologies. For a given technology with a cap of x%, this means that x% of a vehicle platform can receive that technology. On a fleet average basis, since all vehicle platforms can receive x% of this technology, x% of a manufacturer's fleet can also receive that technology. EVs and PHEVs are an exception to this rule as the agencies limit the availability of these technologies to some subclasses. Unlike other technologies, in order to maintain utility, EPA only allows non-towing vehicle types to be electrified in the OMEGA model. As a result, the PHEV and EV cap was applied so that the average manufacturer could produce to the cap levels. As would be expected, manufacturers that make more non-towing vehicles can have a higher fraction of their fleet converted to EVs and PHEVs, while those that make fewer non-towing vehicles have a lower potential maximum limit on EV and PHEV production.

NHTSA applies phase-in caps in addition to refresh/redesign cycles used in the CAFE model, which constrain the rate of technology application at the vehicle level so as to ensure a period of stability following any modeled technology applications, Unlike vehicle-level cycle settings, phase-in caps, defined on a percent per year basis, constrain technology application at the OEM level. As discussed above phase-in caps are intended to reflect a manufacturer's overall resource capacity available for implementing new technologies (such as engineering and development personnel and financial resources) thereby ensuring that resource capacity is accounted for in the modeling process. At a high level, phase-in caps and refresh/redesign cycles work in conjunction with one another to avoid the CAFE modeling process out-pacing an OEM's limited pool of available resources during the rulemaking time frame, especially in years where many models may be scheduled for refresh or redesign. This helps to ensure technological feasibility and economic practicability in determining the stringency of the standards.

We have a more detailed discussion of phase-in caps in Chapter 3.4 of the joint TSD.

5. Maintenance and Repair Costs Associated With New Technologies

In the proposal, we requested comment on maintenance, repair, and other operating-costs and whether these might increase or decrease with the new technologies. (See 76 FR 74925) We received comments on this topic from NADA. These comments stated that the agencies should include maintenance and repair costs in estimates of total cost of ownership (i.e., in our payback analyses). NADA proffered their Web site as a place to find information on operating costs that might be used in our final analyses. This Web site tool is meant to help consumers quantify the cost of ownership of a new vehicle. The tool includes estimates for depreciation, fees, financing, insurance, fuel maintenance, opportunity costs and repairs for the first five years of ownership. The agencies acknowledge that the tool may be useful for consumers; however, there is no information provided on how these estimates were determined. Without documentation of the basis for estimates, the Web site information is of limited use in this rulemaking where the agencies document the source and basis for each factual assertion. There are also evident substantive anomalies in the Web site information. For these reasons, the agencies have performed an independent analysis to quantify maintenance costs.

For the first time in CAFE and GHG rulemaking, both agencies now include maintenance costs in their benefit-cost analyses and in their respective payback analyses. This analysis is presented in Chapter 3.6 of the joint TSD and the maintenance intervals and costs per maintenance event used by both agencies are summarized in Table II-18. For information on how each agency has folded the maintenance costs into their respective final analyses, please refer to each agency's respective RIA (Chapter 5 of EPA's RIA, Chapter VIII of NHTSA's FRIA).

E. Joint Economic and Other Assumptions

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

In reviewing these variables and the agencies' estimates of their values for purposes of this final rule, NHTSA and EPA considered comments received in response to the proposed rule, and also reviewed newly available literature. For this final rule, we made several changes to the economic assumptions used in our proposed rule, including revised technology costs to reflect more recently available data; updated values of the cost of owning a vehicle based on new data; updated fuel price and transportation demand forecasts that reflect the Annual Energy Outlook (AEO) 2012 Early Release; and changes to vehicle miles travelled (VMT) schedules, survival rates, and projection methods. The final values summarized below are discussed in greater detail in Chapter 4 of the joint TSD and elsewhere in the preamble and in the agencies' respective RIAs.

• Costs of fuel economy-improving technologies—These inputs are discussed in summary form in Section II.D 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 direct manufacturing cost estimates for fuel economy improving and GHG emissions reducing technologies that are used in this analysis are intended to represent manufacturers' direct costs for high-volume production of vehicles equipped with these technologies in the year for which we state the cost is considered “valid.” Technology direct manufacturing cost estimates are the same as those used to analyze the proposed rule, with the exception of those for hybrid electric vehicles, plug-in hybrid electric vehicle (PHEV) and electric vehicle (EV) battery costs which have been updated using an updated version of Argonne National Laboratory's (ANL's) BatPaC model. Indirect costs are accounted for by applying near-term indirect cost multipliers ranging from 1.24 to 1.77 to the estimates of vehicle manufacturers' direct costs for producing or acquiring each technology, depending on the complexity of the technology and the time frame over which costs are estimated. These values are reduced to 1.19 to 1.50 over the long run as some aspects of indirect costs decline. As explained at proposal, the indirect cost markup factors have been revised from the MYs 2012-2016 rulemaking and the Interim Joint TAR to reflect the agencies current thinking regarding a number of issues. The final rules use the same factors the agencies used at proposal. These factors are discussed in detail in Section II.D.2 of this preamble and in Chapter 3 of the joint TSD, where we also discuss comments received on the proposal and our response to them. Details of the agencies' technology cost assumptions and how they were derived can be found in Chapter 3 of the joint TSD. We did not receive specific comments on our estimated technology direct manufacturing costs.

• Potential opportunity costs of improved fuel economy—This issue addresses the possibility that achieving the fuel economy improvements required by alternative CAFE or GHG standards would require manufacturers to compromise the performance, carrying capacity, safety, or comfort of their vehicle models. If this were the case, 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 will not change as a result of these rules. Section II.C above and Chapter 2 of the joint TSD describe how the agencies carefully selected an attribute-based standard to minimize manufacturers' incentive to reduce vehicle capabilities. While manufacturers may choose to do this for other reasons, the agencies continue to believe that the rules themselves will not result in such changes. Importantly, EPA and NHTSA have sought to include the cost of maintaining these attributes as part of the cost and effectiveness estimates for technologies that are included in the analysis for this final rule. For example, downsized engines are assumed to be turbocharged, so that they provide the same performance and utility even though they are smaller, and the costs of turbocharging and downsizing are included in the agencies' cost estimates. The two instances where the rules might result in loss of vehicle utility, as described in Section III.D.3, III.H.1.b, and Section IV.G, involve cases where vehicles are converted to hybrid or full electric vehicles (EVs) and some buyers may experience a loss of welfare due to the reduced range of driving on a single charge compared to the range of an otherwise similar gasoline vehicle. However, in such cases, we believe that sufficient options would exist for consumers concerned about the possible loss of this utility (e.g., they could purchase the non-hybridized version of the vehicle or not buy an EV) that the agencies do not attribute a welfare loss for these vehicles resulting from the final rules. Though some comments raised concerns over consumer acceptance of EVs, other comments expressed optimism that consumer interest in EVs would be sufficient for the low levels of adoption projected in these rules to be used for compliance with the standards. The agencies maintain their assumption that purchasers of EVs will not incur welfare losses given that they will have sought out vehicles with these properties. Moreover, given the modest levels of EV penetration which the agencies project as a compliance strategy for manufacturers, the agencies likewise do not project any general loss of societal welfare since many other compliance alternatives remain available to manufacturers and thus to vehicle purchasers.

Consumer vehicle choice modeling is a method to understand and predict what vehicles consumers might buy. In principle these models can be used to estimate the effects of these rules on vehicle sales and fleet mix. In practice, though, past analyses using such models have not produced consistent estimates of how buyers might respond to improved fuel economy, and it is difficult to decide whether one data source, model specification, or estimation procedure is clearly preferable over another. Thus, for these final rules, the agencies continue to use forecasts of total industry sales, the share of total sales accounted for by passenger cars, and the market shares of individual models for all years between 2010 and 2025 that do not vary among regulatory alternatives.

The agencies requested comment on how to estimate explicitly the changes in vehicle buyers' choices and welfare from the combination of higher prices for new vehicle models, increases in their fuel economy, and any accompanying changes in vehicle attributes such as performance, passenger- and cargo-carrying capacity, or other dimensions of utility. Some commenters considered vehicle choice models too uncertain for use in this rulemaking, while another requested that we conduct explicit consumer vehicle choice modeling (although without providing a justification as to which models to use or why any particular modeling approach is likely to generate superior estimates). Because the agencies have not yet developed sufficient confidence in their vehicle choice modeling efforts, we believe it is premature to use them in this rulemaking. The agencies have continued to explore the possible use of these models, as discussed in Sections III.H.1.a and IV.G.6, below.

• The on-road fuel economy “gap” — Actual fuel economy levels achieved by light-duty vehicles in on-road driving fall somewhat short of their levels measured under the laboratory test conditions used by EPA to establish compliance with CAFE and GHG standards (and which is mandated by statute for measuring compliance with CAFE passenger car standards) . The modeling approach in this final rule is consistent with the proposal, and also follows the MYs 2012-2016 final rule and the Interim Joint TAR. In calculating benefits of the program, the agencies estimate that actual on-road fuel economy attained by light-duty models that operate on liquid fuels will be 20 percent lower than their fuel economy ratings as measured for purposes of CAFE fuel economy testing. For example, if the measured CAFE fuel economy value of a light truck is 20 mpg, the on-road fuel economy actually achieved by a typical driver of that vehicle is expected to be 16 mpg (20*.80). Based on manufacturer confidential business information, as well as data derived from the 2006 EPA fuel economy label rule, the agencies use a 30 percent gap for consumption of wall electricity for electric vehicles and plug-in hybrid electric vehicles. The U.S. Coalition for Advanced Diesel Cars suggested that the on-road gap used in the proposal was overly conservative at 20%, and that advanced technology vehicles may have on-road gaps that are larger than current vehicles. The agencies recognize the potential for future changes in driver behavior or vehicle technology to change the on-road gap to be either larger or smaller. The agencies continue to use the same estimates of the on-road gap as in the proposed rule for estimating fuel savings and other impacts, and will monitor the EPA fuel economy database as these future model year vehicles enter the fleet.

• Fuel prices and the value of saving fuel— Projected future fuel prices are a critical input into the preliminary economic analysis of alternative standards, because they determine the value of fuel savings both to new vehicle buyers and to society, and fuel savings account for the majority of the rule's estimated benefits. For these rules, the agencies are using the most recent fuel price projections from the U.S. Energy Information Administration's (EIA) Annual Energy Outlook (AEO) 2012 Early Release reference case. The projections of fuel prices reported in EIA's AEO 2012 Early Release extend through 2035. Fuel prices beyond the time frame of AEO's forecast were estimated by applying the average growth rate for the years 2017-2035 for each year after 2035. This is the same general methodology used by the agencies in the analysis for the proposed rule, as well as in the MYs 2012-2016 rulemaking, in the heavy duty truck and engine rule (76 FR 57106), and in the Interim Joint TAR. For example, the AEO 2012 Early Release projections of gasoline fuel prices (in constant 2010$) are $3.63 per gallon in 2017, $3.76 in 2020, and $4.09 in 2035. Extrapolating as described above, retail gasoline prices are projected to reach $4.57 per gallon in 2050 (measured in constant 2010 dollars). Several commenters (Volkwagen, Consumer Federation of America, Environmental Defense Fund, Consumer's Union, National Resources Defense Council, Union of Concerned Scientists) stated that the EIA AEO 2011 future fuel price projections used in the proposal were similar to current prices, and thus were modest, or lower than expected. The agencies note that if a higher fuel prices projection were used, it would increase the value of the fuel savings from the rule, while a lower fuel price projection would decrease the value of the fuel savings from the rule. Another commenter noted the uncertainty projecting automotive fuel prices during this extended time period (National Auto Dealers' Association). As discussed in Chapter 4 of the Joint TSD, while the agencies believe that EIA's AEO reference case generally represents a reasonable forecast of future fuel prices for use in our analysis of the benefits of this rule, we recognize that there is a great deal of uncertainty in future fuel prices. However, given that no commenters offered alternative sources for fuel price projections, and the agencies have found no better source since the NPRM, in this final rulemaking the agencies continue to rely upon EIA projections of future gasoline and diesel prices.
• Consumer cost of ownership and payback period—The agencies provide, in Sections III.H.3 and IV.G.4, estimates of the impacts of these rules on the net costs of owning new vehicles, as well as the time period necessary for the fuel savings to outweigh the expected increase in prices for the new vehicles (i.e., the payback period). These analyses focus specifically on the buyers' perspectives, and therefore take into account the effect of the rule on insurance premiums, sales tax, and finance charges. From a social perspective, these are transfers of money from one group to another, rather than net gains or losses, and thus have no net effect on the net benefits of the rules. For instance, a sales tax is a cost to a vehicle buyer, but the money does not represent economic resources that are consumed; instead, it goes to finance state and local government activities, such as schools or roads. The role of finance charges is to spread payments over time, taking into account the opportunity cost of financing; this is just a reversal of the process of discounting, and thus does not affect the present value of the vehicle cost. Though the net benefits analysis is not affected by these payments, from the buyers' viewpoint, these are additional costs. In the NPRM, EPA included these factors in its payback period analysis and asked for comment on them; no comments were received. The agencies have updated these values for these final rules; the details of the estimation of these factors are found in TSD Chapter 4.2.13. Though the agencies use these common values for their respective cost of ownership and payback period analyses, each agency's estimates for the cost of ownership and the payback period differ due to somewhat different estimates for vehicle cost increases and fuel savings. Some comments encouraged our inclusion of maintenance and repair costs in these calculations and the agencies have responded by including maintenance costs in that analysis of the final rule. The potential effects of the rule on maintenance and repair costs are discussed in Sections III.H.2, IV.C.2, and Chapter 3.6 of the Joint TSD. When a new vehicle is destroyed in an accident, the higher costs of the replacement vehicle are already accounted for in the technology costs of new vehicles sold, since some of these are purchased to replace vehicles destroyed in accidents.

• Vehicle sales assumptions— The first step in estimating lifetime fuel consumption by vehicles produced during a model year is to calculate the number of vehicles that are expected to be produced and sold. The agencies relied on the AEO 2011 and AEO 2012 Early Release Reference Cases for forecasts of total vehicle sales, while the baseline market forecast developed by the agencies (discussed in Section II.B and in Chapter 1 of the TSD) divided total projected sales into sales of cars and light trucks.
• Vehicle lifetimes and survival rates— As in the analysis for the proposed rule (and as in the MYs 2012-2016 final rule and Interim Joint TAR), we apply updated values of age-specific survival rates for cars and light trucks to the adjusted forecasts of passenger car and light truck sales to determine the number of these vehicles expected to remain in use during each year of their lifetimes. Since the proposal, these values were updated using the same methodology with which the original estimates were developed, together with recent vehicle registration data obtained from R.L. Polk. No comments were received on the vehicle lifetime and survival rates in the proposal.
• Vehicle miles traveled (VMT)— We calculated the total number of miles that cars and light trucks produced in each model year will be driven during each year of their lifetimes using estimates of annual vehicle use by age tabulated from the Federal Highway Administration's 2009 National Household Travel Survey (NHTS). In order to insure that the resulting mileage schedules imply reasonable estimates of future growth in total car and light truck use, we calculated the rate of future growth in annual mileage at each age that would be necessary for total car and light truck travel to meet the levels projected in the AEO 2012 Early Release Reference Case. The growth rate in average annual car and light truck use produced by this calculation is approximately 0.6 percent per year, and is applied in the agencies' modeling through 2050. We applied this growth rate to the mileage figures derived from the 2009 NHTS to estimate annual mileage by vehicle age during each year of the expected lifetimes of MY 2017-2025 vehicles. A generally similar approach to estimating future vehicle use was used in the MYs 2012-2016 final rules and Interim Joint TAR, but the future growth rates in average vehicle use have been revised for this rule. No substantive technical comments were received on this approach.

• Accounting for the fuel economy rebound effect— The fuel economy rebound effect refers to the increase in vehicle use (VMT) that results if an increase in fuel economy lowers the cost of driving. The agencies are continuing to use a 10 percent fuel economy rebound effect, consistent with the proposal, in their analyses of fuel savings and other benefits from more stringent standards. This value is also consistent with that used in the MYs 2012-2016 light-duty vehicle rulemaking and the Interim Joint TAR. That is, we assume that a 10 percent decrease in fuel cost per mile resulting from our standards would result in a 1 percent increase in the annual number of miles driven at each age over a vehicle's lifetime. We received comments recommending values both higher and lower than our proposed value of 10 percent for the fuel economy rebound effect, as well as comments maintaining that there were indirect rebound effects for which the agencies should account. The agencies discuss comments on this topic in more detail in sections III.H.4 and IV.C.3 of the preamble. The agencies do not regard any of these comments as providing new data or analysis that justify revising the 10 percent value. In Chapter 4 of the joint TSD, we provide a detailed explanation of the basis for our fuel economy rebound estimate, including a summary of new literature published since the MYs 2012-2016 rulemaking that lends further support to the 10 percent rebound estimate. We also refer the reader to Chapters X and XII of NHTSA's RIA and Chapter 4 of EPA's RIA for sensitivity and uncertainty analyses of alternative fuel economy rebound assumptions.
• Benefits from increased vehicle use— The increase in vehicle use from the rebound effect results from vehicle buyers' decisions to make more frequent trips or travel farther to reach more desirable destinations. This additional travel provides benefits to drivers and their passengers by improving their access to social and economic opportunities away from home. The analysis estimates the economic benefits from increased rebound-effect driving as the sum of the fuel costs they incur during that additional travel, plus the consumer surplus drivers receive from the improved accessibility their travel provides. No comments were received on this particular issue. As in the analysis for the proposed rule (and as in the MYs 2012-2016 final rule) we estimate the economic value of this consumer surplus using the conventional approximation, which is one half of the product of the decline in operating costs per vehicle-mile and the resulting increase in the annual number of miles driven.
• Added costs from congestion, accidents, and noise—Although it provides benefits to drivers as described above, increased vehicle use associated with the fuel economy rebound effect also contributes to increased traffic congestion, motor vehicle accidents, and highway noise. Depending on how the additional travel is distributed over the day and where it takes place, additional vehicle use can contribute to traffic congestion and delays by increasing the number of vehicles using facilities that are already heavily traveled. These added delays impose higher costs on drivers and other vehicle occupants in the form of increased travel time and operating expenses. At the same time, this additional travel also increases costs associated with traffic accidents and vehicle noise. No comments were received on the specific economic assumptions employed in the proposal. The agencies are using the same methodology as used in the analysis for the proposed rule, relying on estimates of congestion, accident, and noise costs imposed by automobiles and light trucks developed by the Federal Highway Administration to estimate these increased external costs caused by added driving. This method is also consistent with the MYs 2012-2016 final rules.

• Petroleum consumption and import externalities— U.S. consumption of imported petroleum products imposes costs on the domestic economy that are not reflected in the market price for crude oil, or in the prices paid by consumers of petroleum products such as gasoline (often referred to as “energy security” costs). These costs include (1) higher prices for petroleum products resulting from the effect of increased U.S. demand for imported oil on the world oil price (the “monopsony effect”); (2) the expected costs associated with the risk of disruptions to the U.S. economy caused by sudden reductions in the supply of imported oil to the U.S. (often referred to as “macroeconomic disruption and adjustment costs”); and (3) expenses for maintaining a U.S. military presence to secure imported oil supplies from unstable regions, and for maintaining the strategic petroleum reserve (SPR) to cushion the U.S. economy against the effects of oil supply disruptions (i.e., “military/SPR costs”). While the agencies received a number of comments regarding these energy security costs, particularly the treatment of military costs, we continue to use the same methodology from the proposal. Further discussion of these comments and the agencies' responses can be found in Sections III.H.8 and IV.3.

• Monopsony Component— The energy security analysis conducted for this rule estimates that the world price of oil will fall modestly in response to lower U.S. demand for refined fuel._271,272 Although the reduction in the global price of crude oil and refined petroleum products due to decreased demand for fuel in the U.S. resulting from this rule represents a benefit to the U.S. economy, it simultaneously represents an economic loss to sellers of crude petroleum and refined products from other countries. Recognizing the redistributive nature of this “monopsony effect” when viewed from a global perspective (which is consistent with the agencies' use of a global estimate for the social cost of carbon to value reductions in CO₂ emissions), the energy security benefits estimated to result from this program exclude the value of this monopsony effect.

• Macroeconomic Disruption Component: In contrast to monopsony costs, the macroeconomic disruption and adjustment costs that arise from sudden reductions in the supply of imported oil to the U.S. do not have offsetting impacts outside of the U.S., so we include the estimated reduction in their expected value stemming from reduced U.S. petroleum imports in our energy security benefits estimated for this program.
• Military and SPR Component: We recognize that there may be significant (if unquantifiable) benefits in improving national security by reducing U.S. oil imports, and public comments supported the agencies inclusion of such benefits. Quantification of military security benefits is challenging because attribution to particular missions or activities is difficult and because it is difficult to anticipate the impact of reduced U.S. oil imports on military spending. The agencies do not have a robust way to calculate these benefits at this time, and thus exclude U.S. military costs from the analysis.

Similarly, since the size of the SPR, or other factors affecting the cost of maintaining the SPR, historically have not varied in response to changes in U.S. oil import levels, we exclude changes in the cost of maintaining the SPR from the estimates of the energy security benefits of the program. The agencies continue to examine appropriate methodologies for estimating the impacts on military and SPR costs as U.S. oil imports are reduced.

To summarize, the agencies have included only the macroeconomic disruption and adjustment costs portion of potential energy security benefits to estimate the monetary value of the total energy security benefits of this program. The energy security premium values in this final rule have been updated since the proposal to reflect the AEO2012 Early Release Reference Case projection of future world oil prices. Otherwise, the methodology for estimating the energy security benefits is consistent with that used in the proposal. Based on an update of an earlier peer-reviewed Oak Ridge National Laboratory study that was used in support of the both the MYs 2012-2016 light duty vehicle and the MYs 2014-2018 medium- and heavy-duty vehicle rulemakings, we estimate that each gallon of fuel saved will reduce the expected macroeconomic disruption and adjustment costs of sudden reductions in the supply of imported oil to the U.S. economy by $0.197 (2010$) in 2025. Each gallon of fuel saved as a consequence of higher standards is anticipated to reduce total U.S. imports of crude oil or refined fuel by 0.95 gallons.

• Air pollutant emissions—
• Impacts on criteria air pollutant emissions— Criteria air pollutants emitted by vehicles, during fuel production and distribution, and during electricity generation include carbon monoxide (CO), hydrocarbon compounds (usually referred to as “volatile organic compounds,” or VOC), nitrogen oxides (NO_X), fine particulate matter (PM_2.5), and sulfur oxides (SO_X). Although reductions in domestic fuel refining and distribution that result from lower fuel consumption will reduce U.S. emissions of these pollutants, additional vehicle use associated with the rebound effect, and additional electricity generation to power PHEVs and EVs will increase emissions. Thus the net effect of more stringent GHG and fuel economy standards on emissions of each criteria pollutant depends on the relative magnitudes of reduced emissions from fuel refining and distribution, and increases in emissions resulting from added vehicle use. The agencies' analysis assumes that the per-mile criteria pollutant emission rates for cars and light trucks produced during the model years affected by the rule will remain constant at the levels resulting from EPA's Tier 2 light duty vehicle emissions standards. The agencies' approach to estimating criteria air pollutant emissions is consistent with the method used in the proposal and in the MYs 2012-2016 final rule (where the agencies received no significant adverse comments), although the agencies employ a more recent version of the EPA's MOVES (Motor Vehicle Emissions Simulator) model, as well as new estimates of the emission rates from electricity generation. No comments were received on the use of the MOVES model. The agencies analyses of emissions from electric power plants are discussed in EPA RIA chapter 4, NHTSA RIA chapter VIII and NHTSA's EIS.
• Economic value of reductions in criteria pollutant emissions—To evaluate benefits from reducing emissions of criteria pollutants over the lifetimes of MY 2017-2025 vehicles, EPA and NHTSA estimate the economic value of the human health impacts associated with reducing population exposure to PM_2.5 using a “dollar-per-ton” method. These PM_2.5-related dollar-per-ton estimates provide the total monetized impacts to human health (the sum of changes in the incidence of premature mortality and morbidity) that result from eliminating or adding one ton of directly emitted PM_2.5, or one ton of PM_2.5 precursor (such as NO_X, SO_X, and VOCs, which are emitted as gases but form PM_2.5 as a result of atmospheric reactions), from a specified source. These unit values remain unchanged from the proposal. Note that the agencies' joint analysis of criteria air pollutant impacts over the model year lifetimes of 2017-2025 vehicles includes no estimates of the direct health or other impacts associated with emissions of criteria pollutants other than PM_2.5 (as distinguished from their indirect effects as precursors to PM_2.5). The agencies did receive comments arguing that the agencies should have included these impacts in their analyses, however, no “dollar-per-ton” method exists for ozone or toxic air pollutants due to complexity associated with atmospheric chemistry (for ozone and toxics) and a lack of economic valuation data and methods (for air toxics).

For the final rule, however, EPA and NHTSA also conducted full scale, photochemical air quality modeling to estimate the change in ambient concentrations of ozone, PM_2.5 and air toxics (i.e., hazardous air pollutants listed in section 112(b) of the Clean Air Act) for the year 2030, and used these results as the basis for estimating the human health impacts and their economic value of the rule in 2030. However, the agencies have not conducted such modeling over the complete life spans of the vehicle model years subject to this rulemaking, due to timing and resource limitations. Section III.H.7 below and Appendix E of NHTSA's Final EIS present these impact estimates.

• Impacts on greenhouse gas (GHG) emissions—NHTSA estimates reductions in emissions of carbon dioxide (CO₂) from passenger car and light truck use by multiplying the estimated reduction in consumption of fuel (gasoline and diesel) by the quantity or mass of CO₂ emissions released per gallon of fuel consumed. EPA directly calculates reductions in total CO₂ emissions from the projected reductions in CO₂ emissions by each vehicle subject to these rules. Both agencies also calculate the impact on CO₂ emissions that occur during fuel production and distribution resulting from lower fuel consumption, as well as the emission impacts due to changes in electricity production. Although CO₂ emissions account for nearly 95 percent of total GHG emissions that result from fuel combustion during vehicle use, emissions of other GHGs are potentially significant as well because of their higher “potency” as GHGs than that of CO₂ itself. EPA and NHTSA therefore also estimate the changes in emissions of non-CO₂ GHGs that occur during fuel production, electricity use, and vehicle use due to their respective standards. The agencies approach to estimating GHG emissions is consistent with the method used at proposal (and in the MYs 2012-2016 final rule and the Interim Joint TAR). No comments were received on the method for calculating impacts on greenhouse gas emissions, although several commenters discussed the emission factors used for electricity generation. These comments are discussed in section III.C and IV.X.

• Economic value of reductions in CO₂emissions— EPA and NHTSA assigned a dollar value to reductions in CO₂ emissions, consistent with the proposal, using recent estimates of the “social cost of carbon” (SCC) developed by a federal interagency group that included representatives from both agencies and reported the results of its work in February 2010. As that group's report observed, “The SCC is an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year. It is intended to include (but is not limited to) changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services due to climate change.” Published estimates of the SCC, as well as those developed by the interagency group, 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. The SCC Technical Support Document (SCC TSD) provides a complete discussion of the methods used by the federal interagency group to develop its SCC estimates. Several commenters expressed support for using SCC to value reductions in CO₂ emissions and provided detailed recommendations directed at improving the estimates. One commenter disagreed with the use of SCC. However, as discussed in III.H.6 and IV.C.3 of the preamble, the SCC estimates were developed using a reasonable set of input assumptions that are supported by published literature. As noted in the SCC TSD, the U.S. government intends to revise these estimates over time, if appropriate, taking into account new research findings that were not available in 2010.

Several commenters also recommended presenting monetized estimates of the benefits of reductions in non-CO₂ GHG emissions (i.e., methane, nitrous oxides, and hydrofluorocarbons) expected to result from the final rule. Although the agencies are not basing their primary analyses on this suggested approach, they have conducted sensitivity analyses of the final rule's monetized non-CO₂ GHG impacts in preamble section III.H.6 and Chapter X of NHTSA's FRIA. Preamble sections III.H.6 and IV.C.3 also provide a more detailed discussion about the response to comments on SCC.

• The value of changes in driving range— By reducing the frequency with which drivers typically refuel their vehicles and by extending the upper limit of the range they can travel before requiring refueling, improving fuel efficiency provides additional benefits to vehicle owners. The primary benefits from reducing the required frequency of refueling are the value of time saved by drivers and other vehicle occupants, as well as the value of the minor savings in fuel that would have been consumed during refueling trips that are no longer required. Using recent data on vehicle owners' refueling patterns gathered from a survey conducted by the National Automotive Sampling System (NASS), NHTSA was able to more accurately estimate the characteristics of refueling trips. NASS data provided NHTSA with the ability to estimate the average time required for a refueling trip, the average time and distance drivers typically travel out of their way to reach fueling stations, the average number of adult vehicle occupants during refueling trips, the average quantity of fuel purchased, and the distribution of reasons given by drivers for refueling. From these estimates, NHTSA constructed a revised set of assumptions to update those used in the MYs 2012-2016 FRM for calculating refueling-related benefits. The MYs 2012-2016 FRM discussed NHTSA's intent to utilize the NASS data on refueling trip characteristics in future rulemakings. While the NASS data improve the precision of the inputs used in the analysis of benefits resulting from less frequent refueling, the framework of the analysis remains essentially the same as in the MYs 2012-2016 final rule. Note that this topic and associated benefits were not covered in the Interim Joint TAR. No comments were received on the refueling analysis presented in the NPRM. Detailed discussion and examples of the agencies' approaches are provided in Chapter VIII of NHTSA's FRIA and Chapter 7 of EPA's RIA.
• 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 future fuel-savings and other benefits—as viewed from today's perspective—for each year they are deferred into the future. In evaluating the non-climate related benefits of the final standards, the agencies have employed discount rates of both 3 percent and 7 percent, consistent with the proposal. One commenter (UCS) agreed with the agencies' use of 3 and 7 percent discount rates, while another (API) stated that the Energy Information Administration (EIA) uses a 15 percent “consumer-relevant discount rate when evaluating the economic cost-effectiveness of new vehicle efficiency technology,” which it noted would affect the agencies' assumptions of benefits if employed. The agencies have continued to employ the 3 and 7 percent discount rate values for the final rule analysis, as discussed further below in section IV.C.3 and in Chapter 4 of the Joint TSD.

For the reader's reference, Table II-19 and Table II-20 below summarize the values used by both agencies to calculate the impacts of the final standards. The values presented in these tables 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 Joint TSD, Chapter 4, and each agency's respective RIA for details.

A wide range of estimates is available for many of the primary inputs that are used in the agencies' CAFE and GHG emissions models. The agencies recognize that each of these values has some degree of uncertainty, which the agencies further discuss in the Joint TSD. The agencies tested the sensitivity of their estimates of costs and benefits to a range of assumptions about each of these inputs, and found that the magnitude of these variations would not have changed the final standards. For example, NHTSA conducted separate sensitivity analyses for, among other things, discount rates, fuel prices, the social cost of carbon, the fuel economy rebound effect, consumers' valuation of fuel economy benefits, battery costs, mass reduction costs, energy security costs, and the indirect cost markup factor. This list is similar in scope to the list that was examined in the proposal, but includes post-warranty repair costs and transmission shift optimizer effectiveness as well. NHTSA's sensitivity analyses are contained in Chapter X of NHTSA's RIA.

Similarly, EPA conducted sensitivity analyses on discount rates, the social cost of carbon, the rebound effect, battery costs, mass reduction costs, the indirect cost markup factor and on the cost learning curves used in this analysis. These analyses are found in Chapters 3, 4, and 7 of the EPA RIA. In addition, NHTSA performed a probabilistic uncertainty analysis examining simultaneous variation in the major model inputs including technology costs, technology benefits, fuel prices, the rebound effect, and military security costs. This information is provided in Chapter XII of NHTSA's RIA.

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

For the MYs 2012-2016 rule, EPA provided an option for manufacturers to generate credits for complying with GHG standards by incorporating efficiency-improving vehicle technologies that would reduce CO₂ and fuel consumption from air conditioning (A/C) operation. EPA also provided another credit generating option for vehicle operation that is not captured by the Federal Test Procedure (FTP) and Highway Fuel Economy Test (HFET), also collectively known as the “two-cycle” test procedure. EPA referred to these credits as “off-cycle credits.” See 76 FR 74937, 74998, 75020.

EPA proposed to continue these credit mechanisms in the MYs 2017-2025 GHG program, and is finalizing these proposals in this notice. EPA also proposed that certain of the A/C credits and the off-cycle credits be included under the CAFE program. See id. and 76 FR 74995-998. For this rule, under EPA's EPCA authority, EPA is allowing manufacturers to generate fuel consumption improvement values for purposes of CAFE compliance based on the use of A/C efficiency and the other off-cycle technologies. These fuel consumption improvement values will not apply to compliance with the CAFE program for MYs 2012-2016. Also, reductions in direct A/C emissions resulting from leakage of HFCs from air conditioning systems, which are generally unrelated to fuel consumption reductions, will not apply to compliance with the CAFE program. Thus, as discussed below, credits for refrigerant leakage emission reductions will continue to apply only to the EPA GHG program.

The agencies expect that, because of the significant credits and fuel consumption improvement values available for improvements to the efficiency of A/C systems (up to 5.0 g/mi for cars and 7.2 g/mi for trucks which is equivalent to a fuel consumption improvement value of 0.000563 gal/mi for cars and 0.000810 gal/mi for trucks), manufacturers will take technological steps to maximize these benefits. Since we project that all manufacturers will adopt these A/C improvements to their maximum extent, EPA has adjusted the stringency of the two-cycle tailpipe CO₂ standards in order to account for this projected widespread penetration of A/C credits (as described more fully in Section III.C), and NHTSA has also accounted for expected A/C efficiency improvements in determining the maximum feasible CAFE standards. The agencies discuss these CO₂ credits and fuel consumption improvement values below and in more detail in Chapter 5 of the Joint TSD. We also discuss below how other (non-A/C) off-cycle improvements in CO₂ and fuel consumption may be eligible to apply towards compliance with the GHG and CAFE standards; however, with two exceptions (for the two-cycle benefits of stop-start and active aerodynamic improvements—technologies which EPA expects manufacturers to adopt widely and whose benefits can be reliably quantified), these off-cycle improvements are not incorporated in the stringency of the standards Finally, EPA discusses in Section III.C below the GHG A/C leakage credits that are exclusive to the GHG standards.

EPA, in coordination with NHTSA, is also introducing for MYs 2017-2025 a new incentive for certain advanced technologies used in full-sized pickup trucks. Under its EPCA authority for CAFE and under its CAA authority for GHGs, EPA is establishing GHG credits and fuel economy improvement values for manufacturers that hybridize a significant quantity of their full size pickup trucks, or that use other technologies that significantly reduce CO₂ emissions and fuel consumption from these full-sized pickup trucks.

We discuss each of these types of credits and incentives, in detail below and throughout Chapter 5 of the Joint TSD. We also discuss and respond to the key comments throughout this section.

1. Air Conditioning Efficiency Credits and Fuel Consumption Improvement Values

After detailed consideration of the comments and other available information, the agencies are finalizing a program of A/C efficiency credits and fuel consumption improvement values. Although the agencies are making some minor changes for the final rule, as described below, we are finalizing the program establishing efficiency credits and fuel consumption improvement values largely in its proposed form. Specifically, efficiency credits will continue to be calculated from a technology “menu” once manufacturers qualify for eligibility to generate A/C efficiency credits through specified A/C CO₂ emissions testing.

The efficiency credits and fuel consumption improvement values in this rule reflect an understanding of the relationships between A/C technologies and CO₂ emissions and fuel consumption that is improved from the MYs 2012-2016 rulemaking. Much of this understanding results from the use of a new vehicle simulation tool that EPA has developed and that the agencies used for the proposal and for this final rulemaking. EPA designed this model to simulate, in an integrated way, the dynamic behavior of the several key systems that affect vehicle efficiency: The engine, electrical, transmission, and vehicle systems. The simulation model is supported by data from a wide range of sources, and no comments were received raising concerns about the model or its use in this rule. Chapter 2 of the EPA Regulatory Impact Analysis discusses the development of this model in more detail.

The agencies have identified several technologies related to improvements in A/C efficiency. Most of these technologies already exist on current vehicles, but manufacturers can improve the energy efficiency of the technology designs and operation. For example, most of the additional air conditioning related load on an engine is due to the compressor, which pumps the refrigerant around the system loop. The less the compressor operates, the less load the compressor places on the engine, resulting in less fuel consumption and CO₂ emissions. Thus, optimizing compressor operation to align with cabin demand by using more sophisticated sensors and control strategies is one path to improving the overall efficiency of the A/C system. See generally section 5.1.3 of Joint TSD Chapter 5.

A broad range of stakeholders submitted general comments expressing support for the overall proposed program for A/C efficiency credits and fuel consumption improvement values as an appropriate method of encouraging efficiency-improving technologies. One commenter, Center for Biological Diversity, stated that “[t]echnology that will be available during the rulemaking period and can be incorporated in an economically feasible manner should be built into the standard and not merely used as an `incentive'.” In fact, all of these A/C improvements (for both indirect and direct A/C improvements) are reflected in the standard stringency. See section II.C.7.b above. Moreover, we have every expectation that manufacturers will use most if not all of these technologies—precisely because of their ready availability and relatively low cost.

Automaker and auto supplier commenters broadly supported the agencies' assessments of likely A/C efficiency-improving technologies and the credit values assigned to them. Several commenters suggested relatively minor changes in these assessments. One commenter, ICCT, suggested an approach that would attempt to vary A/C efficiency credits based on the degree to which other off-cycle improvements—specifically solar load reductions—may have independently reduced the demand for A/C cooling. ICCT's suggestion was to address what the commenter viewed as a potential for `double-counting.' EPA agrees with the observation that A/C efficiency improvements and solar load improvements are related technically. However, we believe that the added complexity of scaling the established credit values for A/C technologies according to solar load improvements would not be warranted, given relatively small change in the overall credit values that would likely result. We are thus finalizing separate treatment of A/C efficiency and other off-cycle improvements, as proposed. (We summarize and discuss comments on A/C efficiency test procedures below.)

As described in Chapter 5.1.3.2 of the Joint TSD, EPA calculated the total eligible A/C efficiency credits from an analysis of the average impact of air conditioning on tailpipe CO₂ emissions. This methodology differs from the one used for the MYs 2012-2016 rule, though it does give similar values. In the MYs 2012-2016 rule, the total impact of A/C on tailpipe emissions was estimated to be 3.9% of total GHG emissions, or approximately 14.3 g/mi. Largely based on an SAE feasibility study, EPA assumed that 40% of those emissions could be reduced through advanced technologies and controls. Thus, EPA calculated a maximum credit of 5.7 g/mi (for both cars and trucks) from efficiency improvements. EPA also assumed that there would be 85% penetration of these technologies when setting the standard, and consequently made the standard more stringent by 5.0 g/mi. For the MYs 2017-2025 proposal, EPA recalculated the A/C tailpipe impact using its vehicle simulation tool. Based on these simulations, it was determined that trucks should have a higher impact than cars, and the total emissions due to A/C was calculated to be 11.9g/mi for cars and 17.1 g/mi for trucks. In the proposal, the feasible level of control was increased slightly from the MYs 2012-2016 final rule to 42% (within the uncertainty bounds of the studies cited). Thus the maximum credit became 5.0 for cars and 7.2 for trucks, and the proposed stringency of the standards reflected these new levels as the penetrations increased from 85% in MY 2016 to 100% in MY 2017 (for car) and 2019 (for truck). Volkswagen commented that the change in split in the maximum car/truck efficiency credit from the previous rule changed the context for their compliance plans for cars. The agencies understand that a slightly lower maximum credit level could have a modest effect on compliance plans. We note that the level of stringency for cars due to A/C has not changed from the value we used for MY 2016, as this was assumed to be 5.0 g/mi in the previous rule as well as in the more recent proposal. We also believe that it is appropriate that the program evolve as our understanding of the inventory of in-use GHG emission inventories improves—as is the case in this instance. Having said this, the levels of the credits did not change significantly for cars and thus should not significantly affect A/C related GHG credit and fuel consumption improvement value calculations. We are therefore, finalizing the 5.0 and 7.2 g/mi maximum credits for cars and trucks respectively as proposed. This represents an improvement in current A/C related CO₂ and fuel consumption of 42% (again, as proposed) and the agencies are using this level of improvement to represent the maximum efficiency credit available to a manufacturer. This degree of improvement is reflected in the stringency of the final standards.

Specific components and control strategies that are available to manufacturers to reduce the air conditioning load on the engine are listed in Table II-21 below and are discussed in more detail in Chapter 5 of the joint TSD.

a. A/C Idle Test

Demonstrating the degree of efficiency improvement that a manufacturer's air conditioning systems achieve—thus quantifying the appropriate GHG credit and CAFE fuel consumption improvement value that the manufacturer is eligible for—would ideally involve a performance test. That is, manufacturers would use a test that would directly measure CO₂ (and thus allow calculation of fuel consumption) before and after the incorporation of the improved technologies. A performance test would be preferable to a predetermined menu value because it could—potentially—provide a more accurate assessment of the efficiency improvements of differently designed A/C systems. Progress toward such a test (or tests) continues. As mentioned in the introduction to this section, the primary vehicle emissions and fuel consumption test, the Federal Test Procedure (FTP) or “two-cycle” test, does not require or simulate air conditioning usage through the test cycle. The existing SC03 test, which is used for developing the fuel economy and environment label values, is designed to identify any effect that the air conditioning system has on other emissions when it is operating under extreme temperature and solar conditions, but that test is not designed to measure the relatively small differences in tailpipe CO₂ due to different A/C efficiency technologies.

At the time of the final rule for the MYs 2012-2016 GHG program, EPA concluded that a practical, performance-based test procedure capable of quantifying efficiency credits was not yet available. Instead, EPA adopted a specialized new procedure for the more limited purpose of demonstrating that the design improvements for which a manufacturer was earning credits produced actual efficiency improvements. That is, passing the test was a precondition to generating A/C efficiency credits, but the test was not used in measuring the amount of those credits. See 76 FR 74938. EPA's test is fairly simple, performed while the vehicle is at idle, and thus named the A/C Idle Test, or just Idle Test. Beginning with the 2014 model year, manufacturers are required to achieve a certain CO₂ level on the Idle Test in order to then be able to use the technology-based lookup table (“menu”) and thus quantify the appropriate number of GHG efficiency credits that the vehicle can generate. See 75 FR 25427-31.

In meetings since the MYs 2012-2016 final rule was published and during the public comment period for this rule, several manufacturers provided data that raise questions about the ability of the Idle Test to completely fulfill its intended purpose. Especially for smaller, lower-powered vehicles, the data show that it can be difficult to achieve a degree of test-to-test repeatability that manufacturers believe is necessary in order to comply with the Idle Test requirement and generate credits. Similarly, manufacturers and others have stated that the Idle Test does not accurately or sufficiently capture the improvements from many of the technologies listed in the menu. While two commenters (Hyundai and Kia) supported retaining the Idle Test for the purpose of generating A/C credits, most commenters strongly opposed any use of the Idle Test. In some cases, although they recommended that EPA abandon the Idle Test, several manufacturers suggested changes to the test if it is to remain as a part of the program. Specifically, these manufacturers supported the EPA proposals to scale the Idle Test results by engine size and to broaden the ambient temperature and humidity specifications for the Idle Test.

EPA noted many of these concerns in the preamble to the proposed rule, and proposed certain changes to the A/C Idle Test as a result. See 76 FR 74938. EPA also notes that the Idle Test was never meant to directly quantify the credits generated and we acknowledge that it is inadequate to that task. The Idle Test was meant simply to set a threshold in order to access the menu to generate credits (and in some cases to adjust the menu values for partial credit). EPA also discussed that it had developed a more rigorous (albeit more complicated and expensive to perform) test—the AC17 test—which includes the SC03 driving cycle, the fuel economy highway cycle, a preconditioning cycle, and a solar peak period. EPA proposed that the AC17 test would be mandatory in MYs 2017 and following model years, but that the AC Idle Test would continue to be used in MYs 2014-2016 (with the AC17 test used as a report-only alternative in those earlier model years). Under the proposal, the AC17 test (unlike the AC Idle Test) would be used in fixing the amount of available credit. Specifically, if the AC17 test result, compared to a baseline AC17 test of a previous model year vehicle without the improved technology, equaled or surpassed the amount of menu credit, the manufacturer would receive the full menu credit amount. If the AC17 test result was less than the menu value, the manufacturer would receive the amount of credit corresponding to the AC17 test result.

Since proposal, EPA has continued to carefully evaluate the concerns and suggestions relating to the Idle Test. The agency recognizes that there are technical shortcomings as well as advantages to this relatively simple and inexpensive test. EPA has concluded that, given that a more sophisticated A/C is now available, the most appropriate course is to maintain the availability of the AC Idle Test through MY 2016, but to also allow manufacturers the option of using the AC17 test to demonstrate that A/C components are indeed functioning effectively. This use of the AC17 test as an alternative to the Idle Test will be allowed, commencing with MY 2014. Thus, for MYs 2014, 2015, and 2016, manufacturers will be able to generate A/C efficiency credits from the technology menu by performing and reporting results from the AC17 test in lieu of passing the Idle Test. During these model years, the level of credit and fuel consumption improvement value manufacturers can generate from the menu will be based on the design of the A/C system. In MYs 2017-2019, eligibility for AC efficiency credits will be determined solely by performing and reporting AC17 test results. During this time, the process for determining the level of credit and fuel consumption improvement value will be the same as during MYs 2014, 2015, and 2016. Finally, starting in MY 2020, AC17 test results will be used both to determine eligibility for AC efficiency credits and to play a role in determining the amount of the credit, as proposed. In order to determine the amount of credit or fuel consumption improvement value after MY 2020, an A to B comparison will be required. The credit and fuel consumption improvement menu will continue to be used. Because of the general technical support for the AC17 test, and in light of several important clarifications and changes that EPA is implementing to minimize the AC17 testing burden on manufacturers, EPA believes that most if not all manufacturers wishing to generate efficiency credits will choose to perform the AC17 test. Specifically, EPA is modifying the proposed AC17 test procedure to reduce the number of vehicles requiring testing, so that many fewer vehicles will need to be tested on the AC17 than on the Idle Test. Further discussion of the AC17 test appears below in this section of the preamble and in Chapter 5.1.3.6 of the Joint TSD.

However, EPA is continuing to allow the Idle Test as a testing option through MY 2016. In addition, EPA is finalizing the modifications that we proposed to the Idle Test, making the threshold for access to the menu a function of engine displacement an option instead of the flat threshold, as well as adjusting the temperature and humidity specifications in the AC Idle Test. We are also finalizing the proposed modification that would allow a partial credit if the Idle Test performance is better than typical performance, based on historic EPA results from Idle Testing. Chapter 5.1.3.5 of the Joint TSD further describes the adjustments that EPA is making to the Idle Test for MYs 2014-2016.

b. AC17 Test

As mentioned above, EPA, working in a joint collaboration with manufacturers (through USCAR) and CARB, has made significant progress in developing a more robust A/C-related emissions test. As noted above, the AC17 test is a four-part performance test, which combines the existing SC03 driving cycle, the fuel economy highway cycle, as well as a pre-conditioning cycle and a solar soak period. As proposed, and as discussed below, EPA will allow manufacturers choosing to generate efficiency credits to report the results of the AC17 test in lieu of the Idle Test requirements for MYs 2014-2016, and will require them to use the AC17 test after MY 2016. Until MY 2019, as for MYs 2014-2016, manufacturers will need to report the results from AC17 testing, but not to achieve a specific CO₂ emissions reduction in order to access the menu. However, beginning with MY 2020, they will need to compare the test results to those of a baseline vehicle to demonstrate a measureable improvement in A/C CO₂ emissions and fuel consumption as a precondition to generating AC efficiency credits from the A/C credit and fuel consumption improvement menu; in the event that the improvement is less than the menu value, the amount of credit would be determined by the AC17 test result.

EPA is making several technical and programmatic changes to the proposed AC17 test to minimize the number of vehicles that manufacturers will need to test, and to further streamline each test in order to minimize the testing burden. Since the appropriateness of the AC17 test for actually quantifying absolute A/C efficiency improvements (as opposed to demonstrating a relative improvement) is still being evaluated, manufacturers wishing to generate A/C efficiency credits will continue to use the technology menu to quantify the amount of CO₂ credits and fuel consumption improvement values for compliance with the GHG and CAFE programs. A number of commenters, including the Alliance, Ford, The Global Automakers, and others suggested that further work with the industry on the test should occur before implementing its use. However, we believe that the general robustness of the test, combined with the technical and programmatic improvements that EPA is incorporating in this final rule (as discussed below), and the de facto phase-in of the test in MYs 2014-2016 as well as MYs 2017-2019, support our decision to implement the test.

i. AC17 Technical Issues

Commenters universally agreed that in most technical respects the AC17 test represents an improvement over the Idle Test. A few commenters suggested specific technical changes, which EPA has considered. Several auto industry commenters suggested that the proposed temperature and humidity tolerances of the test cell conditions may result in voided tests, due to the difficulty they see in maintaining these conditions throughout a 4-hour test interval. However, as discussed in more detail in Chapter 5 of the joint TSD, we are allowing manufacturers to utilize a 30-second moving average for the test chamber temperature; we have concluded that these tolerances are achievable with this revision, and that widening these tolerances would negatively affect the accuracy and repeatability of the test. As a result, we are finalizing the tolerances as originally proposed. Also, one commenter (Enhanced Protective Glass Automotive Association or EPGAA) suggested that for manual A/C systems, the A/C temperature control settings for the test be based on actual cabin temperatures rather than on the duration of lapsed time of the test, as proposed. EPA does not disagree in theory with the purpose of such a change—to attempt to better align the control requirements for a manual A/C system with those for an automatic system. However, the effect on test results of the slightly different control requirements is not large, and we believe that it would be impractical for the technician/driver to monitor cabin temperature and adjust the system accordingly during the test. We are therefore finalizing the automatic and manual A/C system control requirements as proposed.

In several cases, commenters suggested other technical changes to the AC17 test that EPA agrees will make performance of the test more efficient, with no appreciable effect on test accuracy. The relatively minor technical changes that we are finalizing include provisions relating to: the points during the test when cell solar lamps are turned on; establishing a specification for test cell wind speed; and a simplification of the placement requirements for ambient temperature sensors in the passenger cabin. See joint TSD section 5.1.3.5 explaining these changes more fully.

Overall, EPA has concluded that the AC17 test as proposed, with the improvements described above, is a technically robust method for demonstrating differences in A/C system efficiency as manufacturers progressively apply new efficiency-improving technologies.

ii. AC17 Program Issues

Beyond technical issues related to the AC17 test itself, many commenters expressed concerns about several related program issues—i.e., how the agency proposed to use the test as a part of determining eligibility for A/C efficiency credits. First, many manufacturers and their trade associations stated that some characteristics of the AC17 test unnecessarily add to the burden on manufacturers of performing each individual test. For example, the roughly 4-hour duration of the AC17 test limits the number of tests that can be performed in a given facility over a period of time. Also, the test requires the use of relatively costly SC03 test chambers, and manufacturers say that they have, or have access to, only a limited number of these chambers.

Most of these concerns, however, are direct results of necessary design characteristics of the test. Specifically, the impacts on vehicle efficiency of improved A/C technologies are relatively small compared to total vehicle CO₂ emissions and fuel consumption. Similarly, the relative contributions of various A/C-related components, systems, and controls can be difficult to isolate from one another. For these reasons, the joint government and industry collaborators designed the test to accurately and repeatably measure small differences in the efficiency of the entire vehicle related to A/C operation. The result has been that the AC17 test takes a fairly long time to perform (about 4 hours) and requires the special climate-controlled capability of an SC03 chamber, as well as relatively tight test parameters.

As discussed above, EPA believes that the AC17 represents a major step toward the eventual goal of performance-based testing that could be used to directly quantify the very significant A/C efficiency credits and fuel consumption improvement values that are available to eligible manufacturers under this program. In this context, EPA believes that the characteristics of the AC17 test identified by the manufacturers in their comments generally tend to be inherent aspects needed for a robust test, and in most respects we are finalizing the requirements for the use of the AC17 as proposed.

In addition to concerns about the effort required to perform each AC17 test, manufacturers also commented on what they understood as a requirement to run an unreasonable number of tests in order to qualify for efficiency credits and improvement values. On the other hand, ICCT commented that they believe that given the frequent changes in A/C technology, one or two tests per year for a manufacturer is too few, and that “each significantly changed model should be tested.” In response to these concerns, EPA has taken several steps in this final rule to clarify how a manufacturer will be able to use the AC17 to demonstrate the effectiveness of its different A/C systems and technologies while minimizing the number of tests that it will need to perform. In general, EPA believes that it is appropriate to limit the number of vehicles a manufacturer must test in any given model year to no more than one vehicle from each platform that generates credits (and CAFE improvement values) during each model year. For the purpose of the AC17 test and generating efficiency credits, EPA will use a definition for “platform” that allows a manufacturer to include several generally similar vehicle models in a single “platform” and to generate credits (or improvement values) for all of the vehicles with that platform based on a limited number of AC17 tests, as described below. This definition is slightly modified from the proposed definition, primarily by making clear that manufacturers need not necessarily associate vehicles that have different powertrains with different platforms for A/C credit purposes. The modified definition follows:

“Platform” means a segment of an automobile manufacturer's vehicle fleet in which the vehicles have a degree of commonality in construction (primarily in terms of body and chassis design). Platform does not consider the model name, brand, marketing division, or level of decor or opulence, and is not generally distinguished by such characteristics as powertrain, roof line, or number of doors, seats, or windows. A platform may include vehicles from various fuel economy classes, including both light-duty vehicles and light-duty trucks/medium-duty passenger vehicles.

At the same time, EPA believes that if only a limited number of vehicles in a platform are to be tested on the AC17 in any given model year, it is important that vehicles in that platform with substantially different air conditioning designs be included in that testing over time. Thus, manufacturers with vehicles in a platform that are generating credits will need to choose a different vehicle model each year for AC17 testing. Testing will begin with the model that is expected to have highest sales. In the following model year, the manufacturer will choose the model in that platform representing the next-highest expected sales not already tested, and so on. This process will continue either until all vehicles in that platform that are generating credits have been tested (in which case the previous test data can be carried over) or until the platform experiences a major redesign (at which point the AC17 testing process will start over.) We believe that by clarifying the definition of “platform” and more clearly limiting testing to one test per platform per year, we have addressed the manufacturers' concerns about unreasonable test burdens.

Finally, in order to further minimize the number of tests that will be required for A/C efficiency credit purposes, instead of requiring replicate testing in all cases, EPA will allow a manufacturer to submit data from as few as one AC17 test for each instance in which testing is required. A manufacturer concerned about the variability of its testing program may at its option choose to perform additional replicate tests and use of the AC17 test in MYs 2014-2016 is for reporting only) because the data from these initial years will form the basis on which future credits are measured as described below, and a more robust confirmation of test-to-test consistency may be in their interest.

As mentioned above, for MYs 2019 and earlier (including optional AC17 testing prior to MY 2017), AC17 testing will only require reporting of results (and system characteristics) for manufacturers to be eligible to generate credits and improvement values from the technology menu. Beginning in MY 2020, manufacturers will also need to use AC17 testing to demonstrate that the A/C efficiency-improving technologies or systems on which the desired credits are based are indeed reducing CO₂ emissions and fuel consumption. EPA proposed to have the manufacturer identify an appropriate comparison “baseline” vehicle that did not incorporate the new technology, and generate CO₂ emissions data on both vehicles. The manufacturer would be eligible for credits and fuel consumption improvement values to the extent that the test results showed an improvement over the earlier version of the vehicle without the improved technology. If the test result with the new technology demonstrated an emission reduction that is greater than or equal to the menu-based credit potential of those technologies, the manufacturer would generate the appropriate credit based on the menu. However, if the test result did not demonstrate the full menu-based potential of the technology, partial credit could still be earned, in proportion to how far away the result was from the expected menu-based credit amount.

In their comments, auto manufacturers raised concerns about the potential difficulty of identifying and testing an acceptable baseline vehicle. EPA has considered these comments, and continues to believe that identifying and testing a baseline vehicle will not be overly burdensome in most cases. However, we agree that establishing an appropriate baseline vehicle can be difficult in some cases, including when the manufacturer has made major technological improvements to the vehicle, beyond the A/C technology improvements in question. Some manufacturers recommended that because of this difficulty and the other issues discussed above, the AC17 test should only be used in a “research” role to validate credit values on the credit menu, rather than in a regulatory compliance role. However, EPA believes that with the adjustments in its use described below, the AC17 can appropriately serve as a part of the GHG and CAFE compliance programs. One such adjustment is to allow the manufacturer to compare vehicles from different “generations” of design (i.e., from earlier major design cycles), which expands the universe of potentially appropriate comparative baseline vehicles. Further, if cases arise where no appropriate baseline comparison vehicles are available, manufacturers will instead be able to submit an engineering analysis that describes why a comparison to a baseline vehicle is neither available nor appropriate, and also justifies the generating of credits and improvement values, in lieu of a baseline vehicle test result. EPA would evaluate these submissions as part of the vehicle certification process. EPA discusses such an engineering analysis in Chapter 5 (Section 5.5.2.8) of the Joint TSD. Other than these adjustments, this final rule adopts the AC17 testing of certification vehicles and comparative baseline vehicles beginning in MY 2020, as proposed. Thus, starting in MY 2020, the AC17 test will be used not only to establish eligibility for generating credits, but will also play a role in determining the amount of the credit.

EPA discusses the revised AC17 test in more detail in Chapter 5 (section 5.1.3.8) of the joint TSD, including a graphical flow-chart designed to illustrate how the AC17 test will be used at various points during the implementation of the GHG (and from MY 2017 on, CAFE) programs.

c. Technology “Menu” for Quantifying A/C Efficiency Credits and Fuel Consumption Improvement Values

EPA believes that more testing and development will be necessary before the AC17 test could be used to measure absolute CO₂ and fuel consumption performance with sufficient accuracy to completely replace the technology menu as the method for quantifying efficiency credits and fuel consumption improvement values. As EPA did in the MYs 2012-2016 rule, the agencies have used a design-based “menu” approach for the actual quantification of efficiency credits (upon which fuel consumption improvement values are also based) for this final rule. The menu established today is very similar to that of the earlier rule, both in terms of the technologies included in the lookup table and the effectiveness values assigned to each technology. As in the earlier rule, the agencies assign an appropriate amount of CO₂ credit to each efficiency-improving air conditioning technology that the manufacturer incorporates into a vehicle model. The sum of these values for all of the technologies used on a vehicle will be the amount of CO₂ credit generated by that vehicle, up to a maximum of 5.0 g/mi for cars and 7.2 g/mi for trucks. As stated above, these maximum values are equivalent to fuel consumption improvement values of 0.000563 gallons/mi for cars and 0.000810 gallons/mi for trucks. (If amendments to the menu values are made in the future, EPA will consult with NHTSA on the amount of fuel consumption improvement value manufacturers may factor into their CAFE calculations.)

Several comments addressed the technology menu and its use. The Alliance of Automobile Manufacturers said that they believe that projected A/C CO₂ emissions—and thus the maximum potential reductions against which credits can be generated—are actually higher than EPA had projected. We have reassessed this issue since the MYs 2012-2017 rulemaking, including the question of how much time vehicles spend in a “compressor on” mode, and on balance we continue to believe that our projected A/C CO₂ emissions values—and thus the potential credits from the technology menu—are appropriate. We discuss the development of the maximum efficiency credit values in more detail in Chapter 5 (section 5.5.2.1) of the Joint TSD.

Honeywell recognized that a performance-based test procedure for quantifying credits is not yet available, but asked EPA to be open to using such a test if one is developed. EPA agrees, and we are making clear that the off-cycle technology provisions discussed in the next section can be applied to A/C technologies if all criteria are met. We will also continue to monitor the quality of A/C efficiency testing procedures as they develop and consider specific revisions to the AC17 as appropriate. Finally, ICCT proposed accounting for any efficiency impact of alternative refrigerants in quantifying efficiency credits. However, because the effect on efficiency of the most likely future alternative refrigerant, HFO-1234yf, is only minimal when the A/C system design is optimized for its use, we are finalizing the technology menu with no adjustments for the use of alternative refrigerants. Here too, however, EPA will monitor the development and use of alternative refrigerants and any data on their impact on A/C efficiency, and consider adjustments in the future as appropriate.

Table II-21 presents the A/C efficiency credits and estimated CAFE fuel consumption improvement values being finalized in this rule for each of the efficiency-improving air conditioning technologies. We provide more detail on the agencies' development of the A/C efficiency credits and CAFE fuel consumption improvement values in Chapter 5 of the Joint TSD. In addition, that Chapter 5 presents very specific definitions of each of the technologies in the table below, definitions intended to ensure that the A/C technologies used by manufacturers correspond with the technologies we used to derive the credits and fuel consumption improvement values.

For the CAFE program, EPA will determine fleet average fuel consumption improvement values in a manner consistent with the way fleet average CO₂ credits will be determined. EPA will convert the metric tons of CO₂ credits for air conditioning (as well as for other off-cycle technologies and for full size pick-up trucks) into fleet-wide fuel consumption improvement values, consistent with the way EPA would convert the improvements in CO₂ performance to metric tons of credits. Section III.C discusses this methodology in more detail. There will be separate improvement values for each type of credit, calculated separately for cars and for trucks. These improvement values are subtracted from the manufacturer's two-cycle-based fleet fuel consumption value to yield a final new fleet fuel consumption value, which would be inverted to determine a final fleet fuel CAFE value.

2. Off-Cycle CO₂ Credits

Although EPA employs a five-cycle test methodology to evaluate fuel economy for fuel economy labeling purposes, EPA uses the established two-cycle (city, highway or correspondingly FTP, HFET) test methodology for GHG and CAFE compliance. EPA recognizes that there are technologies that provide real-world GHG benefits to consumers, but that the benefit of some of these technologies is not represented on the two-cycle test. For MYs 2012-2016, EPA provided an option for manufacturers to generate adjustments (credits) for employing new and innovative technologies that achieve CO₂ reductions which are not reflected on current 2-cycle test procedures if, after application to EPA, EPA determined that the credits were technically appropriate.

During meetings with vehicle manufacturers prior to the proposal of the MY 2017-2025 standards, manufacturers raised concerns that the approval process in the MYs 2012-2016 rule for generating off-cycle credits was complicated and did not provide sufficient certainty on the amount of credits that might be approved. Commenters also maintained that it is impractical to measure small incremental improvements on top of a large tailpipe measurement, similar to comments received related to quantifying air conditioner efficiency improvements. These same manufacturers believed that such a process could stifle innovation and fuel efficient technologies from penetrating into the vehicle fleet.

In the MYs 2017-2025 proposal, EPA, in coordination with NHTSA, proposed to extend the off-cycle credit program to MY 2017 and later, and to apply the off-cycle credits and equivalent fuel consumption improvement values to both the CAFE and GHG programs. The proposal to extend the off-cycle credits program to CAFE was a change from the MYs 2012-2016 final rule where EPA provided the off-cycle credits only for the GHG program. In addition, in response to the concerns noted above, EPA proposed to substantially streamline the off-cycle credit program process by establishing means of obtaining credits without having to prove case-by-case that such credits are justified. Specifically, EPA proposed a menu with a number of technologies that the agency believed would show real-world CO₂ and fuel consumption benefits not measured, or not fully measured, by the two-cycle test procedures, which benefits could be reasonably quantified by the agencies at this time. For each of the preapproved technologies in the menu, EPA proposed a quantified default value that would be available without additional testing. Manufacturers would thus have to demonstrate that they were in fact using the menu technology but would not have to do testing to quantify the technology's effects unless they wished to receive a credit larger than the default value. This list is conceptually similar to the menu-driven approach just described for A/C efficiency credits.

The proposed default values for these off-cycle credits were largely determined from research, analysis, and simulations, rather than from full vehicle testing, which would have been both cost and time prohibitive. EPA believed that these predefined estimates were somewhat conservative to avoid the potential for windfall credits. If manufacturers believe their specific off-cycle technology achieves larger improvement, they could apply for greater credits and fuel consumption improvement values with supporting data using the case-by-case demonstration approach. For technologies not listed on the menu, EPA proposed to continue the case-by-case demonstration approach from the MYs 2012-2016 rule but with important modifications to streamline the decision-making process. Comments to the proposal (addressed at the end of this preamble section) were largely supportive. In the final rule, EPA is continuing the off-cycle credit program established in the MYs 2012-2016 rule (but with some significant procedural changes), as proposed. EPA is also finalizing a list of pre-approved technologies and credit values. The pre-defined list, with credit values and CAFE fuel consumption improvement values, is shown in Table II-21 below. Fuel consumption improvement values under the CAFE program based on off-cycle technology would be equivalent to the off-cycle credit allowed by EPA under the GHG program, and these amounts would be determined using the same procedures and test methods for use in EPA's GHG program, as proposed.

In the NPRM, EPA proposed capping the amount of credits a manufacturer may generate using the defined technology list to 10 g/mile per year on a combined car and truck fleet-wide average basis. EPA also proposed to require minimum penetration rates for several of the listed technologies as a condition for generating credit from the list as a way to further encourage their significant adoption by MY 2017 and later. Based on comments and consideration on the amount of data that are available, we are finalizing the cap of 10 g/mile per year on a combined car and truck fleet-wide average basis. The fleetwide cap is being finalized because the default credit values are based on limited data, and also because EPA recognizes that some uncertainty is introduced when credits are provided based on a general assessment of off-cycle performance as opposed to testing on the individual vehicle models. However, we are not finalizing the minimum penetration rates applicable to certain technologies, primarily based the agencies' agreement with commenters stating that penetration caps might stifle the introduction of fuel economy and GHG improving technologies particularly in cases where manufacturers would normally introduce the technologies because manufacturing capacities are limited or low initial volume reduces risk if consumer acceptance is uncertain. Allowing credits for lower production volumes may encourage manufacturers to introduce more off-cycle technologies and then over several years increase production volumes thereby bringing more of these technologies into the mainstream. These program details are discussed in further in Section III.C.5.b.i.

For the final rule analysis, the agencies have developed estimates for the cost and effectiveness of two off-cycle technologies, active aerodynamics and stop-start. The agencies assumed that these two technologies are available to manufacturers for compliance with the standards, similar to all of the other fuel economy improving technologies that the analysis assumes are available. EPA and NHTSA's modeling and other final rule analyses use the 2-cycle effectiveness values for these technologies and include the additional off-cycle adjustment that reflects the real world effectiveness of the technologies. Therefore, NHTSA has included the assessment of these two off-cycle technologies in the assessment of maximum feasible standards for this final rulemaking. Including these technologies that are on the pre-defined menu recognizes that these technologies have a higher degree of effectiveness in the real-world than reflected in 2-cycle testing. EPA likewise considered the 2-cycle benefits of these technologies in determining the stringency of the final standards. The agencies note that they did not consider the availability of other off-cycle technologies in their modeling analyses for the proposal or for the final rule. There are two reasons for this. First, the agencies have virtually no data on the cost, development time necessary, manufacturability, etc. of these other technologies. The agencies thus cannot project the degree of emissions reduction and fuel economy improvements properly attributable to these technologies within the MYs 2017-2025 timeframe. Second, the agencies have no data on what the penetration rates for these technologies would be during the rule timeframe, even assuming their feasibility. See 76 FR 74944 (agencies need information on “effectiveness, cost, and availability” before considering inclusion of off-cycle technology benefits in determining the standards).

This section provides an overview of the pre-defined technology list being finalized and the key comments the agencies received regarding the technologies on the list and the proposed credit values. Provisions regarding how the pre-defined list fits into the overall off-cycle credit program are discussed in section III.C.5, including the MY 2014 start date for using the list, the 10 g/mile credit cap for the list, and the proposed penetration thresholds for listed technologies. In addition, a detailed discussion of the comments the agencies received regarding the technical details of individual technologies and how the credit values were derived is provided in Chapter 5 of the joint TSD.

In the proposal, the agencies requested comments on all aspects of the off-cycle credit menu technologies and derivations. EPA and NHTSA received many comments and, in addition, several stakeholders including Denso, Enhanced Protective Glass Automotive Association (EPGAA), ICCT and Honda, requested meetings and met with the agencies. Overall, there was general support for the menu based approach and the technologies included in the proposed list, but there were also suggestions to re-evaluate the definition of some of the technologies included in the menu, the calculation and/or test methods for determining the credits values, and recommendations to periodically re-evaluate the menu as technologies emerge or become pervasive.

For most of the listed technologies, the agencies proposed single fixed credit values and for other technologies a step-function (e.g., x amount of credit for y amount of reduction or savings). The agencies received comments requesting a scalable calculation method for some technologies rather than the proposed fixed value or step-function approach. Some commenters requested that the credits for active aerodynamics, high efficiency exterior lighting, waste heat recovery (proposed as “engine heat recovery” but revised based on comments to the proposal) and solar panels (proposed as “solar roof panels” but also revised based on comments) be scalable (variable based on system capability) rather than an “all-or-nothing” single value approach proposed. The agencies agree with the commenters and are allowing scaling of these credits. In some cases, this created issues with the simplified methodology for determining the default values used for the proposal. Therefore, the proposed methodology required revision in order to calculate the default values for the technologies with scalable credits. The revised calculation methodology for each scalable technology is discussed in detail in Chapter 5 of the TSD. Notably, the calculation method for the solar panel credit has been changed, to provide scalability of the credit and a better estimate the benefits of solar panels for HEVs, PHEVs, and EVs.

Although we are allowing scaling of the credits, we are not accepting a request or granting credit for any level of credit less than 0.05 g/mi CO₂. We are requiring reporting CO₂ values to the nearest tenth and, therefore, anything below 0.05 g/mi of CO₂ would be rounded down to zero. Therefore, for any credit requested as part of the off-cycle credit program (e.g., scalable or fixed; via the pre-defined technology list or alternate method approval process), only credit values equal to 0.05 g/mi or greater will be accepted and approved.

In addition to supporting the off-cycle credit program in the MYs 2017-2025 program, comments received from the National Resources Defense Council (NRDC) and ICCT urged the agencies to ensure that off-cycle credits are verifiable via actual testing or reflect real-world in-use data from a statistically representative fleet. These comments also expressed concern that some of the proposed menu technologies would not achieve appreciably greater reductions than measured over the 2-cycle tests, that the off-cycle credit process had not fully assured that there would be component and/or system durability and had not accounted for in-use degradation. These commenters' ultimate concern is that the off-cycle credit flexibility could create windfall credits or avoid cost-effective 2-cycle improvements.

The agencies believe that the off-cycle credit program, as proposed and finalized, legitimately accounts for real-world emission reductions and fuel consumption improvements not measured, or not fully measured, under the two-cycle test methodologies. The off-cycle technologies on the defined list have been assessed by the agencies using the best available data and information at the time of this action to appropriately assign default credit values. The agencies conducted extensive reviews of the proposed credit values and technologies and, based on comments (such as those from ICCT) and analysis, did adjust some credit values and technology descriptions. In addition, the comments from the Alliance of Automobile Manufacturers provided data that aligned with and supported some of the estimated credit default values (discussed in greater detail in Chapter 5 of the joint TSD). As with the proposal and further refinement in these final rules, the agencies have structured the off-cycle credit program extension for MYs 2017-2025 to employ conservative calculation methodologies and estimates for the credit values on the defined technology list. In addition, the agencies will continue, as proposed, to apply a 10 g/mi cap to the total amount of available off-cycle credits to help address issues of uncertainty and potential windfalls. Based on review of the technologies and credits provided for those technologies, the cap balances the goal of providing a streamlined pathway for the introduction of off-cycle technologies while controlling potential environmental risk from the uncertainty inherent with the estimated level of credits being provided. Manufacturers would need to use several listed technologies across a very large portion of their fleet before they would reach the cap. Based on manufacturer comments regarding the proposed sales thresholds, discussed below, the agencies are not anticipating widespread adoption of these technologies, at least not in the early years of the program. Also, the cap is not an absolute limitation because manufacturers have the option of submitting data and applying for credits which would not be subject to the 10 g/mile credit limit as discussed in III.C.5. Therefore, we are confident in the underlying analysis and default values for the identified off-cycle credit technologies, and are finalizing the defined list of off-cycle credit technologies, and associated default values, with minimal changes in this final rule as discussed below.

For off-cycle technologies not on the pre-defined technology list, or to obtain a credit greater than the default value for a menu pre-defined technology, a manufacturer would be required to demonstrate the benefits of the technology via 5-cycle testing or via an alternate methodology that would be subject to a public review and comment process. Further, a manufacturer must certify the in-use durability of the technology for the full useful life of the vehicle for any technologies submitted for off-cycle credit application to ensure enforceability of the credits granted.

The agencies proposed an additive approach where manufacturers could add the credit values for all of the listed technologies employed on a vehicle model (up to the 10 g/mile cap, as discussed in III.C.5). The agencies received comments from ICCT recommending a multiplicative approach where the credit values for each technology on the list is determined by taking the total amount of available credits for off-cycle technologies and distributing it based on each technology's percent contribution to the overall off-cycle benefit (e.g., percent benefit of technology A, B, * * * n × total available credit equals the off-cycle credit for technology A, B, * * * n).

EPA understands ICCT's recommendation, as this is similar how to the calculation methods employed in the EPA Lumped Parameter Model combine the effectiveness of some technologies when the interaction of differing technologies does not yield the combined absolute fuel consumption improvement for each technology, but rather the actual effectiveness is a fractional value of each technology's effectiveness (often described as “synergies”). The agencies carefully evaluated these comments and, as stated previously, held a meeting with ICCT at their request to discuss the comments fully. Overall, the agencies believe the recommended multiplicative approach is inherently difficult since the fractional contribution of each technology to the overall off-cycle benefit must be determined, and then the combined synergistic effectiveness would also require accurate and robust determination. This would require extensive iterative testing to determine the synergistic affects for every possible combination of off-cycle technology included on each vehicle. In addition, this would be highly dependent on the base design of the vehicle and, therefore, would need to be determined for each unique vehicle content combination.

The agencies agree there may be synergistic (or non-synergistic) affects, but believe the combination of employing conservative credit value estimates and a 10 g/mi cap to the total amount of available off-cycle credits will achieve nearly the same overall effect of limiting the additive effect of multiple off-cycle technologies to a vehicle. Therefore, we are finalizing the calculation approach as defined in this final rule.

As discussed above, the agencies are allowing scaling of the credit values in lieu of fixed values based on the comments received for the following technologies on the menu: high efficiency exterior lighting, waste heat recovery, solar panels and active aerodynamics. In the case of waste heat recovery and active aerodynamics, this did not change the numerical credit values we proposed. For waste heat recovery, 0.7 g/mi CO₂ per 100 watts serves as the basis for scaling the credit. For active aerodynamics, we used the value of 0.6 g/mi for cars and 1.0 g/mi for trucks based on a 3% aerodynamic drag improvement from the table of values in the NPRM TSD. The comments simply asked to use this entire range of values rather than just using the credit values corresponding to 3% aerodynamic drag improvement. These scaling factors were calculated using both the Ricardo simulation results (described in Chapter 3 of the TSD) and the EPA full vehicle simulation tool (described in Chapter 2 of the EPA's RIA).

In contrast, for high efficiency exterior lighting and solar panels, this required a revision in the methodology to allow for proper scaling. For high efficiency exterior lighting, the comments also requested credit allowance for high efficiency lighting on individual lighting elements rather than on all lighting elements. In the NPRM, our methodology assumed a package approach where each lighting element was weighted based on contribution to the overall electrical load savings, and then this was scaled by our base load reduction estimate for 5-cycle testing (e.g., 3.2 g/mile per 100 watts saved; see TSD 5.2.2). Using this package approach, it is difficult to de-couple the grams per mile CO₂ contribution of individual lighting elements. Therefore, we revised our approach by accounting for the gram per mile CO₂ credit for each individual high efficiency lighting element separately.

The agencies are finalizing the pre-defined technology list for off-cycle credits fundamentally as proposed with the exception of six technologies, primarily in response to the comments received: engine idle start-stop, electric heater circulation pump, high efficiency exterior lighting, solar panels, and active transmission and active engine warm-up.

First, the pre-defined credit values for engine idle start-stop are revised in response to comments questioning some vehicle operation and VMT assumptions and some methods for calculating the pre-defined credit values. More details on these changes can be found in Chapter 5 of the Joint TSD.

Second, the proposed stand-alone credit for an electric heater circulation pump is incorporated into the pre-defined credit for engine stop-start, thus aligning with the integrated nature of these two technologies. As the agencies re-evaluated the pre-defined credit values for engine idle start-stop, we recognized that a substantive amount of the off-cycle benefit attributed to engine stop-start would not be achievable in cold temperature conditions (e.g., temperatures below 40 deg F) without a technology that performs a similar function to the electric heater circulation pump as defined in the NPRM. The agencies believe that a mechanism allowing heat transfer to continue, even after the engine has shut-off, is necessary in order to maintain basic comfort in the cabin especially in colder ambient temperatures. This could occur, for example, when a vehicle is stopped at a multiple lane intersection controlling high traffic volumes. This technology can be an electric heater circulation pump, or some other cabin heat exchanger. Without this technology, the engine would need to continue operating and, therefore, circulating warm engine coolant through the HVAC system to continue providing heat to the cabin. Therefore, two credit values are being finalized for stop-start systems: a higher value (similar to the credits proposed) for systems with an electric heater circulation pump and a lesser value for stop-start systems without a pump or heat transfer mechanism.

Third, the agencies have revised the proposed pre-defined credit values for high-efficiency exterior lighting after evaluation of the numerous industry data provided via comments. The fundamental impetus for the revisions resulted from the research study cited as a basis for many pre-defined values as described in Chapter 5 of the TSD. When reviewing the additional data, the agencies concluded the initially referenced research study (Schoettle, et al. ) provided current draw values for high-efficiency low beam lighting that were too high when compared to traditional incandescent lighting, resulting in a reduced projected benefit. Data from the automakers showed a much lower power demand for high-efficiency low beam lighting and, consequently, a much larger benefit than projected in the draft TSD. Therefore, the agencies increased the overall amount of credit for high-efficiency exterior lighting on the menu to reflect the additional analysis based on the data received via comment.

Fourth, as discussed above, the need for scaling the credit value resulted in a new methodology for solar panels, and, consequently, adjusted credit values. For the NPRM, we assumed a fixed solar panel power output and scaled this according to our base load estimate (e.g., 3.2 g/mile per 100 watts saved; see TSD 5.2.2). However, the rated solar panel power output depends on several factors including the size and efficiency of the panel, and the energy that the panel is able to capture and convert to useful power. Therefore, these factors need to be considered when scaling, and our new methodology takes these factors into account. The agencies also accounted for the possibility of combining solar panels for both energy storage and active ventilation in the scaling algorithm.

Finally, we discuss active transmission and active engine warm-up together (although they are listed separately) since the methodology for them is the same. Chrysler commented that there should be separate car and truck credits for active transmission and active engine warm-up, as formulated for other advanced load reduction technologies (e.g., engine idle start-stop, electric heater circulation pump). In the NPRM, we used the credit value corresponding to a mid-size car to arrive at 1.8 g/mi. After considering these comments, we re-analyzed (using the Ricardo data) the credit values for active transmission and active engine warm-up using expanded vehicle classes on a sales-weighted basis. As a result, there was a clear disparity between the credit values for active transmission and active engine warm-up on cars and trucks. Accordingly, we now have separate car (1.5 g/mi) and truck (3.2 g/mi) active transmission and active engine warm-up credits.

There were no other changes to the off-cycle credit defined technology list other than the expansion or clarification of definitions for certain technologies as discussed in Chapter 5 of the TSD. Many commenters advocated for the inclusion of additional technologies on the off-cycle credit defined technology list. Some commenters suggested that technologies should be added such as high efficiency alternators (Alliance, Denso, VW, Porsche, Ford), electric cooling fans (Bosch), HVAC eco-modes, transmission cooler bypass valves (Ford), navigation systems (Garmin), separate credits for congestion mitigation/crash avoidance systems (Daimler), engine block heaters (Honda), and an “integral” approach utilizing a combination of technologies (Global Automakers).

Some commenters were opposed to adding any technologies to the menu (CBD) and others suggested some of the proposed values should be re-evaluated (ICCT) or that the values should be based on real test data, not simulation modeling (NRDC).

After reviewing and considering the comments, in general, we did not see evidence at this time to add any of these technologies to the pre-defined technology list. In many cases, there are no consistent, established methods or supporting data to determine the appropriate level of credit. Consequently, there is no reasonable basis or verifiable method for the agencies to substantiate or refute the performance claims used to support a request for pre-assigned, default credit values for such technologies, particularly for systems requiring driver intervention or action.

Therefore, we are not adding any of these technologies we were asked to consider to the pre-defined technology list. In the case of crash avoidance technologies, we are prohibiting off-cycle credits for these technologies under any circumstances. In the case of the other technologies for consideration, we are allowing manufacturers to use the alternate demonstration methods for technologies not on the pre-defined technology list menu as discussed in Section III.C. (see “Demonstration not based on 5-cycle testing”) to request credit. We respond below to the comments urging the agencies to add further technologies to the pre-defined list. Additional responses are found in TSD Chapter 5 and Section 7 of EPA's Response to Comment Document.

In addition, there were substantial comments regarding allowing credits for glazing. Specifically, the comments expressed concerns about incentivizing the use of metallic glazing which may impact signals emanating from within the passenger compartment and the desire for a separate credit for polycarbonate (PC) glazing. This is discussed below as well.

a. High Efficiency Alternators

Several commenters from the automobile industry associations, individual manufacturers, and suppliers urged the agencies to include high efficiency alternators on the off-cycle defined technology list.

The Alliance of Automobile Manufacturers stated that the test cycles are performed with the accessories off but that “actual real world driving has average higher loads due to accessory use.” They cited GM testing comparing three different alternators on four vehicles with efficiencies ranging from 61% to 70% using the Verband der Automobilindustrie (VDA; the trade association representing German automobile manufacturers) test procedure that demonstrated a savings of 1.0 grams per mile CO₂ on average for an alternator with an efficiency of 68% VDA. Volkswagen and Porsche supported the comments from the Alliance of Automobile Manufacturers, however Porsche felt that a default credit of 1.6 grams per mile CO₂ was possible based on their independent analysis. The Global Automakers echoed the comments above regarding real-world versus test cycle accessory usage but did not supply supporting data.

Two suppliers, Bosch and Denso, also supported adding high efficiency alternators to the defined technology list. Bosch cited testing on a General Motors 2.4 liter 4 cylinder gasoline engine with an increased alternator efficiency from 65%, the level of efficiency assumed in the NPRM, to 75% showed the potential for an increase of 0.7% in fuel economy by increasing alternator efficiency by 10%. Bosch also stated that increases in efficiency up to 82% are possible using existing and new technologies. Denso used performed a similar analysis by simulating an increase in alternator efficiency of 10% (65% to 75%). Using our NPRM values for CO₂ emissions reductions of 3.0 grams per mile CO₂ on the 2-cycle and 3.7 grams per mile CO₂ on the 5-cycle tests, they calculated a potential credit of 2.8 grams per mile CO₂.

In response, we agree that high efficiency alternators have the potential to reduce electrical load, resulting in lower fuel consumption and CO₂ emissions. However, the problem with including this technology on the defined technology list is assigning an appropriate default credit value due to the lack of supporting data across a range of vehicle categories and range of implementation strategies.

First, we appreciate commenters submitting data but we would need to have similar data from the range of available vehicle categories. With the exception of the data from the Alliance of Automobile Manufacturers that included a Cadillac SRX with, most recently, a 3.6 liter V6 engine, most of the data is from smaller displacement vehicles. Therefore, the range of data would need to be expanded to the mid-size and large car, and large truck to even begin to develop a default credit value.

Second, similar to high efficiency exterior lighting, the type of and number of electrical accessories on the vehicle may cause significant variability in the base electrical load and, consequently, the level of reduction and associated benefit of high efficiency alternator technology. However, unlike high efficiency exterior lighting with a limited amount of components, the vehicle components and accessories that affect high efficiency alternator load are seemingly unlimited. As the information from Denso suggests, there are some typical standard components but the list of standard versus optional components changes depending on manufacturer, nameplate and trim level (e.g., optional accessories on a lower trim level vehicle may be standard on a upper/luxury trim level vehicle). This makes it difficult to develop a default value given this level of variability.

Third, high efficiency alternators present the opportunity for manufacturers to add vehicle content that does not contribute to reducing fuel consumption or CO₂ emissions. Due to the extra electrical capacity resulting from using the high efficiency alternator, other content (e.g., seat heaters/coolers, cup holder cooler/warmers, higher amplification sound system) can be added that may increase consumer value, however, that consumer value is unrelated to reducing fuel consumption or CO₂ emissions. This potential for electrical load “backsliding” can counteract the benefits of a high efficiency alternator, and can also potentially affect mass reduction depending on the mass of the added content.

A good example of a beneficial use of additional electrical load is the synergy between solar panels and active cabin ventilation. The solar panel can be used to power active cabin ventilation system motors but the amount of power produced by the panel may exceed the motor power requirements. Moreover, the active cabin ventilation system is only effective for the hot/sunny summer portion of the year. Rather than directing this excess power to other non-fuel consumption related content (or wasting it), we are incentivizing manufacturers to use this excess power for battery charging to drive the wheels, and thus displace fuel and CO₂ emissions.

However, unlike a solar panel, the high efficiency alternator supplies power to many vehicle features, and the EPA does not wish to directly regulate the electrical usage on vehicles in order to prevent “load backsliding”. This load backsliding could convert a fuel efficient technology into one that is detrimental to CO₂ emissions reductions and fuel economy improvements. Because of this uncertainty the agencies are not adding high efficiency alternators to the defined technology list. However, manufacturers may request credits for high-efficiency alternators using the case-by-case procedures for technologies not on the defined technology list. There are two general issues, at a minimum, which a manufacturer would need to consider and address in such a request. First, the manufacturer would need to consider the level of alternator efficiency improvement. As stated by the Alliance of Automobile Manufacturers, current alternator efficiencies are in the range of “60% to 64%, with high efficiency models having ratings above 68% VDA.” Therefore, any request for high efficiency alternator credit should significantly exceed current alternator technology efficiency. The 68% VDA number stated by the Alliance of Automobile Manufacturers seems to be an appropriate starting point given current technology although EPA would make a specific determination as to the amount of needed improvement when evaluating a specific off-cycle credit application, and so is not making any final determination here. Second, manufacturers should ensure proper accounting of vehicle components and accessories and associated loads. A good example of this is Table 1 in the comments from Denso that identifies the content loads and their occurrence on the 2-cycle test versus real world. The manufacturer may need to perform this type of comparison on an annual basis so that there is a clear assessment of load content adjustments over time to minimize electrical load “backsliding” (i.e., adding more content due to the availability of additional load capacity) as discussed above.

b. Transmission Oil Cooler Bypass Valve

The transmission oil cooler is used on vehicles to cool the transmission fluid under heavy loads, especially by large trucks during towing or large payload operations. As stated by the Alliance, one of the drawbacks is that this system operates continuously even under conditions where faster warm-up, such as cold conditions, would be beneficial. Therefore, the Alliance comments suggested that we add bypass valves for transmission oil coolers to the pre-defined technology list since “a bypass valve for the transmission oil cooler allows the oil flow to be controlled to provide maximum fuel economy under a wide variety of operating conditions.” They suggested a credit of 0.3 g/mi CO₂ based on General Motors (GM) engineering development and that this credit could be additive with active transmission warm up strategy.

The reason we are not including this technology on the pre-defined technology list is lack of available data and multiple methodologies for implementation that make determining an appropriate credit value difficult. As stated by the Alliance, “bypass valves are not currently commonly used with transmission oil coolers.” As a result, there is very limited data on the performance of such systems other than the engineering data cited by the Alliance. Also, the bypass valve could be implemented passively (e.g., viscosity based), actively (e.g., valve controllers based on temperature or viscosity), or by some other smart design. Consequently, depending on the implementation method, the credit value may not correspond effectively to the level of performance.

However, this technology can be demonstrated using 5-cycle or alternate demonstration methods. Therefore, we recommend that manufacturers seeking credit for this technology separately or in conjunction with active transmission warm-up credits explore this approach.

c. Electronic Thermostat

Porsche stated in their comments that there is “potential GHG benefit for electronic thermostat * * * in configurations which do not include an electric water pump.” In lieu of a traditional mechanical water pump, an electric water pump facilitates engine coolant flow without the penalty of using an energy-sapping belt driven system. However, for systems that use a mechanical water pump, an electronic thermostat could be used in lieu of an electric water pump to optimally control the flow of coolant (e.g., close off coolant flow to the radiator when the engine is cold). Porsche requested that the agencies allow credit for this technology irrespective of the other cooling system specifics (e.g., mechanical or electric water pump).

This technology is not on the pre-defined technology list, nor does this appear to be the intent of Porsche's comments. As such, the electronic thermostat can be demonstrated using 5-cycle or alternate demonstration methods. Therefore, we agree with Porsche and, if a benefit for the electronic thermostat regardless of the type of water pump used can be demonstrated, the electronic thermostat would be eligible under the procedures for evaluating technologies not on the pre-defined technology list.

d. Other Vehicle Relays

Honda requested that we consider allowing credit for other electrical relays on the vehicle such as those used for power windows, wiper motors, power tailgate, defroster, and seat heaters. However, Honda states that they are unsure of how to measure the impact suggesting that lifetime usage data might be a basis to support the credit granted.

In response, we feel that granting credits for other vehicle relays is best considered using the demonstration methods for evaluating technologies not on the predefined technology list.

The confounding issue, as Honda points out in their comments, is how to quantify the benefit and, further, how to directly relate this benefit to fuel consumption savings. The complexity of identifying single and multiple relay impact is a daunting task and must be considered when pursuing this path. Further, the use of lifetime usage data only captures activity but does not couple this activity with a gram-per-mile CO₂ benefit, thus falling short of demonstrating direct savings. Therefore, although the granting of credit is possible, these issues, and any others, would need to be addressed before credit is granted for other vehicle relays.

e. Brushless Motor Technology for Engine Cooling Fans

The comments from Bosch advocated for adding brushless motor technology for engine cooling fans to the pre-defined technology list. In their comments, Bosch stated that the current baseline technology is series-parallel brushed motors requiring 149 watts to operate. By switching to a brushless engine cooling fan motor, the wattage requirement is reduced to 68 watts for a savings of 87 watts, according to Bosch. Bosch reduced this number further to 81.2 watts since they considered a range of series-parallel brushed motors with varying wattage values. Based on this savings and Bosch's assumption that reducing electrical load by 30 watts saves 0.1 mile per gallon, Bosch projected a fuel savings of 0.27 miles per gallon. Using our load reduction assumption of reducing 100 watts saves 0.7 gram per mile of CO₂, this equates to a credit of 0.56 gram per mile of CO₂.

After consideration of Bosch's comments and the data provided showing potential benefits, it is not clear from the data provided if this would be the actual benefit once this technology is implemented. Absent real-world vehicle data, it is difficult to determine what the baseline and, consequently, the resulting benefit would be. In addition, it is likely that some or all of the benefit of brushless motor technology for engine cooling fans is captured on the 2-cycle test procedures.

Consequently, we are not adding brushless motor technology for engine cooling fans to the pre-defined technology list due to insufficient data on real-world, power requirements, activity profiles, and test data demonstrating the 2-cycle versus 5-cycle benefits. These factors prevent us from determining a default credit value necessary for addition to the off-cycle technology menu. A manufacturer that believes its engine cooling fan brushless motor merits credit can request it using the demonstration methods for technologies not on the predefined technology list.

f. Integral Fuel Saving Technologies and Advanced Combustion Concepts

The Global Automakers and Ford Motor Company encouraged the agencies to consider granting credit for integral fuel saving technologies and advanced combustion concepts (e.g., camless engines, variable compression ratio engines, micro air/hydraulic launch assist devices, advanced transmissions) using demonstration methods for technologies that are not on the predefined technology list. Both parties took issue with our statements in the NPRM Preamble (see 76 FR 75024):

“EPA proposes that technologies integral or inherent to the basic vehicle design including engine, transmission, mass reduction, passive aerodynamic design, and base tires would not be eligible for credits. EPA believes that it would be difficult to clearly establish an appropriate A/B test (with and without technologies) for technologies so integral to the basic vehicle design. EPA proposes to limit the off-cycle program to technologies that can be clearly identified as add-on technologies conducive to A/B testing.”

These commenters urged EPA to allow demonstration of benefits using some alternative testing or analytical method, or to provide an opportunity to perform some type of demonstration, for integral fuel saving technologies and advance combustion concepts.

In response, since these methods are integral to basic vehicle design, there are fundamental issues as to whether they would ever warrant off-cycle credits. Being integral, there is no need to provide an incentive for their use, and (more important), these technologies would be incorporated regardless. Granting credits would be a windfall. As we stated in the NPRM Preamble (see 76 FR 75024), these technologies are included in the base vehicle design to meet the standard and it is consequently inappropriate for these types of technologies to receive off-cycle credits. EPA (in coordination with NHTSA) will continue to track the progress of these technologies and attempt to collect data on their effectiveness and use.

g. Congestion Avoidance Devices, Other Interactive, Driver-Based Technologies and Driver-Selectable Features

As mentioned above, many commenters advocated for the inclusion of additional technologies on the off-cycle credit defined technology list such as congestion avoidance, interactive/driver-based technologies, which provide information to the driver that the driver may use to alter his/her driving route or technique, and driver-selectable technologies, which cause the vehicle to operate in a different manner.

Daimler commented that the agencies should provide “congestion mitigation credits based on crash avoidance technologies,” because crash avoidance technologies can potentially reduce traffic congestion associated with motor vehicle collisions and thus, “similar to off-cycle technologies,” provide “significant CO₂ and fuel consumption benefits.” Daimler argued that doing so was within both agencies' authority, referring to the authority under which the agencies had proposed off-cycle credits. Daimler provided a menu of suggested congestion reduction credit values of 1.0 g/CO₂ per mile for its “Primary Longitudinal Assistance Package” (comprised of forward collision warning plus adaptive brake assist) and an additional 0.5 g/CO₂ per mile for its “Advanced Longitudinal Assistance Package” (the primary package plus autonomous emergency braking and adaptive cruise control), based on calculations using figures from its own analysis of the effectiveness of these technologies and from a German insurance institute, along with values for other congestion mitigation technologies such as driver attention monitoring and adaptive forward lighting.

In addition to requesting that the agencies create a new category of credits, the comment further addressed means of evaluating and approving applications for such credits. Daimler suggested that NHTSA require manufacturers to submit data “specific to [their] product offerings showing that [their] technology is effective in reducing vehicle collisions,” and that “NHTSA may approve the application and determine the amount of the credit” and determine whether the technology is “robust and effective in terms of crash avoidance and the consequent fuel savings.” Daimler suggested that NHTSA's review process for such information could be considerably less stringent than that for “regulation to mandate new technology and/or to link technology directly to fatalities or injuries,” because fatalities and injuries would not be at issue for congestion mitigation credits. Instead, Daimler stated that “technologies [should be] appropriate if they can reasonably be shown to avoid accidents, and thereby reduce congestion and its associated fuel consumption and CO₂ emissions.”

The agencies agree that there is a clear nexus between congestion mitigation and fuel/CO₂ savings for the entire on-road fleet. It is less clear, however, whether there is a calculable relationship between congestion mitigation and fuel/CO₂ savings directly attributable to individual vehicles produced by a manufacturer, or even to a manufacturer's fleet of vehicles. Daimler argued that emissions of 6.0 gCO₂/mi could be averted if all accidents were avoided. However, even assuming such a result were achievable, Daimler agreed that attributing those fuel consumption/CO₂ benefits from reduced traffic congestion to specific individual technologies on specific vehicles would be difficult.

NHTSA has extensive familiarity with the safety technologies usually associated with crash avoidance, having required some (most notably, electronic stability control) as standard equipment on all newly manufactured light vehicles, and being deeply engaged in research on others, including the braking technologies mentioned in Daimler's comment. When NHTSA's research indicates sufficient maturity of a crash avoidance technology, the agency may either promote its use through its New Car Assessment Program (NCAP) or mandate its use by issuing a Federal Motor Vehicle Safety Standard (FMVSS) requiring the technology on all or some categories of new vehicles.

Under the NCAP program, NHTSA tests new vehicles to determine how well they protect drivers and passengers during a crash, and how well they resist rollovers. These vehicles are then rated using a 5-star safety rating system. Five stars indicate the highest safety rating; one star, the lowest. In addition, NHTSA began in model year 2011 identifying on its Web site, www.SaferCar.gov, new vehicles equipped with any of three recommended advanced crash avoidance technologies that meet the agency's established requirements. These technologies, Electronic Stability Control, Forward Collision Warning, and Lane Departure Warning, can help drivers avoid crashes.

Additional technologies may be added to the NCAP list of crash avoidance technologies when there is sufficient information and analysis to confirm their safety value. NHTSA, for example, is carefully analyzing advanced braking systems of the type discussed in Daimler's comments and could decide in the near future that they are ripe for inclusion in NCAP. Alternatively, NHTSA may conclude that such technologies are sufficiently developed, their safety benefits sufficiently clear, and relevant test procedures sufficiently defined that they should be the subject of a mandatory safety standard. NHTSA could not render a determination on such a request without thoroughly testing the technology as applied in that specific model and developing a specialized benefits analysis. The agency's higher priority would clearly have to be analyzing the technologies it found to offer great safety promise on a broader basis and developing standardized tests for those technologies. Therefore the agencies believe that evaluation of crash avoidance technologies is better addressed under NHTSA's vehicle safety authority than under a case-by-case off-cycle credit process.

Furthermore, the A/C efficiency, off-cycle, and pickup truck credit provisions being finalized by the agencies are premised on the installation of specific technologies that directly reduce the fuel consumption and CO₂ emissions of the specific vehicles in which they are installed. For all of these credits, the amount of GHG emission reduction and fuel economy improvement attributable to the technology being credited can be reliably determined, and those improvements can be directly attributed to the improved fuel economy performance of the vehicle on which the technology is installed. Thus, for a technology to be “counted” under the credit provisions, it must make direct improvements to the performance of the specific vehicle to which it is applied. The agencies have never considered indirect improvements for the fleet as a whole, and did not discuss that possibility in the proposal. The agencies believe that there is a very significant distinction between technologies providing direct and reliably quantifiable improvements to fuel economy and GHG emission reductions, and technologies which provide those improvements by indirect means, where the improvement is not reliably quantifiable, and may be speculative (or in many instances, non-existent), or may provide benefit to other vehicles on the road more than for themselves. As the agencies have reiterated, and many commenters have likewise maintained, credits should be available only for technologies providing real-world improvements, the improvements must be verifiable, and the process by which credits are granted and implemented must be transparent.

None of these factors would be satisfied for credits for these types of indirect technologies used for crash avoidance systems, safety-critical systems, or other technologies that may reduce the frequency of vehicle crashes. The agencies are consequently not providing off-cycle credits potentially attributable to crash avoidance systems, safety-critical systems, or technologies that may reduce the frequency of vehicle crashes. . Therefore, the agencies are not providing off-cycle credits for technologies and systems including, but not limited to, Electronic Stability Control, Tire Pressure Monitoring System, Forward Collision Warning, Lane Departure Warning and/or Intervention, Collision Imminent Braking, Dynamic Brake Support, Adaptive Lighting, Blind Spot Detection, Adaptive Cruise Control, Curve Speed Warning, Fatigue Warning, systems that reduce driver distraction, and any other technologies that may reduce the likelihood of crashes.

Thus, manufacturers will not receive credits or fuel economy improvement adjustments for installing these technologies. If a manufacturer has an off-cycle technology that is not included on this list and brings it to the agencies for assessment, NHTSA will determine whether it is ineligible for a credit or adjustment by reason of the agency's judgment that it is related to crash avoidance systems, is related to motor vehicle safety within the meaning of the National Traffic and Motor Vehicle Safety act, as amended, or may otherwise reduce the possibility and or frequency of vehicle crashes.

The agencies believe that the advancement of crash avoidance systems specifically is best left to NHTSA's exercise of its vehicle safety authority. NHTSA looks forward to working with manufacturers and other interested parties on creating opportunities to encourage the general introduction of these technologies in the context of the NCAP program and possible safety standards. To that end, the agency would welcome relevant data and analysis from interested parties.

The agencies also received comments related to other technologies that may reduce CO₂ emissions and fuel consumption by reducing traffic congestion or that provide information to the driver with which the driver may change his or her driving technique or the route driven (more direct route or traffic avoidance ). All commenters addressing these issues acknowledged the difficulty of quantifying benefits associated with congestion mitigation and driver-selectable technologies. Commenters generally noted that the off-cycle credit provisions in the MYs 2012-2016 GHG rule, and the off-cycle credit provisions proposed in this rulemaking did not appear to cover technologies such as in-dash GPS navigation systems, driver coaching and feedback systems (such as “eco modes”), vehicle maintenance alerts and reminders, and “other automatic and driver-initiated location content-based technologies that have been shown to reduce fuel consumption.” These commenters requested the opportunity to work with the agencies at developing such procedures. With regard to EPA's request for comment on whether the regulatory text should clarify how EPA treats driver-selectable modes, the Alliance stated that it believed there was no need to clarify regulatory text, but that EPA should simply update or refine informal guidance as necessary to address issues as they develop. MEMA stated that there was “precedent for providing CAFE credits based on a projected usage factor of a fuel saving device,” citing EPA letters regarding the impact of a shift indicator light on fuel economy.

At proposal, EPA addressed the possibility of evaluating applications for off-cycle credits for technologies involving driver interaction, indicating that “driver interactive technologies face the highest demonstration hurdle because manufacturers would need to provide actual real-world usage data on driver response rates.” 76 FR 75025. The agencies still believe it to be highly unlikely that off-cycle credits could be justified for these non-safety technologies. This issue is addressed in detail in section III.C.5.ii below. These technologies do not improve the fuel efficiency of the vehicle under any given operating condition, but rather provide information the driver may use to change the driving cycle over which the vehicle overrates which, in turn, may improve the real-world fuel economy (miles driven per gallon consumed)/CO₂ emissions (per mile driven) compared to what the fuel economy and CO₂ emissions per mile would have been had the driver not used the information or if the technology was not on the vehicle. The agencies believe, for example, there would be a number of specific challenges to quantifying the effect on fuel economy and CO₂ emissions per mile driven of GPS/real time traffic navigation systems. First, given that the systems available today are available through subscription services, the manufacturer would need to prove that the vehicle operators will pay for such a service for the useful life of the vehicle or the manufacturer would have to provide the service at no cost to vehicle operators over the useful life of the vehicle. Second, there would need to be an extensive data collection program to show that drivers were using the system and that they were taking alternate routes that actually improved fuel economy. It would be necessary to determine the level of fuel economy improvement as well as to show evidence that this level of improvement would be expected to be achieved by vehicle operators over the useful life of the vehicle. In addition, it would be necessary to show the sampling is representative, the effects are statistically significant, and the results are reproducible. Third, the real time traffic information must be proven to be accurate and assurances provided that the level of accuracy would be maintained over the useful life of the vehicle. Inaccurate information might lead to poorer fuel economy. Fourth, anecdotal information indicates that navigations systems are most often used to direct the driver using the shortest temporal path. The agencies believe that only rarely would a driver choose the route that achieves the highest fuel economy over one that takes the least time—especially if the time savings would be significant. In addition, other factors may need to be demonstrated, such as the effect of these technologies in differing geographical regions with various road and traffic patterns and the effect of these technologies during different parts of the day (e.g., rush hour vs. mid-day). It is for these reasons that the agencies believe that meeting the burden of proof for these class of technologies will be extremely difficult. Other “driver interactive” off-cycle technologies will present similar challenges. These may include, but are not limited to, in-dash GPS navigation systems, driver coaching and feedback systems such as “eco modes,” fuel economy performance displays and indicators, or haptic devices such as, for example, throttle pedal feedback systems, vehicle maintenance alerts and reminders, and other automatic or driver-initiated location content-based technologies that may improve fuel economy.

Finally, the agencies requested comments on the treatment of driver selectable technologies as stated in 76 FR 75089: “EPA is requesting comments on whether there is a need to clarify in the regulations how EPA treats driver selectable modes (such as multi-mode transmissions and other user-selectable buttons or switches) that may impact fuel economy and GHG emissions.” If we did not receive comments to the contrary, we also stated that “EPA would apply the same approach to testing for compliance with the in-use CO₂ standard, so testing for the CO₂ fleet average and testing for compliance with the in-use CO₂ standard would be consistent.”

The current EPA policy on select-shift transmissions (SSTs) and multimode transmissions (MMT), and shift indicator lights (SILs) is under Manufacturer Guidance Letter CISD-09-19 (December 3, 2009) and supersedes several previous letters on both of these topics. For, SSTs and MMTs, the manufacturer must determine the predominant mode (e.g., 75% of the drivers will have at least 90% of vehicle shift operation performed in one mode, and, on average, 75% of vehicle shift operation is performed in that mode), using default criteria in the guidance letter or a driver survey. If the worst-case mode is determined to be the predominant mode, the manufacturer must test in this mode and use the results with no benefit from the driver-selectable technology reflected in the fuel economy values. If the best-case mode is determined to be the predominant mode, the manufacturer may test in this mode and use the results with the full benefit of the driver-selectable technology reflected in the fuel economy values. If the predominant mode is not discernible, the manufacturer must test in all modes and harmonically average the results (Note: in most cases, there are only two modes so this becomes a 50/50 average between best- and worst-case modes). Based on the EPA decision process under CISD-09-19, both the label and CAFE/GHG could reflect 0, 50, or 100% of the benefit of a driver-selectable device. However, when calculating CAFE, only the 2-cycle test results (e.g., Federal Test Procedure (FTP) and Highway Fuel Economy test (HWFET)) are used. Thus, the higher fuel economy results would only affect the 2-cycle testing values for CAFE purposes. For SILs, the manufacturer must perform an instrumented vehicle survey on a prototype vehicle to determine the appropriate shift schedule to optimize fuel economy. Previous guidance for SILs contained the option for A-B testing with and without the SIL. This has been eliminated in the latest guidance, allowing only an instrumented vehicle survey as the basis for determining SIL related fuel economy improvements. However, for purposes of determining CAFE compliance reporting values, the 2-cycle test results (e.g., Federal Test Procedure (FTP) and Highway Fuel Economy test (HWFET)) are used to align statutory provisions allowing for these two test cycles when determining program compliance. Therefore, only fuel economy improvement values identified on during the FTP and HWFET test cycles would be applicable to the CAFE program.

In response to EPA's request for comment on whether the regulatory text should clarify how EPA treats driver-selectable modes, the Alliance stated that it believed there was no need to clarify regulatory text, but that EPA should simply update or refine informal guidance as necessary to address issues as they develop. MEMA stated that there was “precedent for providing CAFE credits based on a projected usage factor of a fuel saving device,” citing EPA letters regarding the impact of a shift indicator light on fuel economy. Finally, the Alliance provided data from General Motors on their HVAC Eco-Mode button based on On-Star data from in-use vehicles (n=3,500; 50.3% of the drivers use the system 90% of the time or greater, 57.4% use it 50% of the time or greater, and 34% never use it). Based on the data supplied, they anticipate a benefit of 1.8 g/mi and, with 50% of the people using the HVAC Eco-Mode, a credit of 0.9 g/mi is warranted (i.e., 1.8 × 0.5).

On the comments from the Alliance that there is no need to clarify regulatory text and the informal guidance should be updated or refined as necessary, we agree that the current regulations and the latest guidance letter, CISD-09-19, appropriately supersedes previous guidance letters and addresses select-shift transmissions (SSTs) and multimode transmissions, and shift indicator lights (SILs). Therefore, we will not attempt to clarify the regulatory text and we will continue to update our guidance as necessary.

Regarding the comment from MEMA that there is “precedent for providing CAFE credits based on a projected usage factor of a fuel saving device,” citing EPA letters regarding the impact of a shift indicator light on fuel economy, the manufacturer guidance letters referenced by MEMA (CD-82-10 (LD) and CD-83-10(LD)) have been superseded by CISD-09-19. Thus, the procedures in CISD-09-19 would be the applicable guidance for comparison. As previously mentioned, CISD-09-19 requires the manufacturer to 1) determine the potential benefit of a driver selectable feature and 2) discern the predominant mode in-use. This process is very similar and consistent with the process we proposed for demonstrating technologies not on the defined technology list. Therefore, we agree with MEMA that there is a precedent within our current policy to consider the influence of driver-selectable features on test cycle results.

For the comments from the Alliance on the HVAC Eco-Mode , as discussed above, the existing policy in CISD-09-19 requires using instrumented vehicle survey data to determine the predominant mode and test the vehicle in this mode to determine the fuel economy benefits. This is very similar to the process we are using for alternate method demonstrations under the off-cycle credit program. Therefore, this further supports our previous assertion for addressing driver-selectable technologies under our alternate method demonstration process.

However, we want to emphasize that although we acknowledge the similarities between the procedures under the existing policy in CISD-09-19 and the procedures used in the off-cycle program, our discussion of driver-selectable devices is completely limited to their potential impact on off-cycle credits. The procedures used to conduct FTP and HFET testing for the purpose of determining CAFE and GHG values for a model type are not at issue here. Following our request for comments on how we handle these devices when testing on the FTP and HFET, comments suggested no changes to existing guidance are needed. We agree and will continue to handle these devices on a case-by-case basis consistent with the existing policy in CISD-09-19. In addition, the existing guidance and FTP/HFET testing policy in CISD-09-19 is not applicable in the context of the off-cycle program since driver-selectable technologies will always require the need for estimates of real-world customer usage to receive off-cycle credit. Therefore, in summary we believe that there is a precedent set by the existing policy in CISD-09-19 to determine a usage in-use but that the existing policy in CISD-09-19 has no bearing on the credit determinations in the off-cycle program, and the converse (i.e., the off-cycle credit program affecting existing policy in CISD-09-19). Specifically, the section entitled “Alternative Methods for Determination of Usage Rates” in CISD-09-19 that allows an instrumented vehicle survey or on-board data collection are most consistent with the procedures for the off-cycle program as discussed in III.C.5.iii. and 40 CFR § 86.1869-12(c).

In the context of the off-cycle program, the test values applicable to a vehicle's fuel economy label value are mostly independent from those generated for the CAFE compliance; where the 2-cycle results for compliance and the combination of all 5-cycle test results are used for the fuel economy label. However, as indicated with other technologies included in the finalized pre-defined technology menu, fuel economy improvements are reflected in the 2-cycle test result values used for CAFE compliance revealing the need to account for the improved 2-cycle test results when considering off-cycle credits for driver-selectable technologies. Therefore, if a manufacturer is requesting off-cycle credit but has previously used the improved fuel economy test results under the existing policy in CISD-09-19 for a driver-selectable technology, the manufacturer must use the 2-cycle results determined under CISD-09-19 for both the A and B values of the FTP and HWFET A-B tests to determine the potential benefit of the driver selectable technology when requesting off-cycle credit. This approach effectively negates the 2-cycle results and benefits, and which is consistent with the treatment for the other off-cycle technologies where credit is not granted for improvements reflected on current 2-cycle test procedures.

Accordingly, we are allowing driver-selectable technologies to be eligible for credit in the off-cycle credit program using procedures and processes demonstrating technologies not on the defined technology list using alternative methods and the public process. Under these provisions, the manufacturer must determine the benefit of the driver-selectable technology using approved methodologies and a usage factor for the technology using an instrumented vehicle survey, and applying this factor to the measured benefit to estimate and request credit. As discussed above, if a manufacturer has previously received some fuel economy improvement as a result of the decision process under CISD-09-19, the manufacturer must use the 2-cycle results from that decision process as the A and B values for the 2-cycle A-B tests to estimate the off-cycle credit. Consequently, if a manufacturer uses 5-cycle testing to demonstrate the benefit of a driver selectable technology, the manufacturer must use the previously determined 2-cycle test values for the FTP and HWFET A-B tests, which effectively only captures the benefit from the remaining three cycles of 5-cycle testing (i.e., US06, SC03, Cold FTP). The usage factor would then be applied to these 5-cycle results (or any other approved methodology for non-5-cycle test methodologies). For driver-selectable technologies, the manufacturers must adhere to all criteria and requirements as discussed below in III.C.5.iii. and 40 CFR § 86.1869-12(b) and (c).

While we are allowing credit for driver-selectable and driver interactive technologies (including congestion avoidance), the agencies believe that applicants would face formidable burdens of showing that improvements over baseline are legitimate, reliably quantifiable, certain, and transparently demonstrable as described above. As identified in CISD-09-19, there will need to be an extensive data collection program to show that drivers are using the technology and to generate a reliable usage factor, if this has not previously been established. In addition, the usage factor applied to the benefit from the driver-selectable technology will tend to lower the amount of credit unless a manufacturer can demonstrate 100% usage of a driver-selectable technology. Therefore, depending on the level of benefit, the amount of resulting credit could be minimal compared the effort to generate the necessary, supporting data, and manufacturers should consider this before undertaking this process.

In summary, the agencies are not adding driver-selectable or driver-interactive features to the defined technology list. However, driver-selectable and driver-interactive features are eligible for off-cycle credits using procedures and processes for demonstrating technologies not on the defined technology list under the off-cycle program as discussed above.

h. Credit for Glass and Glazing Technologies: Concerns With Metallic Glazing and Request for Separate Polycarbonate Glazing Credit

Multiple comments were received with concerns regarding the use of metallic glazing from the Crime Victims Unit of California (CVUC), California State Sheriffs, Garmin, Honda and TechAmerica. Many commenters raised concerns the credit for glazing may unintentionally create incentives to use metallic films or small metallic particles to achieve reduced vehicle solar heat loading and access the off-cycle credit. The commenters indicated this type of metallic glazing can potentially interfere with signals for global positioning systems (GPS), cell phones, cellular signal based prisoner tracking systems, emergency and/or electronic 911 (E911) calls or other signals emanating from within or being transmitted to a vehicle's passenger compartment/cabin. In addition, some commenters cited this concern as the reason that the California Air Resources Board (CARB) removed their mandate for metallic glazing from the “Cool Cars” Regulation in California.

To address these concerns, the agencies met with the Enhanced Protective Glass Automotive Association (EPGAA), which represents automotive glass manufacturers and suppliers. The meeting included representatives from the automotive glass suppliers Pittsburgh Glass Works LLC (PGW), Guardian Industries, and Asahi Glass Company (AGC) to discuss the potential concerns with metallic glazing, signal interference and/or radio frequency (RF) attenuation (details of this meeting are available in EPA docket # EPA-HQ-OAR-2010-0799-41752 and docket NHTSA-2010-0131). At this meeting, EPGAA provided data to the agencies that showed: In general, any glazing material can create signal interference and RF attenuation, and depending on the situation, RF attenuation and signal interference can occur without the presence of metallic glazing material; there was no statistically-significant increase in signal interference and RF attenuation when metallic glazing was used. Furthermore, many vehicles in production today are designed with metallic solar control deletion areas or zones around the window edges and/or defined areas in either the front windshield of rear backlight to minimize signal interference and RF attenuation. Following the meeting, EPGAA representatives provided a list of vehicles currently utilizing metallic glazing demonstrating to the agencies that this technology is currently in-use without significant signal interference/RF attenuation issues being raised. EPGAA representatives indicated the technology is especially prevalent in Europe and with no significant consumer complaints.

In addition, the agencies received comments from the California Air Resources Board (CARB) in response to the specific comments submitted to the proposal regarding the California Cool Cars Regulation indicating the program was withdrawn as a result of the metallic solar glazing concerns (see EPA docket #EPA-HQ-OAR-2010-0799). CARB stated the mandate for metallic glazing in the Cool Cars Regulation was withdrawn was primarily related to the timing of when the concerns regarding metallic glazing were raised in relation to the proposed mandate's targeted finalization than to substantive concerns. CARB also clarified that they were not requiring a specific type of glazing and that a performance-based approach ultimately adopted in the Advanced Clean Cars Regulation accomplished the same objectives as proposed under the Cool Cars Regulation without the need for a mandate. In addition, CARB performed testing of signal interference and RF attenuation by CARB (see test results in EPA docket # EPA-HQ-OAR-2010-0799-41752) echoing the findings of the automotive glass industry that there is “[n]o effect of reflective glazing observed on monitoring ankle bracelets or cell phones” and that any “[e]ffects on GPS navigation devices [are] completely mitigated by use of [the] deletion window” placing either the device or the external antennae in this area”. CARB urged EPA to finalize the proposed credit values for glass and glazing as proposed. Finally, CARB issued a formal memorandum confirming the timing related reasons for withdrawing the Cool Cars mandate and its test results regarding signal interference and RF attenuation, and urging the agencies to finalize the proposed credit values for glass and glazing as proposed.

Based on this information, the agencies are finalizing the proposed credit values and calculation procedures for solar control glazing. EPA and NHTSA note further the off-cycle credit is performance-based and not a mandate for vehicle manufacturers. Manufacturers have options to choose from a variety of glazing technologies that meet their desired performance for rejecting vehicle cabin solar loading. We reiterate that the rule is technology neutral and that none of these potential glazing technologies are foreclosed. Second, we did not see evidence contravening the information that the automotive glass industry and CARB presented showing that there would not be significant adverse effects on signal interference and RF attenuation by any of the recognized glazing technologies. However, to address the concerns of other commenters, we will emphasize to manufacturers that they should evaluate the potential for signal interference and RF attenuation when requesting the solar control glazing credit to ensure that their designs do not cause any interference.

i. Summary of Off-Cycle Credit Values

As proposed, EPA is finalizing that a CAFE improvement value for off-cycle improvements be determined at the fleet level by converting the CO₂ credits determined under the EPA program (in metric tons of CO₂) for each fleet (car and truck) to a fleet fuel consumption improvement value. This improvement value would then be used to adjust the fleet's CAFE level upward. See the regulations at 40 CFR 600.510-12. Note that although the table below presents fuel consumption values equivalent to a given CO₂ credit value, these consumption values are presented for informational purposes and are not meant to imply that these values will be used to determine the fuel economy for individual vehicles.

Finally, the agencies proposed that the pre-approved menu list of off-cycle technologies and default credit values would be predicated on a certain minimum percentage of technology penetration in a manufacturer's domestic fleet. 76 FR 75381. Commenters persuasively argued that such a requirement would discourage introduction and utilization of beneficial off-cycle technologies. They pointed out that new technologies are often introduced on limited model lines or platforms both to gauge consumer acceptance and to gain additional experience with the technology before more widespread introduction. Requiring levels of technology penetration such as the 10 percent proposed for many of the menu technologies could thus create a negative rather than positive incentive to deploy off-cycle technologies. The agencies agree, and note further that having an aggressive penetration rate requirement also raises issues of sufficiency of lead time in the early years of the program. The agencies are therefore not adopting minimum penetration requirements as a prerequisite to claim default credits from the preapproved technology menu.

Table II-22 shows the list of off-cycle technologies and credits and equivalent fuel consumption improvement values for cars and trucks that the agencies are finalizing in today's action. The credits and fuel consumption improvement values for active aerodynamics, high-efficiency exterior lighting, waste heat recovery and solar roof panels are scalable, depending on the amount of respective improvement these systems can generate for the vehicle. The Solar/Thermal control technologies are varied and are limited to a total of 3.0 and 4.3 g/mi (car and truck respectively) The various pre-defined solar/thermal control technologies eligible for off-cycle credit are shown in Table II-22 below.

j. Vehicle Simulation Tool

Chapter 2 of EPA's RIA provides a detailed description of the vehicle simulation tool that EPA had developed and has used for the final rule. This tool is capable of simulating a wide range of conventional and advanced engine, transmission, and vehicle technologies over various driving cycles. It evaluates technology package effectiveness while taking into account synergy (and dis-synergy) effects among vehicle components and estimates GHG emissions for various combinations of technologies. For the MYs 2017 to 2025 GHG rule, this simulation tool was used to assist estimating the amount of GHG credits for improved A/C systems and off-cycle technologies. EPA sought public comment on this approach of using the tool for generating some of the credits. The agency received no specific comment on the model itself or on the documentation of the model. However, based on the comments described in the previous section (particularly on allowing scalable credits on off-cycle technologies), EPA modified and fine-tuned the vehicle simulation tool in order to properly capture the amount of scalable GHG reductions provided by off-cycle technologies. More specifically, based on the comments from the Auto Alliance, EPA used the simulation tool to generate scalable credits for the active aerodynamic technology. For this final rule, EPA utilized the simulation tool in order to quantify the (scalable) credits for Active Aerodynamics, High Efficiency Exterior Lights, Solar Panel, and Waste Heat Recovery more accurately. The details of this analysis are presented in Chapter 5.2 of the Joint TSD.

There are other technologies that would result in additional GHG reduction benefits that cannot be fully captured on the combined FTP/Highway cycle test. These technologies typically reduce engine loads by utilizing advanced engine controls, and they range from enabling the vehicle to turn off the engine at idle, to reducing cabin temperature and thus A/C compressor loading when the vehicle is restarted. Examples include Engine Start-Stop, Electric Heater Circulation Pump, Active Engine/Transmission Warm-Up, and Solar Control. For these types of technologies, the overall GHG reduction largely depends on the control and calibration strategies of individual manufacturers and vehicle types. EPA utilized the simulation tool to estimate the default credit values for the engine start-stop technology. Details of the analysis are provided in the chapter 5.2.8.1 of Joint TSD. However, the current vehicle simulation tool does not have the capability to properly simulate the vehicle behaviors that depend on thermal conditions of the vehicle and its surroundings, such as Active Engine/Transmission Warm-Up and Solar Control. Therefore, the vehicle simulation cannot provide full benefits of these technologies on the GHG reductions. For this reason, the agency did not use the simulation tool to generate the default GHG credits for these technologies, though future versions of the model may be more capable of quantifying the efficacy of these off-cycle technologies as well. As described in Chapter 5 of the Joint TSD, the Active Engine/Transmission Warm-up credits were estimated using the results from the Ricardo vehicle simulation results.

In summary, for the MYs 2017 to 2025 GHG final rule, EPA used the simulation tool to quantify the amount of GHG emissions reduced by improvements in A/C systems and to determine the default credit values for some of the off-cycle technologies such as active aerodynamics, electrical load reduction, and engine start-stop. Details of the analysis and values of these scalable credits are described in Chapter 5 of Joint TSD. This simulation tool will not be officially used for credit compliance purposes (as proposed) because EPA has already made several of the credits scalable for the purposes of this final rule. However, EPA may use the tool as part of the case-by-case of off-cycle credit determination process. EPA encourages manufacturers to use this simulation tool in order to estimate the credits values of their off-cycle technologies.

3. Advanced Technology Incentives for Full-Size Pickup Trucks

The agencies recognize that the standards for MYs 2017-2025 will be challenging for large vehicles, including full-size pickup trucks that are often used for commercial purposes and have generally higher payload and towing capabilities than other light-duty vehicles. Section II.C and Chapter 2 of the joint TSD describe the adjustments made to the slope of the truck curve compared to the MYs 2012-2016 rule, reflecting these considerations. Sections III.B and IV.E describe the progression of the stringency of the truck standards. Large pick-up trucks represent are a significant portion of the overall light-duty vehicle fleet and generally have higher levels of fuel consumption and GHG emissions than most other light-duty vehicles. Improvements in the fuel economy and GHG emissions of these vehicles can have significant impact on overall light-duty fleet fuel use and GHG emissions. The agencies believe that offering incentives in the earlier years of this program that encourage the deployment of technologies that can significantly improve the efficiency of these vehicles and that also will foster production of those technologies at levels that will help achieve economies of scale, will promote greater fuel savings overall and make these technologies more cost effective and available in the later model years of this rulemaking to assist in compliance with the standards.

The agencies are therefore finalizing the proposed approach to encourage penetration of these technologies both through the standards themselves, but also through various provisions providing regulatory incentives for advanced technology use in full-size pick-up trucks. The agencies' goal is to incentivize the penetration into the marketplace of “game changing” technologies for these pickups, including the marketing of hybrids. For that reason, EPA, in coordination with NHTSA, proposed and is adopting provisions for credits and corresponding equivalent fuel consumption improvement values for manufacturers that hybridize a significant number of their full-size pickup trucks, or use other technologies that significantly reduce CO₂ emissions and fuel consumption.

Most of the commenters on this issue supported the large truck credit concept. Some OEM commenters argued that it should be extended to other vehicles such as SUVs and minivans. ICCT, Volkswagen, and CBD opposed adopting the proposed incentive, arguing that this vehicle segment is not especially challenged by the proposed standards, that hybrid systems would readily transfer to it from other vehicle classes, and that the credit essentially amounts to an economic advantage for manufacturers of large trucks. CBD also commented that this credit should be eliminated, since they believe hybrid technology should be forced by aggressive standards rather than encouraged through regulatory incentives. Other environmental group commenters also expressed concern about the real-world impacts of offering this credit, and suggested various ways to tailor it to ensure that fuel savings and emissions reductions associated with it are genuine.

We believe that extending the large truck credit to other light-duty trucks such as SUVs and minivans would greatly expand, and therefore dilute, the intended credit focus. The agencies do not believe that providing such incentives for hybridization in these additional categories is necessary, or that the performance levels required of non-hybrid technologies eligible for credits are of such stringency that extending credits to all or most light-duty trucks would amount to anything more than a de facto lowering of overall program stringency. Although commenters rightly pointed out that some of these non-truck vehicles do have substantial towing capacity, most are not used as towing vehicles, in contrast to full-size pickup trucks that often serve as work vehicles. Moreover, the smaller footprint trucks fall on the lower part of the truck curve, which have a higher rate of improvement (in stringency) than the larger trucks, thus making them more comparable to cars in terms of technology access and effectiveness (as well as not having access to these credits).

Arguments made by commenters for not adopting the large truck technology credit are not convincing. Although there may not be inherent reasons for a lack of hybrid technology migration to large trucks, it is clear that this migration has nevertheless been slow to materialize for practical/economic reasons, including in-use duty cycles and customer expectations. These issues still need to be addressed by the designers of large pickups to successfully introduce these technologies in these trucks, and we believe that assistance in the form of a focused, well-defined incentive program is warranted. See section III.D.6 and 7 for further discussion of EPA's justification for this credit program in the context of the stringency of the truck standards.

Volkswagen commented that any HEV or performance-based credits generated by large trucks should not be transferable to other vehicle segments, arguing that if compliance for the large truck segment is really as challenging as predicted, there should be no excess of credits to transfer anyway. This may be the case, but we do not agree that it argues for restricting the use of large pickup truck credits. We think the sizeable technology hurdle involved and the limited model years in which credits are available preclude the potential for credit windfalls. Furthermore, neither the size of the large truck market nor the size of the per-vehicle credit are so substantial that they could lead to a large pool of credits capable of skewing the competition in the lighter vehicle market. As described in Section III.D of this preamble, EPA will continue to monitor the net level of credit transfers from cars to trucks and vice versa in the MYs 2017-2025 timeframe.

As proposed, the agencies are defining a full-size pickup truck based on minimum bed size and hauling capability, as detailed in 86.1866-12(e) of the regulations being adopted. This definition is meant to ensure that the larger pickup trucks, which provide significant utility with respect to bed access and payload and towing capacities, are captured by the definition, while smaller pickup trucks with more limited capacities are not covered. A full-size pickup truck is defined as meeting requirements (1) and (2) below, as well as either requirement (3) or (4) below. A more detailed discussion can be found in section III.C.3.

(1) Bed Width—The vehicle must have an open cargo box with a minimum width between the wheelhouses of 48 inches. And—

(2) Bed Length—The length of the open cargo box must be at least 60 inches. And—

(3) Towing Capability—the gross combined weight rating (GCWR) minus the gross vehicle weight rating (GVWR) must be at least 5,000 pounds. Or—

(4) Payload Capability—the GVWR minus the curb weight (as defined in 40 CFR 86.1803) must be at least 1,700 pounds.

EPA sought comment on extending these credits to smaller pickup trucks, specifically to those with narrower beds, down to 42 inches, but still with towing capability comparable to large trucks. This request for comment produced mixed reactions among truck manufacturers, and some argued that EPA should go further and drop the bed size limit entirely. ICCT and CBD strongly opposed any extension of credits, arguing that adopting the 42″ bed width criterion would allow virtually all pickup trucks to qualify, thereby distorting technology requirements and reducing the benefits of the rule. None of the commenters argued convincingly in favor of the extension and so we are adopting the 48″ minimum requirement as proposed. Chrysler commented that the proposed payload and towing capability minimums are too restrictive, making a sizeable number of Ram 1500 configurations ineligible to earn credits. However, the company provided no sales information to enable the agencies to reassess this issue. Moreover, the agencies did not premise the proposed incentive on every full-size truck configuration being eligible. Manufacturers typically offer a variety of truck options to suit varied customer needs in the work and recreational truck markets, and the fact that one manufacturer (or more) markets to applications lacking the towing and payload demands of the core group of vehicles in this segment does not, in the agencies' view, justify a revision of the hauling requirements that were a fundamental consideration in establishing the credit.

The agencies also sought comment on the definitions of mild and strong hybrids based on energy capture on braking (brake regeneration). Minor modifications to these definitions were made based on these comments as well as new testing performed by the EPA. Due to the detailed nature of these comments, these responses and the description of the testing are included in section 5.3.3 of the Joint TSD.

The program requirements and incentive amounts differ somewhat for mild and strong HEV pickup trucks. As proposed, mild HEVs will be eligible for a per-vehicle credit of 10 g/mi (equivalent to 0.0011 gallon/mile for a gasoline-fueled truck) during MYs 2017-2021. Eligibility also requires that the technology be used on a minimum percentage of a company's full size pickups, beginning with at least 20% of a company's full-size pickup production in 2017 and ramping up to at least 80% in MY 2021. These minimum percentages are lower in MYs 2017 and 2018 than proposed (20% and 30%, respectively, compared to the proposed 30% and 40%), based on our assessment of the comments arguing reasonably that the proposed percentages were too demanding, especially in the initial model years when there is the least lead time. Strong HEV pickup trucks will be eligible for a 20 g/mi CO₂ credit (0.0023 gallon/mile) during MYs 2017-2025 if the technology is used on at least 10% of the company's full-size pickups. The technology penetration thresholds and their basis, as well as comments received on our proposal for them, are discussed in more detail in section III.C below. Because of their importance in assigning credit amounts, EPA is adopting explicit regulatory definitions for mild and strong HEVs. These definitions and the relevant comments we received are discussed in section III.C.3 and in section 5.3.3 of the Joint TSD.

Because there are other, non-HEV, advanced technologies that can provide significant reductions in pickup truck GHG emissions and fuel consumption (e.g., hydraulic hybrid), EPA is also adopting the proposed, more generalized, credit provisions for full-size pickup trucks that achieve emissions levels significantly below their applicable CO₂ targets. This performance-based credit will be 10 g/mi CO₂ (equivalent to 0.0011 gal/mi for the CAFE program) or 20 g/mi CO₂ (0.0023 gal/mi) for full-size pickups achieving 15 or 20%, respectively, better CO₂ than their footprint-based targets in a given model year. The basis for our choice of the 15 and 20% over-compliance targets is explained in Section 5.3.4 of the Joint TSD.

These performance-based credits have no specific technology or design requirements; automakers can use any technology or set of technologies as long as the vehicle's CO₂ performance is at least 15 or 20% below its footprint-based target. However, a vehicle cannot receive both HEV and performance-based credits. Because the footprint target curve has been adjusted to account for A/C-related credits, the CO₂ level to be compared with the target will also include any A/C-related credits generated by the vehicles.

The 10 g/mi performance-based credit will be available for MYs 2017 to 2021. In recognition of the nature of automotive redesign sequence, a vehicle model meeting the requirements in a model year will receive the credit in subsequent model years through MY 2021, unless its CO₂ level increases or its production drops below the penetration threshold described below, even if the year-by-year reduction in standards levels causes the vehicle to fall short of the 15% over-compliance threshold. The 10 g/mi credit is not available after MY 2021 because the post-2021 standards quickly overtake designs that were originally 15% over-compliant, making the awarding of credits to them inappropriate. The 20 g/mi CO₂ performance-based credit will be available for a maximum of five consecutive model years within the 2017 to 2025 model year period, provided the vehicle model's CO₂ level does not increase from the level determined in its first qualifying model year, and subject to the penetration requirement described below. A qualifying vehicle model that subsequently undergoes a major redesign can requalify for the credit for an additional period starting in the redesign model year, not to exceed five model years and not to extend beyond MY 2025.

As with the HEV incentives, eligibility for the performance-based credit and fuel consumption improvement value requires that the technology be used on a minimum percentage of a manufacturer's full-size pickup trucks. That minimum percentage for the 10 g/mi CO₂ credit (0.0011 gal/mi) is 15% in MY 2017, with a ramp up to 40% in MY 2021. The minimum percentage for the 20 g/mi credit (0.0023 gal/mi) is 10% in each year over the model years 2017-2025. The technology penetration thresholds and their basis, as well as comments received on our proposal for them, are discussed in more detail in section III.C.

ICCT opposed allowing vehicle models that earn performance-based credits in one year to continue receiving them in subsequent years as the increasingly more stringent standards progressively diminish the vehicle's performance margin compared to the standard. We view the incentive over the longer term, as a multi-year package, intending it to encourage investment in lasting technology shifts. The fact that it is somewhat easier to exceed performance by 15 or 20% in the earlier years, when the bar is set lower, and, once earned, to retain that benefit for a fixed number of years (provided sales remain strong), works to focus the credit as intended—on incentivizing the introduction of new technology as early in the program as possible.

G. Safety Considerations in Establishing CAFE/GHG Standards

1. Why do the Agencies consider safety?

The primary goals of CAFE and GHG standards are to reduce fuel consumption and GHG emissions from the on-road light-duty vehicle fleet, but in addition to these intended effects, the agencies also consider the potential of the standards to affect vehicle safety. As a safety agency, NHTSA has long considered the potential for adverse safety consequences when establishing CAFE standards, and under the CAA, EPA considers factors related to public health and human welfare, including safety, in regulating emissions of air pollutants from mobile sources. Safety trade-offs associated with fuel economy increases have occurred in the past, particularly before NHTSA CAFE standards were attribute-based, and the agencies must be mindful of the possibility of future ones. These past safety trade-offs may have occurred because manufacturers chose at the time, partly in response to CAFE standards, to build smaller and lighter vehicles, rather than adding more expensive fuel-saving technologies while maintaining vehicle size and safety, and the smaller and lighter vehicles did not fare as well in crashes as larger and heavier vehicles. Historically, as shown in FARS data analyzed by NHTSA, the safest cars generally have been heavy and large, while the cars with the highest fatal-crash rates have been light and small. The question, then, is whether past is necessarily prologue when it comes to potential changes in vehicle size (both footprint and “overhang”) and mass in response to the more stringent future CAFE and GHG standards. Manufacturers have stated that they will reduce vehicle mass as one of the cost-effective means of increasing fuel economy and reducing CO₂ emissions in order to meet the standards, and the agencies have incorporated this expectation into our modeling analysis supporting the standards. Because the agencies discern a historical relationship between vehicle mass, size, and safety, it is reasonable to assume that these relationships will continue in the future. The agencies are encouraged by comments to the NPRM from the Alliance of Automotive Manufacturers reflecting a commitment to safety stating that, while improving the fuel efficiency of the vehicles, the vehicle manufacturers are “mindful that such improvements must be implemented in a manner that does not compromise the rate of safety improvement that has been achieved to date.” The question of whether vehicle design can mitigate the adverse effects of mass reduction is discussed below.

Manufacturers are less likely than they were in the past to reduce vehicle footprint in order to reduce mass for increased fuel economy. The primary mechanism in this rulemaking for mitigating the potential negative effects on safety is the application of footprint-based standards, which create a disincentive for manufacturers to produce smaller-footprint vehicles (see Section II.C.1 above). This is because, as footprint decreases, the corresponding fuel economy/GHG emission target becomes more stringent. We also believe that the shape of the footprint curves themselves is approximately “footprint-neutral,” that is, that it should neither encourage manufacturers to increase the footprint of their fleets, nor to decrease it. Upsizing footprint is also discouraged through the curve “cut-off” at larger footprints. However, the footprint-based standards do not discourage downsizing the portions of a vehicle in front of the front axle and to the rear of the rear axle, or of other areas of the vehicle outside the wheels. The crush space provided by those portions of a vehicle can make important contributions to managing crash energy. Additionally, simply because footprint-based standards minimize incentive to downsize vehicles does not mean that some manufacturers will not downsize if doing so makes it easier for them to meet the overall CAFE/GHG standard in a cost-efficient manner, as for example if the smaller vehicles are so much lighter (or de-contented) that they exceed their targets by much greater amounts. On balance, however, we believe the target curves and the incentives they provide generally will not encourage down-sizing (or up-sizing) in terms of footprint reductions (or increases). Consequently, all of our analyses are based on the assumption that this rulemaking, in and of itself, will not result in any differences in the sales weighted distribution of vehicle sizes.

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

2. How do the Agencies consider safety?

Assessing the effects of vehicle mass reduction and size on societal safety is a complex issue. One part of estimating potential safety effects involves trying to understand better the relationship between mass and vehicle design. The extent of mass reduction that manufacturers may be considering to meet more stringent fuel economy and GHG standards may raise different safety concerns from what the industry has previously faced. The principal difference between the heavier vehicles, especially truck-based LTVs, and the lighter vehicles, especially passenger cars, is that mass reduction has a different effect in collisions with another car or LTV. When two vehicles of unequal mass collide, the change in velocity (delta V) is higher in the lighter vehicle, similar to the mass ratio proportion. As a result of the higher change in velocity, the fatality risk may also increase. Removing more mass from the heavier vehicle than in the lighter vehicle by amounts that bring the mass ratio closer to 1.0 reduces the delta V in the lighter vehicle, possibly resulting in a net societal benefit. This was reinforced by comments to the proposal from Volvo which stated “Everything else being equal, several of the studies presented indicate a significant increase, up to a factor ten, in the fatality risk for the occupants in the lighter vehicle for a two-to-one weight ratio between the colliding vehicles in a head-on crash.”

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

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

To estimate the possible safety effects of the MY 2017-2025 standards, then, the agencies have undertaken research that approaches this question from several angles. First, we are using a statistical approach to study the effect of vehicle mass reduction on safety historically, as discussed in greater detail in section C below. Statistical analysis is performed using the most recent historical crash data available, and is considered as the agencies' best estimate of potential mass-safety effects. The agencies recognize that negative safety effects estimated based on the historical relationships could potentially be tempered with safety technology advances in the future, and may not represent the current or future fleet. Second, we are using an engineering approach to investigate what amount of mass reduction is affordable and feasible while maintaining vehicle safety and functionality such as durability, drivability, NVH, and acceleration performance. Third, we are also studying the new challenges these lighter vehicles might bring to vehicle safety and potential countermeasures available to manage those challenges effectively. Comments to the proposal from the Alliance of Automakers supported NHTSA's approach of using both engineering and statistical analyses to assess the effects of the standards on safety, stating “The Alliance supports NHTSA's intention to examine safety from the perspective of both the historical field crash data and the engineering analysis of potential future Advanced Materials Concept vehicles. NHTSA's planned analysis rightly looks backward and forward.” DRI furnished alternative statistical analyses in which the significant fatality increase seen for mass reduction in cars weighing less than 3,106 pounds in Kahane's analysis tapers off to a non-significant or near-zero level. Other commenters (including ICCT, Center for Biological Diversity (CBD), Consumers Union, NRDC, and the Aluminum Association), in contrast, stated that mass reduction can be implemented safely and there should be no safety impacts associated with the CAFE/GHG standards. Some commenters argued that safety of future vehicles will be solely a function of vehicle design and not of weight or size, while others argued that better material usage, better design, and stronger materials will improve vehicle safety if vehicle size is maintained. More specifically, comments from ICCT stated that reducing vehicle weight through the use of strong lightweight materials, while maintaining size can reduce intrusion, as the redesigned vehicle can reduce crash forces with equivalent crush space. ICCT further stated that “this also supports that size-based standards that encourage the use of lightweight materials should reduce intrusion and, hence, fatalities.” The American Iron and Steel Institute indicated that steel structures are particularly effective in absorbing energy during a collision over the engineered crush space (or crumple zone), and further indicated that new advanced high-strength steel technology has already demonstrated its ability to reduce mass and maintain or improve test crashworthiness performance all within the same vehicle footprint, although acknowledging that these comments did not necessarily reflect crash performance with vehicles of different sizes and masses.

The agencies have looked closely at these issues, and we believe that our approach of using both statistical analyses of historical data to assess societal safety effects, and design studies to assess the ability of individual designs to comply with the FMVSS and perform well on NCAP and IIHS tests responds to these concerns.

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

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

a. Background

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

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

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