Part II

As Enacted ( Federal Register)

Cited authorities 90

Cited in

Federal Register: September 28, 2009 (Volume 74, Number 186)

Proposed Rules

Page 49453-49789

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

DOCID:fr28se09-24

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Part II

Environmental Protection Agency

40 CFR Parts 86 and 600

Department of Transportation

National Highway Traffic Safety Administration

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

Proposed Rulemaking To Establish Light-Duty Vehicle Greenhouse Gas

Emission Standards and Corporate Average Fuel Economy Standards;

Proposed Rule

Page 49454

ENVIRONMENTAL PROTECTION AGENCY 40 CFR Parts 86 and 600

DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration 49 CFR Parts 531, 533, 537, and 538

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

RIN 2060-AP58; RIN 2127-AK90

Proposed Rulemaking To Establish Light-Duty Vehicle Greenhouse

Gas Emission Standards and Corporate Average Fuel Economy Standards

AGENCY: Environmental Protection Agency (EPA) and National Highway

Traffic Safety Administration (NHTSA).

ACTION: Proposed rule.

SUMMARY: EPA and NHTSA are issuing this joint proposal to establish a

National Program consisting of new standards for light-duty vehicles that will reduce greenhouse gas emissions and improve fuel economy.

This joint proposed rulemaking is consistent with the National Fuel

Efficiency Policy announced by President Obama on May 19, 2009, responding to the country's critical need to address global climate change and to reduce oil consumption. EPA is proposing greenhouse gas emissions standards under the Clean Air Act, and NHTSA is proposing

Corporate Average Fuel Economy standards under the Energy Policy and

Conservation Act, as amended. These standards apply to passenger cars, light-duty trucks, and medium-duty passenger vehicles, covering model years 2012 through 2016, and represent a harmonized and consistent

National Program. Under the National Program, automobile manufacturers would be able to build a single light-duty national fleet that satisfies all requirements under both programs while ensuring that consumers still have a full range of vehicle choices.

FOR FURTHER INFORMATION CONTACT: Comments: Comments must be received on or before November 27, 2009. Under the Paperwork Reduction Act, comments on the information collection provisions must be received by the Office of Management and Budget (OMB) on or before October 28, 2009. See the SUPPLEMENTARY INFORMATION section on ``Public

Participation'' for more information about written comments.

Hearings: NHTSA and EPA will jointly hold three public hearings on the following dates: October 21, 2009 in Detroit, Michigan; October 23, 2009 in New York, New York; and October 27, 2009 in Los Angeles,

California. EPA and NHTSA will announce the addresses for each hearing location in a supplemental Federal Register Notice. The hearings will start at 9 a.m. local time and continue until everyone has had a chance to speak. See the SUPPLEMENTARY INFORMATION section on ``Public

Participation'' for more information about the public hearings.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-

OAR-2009-0472 and/or NHTSA-2009-0059, by one of the following methods: www.regulations.gov: Follow the on-line instructions for submitting comments.

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

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

Mail:

cir

EPA: Environmental Protection Agency, EPA Docket Center (EPA/

DC), Air and Radiation Docket, Mail Code 2822T, 1200 Pennsylvania

Avenue, NW., Washington, DC 20460, Attention Docket ID No. EPA-HQ-OAR- 2009-0472. In addition, please mail a copy of your comments on the information collection provisions to the Office of Information and

Regulatory Affairs, Office of Management and Budget (OMB), Attn: Desk

Officer for EPA, 725 17th St., NW., Washington, DC 20503.

cir

NHTSA: Docket Management Facility, M-30, U.S. Department of

Transportation, West Building, Ground Floor, Rm. W12-140, 1200 New

Jersey Avenue, SE., Washington, DC 20590.

Hand Delivery:

cir

EPA: Docket Center, (EPA/DC) EPA West, Room B102, 1301

Constitution Ave., NW., Washington, DC, Attention Docket ID No. EPA-HQ-

OAR-2009-0472. Such deliveries are only accepted during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information.

cir

NHTSA: West Building, Ground Floor, Rm. W12-140, 1200 New

Jersey Avenue, SE., Washington, DC 20590, between 9 a.m. and 5 p.m.

Eastern Time, Monday through Friday, except Federal Holidays.

Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR- 2009-0472 and/or NHTSA-2009-0059. See the SUPPLEMENTARY INFORMATION section on ``Public Participation'' for more information about submitting written comments.

Public Hearing: NHTSA and EPA will jointly hold three public hearings on the following dates: October 21, 2009 in Detroit, Michigan;

October 23, 2009 in New York, New York; and October 27, 2009 in Los

Angeles, California. EPA and NHTSA will announce the addresses for each hearing location in a supplemental Federal Register Notice. See the

SUPPLEMENTARY INFORMATION section on ``Public Participation'' for more information about the public hearings.

Docket: All documents in the dockets are listed in the www.regulations.gov index. Although listed in the index, some information is not publicly available, e.g., confidential business information (CBI) or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy. Publicly available docket materials are available either electronically in www.regulations.gov or in hard copy at the following locations: EPA: EPA Docket Center, EPA/

DC, EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, DC.

The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the

Public Reading Room is (202) 566-1744. NHTSA: Docket Management

Facility, M-30, U.S. Department of Transportation, West Building,

Ground Floor, Rm. W12-140, 1200 New Jersey Avenue, SE, Washington, DC 20590. The Docket Management Facility is open between 9 a.m. and 5 p.m.

Eastern Time, Monday through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: EPA: Tad Wysor, Office of

Transportation and Air Quality, Assessment and Standards Division,

Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor MI 48105; telephone number: 734-214-4332; fax number: 734-214-4816; e-mail address: wysor.tad@epa.gov, or Assessment and Standards Division

Hotline; telephone number (734) 214-4636; e-mail address asdinfo@epa.gov. NHTSA: Rebecca Yoon, Office of Chief Counsel, National

Highway Traffic Safety Administration, 1200 New Jersey Avenue, SE.,

Washington, DC 20590. Telephone: (202) 366-2992.

SUPPLEMENTARY INFORMATION:

A. Does This Action Apply to Me?

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

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and passenger automobiles (passenger cars) and non-passenger automobiles (light trucks) as defined under NHTSA's CAFE regulations.\2\ Regulated categories and entities include:

\1\ ``Light-duty vehicle,'' ``light-duty truck,'' and ``medium- duty passenger vehicle'' are defined in 40 CFR 86.1803-01.

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

\2\ ``Passenger car'' and ``light truck'' are defined in 49 CFR part 523.

NAICS

Examples of potentially

Category

codes \A\

regulated entities

Industry............................

336111 Motor vehicle manufacturers. 336112

Industry............................

811112 Commercial Importers of

Vehicles and Vehicle

Components. 811198 541514

\A\ North American Industry Classification System (NAICS).

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

B. Public Participation

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

How Do I Prepare and Submit Comments?

In this joint proposal, there are many issues common to both EPA's and NHTSA's proposals. For the convenience of all parties, comments submitted to the EPA docket will be considered comments submitted to the NHTSA docket, and vice versa. An exception is that comments submitted to the NHTSA docket on the Draft Environmental Impact

Statement will not be considered submitted to the EPA docket.

Therefore, the public only needs to submit comments to either one of the two agency dockets. Comments that are submitted for consideration by one agency should be identified as such, and comments that are submitted for consideration by both agencies should be identified as such. Absent such identification, each agency will exercise its best judgment to determine whether a comment is submitted on its proposal.

Further instructions for submitting comments to either the EPA or

NHTSA docket are described below.

EPA: Direct your comments to Docket ID No EPA-HQ-OAR-2009-0472.

EPA's policy is that all comments received will be included in the public docket without change and may be made available online at www.regulations.gov, including any personal information provided, unless the comment includes information claimed to be Confidential

Business Information (CBI) or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through www.regulations.gov or e-mail.

The www.regulations.gov Web site is an ``anonymous access'' system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an e- mail comment directly to EPA without going through www.regulations.gov your e-mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption, and be free of any defects or viruses. For additional information about EPA's public docket visit the EPA Docket Center homepage at http://www.epa.gov/epahome/dockets.htm.

NHTSA: Your comments must be written and in English. To ensure that your comments are correctly filed in the Docket, please include the

Docket number NHTSA-2009-0059 in your comments. Your comments must not be more than 15 pages long.\3\ NHTSA established this limit to encourage you to write your primary comments in a concise fashion.

However, you may attach necessary additional documents to your comments. There is no limit on the length of the attachments. If you are submitting comments electronically as a PDF (Adobe) file, we ask that the documents submitted be scanned using the Optical Character

Recognition (OCR) process, thus allowing the agencies to search and copy certain portions of your submissions.\4\ Please note that pursuant to the Data Quality Act, in order for the substantive data to be relied upon and used by the agencies, it must meet the information quality standards set forth in the OMB and Department of Transportation (DOT)

Data Quality Act guidelines. Accordingly, we encourage you to consult the guidelines in preparing your comments. OMB's guidelines may be accessed at http://www.whitehouse.gov/omb/fedreg/reproducible.html.

DOT's guidelines may be accessed at http://www.dot.gov/dataquality.htm.

\3\ See 49 CFR 553.21.

\4\ Optical character recognition (OCR) is the process of converting an image of text, such as a scanned paper document or electronic fax file, into computer-editable text.

Tips for Preparing Your Comments

When submitting comments, remember to:

Identify the rulemaking by docket number and other identifying information (subject heading, Federal Register date and page number).

Follow directions--The agency may ask you to respond to specific questions or organize comments by referencing a Code of

Federal Regulations (CFR) part or section number.

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

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

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

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

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

Make sure to submit your comments by the comment period deadline identified in the DATES section above.

How Can I Be Sure That My Comments Were Received?

NHTSA: If you submit your comments by mail and wish Docket

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

How Do I Submit Confidential Business Information?

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

EPA: Do not submit CBI to EPA through http://www.regulations.gov or e-mail. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD-ROM that you mail to

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

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

\5\ See 49 CFR part 512.

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

Will the Agencies Consider Late Comments?

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

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

How Can I Read the Comments Submitted by Other People?

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

(e.g., the comments submitted in response to this document by other interested persons) at any time by going to http://www.regulations.gov.

Follow the online instructions for accessing the dockets. You may also read the materials at the EPA Docket Center or NHTSA Docket Management

Facility by going to the street addresses given above under ADDRESSES.

How Do I Participate in the Public Hearings?

NHTSA and EPA will jointly host three public hearings on the dates and locations described in the DATES and ADDRESSES sections above.

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

FURTHER INFORMATION CONTACT at least ten days before the hearing. Once

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

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

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

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

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

Table of Contents

I. Overview of Joint EPA/NHTSA National Program

A. Introduction 1. Building Blocks of the National Program 2. Joint Proposal for a National Program

B. Summary of the Joint Proposal

C. Background and Comparison of NHTSA and EPA Statutory Authority 1. NHTSA Statutory Authority 2. EPA Statutory Authority 3. Comparing the Agencies' Authority

D. Summary of the Proposed Standards for the National Program 1. Joint Analytical Approach 2. Level of the Standards 3. Form of the Standards

E. Summary of Costs and Benefits for the Joint Proposal 1. Summary of Costs and Benefits of Proposed NHTSA CAFE

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

F. Program Flexibilities for Achieving Compliance 1. CO2/CAFE Credits Generated Based on Fleet Average

Performance 2. Air Conditioning Credits 3. Flex-Fuel and Alternative Fuel Vehicle Credits 4. Temporary Lead-time Allowance Alternative Standards 5. Additional Credit Opportunities Under the CAA

G. Coordinated Compliance

H. Conclusion

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II. Joint Technical Work Completed for This Proposal

A. Introduction

B. How Did NHTSA and EPA Develop the Baseline Market Forecast? 1. Why Do the Agencies Establish a Baseline Vehicle Fleet? 2. How Do the Agencies Develop the Baseline Vehicle Fleet? 3. How Is the Development of the Baseline Fleet for this

Proposal Different From NHTSA's Historical Approach, and Why is This

Approach Preferable? 4. How Does Manufacturer Product Plan Data Factor Into the

Baseline Used in This Proposal?

C. Development of Attribute-Based Curve Shapes

D. Relative Car-Truck Stringency

E. Joint Vehicle Technology Assumptions 1. What Technologies Do the Agencies Consider? 2. How Did the Agencies Determine the Costs and Effectiveness of

Each of These Technologies?

F. Joint Economic Assumptions

III. EPA Proposal for Greenhouse Gas Vehicle Standards

A. Executive Overview of EPA Proposal 1. Introduction 2. Why Is EPA Proposing This Rule? 3. What Is EPA Proposing? 4. Basis for the Proposed GHG Standards Under Section 202(a)

B. Proposed GHG Standards for Light-Duty Vehicles, Light-Duty

Trucks, and Medium-Duty Passenger Vehicles 1. What Fleet-Wide Emissions Levels Correspond to the

CO2Standards? 2. What Are the CO2Attribute-Based Standards? 3. Overview of How EPA's Proposed CO2Standards Would

Be Implemented for Individual Manufacturers 4. Averaging, Banking, and Trading Provisions for CO2

Standards 5. CO2Temporary Lead-Time Allowance Alternative

Standards 6. Proposed Nitrous Oxide and Methane Standards 7. Small Entity Deferment

C. Additional Credit Opportunities for CO2Fleet Average

Program 1. Air Conditioning Related Credits 2. Flex Fuel and Alternative Fuel Vehicle Credits 3. Advanced Technology Vehicle Credits for Electric Vehicles,

Plug-in Hybrids, and Fuel Cells 4. Off-cycle Technology Credits 5. Early Credit Options

D. Feasibility of the Proposed CO2Standards 1. How Did EPA Develop a Reference Vehicle Fleet for Evaluating

Further CO2Reductions? 2. What Are the Effectiveness and Costs of CO2-

Reducing Technologies? 3. How Can Technologies Be Combined into ``Packages'' and What

Is the Cost and Effectiveness of Packages? 4. Manufacturer's Application of Technology 5. How Is EPA Projecting That a Manufacturer Would Decide

Between Options To Improve CO2Performance To Meet a

Fleet Average Standard? 6. Why Are the Proposed CO2Standards Feasible? 7. What Other Fleet-Wide CO2Levels Were Considered?

E. Certification, Compliance, and Enforcement 1. Compliance Program Overview 2. Compliance With Fleet-Average CO2Standards 3. Vehicle Certification 4. Useful Life Compliance 5. Credit Program Implementation 6. Enforcement 7. Prohibited Acts in the CAA 8. Other Certification Issues 9. Miscellaneous Revisions to Existing Regulations 10. Warranty, Defect Reporting, and Other Emission-related

Components Provisions 11. Light Vehicles and Fuel Economy Labeling

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

Effects? 1. Impact on GHG Emissions 2. Overview of Climate Change Impacts From GHG Emissions 3. Changes in Global Mean Temperature and Sea-Level Rise

Associated With the Proposal's GHG Emissions Reductions 4. Weight Reduction and Potential Safety Impacts

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

Associated Effects? 1. Upstream Impacts of Program 2. Downstream Impacts of Program 3. Health Effects of Non-GHG Pollutants 4. Environmental Effects of Non-GHG Pollutants 5. Air Quality Impacts of Non-GHG Pollutants

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

Proposal? 1. Conceptual Framework for Evaluating Consumer Impacts 2. Costs Associated With the Vehicle Program 3. Cost per Ton of Emissions Reduced 4. Reduction in Fuel Consumption and Its Impacts 5. Impacts on U.S. Vehicle Sales and Payback Period 6. Benefits of Reducing GHG Emissions 7. Non-Greenhouse Gas Health and Environmental Impacts 8. Energy Security Impacts 9. Other Impacts 10. Summary of Costs and Benefits

I. Statutory and Executive Order Reviews 1. Executive Order 12866: Regulatory Planning and Review 2. Paperwork Reduction Act 3. Regulatory Flexibility Act 4. Unfunded Mandates Reform Act 5. Executive Order 13132 (Federalism) 6. Executive Order 13175 (Consultation and Coordination With

Indian Tribal Governments) 7. Executive Order 13045: ``Protection of Children From

Environmental Health Risks and Safety Risks'' 8. Executive Order 13211 (Energy Effects) 9. National Technology Transfer Advancement Act 10. Executive Order 12898: Federal Actions to Address

Environmental Justice in Minority Populations and Low-Income

Populations

J. Statutory Provisions and Legal Authority

IV. NHTSA Proposal for Passenger Car and Light Truck CAFE Standards for

MYs 2012-2016

A. Executive Overview of NHTSA Proposal 1. Introduction 2. Role of Fuel Economy Improvements in Promoting Energy

Independence, Energy Security, and a Low Carbon Economy 3. The National Program 4. Review of CAFE Standard Setting Methodology Per the

President's January 26, 2009 Memorandum on CAFE Standards for MYs 2011 and Beyond 5. Summary of the Proposed MY 2012-2016 CAFE Standards

B. Background 1. Chronology of Events Since the National Academy of Sciences

Called for Reforming and Increasing CAFE Standards 2. NHTSA Issues Final Rule Establishing Attribute-Based CAFE

Standards for MY 2008-2011 Light Trucks (March 2006) 3. Ninth Circuit Issues Decision re Final Rule for MY 2008-2011

Light Trucks (November 2007) 4. Congress Enacts Energy Security and Independence Act of 2007

(December 2007) 5. NHTSA Proposes CAFE Standards for MYs 2011-2015 (April 2008) 6. Ninth Circuit Revises Its Decision re Final Rule for MY 2008- 2011 Light Trucks (August 2008) 7. NHTSA Releases Final Environmental Impact Statement (October 2008) 8. Department of Transportation Decides not to Issue MY 2011- 2015 final Rule (January 2009) 9. The President Requests NHTSA to Issue Final Rule for MY 2011

Only (January 2009) 10. NHTSA Issues Final Rule for MY 2011 (March 2009) 11. Energy Policy and Conservation Act, as Amended by the Energy

Independence and Security Act

C. Development and Feasibility of the Proposed Standards 1. How Was the Baseline Vehicle Fleet Developed? 2. How were the Technology Inputs Developed? 3. How Did NHTSA Develop the Economic Assumption Inputs? 4. How Does NHTSA Use the Assumptions in Its Modeling Analysis? 5. How Did NHTSA Develop the Shape of the Target Curves for the

Proposed Standards?

D. Statutory Requirements 1. EPCA, as Amended by EISA 2. Administrative Procedure Act 3. National Environmental Policy Act

E. What Are the Proposed CAFE Standards? 1. Form of the Standards 2. Passenger Car Standards for MYs 2012-2016 3. Minimum Domestic Passenger Car Standards 4. Light Truck Standards

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

Obligations?

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G. Impacts of the Proposed CAFE Standards 1. How Would These Proposed Standards Improve Fuel Economy and

Reduce GHG Emissions for MY 2012-2016 Vehicles? 2. How Would These Proposed Standards Improve Fleet-Wide Fuel

Economy and Reduce GHG Emissions Beyond MY 2016? 3. How Would These Proposed Standards Impact Non-GHG Emissions and Their Associated Effects? 4. What Are the Estimated Costs and Benefits of These Proposed

Standards? 5. How Would These Proposed Standards Impact Vehicle Sales? 6. What Are the Consumer Welfare Impacts of These Proposed

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

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

These Proposed Standards Have?

H. Vehicle Classification

I. Compliance and Enforcement 1. Overview 2. How Does NHTSA Determine Compliance? 3. What Compliance Flexibilities Are Available under the CAFE

Program and How Do Manufacturers Use Them? 4. Other CAFE Enforcement Issues--Variations in Footprint

J. Other Near-Term Rulemakings Mandated by EISA 1. Commercial Medium- and Heavy-Duty On-Highway Vehicles and

Work Trucks 2. Consumer Information

K. Regulatory Notices and Analyses 1. Executive Order 12866 and DOT Regulatory Policies and

Procedures 2. National Environmental Policy Act 3. Regulatory Flexibility Act 4. Executive Order 13132 (Federalism) 5. Executive Order 12988 (Civil Justice Reform) 6. Unfunded Mandates Reform Act 7. Paperwork Reduction Act 8. Regulation Identifier Number 9. Executive Order 13045 10. National Technology Transfer and Advancement Act 11. Executive Order 13211 12. Department of Energy Review 13. Plain Language 14. Privacy Act

I. Overview of Joint EPA/NHTSA National Program

A. Introduction

The National Highway Traffic Safety Administration (NHTSA) and the

Environmental Protection Agency (EPA) are each announcing proposed rules whose benefits would address the urgent and closely intertwined challenges of energy independence and security and global warming.

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

This joint notice is consistent with the President's announcement on May 19, 2009 of a National Fuel Efficiency Policy of establishing consistent, harmonized, and streamlined requirements that would reduce greenhouse gas emissions and improve fuel economy for all new cars and light-duty trucks sold in the United States.\6\ The National Program holds out the promise of delivering additional environmental and energy benefits, cost savings, and administrative efficiencies on a nationwide basis that might not be available under a less coordinated approach.

The proposed National Program also offers the prospect of regulatory convergence by making it possible for the standards of two different

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

State standards. This joint notice is also consistent with the Notice of Upcoming Joint Rulemaking issued by DOT and EPA on May 19 \7\ and responds to the President's January 26, 2009 memorandum on CAFE standards for model years 2011 and beyond,\8\ the details of which can be found in Section IV of this joint notice.

\6\ President Obama Announces National Fuel Efficiency Policy,

The White House, May 19, 2009. Available at: http:// www.whitehouse.gov/the_press_office/President-Obama-Announces-

National-Fuel-Efficiency-Policy/ (last accessed August 18, 2009).

Remarks by the President on National Fuel Efficiency Standards, The

White House, May 19, 2009. Available at: http://www.whitehouse.gov/ the_press_office/Remarks-by-the-President-on-national-fuel- efficiency-standards/ (Last accessed August 18, 2009).

\7\ 74 FR 24007 (May 22, 2009).

\8\ Available at: http://www.whitehouse.gov/the_press_office/

Presidential_Memorandum_Fuel_Economy/ (last accessed on August 18, 2009).

1. Building Blocks of the National Program

The National Program is both needed and possible because the relationship between improving fuel economy and reducing CO2 tailpipe emissions is a very direct and close one. The amount of those

CO2emissions is essentially constant per gallon combusted of a given type of fuel. Thus, the more fuel efficient a vehicle is, the less fuel it burns to travel a given distance. The less fuel it burns, the less CO2it emits in traveling that distance.\9\

While there are emission control technologies that reduce the pollutants (e.g., carbon monoxide) produced by imperfect combustion of fuel by capturing or destroying them, there is no such technology for

CO2. Further, while some of those pollutants can also be reduced by achieving a more complete combustion of fuel, doing so only increases the tailpipe emissions of CO2. Thus, there is a single pool of technologies for addressing these twin problems, i.e., those that reduce fuel consumption and thereby reduce CO2 emissions as well.

\9\ Panel on Policy Implications of Greenhouse Warming, National

Academy of Sciences, National Academy of Engineering, Institute of

Medicine, ``Policy Implications of Greenhouse Warming: Mitigation,

Adaptation, and the Science Base,'' National Academies Press, 1992. p. 287.

a. DOT's CAFE Program

In 1975, Congress enacted the Energy Policy and Conservation Act

(EPCA), mandating that NHTSA establish and implement a regulatory program for motor vehicle fuel economy to meet the various facets of the need to conserve energy, including ones having energy independence and security, environmental and foreign policy implications. Fuel economy gains since 1975, due both to the standards and market factors, have resulted in saving billions of barrels of oil and avoiding billions of metric tons of CO2emissions. In December 2007,

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

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

CO2emissions because EPCA requires the use of 1975 passenger car test procedures under which vehicle air conditioners are not turned on during fuel economy testing.\10\ Fuel economy is determined by measuring the amount of CO2and other carbon compounds emitted from the tailpipe, not by attempting to measure directly the amount of fuel consumed during a vehicle test, a difficult task to accomplish with precision. The carbon content of the test fuel

\11\ is then used to calculate the amount of fuel that had to be consumed per mile in order to

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produce that amount of CO2.Finally, that fuel consumption figure is converted into a miles-per-gallon figure. CAFE standards also do not address the 5-8 percent of GHG emissions that are not

CO2, i.e., nitrous oxide (N2O), and methane

(CH4) as well as emissions of CO2and hydrofluorocarbons (HFCs) related to operation of the air conditioning system.

\10\ EPCA does not require the use of 1975 test procedures for light trucks.

\11\ This is the method that EPA uses to determine compliance with NHTSA's CAFE standards.

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

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

Court issued its opinion in Massachusetts v. EPA,\12\ a case involving a 2003 order of the Environmental Protection Agency (EPA) denying a petition for rulemaking to regulate greenhouse gas emissions from motor vehicles under section 202(a) of the Clean Air Act (CAA).\13\ The Court held that greenhouse gases were air pollutants for purposes of the

Clean Air Act and further held that the Administrator must determine whether or not emissions from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too uncertain to make a reasoned decision. The Court further ruled that, in making these decisions, the EPA Administrator is required to follow the language of section 202(a) of the CAA. The Court rejected the argument that EPA cannot regulate CO2from motor vehicles because to do so would de facto tighten fuel economy standards, authority over which has been assigned by Congress to DOT. The Court stated that ``[b]ut that

DOT sets mileage standards in no way licenses EPA to shirk its environmental responsibilities. EPA has been charged with protecting the public`s `health' and `welfare', a statutory obligation wholly independent of DOT's mandate to promote energy efficiency.'' The Court concluded that ``[t]he two obligations may overlap, but there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency.'' \14\ The Court remanded the case back to the Agency for reconsideration in light of its findings.\15\

\12\ 549 U.S. 497 (2007).

\13\ 68 FR 52922 (Sept. 8, 2003).

\14\ 549 U.S. at 531-32.

\15\ For further information on Massachusetts v. EPA see the

July 30, 2008 Advance Notice of Proposed Rulemaking, ``Regulating

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

EPA has since proposed to find that emissions of GHGs from new motor vehicles and motor vehicle engines cause or contribute to air pollution that may reasonably be anticipated to endanger public health and welfare.\16\ This proposal represents the second phase of EPA's response to the Supreme Court's decision.

\16\ 74 FR 18886 (Apr. 24, 2009).

c. California Air Resources Board Greenhouse Gas Program

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

CO2, but also other GHGs. Since then, thirteen States and the District of Columbia, comprising approximately 40 percent of the light-duty vehicle market, have adopted California's standards. These standards apply to model years 2009 through 2016 and require

CO2emissions for passenger cars and the smallest light trucks of 323 g/mi in 2009 and 205 g/mi in 2016, and for the remaining light trucks of 439 g/mi in 2009 and 332 g/mi in 2016. On June 30, 2009, EPA granted California's request for a waiver of preemption under the CAA.\17\ The granting of the waiver permits California and the other States to proceed with implementing the California emission standards.

\17\ 74 FR 32744 (July 8, 2009).

2. Joint Proposal for a National Program

On May 19, 2009, the Department of Transportation and the

Environmental Protection Agency issued a Notice of Upcoming Joint

Rulemaking to propose a strong and coordinated fuel economy and greenhouse gas National Program for Model Year (MY) 2012-2016 light duty vehicles.

B. Summary of the Joint Proposal

In this joint rulemaking, EPA is proposing GHG emissions standards under the Clean Air Act (CAA), and NHTSA is proposing Corporate Average

Fuel Economy (CAFE) standards under the Energy Policy and Conservation

Action of 1975 (EPCA), as amended by the Energy Independence and

Security Act of 2007 (EISA). The intention of this joint rulemaking proposal is to set forth a carefully coordinated and harmonized approach to implementing these two statutes, in accordance with all substantive and procedural requirements imposed by law.

Climate change is widely viewed as the most significant long-term threat to the global environment. According to the Intergovernmental

Panel on Climate Change, anthropogenic emissions of greenhouse gases are very likely (90 to 99 percent probability) the cause of most of the observed global warming over the last 50 years. The primary GHGs of concern are carbon dioxide (CO2), methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. Mobile sources emitted 31.5 percent of all U.S. GHG in 2006, and have been the fastest-growing source of U.S. GHG since 1990. Light-duty vehicles emit four GHGs--CO2, methane, nitrous oxide, and hydrofluorocarbons--and are responsible for nearly 60 percent of all mobile source GHGs. For Light-duty vehicles, CO2emissions represent about 95 percent of all greenhouse emissions, and the

CO2emissions measured over the EPA tests used for fuel economy compliance represent over 90 percent of total light-duty vehicle greenhouse gas emissions.

Improving energy security by reducing our dependence on foreign oil has been a national objective since the first oil price shocks in the 1970s. Net petroleum imports now account for approximately 60 percent of U.S. petroleum consumption. World crude oil production is highly concentrated, exacerbating the risks of supply disruptions and price shocks. Tight global oil markets led to prices over $100 per barrel in 2008, with gasoline reaching as high as $4 per gallon in many parts of the U.S., causing financial hardship for many families. The export of

U.S. assets for oil imports continues to be an important component of the U.S.' historically unprecedented trade deficits. Transportation accounts for about two-thirds of U.S. petroleum consumption. Light-duty vehicles account for about 60 percent of transportation oil use, which means that they alone account for about 40 percent of all U.S. oil consumption.

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

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

This joint proposal covers passenger cars, light-duty-trucks, and medium-duty passenger vehicles built in model years 2012 through 2016.

These vehicle categories are responsible for almost 60 percent of all

U.S. transportation-related GHG emissions. EPA and NHTSA expect that automobile manufacturers will meet these proposed standards by utilizing technologies that will reduce vehicle GHG emissions and improve fuel economy. Although many of these technologies are available today, the emissions reductions and fuel economy improvements proposed would involve more widespread use of these technologies across the light-duty vehicle fleet. These include improvements to engines, transmissions, and tires, increased use of start-stop technology, improvements in air conditioning systems (to the extent currently allowed by law), increased use of hybrid and other advanced technologies, and the initial commercialization of electric vehicles and plug-in hybrids.

The proposed National Program would result in approximately 950 million metric tons of total carbon dioxide equivalent emissions reductions and approximately 1.8 billion barrels of oil savings over the lifetime of vehicles sold in model years 2012 through 2016. In total, the combined EPA and NHTSA 2012-2016 standards would reduce GHG emissions from the U.S. light-duty fleet by approximately 21 percent by 2030 over the level that would occur in the absence of the National

Program. These proposals also provide important energy security benefits, as light-duty vehicles are about 95 percent dependent on oil- based fuels. The benefits of the proposed National Program would total about $250 billion at a 3% discount rate, or $195 billion at a 7% discount rate. In the discussion that follows in Sections III and IV, each agency explains the related benefits for their individual standards.

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

CO2emissions during its lifetime.

This joint proposal also offers the prospect of important regulatory convergence and certainty to automobile companies. Absent this proposal, there would be three separate Federal and State regimes independently regulating light-duty vehicles to reduce fuel consumption and GHG emissions: NHTSA's CAFE standards, EPA's GHG standards, and the

GHG standards applicable in California and other States adopting the

California standards. This joint proposal would allow automakers to meet both the NHTSA and EPA requirements with a single national fleet, greatly simplifying the industry's technology, investment and compliance strategies. In addition, in a letter dated May 18, 2009,

California stated that it ``recognizes the benefit for the country and

California of a National Program to address greenhouse gases and fuel economy and the historic announcement of United States Environmental

Protection Agency (EPA) and National Highway Transportation Safety

Administration's (NHTSA) intent to jointly propose a rule to set standards for both. California fully supports proposal and adoption of such a National Program.'' To promote the National Program, California announced its commitment to take several actions, including revising its program for MYs 2012-2016 such that compliance with the Federal GHG standards would be deemed to be compliance with California's GHG standards. This would allow the single national fleet used by automakers to meet the two Federal requirements and to meet California requirements as well. This commitment was conditioned on several points, including EPA GHG standards that are substantially similar to those described in the May 19, 2009 Notice of Upcoming Joint

Rulemaking. Many automakers and trade associations also announced their support for the National Program announced that day.\18\ The manufacturers conditioned their support on EPA and NHTSA standards substantially similar to those described in that Notice. NHTSA and EPA met with many vehicle manufacturers to discuss the feasibility of the

National Program. EPA and NHTSA are confident that these proposed GHG and CAFE standards, if finalized, would successfully harmonize both the

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

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

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

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

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

These elements are outlined in the following sections.

C. Background and Comparison of NHTSA and EPA Statutory Authority

This section provides the agencies' respective statutory authorities under which CAFE and GHG standards are established. 1. NHTSA Statutory Authority

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

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amended by EISA. EPCA mandates a motor vehicle fuel economy regulatory program to meet the various facets of the need to conserve energy, including ones having environmental and foreign policy implications.

EPCA allocates the responsibility for implementing the program between

NHTSA and EPA as follows: NHTSA sets CAFE standards for passenger cars and light trucks; EPA establishes the procedures for testing, tests vehicles, collects and analyzes manufacturers' data, and calculates the average fuel economy of each manufacturer's passenger cars and light trucks; and NHTSA enforces the standards based on EPA's calculations. a. Standard Setting

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

For each future model year, EPCA requires that NHTSA establish standards at ``the maximum feasible average fuel economy level that it decides the manufacturers can achieve in that model year,'' based on the agency's consideration of four statutory factors: technological feasibility, economic practicability, the effect of other standards of the Government on fuel economy, and the need of the nation to conserve energy. EPCA does not define these terms or specify what weight to give each concern in balancing them; thus, NHTSA defines them and determines the appropriate weighting based on the circumstances in each CAFE standard rulemaking.\19\

\19\ See Center for Biological Diversity v. NHTSA, 538 F.3d. 1172, 1195 (9th Cir. 2008) (``The EPCA clearly requires the agency to consider these four factors, but it gives NHTSA discretion to decide how to balance the statutory factors--as long as NHTSA's balancing does not undermine the fundamental purpose of the EPCA:

Energy conservation.'')

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

MY 2020. i. Factors That Must Be Considered in Deciding the Appropriate

Stringency of CAFE Standards

(1) Technological Feasibility

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

(2) Economic Practicability

``Economic practicability'' refers to whether a standard is one

``within the financial capability of the industry, but not so stringent as to'' lead to ``adverse economic consequences, such as a significant loss of jobs or the unreasonable elimination of consumer choice.'' \20\

This factor is especially important in the context of current events, where the automobile industry is facing significantly adverse economic conditions, as well as significant loss of jobs. In an attempt to ensure the economic practicability of attribute-based standards, NHTSA considers a variety of factors, including the annual rate at which manufacturers can increase the percentage of its fleet that employs a particular type of fuel-saving technology, and cost to consumers.

Consumer acceptability is also an element of economic practicability, one which is particularly difficult to gauge during times of frequently-changing fuel prices. NHTSA believes this approach is reasonable for the MY 2012-2016 standards in view of the facts before it at this time. NHTSA is aware, however, that facts relating to a variety of key issues in CAFE rulemaking are steadily evolving and seeks comments on the balancing of these factors in light of the facts available during the comment period.

\20\ 67 FR 77015, 77021 (Dec. 16, 2002).

At the same time, the law does not preclude a CAFE standard that poses considerable challenges to any individual manufacturer. The

Conference Report for EPCA, as enacted in 1975, makes clear, and the case law affirms, ``a determination of maximum feasible average fuel economy should not be keyed to the single manufacturer which might have the most difficulty achieving a given level of average fuel economy.''

\21\ Instead, NHTSA is compelled ``to weigh the benefits to the nation of a higher fuel economy standard against the difficulties of individual automobile manufacturers.'' Id. The law permits CAFE standards exceeding the projected capability of any particular manufacturer as long as the standard is economically practicable for the industry as a whole. Thus, while a particular CAFE standard may pose difficulties for one manufacturer, it may also present opportunities for another. The CAFE program is not necessarily intended to maintain the competitive positioning of each particular company.

Rather, it is intended to enhance fuel economy of the vehicle fleet on

American roads, while protecting motor vehicle safety and being mindful of the risk of harm to the overall United States economy.

\21\ CEI-I, 793 F.2d 1322, 1352 (D.C. Cir. 1986).

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

Fuel Economy

``The effect of other motor vehicle standards of the Government on fuel economy,'' involves an analysis of the effects of compliance with emission,\22\ safety, noise, or damageability standards on fuel economy capability and thus on average fuel economy. In previous CAFE rulemakings, the agency has said that pursuant to this provision, it considers the adverse effects of other motor vehicle standards on fuel economy. It said so because, from the CAFE program's earliest years

\23\ until present, the effects of such compliance on fuel economy capability over the history of the CAFE program have been negative ones. For example, safety standards that have the effect of increasing vehicle weight lower vehicle fuel economy capability and thus decrease the level of average fuel economy that the agency can determine to be feasible.

\22\ In the case of emission standards, this includes standards adopted by the Federal government and can include standards adopted by the States as well, since in certain circumstances the Clean Air

Act allows States to adopt and enforce State standards different from the Federal ones.

\23\ 42 FR 63184, 63188 (Dec. 15, 1977). See also 42 FR 33534, 33537 (Jun. 30, 1977).

In the wake of Massachusetts v. EPA and of EPA's proposed endangerment finding, granting of a waiver to California for its motor vehicle GHG standards, and its own proposal of GHG standards, NHTSA is confronted with the issue of how to treat those standards under the

``other motor vehicle standards'' provision. To the extent the GHG standards result in increases in fuel economy, they would do so almost exclusively as a result of inducing manufacturers to install the same types of technologies used by manufacturers in complying with the CAFE standards. The primary exception would involve increases in the efficiency of air conditioners.

Comment is requested on whether and in what way the effects of the

California and EPA standards should be

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

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

``The need of the United States to conserve energy'' means ``the consumer cost, national balance of payments, environmental, and foreign policy implications of our need for large quantities of petroleum, especially imported petroleum.'' \24\ Environmental implications principally include reductions in emissions of criteria pollutants and carbon dioxide. Prime examples of foreign policy implications are energy independence and security concerns.

\24\ 42 FR 63184, 63188 (1977).

(a) Fuel Prices and the Value of Saving Fuel

Projected future fuel prices are a critical input into the preliminary economic analysis of alternative CAFE standards, because they determine the value of fuel savings both to new vehicle buyers and to society. In this rule, NHTSA relies on fuel price projections from the U.S. Energy Information Administration's (EIA) Annual Energy

Outlook (AEO) for this analysis. Federal government agencies generally use EIA's projections in their assessments of future energy-related policies.

(b) Petroleum Consumption and Import Externalities

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

Conversely, reducing U.S. imports of crude petroleum or refined fuels or reducing fuel consumption can reduce these external costs.

While reductions in domestic fuel refining and distribution that result from lower fuel consumption will reduce U.S. emissions of various pollutants, additional vehicle use associated with the rebound effect \25\ from higher fuel economy will increase emissions of these pollutants. Thus, the net effect of stricter CAFE standards on emissions of each pollutant depends on the relative magnitudes of its reduced emissions in fuel refining and distribution, and increases in its emissions from vehicle use.

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

Fuel savings from stricter CAFE standards also result in lower emissions of CO2, the main greenhouse gas emitted as a result of refining, distribution, and use of transportation fuels.

Lower fuel consumption reduces carbon dioxide emissions directly, because the primary source of transportation-related CO2 emissions is fuel combustion in internal combustion engines.

NHTSA has considered environmental issues, both within the context of EPCA and the National Environmental Policy Act, in making decisions about the setting of standards from the earliest days of the CAFE program. As courts of appeal have noted in three decisions stretching over the last 20 years,\26\ NHTSA defined the ``need of the Nation to conserve energy'' in the late 1970s as including ``the consumer cost, national balance of payments, environmental, and foreign policy implications of our need for large quantities of petroleum, especially imported petroleum.'' \27\ Pursuant to that view, NHTSA declined in the past to include diesel engines in determining the appropriate level of standards for passenger cars and for light trucks because particulate emissions from diesels were then both a source of concern and unregulated.\28\ In 1988, NHTSA included climate change concepts in its

CAFE notices and prepared its first environmental assessment addressing that subject.\29\ It cited concerns about climate change as one of its reasons for limiting the extent of its reduction of the CAFE standard for MY 1989 passenger cars.\30\ Since then, NHTSA has considered the benefits of reducing tailpipe carbon dioxide emissions in its fuel economy rulemakings pursuant to the statutory requirement to consider the nation's need to conserve energy by reducing fuel consumption.

\26\ Center for Auto Safety v. NHTSA, 793 F.2d 1322, 1325 n. 12

(D.C. Cir. 1986); Public Citizen v. NHTSA, 848 F.2d 256, 262-3 n. 27

(D.C. Cir. 1988) (noting that ``NHTSA itself has interpreted the factors it must consider in setting CAFE standards as including environmental effects''); and Center for Biological Diversity v.

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

\27\ 42 FR 63184, 63188 (Dec. 15, 1977) (emphasis added).

\28\ For example, the final rules establishing CAFE standards for MY 1981-84 passenger cars, 42 FR 33533, 33540-1 and 33551 (Jun. 30, 1977), and for MY 1983-85 light trucks, 45 FR 81593, 81597 (Dec. 11, 1980).

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

\30\ 53 FR 39275, 39302 (Oct. 6, 1988).

ii. Other Factors Considered by NHTSA

NHTSA considers the potential for adverse safety consequences when in establishing CAFE standards. This practice is recognized approvingly in case law.\31\ Under the universal or ``flat'' CAFE standards that

NHTSA was previously authorized to establish, the primary risk to safety came from the possibility that manufacturers would respond to higher standards by building smaller, less safe vehicles in order to

``balance out'' the larger, safer vehicles that the public generally preferred to buy. Under the attribute-based standards being proposed in this action, that risk is reduced because building smaller vehicles tends to raise a manufacturer's overall CAFE obligation, rather than only raising its fleet average CAFE. However, even under attribute- based standards, there is still risk that manufacturers will rely on downweighting to improve their fuel economy (for a given vehicle at a given

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footprint target) in ways that may reduce safety.

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

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

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

Setting Standards

EPCA provides that in determining the level at which it should set

CAFE standards for a particular model year, NHTSA may not consider the ability of manufacturers to take advantage of several EPCA provisions that facilitate compliance with the CAFE standards and thereby reduce the costs of compliance.\32\ As noted below in Section IV, manufacturers can earn compliance credits by exceeding the CAFE standards and then use those credits to achieve compliance in years in which their measured average fuel economy falls below the standards.

Manufacturers can also increase their CAFE levels through MY 2019 by producing alternative fuel vehicles. EPCA provides an incentive for producing these vehicles by specifying that their fuel economy is to be determined using a special calculation procedure that results in those vehicles being assigned a high fuel economy level.

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

iv. Weighing and Balancing of Factors

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

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

Inc. v. EPA, 598 F.2d 91, 106 (D.C. Cir. 1978) (``In reviewing a numerical standard we must ask whether the agency's numbers are within a zone of reasonableness, not whether its numbers are precisely right''). v. Other Requirements Related to Standard Setting

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

The standards for passenger cars and light trucks must be based on one or more vehicle attributes, like size or weight, that correlate with fuel economy and must be expressed in terms of a mathematical function. Fuel economy targets are set for individual vehicles and increase as the attribute decreases and vice versa. For example, size- based (i.e., size-indexed) standards assign higher fuel economy targets to smaller (and generally, but not necessarily, lighter) vehicles and lower ones to larger (and generally, but not necessarily, heavier) vehicles. The fleet-wide average fuel economy that a particular manufacturer is required to achieve depends on the size mix of its fleet, i.e., the proportion of the fleet that is small-, medium- or large-sized.

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

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

See Section I.C.2 for details.

The fuel economy test procedures for light trucks could be amended through rulemaking to provide for air conditioner operation during testing and to take other steps for improving the accuracy and representativeness of fuel economy measurements. Comment is sought by the agencies regarding implementing such amendments beginning in MY 2017 and also on the more immediate interim alternative step of providing CAFE program credits under the authority of 49 U.S.C. 32904(c) for light trucks equipped with relatively efficient air conditioners for MYs 2012-2016. These CAFE credits would be earned by manufacturers on the same terms and under the same conditions as EPA is proposing to provide them under the CAA, and additional detail is on this request for comment for early CAFE credits is contained in Section

IV of this preamble. Modernizing the passenger car test procedures, or even providing similar credits, would not be possible under EPCA as currently written. c. Enforcement and Compliance Flexibility

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

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

In the event that a manufacturer does not comply with a CAFE standard, even after the consideration of credits, EPCA provides for the assessing of civil penalties, unless, as provided below, the manufacturer has earned credits for exceeding a standard in an earlier year or expects to earn credits in a later year.\33\ The Act specifies a precise formula for determining the amount of civil penalties for such a noncompliance. The penalty, as adjusted for inflation by law, is

$5.50 for each tenth of a mpg that a manufacturer's average fuel economy falls short of the standard for a given model year multiplied by the total volume of those vehicles in the affected fleet (i.e., import or domestic passenger car, or light truck), manufactured for that model year. The amount of the penalty may not be reduced except under the unusual or extreme circumstances specified in the statute.

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

Unlike the National Traffic and Motor Vehicle Safety Act, EPCA does not provide for recall and remedy in the event of a noncompliance. The presence of recall and remedy provisions\34\ in the Safety Act and their absence in EPCA is believed to arise from the difference in the application of the safety standards and CAFE standards. A safety standard applies to individual vehicles; that is, each vehicle must possess the requisite equipment or feature that must provide the requisite type and level of performance. If a vehicle does not, it is noncompliant. Typically, a vehicle does not entirely lack an item or equipment or feature. Instead, the equipment or features fails to perform adequately. Recalling the vehicle to repair or replace the noncompliant equipment or feature can usually be readily accomplished.

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

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

Thus, under EPCA, there is no such thing as a noncompliant vehicle, only a noncompliant fleet. No particular vehicle in a noncompliant fleet is any more, or less, noncompliant than any other vehicle in the fleet. 2. EPA Statutory Authority

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

This proposal implements a specific provision from Title II, section 202(a).\35\ Section 202(a)(1) of the Clean Air Act (CAA) states that ``the Administrator shall by regulation prescribe (and from time to time revise) * * * standards applicable to the emission of any air pollutant from any class or classes of new motor vehicles * * *, which in his judgment cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare.'' If

EPA makes the appropriate endangerment and cause or contribute findings, then section 202(a) authorizes EPA to issue standards applicable to emissions of those pollutants.

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

Any standards under CAA section 202(a)(1) ``shall be applicable to such vehicles * * * for their useful life.'' Emission standards set by the EPA under CAA section 202(a)(1) are technology-based, as the levels chosen must be premised on a finding of technological feasibility.

Thus, standards promulgated under CAA section 202(a) are to take effect only ``after providing such period as the Administrator finds necessary to permit the development and application of the requisite technology, giving appropriate consideration to the cost of compliance within such period'' (section 202(a)(2); see also NRDC v. EPA, 655 F.2d 318, 322

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

F.2d at 328, quoting International Harvester Co. v. Ruckelshaus, 478

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

Although standards under CAA section 202(a)(1) are technology- based, they are not based exclusively on technological capability. EPA has the discretion to consider and weigh various factors along with technological feasibility, such as the cost of compliance (see section 202(a)(2)), lead time necessary for compliance (section 202(a)(2)), safety (see NRDC, 655 F.2d at 336 n. 31) and other impacts on consumers, and energy impacts associated with use of the technology.

See George E. Warren Corp. v. EPA, 159 F.3d 616, 623-624 (D.C. Cir. 1998) (ordinarily permissible for EPA to consider factors not specifically enumerated in the Act). See also Entergy Corp. v.

Riverkeeper, Inc., 129 S.Ct. 1498, 1508-09 (2009) (congressional silence did not bar EPA from employing cost-benefit analysis under

Clean Water Act absent some other clear indication that such analysis was prohibited; rather, silence indicated discretion to use or not use such an approach as the agency deems appropriate).

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

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

While the statutory language of section 231 is not identical to other provisions in title II of the CAA that direct EPA to establish technology-based standards for various types of engines, EPA interprets its authority under section 231 to be somewhat similar to those provisions that require us to identify a reasonable balance of specified emissions reduction, cost, safety, noise, and other factors. See, e.g., Husqvarna AB v. EPA, 254 F.3d 195 (DC Cir. 2001)

(upholding EPA's promulgation of technology-based standards for small non-road engines under section 213(a)(3) of the CAA). However,

EPA is not compelled under section 231 to obtain the ``greatest degree of emission reduction achievable'' as per sections 213 and 202 of the CAA, and so EPA does not interpret the Act as requiring the agency to give subordinate status to factors such as cost, safety, and noise in determining what standards are reasonable for aircraft engines. Rather, EPA has greater flexibility under section 231 in determining what standard is most reasonable for aircraft engines, and is not required to achieve a ``technology forcing'' result.\36\

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

This interpretation was upheld as reasonable in NACAA v. EPA, (489

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

Club v. EPA, 325 F.3d 374, 378 (D.C. Cir. 2003) (even where a provision is technology-forcing, the provision ``does not resolve how the

Administrator should weigh all [the statutory] factors in the process of finding the 'greatest emission reduction achievable' ''). Also see

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

Inc. v. EPA, 598 F. 2d 91, 106 (D.C. Cir. 1978) (``In reviewing a numerical standard we must ask whether the agency's numbers are within a zone of reasonableness, not whether its numbers are precisely right''); Permian Basin Area Rate Cases, 390 U.S. 747, 797 (1968)

(same); Federal Power Commission v. Conway Corp., 426 U.S. 271, 278

(1976) (same); Exxon Mobil Gas Marketing Co. v. FERC, 297 F. 3d 1071, 1084 (D.C. Cir. 2002) (same). a. EPA's Testing Authority

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

Pursuant to EPCA, EPA is required to measure fuel economy for each model and to calculate each manufacturer's average fuel economy.\37\

EPA uses the same tests--the FTP and HFET--for fuel economy testing.

EPA established the FTP for emissions measurement in the early 1970s.

In 1976, in response to the Energy Policy and Conservation Act (EPCA) statute, EPA extended the use of the FTP to fuel economy measurement and added the HFET.\38\ The provisions in the 1976 regulation, effective with the 1977 model year, established procedures to calculate fuel economy values both for labeling and for CAFE purposes. Under

EPCA, EPA is required to use these procedures (or procedures which yield comparable results) for measuring fuel economy for cars for CAFE purposes, but not for labeling purposes.\39\ EPCA does not pose this restriction on CAFE test procedures for light trucks, but EPA does use the FTP and HFET for this purpose. EPA determines fuel economy by measuring the amount of CO2and all other carbon compounds

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

\37\ See 49 U.S.C. 32904(c).

\38\ See 41 FR 38674 (Sept. 10, 1976), which is codified at 40

CFR part 600.

\39\ See 49 U.S.C. 32904(c).

b. EPA Enforcement Authority

Section 207 of the CAA grants EPA broad authority to require manufacturers to remedy vehicles if EPA determines there are a substantial number of noncomplying vehicles. In addition, section 205 of the CAA authorizes EPA to assess penalties of up to $37,500 per vehicle for violations of various prohibited acts specified in the CAA.

In determining the appropriate penalty, EPA must consider a variety of factors such as the gravity of the violation, the economic impact of the violation, the violator's history of compliance, and ``such other matters as justice may require.'' Unlike EPCA, the CAA does not authorize vehicle manufacturers to pay fines in lieu of meeting emission standards. 3. Comparing the Agencies' Authority

As the above discussion makes clear, there are both important differences between the statutes under which each agency is acting as well as several important areas of similarity. One important difference is that EPA's authority addresses various GHGs, while NHTSA's authority addresses fuel economy as measured under specified test procedures.

This difference is reflected in this rulemaking in the scope of the two standards: EPA's proposal takes into account air conditioning related reductions, as well as proposed standards for methane and

N2O, but NHTSA's does not. A second important difference is that EPA is proposing certain compliance flexibilities, and takes those flexibilities into account in its technical analysis and modeling supporting its proposal. EPCA places certain limits on compliance flexibilities for CAFE, and expressly prohibits NHTSA from considering the impacts of the compliance flexibilities in setting the CAFE standard so that the manufacturers' election to avail themselves of the permitted flexibilities remains strictly voluntary.\40\ The Clean Air

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

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

These differences, however, do not change the fact that in many critical ways the two agencies are charged with addressing the same basic issue of reducing GHG emissions and improving fuel economy. Given the direct relationship between emissions of CO2and fuel economy levels, both agencies are looking at the same set of control technologies (with the exception of the air conditioning related technologies). The standards set by each agency will drive the kind and degree of penetration of this set of technologies across the vehicle fleet. As a result, each agency is trying to answer the same basic question--what kind and degree of technology penetration is necessary to achieve the agencies' objectives in the rulemaking time frame, given the

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agencies' respective statutory authorities?

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

(see 49 U.S.C. 32902 (f)), and EPA has the discretion to take into consideration NHTSA's CAFE standards in determining appropriate action under section 202(a). This is consistent with the Supreme Court's statement that EPA's mandate to protect public health and welfare is wholly independent from NHTSA's mandate to promote energy efficiency, but there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency. Massachusetts v. EPA, 549 U.S. 497, 532 (2007).

In this context, it is in the Nation's interest for the two agencies to work together in developing their respective proposed standards, and they have done so. For example, the agencies have committed considerable effort to develop a joint Technical Support

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

As discussed above, in determining the standards to propose the agencies are called upon to weigh and balance various factors that are relevant under their respective statutory provisions. Each agency is to exercise its judgment and balance many similar factors, such as the availability of technologies, the appropriate lead time for introduction of technology, and based on this, the feasibility and practicability of their standards; and the impacts of their standards on the following: Emissions reductions (of both GHGs and non-GHGs); oil conservation; fuel savings by consumers; the auto industry; as well as other relevant factors such as safety. Conceptually, each agency is considering and balancing many of the same factors, and each agency is making a decision that at its core is answering the same basic question of what kind and degree of technology penetration is appropriate and required in light of all of the relevant factors. Each Administrator is called upon to exercise judgment and propose standards that the

Administrator determines are a reasonable balance of these relevant factors.

As set out in detail in Sections III and IV of this notice, both

EPA and NHTSA believe the agencies' proposals are fully justified under their respective statutory criteria. The proposed standards can be achieved within the lead time provided, based on a projected increased use of various technologies which in most cases are already in commercial application in the fleet to varying degrees. Detailed modeling of the technologies that could be employed by each manufacturer supports this initial conclusion. The agencies also carefully assessed the costs of the proposed rules, both for the industry as a whole and per manufacturer, as well as the costs per vehicle, and consider these costs to be reasonable and recoverable

(from fuel savings). The agencies recognize the significant increase in the application of technology that the proposed standards would require across a high percentage of vehicles, which will require the manufacturers to devote considerable engineering and development resources before 2012 laying the critical foundation for the widespread deployment of upgraded technology across a high percentage of the 2012- 2016 fleet. This clearly will be challenging for automotive manufacturers and their suppliers, especially in the current economic climate. However, based on all of the analyses performed by the agencies, our judgment is that it is a challenge that can reasonably be met.

The agencies also evaluated the impacts of these standards with respect to the expected reductions in GHGs and oil consumption and, found them to be very significant in magnitude. The agencies considered other factors such as the impacts on noise, energy, and vehicular congestion. The impact on safety was also given careful consideration.

Moreover, the agencies quantified the various costs and benefits of the proposed standards, to the extent practicable. The agencies' analyses to date indicate that the overall quantified benefits of the proposed standards far outweigh the projected costs. All of these factors support the reasonableness of the proposed standards.

The agencies also evaluated alternatives which were less and more stringent than those proposed. Less stringent standards, however, would forego important GHG emission reductions and fuel savings that are technically achievable at reasonable cost in the lead time provided. In addition, less stringent GHG standards would not result in a harmonized

National Program for the country. Based on California's letter of May 18, 2009, the GHG emission standards would not result in the State of

California revising its regulations such that compliance with EPA's GHG standards would be deemed to be compliance with California's GHG standards for these model years. The substantial cost advantages associated with a single national program discussed at the outset of this section would then be foregone.

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

Page 49467

unreasonable to propose more stringent standards. Even in a case where economic factors were not a consideration, there are real-world time constraints which must be considered due to the short lead time available for the early years of this program, in particular for model years 2012 and 2013. The physical processes which the automotive industry must follow in order to introduce reliable, high quality products require certain minimums of time during the product development process. These include time needed for durability testing which requires significant mileage accumulation under a range of conditions (e.g., high and low temperatures, high altitude, etc.) in both real-world and laboratory conditions. In addition, the product development cycle includes a number of pre-production gateways on the manufacturing side at both the supplier level and at the automotive manufacturer level that are constrained by time. Thus adequate lead- time is an important factor that the agencies have taken into consideration in evaluating the proposed standards as well as the alternative standards.

As noted, both agencies also considered the overall costs of their respective proposed standards in relation to the projected benefits.

The fact that the benefits are estimated to considerably exceed their costs supports the view that the proposed standards represent a reasonable balance of the relevant statutory factors. In drawing this conclusion, the agencies acknowledge the uncertainties and limitations of the analyses. For example, the analysis of the benefits is highly dependent on the estimated price of fuel projected out many years into the future. There is also significant uncertainty in the potential range of values that could be assigned to the social cost of carbon.

There are a variety of impacts that the agencies are unable to quantify, such as non-market damages, extreme weather, socially contingent effects, or the potential for longer-term catastrophic events, or the impact on consumer choice. The agencies also note the need to consider factors such as the availability of technology within the lead time provided and many of the other factors discussed above.

The cost-benefit analyses are one of the important things the agencies consider in making a judgment as to the appropriate standards to propose under their respective statutes. Consideration of the results of the cost-benefit analyses by the agencies, however, includes careful consideration of the limitations discussed above.

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

Under CAA section 202(a), EPA is proposing to allow CO2 credit transfers between a single manufacturer's car and truck fleets, with no corresponding limits on such transfers. In general, the EPCA limit on

CAFE credit transfers is not expected to have the practical effect of limiting the amount of CO2 emission credits manufacturers may be able to transfer under the CAA program, recognizing that manufacturers must comply with both the proposed CAFE standards and the proposed EPA standards. However, it is possible that in some specific circumstances the EPCA limit on CAFE credit transfers could constrain the ability of a manufacturer to achieve cost savings through unlimited use of GHG emissions credit transfers under the CAA program.

The agencies request comment on the impact of the EISA credit transfer caps on the implementation of the proposed CAFE and GHG standards, including whether it would impose such a constraint and the impacts of a constraint on costs, emissions, and fuel economy. In addition, the agencies invite comment on approaches that could assist in addressing this issue, recognizing the importance the agencies place on harmonization, and that would be consistent with their respective statutes. For example, any approach must be consistent with both the

EISA transfer caps and the EPCA requirement to set annual CAFE standards at the maximum feasible average fuel economy level that NHTSA decides the manufacturers can achieve in that model year, based on the agency's consideration of the four statutory factors. Manufacturers should submit publicly available evidence supporting their position on this issue so that a well informed decision can be made and explained to the public.

D. Summary of the Proposed Standards for the National Program 1. Joint Analytical Approach

NHTSA and EPA have worked closely together on nearly every aspect of this joint proposal. The extent and results of this collaboration is reflected in the elements of the respective NHTSA and EPA proposals, as well as the analytical work contained in the Joint Technical Support

Document (Joint TSD). The Joint TSD, in particular, describes important details of the analytical work that are shared, as well as any differences in approach. These includes the build up of the baseline and reference fleets, the derivation of the shape of the curve that defines the standards, a detailed description of the costs and effectiveness of the technology choices that are available to vehicle manufacturers, a summary of the computer models used to estimate how technologies might be added to vehicles, and finally the economic inputs used to calculate the impacts and benefits of the rules, where practicable. Some of these are highlighted below.

EPA and NHTSA have jointly developed attribute curve shapes that each agency is using for its proposed standards. Both agencies reviewed the shape of the attribute-based curve used for the model year 2011

CAFE standards. After a new and thorough analysis of current vehicle data and the comments received from previous two CAFE rules, the two agencies improved upon the constrained logistic curve and developed a similarly shaped piece-wise linear function. Further details of these functions can be found in Sections III and IV of this preamble as well as Chapter 2 of the Joint TSD.

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

Joint TSD (and for A/C, Chapter 2 of the EPA RIA).

This detailed technology data forms the inputs to computer models that each agency uses to project how vehicle manufacturers may add those technologies in order to comply with new standards. These are the

OMEGA and Volpe models for EPA and NHTSA respectively. The Volpe model is

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

This comprehensive joint analytical approach has provided a sound and consistent technical basis for each agency in developing its proposed standards, which are summarized in the sections below. 2. Level of the Standards

In this notice, EPA and NHTSA are proposing two separate sets of standards, each under its respective statutory authorities. EPA is proposing national CO2emissions standards for light-duty vehicles under section 202 (a) of the Clean Air Act. These standards would require these vehicles to meet an estimated combined average emissions level of 250 grams/mile of CO2in model year 2016.

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

Given differences in their respective statutory authorities, however, the agencies' proposed standards include some important differences. Under the CO2fleet average standard proposed under CAA section 202(a), EPA expects manufacturers to take advantage of the option to generate CO2-equivalent credits by reducing emissions of hydrofluorocarbons (HFCs) and CO2through improvements in their air conditioner systems. EPA accounted for these reductions in developing its proposed CO2standard. EPCA does not allow vehicle manufacturers to use air conditioning credits in complying with CAFE standards for passenger cars.\41\ CO2 emissions due to air conditioning operation are not measured by the test procedure mandated by statute for use in establishing and enforcing CAFE standards for passenger cars. As a result, improvements in the efficiency of passenger car air conditioners would not be considered as a possible control technology for purposes of CAFE.

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

These differences regarding the treatment of air conditioning improvements (related to CO2and HFC reductions) affect the relative stringency of the EPA standard and NHTSA standard. The 250 grams per mile of CO2equivalent emissions limit is equivalent to 35.5 mpg \42\ if the automotive industry were to meet this CO2level all through fuel economy improvements. As a consequence of the prohibition against NHTSA's allowing credits for air conditioning improvements for purposes of passenger car CAFE compliance, NHTSA is proposing fuel economy standards that are estimated to require a combined (passenger car and light truck) average fuel economy level of 34.1 mpg by MY 2016.

\42\ The agencies are using a common conversion factor between fuel economy in units of miles per gallon and CO2 emissions in units of grams per mile. This conversion factor is 8,887 grams CO2per gallon gasoline fuel. Diesel fuel has a conversion factor of 10,180 grams CO2per gallon diesel fuel though for the purposes of this calculation, we are assuming 100% gasoline fuel.

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

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

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

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

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

2011-base

2012

2013

2014

2015

2016

Passenger Cars................................

30.2

33.6

34.4

35.2

36.4

38.0

Light Trucks..................................

24.1

25.0

25.6

26.2

27.1

28.3

Combined Cars & Trucks........................

27.3

29.8

30.6

31.4

32.6

34.1

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

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

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

2012

2013

2014

2015

2016

Passenger Cars.....................................................

32.5

33.4

34.3

35.3

36.5

Light Trucks.......................................................

24.1

24.6

25.3

26.3

27.0

Combined Cars & Trucks.............................................

28.7

29.6

30.4

31.6

32.7

NHTSA is also required by EISA to set a minimum fuel economy standard for domestically manufactured passenger cars in addition to the attribute-based passenger car standard. The minimum standard

``shall be the greater of (A) 27.5 miles per gallon; or (B) 92 percent of the average fuel economy projected by the Secretary for the combined domestic and non-domestic passenger automobile fleets manufactured for sale in the United States by all manufacturers in the model year * *

*.'' \46\

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

Based on NHTSA's current market forecast, the agency's estimates of these minimum standards under the proposed MY 2012-2016 CAFE standards

(and, for comparison, the final MY 2011 standard) are summarized below in Table I.D.2-3.\47\ For eventual compliance calculations, the final calculated minimum standards will be updated to reflect any changes in the average fuel economy level required under the final standards.

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

CAFE standard will be 28.0 mpg in MY 2011.

Table I.D.2-3--Estimated Minimum Standard for Domestically Manufactured Passenger Cars Under Final MY 2011 and

Proposed MY 2012-2016 CAFE Standards for Passenger Cars (mpg)

2011

2012

2013

2014

2015

2016

28.0...............................................................

30.9

31.6

32.4

33.5

34.9

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

CO2equivalent emission levels.\48\ The g/mi values are

CO2equivalent values because they include the projected use of A/C credits by manufacturers.

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

Table I.D.2-4--Projected Fleet-Wide Emissions Compliance Levels Under the Proposed Footprint-Based CO2 Standards

(g/mi)

2012

2013

2014

2015

2016

Passenger Cars.....................................................

261

253

246

235

224

Light Trucks.......................................................

352

341

332

317

302

Combined Cars & Trucks.............................................

295

286

276

263

250

As shown in Table I.D.2-4, projected fleet-wide CO2 emission level requirements for cars under the proposed approach are projected to increase in stringency from 261 to 224 grams per mile between MY 2012 and MY 2016. Similarly, fleet-wide CO2 equivalent emission level requirements for trucks are projected to increase in stringency from 352 to 302 grams per mile. As shown, the overall fleet average CO2level requirements are projected to be 250 g/mile in 2016.

EPA anticipates that manufacturers will take advantage of program flexibilities such as flex fueled vehicle credits, and car/truck credit trading. Due to the credit trading between cars and trucks, the estimated improvements in CO2emissions are distributed differently than shown in Table I.D 2-4, where full manufacturer compliance is assumed. Table I.D.2-5 shows EPA projection of the achieved emission levels of the fleet for MY 2012 through 2016, which does consider the impact of car/truck credit transfer and the increase in emissions due to program flexibilities including flex fueled vehicle credits and the temporary leadtime allowance alternative standards. The use of optional air conditioning credits is considered both in this analysis of achieved levels and of the projected levels described above.. As can be seen in Table I.D.2-5, the projected achieved levels are slightly higher for model years 2012-2015 due to the projected use of the proposed flexibilities, but in model

Page 49470

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

Table I.D.2-5--Projected Fleet-Wide Achieved Emission Levels Under the Proposed Footprint-Based CO2 Standards (g/ mi)

2012

2013

2014

2015

2016

Passenger Cars.....................................................

264

254

245

232

220

Light Trucks.......................................................

365

355

346

332

311

Combined Cars & Trucks.............................................

302

291

281

267

250

NHTSA's and EPA's technology assessment indicates there is a wide range of technologies available for manufacturers to consider in upgrading vehicles to reduce GHG emissions and improve fuel economy.\49\ As noted, these include improvements to the engines such as use of gasoline direct injection and downsized engines that use turbochargers to provide performance similar to that of larger engines, the use of advanced transmissions, increased use of start-stop technology, improvements in tire performance, reductions in vehicle weight, increased use of hybrid and other advanced technologies, and the initial commercialization of electric vehicles and plug-in hybrids.

EPA is also projecting improvements in vehicle air conditioners including more efficient as well as low leak systems. All of these technologies are already available today, and EPA's and NHTSA's assessment is that manufacturers would be able to meet the proposed standards through more widespread use of these technologies across the fleet.

\49\ The close relationship between emissions of

CO2--the most prevalent greenhouse gas emitted by motor vehicles--and fuel consumption, means that the technologies to control CO2emissions and to improve fuel economy overlap to a great degree

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

Both agencies considered other standards as part of the rulemaking analyses, both more and less stringent than those proposed. EPA's and

NHTSA's analysis of alternative standards are contained in Sections III and IV of this notice, respectively.

The CAFE and GHG standards described above are based on determining emissions and fuel economy using the city and highway test procedures that are currently used in the CAFE program. Both agencies recognize that these test procedures are not fully representative of real world driving conditions. For example EPA has adopted more representative test procedures that are used in determining compliance with emissions standards for pollutants other than GHGs. These test procedures are also used in EPA's fuel economy labeling program. However, as discussed in Section III, the current information on effectiveness of the individual emissions control technologies is based on performance over the two CAFE test procedures. For that reason EPA is proposing to use the current CAFE test procedures for the proposed CO2 standards and is not proposing to change those test procedures in this rulemaking. NHTSA, as discussed above, is limited by statute in what test procedures can be used for purposes of passenger car testing; however there is no such statutory limitation with respect to test procedures for trucks. However, the same reasons for not changing the truck test procedures apply for CAFE as well.

Both EPA and NHTSA are interested in developing programs that employ test procedures that are more representative of real world driving conditions, to the extent authorized under their respective statutes. This is an important issue, and the agencies intend to address it in the context of a future rulemaking to address standards for model year 2017 and thereafter. This could include a range of test procedure changes to better represent real-world driving conditions in terms of speed, acceleration, deceleration, ambient temperatures, use of air conditioners, and the like. With respect to air conditioner operation, EPA discusses the procedures it intends to use for determining emissions credits for controls on air conditioners in

Section III. Comment is also invited in Section IV on the issue of providing air conditioner credits under 49 U.S.C. 32902 and/or 32904 for light-trucks in the model years covered by this proposal.

Finally, based on the information EPA developed in its recent rulemaking that updated its fuel economy labeling program to better reflect average real-world fuel economy, the calculation of fuel savings and CO2emissions reductions obtained by the proposed CAFE and GHG standards includes adjustments to account for the difference between the fuel economy level measured in the CAFE test procedure and the fuel economy actually achieved on average under real world driving conditions. These adjustments are industry averages for the vehicles' performance as a whole, however, and are not a substitute for the information on effectiveness of individual control technologies that will be explored for purposes of a future GHG and CAFE rulemaking. 3. Form of the Standards

In this rule, NHTSA and EPA are proposing attribute-based standards for passenger cars and light trucks. NHTSA adopted an attribute standard based on vehicle footprint in its Reformed CAFE program for light trucks for model years 2008-2011,\50\ and recently extended this approach to passenger cars in the CAFE rule for MY 2011 as required by

EISA.\51\ EPA and NHTSA are proposing vehicle footprint as the attribute for the GHG

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

\50\ 71 FR 17566 (Apr. 6, 2006).

\51\ 74 FR 14196 (Mar. 30, 2009).

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

CO2grams/mile standards and lower CAFE standards) than smaller vehicles. This is because, generally speaking, smaller vehicles are more capable of achieving higher standards than larger vehicles.

While a manufacturer's fleet average standard could be estimated throughout the model year based on projected production volume of its vehicle fleet, the standard to which the manufacturer must comply would be based on its final model year production figures. A manufacturer's calculation of fleet average emissions at the end of the model year would thus be based on the production-weighted average emissions of each model in its fleet.

In designing the footprint-based standards, the agencies built upon the footprint standard curves for passenger cars and light trucks used in the CAFE rule for MY 2011.\52\ EPA and NHTSA worked together to design car and truck footprint curves that followed from logistic curves used in that rule. The agencies started by addressing two main concerns regarding the car curve. The first concern was that the 2011 car curve was relatively steep near the inflection point thus causing concern that small variations in footprint could produce relatively large changes in fuel economy targets. A curve that was directionally less steep would reduce the potential for gaming. The second issue was that the inflection point of the logistic curve was not centered on the distribution of vehicle footprints across the industries' fleet, thus resulting in a flat (universal or unreformed) standard for over half the fleet. The proposed car curve has been shifted and made less steep compared to the car curve adopted by NHTSA for 2011, such that it better aligns the sloped region with higher production volume vehicle models. Finally, both the car and truck curves are defined in terms of a constrained linear function for fuel consumption and, equivalently, a piece-wise linear function for CO2. NHTSA and EPA include a full discussion of the development of these curves in the joint TSD and a summary is found in Section II below. In addition, a full discussion of the equations and coefficients that define the curves is included in

Section III for the CO2curves and Section IV for the mpg curves. The following figures illustrate the standards. First Figure

I.D.3-1 shows the fuel economy (mpg) car standard curve.

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

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

CO2g/mile for the GHG emissions standards), the level of which depends on the vehicle's attribute (for this proposal, footprint). The manufacturers' fleet average performance is determined by the production-weighed \53\ average (for CAFE, harmonic average) of those targets. NHTSA and EPA are proposing CAFE and CO2 emissions standards defined by constrained linear functions and, equivalently, piecewise linear functions.\54\ As a possible option for future rulemakings, the constrained linear form was introduced by NHTSA in the 2007 NPRM proposing CAFE standards for MY 2011-2015.

\53\ Production for sale in the United States.

\54\ The equations are equivalent but are specified differently due to differences in the agencies' respective models.

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

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EPA is proposing the attribute curves below for assigning a

CO2level to an individual vehicle's footprint value, for model years 2012 through 2016. These CO2values would be production weighted to determine each manufacturer's fleet average standard for cars and trucks. Although the general model of the equation is the same for each vehicle category and each year, the parameters of the equation differ for cars and trucks. Each parameter also changes on an annual basis, resulting in the yearly increases in stringency. Figure I.D.3-3 below illustrates the CO2car standard curves for model years 2012 through 2016 while Figure I.D.3-4 shows the CO2truck standard curves for Model Years 2012- 2016.

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

Page 49476

proposed CO2standards and the proposed CAFE standards to be harmonized across all vehicles. EPA is not changing the car/truck definition for the purposes of any other previous rule.

\55\ 49 CFR part 523.

Generally speaking, a smaller footprint vehicle will have lower

CO2emissions relative to a larger footprint vehicle. A footprint-based CO2standard can be relatively neutral with respect to vehicle size and consumer choice. All vehicles, whether smaller or larger, must make improvements to reduce CO2 emissions, and therefore all vehicles will be relatively more expensive. With the footprint-based standard approach, EPA and NHTSA believe there should be no significant effect on the relative distribution of different vehicle sizes in the fleet, which means that consumers will still be able to purchase the size of vehicle that meets their needs. Table I.D.3-1 illustrates the fact that different vehicle sizes will have varying CO2emissions and fuel economy targets under the proposed standards.

Table I.D.3-1--Model Year 2016 CO2 and Fuel Economy Targets for Various MY 2008 Vehicle Types

Example model

Vehicle type

Example models

footprint (sq. CO2 emissions Fuel economy ft.)

target (g/mi) target (mpg)

Example Passenger Cars

Compact car........................... Honda Fit...............

214

41.4

Midsize car........................... Ford Fusion.............

237

37.3

Fullsize car.......................... Chrysler 300............

270

32.8

Example Light-Duty Trucks

Small SUV............................. 4WD Ford Escape.........

269

32.8

Midsize crossover..................... Nissan Murano...........

289

30.6

Minivan............................... Toyota Sienna...........

313

28.2

Large pickup truck.................... Chevy Silverado.........

358

24.7

E. Summary of Costs and Benefits for the Joint Proposal

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

NHTSA's proposed CAFE standards are presented first, followed by those from EPA's analysis of the proposed GHG emissions standards.

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

For several reasons, the estimates for costs and benefits presented by NHTSA and EPA, while consistent, are not directly comparable, and thus should not be expected to be identical. Most important, NHTSA and

EPA's proposed standards would require slightly different fuel efficiency improvements. EPA's proposed GHG standard is more stringent in part due to its assumptions about manufacturers' use of air conditioning credits, which result from reductions in air conditioning- related emissions of HFCs and CO2. In addition, the proposed

CAFE and GHG standards offer different program flexibilities, and the agencies' analyses differ in their accounting for these flexibilities

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

Because EPCA prohibits NHTSA from considering the use of FFV credits when establishing CAFE standards, the agency's primary analysis of costs, fuel savings, and related benefits from imposing higher CAFE standards does not include them. However, EPCA does not prohibit NHTSA from considering the fact that manufacturers may pay civil penalties rather than complying with CAFE standards, and NHTSA's primary analysis accounts for some manufacturers' tendency to do so. In addition, NHTSA performed a supplemental analysis of the effect of FFV credits on benefits and costs from its proposed CAFE standards, to demonstrate the real-world impacts of FFVs, and the summary estimates presented in

Section IV include these effects. Including the use of FFV credits reduces estimated per-vehicle compliance costs of the program. However, as shown below, including FFV credits does not significantly change the projected fuel savings and CO2reductions, because FFV credits reduce the fuel economy levels that manufacturers achieve not only under the proposed standards, but also under the baseline MY 2011

CAFE standards.

Also, EPCA, as amended by EISA, allows manufacturers to transfer credits between their passenger car and light truck fleets. However,

EPCA also prohibits NHTSA from considering manufacturers' ability to use CAFE credits when determining the stringency of the CAFE standards.

Because of this prohibition, NHTSA's primary analysis does not account for the extent to which credit transfers might actually occur. For purposes of its supplemental analysis, NHTSA considered accounting for the fact that EPCA allows some transfer of CAFE credits between the passenger car and light truck fleets, but determined that in NHTSA's year-by-year analysis, manufacturers' likely credit transfers cannot be reasonably estimated at this time.\56\

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

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

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

EPA's analysis also assumes that manufacturers would transfer credits between their car and truck fleets in the MY 2011 baseline subject to the maximum value allowed by EPCA, and that unlimited car- truck credit transfers would occur under the proposed GHG standards.

Including these assumptions in EPA's analysis increases the resulting estimates of fuel savings and reductions in GHG emissions, while reducing EPA's estimates of program compliance costs.

Finally, under the proposed EPA GHG program, there is no ability for a manufacturer to intentionally pay fines in lieu of meeting the standard. Under EPCA, however, vehicle manufacturers are allowed to pay fines as an alternative to compliance with applicable CAFE standards.

NHTSA's analysis explicitly estimates the level of voluntary fine payment by individual manufacturers, which reduces NHTSA's estimates of both the costs and benefits of its proposed CAFE standards. In contrast, the CAA does not allow for fine payment in lieu of compliance with emission standards, and EPA's analysis of costs and benefits from its proposed standard thus assumes full compliance. This assumption results in higher estimates of fuel savings, reductions in GHG emissions, and manufacturers' compliance costs to sell fleets that comply with both NHTSA's proposed CAFE program and EPA's proposed GHG program.

In summary, the projected costs and benefits presented by NHTSA and

EPA are not directly comparable, because the levels being proposed by

EPA include air conditioning-related improvements in equivalent fuel efficiency and HFC reductions, because the assumptions incorporated in

EPA's analysis regarding car-truck credit transfers, and because of the projection by EPA of complete compliance with the proposed GHG standards. It should also be expected that overall EPA's estimates of

GHG reductions and fuel savings achieved by the proposed GHG standards will be slightly higher than those projected by NHTSA only for the CAFE standards because of the reasons described above. For the same reasons,

EPA's estimates of manufacturers' costs for complying with the proposed passenger car and light trucks GHG standards are slightly higher than

NHTSA's estimates for complying with the proposed CAFE standards. 1. Summary of Costs and Benefits of Proposed NHTSA CAFE Standards

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

The agency further estimates that these new CAFE standards would lead to corresponding reductions in CO2emissions totaling 656 million metric tons (mmt) during the useful lives of vehicles sold in MYs 2012-2016. The present value of the economic benefits from avoiding those emissions is $16.4 billion, based on a global social cost of carbon value of $20 per metric ton,\57\ although NHTSA estimated the benefits associated with five different values of a one ton GHG reduction ($5, $10, $20, $34, $56).\58\ See Section II for a more detailed discussion of the social cost of carbon. It is important to note that NHTSA's CAFE standards and EPA's GHG standards will both be in effect, and each will lead to increases in average fuel economy and CO2emissions reductions. The two agencies' standards together comprise the National Program, and this discussion of costs and benefits of NHTSA's CAFE standards does not change the fact that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program.

\57\ We have developed two interim estimates of the global social cost of carbon (SCC) ($/tCO2in 2007 (2006$)): $33 per tCO2at a 3% discount rate, and $5 per tCO2with a 5% discount rate. The 3% and 5% estimates have independent appeal and at this time a clear preference for one over the other is not warranted. Thus, we have also included--and centered our current attention on--the average of the estimates associated with these discount rates, which is $19 (in 2006$) per ton of CO2emissions. When converted to 2007$ for consistency with other economic values used in the agency's analysis, this figure corresponds to $20 per metric ton of

CO2emissions occurring in 2007. This value is assumed to increase at 3% annually for emissions occurring after 2007.

\58\ The $10 and $56 figures are alternative interim estimates based on uncertainty about interest rates of long periods of time.

They are based on an approach that models discount rate uncertainty as something that evolves over time; in contrast, the preferred approach mentioned in the immediately preceding paragraph assumes that there is a single discount rate with equal probability of 3% and 5%.

Table I.E.1-1--NHTSA Fuel Saved (Billion Gallons) and CO2 Emissions Avoided (mmt) Under Proposed CAFE Standards

(Without FFV Credits)

2012

2013

2014

2015

2016

Total

Fuel (b. gal.)............................................

CO2 (mmt).................................................

137

173

206

656

Considering manufacturers' ability to earn credit toward compliance by selling FFVs, NHTSA estimates very little change in incremental fuel savings and avoided CO2emissions, assuming FFV credits would be used toward both the baseline and proposed standards:

Page 49478

Table I.E.1-2--NHTSA Fuel Saved (Billion Gallons) and CO2 Emissions Avoided (mmt) Under Proposed CAFE Standards

(With FFV Credits)

2012

2013

2014

2015

2016

Total

Fuel (b. gal.)............................................

CO2 (mmt).................................................

129

167

204

639

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

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

Percent Discount Rate)

2012

2013

2014

2015

2016

Total

Passenger Cars............................................

7.6

17.0

24.4

31.2

38.7 119.1

Light Trucks..............................................

5.5

11.6

17.3

22.2

26.0

82.6

Combined..................................................

13.1

28.7

41.8

53.4

64.7 201.7

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

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

Percent Discount Rate)

2012

2013

2014

2015

2016

Total

Passenger Cars............................................

6.0

13.6

19.5

25.0

31.1

95.3

Light Trucks..............................................

4.3

9.1

13.5

17.4

20.4

64.6

Combined..................................................

10.3

22.6

33.1

42.4

51.5 159.8

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

Table I.E.1-5a--NHTSA Discounted Benefits ($Billion) Under Proposed CAFE Standards (With FFV Credits, Using a 3

Percent Discount Rate)

2012

2013

2014

2015

2016

Total

Passenger Cars............................................

7.8

15.9

22.5

28.6

37.1 111.9

Light Trucks..............................................

6.1

10.2

15.9

22.1

26.3

80.5

Combined..................................................

13.9

26.1

38.4

50.7

63.3 192.5

Table I.E.1-5b--NHTSA Discounted Benefits ($Billion) Under Proposed CAFE Standards (With FFV Credits, Using a 7

Percent Discount Rate)

2012

2013

2014

2015

2016

Total

Passenger Cars............................................

6.2

12.7

18.0

23.0

29.8

89.6

Light Trucks..............................................

4.7

7.9

12.4

17.3

20.6

63.0

Combined..................................................

10.9

20.6

20.4

40.3

50.4 152.5

NHTSA attributes most of these benefits--about $158 billion (at a 3% discount rate and excluding consideration of FFV credits), as noted above--to reductions in fuel consumption, valuing fuel (for societal purposes) at the future pre-tax prices projected in the Energy

Information Administration's (EIA's) reference case forecast from

Annual Energy Outlook (AEO) 2009. The Preliminary Regulatory Impact

Analysis (PRIA) accompanying

Page 49479

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

Table I.E.1-6--Summary of Benefits Fuel Savings and CO2 Emissions Reduction Due to the Proposed Rule (Before FFV

Credits)

Monetized value (discounted)

Amount

------------------------------------------------- 3% Discount rate

7% Discount rate

Fuel savings......................... 61.6 billion gallons... $158.0 billion......... $125.3 billion.

CO2 emissions reductions............. 656 million metric tons $16.4 billion.......... $12.8 billion.

(mmt).

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

(i.e., during MYs 2012-2016).

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

Credits)

2012

2013

2014

2015

2016

Total

Passenger Cars............................................

4.1

6.5

8.4

9.9

11.8

40.8

Light Trucks..............................................

1.5

2.8

4.0

5.2

5.9

19.4

Combined..................................................

5.7

9.3

12.5

15.1

17.6

60.2

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

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

2012

2013

2014

2015

2016

Total

Passenger Cars............................................

2.5

4.4

6.1

7.4

9.3

29.6

Light Trucks..............................................

1.3

2.0

3.1

4.3

5.0

15.6

Combined..................................................

3.7

6.3

9.2

11.7

14.2

45.2

The agency projects that manufacturers will recover most or all of these additional costs through higher selling prices for new cars and light trucks. To allow manufacturers to recover these increased outlays

(and, to a much lesser extent, the civil penalties that some companies are expected to pay for noncompliance), the agency estimates that the proposed standards would lead to increases in average new vehicle prices ranging from $476 per vehicle in MY 2012 to $1,091 per vehicle in MY 2016:

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

(Before FFV Credits)

2012

2013

2014

2015

2016

Passenger Cars.....................................................

591

735

877

979 1,127

Light Trucks.......................................................

283

460

678

882 1,020

Combined...........................................................

476

635

806

945 1,091

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

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

FFV Credits)

2012

2013

2014

2015

2016

Passenger Cars.....................................................

295

448

591

695

851

Light Trucks.......................................................

231

347

533

758

895

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Combined...........................................................

271

411

571

716

866

NHTSA estimates, therefore, that the total benefits of these proposed standards would be more than three times the magnitude of the corresponding costs. As a consequence, its proposed standards would produce net benefits of $142 billion at a 3 percent discount rate (with

FFV credits, $147 billion) or $100 billion at a 7 percent discount rate over the useful lives of vehicles sold during MYs 2012-2016. 2. Summary of Costs and Benefits of Proposed EPA GHG Standards

EPA has conducted a preliminary assessment of the costs and benefits of the proposed GHG standards. Table I.E.2-1 shows EPA's estimated lifetime fuel savings and CO2equivalent emission reductions for all vehicles sold in the model years 2012-2016. The values in Table I.E.2-1 are projected lifetime totals for each model year and are not discounted. As documented in DRIA Chapter 5, the potential credit transfer between cars and trucks may change the distribution of the fuel savings and GHG emission impacts between cars and trucks. As discussed above with respect to NHTSA's CAFE standards, it is important to note that NHTSA's CAFE standards and EPA's GHG standards will both be in effect, and each will lead to increases in average fuel economy and CO2emissions reductions. The two agency's standards together comprise the National Program, and this discussion of costs and benefits of EPA's GHG standards does not change the fact that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program.

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

2012

2013

2014

2015

2016

Total

Cars............................ Fuel (billion

43 gallons).

Fuel (billion

0.1

0.2

0.3

1.0 barrels).

CO2 EQ (mmt)......

137

179

539

Light Trucks.................... Fuel (billion

33 gallons).

Fuel (billion

0.1

0.2

0.3

0.8 barrels).

CO2 EQ (mmt)......

107

143

408

Combined........................ Fuel (billion

76 gallons).

Fuel (billion

0.2

0.3

0.5

0.6

1.8 barrels).

CO2 EQ (mmt)......

125

174

244

323

947

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

CO2, in 2007 dollars and 2007 emissions, in this joint proposal. Table I.E.2-2 presents benefits based on the $20 value.

Section III.H presents the five marginal values used to estimate monetized benefits of GHG reductions and Section III.H presents the program benefits using each of the five marginal values, which represent only a partial accounting of total benefits due to omitted climate change impacts and other factors that are not readily monetized. These factors are being used on an interim basis while analysis is conducted to generate new estimates. The values in the table are discounted values for each model year throughout their projected lifetimes. The benefits include all benefits considered by

EPA such as fuel savings, GHG reductions, PM benefits, energy security and other externalities such as reduced refueling and accidents, congestion and noise. The lifetime discounted benefits are shown for one of five different social cost of carbon (SCC) values considered by

EPA. The values in Table I.E.2-2 do not include costs associated with new technology required to meet the proposal.

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

\a\

$Billions of 2007 dollars

Model year

Discount rate

----------------------------------------------------- 2012

2013

2014

2015

2016

Total

3%........................................................

$20.4

$31.7

$44.9

$63.7

$87.2

$248 7.........................................................

15.8

24.7

34.9

49.3

67.7

193

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

Page 49481

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

CO2emission reductions, and the monetized net present values of those fuel savings and CO2emission reductions.

The gallons of fuel and CO2emission reductions are projected lifetime values for all vehicles sold in the model years 2012-2016. The estimated fuel savings in billions of barrels and the

GHG reductions in million metric tons of CO2shown in Table

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

I.E.2-3 are the summed values of the discounted monetized-fuel savings and monetized-CO2reductions for the five model years 2012- 2016 throughout their lifetimes. The monetized values in Table I.E.2-3 reflect both a 3 percent and a 7 percent discount rate as noted.

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

Savings, CO2 Emission Reductions, and Discounted Monetized Benefits at a 3% Discount Rate

Monetized values in 2007 dollars

Amount

$ value (billions)

Fuel savings.................... 1.8 billion

$193, 3% discount barrels.

rate.

$151, 7% discount rate.

CO2 emission reductions (valued 947 MMT CO2e...... $21.0, 3% discount assuming $20/ton CO2 in 2007).

rate.

$15.0, 7% discount rate.

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

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

$Billions of 2007 dollars

2012

2013

2014

2015

2016

Total

Cars......................................................

$3.5

$5.3

$7.0

$8.9

$10.7

$35.3

Trucks....................................................

2.0

3.1

4.0

5.1

6.8

20.9

Combined..................................................

5.4

8.4

10.9

13.9

17.5

56.1

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

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

2007 Dollars per unit

2012

2013

2014

2015

2016

Cars...............................................................

$374

$531

$663

$813

$968

Trucks.............................................................

358

539

682

886 1,213

Combined...........................................................

368

534

670

838 1,050

F. Program Flexibilities for Achieving Compliance

EPA's and NHTSA's proposed programs provide compliance flexibility to manufacturers, especially in the early years of the National

Program. This flexibility is expected to provide sufficient lead time for manufacturers to make necessary technological improvements and reduce the overall cost of the program, without compromising overall environmental and fuel economy objectives. The broad goal of harmonizing the two agencies' proposed standards includes preserving manufacturers' flexibilities in meeting the standards, to the extent appropriate and required by law. The following section provides an overview of the flexibility provisions the agencies are proposing. 1. CO2/CAFE Credits Generated Based on Fleet Average

Performance

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

Under this approach, a manufacturer's car and/or truck fleet that achieves a fleet average CO2/CAFE level better than the standard would generate credits. Conversely, if the fleet average

CO2/CAFE level does not meet the standard the fleet would generate debits (also referred to as a shortfall).

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

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

After satisfying any need to offset pre-existing deficits, remaining credits could be saved (banked) for use in future years.

Under the CAFE program, EISA allows manufacturers to apply credits earned in a model year to compliance in any of the five subsequent model years.\59\ EPA is also proposing, under the GHG program, to allow manufacturers to use these banked credits in the five years after the year in which they were generated (i.e., five years carry-forward).

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

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

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

Finally, EISA also allowed NHTSA to establish by regulation a CAFE credit trading program, which NHTSA established in the March 2009 final rule at 40 CFR Part 536, to allow credits to be traded (sold) to other vehicle manufacturers. EPA is also proposing to allow credit trading in the GHG program. These sorts of exchanges are typically allowed under

EPA's current mobile source emission credit programs, although manufacturers have seldom made such exchanges. Under the NHTSA CAFE program, EPCA also allows these types of credit trades, although, as with transferred credits, traded credits may not be used to meet the minimum domestic car standards specified by statute.\61\

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

2. Air Conditioning Credits

Air conditioning (A/C) systems contribute to GHG emissions in two ways. Hydrofluorocarbon (HFC) refrigerants, which are powerful GHG pollutants, can leak from the A/C system. Operation of the A/C system also places an additional load on the engine, which results in additional CO2tailpipe emissions. EPA is proposing an approach that allows manufacturers to generate credits by reducing GHG emissions related to A/C systems. Specifically, EPA is proposing a test procedure and method to calculate CO2equivalent reductions for the full useful life on a grams/mile basis that can be used as credits in meeting the fleet average CO2standards. EPA's analysis indicates this approach provides manufacturers with a highly cost-effective way to achieve a portion of GHG emissions reductions under the EPA program. EPA is estimating that manufacturers will on average take advantage of 11 g/mi GHG credit toward meeting the 250 g/ mi by 2016 (though some companies may have more). EPA is also proposing to allow manufacturers to earn early A/C credits starting in MY 2009 through 2011, as discussed further in a later section.

Comment is also sought on the approach of providing CAFE credits under 49 U.S.C. 32904(c) for light trucks equipped with relatively efficient air conditioners for MYs 2012-2016. The agencies invite comment on allowing a manufacturer to generate additional CAFE credits from the reduction of fuel consumption through the application of air conditioning efficiency improvement technologies to trucks. Currently, the CAFE program does not induce manufacturers to install more efficient air conditioners because the air conditioners are not turned on during fuel economy testing. The agencies note that if such credits were adopted, it may be necessary to reflect them in the setting of the

CAFE standards for light trucks for the same model years and invite comment on that issue. 3. Flex-Fuel and Alternative Fuel Vehicle Credits

EPCA authorizes an incentive under the CAFE program for production of dual-fueled or flexible-fuel vehicles (FFV) and dedicated alternative fuel vehicles. FFVs are vehicles that can run both on an alternative fuel and conventional fuel. Most FFVs are E-85 capable vehicles, which can run on either gasoline or a mixture of up to 85 percent ethanol and 15 percent gasoline. Dedicated alternative fuel vehicles are vehicles that run exclusively on an alternative fuel. EPCA was amended by EISA to extend the period of availability of the FFV incentive, but to begin phasing it out by annually reducing the amount of FFV incentive that can be used toward compliance with the CAFE standards.\62\ EPCA does not premise the availability of the FFV credits on actual use of alternative fuel by an FFV vehicle. Under

NHTSA's CAFE program, pursuant to EISA, after MY 2019, no FFV credits will be available for CAFE compliance.\63\ For dedicated alternative fuel vehicles, there are no limits or phase-out of the credits.

Consistent with the statute, NHTSA will continue to allow the use of

FFV credits for purposes of compliance with the proposed standards until the end of the phase-out period.

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

\63\ Id.

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

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4. Temporary Lead-Time Allowance Alternative Standards

Manufacturers with limited product lines may be especially challenged in the early years of the proposed program. Manufacturers with narrow product offerings may not be able to take full advantage of averaging or other program flexibilities due to the limited scope of the types of vehicles they sell. For example, some smaller volume manufacturers focus on high performance vehicles with higher

CO2emissions, above the CO2emissions target for that vehicle footprint, but do not have other types of vehicles in their production mix with which to average. Often, these manufacturers pay fines under the CAFE program rather than meeting the applicable

CAFE standard. EPA believes that these technological circumstances may call for a more gradual phase-in of standards so that manufacturer resources can be focused on meeting the 2016 levels.

EPA is proposing a temporary lead-time allowance for manufacturers who sell vehicles in the U.S. in MY 2009 whose vehicle sales in that model year are below 400,000 vehicles. EPA proposes that this allowance would be available only during the MY 2012-2015 phase-in years of the program. A manufacturer that satisfies the threshold criteria would be able to treat a limited number of vehicles as a separate averaging fleet, which would be subject to a less stringent GHG standard.\64\

Specifically, a standard of 125 percent of the vehicle's otherwise applicable foot-print target level would apply to up to 100,000 vehicles total, spread over the four year period of MY 2012 through 2015. Thus, the number of vehicles to which the flexibility could apply is limited. EPA also is proposing appropriate restrictions on credit use for these vehicles, as discussed further in Section III. By MY 2016, these allowance vehicles must be averaged into the manufacturer's full fleet (i.e., they are no longer eligible for a different standard). EPA discusses this in more detail in Section III.B of the preamble.

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

5. Additional Credit Opportunities Under the CAA

EPA is proposing additional opportunities for early credits in MYs 2009-2011 through over-compliance with a baseline standard. The baseline standard would be set to be equivalent, on a national level, to the California standards. Potentially, credits could be generated by over-compliance with this baseline in one of two ways--over-compliance by the fleet of vehicles sold in California and the CAA section 177

States (i.e., those States adopting the California program), or over- compliance with the fleet of vehicles sold in the 50 States. EPA is also proposing early credits based on over-compliance with CAFE, but only for vehicles sold in States outside of California and the CAA section 177 States. Under the proposed early credit provisions, no early FFV credits would be allowed, except those achieved by over- compliance with the California program based on California's provisions that manufacturers demonstrate actual use of the alternative fuel.

EPA's proposed early credits options are designed to ensure that there would be no double counting of early credits. Consistent with this paragraph, NHTSA notes, however, that credits for overcompliance with

CAFE standards during MYs 2009-2011 will still be available for manufacturers to use toward compliance in future model years, just as before.

EPA is proposing additional credit opportunities to encourage the commercialization of advanced GHG/fuel economy control technologies, such as electric vehicles, plug-in hybrid electric vehicles, and fuel cell vehicles. These proposed advanced technology credits are in the form of a multiplier that would be applied to the number of vehicles sold, such that each eligible vehicle counts as more than one vehicle in the manufacturer's fleet average. EPA is also proposing to allow early advanced technology credits to be generated beginning in MYs 2009 through 2011.

EPA is also proposing an Option for manufacturers to generate credits for employing technologies that achieve GHG reductions that are not reflected on current test procedures. Examples of such ``off- cycle'' technologies might include solar panels on hybrids, adaptive cruise control, and active aerodynamics, among other technologies. EPA is seeking comments on the best ways to quantify such credits to ensure any off-cycle credits applied for by a manufacturer are verifiable, reflect real-world reductions, based on repeatable test procedures, and are developed through a transparent process allowing appropriate opportunities for public comment.

G. Coordinated Compliance

Previous NHTSA and EPA regulations and statutory provisions establish ample examples on which to develop an effective compliance program that achieves the energy and environmental benefits from CAFE and motor vehicle GHG standards. NHTSA and EPA are proposing a program that recognizes, and replicates as closely as possible, the compliance protocols associated with the existing CAA Tier 2 vehicle emission standards, and with CAFE standards. The certification, testing, reporting, and associated compliance activities closely track current practices and are thus familiar to manufacturers. EPA already oversees testing, collects and processes test data, and performs calculations to determine compliance with both CAFE and CAA standards. Under this proposed coordinated approach, the compliance mechanisms for both programs are consistent and non-duplicative. EPA will also apply the

CAA authorities applicable to its separate in-use requirements in this program.

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

NHTSA and EPA do not anticipate any significant noncompliance under the proposed program. However, failure to meet the fleet average standards (after credit opportunities are exhausted) would ultimately result in the potential for penalties under both EPCA and the CAA. The

CAA allows EPA considerable discretion in assessment of penalties.

Penalties under the CAA are typically determined on a vehicle-specific basis by determining the number of a manufacturer's highest emitting vehicles that caused the fleet average standard violation. This is the same mechanism used for EPA's National Low Emission Vehicle and Tier 2 corporate average standards, and to date there have been no instances of noncompliance. CAFE penalties are specified by EPCA and would be assessed for the entire noncomplying fleet at a rate of $5.50 times the number of vehicles in the fleet, times the number of tenths of mpg by which the fleet average falls below the standard. In

Page 49484

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

H. Conclusion

This joint proposal by NHTSA and EPA represents a strong and coordinated National Program to achieve greenhouse gas emission reductions and fuel economy improvements from the light-duty vehicle part of the transportation sector. EPA's proposal for GHG standards under the Clean Air Act is discussed in Section III of this notice;

NHTSA's proposal for CAFE standards under EPCA is discussed in Section

IV. Each agency includes analyses on a variety of relevant issues under its respective statute, such as feasibility of the proposed standards, costs and benefits of the proposal, and effects on the economy, auto manufacturers, and consumers. This joint rulemaking proposal reflects a carefully coordinated and harmonized approach to developing and implementing standards under the two agencies' statutes and is in accordance with all substantive and procedural requirements required by law.

NHTSA and EPA believe that the MY 2012 through 2016 standards proposed would provide substantial reductions in emissions of GHGs and oil consumption, with significant fuel savings for consumers. The proposed program is technologically feasible at a reasonable cost, based on deployment of available and effective control technology across the fleet, and industry would have the opportunity to plan over several model years and incorporate the vehicle upgrades into the normal redesign cycles. The proposed program would result in enormous societal net benefits, including greenhouse gas emission reductions, fuel economy savings, improved energy security, and cost savings to consumers from reduced fuel utilization.

II. Joint Technical Work Completed for This Proposal

A. Introduction

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

The joint Technical Support Document (TSD) discusses the agencies' joint technical work in more detail.

B. How Did NHTSA and EPA Develop the Baseline Market Forecast? 1. Why Do the Agencies Establish a Baseline Vehicle Fleet?

In order to calculate the impacts of the EPA and NHTSA proposed regulations, it is necessary to estimate the composition of the future vehicle fleet absent these proposed regulations in order to conduct comparisons. EPA and NHTSA have developed a comparison fleet in two parts. The first step was to develop a baseline fleet based on model year 2008 data. The second step was to project that fleet into 2011- 2016. This is called the reference fleet. The third step was to modify that 2011-2016 reference fleet such that it had sufficient technologies to meet the 2011 CAFE standards. This final ``reference fleet'' is the light duty fleet estimated to exist in 2012-2016 if these proposed rules are not adopted. Each agency developed a final reference fleet to use in its modeling. All of the agencies' estimates of emission reductions, fuel economy improvements, costs, and societal impacts are developed in relation to the respective reference fleets. 2. How Do the Agencies Develop the Baseline Vehicle Fleet?

EPA and NHTSA have based the projection of total car and total light truck sales on recent projections made by the Energy Information

Administration (EIA). EIA publishes a long-term projection of national energy use annually called the Annual Energy Outlook. This projection utilizes a number of technical and econometric models which are designed to reflect both economic and regulatory conditions expected to exist in the future. In support of its projection of fuel use by light- duty vehicles, EIA projects sales of new cars and light trucks. Due to the state of flux of both energy prices and the economy, EIA published three versions of its 2009 Annual Energy Outlook. The Preliminary 2009 report was published early (in November 2008) in order to reflect the dramatic increase in fuel prices which occurred during 2008 and which occurred after the development of the 2008 Annual Energy Outlook. The official 2009 report was published in March of 2009. A third 2009 report was published a month later which reflected the economic stimulus package passed by Congress earlier this year. We use the sales projections of this latest report, referred to as the updated 2009

Annual Energy Outlook, here.

In their updated 2009 report, EIA projects that total light-duty vehicle sales will gradually recover from their currently depressed levels by roughly 2013. In 2016, car and light truck sales are projected to be 9.5 and 7.1 million units, respectively. While the total level of sales of 16.6 million units is similar to pre-2008 levels, the fraction of car sales is higher than that existing in the 2000-2007 timeframe. This presumably reflects the impact of higher fuel prices and that fact that cars tend to have higher levels of fuel economy than trucks. We note that EIA's definition of cars and trucks follows that used by NHTSA prior to the MY 2011 CAFE final rule published earlier this year. That recent CAFE rule, which established the MY 2011 standards, reclassified a number of 2-wheel drive sport utility vehicles from the truck fleet to the car fleet. This has the impact of shifting a considerable number of previously defined trucks into the car category. Sales projections of cars and trucks for all future model years can be found in the draft Joint TSD for this proposal.

In addition to a shift towards more car sales, sales of segments within both the car and truck markets have also been changing and are expected to continue to change in the future. Manufacturers are introducing more crossover models which offer much of the utility of

SUVs but using more car-like designs. In order to reflect these changes in fleet makeup, EPA and NHTSA considered several available forecasts.

After review EPA purchased and shared with NHTSA forecasts from two well-known industry analysts, CSM-Worldwide (CSM), and J.D. Powers.

NHTSA and EPA decided to use the forecast from CSM, for several reasons. One, CSM agreed to allow us to publish the data, on which our forecast is based, in the public domain.\65\ Two, it covered nearly all the timeframe of greatest relevance to this proposed rule (2012-2015 model years). Three, it provided projections of vehicle sales both by manufacturer and by market segment. Four, it utilized market segments similar to those used in the

Page 49485

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

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

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

Table II.B.2-1--Annual Sales of Light-Duty Vehicles by Manufacturer in 2008 and Estimated for 2016

Cars

Light trucks

Total

2008 MY

2016 MY

2008 MY

2016 MY

2008 MY

2016 MY

BMW.........................

291,796

380,804

61,324

134,805

353,120

515,609

Chrysler....................

537,808

110,438

1,119,397

133,454

1,657,205

243,891

Daimler.....................

208,052

235,205

79,135

109,917

287,187

345,122

Ford........................

641,281

990,700

1,227,107

1,713,376

1,868,388

2,704,075

General Motors..............

1,370,280

1,562,791

1,749,227

1,571,037

3,119,507

3,133,827

Honda.......................

899,498

1,429,262

612,281

812,325

1,511,779

2,241,586

Hyundai.....................

270,293

437,329

120,734

287,694

391,027

725,024

Kia.........................

145,863

255,954

135,589

162,515

281,452

418,469

Mazda.......................

191,326

290,010

111,220

112,837

302,546

402,847

Mitsubishi..................

76,701

49,697

24,028

10,872

100,729

60,569

Porsche.....................

18,909

37,064

18,797

17,175

37,706

54,240

Nissan......................

653,121

985,668

370,294

571,748

1,023,415

1,557,416

Subaru......................

149,370

128,885

49,211

75,841

198,581

204,726

Suzuki......................

68,720

69,452

45,938

34,307

114,658

103,759

Tata........................

9,596

41,584

55,584

47,105

65,180

88,689

Toyota......................

1,143,696

1,986,824

1,067,804

1,218,223

2,211,500

3,205,048

Volkswagen..................

290,385

476,699

26,999

99,459

317,384

576,158

Total...................

6,966,695

9,468,365

6,874,669

7,112,689 13,841,364 16,581,055

Table II.B.2-2--Annual Sales of Light-Duty Vehicles by Market Segment in 2008 and Estimated for 2016

Cars

Light trucks

2008 MY

2016 MY

2008 MY

2016 MY

Full-Size Car.....................

730,355

466,616 Full-Size Pickup....

1,195,073

1,475,881

Mid-Size Car......................

1,970,494

2,641,739 Mid-Size Pickup.....

598,197

510,580

Small/Compact Car.................

1,850,522

2,444,479 Full-Size Van.......

33,384

284,110

Mid-Size Van........

719,529

615,349

Subcompact/Mini Car...............

599,643

1,459,138 Mid-Size MAV *......

191,448

158,930

Small MAV...........

235,524

289,880

Luxury Car........................

1,057,875

1,432,162 Full-Size SUV*......

530,748

90,636

Specialty Car.....................

754,547

1,003,078 Mid-Size SUV........

347,026

110,155

Others............................

3,259

21,153 Small SUV...........

377,262

124,397

Full-Size CUV *.....

406,554

319,201

Mid-Size CUV........

798,335

1,306,770

Small CUV...........

1,441,589

1,866,580

Total Sales...................

6,966,695

9,468,365 ....................

6,874,669

7,152,470

* MAV--Multi-Activity Vehicle, SUV--Sport Utility Vehicle, CUV--Crossover Utility Vehicle.

The agencies recognize that CSM forecasts a very significant reduction in market share for Chrysler. This may be a result of the extreme uncertainty surrounding Chrysler in early 2009. The forecast from CSM used in this proposal is CSM's forecast from the 2nd quarter of 2009. CSM also provided to the agencies an updated forecast in the 3rd quarter of 2009, which we were unable to use for this proposal due to time constraints. However, we have placed a copy of the 3rd Quarter

CSM forecast in the public docket for this rulemaking, and we will consider its use, and any further updates from CSM or other data received during the comment period when developing the analysis for the final rule.\66\ CSM's forecast for Chrysler for the 3rd quarter of 2009 was significantly increased compared to the 2nd quarter, by nearly a factor of two

Page 49486

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

\66\ ``CSM North America Sales Forecast Comparison 2Q09 3Q09 For

Docket.'' 2nd and 3rd quarter forecasting results from CSM World

Wide (Docket EPA-HQ-OAR-2009-0472).

The forecasts obtained from CSM provided estimates of car and trucks sales by segment and by manufacturer, but not by manufacturer for each market segment. Therefore, we needed other information on which to base these more detailed market splits. For this task, we used as a starting point each manufacturer's sales by market segment from model year 2008. Because of the larger number of segments in the truck market, we used slightly different methodologies for cars and trucks.

The first step for both cars and trucks was to break down each manufacturer's 2008 sales according to the market segment definitions used by CSM. For example, we found that Ford's car sales in 2008 were broken down as shown in Table II.B.2-3:

Table II.B.2-3--Breakdown of Ford's 2008 Car Sales

Full-size cars........................ 76,762 units.

Mid-size cars......................... 170,399 units.

Small/Compact cars.................... 180,249 units.

Subcompact/Mini cars.................. None.

Luxury cars........................... 100,065 units.

Specialty cars........................ 110,805 units.

We then adjusted each manufacturer's sales of each of its car segments (and truck segments, separately) so that the manufacturer's total sales of cars (and trucks) matched the total estimated for each future model year based on EIA and CSM forecasts. For example, as indicated in Table II.B.2-1, Ford's total car sales in 2008 were 641,281 units, while we project that they will increase to 990,700 units by 2016. This represents an increase of 54.5 percent. Thus, we increased the 2008 sales of each Ford car segment by 54.5 percent. This produced estimates of future sales which matched total car and truck sales per EIA and the manufacturer breakdowns per CSM (and exemplified for 2016 in Table II.B.1-1). However, the sales splits by market segment would not necessarily match those of CSM (and exemplified for 2016 in Table II.B.2-2).

In order to adjust the market segment mix for cars, we first adjusted sales of luxury, specialty and other cars. Since the total sales of cars for each manufacturer were already set, any changes in the sales of one car segment had to be compensated by the opposite change in another segment. For the luxury, specialty and other car segments, it is not clear how changes in sales would be compensated.

For example, if luxury car sales decreased, would sales of full-size cars increase, mid-size cars, etc.? Thus, any changes in the sales of cars within these three segments were assumed to be compensated for by proportional changes in the sales of the other four car segments. For example, for 2016, the figures in Table II.B.2-2 indicate that luxury car sales in 2016 are 1,432,162 units. Luxury car sales are 1,057,875 units in 2008. However, after adjusting 2008 car sales by the change in total car sales for 2016 projected by EIA and a change in manufacturer market share per CSM, luxury car sales increased to 1,521,892 units.

Thus, overall for 2016, luxury car sales had to decrease by 89,730 units or 6 percent. We decreased the luxury car sales by each manufacturer by this percentage. The absolute decrease in luxury car sales was spread across sales of full-size, mid-size, compact and subcompact cars in proportion to each manufacturer's sales in these segments in 2008. The same adjustment process was used for specialty cars and the ``other cars'' segment defined by CSM.

A slightly different approach was used to adjust for changing sales of the remaining four car segments. Starting with full-size cars, we again determined the overall percentage change that needed to occur in future year full-size cars sales after (1) adjusting for total sales per EIA, (2) manufacturer sales mix per CSM and (3) adjustments in the luxury, specialty and other car segments, in order to meet the segment sales mix per CSM. Sales of each manufacturer's large cars were adjusted by this percentage. However, instead of spreading this change over the remaining three segments, we assigned the entire change to mid-size vehicles. We did so because, as shown in 2008, higher fuel prices tend to cause car purchasers to purchase smaller vehicles. We are using AEO 2009 for this analysis, which assumes fuel prices similar in magnitude to actual high fuel prices seen in the summer of 2008.\67\

However, if a consumer had previously purchased a full-size car, we thought it unlikely that they would jump all the way to a subcompact.

It seemed more reasonable to project that they would drop one vehicle size category smaller. Thus, the change in each manufacturer's sales of full-size cars was matched by an opposite change (in absolute units sold) in mid-size cars.

\67\ J.D. Power and Associates, Press Release, May 16, 2007.

``Rising Gas Prices Begin to Sway New-Vehicle Owners Toward Smaller

Versions of Trucks and Utility Vehicles.''

The same process was then applied to mid-size cars, with the change in mid-size car sales being matched by an opposite change in compact car sales. This process was repeated one more time for compact car sales, with changes in sales in this segment being matched by the opposite change in the sales of subcompacts. The overall result was a projection of car sales for 2012-2016 which matched the total sales projections of EIA and the manufacturer and segment splits of CSM.

These sales splits can be found in Chapter 1 of the draft Joint

Technical Support Document for this proposal.

As mentioned above, a slightly different process was applied to truck sales. The reason for this was we could not confidently project how the change in sales from one segment preferentially went to or came from another particular segment. Some trend from larger vehicles to smaller vehicles would have been possible. However, the CSM forecasts indicated large changes in total sport utility vehicle, multi-activity vehicle and cross-over sales which could not be connected. Thus, we applied an iterative, but straightforward process for adjusting 2008 truck sales to match the EIA and CSM forecasts.

The first three steps were exactly the same as for cars. We broke down each manufacturer's truck sales into the truck segments as defined by CSM. We then adjusted all manufacturers' truck segment sales by the same factor so that total truck sales in each model year matched EIA projections for truck sales by model year. We then adjusted each manufacturer's truck sales by segment proportionally so that each manufacturer's percentage of total truck sales matched that forecast by

CSM. This again left the need to adjust truck sales by segment to match the CSM forecast for each model year.

In the fourth step, we adjusted the sales of each truck segment by a common factor so that total sales for that segment matched the combination of the EIA and CSM forecasts. For example, sales of large pickups across all manufacturers were 1,144,166 units in 2016 after adjusting total sales to match EIA's forecast and adjusting each manufacturer's truck sales to match CSM's forecast for the breakdown of sales by manufacturer. Applying CSM's forecast of the large pickup segment of truck sales to EIA's total sales forecast indicated total large pickup sales of 1,475,881 units. Thus, we increased each manufacturer's sales of large pickups by 29 percent. The same type of adjustment was applied to all the other truck segments at the same time. The result was a set of sales projections which matched EIA's total truck sales projection and CSM's market segment forecast.

However, after this step, sales

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by manufacturer no longer met CSM's forecast. Thus, we repeated step three and adjusted each manufacturer's truck sales so that they met

CSM's forecast. The sales of each truck segment (by manufacturer) were adjusted by the same factor. The resulting sales projection matched

EIA's total truck sales projection and CSM's manufacturer forecast, but sales by market segment no longer met CSM's forecast. However, the difference between the sales projections after this fifth step was closer to CSM's market segment forecast than it was after step three.

In other words, the sales projection was converging. We repeated these adjustments, matching manufacturer sales mix in one step and then market segment in the next for a total of 19 times. At this point, we were able to match the market segment splits exactly and the manufacturer splits were within 0.1% of our goal, which is well within the needs of this analysis.

The next step in developing the baseline fleet was to characterize the vehicles within each manufacturer-segment combination. In large part, this was based on the characterization of the specific vehicle models sold in 2008. EPA and NHTSA chose to base our estimates of detailed vehicle characteristics on 2008 sales for several reasons.

One, these vehicle characteristics are not confidential and can thus be published here for careful review and comment by interested parties.

Two, being actual sales data, this vehicle fleet represents the distribution of consumer demand for utility, performance, safety, etc.

We gathered most of the information about the 2008 vehicle fleet from EPA's emission certification and fuel economy database. The data obtained from this source included vehicle production volume, fuel economy, engine size, number of engine cylinders, transmission type, fuel type, etc. EPA's certification database does not include a detailed description of the types of fuel economy-improving/

CO2-reducing technologies considered in this proposal. Thus, we augmented this description with publicly available data which includes more complete technology descriptions from Ward's Automotive

Group.\68\ In a few instances when required vehicle information was not available from these two sources (such as vehicle footprint), we obtained this information from publicly accessible Internet sites such as Motortrend.com and Edmunds.com.\69\

\68\ Note that WardsAuto.com is a fee-based service, but all information is public to subscribers.

\69\ Motortrend.com and Edmunds.com are free, no-fee Internet sites.

The projections of future car and truck sales described above apply to each manufacturer's sales by market segment. The EPA emissions certification sales data are available at a much finer level of detail, essentially vehicle configuration. As mentioned above, we placed each vehicle in the EPA certification database into one of the CSM market segments. We then totaled the sales by each manufacturer for each market segment. If the combination of EIA and CSM forecasts indicated an increase in a given manufacturer's sales of a particular market segment, then the sales of all the individual vehicle configurations were adjusted by the same factor. For example, if the Prius represented 30% of Toyota's sales of compact cars in 2008 and Toyota's sales of compact cars in 2016 was projected to double by 2016, then the sales of the Prius were doubled, and the Prius sales in 2016 remained 30% of

Toyota's compact car sales.

NHTSA and EPA request comment on the methodology and data sources used for developing the baseline vehicle fleet for this proposal and the reasonableness of the results. 3. How Is the Development of the Baseline Fleet for This Proposal

Different From NHTSA's Historical Approach, and Why Is This Approach

Preferable?

NHTSA has historically based its analysis of potential new CAFE standards on detailed product plans the agency has requested from manufacturers planning to produce light vehicles for sale in the United

States. Although the agency has not attempted to compel manufacturers to submit such information, most major manufacturers and some smaller manufacturers have voluntarily provided it when requested.

As in this and other prior rulemakings, NHTSA has requested extensive and detailed information regarding the models that manufacturers plan to offer, as well as manufacturers' estimates of the volume of each model they expect to produce for sale in the U.S.

NHTSA's recent requests have sought information regarding a range of engineering and planning characteristics for each vehicle model (e.g., fuel economy, engine, transmission, physical dimensions, weights and capacities, redesign schedules), each engine (e.g., fuel type, fuel delivery, aspiration, valvetrain configuration, valve timing, valve lift, power and torque ratings), and each transmission (e.g., type, number of gears, logic).

The information that manufacturers have provided in response to these requests has varied in completeness and detail. Some manufacturers have submitted nearly all of the information NHTSA has requested, have done so for most or all of the model years covered by

NHTSA's requests, and have closely followed NHTSA's guidance regarding the structure of the information. Other manufacturers have submitted partial information, information for only a few model years, and/or information in a structure less amenable to analysis. Still other manufacturers have not responded to NHTSA's requests or have responded on occasion, usually with partial information.

In recent rulemakings, NHTSA has integrated this information and estimated missing information based on a range of public and commercial sources (such as those used to develop today's market forecast). For unresponsive manufacturers, NHTSA has estimated fleet composition based on the latest-available CAFE compliance data (the same data used as part of the foundation for today's market forecast). NHTSA has then adjusted the size of the fleet based on AEO's forecast of the light vehicle market and normalized manufacturers' market shares based on the latest-available CAFE compliance data.

Compared to this approach, the market forecast the agencies have developed for this analysis has both advantages and disadvantages.

Most importantly, today's market forecast is much more transparent.

The information sources used to develop today's market forecast are all either in the public domain or available commercially. Therefore, NHTSA and EPA are able to make public the market inputs actually used in the agencies' respective modeling systems, such that any reviewer may independently repeat and review the agencies' analyses. Previously, although NHTSA provided this type of information to manufacturers upon request (e.g., GM requested and received outputs specific to GM), NHTSA was otherwise unable to release market inputs and the most detailed model outputs (i.e., the outputs containing information regarding specific vehicle models) because doing so would violate requirements protecting manufacturers' confidential business information from disclosure.\70\ Therefore, this approach provides much greater opportunity for the public to

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

\70\ See 49 CFR part 512.

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

\71\ However, as discussed below, an alternative approach that

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

In addition, by developing a baseline fleet from common sources, the agencies have been able to avoid some errors--perhaps related to interpretation of requests--that have been observed in past responses to NHTSA's requests. For example, while reviewing information submitted to support the most recent CAFE rulemaking, NHTSA staff discovered that one manufacturer had misinterpreted instructions regarding the specification of vehicle track width, leading to important errors in estimates of vehicle footprints. Although the manufacturer resubmitted the information with corrections, with this approach, the agencies are able to reduce the potential for such errors and inconsistencies by utilizing common data sources and procedures.

An additional advantage of the approach used for this proposal is a consistent projection of the change in fuel economy and CO2 emissions across the various vehicles from the application of new technology. In the past, company product plans would include the application of new fuel economy improvement technology for a new or improved vehicle model with the resultant estimate from the company of the fuel economy levels for the vehicle. However, companies did not always provide to NHTSA the detailed analysis which showed how they forecasted what the fuel economy performance of the new vehicle was-- that is, whether it came from actual test data, from vehicle simulation modeling, from best engineering judgment or some other methodology.

Thus, it was not possible for NHTSA to review the methodology used by the manufacturer, nor was it possible to review what approach the different manufacturers utilized from a consistency perspective. With the approach used for this proposal, the baseline market data comes from actual vehicles which have actual fuel economy test data--so there is no question what is the basis for the fuel economy or CO2 performance of the baseline market data as it is actual measured data.

Another advantage of today's approach is that future market shares are based on a forecast of what will occur in the future, rather than a static value. In the past, NHTSA has utilized a constant market share for each model year, based on the most recent year available, for example from the CAFE compliance data, that is, a forecast of the 2011- 2015 time frame where company market shares do not change. In the approach used today, we have utilized the forecasts from CSM of how future market shares among the companies may change over time.\72\

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

The approach the agencies have taken in developing today's market forecast does, however, have some disadvantages. Most importantly, it produces a market forecast that does not represent some important changes likely to occur in the future.

Some of the changes not captured by today's approach are specific.

For example, the agencies' current market forecast includes some vehicles for which manufacturers have announced plans for elimination or drastic production cuts such as the Chevrolet Trailblazer, the

Chrysler PT Cruiser, the Chrysler Pacifica, the Dodge Magnum, the Ford

Crown Victoria, the Hummer H2, the Mercury Sable, the Pontiac Grand

Prix, and the Pontiac G5. These vehicle models appear explicitly in market inputs to NHTSA's analysis, and are among those vehicle models included in the aggregated vehicle types appearing in market inputs to

EPA's analysis.

Conversely, the agencies' market forecast does not include some forthcoming vehicle models, such as the Chevrolet Volt, the Chevrolet

Camaro, the Ford Fiesta and several publicly announced electric vehicles, including the announcements from Nissan. Nor does it include several MY 2009 or 2010 vehicles, such as the Honda Insight, the

Hyundai Genesis and the Toyota Venza, as our starting point for vehicle definitions was Model Year 2008. Additionally, the market forecast does not account for publicly announced technology introductions, such as

Ford's EcoBoost system, whose product plans specify which vehicles and how many are planned to have this technology. Were the agencies to rely on manufacturers' product plans (that were submitted), the market forecast would account for not only these specific examples, but also for similar examples that have not yet been announced publicly.

The agencies anticipate that including vehicles after MY 2008 would not significantly impact our estimates of the technology required to comply with the proposed standards. If they were included, these vehicles could make the standards appear to cost less relative to the reference case. First, the projections of sales by vehicle segment and manufacturer include these expected new vehicle models. Thus, to the extent that these new vehicles are expected to change consumer demand, they should be reflected in our reference case. While we are projecting the characteristics of the new vehicles with MY 2008 vehicles, the primary difference between the new vehicles and 2008 vehicles in the same vehicle segment is the use of additional CO2-reducing and fuel-saving technology. Both the NHTSA and EPA models add such technology to facilitate compliance with the proposed standards. Thus, our future projections of the vehicle fleet generally shift vehicle designs towards those of these newer vehicles. The advantage of our approach is that it helps clarify the costs of this proposal, as the cost of all fuel economy

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improvements beyond those required by the MY 2011 CAFE standards are being assigned to the proposal. In some cases, the new vehicles being introduced by manufacturers are actually in response to their anticipation of this rulemaking. Our approach prevents some of these technological improvements and their associated cost from being assumed in the baseline. Thus, the added technology will not be considered to be free for the purposes of this rule.

We note that, as a result of these issues, the market file may show sales volumes for certain vehicles during MYs 2012-2016 even though they will be discontinued before that time frame. Although the agencies recognize that these specific vehicles will be discontinued, we continue to include them in the market forecast because they are useful for representing successor vehicles that may appear in the rulemaking time frame to replace the discontinued vehicles in that market segment.

Other market changes not captured by today's approach are broader.

For example, Chrysler Group LLC has announced plans to offer small- and medium-sized cars using Fiat powertrains. The product plan submitted by

Chrysler includes vehicles that appear to reflect these plans. However, none of these specific vehicle models are included in the market forecast the agencies have developed starting with MY 2008 CAFE compliance data. The product plan submitted by Chrysler is also more optimistic with regard to Chrysler's market share during MYs 2012-2016 than the market forecast projected by CSM and used by the agencies for this proposal. Similarly, the agencies' market forecast does not reflect Nissan's plans regarding electric vehicles.

Additionally, some technical information that manufacturers have provided in product plans regarding specific vehicle models is, at least insofar as NHTSA and EPA have been able to determine, not available from public or commercial sources. While such gaps do not bear significantly on the agencies' analysis, the diversity of pickup configurations necessitated utilizing a sales-weighted average footprint value \73\ for many manufacturers' pickups. Since our modeling only utilizes footprint in order to estimate each manufacturer's CO2or fuel economy standard and all the other vehicle characteristics are available for each pickup configuration, this approximation has no practical impact on the projected technology or cost associated with compliance with the various standards evaluated. The only impact which could arise would be if the relative sales of the various pickup configurations changed, or if the agencies were to explore standards with a different shape. This would necessitate recalculating the average footprint value in order to maintain accuracy.

\73\ A full-size pickup might be offered with various combinations of cab style (e.g., regular, extended, crew) and box length (e.g., 5\1/2\', 6\1/2\', 8') and, therefore, multiple footprint sizes. CAFE compliance data for MY 2008 data does not contain footprint information, and does not contain information that can be used to reliably identify which pickup entries correspond to footprint values estimable from public or commercial sources.

Therefore, the agencies have used the known production levels of average values to represent all variants of a given pickup line

(e.g., all variants of the F-150 and the Sierra/Silverado) in order to calculate the sales-weighted average footprint value for each pickup family. Again, this has no impact on the results of our modeling effort, although it would require re-estimation if we were to examine light truck standards of a different shape. In the extreme, one single footprint value could be used for every vehicle sold by a single manufacturer as long as the fuel economy standard associated with this footprint value represented the sales-weighted, harmonic average of the fuel economy standards associated with each vehicle's footprint values.

The agencies have carefully considered these advantages and disadvantages of using a market forecast derived from public and commercial sources rather than from manufacturers' product plans, and we believe that the advantages outweigh the disadvantages for the purpose of proposing standards for model years 2012-2016. NHTSA's inability to release confidential market inputs and corresponding detailed outputs from the CAFE model has raised serious concerns among many observers regarding the transparency of NHTSA's analysis, as well as related concerns that the lack of transparency might enable manufacturers to provide unrealistic information to try to influence

NHTSA's determination of the maximum feasible standards. Although NHTSA does not agree with some observers' assertions that some manufacturers have deliberately provided inaccurate or otherwise misleading information, today's market forecast is fully open and transparent, and is therefore not subject to such concerns.

With respect to the disadvantages, the agencies are hopeful that manufacturers will, in the future, agree to make public their plans regarding model years that are very near, such as MY 2010 or perhaps MY 2011, so that this information can be considered for purposes of the final rule analysis and be available for the public. In any event, because NHTSA and EPA are releasing market inputs used in the agencies' respective analyses, manufacturers, suppliers, and other automobile industry observers and participant can submit comments on how these inputs should be improved, as can all other reviewers. 4. How Does Manufacturer Product Plan Data Factor into the Baseline

Used in This Proposal?

In the Spring of 2009, many manufacturers submitted product plans in response to NHTSA's request that they do so.\74\ NHTSA and EPA both have access to these plans, and both agencies have reviewed them in detail. A small amount of product plan data was used in the development of the baseline. The specific pieces of data are:

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

Wheelbase;

Track Width Front;

Track Width Rear;

EPS (Electric Power Steering);

ROLL (Reduced Rolling Resistance);

LUB (Advance Lubrication i.e., low weight oil);

IACC (Improved Electrical Accessories);

Curb Weight;

GVWR (Gross Vehicle Weight Rating)

The track widths, wheelbase, curb weight, and GVWR could have been looked up on the Internet (159 were), but were taken from the product plans when available for convenience. To ensure accuracy, a sample from each product plan was used as a check against the numbers available from Motortrend.com. These numbers will be published in the baseline file since they can be easily looked up on the Internet. On the other hand, EPS, ROLL, LUB, and IACC are difficult to determine without using manufacturer's product plans. These items will not be published in the baseline file, but the data has been aggregated into the EPA baseline in the technology effectiveness and cost effectiveness for each vehicle in a way that allows the baseline for the model to be published without revealing the manufacturers' data.

Considering both the publicly-available baseline used in this proposal and the product plans provided recently by manufacturers, however, it is possible that the latter could potentially be used to develop a more realistic forecast of product mix and vehicle characteristics of the near-future light-duty fleet. At the core of concerns about using company product plans are two concerns about doing so: (a) Uncertainty and possible inaccuracy in manufacturers' forecasts and (b) the transparency of using product plan data. With respect to the first concern, the

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agencies note that manufacturers' near-term forecasts (i.e., for model years two or three years into the future) should be less uncertain and more amenable to eventual retrospective analysis (i.e., comparison to actual sales) than manufacturers' longer-term forecasts (i.e., for model years more than five years into the future). With respect to the second concern, NHTSA has consulted with most manufacturers and believes that although few, if any, manufacturers would be willing to make public their longer-term plans, many responding manufacturers may be willing to make public their short-term plans. In a companion notice, NHTSA is seeking product plan information from manufacturers for MYs 2008 to 2020, and the agencies will also continue to consult with manufacturers regarding the possibility of releasing plans for MY 2010 and/or MY 2011 for purposes of developing and analyzing the final

GHG and CAFE standards for MYs 2012-2016. The agencies are hopeful that manufacturers will agree to do so, and that NHTSA and EPA would therefore be able to use product plans in ways that might aid in increasing the accuracy of the baseline market forecast.

C. Development of Attribute-Based Curve Shapes

NHTSA and EPA are setting attribute-based CAFE and CO2 standards that are defined by a mathematical function for MYs 2012-2016 passenger cars and light trucks. EPCA, as amended by EISA, expressly requires that CAFE standards for passenger cars and light trucks be based on one or more vehicle attributes related to fuel economy, and be expressed in the form of a mathematical function.\75\ The CAA has no such requirement, though in past rules, EPA has relied on both universal and attribute-based standards (e.g., for nonroad engines, EPA uses the attribute of horsepower). However, given the advantages of using attribute-based standards and given the goal of coordinating and harmonizing CO2standards promulgated under the CAA and CAFE standards promulgated under EPCA, as expressed in the joint NOI, EPA is also proposing to issue standards that are attribute-based and defined by mathematical functions.

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

Under an attribute-based standard, every vehicle model has a performance target (fuel economy and GHG emissions for CAFE and GHG emissions standards, respectively), the level of which depends on the vehicle's attribute (for this proposal, footprint). The manufacturers' fleet average performance is determined by the production-weighed \76\ average (for CAFE, harmonic average) of those targets. NHTSA and EPA are proposing CAFE and CO2emissions standards defined by constrained linear functions and, equivalently, piecewise linear functions.\77\ As a possible option for future rulemakings, the constrained linear form was introduced by NHTSA in the 2007 NPRM proposing CAFE standards for MY 2011-2015. Described mathematically, the proposed constrained linear function is defined according to the following formula: \78\

\76\ Production for sale in the United States.

\77\ The equations are equivalent but are specified differently due to differences in the agencies' respective models.

\78\ This function is linear in fuel consumption but not in fuel economy.

Where:

TARGET = the fuel economy target (in mpg) applicable to vehicles of a given footprint (FOOTPRINT, in square feet), a = the function's upper limit (in mpg), b = the function's lower limit (in mpg), c = the slope (in gpm per square foot) of the sloped portion of the function, d = the intercept (in gpm) of the sloped portion of the function

(that is, the value the sloped portion would take if extended to a footprint of 0 square feet, and the MIN and MAX functions take the minimum and maximum, respectively, of the included values; for example, MIN(1,2) = 1, MAX(1,2) = 2, and MIN[MAX(1,2),3)] = 2.

GRAPHIC

TIFF OMITTED TP28SE09.004

Because the format is linear on a gallons-per-mile basis, not on a miles-per-gallon basis, it is plotted as fuel consumption below.

Graphically, the constrained linear form appears as shown in Figure

II.C.1-1.

BILLING CODE 4910-59-P

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GRAPHIC

TIFF OMITTED TP28SE09.005

The specific form and stringency for each fleet (passenger cars and light trucks) and model year are defined through specific values for the four coefficients shown above.

EPA is proposing the equivalent equation below for assigning

CO2targets to an individual vehicle's footprint value.

Although the general model of the equation is the same for each vehicle category and each year, the parameters of the equation differ for cars and trucks. Each parameter also changes on an annual basis, resulting in the yearly increases in stringency seen in the tables above.

Described mathematically, EPA's proposed piecewise linear function is as follows:

Target = a, if x h

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

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

Where:

Target = the CO2target value for a given footprint (in g/mi) a = the minimum target value (in g/mi CO2) b = the maximum target value (in g/mi CO2) c = the slope of the linear function (in g/mi per sq ft

CO2) d = is the intercept or zero-offset for the line (in g/mi

CO2) x = footprint of the vehicle model (in square feet, rounded to the nearest tenth) l & h are the lower and higher footprint limits or constraints or

(``kinks'') or the boundary between the flat regions and the intermediate sloped line (in sq ft)

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

GRAPHIC

TIFF OMITTED TP28SE09.006

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BILLING CODE 4910-59-C

As for the constrained linear form, the specific form and stringency for each fleet (passenger car and light trucks) and model year are defined through specific values for the four coefficients shown above.

For purposes of this rule, NHTSA and EPA developed the basic curve shapes using methods similar to those applied by NHTSA in fitting the curves defining the MY 2011 standards. The first step is defining the reference market inputs (in the form used by NHTSA's CAFE model) described in Section II.B of this preamble and in Chapter 1 of the joint TSD. However, because the baseline fleet is technologically heterogeneous, NHTSA used the CAFE model to develop a fleet to which nearly all the technologies discussed in Chapter 3 of the joint TSD

\79\ were applied, by taking the following steps: (1) Treating all manufacturers as unwilling to pay civil penalties rather than applying technology, (2) applying any technology at any time, irrespective of scheduled vehicle redesigns or freshening, and (3) ignoring ``phase-in caps'' that constrain the overall amount of technology that can be applied by the model to a given manufacturer's fleet. These steps helped to increase technological parity among vehicle models, thereby providing a better basis (than the baseline or reference fleets) for estimating the statistical relationship between vehicle size and fuel economy.

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

In fitting the curves, NHTSA also continued to apply constraints to limit the function's value for both the smallest and largest vehicles.

Without a limit at the smallest footprints, the function--whether logistic or linear--can reach values that would be unfairly burdensome for a manufacturer that elects to focus on the market for small vehicles; depending on the underlying data, an unconstrained form could apply to the smallest vehicles targets that are simply unachievable.

Limiting the function's value for the smallest vehicles ensures that the function remains technologically achievable at small footprints, and that it does not unduly burden manufacturers focusing on small vehicles. On the other side of the function, without a limit at the largest footprints, the function may provide no floor on required fuel economy. Also, the safety considerations that support the provision of a disincentive for downsizing as a compliance strategy apply weakly--if at all--to the very largest vehicles. Limiting the function's value for the largest vehicles leads to a function with an inherent absolute minimum level of performance, while remaining consistent with safety considerations.

Before fitting the sloped portion of the constrained linear form,

NHTSA selected footprints above and below which to apply constraints

(i.e., minimum and maximum values) on the function. For passenger cars, the agency noted that several manufacturers offer small and, in some cases, sporty coupes below 41 square feet, examples including the BMW

Z4 and Mini, Saturn Sky, Honda Fit and S2000, Hyundai Tiburon, Mazda

MX-5 Miata, Suzuki SX4, Toyota Yaris, and Volkswagen New Beetle.

Because such vehicles represent a small portion (less than 10 percent) of the passenger car market, yet often have characteristics that could make it infeasible to achieve the very challenging targets that could apply in the absence of a constraint, NHTSA is proposing to ``cut off'' the linear portion of the passenger car function at 41 square feet. For consistency, the agency is proposing to do the same for the light truck function, although no light trucks are currently offered below 41 square feet. The agency further noted that above 56 square feet, the only passenger car model present in the MY 2008 fleet were four luxury vehicles with extremely low sales volumes--the Bentley Arnage and three versions of the Rolls Royce Phantom. NHTSA is therefore proposing to

``cut off'' the linear portion of the passenger car function at 56 square feet. Finally, the agency noted that although public information is limited regarding the sales volumes of the many different configurations (cab designs and bed sizes) of pickup trucks, most of the largest pickups (e.g., the Ford F-150, GM Sierra/Silverado, Nissan

Titan, and Toyota Tundra) appear to fall just above 66 square feet in footprint. NHTSA is therefore proposing to ``cut off'' the linear portion of the light truck function at 66 square feet.

NHTSA and EPA seek comment on this approach to fitting the curves.

We note that final decisions on this issue will play an important role in determining the form and stringency of the final CAFE and

CO2standards, the incentives those standards will provide

(e.g., with respect to downsizing small vehicles), and the relative compliance burden faced by each manufacturer.

For purposes of the CAFE and CO2standards proposed in this NPRM, NHTSA and EPA recognize that there is some possibility that low fuel prices during the years in which MY 2012-2016 vehicles are in service might lead to less than currently anticipated fuel savings and emissions reductions. One way to assure that emission reductions are achieved in fact is through the use of explicit backstops, fleet average standards established at an absolute level. For purposes of the

CAFE program, EISA requires a backstop for domestically-manufactured passenger cars--a universal minimum, non-attribute-based standard of either ``27.5 mpg or 92 percent of the average fuel economy projected by the Secretary of Transportation for the combined domestic and non- domestic passenger automobile fleets manufactured for sale in the

United States by all manufacturers in the model year * * *,'' whichever is greater.\80\ In the MY 2011 final rule, the first rule setting standards since EISA added the backstop provision to EPCA, NHTSA considered whether the statute permitted the agency to set backstop standards for the other regulated fleets of imported passenger cars and light trucks. Although commenters expressed support both for and against a more permissive reading of EISA, NHTSA concluded in that rulemaking that its authority was likely limited to setting only the backstop standard that Congress expressly provided, i.e., the one for domestic passenger cars. A backstop, however, could be adopted under section 202(a) of the CAA assuming it could be justified under the relevant statutory criteria. EPA and NHTSA also note that the flattened portion of the car curve directionally addresses the issue of a backstop (i.e., a flat curve is itself a backstop). The agencies seek comment on whether backstop standards, or any other method within the agencies' statutory authority, should and can be implemented in order to guarantee a level of CO2emissions reductions and fuel savings under the attribute-based standards.

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

Having developed a set of baseline data to which to fit the mathematical fuel consumption function, the initial values for parameters c and d were determined for cars and trucks separately. c and d were initially set at the values for which the average

(equivalently, sum) of the absolute values of the differences was minimized between the ``maximum technology'' fleet fuel consumption

(within the footprints between the upper and lower

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limits) and the straight line the function defined above at the same corresponding vehicle footprints. That is, c and d were determined by minimizing the average absolute residual, commonly known as the MAD

(Mean Absolute Deviation) approach, of the corresponding straight line.

Finally, NHTSA calculated the values of the upper and lower values

(a and b) based on the corresponding footprints discussed above (41 and 56 square feet for passenger cars, and 41 and 66 square feet for light trucks).

The result of this methodology is shown below in Figures II.A.2-2 and II.A.2-3 for passenger cars and light trucks, respectively. The fitted curves are shown with the underlying ``maximum technology'' passenger car and light truck fleets. For passenger cars, the mean absolute deviation of the sloped portion of the function was 14 percent. For trucks, the corresponding MAD was 10 percent.

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The agencies used these functional forms as a starting point to develop mathematical functions defining the actual proposed standards as discussed above. The agencies then transposed these functions vertically (i.e., on a gpm or CO2basis, uniformly downward) to produce the relative car and light truck standards described in the next section.

D. Relative Car-Truck Stringency

The agencies have determined, under their respective statutory authorities, that it is appropriate to propose fleetwide standards with the projected levels of stringency of 34.1 mpg or 250 g/mi (as well as the corresponding intermediate year fleetwide standards) for NHTSA and

EPA respectively. To determine the relative stringency of passenger car and light truck standards, the agencies are concerned that increasing the difference between the car and truck standards (either by

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raising the car standards or lowering the truck standards) could encourage manufacturers to build fewer cars and more trucks, likely to the detriment of fuel economy and CO2reductions.\81\ In order to maintain consistent car/truck standards, the agencies applied a constant ratio between the estimated average required performance under the passenger car and light truck standards, in order to maintain a stable set of incentives regarding vehicle classification.

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

To calculate relative car-truck stringency in this proposal, the agencies explored a number of possible alternatives. In the interest of harmonization, the agencies agree to use the Volpe model in order to estimate stringencies at which net benefits would be maximized. Further details of the development of this scenario approach can be found in

Section IV of this preamble as well as in NHTSA's PRIA and DEIS. NHTSA examined passenger car and light truck standards that would produce the proposed combined average fuel economy levels from Table I.B.2-2 above.

NHTSA did so by shifting downward the curves that maximize net benefits, holding the relative stringency of passenger car and light truck standards constant at the level determined by maximizing net benefits, such that the average fuel economy required of passenger cars remains 34 percent higher than the average fuel economy required of light trucks. This methodology resulted in the average fuel economy levels for passenger cars and light trucks during MYs 2012-2016 as shown in Table I.D.2-1. The following chart illustrates this methodology of shifting the standards from the levels maximizing net benefits to the levels consistent with the combined fuel economy standards in this rule.

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

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Compared to NHTSA's approach based on stringencies estimated to maximize net benefits, EPA staff found that these two other approaches produced very similar results to NHTSA's, i.e., similar ratios of car- truck relative stringency (the ratio being within a range of 1.34 to 1.37 relative stringency of the car to the truck fuel economy standard). EPA believes that this similarity supports the proposed relative stringency of the two standards.

The car and truck standards for EPA (Table I.D. 2-4 above) were subsequently determined by first converting the average required fuel economy levels to average required CO2emission rates, and then applying the expected air conditioning credits for 2012-2016.

These A/C credits are shown in the following table. Further details of the derivation of these factors can be found in Section III of this preamble or in the EPA RIA.

Table II.D.1-1 Expected Fleet A/C Credits (in CO2 Equivalent g/mi) From 2012-2016

Average

Average technology

Average

credit for penetration (percent) credit for credit for combined cars

trucks

fleet

2012............................................

3.0

3.4

3.1 2013............................................

4.8

5.4

5.0 2014............................................

7.2

8.1

7.5 2015............................................

9.6

10.8

10.0 2016............................................

10.2

11.5

10.6

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

E. Joint Vehicle Technology Assumptions

Vehicle technology assumptions, i.e., assumptions about their cost, effectiveness, and the rate at which they can be incorporated into new vehicles, are often very controversial as they have a significant impact on the levels of the standards. Agencies must, therefore, take great care in developing and justifying these assumptions. In developing technology inputs for MY 2012-2016 standards, the agencies reviewed the technology assumptions that NHTSA used in setting the MY 2011 standards and the comments that NHTSA received in response to its

May 2008 Notice of Proposed Rulemaking. This review is consistent with the request by President Obama in his January 26 memorandum to DOT. In addition, the agencies reviewed the technology input estimates identified in EPA's July 2008 Advanced Notice of Proposed Rulemaking.

The review of these documents was supplemented with updated information from more current literature, new product plans and from EPA certification testing.

As a general matter, the best way to derive technology cost estimates is to conduct real-world tear down studies. These studies break down each technology into its respective components, evaluate the costs of each component, and build up the costs of the entire technology based on the contribution of each component. As such, tear down studies require a significant amount of time and are very costly.

EPA has begun conducting tear down studies to assess the costs of 4-5 technologies under a contract with FEV. To date, only two technologies

(stoichiometeric gasoline direct injection and turbo charging with engine downsizing for a 4 cylinder engine to a 4 cylinder engine) have been evaluated. The agencies relied on the findings of FEV for estimating the cost of these technologies in this rulemaking--directly for the 4 cylinder engines, and extrapolated for the 6 and 8 cylinder engines. The agencies request comment on the use of these estimated costs from the FEV study. For the other technologies, because tear down studies were not yet available, the agencies decided to pursue, to the extent possible, the Bill of Materials (BOM) approach as outlined in

NHTSA's MY 2011 final rule. A similar approach was used by EPA in the

EPA 2008 Staff Technical Report. This approach was recommended to NHTSA by Ricardo, an international engineering consulting firm retained by

NHTSA to aid in the analysis of public comments on its proposed standards for MYs 2011-2015 because of its expertise in the area of fuel economy technologies. A BOM approach is one element of the process used in tear down studies. The difference is that under a BOM approach, the build up of cost estimates is conducted based on a review of cost and effectiveness estimates for each component from available literature, while under a tear down study, the cost estimates which go into the BOM come from the tear down study itself. To the extent that the agencies departed from the MY 2011 CAFE final rule estimates, the agencies explained the reasons and provided supporting analyses. As tear down studies are concluded by FEV during the rulemaking process, the agencies will make them available in the joint rulemaking docket of this rulemaking. The agencies will consider these studies and any comments received on them, as practicable and appropriate, as well as any other new information pertinent to the rulemaking of which the agencies become aware, in developing technology cost assumptions for the final rule.

Similarly, the agencies followed a BOM approach for developing its effectiveness estimates, insofar as the BOM developed for the cost estimates helped to inform the appropriate effectiveness values derived from the literature review. The agencies supplemented the information with results from available simulation work and real world EPA certification testing.

The agencies would also like to note that per the Energy

Independence and Security Act (EISA), the National Academies of

Sciences is conducting an updated study to update Chapter 3 of the 2002

NAS Report, which outlines technology estimates. The update will take a fresh look at that list of technologies and their associated cost and effectiveness values.

The report is expected to be available on September 30, 2009. As soon as the update to the NAS Report is received, it will be placed in the joint rulemaking docket for the public's review and comment.

Because this will occur during the comment period, the public is encouraged to check the docket regularly and provide comments on the updated NAS Report by the closing of the comment period of this notice.

NHTSA and EPA will consider the updated NAS Report and any comments received, as practicable and appropriate, on it when considering revisions to the technology cost and effectiveness estimates for the final rule.

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Consideration of this report is consistent with the request by

President Obama in his January 26 memorandum to DOT. 1. What Technologies Do the Agencies Consider?

The agencies considered over 35 vehicle technologies that manufacturers could use to improve the fuel economy and reduce

CO2emissions of their vehicles during MYs 2012-2016. The majority of the technologies described in this section are readily available, well known, and could be incorporated into vehicles once production decisions are made. Other technologies considered may not currently be in production, but are beyond the research phase and under development, and are expected to be in production in the next few years. These are technologies which can, for the most part, be applied both to cars and trucks, and which are capable of achieving significant improvements in fuel economy and reductions in CO2 emissions, at reasonable costs. The agencies did not consider technologies in the research stage because the leadtime available for this rule is not sufficient to move such technologies from research to production.

The technologies considered in the agencies' analysis are briefly described below. They fall into five broad categories: engine technologies, transmission technologies, vehicle technologies, electrification/accessory technologies, and hybrid technologies. For a more detailed description of each technology and their costs and effectiveness, we refer the reader to Chapter 3 of the joint TSD,

Chapter III of NHTSA's PRIA, and Chapter 1 of EPA's DRIA. Technologies to reduce CO2and HFC emissions from air conditioning systems are discussed in Section III of this preamble and in EPA's

DRIA.

Types of engine technologies that improve fuel economy and reduce

CO2 emissions include the following:

Low-friction lubricants--low viscosity and advanced low friction lubricants oils are now available with improved performance and better lubrication. If manufacturers choose to make use of these lubricants, they would need to make engine changes and possibly conduct durability testing to accommodate the low-friction lubricants.

Reduction of engine friction losses--can be achieved through low-tension piston rings, roller cam followers, improved material coatings, more optimal thermal management, piston surface treatments, and other improvements in the design of engine components and subsystems that improve engine operation.

Conversion to dual overhead cam with dual cam phasing--as applied to overhead valves designed to increase the air flow with more than two valves per cylinder and reduce pumping losses.

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

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

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

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

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

Combustion restart--can be used in conjunction with gasoline direct-injection systems to enable idle-off or start-stop functionality. Similar to other start-stop technologies, additional enablers, such as electric power steering, accessory drive components, and auxiliary oil pump, might be required.

Turbocharging and downsizing--increases the available airflow and specific power level, allowing a reduced engine size while maintaining performance. This reduces pumping losses at lighter loads in comparison to a larger engine.

Exhaust-gas recirculation boost--increases the exhaust-gas recirculation used in the combustion process to increase thermal efficiency and reduce pumping losses.

Diesel engines--have several characteristics that give superior fuel efficiency, including reduced pumping losses due to lack of (or greatly reduced) throttling, and a combustion cycle that operates at a higher compression ratio, with a very lean air/fuel mixture, relative to an equivalent-performance gasoline engine. This technology requires additional enablers, such as NOxtrap catalyst after-treatment or selective catalytic reduction

NOxafter-treatment. The cost and effectiveness estimates for the diesel engine and aftertreatment system utilized in this proposal have been revised from the NHTSA MY 2011 CAFE final rule, and the agencies request comment on these diesel cost estimates.

Types of transmission technologies considered include:

Improved automatic transmission controls--optimizes shift schedule to maximize fuel efficiency under wide ranging conditions, and minimizes losses associated with torque converter slip through lock-up or modulation.

Six-, seven-, and eight-speed automatic transmissions--the gear ratio spacing and transmission ratio are optimized for a broader range of engine operating conditions.

Dual clutch or automated shift manual transmissions--are similar to manual transmissions, but the vehicle controls shifting and launch functions. A dual-clutch automated shift manual transmission uses separate clutches for even-numbered and odd-numbered gears, so the next expected gear is pre-selected, which allows for faster and smoother shifting.

Continuously variable transmission--commonly uses V-shaped pulleys connected by a metal belt rather than gears to provide ratios for operation. Unlike manual and automatic transmissions with fixed transmission ratios, continuously variable transmissions can provide fully variable transmission ratios with an infinite number of gears, enabling finer optimization of transmission torque multiplication under different operating conditions so that the engine can operate at higher efficiency.

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

Types of vehicle technologies considered include:

Low-rolling-resistance tires--have characteristics that reduce frictional losses associated with the energy dissipated in the deformation of the tires under load, therefore improving fuel economy and reducing CO2emissions.

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

Page 49501

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

Aerodynamic drag reduction--is achieved by changing vehicle shape or reducing frontal area, including skirts, air dams, underbody covers, and more aerodynamic side view mirrors.

Mass reduction and material substitution--Mass reduction encompasses a variety of techniques ranging from improved design and better component integration to application of lighter and higher- strength materials. Mass reduction is further compounded by reductions in engine power and ancillary systems (transmission, steering, brakes, suspension, etc.). The agencies recognize there is a range of diversity and complexity for mass reduction and material substitution technologies and there are many techniques that automotive suppliers and manufacturers are using to achieve the levels of this technology that the agencies have modeled in our analysis for this proposal. The agencies seek comments on the methods, costs, and effectiveness estimates associated with mass reduction and material substitution techniques that manufacturers intend to employ for reducing fuel consumption and CO2emissions during the rulemaking time frame.

Types of electrification/accessory and hybrid technologies considered include:

Electric power steering (EPS)--is an electrically-assisted steering system that has advantages over traditional hydraulic power steering because it replaces a continuously operated hydraulic pump, thereby reducing parasitic losses from the accessory drive.

Improved accessories (IACC)--may include high efficiency alternators, electrically driven (i.e., on-demand) water pumps and cooling fans. This excludes other electrical accessories such as electric oil pumps and electrically driven air conditioner compressors.

Air Conditioner Systems--These technologies include improved hoses, connectors and seals for leakage control. They also include improved compressors, expansion valves, heat exchangers and the control of these components for the purposes of improving tailpipe

CO2emissions as a result of A/C use. These technologies are covered separately in the EPA RIA. 12-volt micro-hybrid (MHEV)--also known as idle-stop or start stop and commonly implemented as a 12-volt belt-driven integrated starter-generator, this is the most basic hybrid system that facilitates idle-stop capability. Along with other enablers, this system replaces a common alternator with a belt-driven enhanced power starter-alternator, and a revised accessory drive system.

Higher Voltage Stop-Start/Belt Integrated Starter

Generator (BISG)--provides idle-stop capability and uses a high voltage battery with increased energy capacity over typical automotive batteries. The higher system voltage allows the use of a smaller, more powerful electric motor. This system replaces a standard alternator with an enhanced power, higher voltage, higher efficiency starter- alternator, that is belt driven and that can recover braking energy while the vehicle slows down (regenerative braking).

Integrated Motor Assist (IMA)/Crank integrated starter generator (CISG)--provides idle-stop capability and uses a high voltage battery with increased energy capacity over typical automotive batteries. The higher system voltage allows the use of a smaller, more powerful electric motor and reduces the weight of the wiring harness.

This system replaces a standard alternator with an enhanced power, higher voltage, higher efficiency starter-alternator that is crankshaft mounted and can recover braking energy while the vehicle slows down

(regenerative braking). 2-mode hybrid (2MHEV)--is a hybrid electric drive system that uses an adaptation of a conventional stepped-ratio automatic transmission by replacing some of the transmission clutches with two electric motors that control the ratio of engine speed to vehicle speed, while clutches allow the motors to be bypassed. This improves both the transmission torque capacity for heavy-duty applications and reduces fuel consumption and CO2emissions at highway speeds relative to other types of hybrid electric drive systems.

Power-split hybrid (PSHEV)--a hybrid electric drive system that replaces the traditional transmission with a single planetary gearset and a motor/generator. This motor/generator uses the engine to either charge the battery or supply additional power to the drive motor. A second, more powerful motor/generator is permanently connected to the vehicle's final drive and always turns with the wheels. The planetary gear splits engine power between the first motor/generator and the drive motor to either charge the battery or supply power to the wheels.

Plug-in hybrid electric vehicles (PHEV)--are hybrid electric vehicles with the means to charge their battery packs from an outside source of electricity (usually the electric grid). These vehicles have larger battery packs with more energy storage and a greater capability to be discharged. They also use a control system that allows the battery pack to be substantially depleted under electric-only or blended mechanical/electric operation.

Electric vehicles (EV)--are vehicles with all-electric drive and with vehicle systems powered by energy-optimized batteries charged primarily from grid electricity.

The cost estimates for the various hybrid systems have been revised from the estimates used in the MY 2011 CAFE final rule, in particular with respect to estimated battery costs. The agencies request comment on the hybrid cost estimates detailed in the draft Joint Technical

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

Building on NHTSA's estimates developed for the MY 2011 CAFE final rule and EPA's Advanced Notice of Proposed Rulemaking, which relied on the 2008 Staff Technical Report,\82\ the agencies took a fresh look at technology cost and effectiveness values for purposes of the joint proposal under the National Program. For costs, the agencies reconsidered both the direct or ``piece'' costs and indirect costs of individual components of technologies. For the direct costs, the agencies followed a bill of materials (BOM) approach employed by NHTSA in NHTSA's MY 2011 final rule based on recommendation from Ricardo,

Inc. EPA used a similar approach in the 2008 EPA Staff Technical

Report. A bill of materials, in a general sense, is a list of components or sub-systems that make up a system--in this case, an item of fuel economy-improving technology. In order to determine what a system costs, one of the first steps is to determine its components and what they cost.

\82\ EPA Staff Technical Report: Cost and Effectiveness

Estimates of Technologies Used to Reduce Light-Duty Vehicle Carbon

Dioxide Emissions. EPA420-R-08-008, March 2008.

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

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MY 2011 final rule on the 2008 Martec Report for costing contents of some technologies, upon further joint review and for purposes of the MY 2012-2016 standards, the agencies decided that some of the costing information in that report was no longer accurate due to downward trends in commodity prices since the publication of that report. The agencies reviewed, then revalidated or updated cost estimates for individual components based on new information. Thus, while NHTSA and

EPA found that much of the cost information used in NHTSA's MY 2011 final rule and EPA's staff report was consistent to a great extent, the agencies, in reconsidering information from many sources,83,84,85,86,87,88,89revised several component costs of several major technologies: turbocharging with engine downsizing, mild and strong hybrids, diesels, stoichiometric gasoline direct injection fuel systems, and valve train lift technologies. These are discussed at length in the joint TSD and in NHTSA's PRIA.

\83\ National Research Council, ``Effectiveness and Impact of

Corporate Average Fuel Economy (CAFE) Standards,'' National Academy

Press, Washington, DC (2002) (the ``2002 NAS Report''), available at http://www.nap.edu/openbook.php?isbn=0309076013 (last accessed

August 7, 2009).

\84\ Northeast States Center for a Clean Air Future (NESCCAF),

``Reducing Greenhouse Gas Emissions from Light-Duty Motor

Vehicles,'' 2004 (the ``2004 NESCCAF Report''), available at http:// www.nesccaf.org/documents/rpt040923ghglightduty.pdf (last accessed

August 7, 2009).

\85\ ``Staff Report: Initial Statement of Reasons for Proposed

Rulemaking, Public Hearing to Consider Adoption of Regulations to

Control Greenhouse Gas Emissions from Motor Vehicles,'' California

Environmental Protection Agency, Air Resources Board, August 6, 2004.

\86\ Energy and Environmental Analysis, Inc., ``Technology to

Improve the Fuel Economy of Light Duty Trucks to 2015,'' 2006 (the

``2006 EEA Report''), Docket EPA-HQ-OAR-2009-0472.

\87\ Martec, ``Variable Costs of Fuel Economy Technologies,''

June 1, 2008, (the ``2008 Martec Report'') available at Docket No.

NHTSA-2008-0089-0169.1

\88\ Vehicle fuel economy certification data.

\89\ Confidential data submitted by manufacturers in response to the March 2009 and other requests for product plans.

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

\90\ U.S. Environmental Protection Agency, ``Draft Report--

Light-Duty Technology Cost Analysis Pilot Study,'' Contract No. EP-

C-07-069, Work Assignment 1-3, September 3, 2009.

For the other technologies, considering all sources of information and using the BOM approach, the agencies worked together intensively during the summer of 2009 to determine component costs for each of the technologies and build up the costs accordingly. Where estimates differ between sources, we have used engineering judgment to arrive at what we believe to be the best cost estimate available today, and explained the basis for that exercise of judgment.

Once costs were determined, they were adjusted to ensure that they were all expressed in 2007 dollars using a ratio of GDP values for the associated calendar years,\91\ and indirect costs were accounted for using the new approach developed by EPA and explained in Chapter 3 of the draft joint TSD, rather than using the traditional Retail Price

Equivalent (RPE) multiplier approach. A report explaining how EPA developed this approach can be found in the docket for this notice.

NHTSA and EPA also reconsidered how costs should be adjusted by modifying or scaling content assumptions to account for differences across the range of vehicle sizes and functional requirements, and adjusted the associated material cost impacts to account for the revised content, although some of these adjustments may be different for each agency due to the different vehicle subclasses used in their respective models. In previous rulemakings, NHTSA has used the Producer

Price Index (PPI) to adjust vehicle technology costs to consistent price levels, since the PPI measures the effects of cost changes that are specific to the vehicle manufacturing industry. For purposes of this NPRM, NHTSA and EPA chose to use the GDP deflator, which accounts for the effect of economy-wide price inflation on technology cost estimates, in order to express those estimates in comparable terms with forecasts of fuel prices and other economic values used in the analysis of costs and benefits from the proposed standards. Because it is specific to the automotive sector, the PPI tends to be highly volatile from year to year, reflecting rapidly changing balances between supply and demand for specific components, rather than longer-term trends in the real cost of producing a broad range of powertrain components.

NHTSA and EPA seek comment on whether the agencies should use a GDP deflator or a PPI inflator for purposes of developing technology cost estimates for the final rule.

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

Regarding estimates for technology effectiveness, NHTSA and EPA also reexamined the estimates from NHTSA's MY 2011 final rule and EPA's

ANPRM and 2008 Staff Technical Report, which were largely consistent with NHTSA's 2008 NPRM estimates. The agencies also reconsidered other sources such as the 2002 NAS Report, the 2004 NESCCAF report, recent

CAFE compliance data (by comparing similar vehicles with different technologies against each other in fuel economy testing, such as a

Honda Civic Hybrid versus a directly comparable Honda Civic conventional drive), and confidential manufacturer estimates of technology effectiveness. NHTSA and EPA engineers reviewed effectiveness information from the multiple sources for each technology and ensured that such effectiveness estimates were based on technology hardware consistent with the BOM components used to estimate costs.

Together, they compared the multiple estimates and assessed their validity, taking care to ensure that common BOM definitions and other vehicle attributes such as performance, refinement, and drivability were taken into account. However, because the agencies' respective models employ different numbers of vehicle subclasses and use different modeling techniques to arrive at the standards, direct comparison of

BOMs was somewhat more complicated. To address this and to confirm that the outputs from the different modeling techniques produced the same result, NHTSA and EPA developed mapping techniques, devising technology packages and mapping them to corresponding incremental technology estimates. This approach helped compare the outputs from the incremental modeling technique to those produced by the technology packaging approach to ensure results that are consistent and could be translated into the respective models of the agencies.

In general, most effectiveness estimates used in both the MY 2011 final rule and the 2008 EPA staff report were determined to be accurate and were carried forward without significant change into this proposal.

When NHTSA and EPA's estimates for effectiveness diverged slightly due to

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]

pp. 49503-49552

Proposed Rulemaking To Establish Light-Duty Vehicle Greenhouse

Gas Emission Standards and Corporate Average Fuel Economy Standards

Continued from page 49502

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differences in how agencies apply technologies to vehicles in their respective models, we report the ranges for the effectiveness values used in each model. While the agencies believe that the ideal estimates for the final rule would be based on tear down studies or BOM approach and subjected to a transparent peer-reviewed process, NHTSA and EPA are confident that the thorough review conducted, led to the best available conclusion regarding technology costs and effectiveness estimates for the current rulemaking and resulted in excellent consistency between the agencies' respective analyses for developing the CAFE and

CO2standards.

The agencies note that the effectiveness values estimated for the technologies considered in the modeling analyses may represent average values, and do not reflect the potentially-limitless spectrum of possible values that could result from adding the technology to different vehicles. For example, while the agencies have estimated an effectiveness of 0.5 percent for low friction lubricants, each vehicle could have a unique effectiveness estimate depending on the baseline vehicle's oil viscosity rating. Similarly, the reduction in rolling resistance (and thus the improvement in fuel economy and the reduction in CO2emissions) due to the application of low rolling resistance tires depends not only on the unique characteristics of the tires originally on the vehicle, but on the unique characteristics of the tires being applied, characteristics which must be balanced between fuel efficiency, safety, and performance. Aerodynamic drag reduction is much the same--it can improve fuel economy and reduce CO2 emissions, but it is also highly dependent on vehicle-specific functional objectives. For purposes of this NPRM, NHTSA and EPA believe that employing average values for technology effectiveness estimates, as adjusted depending on vehicle subclass, is an appropriate way of recognizing the potential variation in the specific benefits that individual manufacturers (and individual vehicles) might obtain from adding a fuel-saving technology. However, the agencies seek comment on whether additional levels of specificity beyond that already provided would improve the analysis for the final rule, and if so, how those levels of specificity should be analyzed.

Chapter 3 of the draft Joint Technical Support Document contains a detailed description of our assessment of vehicle technology cost and effectiveness estimates. The agencies note that the technology costs included in this NPRM take into account only those associated with the initial build of the vehicle. The agencies seek comment on the additional lifetime costs, if any, associated with the implementation of advanced technologies including warranty costs, and maintenance and replacement costs such as replacement costs for low rolling resistance tires, low friction lubricants, and hybrid batteries, and maintenance on diesel aftertreatment components.

F. Joint Economic Assumptions

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

GHG standards.

In reviewing these variables and the agency's estimates of their values for purposes of this NPRM, NHTSA and EPA reconsidered previous comments that NHTSA had received and reviewed newly available literature. As a consequence, the agencies elected to revise some economic assumptions and parameter estimates, while retaining others.

Some of the most important changes, which are discussed in greater detail in the agencies' respective sections below, as well as in

Chapter 4 of the joint TSD and in Chapter VIII of NHTSA's PRIA and

Chapter 8 of EPA's DRIA, include significant revisions to the markup factors for technology costs; reducing the rebound effect from 15 to 10 percent; and revising the value of reducing CO2emissions based on recent interagency efforts to develop estimates of this value for government-wide use. The agencies seek comment on the economic assumptions described below.

Costs of fuel economy-improving technologies--These estimates are presented in summary form above and in more detail in the agencies' respective sections of this preamble, in Chapter 3 of the joint TSD, and in the agencies' respective RIAs. The technology cost estimates used in this analysis are intended to represent manufacturers' direct costs for high-volume production of vehicles with these technologies and sufficient experience with their application so that all cost reductions due to ``learning curve'' effects have been fully realized. Costs are then modified by applying near-term indirect cost multipliers ranging from 1.11 to 1.64 to the estimates of vehicle manufacturers' direct costs for producing or acquiring each technology to improve fuel economy, depending on the complexity of the technology and the time frame over which costs are estimated.

Potential opportunity costs of improved fuel economy--This estimate addresses the possibility that achieving the fuel economy improvements required by alternative CAFE or GHG standards would require manufacturers to compromise the performance, carrying capacity, safety, or comfort of their vehicle models. If it did so, the resulting sacrifice in the value of these attributes to consumers would represent an additional cost of achieving the required improvements, and thus of manufacturers' compliance with stricter standards. Currently the agencies assume that these vehicle attributes do not change, and include the cost of maintaining these attributes as part of the cost estimates for technologies. However, it is possible that the technology cost estimates do not include adequate allowance for the necessary efforts by manufacturers to maintain vehicle performance, carrying capacity, and utility while improving fuel economy and reducing GHG emissions. While, in principle, consumer vehicle demand models can measure these effects, these models do not appear to be robust across specifications, since authors derive a wide range of willingness-to-pay values for fuel economy from these models, and there is not clear guidance from the literature on whether one specification is clearly preferred over another. Thus, the agencies seek comment on how to estimate explicitly the changes in vehicle buyers' welfare from the combination of higher prices for new vehicle models, increases in their fuel economy, and any accompanying changes in vehicle attributes such as performance, passenger- and cargo-carrying capacity, or other dimensions of utility.

The on-road fuel economy ``gap''--Actual fuel economy levels achieved by light-duty vehicles in on-road driving fall somewhat short of their levels measured under the laboratory-like test conditions used by NHTSA and EPA to establish compliance with the proposed CAFE and GHG standards. The agencies use an on-road fuel economy gap for light-duty vehicles of 20 percent lower than published fuel economy levels. For example, if the measured CAFE fuel economy value of a light truck is 20 mpg, the on-road fuel economy actually achieved by a typical driver of that vehicle is expected to be 16 mpg

Page 49504

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

\92\ U.S. Environmental Protection Agency, Final Technical

Support Document, Fuel Economy Labeling of Motor Vehicle Revisions to Improve Calculation of Fuel Economy Estimates, EPA420-R-06-017,

December 2006.

Fuel prices and the value of saving fuel--Projected future fuel prices are a critical input into the preliminary economic analysis of alternative standards, because they determine the value of fuel savings both to new vehicle buyers and to society. The agencies relied on the most recent fuel price projections from the U.S. Energy

Information Administration's (EIA) Annual Energy Outlook (AEO) for this analysis. Specifically, the agencies used the AEO 2009 (April 2009 release) Reference Case forecasts of inflation-adjusted (constant- dollar) retail gasoline and diesel fuel prices, which represent the

EIA's most up-to-date estimate of the most likely course of future prices for petroleum products.\93\

\93\ Energy Information Administration, Annual Energy Outlook 2009, Revised Updated Reference Case (April 2009), Table 12.

Available at http://www.eia.doe.gov/oiaf/servicerpt/stimulus/excel/ aeostimtab_12.xls (last accessed July 26, 2009).

EIA's Updated Reference Case reflects the effects of the American

Reinvestment and Recovery Act of 2009, as well as the most recent revisions to the U.S. and global economic outlook. In addition, it also reflects the provisions of the Energy Independence and Security Act of 2007 (EISA), including the requirement that the combined mpg level of

U.S. cars and light trucks reach 35 miles per gallon by model year 2020. Because this provision would be expected to reduce future U.S. demand for gasoline and other fuels, there is some concern about whether the AEO 2009 forecast of fuel prices already partly reflects the increases in CAFE standards considered in this rule, and thus whether it is suitable for valuing the projected reductions in fuel use. In response to this concern, the agencies note that EIA issued a revised version of AEO 2008 in June 2008, which modified its previous

December 2007 Early Release of AEO 2008 to reflect the effects of the recently-passed EISA legislation.\94\ The fuel price forecasts reported in EIA's Revised Release of AEO 2008 differed by less than one cent per gallon over the entire forecast period (2008-230) from those previously issued as part of its initial release of AEO 2008. Thus, the agencies are reasonably confident that the fuel price forecasts presented in AEO 2009 and used to analyze the value of fuel savings projected to result from this rule are not unduly affected by the CAFE provisions of EISA, and therefore do not cause a baseline problem. Nevertheless, the agencies request comment on the use of the AEO 2009 fuel price forecasts, and particularly on the potential impact of the EISA- mandated CAFE improvements on these projections.

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

Consumer valuation of fuel economy and payback period--In estimating the value of fuel economy improvements that would result from alternative CAFE and GHG standards to potential vehicle buyers, the agencies assume that buyers value the resulting fuel savings over only part of the expected lifetime of the vehicles they purchase.

Specifically, we assume that buyers value fuel savings over the first five years of a new vehicle's lifetime, and that buyers discount the value of these future fuel savings using rates of 3% and 7%. The five- year figure represents the current average term of consumer loans to finance the purchase of new vehicles.

Vehicle sales assumptions--The first step in estimating lifetime fuel consumption by vehicles produced during a model year is to calculate the number that are expected to be produced and sold.\95\

The agencies relied on the AEO 2009 Reference Case for forecasts of total vehicle sales, while the baseline market forecast developed by the agencies (see Section II.B) divided total projected sales into sales of cars and light trucks.

\95\ Vehicles are defined to be of age 1 during the calendar year corresponding to the model year in which they are produced; thus for example, model year 2000 vehicles are considered to be of age 1 during calendar year 2000, age 2 during calendar year 2001, and to reach their maximum age of 26 years during calendar year 2025. NHTSA considers the maximum lifetime of vehicles to be the age after which less than 2 percent of the vehicles originally produced during a model year remain in service. Applying these conventions to vehicle registration data indicates that passenger cars have a maximum age of 26 years, while light trucks have a maximum lifetime of 36 years. See Lu, S., NHTSA, Regulatory Analysis and Evaluation

Division, ``Vehicle Survivability and Travel Mileage Schedules,''

DOT HS 809 952, 8-11 (January 2006). Available at http://www- nrd.nhtsa.dot.gov/Pubs/809952.pdf (last accessed July 27, 2009).

Vehicle survival assumptions--We then applied updated values of age-specific survival rates for cars and light trucks to these adjusted forecasts of passenger car and light truck sales to determine the number of these vehicles remaining in use during each year of their expected lifetimes.

Total vehicle use--We then calculated the total number of miles that cars and light trucks produced in each model year will be driven during each year of their lifetimes using estimates of annual vehicle use by age tabulated from the Federal Highway Administration's 2001 National Household Transportation Survey (NHTS),\96\ adjusted to account for the effect on vehicle use of subsequent increases in fuel prices. In order to insure that the resulting mileage schedules imply reasonable estimates of future growth in total car and light truck use, we calculated the rate of growth in annual car and light truck mileage at each age that is necessary for total car and light truck travel to increase at the rates forecast in the AEO 2009 Reference Case. The growth rate in average annual car and light truck use produced by this calculation is approximately 1.1 percent per year.\97\ This rate was applied to the mileage figures derived from the 2001 NHTS to estimate annual mileage during each year of the expected lifetimes of MY 2012- 2016 cars and light trucks.\98\

\96\ For a description of the Survey, see http://nhts.ornl.gov/ quickStart.shtml (last accessed July 27, 2009).

\97\ It was not possible to estimate separate growth rates in average annual use for cars and light trucks, because of the significant reclassification of light truck models as passenger cars discussed previously.

\98\ While the adjustment for future fuel prices reduces average mileage at each age from the values derived from the 2001 NHTS, the adjustment for expected future growth in average vehicle use increases it. The net effect of these two adjustments is to increase expected lifetime mileage by about 18 percent for passenger cars and about 16 percent for light trucks.

Accounting for the rebound effect of higher fuel economy--

The rebound effect refers to the fraction of fuel savings expected to result from an increase in vehicle fuel economy--particularly an increase required by the adoption of higher CAFE and GHG standards-- that is offset by additional vehicle use. The increase in vehicle use occurs because higher fuel economy reduces the fuel cost of driving, typically the largest single component of the monetary cost of operating a vehicle, and vehicle owners respond to this reduction in operating costs by driving slightly more. For purposes of this NPRM, the agencies have elected to use a 10 percent rebound effect in their analyses of fuel savings and other benefits from higher standards.

Benefits from increased vehicle use--The increase in vehicle use from the rebound effect provides additional benefits to their owners, who may make more frequent trips or travel farther to reach more desirable destinations. This

Page 49505

additional travel provides benefits to drivers and their passengers by improving their access to social and economic opportunities away from home. The benefits from increased vehicle use include both the fuel expenses associated with this additional travel, and the consumer surplus it provides. We estimate the economic value of the consumer surplus provided by added driving using the conventional approximation, which is one half of the product of the decline in vehicle operating costs per vehicle-mile and the resulting increase in the annual number of miles driven. Because it depends on the extent of improvement in fuel economy, the value of benefits from increased vehicle use changes by model year and varies among alternative standards.

The value of increased driving range--By reducing the frequency with which drivers typically refuel their vehicles, and by extending the upper limit of the range they can travel before requiring refueling, improving fuel economy and reducing GHG emissions thus provides some additional benefits to their owners. No direct estimates of the value of extended vehicle range are readily available, so the agencies' analysis calculates the reduction in the annual number of required refueling cycles that results from improved fuel economy, and applies DOT-recommended values of travel time savings to convert the resulting time savings to their economic value.\99\ The agencies invite comment on the assumptions used in this analysis. Please see the

Chapter 4 of the draft Joint TSD for details.

\99\ Department of Transportation, Guidance Memorandum, ``The

Value of Saving Travel Time: Departmental Guidance for Conducting

Economic Evaluations,'' Apr. 9, 1997. http://ostpxweb.dot.gov/ policy/Data/VOT97guid.pdf (last accessed October 20, 2007); update available at http://ostpxweb.dot.gov/policy/Data/VOTrevision1_2-11- 03.pdf (last accessed October 20, 2007).

Added costs from congestion, crashes and noise--Although it provides some benefits to drivers, increased vehicle use associated with the rebound effect also contributes to increased traffic congestion, motor vehicle accidents, and highway noise. Depending on how the additional travel is distributed over the day and on where it takes place, additional vehicle use can contribute to traffic congestion and delays by increasing traffic volumes on facilities that are already heavily traveled during peak periods. These added delays impose higher costs on drivers and other vehicle occupants in the form of increased travel time and operating expenses, increased costs associated with traffic accidents, and increased traffic noise. The agencies rely on estimates of congestion, accident, and noise costs caused by automobiles and light trucks developed by the Federal Highway

Administration to estimate the increased external costs caused by added driving due to the rebound effect.\100\

\100\ These estimates were developed by FHWA for use in its 1997

Federal Highway Cost Allocation Study; http://www.fhwa.dot.gov/ policy/hcas/final/index.htm (last accessed July 29, 2009).

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

$0.169 (2007$). The agencies do not include savings in budgetary outlays to support U.S. military activities among the benefits of higher fuel economy and the resulting fuel savings. Each gallon of fuel saved as a consequence of higher standards is anticipated to reduce total U.S. imports of crude petroleum or refined fuel by 0.95 gallons.\102\

\101\ See, e.g., Bohi, Douglas R. and W. David Montgomery

(1982). Oil Prices, Energy Security, and Import Policy Washington,

DC: Resources for the Future, Johns Hopkins University Press; Bohi,

D. R., and M. A. Toman (1993). ``Energy and Security: Externalities and Policies,'' Energy Policy 21:1093-1109; and Toman, M. A. (1993).

``The Economics of Energy Security: Theory, Evidence, Policy,'' in

A. V. Kneese and J. L. Sweeney, eds. (1993). Handbook of Natural

Resource and Energy Economics, Vol. III. Amsterdam: North-Holland, pp. 1167-1218.

\102\ Each gallon of fuel saved is assumed to reduce imports of refined fuel by 0.5 gallons, and the volume of fuel refined domestically by 0.5 gallons. Domestic fuel refining is assumed to utilize 90% imported crude petroleum and 10% domestically-produced crude petroleum as feedstocks. Together, these assumptions imply that each gallon of fuel saved will reduce imports of refined fuel and crude petroleum by 0.50 gallons + 0.50 gallons*90% = 0.50 gallons + 0.45 gallons = 0.95 gallons.

Air pollutant emissions

cir

Impacts on criteria air pollutant emissions--While reductions in domestic fuel refining and distribution that result from lower fuel consumption will reduce U.S. emissions of criteria pollutants, additional vehicle use associated with the rebound effect will increase emissions of these pollutants. Thus the net effect of stricter standards on emissions of each criteria pollutant depends on the relative magnitudes of reduced emissions from fuel refining and distribution, and increases in emissions resulting from added vehicle use. Criteria air pollutants emitted by vehicles and during fuel production include carbon monoxide (CO), hydrocarbon compounds (usually referred to as ``volatile organic compounds,'' or VOC), nitrogen oxides

(NOX), fine particulate matter (PM2.5), and sulfur oxides (SOX). It is assumed that the emission rates

(per mile) stay constant for future year vehicles.

cir

EPA and NHTSA estimate the economic value of the human health benefits associated with reducing exposure to PM2.5using a

``benefit-per-ton'' method. These PM2.5-related benefit-per- ton estimates provide the total monetized benefits to human health (the sum of reductions in premature mortality and premature morbidity) that result from eliminating one ton of directly emitted PM2.5, or one ton of a pollutant that contributes to secondarily-formed

PM2.5(such as NOX, SOX, and VOCs), from a specified source.

Chapter 4.2.9 of the Technical Support Document that accompanies this proposal includes a description of these values.

Reductions in GHG emissions--Emissions of carbon dioxide and other greenhouse gases (GHGs) occur throughout the process of producing and distributing transportation fuels, as well as from fuel combustion itself. By reducing the volume of fuel consumed by passenger cars and light trucks, higher standards will thus reduce GHG emissions generated by fuel use, as well as throughout the fuel supply cycle. The agencies estimated the increases of GHGs other than CO2,including

Page 49506

methane and nitrous oxide, from additional vehicle use by multiplying the increase in total miles driven by cars and light trucks of each model year and age by emission rates per vehicle-mile for these GHGs.

These emission rates, which differ between cars and light trucks as well as between gasoline and diesel vehicles, were estimated by EPA using its recently-developed Motor Vehicle Emission Simulator (Draft

MOVES 2009).\103\ Increases in emissions of non-CO2GHGs are converted to equivalent increases in CO2emissions using estimates of the Global Warming Potential (GWP) of methane and nitrous oxide.

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

cir

Economic value of reductions in CO2emissions--EPA and NHTSA assigned a dollar value to reductions in CO2 emissions using the marginal dollar value (i.e., cost) of climate- related damages resulting from carbon emissions, also referred to as

``social cost of carbon'' (SCC). The SCC is intended to measure the monetary value society places on impacts resulting from increased GHGs, such as property damage from sea level rise, forced migration due to dry land loss, and mortality changes associated with vector-borne diseases. Published estimates of the SCC vary widely as a result of uncertainties about future economic growth, climate sensitivity to GHG emissions, procedures used to model the economic impacts of climate change, and the choice of discount rates. EPA and NHTSA's coordinated proposals present a set of interim SCC values reflecting a Federal interagency group's interpretation of the relevant climate economics literature. Sections III.H and IV.C.3 provide more detail about SCC.

Discounting future benefits and costs--Discounting future fuel savings and other benefits is intended to account for the reduction in their value to society when they are deferred until some future date, rather than received immediately. The discount rate expresses the percent decline in the value of these benefits--as viewed from today's perspective--for each year they are deferred into the future. In evaluating the non-climate related benefits of the proposed standards, the agencies have employed discount rates of both 3 percent and 7 percent.

For the reader's reference, Table II.F.1-1 below summarizes the values used to calculate the impacts of each proposed standard. The values presented in this table are summaries of the inputs used for the models; specific values used in the agencies' respective analyses may be aggregated, expanded, or have other relevant adjustments. See the respective RIAs for details. The agencies seek comment on the economic assumptions presented in the table and discussed below.

In addition, the agencies have conducted a range of sensitivities and present them in their respective RIAs. For example, NHTSA has conducted a sensitivity analysis on several assumptions including (1) forecasts of future fuel prices, (2) the discount rate applied to future benefits and costs, (3) the magnitude of the rebound effect, (4) the value to the U.S. economy of reducing carbon dioxide emissions, (5) the monopsony effect, and (6) the reduction in external economic costs resulting from lower U.S. oil imports. This information is provided in

NHTSA's PRIA. The agencies will consider additional sensitivities for the final rule as appropriate, including sensitivities on the markup factors applied to direct manufacturing costs to account for indirect costs (i.e., the Indirect Cost Markups (ICMs) which are discussed in

Sections III and IV), and the learning curve estimates used in this analysis.

Table II.F.1-1--Economic Values for Benefits Computations (2007$)

Fuel Economy Rebound Effect.............................

10%

``Gap'' between test and on-road MPG....................

20%

Value of refueling time per ($ per vehicle-hour)........

24.64

Annual growth in average vehicle use....................

1.1%

Fuel Prices (2012-50 average, $/gallon):

Retail gasoline price...............................

3.77

Pre-tax gasoline price..............................

3.40

Economic Benefits from Reducing Oil Imports ($/gallon):

``Monopsony'' Component.............................

0.00

Price Shock Component...............................

0.17

Military Security Component.........................

0.00

Total Economic Costs ($/gallon).....................

0.17

Emission Damage Costs (2020, $/ton or $/metric ton):

Carbon monoxide.....................................

Volatile organic compounds (VOC)....................

1,283

Nitrogen oxides (NOX)--vehicle use..................

5,116

Nitrogen oxides (NOX)--fuel production and

5,339 distribution.......................................

Particulate matter (PM2.5)--vehicle use.............

238,432

Particulate matter (PM2.5)--fuel production and

292,180 distribution.......................................

Sulfur dioxide (SO2)................................

30,896 5 10 20 34

Carbon dioxide (CO2)................................

Annual Increase in CO2 Damage Cost..................

External Costs from Additional Automobile Use ($/vehicle- mile):

Congestion..........................................

0.054

Accidents...........................................

0.023

Noise...............................................

0.001

Total External Costs................................

0.078

External Costs from Additional Light Truck Use ($/

.............. vehicle-mile):

Page 49507

Congestion..........................................

0.048

Accidents...........................................

0.026

Noise...............................................

0.001

Total External Costs................................

0.075

Discount Rates Applied to Future Benefits...............

3%, 7%

III. EPA Proposal for Greenhouse Gas Vehicle Standards

A. Executive Overview of EPA Proposal 1. Introduction

The Environmental Protection Agency (EPA) is proposing to establish greenhouse gas emissions standards for the largest sources of transportation greenhouse gases--light-duty vehicles, light-duty trucks, and medium-duty passenger vehicles (hereafter light vehicles).

These vehicle categories, which include cars, sport utility vehicles, minivans, and pickup trucks used for personal transportation, are responsible for almost 60% of all U.S. transportation related greenhouse gas emissions. This action represents the first-ever proposal by EPA to regulate vehicle greenhouse gas emissions under the

Clean Air Act (CAA) and would establish standards for model years 2012 and later light vehicles sold in the U.S.

EPA is proposing three separate standards. The first and most important is a set of fleet-wide average carbon dioxide

(CO2) emission standards for cars and trucks. These standards are based on CO2emissions-footprint curves, where each vehicle has a different CO2emissions compliance target depending on its footprint value. Vehicle CO2emissions would be measured over the EPA city and highway tests. The proposed standard allows for credits based on demonstrated improvements in vehicle air conditioner systems, including both efficiency and refrigerant leakage improvement, which are not captured by the EPA tests. The EPA projects that the average light vehicle tailpipe

CO2level in model year 2011 will be 326 grams per mile while the average vehicle tailpipe CO2emissions compliance level for the proposed model year 2016 standard will be 250 grams per mile, an average reduction of 23 percent from today's CO2 levels.

EPA is also proposing standards that will cap tailpipe nitrous oxide (N2O) and methane (CH4) emissions at 0.010 and 0.030 grams per mile, respectively. Even after adjusting for the higher relative global warming potencies of these two compounds, nitrous oxide and methane emissions represent less than one percent of overall vehicle greenhouse gas emissions from new vehicles.

Accordingly, the goal of these two proposed standards is to limit any potential increases in the future and not to force reductions relative to today's low levels.

This proposal represents the second-phase of EPA's response to the

Supreme Court's 2007 decision in Massachusetts v. EPA \104\ which found that greenhouse gases were air pollutants for purposes of the Clean Air

Act. The Court held that the Administrator must determine whether or not emissions from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too uncertain to make a reasoned decision. The Court further ruled that, in make these decisions, the

EPA Administrator is required to follow the language of section 202(a) of the CAA. The Court remanded the case back to the Agency for reconsideration in light of its finding.

\104\ 549 U.S. 497 (2007). For further information on

Massachusetts v. EPA see the July 30, 2008 Advance Notice of

Proposed Rulemaking, ``Regulating Greenhouse Gas Emissions under the

Clean Air Act'', 73 FR 44354 at 44397. There is a comprehensive discussion of the litigation's history, the Supreme Court's findings, and subsequent actions undertaken by the Bush

Administration and the EPA from 2007-2008 in response to the Supreme

Court remand.

The Administrator responded to the Court's remand by issuing two proposed findings under section 202(a) of the Clean Air Act.\105\

First, the Administrator proposed to find that the science supports a positive endangerment finding that a mix of certain greenhouse gases in the atmosphere endangers the public health and welfare of current and future generations. This is referred to as the endangerment finding.

Second, the Administrator proposed to find that the emissions of four of these gases--carbon dioxide, methane, nitrous oxide, and hydrofluorocarbons--from new motor vehicles and new motor vehicle engines contribute to the atmospheric concentrations of these key greenhouse gases and hence to the threat of climate change. This is referred to as the cause and contribute finding. Finalizing this proposed light vehicle regulations is contingent upon EPA finalizing both the endangerment finding and cause or contribute finding. Sections

III.B.1 through III.B.4 below provide more details on the legal and scientific bases for this proposal.

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

As discussed in Section I, this GHG proposal is part of a joint

National Program such that a large majority of the projected benefits are achieved jointly with NHTSA's proposed CAFE rule which is described in detail in Section IV of this preamble. EPA's proposal projects total carbon dioxide emissions savings of nearly 950 million metric tons, and oil savings of 1.8 billion barrels over the lifetimes of the vehicles sold in model years 2012-2016. EPA projects net societal benefits of

$192 billion at a 3 percent discount rate for these same vehicles, or

$136 billion at a 7 percent discount rate (both values assume a $20/ton

SCC value). Accordingly, these proposed light vehicle greenhouse gas emissions standards would make an important ``first step'' contribution as part of the National Program toward meeting long-term greenhouse gas emissions and import oil reduction goals, while providing important economic benefits as well. 2. Why is EPA Proposing this Rule?

This proposal addresses only light vehicles. EPA is addressing light vehicles as a first step in control of greenhouse gas emissions under the Clean Air Act for four reasons. First, light vehicles are responsible for almost 60% of all mobile source greenhouse gas emissions, a share three times larger than any other mobile source subsector, and represent about one-sixth of all U.S. greenhouse gas emissions. Second, technology exists that can be readily and cost- effectively applied to these vehicles to reduce greenhouse gas emissions in the near term. Third, EPA already has an existing testing and compliance program for these vehicles, refined since the mid-1970s for emissions certification and fuel economy compliance, which would require only minor modifications to accommodate greenhouse gas emissions regulations. Finally, this proposal is an important first step in responding to the Supreme Court's ruling in Massachusetts vs.

EPA. In addition, EPA is currently evaluating controls for motor vehicles other than those covered

Page 49508

by this proposal, and is reviewing seven petitions submitted by various

States and organizations requesting that EPA use its Clean Air Act authorities to take action to reduce greenhouse gas emissions from aircraft (under Sec. 231(a)(2)), ocean-going vessels (under Sec. 213(a)(4)), and other nonroad engines and vehicle sources (also under

Sec. 213(a)(4)). a. Light Vehicle Emissions Contribute to Greenhouse Gases and the

Threat of Climate Change

Greenhouse gases are gases in the atmosphere that effectively trap some of the Earth's heat that would otherwise escape to space.

Greenhouse gases are both naturally occurring and anthropogenic. The primary greenhouse gases of concern are directly emitted by human activities and include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.

These gases, once emitted, remain in the atmosphere for decades to centuries. Thus, they become well mixed globally in the atmosphere and their concentrations accumulate when emissions exceed the rate at which natural processes remove greenhouse gases from the atmosphere. The heating effect caused by the human-induced buildup of greenhouse gases in the atmosphere is very likely\106\ the cause of most of the observed global warming over the last 50 years. The key effects of climate change observed to date and projected to occur in the future include, but are not limited to, more frequent and intense heat waves, more severe wildfires, degraded air quality, heavier and more frequent downpours and flooding, increased drought, greater sea level rise, more intense storms, harm to water resources, continued ocean acidification, harm to agriculture, and harm to wildlife and ecosystems. A detailed explanation of observed and projected changes in greenhouse gases and climate change and its impact on health, society, and the environment is included in EPA's technical support document for the recently released Proposed Endangerment and Cause or Contribute Findings for

Greenhouse Gases Under Section 202(a) of the Clean Air Act.\107\

\106\ According to Intergovernmental Panel on Climate Change

(IPCC) terminology, ``very likely'' conveys a 90 to 99 percent probability of occurrence. ``Virtually certain'' conveys a greater than 99 percent probability, ``likely'' conveys a 66 to 90 percent probability, and ``about as likely as not'' conveys a 33 to 66 percent probability.

\107\ 74 FR18886, April 24, 2009. Both the Federal Register

Notice and the Technical Support Document for this rulemaking are found in the public docket for this rulemaking. Docket is EPA-OAR- 2009-0171.

Transportation sources represent a large and growing share of

United States greenhouse gases and include automobiles, highway heavy duty trucks, airplanes, railroads, marine vessels and a variety of other sources. In 2006, all transportation sources emitted 31.5% of all

U.S. greenhouse gases, and were the fastest-growing source of greenhouse gases in the U.S., accounting for 47% of the net increase in total U.S. greenhouse gas emissions from 1990-2006.\108\ The only sector with larger greenhouse gas emissions was electricity generation which emitted 33.7% of all U.S. greenhouse gases.

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

Light vehicles emit four greenhouse gases: carbon dioxide, methane, nitrous oxide and hydrofluorocarbons. Carbon dioxide (CO2) is the end product of fossil fuel combustion. During combustion, the carbon stored in the fuels is oxidized and emitted as CO2 and smaller amounts of other carbon compounds.\109\ Methane

(CH4) emissions are a function of the methane content of the motor fuel, the amount of hydrocarbons passing uncombusted through the engine, and any post-combustion control of hydrocarbon emissions (such as catalytic converters).\110\ Nitrous oxide (N2O) (and nitrogen oxide (NOX)) emissions from vehicles and their engines are closely related to air-fuel ratios, combustion temperatures, and the use of pollution control equipment. For example, some types of catalytic converters installed to reduce motor vehicle

NOX, carbon monoxide (CO) and hydrocarbon emissions can promote the formation of N2O.\111\ Hydrofluorocarbons (HFC) emissions are progressively replacing chlorofluorocarbons (CFC) and hydrochlorofluorocarbons (HCFC) in these vehicles' cooling and refrigeration systems as CFCs and HCFCs are being phased out under the

Montreal Protocol and Title VI of the CAA. There are multiple emissions pathways for HFCs with emissions occurring during charging of cooling and refrigeration systems, during operations, and during decommissioning and disposal.\112\

\109\ Mobile source carbon dioxide emissions in 2006 equaled 26 percent of total U.S. CO2emissions.

\110\ In 2006, methane emissions equaled 0.32 percent of total

U.S. methane emissions Nitrous oxide is a product of the reaction that occurs between nitrogen and oxygen during fuel combustion.

\111\ In 2006, nitrous oxide emissions for these sources accounted for 8 percent of total U.S. nitrous oxide emissions.

\112\ In 2006 HFC from these source categories equaled 56 percent of total U.S. HFC emissions, making it the single largest source category of U.S. HFC emissions.

b. Basis for Action Under Clean Air Act

Section 202(a)(1) of the Clean Air Act (CAA) states that ``the

Administrator shall by regulation prescribe (and from time to time revise) * * * standards applicable to the emission of any air pollutant from any class or classes of new motor vehicles * * *, which in his judgment cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare.'' As noted above, the

Administrator has proposed to find that the air pollution of elevated levels of greenhouse gas concentrations may reasonably be anticipated to endanger public health and welfare.\113\ The Administrator has proposed to define the air pollution to be the elevated concentrations of the mix of six GHGs: carbon dioxide (CO2), methane

(CH4), nitrous oxide (N2O), hydrofluorocarbons

(HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride

(SF6). The Administrator has further proposed to find under

CAA section 202(a) that CO2,methane, N2O and HFC emissions from new motor vehicles and engines contribute to this air pollution. This preamble describes proposed standards that would control emissions of CO2, HFCs, nitrous oxide, and methane.

Standards for these GHGs would only be finalized if EPA determines that the criteria have been met for endangerment by the air pollution, and that emissions of GHGs from new motor vehicles or engines ``cause or contribute'' to that air pollution. In that case, section 202(a) would authorize EPA to issue standards applicable to emissions of those pollutants. For further discussion of EPA's authority under section 202(a), see Section I.C.2 of the proposal.

\113\ 74 FR18886, April 24, 2009.

There are a variety of other CAA Title II provisions that are relevant to standards established under section 202(a). As noted above, the standards are applicable to motor vehicles for their useful life.

EPA has the discretion in determining what standard applies over the useful life. For example, EPA may set a single standard that applies both when the vehicles are new and throughout the useful life, or where appropriate may set a standard that varies during the term of useful life, such as a standard that is more stringent in the early years of the useful life and less stringent in the later years.

Page 49509

The standards established under CAA section 202(a) are implemented and enforced through various mechanisms. Manufacturers are required to obtain an EPA certificate of conformity with the section 202 regulations before they may sell or introduce their new motor vehicle into commerce, according to CAA section 206(a). The introduction into commerce of vehicles without a certificate of conformity is a prohibited act under CAA section 203 that may subject a manufacturer to civil penalties and injunctive actions (see CAA sections 204 and 205).

Under CAA section 206(b), EPA may conduct testing of new production vehicles to determine compliance with the standards. For in-use vehicles, if EPA determines that a substantial number of vehicles do not conform to the applicable regulations then the manufacturer must submit and implement a remedial plan to address the problem (see CAA section 207(c)). There are also emissions-based warranties that the manufacturer must implement under CAA section 207(a). c. EPA's Greenhouse Gas Proposal Under Section 202(a) Concerning

Endangerment and Cause or Contribute Findings

EPA's Administrator recently signed a proposed action with two distinct findings regarding greenhouse gases under section 202(a) of the Clean Air Act. This action is called the Proposed Endangerment and

Cause or Contribute Findings for Greenhouse Gases under the Clean Air

Act (Endangerment Proposal).\114\ The Administrator proposed an affirmative endangerment finding that the current and projected concentrations of a mix of six key greenhouse gases--carbon dioxide

(CO2), methane (CH4), nitrous oxide

(N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride(SF6)--in the atmosphere threaten the public health and welfare of current and future generations. She also proposed to find that the combined emissions of four of the gases-- carbon dioxide, methane, nitrous oxide and hydrofluorocarbons from new motor vehicles and motor vehicle engines--contribute to the atmospheric concentrations of these greenhouse gases and therefore to the climate change problem.

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

Specifically, the Administrator proposed, after a thorough examination of the scientific evidence on the causes and impact of current and future climate change, to find that the science compellingly supports a positive finding that atmospheric concentrations of these greenhouse gases result in air pollution which may reasonably be anticipated to endanger both public health and welfare. In her proposed finding, the Administrator relied heavily upon the major findings and conclusions from the recent assessments of the

U.S. Climate Change Science Program and the U.N. Intergovernmental

Panel on Climate Change.\115\ The Administrator proposed a positive endangerment finding after considering both observed and projected future effects of climate change, key uncertainties, and the full range of risks and impacts to public health and welfare occurring within the

United States. In addition, the proposed finding noted that the evidence concerning risks and impacts occurring outside the U.S. provided further support for the proposed finding.

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

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

--Concentrations of greenhouse gases are at unprecedented levels compared to recent and distant past. These high concentrations are the unambiguous result of anthropogenic emissions and are very likely the cause of the observed increase in average temperatures and other climatic changes.

--The effects of climate change observed to date and projected to occur in the future include more frequent and intense heat waves, more severe wildfires, degraded air quality, heavier downpours and flooding, increasing drought, greater sea level rise, more intense storms, harm to water resources, harm to agriculture, and harm to wildlife and ecosystems. These impacts are effects on public health and welfare within the meaning of the Clean Air Act.

With regard to new motor vehicles and engines, the Administrator also proposed a finding that the combined emissions of four greenhouse gases--carbon dioxide, methane, nitrous oxide and hydrofluorocarbons-- from new motor vehicles and engines contributes to this air pollution, i.e., the atmospheric concentrations of the mix of six greenhouse gases which create the threat of climate change and its impacts. Key facts supporting the proposed cause and contribute finding for on-highway vehicles regulated under section 202(a) of the Clean Air Act are that these sources are responsible for 24% of total U.S. greenhouse gas emissions, and more than 4% of total global greenhouse gas emissions.\116\ The Administrator also considered whether emissions of each greenhouse gas individually, as a separate air pollutant, would contribute to this air pollution.

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

If the Administrator makes affirmative findings under section 202(a) on both endangerment and cause or contribute, then EPA is to issue standards ``applicable to emission'' of the air pollutant or pollutants that EPA finds causes or contributes to the air pollution that endangers public health and welfare. The Endangerment Proposal invited public comment on whether the air pollutant should be considered the group of GHGs, or whether each GHG should be treated as a separate air pollutant. Either way, the emissions standards proposed today would satisfy the requirements of section 202(a) as the

Administrator has significant discretion in how to structure the standards that apply to the emission of the air pollutant or air pollutants at issue. For example, under either approach EPA would have the discretion under section 202(a) to adopt separate standards for each GHG, a single composite standard covering various gases, or any combination of these. In this rulemaking EPA is proposing separate standards for nitrous oxide and methane, and a CO2standard that provides for credits based on reductions of HFCs, as the appropriate way to issue standards applicable to emissions of these

GHGs. 3. What is EPA Proposing? a. Proposed Light-Duty Vehicle, Light-Duty Truck, and Medium-Duty

Passenger Vehicle Greenhouse Gas Emission Standards and Projected

Compliance Levels

The CO2emissions standards are by far the most important of the three standards and are the primary focus of this summary. EPA is proposing an attribute-based approach for the

CO2fleet-wide standard (one for cars and one for trucks), based on vehicle footprint as the attribute. These curves establish different CO2emissions targets for each unique car and truck footprint. Generally, the larger the vehicle footprint, the higher the corresponding vehicle CO2emissions target. Table

III.A.3-1 shows the greenhouse gas standards for light vehicles that

EPA is proposing for model years (MY) 2012 and later:

Page 49510

Table III.A.3-1--Proposed Industry-Wide Greenhouse Gas Emissions Standards

Standard/covered pollutants

Form of standard Level of standard

Credits

Test cycles

CO2 Standard \117\: Tailpipe CO2 Fleetwide average See footprint--CO2 CO2-e credits

EPA 2-cycle (FTP footprint CO2-

curves in Figure

\118\.

and HFET test curves for cars

I.C-1 for cars

cycles), with and trucks.

and Figure I.C-2

separate for trucks.

mechanisms for A/

C credits.\119\

N2O Standard: Tailpipe N2O...... Cap per vehicle... 0.010 g/mi........ None.............. EPA FTP test.

CH4 Standard: Tailpipe CH4...... Cap per vehicle... 0.030 g/mi........ None.............. EPA FTP test.

One important flexibility associated with the proposed

CO2standard is the proposed option for manufacturers to obtain credits associated with improvements in their air conditioning systems. As will be discussed in greater detail in later sections, EPA is establishing test procedures and design criteria by which manufacturers can demonstrate improvements in both air conditioner efficiency (which reduces vehicle tailpipe CO2by reducing the load on the engine) and air conditioner refrigerants (using lower global warming potency refrigerants and/or improving system design to reduce GHG emissions associated with leaks). Neither of these strategies to reduce GHG emissions from air conditioners would be reflected in the EPA FTP or HFET tests. These improvements would be translated to a g/mi CO2-equivalent credit that can be subtracted from the manufacturer's tailpipe CO2compliance value. EPA expects a high percentage of manufacturers to take advantage of this flexibility to earn air conditioning-related credits for

MY2012-2016 vehicles such that the average credit earned is about 11 grams per mile CO2-equivalent in 2016.

\117\ While over 99 percent of the carbon in automotive fuels is converted to CO2in a properly functioning engine, compliance with the CO2standard will also account for the very small levels of carbon associated with vehicle tailpipe hydrocarbon (HC) and carbon monoxide (CO) emissions, converted to

CO2on a mass basis, as discussed further in section x.

\118\ CO2-e refers to CO2-equivalent, and is a metric that allows non-CO2greenhouse gases (such as hydrofluorocarbons used as automotive air conditioning refrigerants) to be expressed as an equivalent mass (i.e., corrected for relative global warming potency) of CO2emissions.

\119\ FTP is the Federal Test Procedure which uses what is commonly referred to as the ``city'' driving schedule, and HFET is the Highway Fuel Economy Test which uses the ``highway'' driving schedule. Compliance with the CO2standard will be based on the same 2-cycle values that are currently used for CAFE standards compliance; EPA projects that fleet-wide in-use or real world CO2emissions are approximately 25 percent higher, on average, than 2-cycle CO2values.

A second flexibility being proposed is CO2credits for flexible and dual fuel vehicles, similar to the CAFE credits for such vehicles which allow manufacturers to gain up to 1.2 mpg in their overall CAFE ratings. The Energy Independence and Security Act of 2007

(EISA) mandated a phase-out of these flexible fuel vehicle CAFE credits beginning in 2015, and ending after 2019. EPA is proposing to allow comparable CO2credits for flexible fuel vehicles through MY 2015, but for MY 2016 and beyond, EPA is proposing to treat flexible and dual fuel vehicles on a CO2-performance basis, calculating the overall CO2emissions for flexible and dual fuel vehicles based on a fuel use-weighted average of the

CO2levels on gasoline and on a manufacturer's demonstrated actual usage of the alternative fuel in its vehicle fleet.

Table III.A.3-2 summarizes EPA projections of industry-wide 2-cycle

CO2emissions and fuel economy levels that would be achieved by manufacturer compliance with the proposed GHG standards for MY2012- 2016.

For MY2011, Table III.A.3-2 uses the projected NHTSA compliance values for its MY2011 CAFE standards of 30.2 mpg for cars and 24.1 mpg for trucks, converted to an equivalent combined car and truck

CO2level of 325 grams per mile.\120\ EPA believes this is a reasonable estimate with which to compare the proposed MY2012-2016

CO2emission standards. Identifying the proper MY2011 estimate is complicated for many reasons, among them being the turmoil in the current automotive market for consumers and manufacturers, uncertain and volatile oil and gasoline prices, the ability of manufacturers to use flexible fuel vehicle credits to meet MY2011 CAFE standards, and the fact that most manufacturers have been surpassing

CAFE standards (particularly the car standard) in recent years. Taking all of these considerations into account, EPA believes that the MY2011 projected CAFE compliance values, converted to CO2emissions levels, represent a reasonable estimate.

\120\ 74 FR 14196.

Table III.A.3-2 shows projected industry-wide average

CO2emissions values. The Projected CO2Emissions for the Footprint-Based Standard column shows the CO2g/mi level corresponding with the footprint standard that must be met. It is based on the proposed CO2-footprint curves and projected footprint values, and will decrease each year to 250 grams per mile (g/ mi) in MY2016. For MY2012-2015, the emissions impact of the projected utilization of flexible fuel vehicle (FFV) credits and the temporary lead-time allowance alternative standard (TLAAS, discussed below) are shown in the next two columns. Neither of these programs is proposed to be available in MY2016. The Projected CO2Emissions column gives the CO2emissions levels projected to be achieved given use of the flexible fuel credits and temporary lead-time allowance program. This column shows that, relative to the MY 2011 estimate, EPA projects that MY2016 CO2emissions will be reduced by 23 percent over five years. The Projected A/C Credit column represents the industry wide average air conditioner credit manufacturers are expected to earn on an equivalent CO2gram per mile basis in a given model year. In MY2016, the projected A/C credit of 10.6 g/mi represents 14 percent of the 75 g/mi CO2 emissions reductions associated with the proposed standards. The

Projected 2-cycle CO2Emissions column shows the projected

CO2emissions as measured over the EPA 2-cycle tests, which would allow compliance with the standard assuming utilization of the projected FFV, TLAAS, and A/C credits.

Page 49511

Table III.A.3-2--Projected Fleetwide CO[ihel2] Emissions Values (grams per mile)

Projected

CO[ihel2] emissions

Projected

Model year

for the

Projected

TLAAS

CO[ihel2] Projected A/ 2-cycle footprint- FFV credit

credit

emissions

C credit

CO[ihel2] based

emissions standard

2011.............................. ........... ........... ...........

(325) ...........

(325) 2012..............................

295

0.3

302

3.1

305 2013..............................

286

5.7

0.2

291

5.0

296 2014..............................

276

5.4

0.2

281

7.5

289 2015..............................

263

4.1

0.1

267

10.0

277 2016..............................

250

10.6

261

EPA is also proposing a series of flexibilities for compliance with the CO2standard which are not expected to significantly affect the projected compliance and achieved values shown above, but which should significantly reduce the costs of achieving those reductions. These flexibilities include the ability to earn: annual credits for a manufacturer's over-compliance with its unique fleet-wide average standard, early credits from MY2009-2011, credits for early introduction of advanced technology vehicles, credit for ``off-cycle''

CO2reductions not reflected in CO2/fuel economy tests, as well as the carry-forward and carry-backward of credits, the ability to transfer credits between a manufacturer's car and truck fleets, and a temporary lead-time allowance alternative standard

(included in the tables above) that will permit manufacturers with less than 400,000 vehicles produced in MY 2009 to designate a fraction of their vehicles to meet a 25% higher CO2standard for MY 2012-2015. All of these proposed flexibilities are discussed in greater detail in later sections.

EPA is also proposing caps on the tailpipe emissions of nitrous oxide (N2O) and methane (CH4)--0.010 g/mi for

N2O and 0.030 g/mi for CH4--over the EPA FTP test. While N2O and CH4can be potent greenhouse gases on a relative mass basis, their emission levels from modern vehicle designs are extremely low and represent only about 1% of total light vehicle GHG emissions. These cap standards are designed to ensure that N2O and CH4emissions levels do not rise in the future, rather than to force reductions in the already low emissions levels. Accordingly, these standards are not designed to require automakers to make any changes in current vehicle designs, and thus EPA is not projecting any environmental or economic impacts associated with these proposed standards.

EPA has attempted to build on existing practice wherever possible in designing a compliance program for the proposed GHG standards. In particular, the program structure proposed will streamline the compliance process for both manufacturers and EPA by enabling manufacturers to use a single data set to satisfy both the new GHG and

CAFE testing and reporting requirements. Timing of certification, model-level testing, and other compliance activities also follow current practices established under the Tier 2 and CAFE programs. b. Environmental and Economic Benefits and Costs of EPA's Proposed

Standards

In Table III.A.3-3 EPA presents estimated annual net benefits for the indicated calendar years. The table also shows the net present values of those benefits for the calendar years 2012-2050 using both a 3% and a 7% discount rate. As discussed previously, EPA recognizes that much of these same costs and benefits are also attributed to the proposed CAFE standard contained in this joint proposal.

Table III.A.3-3--Projected Quantifiable Benefits and Costs for Proposed CO[ihel2] Standard

(In million 2007 $s) [Note: B = unquantified benefits

2020

2030

2040

2050

NPV, 3%

NPV, 7%

Quantified Annual Costs \a\.............................

-$25,100

-$72,500

-$105,700

-$146,100

-$1,287,600

-$529,500

Benefits from Reduced GHG Emissions at each assumed SCC value:

SCC 5%..............................................

1,200

3,300

5,700

9,500

69,200

28,600

SCC 5% Newell-Pizer.................................

2,500

6,600

11,000

19,000

138,400

57,100

SCC from 3% and 5%..................................

4,700

12,000

22,000

36,000

263,000

108,500

SCC 3%..............................................

8,200

22,000

38,000

63,000

456,900

188,500

SCC 3% Newell-Pizer.................................

14,000

36,000

63,000

100,000

761,400

314,200

Other Quantified Externalities

PM[ihel2].[ihel5] Related Benefits \b\ \c\ \d\..........

1,400

3,000

4,600

6,700

59,800

26,300

Energy Security Impacts (price shock)...................

2,300

4,800

6,200

7,800

85,800

38,800

Reduced Refueling.......................................

2,500

4,900

6,400

8,000

89,600

41,000

Value of Increased Driving \e\..........................

4,900

10,000

13,600

18,000

184,700

82,700

Accidents, Noise, Congestion............................

-2,400

-4,900

-6,300

-7,900

-88,200

-40,200

Quantified Net Benefits at each assumed SCC value:

SCC 5%..............................................

35,000

93,600

135,900

188,200

1,688,500

706,700

SCC 5% Newell-Pizer.................................

36,300

96,900

141,200

197,700

1,757,700

735,200

SCC from 3% and 5%..................................

38,500

102,300

152,200

214,700

1,882,300

786,600

Page 49512

SCC 3%..............................................

42,000

112,300

168,200

241,700

2,076,200

866,600

SCC 3% Newell-Pizer.................................

47,800

126,300

193,200

278,700

2,380,700

992,300

\a\ Quantified annual costs are negative because fuel savings are included as negative costs (i.e., positive savings). Since the fuel savings outweigh the vehicle technology costs, the costs of as presented here are actually negative (i.e., they represent savings).

\b\ Note that the co-pollutant impacts associated with the standards presented here do not include the full complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-related impacts. Instead, the co-pollutant benefits are based on benefit-per-ton values that reflect only human health impacts associated with reductions in PM[ihel2].[ihel5] exposure. Ideally, human health and environmental benefits would be based on changes in ambient PM[ihel2].[ihel5] and ozone as determined by full-scale air quality modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis in time for the proposal. EPA does intend to more fully capture the co-pollutant benefits for the analysis of the final standards.

\c\ The PM[ihel2].[ihel5]-related benefits (derived from benefit-per-ton values) presented in this table are based on an estimate of premature mortality derived from the ACS study (Pope et al., 2002). If the benefit-per-ton estimates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 145% (nearly two-and-a-half times) larger.

\d\ The PM[ihel2].[ihel5]-related benefits (derived from benefit-per-ton values) presented in this table assume a 3% discount rate in the valuation of premature mortality to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used, the values would be approximately 9% lower.

\e\ Calculated using pre-tax fuel prices. 4. Basis for the Proposed GHG Standards Under Section 202(a)

EPA statutory authority under section 202(a)(1) of the Clean Air

Act (CAA) is discussed in more detail in Section I.C.2. The following is a summary of the basis for the proposed standards under section 202(a), which is discussed in more detail in the following portions of

Section III.

With respect to CO2and HFCs, EPA is proposing attribute-based light-duty car and truck standards that achieve large and important emissions reductions of GHGs. EPA has evaluated the technological feasibility of the proposed standards, and the information and analysis performed by EPA indicates that these standards are feasible in the lead time provided. EPA and NHTSA have carefully evaluated the effectiveness of individual technologies as well as the interactions when technologies are combined. EPA's projection of the technology that would be used to comply with the proposed standards indicates that manufacturers will be able to meet the proposed standards by employing a wide variety of technology that is already commercially available and can be incorporated into their vehicle at the time of redesign. In addition to the use of the manufacturers' redesign cycle, EPA's analysis also takes into account certain flexibilities that will facilitate compliance especially in the early years of the program when potential lead time constraints are most challenging. These flexibilities include averaging, banking, and trading of various types of credits. For the industry as a whole, EPA's projections indicate that the proposed standards can be met using technology that will be available in the lead-time provided.

To account for additional lead-time concerns for various manufacturers of typically higher performance vehicles, EPA is proposing a Temporary Lead-time Allowance that will further facilitate compliance for limited volumes of such vehicles in the program's initial years. For a few very small volume manufacturers, EPA projects that manufacturers will likely comply using a combination of credits and technology.

EPA has also carefully considered the cost to manufacturers of meeting the standards, estimating piece costs for all candidate technologies, direct manufacturing costs, cost markups to account for manufacturers' indirect costs, and manufacturer cost reductions attributable to learning. In estimating manufacturer costs, EPA took into account manufacturers' own standard practices such as making major changes to model technology packages during a planned redesign cycle.

EPA then projected the average cost across the industry to employ this technology, as well as manufacturer-by-manufacturer costs. EPA considers the per vehicle costs estimated from this analysis to be well within a reasonable range in light of the emissions reductions and benefits received. EPA projects, for example, that the fuel savings over the life of the vehicles will more than offset the increase in cost associated with the technology used to meet the standards.

EPA has also evaluated the impacts of these standards with respect to reductions in GHGs and reductions in oil usage. For the lifetime of the model year 2012-2016 vehicles we estimate GHG reductions of approximately 950 million metric tons CO2eq. and fuel reductions of 1.8 billion barrels of oil. These are important and significant reductions that would be achieved by the proposed standards. EPA has also analyzed a variety of other impacts of the standards, ranging from the standards' effects on emissions of non-GHG pollutants, impacts on noise, energy, safety and congestion. EPA has also quantified the cost and benefits of the proposed standards, to the extent practicable. Our analysis to date indicates that the overall quantified benefits of the proposed standards far outweigh the projected costs. Utilizing a 3% discount rate and a $20 per ton social cost of carbon we estimate the total net social benefits over the life of the model year 2012-2016 vehicles is $192 billion, and the net present value of the net social benefits of the standards through the year 2050 is $1.9 trillion dollars. These values are estimated at $136 billion and $787 billion, respectively, using a 7% discount rate and the $20 per ton SCC value.

Under section 202(a) EPA is called upon to set standards that provide adequate lead-time for the development and application of technology to meet the standards. EPA's proposed standards satisfy this requirement, as discussed above. In setting the standards, EPA is called upon to weigh and balance various factors, and to exercise judgment in setting standards that are a reasonable balance of the relevant factors. In this case, EPA has considered many factors, such as cost, impacts on emissions (both GHG and non-GHG), impacts on oil conservation, impacts on noise, energy, safety, and other factors, and has where practicable quantified the costs and benefits of the rule. In summary, given the technical feasibility of the standard, the moderate cost per vehicle in light of the savings in fuel costs over the life time of the vehicle, the very significant reductions

Page 49513

in emissions and in oil usage, and the significantly greater quantified benefits compared to quantified costs, EPA is confident that the proposed standards are an appropriate and reasonable balance of the factors to consider under section 202(a). See Husqvarna AB v. EPA, 254

F.3d 195, 200 (D.C. Cir. 2001) (great discretion to balance statutory factors in considering level of technology-based standard, and statutory requirement ``to [give appropriate] consideration to the cost of applying * * * technology'' does not mandate a specific method of cost analysis); see also Hercules Inc. v. EPA, 598 F.2d 91, 106 (D.C.

Cir. 1978) (``In reviewing a numerical standard we must ask whether the agency's numbers are within a zone of reasonableness, not whether its numbers are precisely right''); Permian Basin Area Rate Cases, 390 U.S. 747, 797 (1968) (same); Federal Power Commission v. Conway Corp., 426

U.S. 271, 278 (1976) (same); Exxon Mobil Gas Marketing Co. v. FERC, 297

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

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

The alternatives are 4% per year increase in standards which would be less stringent than our proposal and a 6% per year increase in the standards which would be more stringent than our proposal. EPA is not proposing either of these. As discussed in Section III.D.7, the 4% per year compared to the proposal forgoes CO2reductions which can be achieved at reasonable costs and are achievable by the industry within the rule's timeframe. The 6% per year alternative requires a significant increase in the projected required technology which may not be achievable in this timeframe due to the limited available lead time and the current difficult financial condition of the automotive industry. (See Section III.D.7 for a detailed discussion of why EPA is not proposing either of the alternatives.) EPA thus believes that it is appropriate to propose the CO2standards discussed above.

EPA invites comment on all aspects of this judgment, as well as comment on the alternative standards.

EPA is also proposing standards for N2O and

CH4. EPA has designed these standards to act as emission rate (i.e., gram per mile) caps and to avoid future increases in light duty vehicle emissions. As discussed in Section III.B.6, N2O and CH4emissions are already generally well controlled by current emissions standards, and EPA has not identified clear technological steps available to manufacturers today that would significantly reduce current emission levels for the vast majority of vehicles manufactured today (i.e., stoichiometric gasoline vehicles).

However, for both N2O and CH4, some vehicle technologies (and, for CH4, use of natural gas fuel) could potentially increase emissions of these GHGs in the future, and EPA believes it is important that this be avoided. EPA expects that, almost universally across current car and truck designs, manufacturers will be able to meet the ``cap'' standards with little if any technological improvements or cost. EPA has designed the level of the N2O and CH4standards with the intent that manufacturers would be able to meet them without the need for technological improvement; in other words, these emission standards are designed to be ``anti- backsliding'' standards.

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

EPA is proposing new emission standards to control greenhouse gases

(GHGs) from light-duty vehicles. First, EPA is proposing emission standards for carbon dioxide (CO2) on a gram per mile (g/ mile) basis that would apply to a manufacturer's fleet of cars, and a separate standard that would apply to a manufacturer's fleet of trucks.

CO2is the primary pollutant resulting from the combustion of vehicular fuels, and the amount of CO2emitted is directly correlated to the amount of fuel consumed. Second, EPA is providing auto manufacturers with the opportunity to earn credits toward the fleet-wide average CO2standards for improvements to air conditioning systems, including both hydrofluorocarbon (HFC) refrigerant losses (i.e., system leakage) and indirect CO2 emissions related to the increased load on the engine. Third, EPA is proposing separate emissions standards for two other GHG pollutants:

Methane (CH4) and nitrous oxide (N2O).

CH4and N2O emissions relate closely to the design and efficient use of emission control hardware (i.e., catalytic converters). The standards for CH4and N2O would be set as a cap that would limit emissions increases and prevent backsliding from current emission levels. The proposed standards described below would apply to passenger cars, light-duty trucks, and medium-duty passenger vehicles (MDPVs). As an overall group, they are referred to in this preamble as light vehicles or simply as vehicles.

In this preamble section passenger cars may be referred to simply as

``cars'', and light-duty trucks and MDPVs as ``light trucks'' or

``trucks.'' \121\

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

EPA is establishing a system of averaging, banking, and trading of credits integral to the fleet averaging approach, based on manufacturer fleet average CO2performance, as discussed in Section

III.B.4. This approach is similar to averaging, banking, and trading

(ABT) programs EPA has established in other programs and is also similar to provisions in the CAFE program. In addition to traditional

ABT credits based on the fleet emissions average, EPA is also proposing to include A/C credits as an aspect of the standards, as mentioned above. EPA is also proposing several additional credit provisions that apply only in the initial model years of the program. These include flex fuel vehicle credits, credits based on the use of advanced technologies, and generation of credits prior to model year 2012. The proposed A/C credits and additional credit opportunities are described in Section III.C. These credit programs would provide flexibility to manufacturers, which may be especially important during the early transition years of the program. EPA is also proposing to allow a manufacturer to carry a deficit into the future for a limited number of model years. A parallel provision, referred to as credit carry-back, is proposed as part of the CAFE program. 1. What Fleet-Wide Emissions Levels Correspond to the CO2

Standards?

The proposed attribute-based CO2standards, if made final, are projected to achieve a national fleet-wide average, covering both light cars and trucks, of

Page 49514

250 grams/mile of CO2in model year (MY) 2016. This includes

CO2-equivalent emission reductions from A/C improvements, reflected as credits in the standard. The standards would begin with MY 2012, with a generally linear increase in stringency from MY 2012 through MY 2016. EPA is proposing separate standards for cars and light trucks. The tables in this section below provide overall fleet average levels that are projected for both cars and light trucks over the phase-in period which is estimated to correspond with the proposed standards. The actual fleet-wide average g/mi level that will be achieved in any year for cars and trucks will depend on the actual production for that year, as well as the use of the various credit and averaging, banking, and trading provisions. For example, in any year, manufacturers may generate credits from cars and use them for compliance with the truck standard. Such transfer of credits between cars and trucks is not reflected in the table below. In Section III.F, the year-by-year estimate of emissions reductions that are projected to be achieved by the proposed standards are discussed.

In general, the proposed schedule of standards acts as a phase-in to the MY 2016 standards, and reflects consideration of the appropriate lead-time for each manufacturer to implement the requisite emission reductions technology across its product line.\122\ Note that 2016 is the final model year in which standards become more stringent. The 2016

CO2standards would remain in place for 2017 and later model years, until revised by EPA in a future rulemaking.

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

EPA estimates that, on a combined fleet-wide national basis, the proposed 2016 MY standards would achieve a level of 250 g/mile

CO2, including CO2-equivalent credits from A/C related reductions. The derivation of the 250 g/mile estimate is described in Section III.B.2.

EPA has estimated the overall fleet-wide CO2-equivalent emission levels that correspond with the proposed attribute-based standards, based on the projections of the composition of each manufacturer's fleet in each year of the program. Tables III.B.1-1 and

III.B.1-2 provide these estimates for each manufacturer.\123\

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

Table III.B.1-1--Estimated Fleet CO2-Equivalent Levels Corresponding to the Proposed Standards for Cars

Model year

Manufacturer

--------------------------------------- 2012 2013 2014 2015 2016

BMW.............................

265

257

249

238

227

Chrysler........................

266

259

251

242

231

Daimler.........................

270

263

257

245

234

Ford............................

266

259

251

239

228

General Motors..................

266

258

250

239

228

Honda...........................

259

251

244

232

221

Hyundai.........................

260

252

244

233

221

Kia.............................

262

253

246

235

223

Mazda...........................

258

250

243

231

220

Mitsubishi......................

255

247

240

228

217

Nissan..........................

263

255

247

236

225

Porsche.........................

242

234

227

215

204

Subaru..........................

252

244

237

225

214

Suzuki..........................

244

236

229

217

206

Tata............................

286

278

271

259

248

Toyota..........................

257

250

242

231

220

Volkswagen......................

254

246

239

228

217

Table III.B.1-2--Estimated Fleet CO2-Equivalent Levels Corresponding to the Proposed Standards for Light Trucks

Model year

Manufacturer

--------------------------------------- 2012 2013 2014 2015 2016

BMW.............................

334

324

313

298

283

Chrysler........................

349

339

329

315

300

Daimler.........................

346

334

323

308

293

Ford............................

363

352

343

329

314

General Motors..................

372

361

351

337

322

Honda...........................

333

322

311

295

280

Hyundai.........................

330

320

308

293

278

Kia.............................

341

330

319

303

288

Mazda...........................

321

311

300

286

271

Mitsubishi......................

320

310

299

284

269

Nissan..........................

352

341

332

318

303

Porsche.........................

338

327

316

301

286

Subaru..........................

319

308

297

282

267

Suzuki..........................

324

313

301

286

271

Tata............................

326

316

305

289

275

Toyota..........................

342

332

320

305

291

Page 49515

Volkswagen......................

344

333

322

307

292

These estimates were aggregated based on projected production volumes into the fleet-wide averages for cars and trucks (Table

III.B.1-3).\124\

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

Table III.B.1-3--Estimated Fleet-wide CO2-Equivalent Levels

Corresponding to the Proposed Standards

Cars

Trucks

Model year

CO2 (g/mi)

2012....................................

261

352 2013....................................

254

341 2014....................................

245

331 2015....................................

234

317 2016 and later..........................

224

303

As shown in Table III.B.1-3, fleet-wide CO2-equivalent emission levels for cars under the proposed approach are projected to decrease from 261 to 224 grams per mile between MY 2012 and MY 2016.

Similarly, fleet-wide CO2-equivalent emission levels for trucks are projected to decrease from 352 to 303 grams per mile. These numbers do not include the effects of other flexibilities and credits in the program. The estimated achieved values can be found in Chapter 5 of the Draft Regulatory Impact Analysis (DRIA).

EPA has also estimated the average fleet-wide levels for the combined car and truck fleets. These levels are provided in Table

III.B.1-4. As shown, the overall fleet average CO2level is expected to be 250 g/mile in 2016.

Table III.B.1-4--Estimated Fleet-wide Combined CO2-Equivalent Levels

Corresponding to the Proposed Standards

Combined car

and truck

Model year

CO2 (g/mi)

2012....................................................

295 2013....................................................

286 2014....................................................

276 2015....................................................

263 2016....................................................

250

As noted above, EPA is proposing standards that would result in increasingly stringent levels of CO2control from MY 2012 though MY 2016--applying the CO2footprint curves applicable in each model year to the vehicles expected to be sold in each model year produces fleet-wide annual reductions in CO2emissions.

As explained in Section III.D below and the relevant support documents,

EPA believes that the proposed level of improvement achieves important

CO2emissions reductions through the application of feasible control technology at reasonable cost, considering the needed lead time for this program. EPA further believes that the proposed averaging, banking and trading provisions, as well as other credit-generating mechanisms, allow manufacturers further flexibilities which reduce the cost of the proposed CO2standards and help to provide adequate lead time. EPA believes this approach is justified under section 202(a) of the Clean Air Act.

EPA has analyzed the feasibility under the CAA of achieving the proposed CO2standards, based on projections of what actions manufacturers are expected to take to reduce emissions. The results of the analysis are discussed in detail in Section III.D below and in the

DRIA. EPA also presents the estimated costs and benefits of the proposed car and truck CO2standards in Section III.H. In developing the proposal, EPA has evaluated the kinds of technologies that could be utilized by the automobile industry, as well as the associated costs for the industry and fuel savings for the consumer, the magnitude of the GHG reductions that may be achieved, and other factors relevant under the CAA.

With respect to the lead time and cost of incorporating technology improvements that reduce GHG emissions, EPA and NHTSA place important weight on the fact that during MYs 2012-2016 manufacturers are expected to redesign and upgrade their light-duty vehicle products (and in some cases introduce entirely new vehicles not on the market today). Over these five model years there would be an opportunity for manufacturers to evaluate almost every one of their vehicle model platforms and add technology in a cost-effective way to control GHG emissions and improve fuel economy. This includes redesign of the air conditioner systems in ways that will further reduce GHG emissions. The time-frame and levels for the proposed standards, as well as the ability to average, bank and trade credits and carry a deficit forward for a limited time, are expected to provide manufacturers the time needed to incorporate technology that will achieve GHG reductions, and to do this as part of the normal vehicle redesign process. This is an important aspect of the proposal, as it would avoid the much higher costs that would occur if manufacturers needed to add or change technology at times other than these scheduled redesigns. This time period would also provide manufacturers the opportunity to plan for compliance using a multi-year time frame, again in accord with their normal business practice.

Consistent with the requirement of CAA section 202(a)(1) that standards be applicable to vehicles ``for their useful life,'' EPA is proposing CO2vehicle standards that would apply for the useful life of the vehicle. Under section 202(i) of the Act, which authorized the Tier 2 standards, EPA established a useful life period of 10 years or 120,000 miles, whichever first occurs, for all Tier 2 light-duty vehicles and light-duty trucks.\125\ Tier 2 refers to EPA's standards for criteria pollutants such as NOX, HC, and CO.

EPA is proposing new CO2standards for the same group of vehicles, and therefore the Tier 2 useful life would apply for

CO2standards as well. The in-use emission standard will be 10% higher than the certification standard, to address issues of production variability and test-to-test variability. The in-use standard is discussed in Section III.E.

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

EPA is proposing to measure CO2for certification and compliance purposes using the same test procedures currently used by

EPA for measuring fuel economy. These procedures are the Federal Test

Procedure (FTP or ``city'' test) and the Highway Fuel Economy

Page 49516

Test (HFET or ``highway'' test).\126\ This corresponds with the data used to develop the footprint-based CO2standards, since the data on control technology efficiency was also developed in reference to these test procedures. Although EPA recently updated the test procedures used for fuel economy labeling, to better reflect the actual in-use fuel economy achieved by vehicles, EPA is not proposing to use these test procedures for the CO2standards proposed here, given the lack of data on control technology effectiveness under these procedures.\127\ As stated in Section I, EPA and NHTSA invite comments on potential amendments to the CAFE and GHG test procedures, including but not limited to air conditioner-related emissions, that could be implemented beginning in MY 2017.

\126\ EPA established the FTP for emissions measurement in the early 1970s. In 1976, in response to the Energy Policy and

Conservation Act (EPCA) statute, EPA extended the use of the FTP to fuel economy measurement and added the HFET.\126\ The provisions in the 1976 regulation, effective with the 1977 model year, established procedures to calculate fuel economy values both for labeling and for CAFE purposes.

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

EPA proposes to include hydrocarbons (HC) and carbon monoxide (CO) in its CO2emissions calculations on a CO2- equivalent basis. It is well accepted that HC and CO are typically oxidized to CO2in the atmosphere in a relatively short period of time and so are effectively part of the CO2 emitted by a vehicle. In terms of standard stringency, accounting for the carbon content of tailpipe HC and CO emissions and expressing it as

CO2-equivalent emissions would add less than one percent to the overall CO2-equivalent emissions level. This will also ensure consistency with CAFE calculations since HC and CO are included in the ``carbon balance'' methodology that EPA uses to determine fuel usage as part of calculating vehicle fuel economy levels. 2. What Are the CO2Attribute-Based Standards?

EPA proposes to use the same vehicle category definitions that are used in the CAFE program for the 2011 model year standards.\128\ The

CAFE vehicle category definitions differ slightly from the EPA definitions for cars and light trucks used for the Tier 2 program, as well as other EPA vehicle programs. Specifically, NHTSA's reconsideration of the CAFE program statutory language has resulted in many two-wheel drive SUVs under 6000 pounds gross vehicle weight being reclassified as cars under the CAFE program. The proposed approach of using CAFE definitions allows EPA's proposed CO2standards and the proposed CAFE standards to be harmonized across all vehicles.

In other words, vehicles would be subject to either car standards or truck standards under both programs, and not car standards under one program and trucks standards under the other.

\128\ See 49 CFR part 523.

EPA is proposing separate car and truck standards, that is, vehicles defined as cars have one set of footprint-based curves for MY 2012-2016 and vehicles defined as trucks have a different set for MY 2012-2016. In general, for a given footprint the CO2g/mi target for trucks is less stringent then for a car with the same footprint.

EPA is not proposing a single fleet standard where all cars and trucks are measured against the same footprint curve for several reasons. First, some vehicles classified as trucks (such as pick-up trucks) have certain attributes not common on cars which attributes contribute to higher CO2emissions--notably high load carrying capability and/or high towing capability. Due to these differences, it is reasonable to separate the light-duty vehicle fleet into two groups. Second, EPA would like to harmonize key program design elements of the GHG standards with NHTSA's CAFE program where it is reasonable to do so. NHTSA is required by statute to set separate standards for passenger cars and for non-passenger cars.

Finally, most of the advantages of a single standard for all light duty vehicles are also present in the two-fleet standards proposed here. Because EPA is proposing to allow unlimited credit transfer between a manufacturer's car and truck fleets, the two fleets can essentially be viewed as a single fleet when manufacturers consider compliance strategies. Manufacturers can thus choose on which vehicles within their fleet to focus GHG reducing technology and then use credit transfers as needed to demonstrate compliance, just as they would if there was a single fleet standard. The one benefit of a single light- duty fleet not captured by a two-fleet approach is that a single fleet prevents potential ``gaming'' of the car and truck definitions to try and design vehicles which are more similar to passenger cars but which may meet the regulatory definition of trucks. Although this is of concern to EPA, we do not believe at this time that concern is sufficient to outweigh the other reasons for proposing separate car and truck fleet standards. EPA requests comment on this approach.

For model years 2012 and later, EPA is proposing a series of

CO2standards that are described mathematically by a family of piecewise linear functions (with respect to vehicle footprint). The form of the function is as follows:

CO2= a, if x 2= cx + d, if l 2= b, if x > h

Where:

CO2= the CO2target value for a given footprint (in g/mi) a = the minimum CO2target value (in g/mi) b = the maximum CO2target value (in g/mi) c = the slope of the linear function (in g/mi per sq ft) d = is the zero-offset for the line (in g/mi CO2) x = footprint of the vehicle model (in square feet, rounded to the nearest tenth) l & h are the lower and higher footprint limits, constraints, or the boundary (``kinks'') between the flat regions and the intermediate sloped line.

EPA's proposed parameter values that define the family of functions for the proposed CO2fleetwide average car and truck standards are as follows:

Table III.B.2-1--Parameter Values for Cars

For CO2 gram per mile targets

Lower

Upper

Model year

constraint

2012....................................................

242

313

4.72

48.8

56 2013....................................................

234

305

4.72

40.8

56 2014....................................................

227

297

4.72

33.2

56 2015....................................................

215

286

4.72

22.0

56 2016 and later..........................................

204

275

4.72

10.9

Page 49517

Table III.B.2-2--Parameter Values for Trucks

For CO2 gram per mile targets

Lower

Upper

Model year

constraint

2012....................................................

298

399

4.04

132.6

66 2013....................................................

287

388

4.04

121.6

66 2014....................................................

276

377

4.04

110.3

66 2015....................................................

261

362

4.04

95.2

66 2016 and later..........................................

246

347

4.04

80.4

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

CAFE program as a single national program, resulting in reduced compliance complexity for manufacturers. EPA's reasons for proposing to use an attribute based standard are discussed in more detail in the

Joint TSD. Comments are requested on this proposal to use the attribute-based approach for regulating tailpipe CO2 emissions.

BILLING CODE 4910-59-P

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BILLING CODE 4910-59-C 3. Overview of How EPA's Proposed CO2Standards Would Be

Implemented for Individual Manufacturers

This section provides a brief overview of how EPA proposes to implement the CO2standards. Section III.E explains EPA's proposed approach for certification and compliance in detail. EPA is proposing two kinds of standards--fleet average standards determined by a manufacturer's fleet profile of various models, and in-use standards that would apply to the various models that make up the manufacturer's fleet. Although this is similar in concept to the current light-duty vehicle Tier 2 program, there are

Page 49520

important differences. In explaining EPA's proposal for the

CO2standards, it is useful to summarize how the Tier 2 program works.

Under Tier 2, manufacturers select a test vehicle prior to certification and test the vehicle and/or its emissions hardware to determine both its emissions performance when new and the emissions performance expected at the end of its useful life. Based on this testing, the vehicle is assigned to one of several specified bins of emissions levels, identified in the Tier 2 rule, and this bin level becomes the emissions standard for the test group the test vehicle represents. All of the vehicles in the group must meet the emissions level for that bin throughout their useful life. The emissions level assigned to the bin is also used in calculating the manufacturer's fleet average emissions performance.

Since compliance with the Tier 2 fleet average depends on actual test group sales volumes and bin levels, it is not possible to determine compliance at the time the manufacturer applies for and receives a certificate of conformity for a test group. Instead, at certification, the manufacturer demonstrates that the vehicles in the test group are expected to comply throughout their useful life with the emissions bin assigned to that test group, and makes a good faith demonstration that its fleet is expected to comply with the Tier 2 average when the model year is over. EPA issues a certificate for the vehicles covered by the test group based on this demonstration, and includes a condition in the certificate that if the manufacturer does not comply with the fleet average then production vehicles from that test group will be treated as not covered by the certificate to the extent needed to bring the manufacturer's fleet average into compliance with Tier 2.

EPA proposes to retain the Tier 2 approach of requiring manufacturers to demonstrate in good faith at the time of certification that models in a test group will meet applicable standards throughout useful life. EPA also proposes to retain the practice of conditioning certificates upon attainment of the fleet average standard. However, there are several important differences between a Tier 2 type of program and the CO2standards program EPA is proposing.

These differences and resulting modifications to certification are summarized below and are described in detail in Section III.E.

EPA is proposing to certify test groups as it does for Tier 2, with the CO2emission results for the test vehicle as the initial or default standard for all of the models in the test group. However, manufacturers would later substitute test data for individual models in that test group, based on the model level fuel economy testing that typically occurs through the course of the model year. This model level data would then be used to assign a distinct certification level for that model, instead of the initial test group level. These model level results would then be used to calculate the fleet average after the end of production.\129\ The option to substitute model level test data for the test group data is at the manufacturer's discretion, except they are required as under the CAFE test protocols to test, at a minimum, enough models to represent 90 percent of their production. The test group level would continue to apply for any model that is not covered by model level testing. A related difference is that the fleet average calculation for Tier 2 is based on test group bin levels and test group sales whereas under this proposal the CO2fleet level would be based on a combination of test group and model-level emissions and model-level production. For the new CO2standards, EPA is proposing to use production rather than sales in calculating the fleet average in order to more closely conform with CAFE, which is a production-based program. EPA does not expect any significant environmental effect because there is little difference between production and sales, and this will reduce the complexity of the program for manufacturers.

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

4. Averaging, Banking, and Trading Provisions for CO2

Standards

As explained above, a fleet average CO2program for passenger cars and light trucks is proposed. EPA has implemented similar averaging programs for a range of motor vehicle types and pollutants, from the Tier 2 fleet average for NOXto motorcycle hydrocarbon (HC) plus oxides of nitrogen (NOX) emissions to NOXand particulate matter (PM) emissions from heavy-duty engines.\130\ The proposed program would operate much like

EPA's existing averaging programs in that manufacturers would calculate production-weighted fleet average emissions at the end of the model year and compare their fleet average with a fleet average standard to determine compliance. As in other EPA averaging programs, the Agency is also proposing a comprehensive program for averaging, banking, and trading of credits which together will help manufacturers in planning and implementing the orderly phase-in of emissions control technology in their production, using their typical redesign schedules.

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

Averaging, Banking, and Trading (ABT) of emissions credits has been an important part of many mobile source programs under CAA Title II, both for fuels programs as well as for engine and vehicle programs. ABT is important because it can help to address many issues of technological feasibility and lead-time, as well as considerations of cost. ABT is an integral part of the standard setting itself, and is not just an add-on to help reduce costs. In many cases, ABT resolves issues of lead-time or technical feasibility, allowing EPA to set a standard that is either numerically more stringent or goes into effect earlier than could have been justified otherwise. This provides important environmental benefits at the same time it increases flexibility and reduces costs for the regulated industry.

This section discusses generation of credits by achieving a fleet average CO2level that is lower than the manufacturer's

CO2fleet average standard. EPA is proposing a variety of additional ways credits may be generated by manufacturers. Section

III.C describes these additional opportunities to generate credits in detail. EPA is proposing that credits could be earned through A/C system improvements beyond a specified baseline. Credits can also be generated by producing alternative fuel vehicles, by producing advanced technology vehicles including electric vehicles, plug-in hybrids, and fuel cell vehicles, and by using technologies that improve off-cycle emissions. In addition, EPA is proposing that early credits could be generated prior to the proposed program's MY 2012 start date. The credits would be used in calculating the fleet averages at the end of the model year, with the exception of early credits which would be tracked separately. These proposed credit generating opportunities are described below in Section III.C.

As explained earlier, manufacturers would determine the fleet average standard that would apply to their car fleet and the standard for their truck fleet from the applicable attribute-based curve. A manufacturer's credit or debit

Page 49521

balance would be determined by comparing their fleet average with the manufacturer's CO2standard for that model year. The standard would be calculated from footprint values on the attribute curve and actual production levels of vehicles at each footprint. A manufacturer would generate credits if its car or truck fleet achieves a fleet average CO2level lower than its standard and would generate debits if its fleet average CO2level is above that standard. At the end of the model year, each manufacturer would calculate a production-weighted fleet average for each averaging set, cars and trucks. A manufacturer's car or truck fleet that achieves a fleet average CO2level lower than its standard would generate credits, and if its fleet average CO2level is above that standard its fleet would generate debits.

EPA is proposing to account for the difference in expected lifetime vehicle miles traveled (VMT) between cars and trucks in order to preserve CO2reductions when credits are transferred between cars and trucks. As directed by EISA, NHTSA accomplishes this in the

CAFE program by using an adjustment factor that is applied to credits when they are transferred between car and truck compliance categories.

The CAFE adjustment factor accounts for two different influences that can cause the transfer of car and truck credits (expressed in tenths of a mpg), if left unadjusted, to potentially negate fuel reductions.

First, mpg is not linear with fuel consumption, i.e., a 1 mpg improvement above a standard will imply a different amount of actual fuel consumed depending on the level of the standard. Second, NHTSA's conversion corrects for the fact that the typical lifetime miles for cars is less than that for trucks, meaning that credits earned for cars and trucks are not necessarily equal. NHTSA's adjustment factor essentially converts credits into vehicle lifetime gallons to ensure preservation of fuel savings and the transfer credits on an equal basis, and then converts back to the statutorily required credit units of tenths of a mile per gallon. To convert to gallons NHTSA's conversion must take into account the expected lifetime mileage for cars and trucks. Because EPA is proposing standards that are expressed on a CO2gram per mile basis, which is linear with fuel consumption, EPA's credit calculations do not need to account for the first issue noted above. However, EPA is proposing to account for the second issue by expressing credits when they are generated in total lifetime megagrams (metric tons), rather than through the use of conversion factors that would apply at certain times. In this way credits could be freely exchanged between car and truck compliance categories without adjustment. Additional detail regarding this approach, including a discussion of the vehicle lifetime mileage estimates for cars and trucks can be found in Section III.E.5. A discussion of the estimated vehicle lifetime miles traveled can be found in Chapter 4 of the draft Joint Technical Support Document. EPA requests comment on the proposed approach.

A manufacturer that generates credits in a given year and vehicle category could use those credits in essentially four ways, although with some limitations. These provisions are very similar to those of other EPA averaging, banking, and trading programs. These provisions have the potential to reduce costs and compliance burden, and support the feasibility of the standards being proposed in terms of lead time and orderly redesign by a manufacturer, thus promoting and not reducing the environmental benefits of the program.

First, the manufacturer would have to offset any deficit that had accrued in that averaging set in a prior model year and had been carried over to the current model year. In such a case, the manufacturer would be obligated to use any current model year credits to offset that deficit. This is referred to in the CAFE program as credit carry-back. EPA's proposed deficit carry-forward, or credit carry-back provisions are described further, below.

Second, after satisfying any needs to offset pre-existing deficits within a vehicle category, remaining credits could be banked, or saved for use in future years. EPA is proposing that credits generated in this program be available to the manufacturer for use in any of the five years after the year in which they were generated, consistent with the CAFE program under EISA. This is also referred to as a credit carry-forward provision. For other new emission control programs, EPA has sometimes initially restricted credit life to allow time for the

Agency to assess whether the credit program is functioning as intended.

When EPA first offered averaging and banking provisions in its light- duty emissions control program (the National Low Emission Vehicle

Program), credit life was restricted to three years. The same is true of EPA's early averaging and banking program for heavy-duty engines. As these programs matured and were subsequently revised, EPA became confident that the programs were functioning as intended and that the standards were sufficiently stringent to remove the restrictions on credit life.

EPA is therefore acting consistently with our past practice in proposing to reasonably restrict credit life in this new program. The

Agency believes, subject to consideration of public comment, that a credit life of five years represents an appropriate balance between promoting orderly redesign and upgrade of the emissions control technology in the manufacturer's fleet and the policy goal of preventing large numbers of credits accumulated early in the program from interfering with the incentive to develop and transition to other more advanced emissions control technologies. As discussed below in

Section III.C, EPA is proposing that any early credits generated by a manufacturer, beginning as soon as MY 2009, would also be subject to the five-year credit carry-forward restriction based on the year in which they are generated. This would limit the effect of the early credits on the long-term emissions reductions anticipated to result from the proposed new standards.

Third, EPA is proposing to allow manufacturers to transfer credits between the two averaging sets, passenger cars and trucks, within a manufacturer. For example, credits accrued by over-compliance with a manufacturer's car fleet average standard could be used to offset debits accrued due to that manufacturer's not meeting the truck fleet average standard in a given year. EPA believes that such cross-category use of credits by a manufacturer would provide important additional flexibility in the transition to emissions control technology without affecting overall emission reductions.

Finally, accumulated credits could be traded to another vehicle manufacturer. As with intra-company credit use, such inter-company credit trading would provide flexibility in the transition to emissions control technology without affecting overall emission reductions.

Trading credits to another vehicle manufacturer would be a straightforward process between the two manufacturers, but could also involve third parties that could serve as credit brokers. Brokers would not own the credits at any time. These sorts of exchanges are typically allowed under EPA's current emission credit programs, e.g., the Tier 2 light-duty vehicle NOXfleet average standard and the heavy- duty engine NOXfleet average standards, although manufacturers have seldom made such exchanges. EPA seeks comment on enhanced reporting requirements or other methods that could help EPA assess validity of

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credits, especially those obtained from third-party credit brokers

If a manufacturer had a deficit at the end of a model year--that is, its fleet average level failed to meet the required fleet average standard--EPA proposes that the manufacturer could carry that deficit forward (also referred to credit carry-back) for a total of three model years after the model year in which that deficit was generated. As noted above, such a deficit carry-forward could only occur after the manufacturer applied any banked credits or credits from another averaging set. If a deficit still remained after the manufacturer had applied all available credits, and the manufacturer did not obtain credits elsewhere, the deficit could be carried over for up to three model years. No deficit could be carried into the fourth model year after the model year in which the deficit occurred. Any deficit from the first model year that remained after the third model year would thus constitute a violation of the condition on the certificate, which would constitute a violation of the Clean Air Act and would be subject to enforcement action.

In the Tier 2 rulemaking proposal, EPA proposed to allow deficits to be carried forward for one year. In their comments on that proposal, manufacturers argued persuasively that by the time they can tabulate their average emissions for a particular model year, the next model year is likely to be well underway and it is too late to make calibration, marketing, or production mix changes to adjust that year's credit generation. Based on those comments, in the Tier 2 final rule

EPA finalized provisions that allowed the deficit to be carried forward for a total of three years. EPA continues to believe that three years is an appropriate amount of time that gives the manufacturers adequate time to respond to a deficit situation but does not create a lengthy period of prolonged non-compliance with the fleet average standards.\131\ Subsequent EPA emission control programs that incorporate ABT provisions (e.g., the Mobile Source Air Toxics rule) have provided this three-year deficit carry-forward provision for this reason.\132\

\131\ See 65 FR 6745 (February 10, 2000).

\132\ See 71 FR 8427 (February 26, 2007).

The proposed averaging, banking, and trading provisions are generally consistent with those included in the CAFE program, with a few notable exceptions. As with EPA's proposed approach, CAFE allows five year carry-forward of credits and three year carry-back. Transfers of credits across a manufacturer's car and truck averaging sets are also allowed, but with limits established by EISA on the use of transferred credits. The amount of transferred credits that can be used in a year is limited, and transferred credits may not be used to meet the CAFE minimum domestic passenger car standard. CAFE allows credit trading, but again, traded credits cannot be used to meet the minimum domestic passenger car standard. EPA is not proposing these constraints on the use of transferred credits.

Additional details regarding the averaging, banking, and trading provisions and how EPA proposes to implement these provisions can be found in Section III.E. 5. CO2Optional Temporary Lead-time Allowance Alternative

Standards

EPA is proposing a limited and narrowly prescribed option, called the Temporary Lead-time Allowance Alternative Standards (TLAAS), to provide additional lead time for a certain subset of manufacturers.

This option is designed to address two different situations where we project that more lead time is needed, based on the level of emissions control technology and emissions control performance currently exhibited by certain vehicles. One situation involves manufacturers who have traditionally paid CAFE fines instead of complying with the CAFE fleet average, and as a result at least part of their vehicle production currently has significantly higher CO2and lower fuel economy levels than the industry average. More lead time is needed in the program's initial years to upgrade these vehicles to meet the aggressive CO2emissions performance levels required by the proposal. The other situation involves manufacturers who have a limited line of vehicles and are unable to take advantage of averaging of emissions performance across a full line of production. For example, some smaller volume manufacturers focus on high performance vehicles with higher CO2emissions, above the CO2 emissions target for that vehicle footprint, but do not have other types of vehicles in their production mix with which to average. Often, these manufacturers also pay fines under the CAFE program rather than meeting the applicable CAFE standard. Because voluntary non-compliance is impermissible for the GHG standards proposed under the CAA, both of these types of manufacturers need additional lead time to upgrade vehicles and meet the proposed standards. EPA is proposing an optional, temporary alternative standard, which is only slightly less stringent, and limited to the first four model years (2012--2015) of the National

Program, so that these manufacturers can have sufficient lead time to meet the tougher MY 2016 GHG standards, while preserving consumer choice of vehicles during this time.

In MY 2016, the TLAAS option ends, and all manufacturers, regardless of size, and domestic sales volume, must comply with the same CO2standards, while under the CAFE program companies would continue to be allowed to pay civil penalties in lieu of complying with the CAFE standards. However, because companies must meet both the CAFE standards and the EPA CO2standards, the

National Program will have the practical impact of providing a level playing field for all companies beginning in MY 2016--a situation which has never existed under the CAFE program. This option thereby results in more fuel savings and CO2reductions than would be the case under the CAFE program.

EPA projects that the environmental impact of the proposed TLAAS program will be very small. If all companies eligible to use the TLAAS use it to the maximum extent allowed, total GHG emissions from the proposal will increase by less than 0.4% over the lifetime of the MY 2012-2016 vehicles. EPA believes the impact will be even smaller, as we do not expect all of the eligible companies to use this option, and we do not expect all companies who do use the program will use it to the maximum extent allowed, as we have included provisions which discourage companies from using the TLAAS any longer than it is needed.

EPA has structured the TLAAS option to provide more lead time in these kinds of situations, but to limit the program so that it would only be used in situations where these kinds of lead time concerns arise. Based on historic data on sales, EPA is using a specific historic U.S. sales volume as the best way to identify the subset of production that falls into this situation. Under the TLAAS, these manufacturers would be allowed to produce up to but no more than 100,000 vehicles that would be subject to a somewhat less stringent

CO2standard. This 100,000 volume is not an annual limit, but is an absolute limit for the total number of vehicles which can use the TLAAS program over the model years 2012-2015. Any additional production would be subject to the same standards as any other manufacturer. In addition, EPA is imposing a variety of restrictions on the use of the TLAAS program, discussed in more detail below, to ensure that only manufacturers who need more lead-time

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for the kinds of reasons noted above are likely to use the program.

Finally, the program is temporary and expires at the end of MY 2015. A more complete discussion of the program is provided below. EPA believes the proposed program reasonably addresses a real world lead time constraint, and does it in a way that balances the need for more lead time with the need to minimize any resulting loss in potential emissions reductions. EPA invites comment as to whether its proposal is the best way to balance these concerns.

EPA proposes to establish a TLAAS for a specified subset of manufacturers. There are two types of companies who would make use of

TLAAS--those manufacturers who have paid CAFE fines in recent years, and who need additional lead-time to incorporate the needed technology; and those companies who are not full-line manufacturers, who have a smaller range of models and vehicle types, who may need additional lead-time as well. This alternative standard would apply to manufacturers with total U.S. sales of less than 400,000 vehicles per year, using 2009 model year final sales numbers to determine eligibility for these alternative standards. EPA reviewed the sales volumes of manufacturers over the last few years, and determined that manufacturers below this level typically fit the characteristics discussed above, and manufacturers above this level did not. Thus, EPA chose this level because it functionally identifies the group of manufacturers described above, recognizing that there is nothing intrinsic in the sales volume itself that warrants this allowance. EPA was not able to identify any other objective criteria that would more appropriately identify the manufacturers and vehicle fleets described above.

EPA is proposing that manufacturers qualifying for TLAAS would be allowed to meet slightly less stringent standards for a limited number of vehicles for model years 2012-2015. Specifically, an eligible manufacturer could have a total of up to 100,000 units of cars and trucks combined over model years 2012-2015, and during those model years those vehicles would be subject to a standard 1.25 times the standard that would otherwise apply to those vehicles under the primary program. In other words, the footprint curves upon which the individual manufacturer standards for the TLAAS fleets are based would be less stringent by a factor of 1.25 for up to 100,000 of an eligible manufacturer's vehicles for model years 2012-2015. As noted, this approach seeks to balance the need to provide additional lead-time without reducing the environmental benefits of the proposed program.

EPA believes that 100,000 units over four model years achieves an appropriate balance as the emissions impact is quite small, but does provide companies with some flexibility during MY 2012-2015. For example, for a manufacturer producing 400,000 vehicles per year, this would be a total of up to 100,000 vehicles out of a total production of up to 1.6 million vehicles over the four year period, or about 6 percent of total production.

Manufacturers with no U.S. sales in model year 2009 would not qualify for the TLAAS program. Manufacturers meeting the cut-point of 400,000 for MY 2009 but with U.S. directed production above 400,000 in any subsequent model years would remain eligible for the TLAAS program.

Also, the total sales number applies at the corporate level, so if a corporation owns several vehicle brands the aggregate sales for the corporation would be used. These provisions would help prevent gaming of the provisions through corporate restructuring. Corporate ownership or control relationships would be based on determinations made under

CAFE for model year 2009. In other words, corporations grouped together for purposes of meeting CAFE standards, would be grouped together for determining whether or not they are eligible under the 400,000 vehicle cut point.

EPA derived the 100,000 maximum unit set aside number based on a gradual phase-out schedule shown in Table III.B.5-1, below. However, individual manufacturers' situations will vary significantly and so EPA believes a flexible approach that allows manufacturers to use the allowance as they see fit during these model years would be most appropriate. As another example, an eligible manufacturer could also choose to apply the TLAAS program to an average of 25,000 vehicles per year, over the four-year period. Therefore, EPA is proposing that a total of 100,000 vehicles of an eligible manufacturer, with any combination of cars or trucks, could be subject to the alternative standard over the four year period without restrictions.

Table III.B.5-1--TLAAS Example Vehicle Production Volumes

Model year

2012

2013

2014

2015

Sales Volume........................

40,000

30,000

20,000

10,000

The TLAAS vehicles would be separate car and truck fleets for that model year and would be subject to the less stringent footprint-based standards of 1.25 times the primary fleet average that would otherwise apply. The manufacturer would determine what vehicles are assigned to these separate averaging sets for each model year. EPA is proposing that credits from the primary fleet average program can be transferred and used in the TLAAS program. Credits within the TLAAS program may also be transferred between the TLAAS car and truck averaging sets for use through 2015 when the TLAAS would end. However, credits generated under TLAAS would not be allowed to be transferred or traded to the primary program. Therefore, any unused credits under TLAAS would expire after model year 2015. EPA believes that this is necessary to limit the program to situations where it is needed and to prevent the allowance from being inappropriately transferred to the long-term primary program.

EPA is concerned that some manufacturers would be able to place relatively clean vehicles in the TLAAS to maximize TLAAS credits if credit use was unrestricted. However, any credits generated from the primary program that are not needed for compliance in the primary program, should be used to offset the TLAAS vehicles. EPA is thus proposing to restrict the use of banking and trading between companies of credits in the primary program in years in which the TLAAS is being used. For example, manufacturers using the TLAAS in MY 2012 could not bank credits in the primary program during MY 2012 for use in MY 2013 and later. No such restriction would be in place for years when the

TLAAS is not being used. EPA also believes this provision is necessary to prevent credits from being earned simply by removing some high- emitting vehicles from the primary fleet. Absent this restriction, manufacturers would be able to choose to use the TLAAS for these vehicles and also be

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able to earn credits under the primary program that could be banked or traded under the primary program without restriction. EPA is proposing two additional restrictions regarding the use of the TLAAS by requiring that for any of the 2012-2015 model years for which an eligible manufacturer would like to use the TLAAS, the manufacturer must use two of the available flexibilities in the GHG program first in order to try and show compliance with the primary standard before accessing the

TLAAS. Specifically, before using the TLAAS the manufacturer must: (1) use any banked emission credits from a previous model year; and, (2) use any available credits from the companies' car or truck fleet for the specific model year (i.e., use credit transfer from cars to trucks or from trucks to cars, that is, before using the TLAAS for either the car fleet or the truck fleet, make use of any available credit transfers first). EPA is requesting comments on all aspects of the proposed TLAAS program including comments on other provisions that might be needed to ensure that the TLAAS program is being used as intended and to ensure no gaming occurs.

Finally, EPA recognizes that there will be a wide range of companies within the eligible manufacturers with sales less than 400,000 vehicles in model year 2009. Some of these companies, while having relatively small U.S. sales volumes, are large global automotive firms, including companies such as Mercedes and Volkswagen. Other companies are significantly smaller niche firms, with sales volumes closer to 10,000 vehicles per year worldwide; an example of this type of firm is Aston Martin. EPA anticipates that there are a small number of such smaller volume manufacturers, which have claimed that they may face greater challenges in meeting the proposed standards due to their limited product lines across which to average. EPA requests comment on whether the proposed TLAAS program, as described above, provides sufficient lead-time for these smaller firms to incorporate the technology needed to comply with the proposed GHG standards. 6. Proposed Nitrous Oxide and Methane Standards

In addition to fleet-average CO2standards, EPA is proposing separate per-vehicle standards for nitrous oxide

(N2O) and methane (CH4) emissions. Standards are being proposed that would cap vehicle N2O and CH4 emissions at current levels. Our intention is to set emissions standards that act to cap emissions to ensure that future vehicles do not increase their N2O and CH4emissions above levels that would be allowed under the proposal.

EPA considered an approach of expressing each of these standards in common terms of CO2-equivalent emissions and combining them into a single standard along with CO2and HFC emissions.

California's ``Pavley'' program adopted such a CO2- equivalent emissions standards approach to GHG emissions in their program.\133\ However, these pollutants are largely independent of one another in terms of how they are generated by the vehicle and how they are tested for during implementation. Potential control technologies and strategies for each pollutant also differ. Moreover, an approach that provided for averaging of these pollutants could undermine the stringency of the CO2standards, as at this time we are proposing standards which ``cap'' N2O and CH4 emissions, rather then proposing a level which is either at the industry fleet-wide average or which would result in reductions from these pollutants. It is possible that once EPA begins to receive more detailed information on the N2O and CH4 performance of the new vehicle fleet as a result of this proposed rule

(if it were to be finalized as proposed) that for a future action for model years 2017 and later EPA could consider a CO2- equivalent standard which would not result in any increases in GHG emissions due to the current lack of detailed data on N2O and CH4emissions performance. In addition, EPA seeks comment on whether a CO2-equivalent emissions standard should be considered for model years 2012 through 2016, and whether there are advantages or disadvantages to such an approach, including potential impacts on harmonization with CAFE standards.

\133\ California Environmental Protection Agency Air Resources

Board, Staff Report: Initial Statement of Reasons for Proposed

Rulemaking Public Hearing To Consider Adoption Of Regulations To

Control Greenhouse Gas Emissions From Motor Vehicles, August 6, 2004.

Almost universally across current car and truck designs, both gasoline- and diesel-fueled, these emissions are relatively low, and our intent is to not require manufacturers to make technological improvements in order to reduce N2O and CH4at this time. However, it is important that future vehicle technologies or fuels do not result in increases in these emissions, and this is the intent of the proposed ``cap'' standards.

EPA requests comments on our approach to regulating N2O and CH4emissions including the appropriateness of ``cap'' standards as opposed to ``technology-forcing'' standards, the technical bases for the proposed N2O and CH4standards, the proposed test procedures, and timing. Specifically, EPA seeks comment on the appropriateness of the proposed levels of the N2O and

CH4standards to accomplish our stated intent. In addition,

EPA seeks comment on any additional emissions data on N2O and CH4from current technology vehicles. a. Nitrous Oxide (N2O) Exhaust Emission Standard

N2O is a global warming gas with a high global warming potential.\134\ It accounts for about 2.7% of the current greenhouse gas emissions from cars and light trucks. EPA is proposing a per- vehicle N2O emission standard of 0.010 g/mi, measured over the traditional FTP vehicle laboratory test cycles. The standard would become effective in model year 2012 for all light-duty cars and trucks.

Averaging between vehicles would not be allowed. The standard is designed to prevent increases in N2O emissions from current levels, i.e. a no-backsliding standard.

\134\ N2O has a GWP of 310 according to the IPCC

Second Assessment Report (SAR).

N2O is emitted from gasoline and diesel vehicles mainly during specific catalyst temperature conditions conducive to

N2O formation. Specifically, N2O can be generated during periods of emission hardware warm-up when rising catalyst temperatures pass through the temperature window when N2O formation potential is possible. For current Tier 2 compatible gasoline engines with conventional three-way catalyst technology, N2O is not generally produced in significant amounts because the time the catalyst spends at the critical temperatures during warm-up is short.

This is largely due to the need to quickly reach the higher temperatures necessary for high catalyst efficiency to achieve emission compliance of criteria pollutants. N2O is a more significant concern with diesel vehicles, and potentially future gasoline lean-burn engines, equipped with advanced catalytic NOXemissions control systems. These systems can but need not be designed in a way that emphasizes efficient NOXcontrol while allowing the formation of significant quantities of N2O. Excess oxygen present in the exhaust during lean-burn conditions in diesel or lean- burn gasoline engines equipped with these advanced systems can favor

N2O formation if catalyst temperatures are not carefully controlled. Without

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specific attention to controlling N2O emissions in the development of such new NOXcontrol systems, vehicles could have N2O emissions many times greater than are emitted by current gasoline vehicles.

EPA is proposing an N2O emission standard that EPA believes would be met by current-technology gasoline vehicles at essentially no cost. As noted, N2O formation in current catalyst systems occurs, but the emission levels are low, because the time the catalyst spends at the critical temperatures during warm-up when N2O can form is short. At the same time, EPA believes that the proposed standard would ensure that the design of advanced

NOXcontrol systems, especially for future diesel and lean- burn gasoline vehicles, would control N2O emission levels.

While current NOXcontrol approaches used on current Tier 2 diesel vehicles do not tend to form N2O emissions, EPA believes that the proposed standards would discourage any new emission control designs that achieve criteria emissions compliance at the cost of increased N2O emissions. Thus, the proposed standard would cap N2O emission levels, with the expectation that current gasoline and diesel vehicle control approaches that comply with the Tier 2 vehicle emission standards for NOXwould not increase their emission levels, and that the cap would ensure that future vehicle designs would appropriately control their emissions of

N2O. The proposed N2O level is approximately two times the average N2O level of current gasoline passenger cars and light-duty trucks that meet the Tier 2 NOX standards.\135\ Manufacturers typically use design targets for

NOXemission levels of about 50% of the standard, to account for in-use emissions deterioration and normal testing and production variability, and manufacturers are expected to utilize a similar approach for N2O emission compliance. EPA is not proposing a more stringent standard for current gasoline and diesel vehicles because the stringent Tier 2 program and the associated NOX fleet average requirement already result in significant N2O control, and does not expect current N2O levels to rise for these vehicles. EPA requests comment on this technical assessment of current and potential future N2O formation in cars and trucks.

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

While EPA believes that manufacturers will likely be able to acquire and install N2O analytical equipment, the agency also recognizes that some companies may face challenges. Given the short lead-time for this rule, EPA proposes that manufacturers be able to apply for a certificate of conformity with the N2O standard for model year 2012 based on a compliance statement based on good engineering judgment. For 2013 and later model years, manufacturers would need to submit measurements of N2O for compliance purposes.

Diesel cars and light trucks with advanced emission control technology are in the early stages of development and commercialization. As this segment of the vehicle market develops, the proposed N2O standard would require manufacturers to incorporate control strategies that minimize N2O formation.

Available approaches include using electronic controls to limit catalyst conditions that might favor N2O formation and consider different catalyst formulations. While some of these approaches may have modest associated costs, EPA believes that they will be small compared to the overall costs of the advanced

NOXcontrol technologies already required to meet Tier 2 standards.

Vehicle emissions regulations do not currently require testing for

N2O, and most test facilities do not have equipment for its measurement. Manufacturers without this capability would need to acquire and install appropriate measurement equipment. However, EPA is proposing four N2O measurement methods, all of which are commercially available today. EPA expects that most manufacturers would use photo-acoustic measurement equipment, which the Agency estimates would result in a one-time cost of about $50,000-$60,000 for each test cell that would need to be upgraded.

Overall, EPA believes that manufacturers of cars and light trucks, both gasoline and diesel, would meet the proposed standard without implementing any significantly new technologies, and there are not expected to be any significant costs associated with this proposed standard. b. Methane (CH4) Exhaust Emission Standard

CH4(or methane) is greenhouse gas with a high global warming potential.\136\ It accounts for about 0.2% of the greenhouse gases from cars and light trucks.

\136\ CH4has a GWP of 21 according to the IPCC

Second Assessment Report (SAR).

EPA is proposing a CH4emission standard of 0.030 g/mi as measured on the FTP, to apply beginning with model year 2012 for both cars and trucks. EPA believes that this level for the standard would be met by current gasoline and diesel vehicles, and would prevent large increases in future CH4emissions in the event that alternative fueled vehicles with high methane emissions, like some past dedicated compressed natural gas (CNG) vehicles, become a significant part of the vehicle fleet. Currently EPA does not have separate

CH4standards because unlike other hydrocarbons it does not contribute significantly to ozone formation,\137\ However

CH4emissions levels in the gasoline and diesel car and light truck fleet have nevertheless generally been controlled by the

Tier 2 non-methane organic gases (NMOG) emission standards. However, without an emission standard for CH4, future emission levels of CH4cannot be guaranteed to remain at current levels as vehicle technologies and fuels evolve.

\137\ But see Ford Motor Co. v. EPA, 604 F. 2d 685 (D.C. Cir. 1979) (permissible for EPA to regulate CH4under CAA section 202 (b)).

The proposed standard would cap CH4emission levels, with the expectation that current gasoline vehicles meeting the Tier 2 emission standards would not increase their levels, and that it would ensure that emissions would be addressed if in the future there are increases in the use of natural gas or any other alternative fuel. The level of the standard would generally be achievable through normal emission control methods already required to meet Tier 2 program emission standards for NMOG and EPA is therefore not attributing any cost to this part of this proposal. Since CH4is produced in gasoline and diesel engines similar to other hydrocarbon components, controls targeted at reducing overall NMOG levels generally also work at reducing CH4emissions. Therefore, for gasoline and diesel vehicles, the Tier 2 NMOG standards will generally prevent increases in CH4emissions levels from today. CH4 from Tier 2 light-duty vehicles is relatively low compared to other

GHGs largely due to the high effectiveness of previous National Low

Emission Vehicle (NLEV) and current Tier 2 programs in controlling overall HC emissions.

The level of the proposed standard is approximately two times the average Tier 2 gasoline passenger cars and light-duty trucks level.\138\ As with N2O, this proposed level recognizes that manufacturers typically set emission design targets at about 50% of the standard. Thus, EPA believes the proposed standard would be met by

Page 49526

current gasoline vehicles. Similarly, since current diesel vehicles generally have even lower CH4emissions than gasoline vehicles, EPA believes that diesels would also meet the proposed standard. However, EPA also believes that to set a CH4 emission standard more stringent than the proposed standard could effectively make the Tier 2 NMOG standard more stringent.

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

In recent model years, a small number of cars and light trucks were sold that were designed for dedicated use of compressed natural gas

(CNG) that met Tier 2 emission standards. While emission control designs on these recent dedicated CNG-fueled vehicles demonstrate

CH4control as effective as gasoline or diesel equivalent vehicles, CNG-fueled vehicles have historically produced significantly higher CH4emissions than gasoline or diesel vehicles. This is because their CNG fuel is essentially methane and any unburned fuel that escapes combustion and not oxidized by the catalyst is emitted as methane. However, even if these vehicles meet the Tier 2 NMOG standard and appear to have effective CH4control by nature of the

NMOG controls, Tier 2 standards do not require CH4control.

While the proposed CH4cap standard should not require any different emission control designs beyond what is already required to meet Tier 2 NMOG standards on a dedicated CNG vehicle, the cap will ensure that systems maintain the current level of CH4 control. EPA is not proposing more stringent CH4standards because the same controls that are used to meet Tier 2 NMOG standards should result in effective CH4control. Increased

CH4stringency beyond proposed levels could inadvertently result in increased Tier 2 NMOG stringency absent an emission control technology unique to CH4. Since CH4is already measured under the current Tier 2 regulations (so that it may be subtracted to calculate non-methane hydrocarbons), the proposed standard would not result in additional testing costs. EPA requests comment on whether the proposed cap standard would result in any significant technological challenges for makers of CNG vehicles. 7. Small Entity Deferment

EPA is proposing to defer setting GHG emissions standards for small entities meeting the Small Business Administration (SBA) criteria of a small business as described in 13 CFR 121.201. EPA would instead consider appropriate GHG standards for these entities as part of a future regulatory action. This includes small entities in three distinct categories of businesses for light-duty vehicles: small volume manufacturers, independent commercial importers (ICIs), and alternative fuel vehicle converters. EPA has identified about 13 entities that fit the Small Business Administration (SBA) criterion of a small business.

EPA estimates there are 2 small volume manufacturers, 8 ICIs, and 3 alternative fuel vehicle converters currently in the light-duty vehicle market. EPA estimates that these small entities comprise less than 0.1 percent of the total light-duty vehicle sales in the U.S., and therefore the proposed deferment will have a negligible impact on the

GHG emissions reductions from the proposed standards. Further detail is provided in Section III.I.3, below.

To ensure that EPA is aware of which companies would be deferred,

EPA is proposing that such entities submit a declaration to EPA containing a detailed written description of how that manufacturer qualifies as a small entity under the provisions of 13 CFR 121.201.

Because such entities are not automatically exempted from other EPA regulations for light-duty vehicles and light-duty trucks, absent such a declaration, EPA would assume that the entity was subject to the greenhouse gas control requirements in this GHG proposal. The declaration would need to be submitted at time of vehicle emissions certification under the EPA Tier 2 program. Small entities are currently covered by a number of EPA motor vehicle emission regulations, and they routinely submit information and data on an annual basis as part of their compliance responsibilities. EPA expects that the additional paperwork burden associated with completing and submitting a small entity declaration to gain deferral from the proposed GHG standards would be negligible and easily done in the context of other routine submittals to EPA. However, EPA has accounted for this cost with a nominal estimate included in the Information

Collection Request completed under the Paperwork Reduction Act.

Additional information can be found in the Paperwork Reduction Act discussion in Section III.I.2.

C. Additional Credit Opportunities for CO2Fleet Average

Program

The standards being proposed represent a significant multi-year challenge for manufacturers, especially in the early years of the program. Section III.B.4 described EPA proposals for how manufacturers could generate credits by achieving fleet average CO2 emissions below the fleet average standard, and also how manufacturers could use credits to comply with standards. As described in Section

III.B.4, credits could be carried forward five years, carried back three years, transferred between vehicle categories, and traded between manufacturers. The credits provisions proposed below would provide manufacturers with additional ways to earn credits starting in MY 2012.

EPA is also proposing early credits provisions for the 2009-2011 model years, as described below in Section III.C.5.

The provisions proposed below would provide additional flexibility, especially in the early years of the program. This flexibility helps to address issues of lead-time or technical feasibility for various manufacturers and in several cases provides an incentive for promotion of technology pathways that warrant further development, whether or not they are an important or central technology on which critical features of this program are premised. EPA is proposing a variety of credit opportunities because manufacturers are not likely to be in a position to use every credit provision. EPA expects that manufacturers are likely to select the credit opportunities that best fit their future plans. EPA believes it is critical that manufacturers have options to ease the transition to the final MY 2016 standards. At the same time,

EPA believes these credit programs must be designed in a way to ensure that they achieve emission reductions that achieve real-world reductions over the full useful life of the vehicle (or, in the case of

FFV credits and Advanced Technology credits, to incentivize the introduction of those vehicle technologies) and are verifiable. In addition, EPA wants to ensure these credit programs do not provide an opportunity for manufacturers to earn ``windfall'' credits. EPA seeks comments on how to best ensure these objectives are achieved in the design of the credit programs. EPA requests comment on all aspects of these proposed credits provisions. 1. Air Conditioning Related Credits

EPA proposes that manufacturers be able to generate and use credits for improved air conditioner (A/C) systems in complying with the

CO2fleetwide average standards described above. EPA expects that most manufacturers will choose to utilize the A/C provisions as part of its compliance demonstration (and for this reason cost of compliance with A/C related emission reductions are assumed in the cost analysis). The A/C provisions are structured as credits, unlike the

CO2standards for which manufacturers will demonstrate

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compliance using 2-cycle tests (see Sections III.B and III.E.). Those tests do not measure either A/C leakage or tailpipe CO2 emissions attributable to A/C load (see Section III.C.1.b below describing proposed alternative test procedures for assessing tailpipe

CO2emission attributable to A/C engine load). Thus, it is a manufacturer's option to include A/C GHG emission reductions as an aspect of its compliance demonstration. Since this is an elective alternative, EPA is referring to the A/C part of the proposal as a credit.

EPA estimates that direct A/C GHG emissions--emissions due to the leakage of the hydrofluorocarbon refrigerant in common use today-- account for 4.3% of CO2-equivalent GHGs from light-duty cars and trucks. This includes the direct leakage of refrigerant as well as the subsequent leakage associated with maintenance and servicing, and with disposal at the end of the vehicle's life. The emissions that are impacted by leakage reductions are the direct leakage and the maintenance and servicing. Together these are equivalent to

CO2emissions of approximately 13.6 g/mi per vehicle (this is 14.9 g/mi if end of life emissions are also included). EPA also estimates that indirect GHG emissions (additional CO2 emitted due to the load of the A/C system on the engine) account for another 3.9% of light-duty GHGs.\139\ This is equivalent to

CO2emissions of approximately 14.2 g/mi per vehicle. The derivation of these figures can be found in the EPA DRIA.

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

EPA believes that it is important to address A/C direct and indirect emissions because the technologies that manufacturers will employ to reduce vehicle exhaust CO2will have little or no impact on A/C related emissions. Without addressing A/C-related emissions, as vehicles become more efficient, the A/C related contribution will become a much larger portion of the overall vehicle

GHG emissions.

Over 95% of the new cars and light trucks in the United States are equipped with A/C systems and, as noted, there are two mechanisms by which A/C systems contribute to the emissions of greenhouse gases: through leakage of refrigerant into the atmosphere and through the consumption of fuel to provide power to the A/C system. With leakage, it is the high global warming potential (GWP) of the current automotive refrigerant--R134a, with a GWP of 1430--that results in the

CO2-equivalent impact of 13.6 g/mi.\140\ Due to the high GWP of this HFC, a small leakage of the refrigerant has a much greater global warming impact than a similar amount of emissions of

CO2or other mobile source GHGs. Manufacturers can choose to reduce A/C leakage emissions by using leak-tight components. Also, manufacturers can largely eliminate the global warming impact of leakage emissions by adopting systems that use an alternative, low-GWP refrigerant.\141\ The A/C system also contributes to increased

CO2emissions through the additional work required to operate the compressor, fans, and blowers. This additional work typically is provided through the engine's crankshaft, and delivered via belt drive to the alternator (which provides electric energy for powering the fans and blowers) and A/C compressor (which pressurizes the refrigerant during A/C operation). The additional fuel used to supply the power through the crankshaft necessary to operate the A/C system is converted into CO2by the engine during combustion. This incremental CO2produced from A/C operation can thus be reduced by increasing the overall efficiency of the vehicle's A/C system, which in turn will reduce the additional load on the engine from A/C operation.\142\

\140\ The global warming potentials (GWP) used in the NPRM analysis are consistent with Intergovernmental Panel on Climate

Change (IPCC) Fourth Assessment Report (AR4). At this time, the IPCC

Second Assessment Report (SAR) global warming potential values have been agreed upon as the official U.S. framework for addressing climate change. The IPCC SAR GWP values are used in the official

U.S. greenhouse gas inventory submission to the climate change framework. When inventories are recalculated for the final rule, changes in GWP used may lead to adjustments.

\141\ Refrigerant emissions during maintenance and at the end of the vehicle's life (as well as emissions during the initial charging of the system with refrigerant) are also addressed by the CAA Title

VI stratospheric ozone program, as described below.

\142\ We will not be addressing changes to the weight of the A/C system, since the issue of CO2emissions from the fuel consumption of normal (non-A/C) operation, including basic vehicle weight, is inherently addressed with the primary CO2 standards (See III.B above).

Manufacturers can make very feasible improvements to their A/C systems to address A/C system leakage and efficiency. EPA proposes two separate credit approaches to address leakage reductions and efficiency improvements independently. A proposed leakage reduction credit would take into account the various technologies that could be used to reduce the GHG impact of refrigerant leakage, including the use of an alternative refrigerant with a lower GWP. A proposed efficiency improvement credit would account for the various types of hardware and control of that hardware available to increase the A/C system efficiency. Manufacturers would be required to attest the durability of the leakage reduction and the efficiency improvement technologies over the full useful life of the vehicle.

EPA believes that both reducing A/C system leakage and increasing efficiency are highly cost-effective and technologically feasible. EPA expects most manufacturers will choose to use these A/C credit provisions, although some may not find it necessary to do so. a. A/C Leakage Credits

The refrigerant used in vehicle A/C systems can get into the atmosphere by many different means. These refrigerant emissions occur from the slow leakage over time that all closed high pressure systems will experience. Refrigerant loss occurs from permeation through hoses and leakage at connectors and other parts where the containment of the system is compromised. The rate of leakage can increase due to deterioration of parts and connections as well. In addition, there are emissions that occur during accidents and maintenance and servicing events. Finally, there are end-of-life emissions if, at the time of vehicle scrappage, refrigerant is not fully recovered.

Because the process of refrigerant leakage has similar root causes as those that cause fuel evaporative emissions from the fuel system, some of the control technologies are similar (including hose materials and connections). There are however, some fundamental differences between the systems that require a different approach. The most notable difference is that A/C systems are completely closed systems, whereas the fuel system is not. Fuel systems are meant to be refilled as liquid fuel is consumed by the engine, while the A/C system ideally should never require ``recharging'' of the contained refrigerant. Thus it is critical that the A/C system leakages be kept to an absolute minimum.

These emissions are typically too low to accurately measure in most current SHED chambers designed for fuel evaporative emissions measurement, especially for systems that are new or early in life.

Therefore, if leakage emissions were to be measured directly, new measurement facilities would need to be built by the OEM manufacturers and very accurate new test procedures would need to be developed.

Especially because there are indications that much of the industry is moving toward alternative refrigerants (post-2016 for most manufacturers), EPA is not proposing such a direct measurement approach to addressing refrigerant leakage.

Page 49528

Instead, EPA proposes that manufacturers demonstrate improvements in their A/C system designs and components through a design-based method. Manufacturers implementing systems expected to result in reduced refrigerant leakage would be eligible for credits that could then be used to meet their CO2emission compliance requirements. The proposed ``A/C Leakage Credit'' provisions would generally assign larger credits to system designs that are expected to result in greater leakage reduction. In addition, EPA proposes that proportionately larger A/C Leakage Credits be available to manufacturers that substitute a lower-GWP refrigerant for the current

R134a refrigerant.

Our proposed method for calculating A/C Leakage Credits is based closely on an industry-consensus leakage scoring method, described below. This leakage scoring method is correlated to experimentally- measured leakage rates from a number of vehicles using the different available A/C components. Under the proposed approach, manufacturers would choose from a menu of A/C equipment and components used in their vehicles in order to establish leakage scores which would characterize their A/C system leakage performance. The leakage score can be compared to expected fleetwide leakage rates in order to quantify improvements for a given A/C system. Credits would be generated from leakage reduction improvements that exceeded average fleetwide leakage rates.

EPA believes that the design-based approach would result in estimates of likely leakage emissions reductions that would be comparable to those that would eventually result from performance-based testing. At the same time, comments are encouraged on all developments that may lead to a robust, practical, performance-based test for measuring A/C refrigerant leakage emissions.

The cooperative industry and government Improved Mobile Air

Conditioning (IMAC) program \143\ has demonstrated that new-vehicle leakage emissions can be reduced by 50%. This program has shown that this level of improvement can be accomplished by reducing the number and improving the quality of the components, fittings, seals, and hoses of the A/C system. All of these technologies are already in commercial use and exist on some of today's systems.

\143\ Team 1-Refrigerant Leakage Reduction: Final Report to

Sponsors, SAE, 2007.

EPA is proposing that a manufacturer wishing to earn A/C Leakage

Credits would compare the components of its A/C system with a set of leakage-reduction technologies and actions that is based closely on that being developed through IMAC and the Society of Automotive

Engineers (as SAE Surface Vehicle Standard J2727, August 2008 version).

The J2727 approach is developed from laboratory testing of a variety of

A/C related components, and EPA believes that the J2727 leakage scoring system generally represents a reasonable correlation with average real- world leakage in new vehicles. Like the IMAC approach, our proposed credit approach would associate each component with a specific leakage rate in grams per year identical to the values in J2727. A manufacturer choosing to claim Leakage Credits would sum the leakage values for an

A/C system for a total A/C leakage score. EPA is proposing a formula for converting the grams-per-year leakage score to a grams-per-mile

CO2eq value, taking vehicle miles traveled (VMT) and the GWP of the refrigerant into account. This formula is:

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

Where:

MaxCredit is 12.6 and 15.7 g/mi CO2eq for cars and trucks respectively. These become 13.8 and 17.2 for cars and trucks if alternative refrigerants are used since they get additional credits for end-of-life emissions reductions.

LeakScore is the leakage score of the A/C system as measured according to methods similar to the J2727 procedure in units of g/ yr. The minimum score which is deemed feasible is fixed at 8.3 and 10.4 g/yr for cars and trucks respectively.

AvgImpact is the average impact of A/C leakage, which is 16.6 and 20.7 g/yr for cars and trucks respectively.

GWPRefrigerant is the global warming potential for direct radiative forcing of the refrigerant as defined by EPA (or IPCC).

All of the parameters and limits of the equation are derived in the

EPA DRIA.

For systems using the current refrigerant, EPA proposes that these emission rates could at most be feasibly reduced by half, based on the conclusions of the IMAC study, and consideration of emission over the full life of the vehicle. (This latter point is discussed further in the DRIA.)

As discussed above, EPA recognizes that substituting an alternative refrigerant (one with a significantly lower global warming potential,

GWP), would potentially be a very effective way to reduce the impact of all forms of refrigerant emissions, including maintenance, accidents, and vehicle scrappage. To address future GHG regulations in Europe and

California, systems using alternative refrigerants--including

HFO1234yf, with a GWP of 4--are under serious development and have been demonstrated in prototypes by A/C component suppliers. These alternative refrigerants have remaining cost, safety and feasibility hurdles for commercial applications.\144\ However, the European Union has enacted regulations phasing in alternative refrigerants with GWP less than 150 starting in 2010, and the State of California proposed providing credits for alternative refrigerant use in its GHG rule.

\144\ Although see 71 FR 55140 (Sept. 21, 2006) (proposal pursuant to section 612 of the CAA finding CO2and HFC 152a as acceptable refrigerant substitutes as replacements for CFC- 12 in motor vehicle air conditioning systems, and stating (at 55142) that ``data [hellip] indicate that use of CO2and HFC 152a with risk mitigation technologies does not pose greater risks compared to other substitutes'').

Within the timeframe of 2012-2016, EPA is not expecting the use of low-GWP refrigerants to be widespread. However, EPA believes that these developments are promising, and have included in our proposed A/C

Leakage Credit system provisions to account for the effective refrigerant reductions that could be expected from refrigerant substitution. The quantity of A/C Leakage Credits that would be available would be a function of the GWP of the alternative refrigerant, with the largest credits being available for refrigerants approaching a GWP of zero.\145\ For a hypothetical alternative refrigerant with a GWP of 1, effectively eliminating leakage as a GHG concern, our proposed credit calculation method could result in maximum credits equal total average emissions, or credits of 13.4 and 17.8 g/mi

CO2eq for cars and trucks, respectively. This option is also captured in the equation above.

\145\ For example, the GWP for R152a is 120, the GWP of HFO- 1234yf is 4, and the GWP of CO2as a refrigerant is 1.

It is possible that alternative refrigerants could, without compensating action by the manufacturer, reduce the efficiency of the

A/C system (see discussion of the A/C Efficiency Credit below.)

However, EPA believes that manufacturers will have substantial incentives to design their systems to maintain the efficiency of the A/

C system, therefore EPA is not accounting for any potential efficiency degradation.

EPA requests comment on all aspects of our proposed A/C Leakage

Credit system.

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b. A/C Efficiency Credits

EPA is proposing that manufacturers that make improvements in their

A/C systems to increase efficiency and thus reduce CO2 emissions due to A/C system operation be eligible for A/C Efficiency

Credits. As with A/C Leakage Credits, manufacturers could apply A/C

Efficiency Credits toward compliance with their overall CO2 standards.

As mentioned above, EPA estimates that the CO2emissions due to A/C related loads on the engine account for approximately 3.9% of total greenhouse gas emissions from passenger vehicles in the United

States. Usage of A/C systems is inherently higher in hotter and more humid months and climates; however, vehicle owners may use their A/C systems all year round in all parts of the nation. For example, people commonly use A/C systems to cool and dehumidify the cabin air for passenger comfort on hot humid days, but they also use the systems to de-humidify cabin air to assist in defogging/de-icing the front windshield and side glass in cooler weather conditions for improved visibility. A more detailed discussion of seasonal and geographical A/C usage rates can be found in the DRIA.

Most of the additional load on the engine from A/C system operation comes from the compressor, which pumps the refrigerant around the system loop. Significant additional load on the engine may also come from electric or hydraulic fans, which are used to move air across the condenser, and from the electric blower, which is used to move air across the evaporator and into the cabin. Manufacturers have several currently-existing technology options for improving efficiency, including more efficient compressors, fans, and motors, and systems controls that avoid over-chilling the air (and subsequently re-heating it to provide the desired air temperature with an associated loss of efficiency). For vehicles equipped with automatic climate-control systems, real-time adjustment of several aspects of the overall system

(such as engaging the full capacity of the cooling system only when it is needed, and maximizing the use of recirculated air) can result in improved efficiency. Table III.C.1-1 below lists some of these technologies and their respective efficiency improvements.

As with the A/C Leakage Credit program, EPA is interested in performance-based standards (or credits) based on measurement procedures whenever possible. While design-based assessments of expected emissions can be a reasonably robust way of quantifying emission improvements, these approaches have inherent shortcomings, as discussed for the case of A/C leakage above. Design-based approaches depend on the quality of the data from which they are calibrated, and it is possible that apparently proper equipment may function less effectively than expected. Therefore, while the proposal uses a design- based menu approach to quantify improvements in A/C efficiency, it is also proposed to begin requiring manufacturers to confirm that technologies applying for Efficiency Credits are measurably improving system efficiency.

EPA believes that there is a more critical need for a test procedure to quantify A/C Efficiency Credits than for Leakage Credits, for two reasons. First, the efficiency gains for various technologies are more difficult to quantify using a design-based program (like the

SAEJ2727-based procedure used to generate Leakage Credits). Second, while leakage may disappear as a significant source of GHG emissions if a shift toward alternate refrigerants develops, no parallel factor exists in the case of efficiency improvements. EPA is thus proposing to phase-in a performance-based test procedure over time beginning in 2014, as discussed below. In the interim, EPA proposes a design-based

``menu'' approach for estimating efficiency improvements and, thus, quantifying A/C Efficiency Credits.

For model years 2012 and 2013, EPA proposes that a manufacturer wishing to generate A/C Efficiency Credits for a group of its vehicles with similar A/C systems would compare several of its vehicle A/C- related components and systems with a ``menu'' of efficiency-related technology improvements (see Table III.C.1-1 below). Based on the technologies the manufacturer chooses, an A/C Efficiency Credit value would be established. This design-based approach would recognize the relationships and synergies among efficiency-related technologies.

Manufacturers could receive credit based on the technologies they chose to incorporate in their A/C systems and the associated credit value for each technology. The total A/C Efficiency Credit would be the total of these values, up to a maximum feasible credit of 5.7 g/mi

CO2eq. This would be the maximum improvement from current average efficiencies for A/C systems (see the DRIA for a full discussion of our derivation of the proposed reductions and credit values for individual technologies and for the maximum total credit available). Although the total of the individual technology credit values may exceed 5.7 g/mi CO2eq, synergies among the technologies mean that the values are not additive, and thus A/C

Efficiency credit could not exceed 5.7 g/mi CO2eq.

The EPA requests comment on adjusting the A/C efficiency credit to account for potential decreases (or increases) in efficiency when using an alternative refrigerant by using the change in the coefficient of performance. The effects may include the impact of a secondary loop system (including the incremental effect on tailpipe CO2 emissions that the added weight of such a system would incur).

Table III.C.1-1 Efficiency-Improving A/C Technologies and Credits

Estimated reduction in A/C

A/C Efficiency

Technology description

CO2 emissions credit (g/mi CO2)

(percent)

Reduced reheat, with externally-

1.7 controlled, variable-displacement compressor.......................

Reduced reheat, with externally-

1.1 controlled, fixed-displacement or pneumatic variable-displacement compressor.......................

Default to recirculated air

1.7 whenever ambient temperature is greater than 75 [deg]F...........

Blower motor and cooling fan

0.9 controls which limit waste energy

(e.g. pulse width modulated power controller)......................

Electronic expansion valve........

1.1

Improved evaporators and

1.1 condensers (with system analysis on each component indicating a

COP improvement greater than 10%, when compared to previous design)

Oil Separator.....................

0.6

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For model years 2014 and later, EPA proposes that manufacturers seeking to generate A/C Efficiency Credits would need to use a specific performance test to confirm that the design changes were also improving

A/C efficiency. Manufacturers would need to perform an A/C

CO2Idle Test for each A/C system (family) for which it desired to generate Efficiency Credits. Manufacturers would need to demonstrate at least a 30% improvement over current average efficiency levels to qualify for credits. Upon qualifying on the Idle Test, the manufacturer would be eligible to use the menu approach above to quantify the credits it would earn.

The proposed A/C CO2Idle Test procedure, which EPA has designed specifically to measure A/C CO2emissions, would be performed while the vehicle engine is at idle. This proposed laboratory idle test would be similar to the idle carbon monoxide (CO) test that was once a part of EPA vehicle certification. The test would determine the additional CO2generated at idle when the A/C system is operated. The A/C CO2Idle Test would be run with and without the A/C system cooling the interior cabin while the vehicle's engine is operating at idle and with the system under complete control of the engine and climate control system

The proposed A/C CO2Idle Test is similar to that proposed in April 2009 for the Mandatory GHG Reporting Rule, with several improvements. These improvements include tighter restrictions on test cell temperatures and humidity levels in order to more closely control the loads from operation of the A/C system. EPA also made additional refinements to the required in-vehicle blower fan settings for manually controlled systems to more closely represent ``real world'' usage patterns. These details can be found in the DRIA and the regulations.

The design of the A/C CO2Idle Test represents a balancing of the need for performance tests whenever possible to ensure the most accurate quantification of efficiency improvements, with practical concerns for testing burden and facility requirements. EPA believes that the proposed Idle Test adds to the robust quantification of A/C credits that will result in real-world efficiency improvements and reductions in A/C-related CO2emissions. EPA is proposing that the Idle Test be required in order to qualify for A/C

Efficiency Credits beginning in 2014 to allow sufficient time for manufacturers to make the necessary facilities improvements and to establish a comfort level with the test.

EPA also considered a more comprehensive testing approach to quantifying A/C CO2emissions that could be somewhat more technically robust, but would require more test time and test facility improvements for many manufacturers. This approach would be to adapt an existing test procedure, the Supplemental Federal Test Procedure (SFTP) for A/C operation, called the SC03, in specific ways for it to function as a tool to evaluate A/C CO2emissions. The potential test method is described in some detail here, and EPA encourages comment on how this type of test might or might not accomplish the goals of robust performance-based testing and reasonable test burdens.

EPA designed the SC03 test to measure criteria pollutants under severe air conditioning conditions not represented in the FTP and

Highway Fuel Economy Tests. EPA did not specifically design the SC03 to measure incremental reductions in CO2emissions from more efficient A/C technologies. For example, due to the severity of the

SC03 test environmental conditions and the relatively short duration of the SC03 cycle, it is difficult for the A/C system to achieve a stabilized interior cabin condition that reflects incremental improvements. Many potential efficiency improvements in the A/C components and controls (i.e., automatic recirculation and heat exchanger fan control) are specifically measured only during stabilized conditions, and therefore become difficult or impossible to measure and quantify during this test. In addition, SC03 testing is also somewhat constrained and costly due to limited number of test facilities currently capable of performing testing under the required environmental conditions.

One value of using the SC03 as the basis for a new test to quantify

A/C-related efficiency improvements would be the significant degree of control of test cell ambient conditions. The load placed on an A/C system, and thus the incremental CO2emissions, are highly dependent on the ambient conditions in the test cell, especially temperature and humidity, as well as simulated solar load. Thus, as with the proposed Idle Test, a new SC03-based test would need to accurately and reliably control these conditions. (This contrasts with

FTP testing for criteria pollutants, which does not require precise control of cell conditions because test results are generally much less sensitive to changes in cell temperature or humidity).

However, for the purpose of quantifying A/C system efficiency improvements, EPA believes a test cell temperature less severe than the 95[deg]F required by the SC03 would be appropriate. A cell temperature of 85[deg]F would better align the initial cooling phase (``pull- down'') as well as the stabilized phase of A/C operation with real- world driving conditions.

Another value of an SC03-based test would be the opportunity to create operating conditions for vehicle A/C systems that in some ways would better simulate ``real world'' operation than either the proposed

Idle Test or the current SC03. The SC03 test cycle, roughly 10 minutes in length, has a similar average speed, maximum speed, and percentage of time at idle as the FTP. However, since the SC03 test cycle was designed principally to measure criteria pollutants under maximum A/C load conditions, it is not long enough to allow temperatures in the passenger cabin to consistently stabilize. EPA believes that once the pull-down phase has occurred and cabin temperatures have dropped dramatically to a suitable interior comfort level, additional test cycle time would be needed to measure how efficiently the A/C system operates under stabilized conditions.

To capture the A/C operation during stabilized operation, EPA would consider adding two phases to the SC03 test of roughly 10 minutes each.

Each additional phase would simply be repeats of the SC03 drive cycle, with two exceptions. During the second phase, the A/C system would now be operating at cabin temperature at or approaching a stabilized condition. During the third phase, the A/C system would be turned off.

The purpose of the third phase would be to establish the base

CO2emissions with no A/C loads on the engine, which would provide a baseline for the incremental CO2due to A/C use.

EPA would likely weight the CO2g/mi results for the first and second phases of the test as follows: 50% for phase 1, and 50% for phase 2. From this average CO2the methodology would subtract the CO2result from phase 3, yielding an incremental CO2(in g/mi) due to A/C use.

EPA expects to continue working with industry, the California Air

Resources Board, and other stakeholders to move toward increasingly robust performance tests for A/C and may include such changes in this final rule. EPA requests comment on all aspects of our proposed A/C

Efficiency Credits program. c. Interaction With Title VI Refrigerant Regulations

Title VI of the Clean Air Act deals with the protection of stratospheric ozone. Section 608 establishes a comprehensive program to limit emissions of certain ozone-depleting

Page 49531

substances (ODS). The rules promulgated under section 608 regulate the use and disposal of such substances during the service, repair or disposal of appliances and industrial process refrigeration. In addition, section 608 and the regulations promulgated under it, prohibit knowingly venting or releasing ODS during the course of maintaining, servicing, repairing or disposing of an appliance or industrial process refrigeration equipment. Section 609 governs the servicing of motor vehicle air conditioners (MVACs). The regulations promulgated under section 609 (40 CFR part 82, subpart B) establish standards and requirements regarding the servicing of MVACs. These regulations include establishing standards for equipment that recovers and recycles or only recovers refrigerant (CFC-12, HFC 134a, and for blends only recovers) from MVACs; requiring technician training and certification by an EPA-approved organization; establishing recordkeeping requirements; imposing sales restrictions; and prohibiting the venting of refrigerants. Section 612 requires EPA to review substitutes for class I and class II ozone depleting substances and to consider whether such substitutes will cause an adverse effect to human health or the environment as compared with other substitutes that are currently or potentially available. EPA promulgated regulations for this program in 1992 and those regulations are located at 40 CFR part 82, subpart G. When reviewing substitutes, in addition to finding them acceptable or unacceptable, EPA may also find them acceptable so long as the user meets certain use conditions. For example, all motor vehicle air conditioning system must have unique fittings and a uniquely colored label for the refrigerant being used in the system.

EPA views this proposed rule as complementing these Title VI programs, and not conflicting with them. To the extent that manufacturers choose to reduce refrigerant leakage in order to earn A/C

Leakage Credits, this would dovetail with the Title VI section 609 standards which apply to maintenance events, and to end-of-vehicle life disposal. In fact, as noted, a benefit of the proposed A/C credit provisions is that there should be fewer and less impactive maintenance events for MVACs, since there will be less leakage. In addition, the credit provisions would not conflict (or overlap) with the Title VI section 609 standards. EPA also believes the menu of leak control technologies proposed today would complement the section 612 requirements, because these control technologies would help ensure that

R134a (or other refrigerants) would be used in a manner that further minimizes potential adverse effects on human health and the environment. 2. Flex Fuel and Alternative Fuel Vehicle Credits

As described in this section, EPA is proposing credits for flexible-fuel vehicles (FFVs) and alternative fuel vehicles starting in the 2012 model year. FFVs are vehicles that can run both on an alternative fuel and conventional fuel. Most FFVs are E-85 vehicles, which can run on a mixture of up to 85 percent ethanol and gasoline.

Dedicated alternative fuel vehicles are vehicles that run exclusively on an alternative fuel (e.g., compressed natural gas). EPCA includes an incentive under the CAFE program for production of dual-fueled vehicles or FFVs, and dedicated alternative fuel vehicles.\146\ EPCA's provisions were amended by the EISA to extend the period of availability of the FFV credits, but to begin phasing them out by annually reducing the amount of FFV credits that can be used in demonstrating compliance with the CAFE standards.\147\ EPCA does not premise the availability of the FFV credits on actual use of alternative fuel. Under EPCA, after MY 2019 no FFV credits will be available for CAFE compliance.\148\ Under EPCA, for dedicated alternative fuel vehicles, there are no limits or phase-out. EPA is proposing that FFV and Alternative Fuel Vehicle Credits be calculated as a part of the calculation of a manufacturer's overall fleet average fuel economy and fleet average carbon-related exhaust emissions (Sec. 600.510-12).

\146\ 49 U.S.C 32905.

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

\148\ 49 U.S.C 32906.

EPA is not proposing to include electric vehicles (EVs) or plug-in hybrid electric vehicles (PHEVs) in these flex fuel and alternative fuel provisions. These vehicles would be covered by the proposed advanced technology vehicle credits provisions described in Section

III.C.3, so including them here would lead to a double counting of credits. a. Model Year 2012--2015 Credits i. FFVs

For the GHG program, EPA is proposing to allow FFV credits corresponding to the amounts allowed by the amended EPCA only during the period from MYs 2012 to 2015. (As discussed below in Section

III.E., EPA is proposing that CAFE-based FFV credits would not be permitted as part of the early credits program.) Several manufacturers have already taken the availability of FFV credits into account in their near-term future planning for CAFE and this reliance indicates that these credits need to be considered in considering adequacy of lead time for the CO2standards. EPA thus believes that allowing these credits, in the near term, would help provide adequate lead time for manufacturers to implement the new multi-year standards, but that for the longer term there is adequate lead time without the use of such credits. This will also tend to harmonize the GHG and the

CAFE program during these interim years. As discussed below, EPA is proposing for MY 2016 and later that manufacturers would not receive

FFV credits unless they reliably estimate the extent the alternative fuel is actually being used by vehicles in order to count the alternative fuel use in the vehicle's CO2emissions level determination.

As with the CAFE program, EPA proposes to base credits on the assumption that the vehicles would operate 50% of the time on the alternative fuel and 50% of the time on conventional fuel, resulting in

CO2emissions that are based on an arithmetic average of alternative fuel and conventional fuel CO2emissions.\149\

The measured CO2emissions on the alternative fuel would be multiplied by a 0.15 volumetric conversion factor which is included in the CAFE calculation as provided by EPCA. Through this mechanism a gallon of alternative fuel is deemed to contain 0.15 gallons of fuel.

EPA is proposing to take the same approach for 2012-2015 model years.

For example, for a flexible-fuel vehicle that emitted 330 g/mi

CO2operating on E-85 and 350 g/mi CO2operating on gasoline, the resulting CO2level to be used in the manufacturer's fleet average calculation would be:

\149\ 49 U.S.C 32905 (b).

GRAPHIC

TIFF OMITTED TP28SE09.012

EPA understands that by using the CAFE approach--including the 0.15 factor--the CO2emissions value for the vehicle is calculated to be significantly lower than it actually would be otherwise, even if the vehicle were assumed to operate on the alternative fuel at all times. This represents a ``credit'' being provided to FFVs.

Page 49532

EPA notes also that the above equation and example are based on an

FFV that is an E-85 vehicle. EPCA, as amended by EISA, also establishes the use of this approach, including the 0.15 factor, for all alternative fuels, not just E-85.\150\ The 0.15 factor is used for B-20

(20 percent biofuel and 80 percent diesel) FFVs. EPCA also establishes this approach, including the 0.15 factor, for gaseous-fueled FFVs such as a vehicle able to operate on gasoline and CNG.\151\ (For natural gas

FFVs, EPCA establishes a factor of 0.823 gallons of fuel for every 100 cubic feet a natural gas used to calculate a gallons equivalent.) \152\

The EISA statute's use of the 0.15 factor in this way provides a similar regulatory treatment across the various types of alternative fuel vehicles. EPA also proposes to use the 0.15 factor for all FFVs in keeping with the goal of not disrupting manufacturers' near-term compliance planning. EPA, in any case, expects the vast majority of

FFVs to be E-85 vehicles, as is the case today.

\150\ 49 U.S.C 32905 (c).

\151\ 49 U.S.C 32905 (d).

\152\ 49 U.S.C section 32905 (c).

The FFV credit limits for CAFE are 1.2 mpg for model years 2012- 2014 and 1.0 mpg for model year 2015.\153\ In CO2terms, these CAFE limits translate to declining CO2credit limits over the four model years, as the CAFE standards increase in stringency

(as the CAFE standard increases numerically, the limit becomes a smaller fraction of the standard). EPA proposes credit limits shown in

Table III.C.2-1 based on the proposed average CO2standards for cars and trucks. These have been calculated by comparing the average proposed CAFE standards with and without the FFV credits, converted to CO2. EPA requests comments on this proposed approach.

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

Table III.C.2-1--FFV CO2 Standard Credit Limits (g/mile)

Model year

Cars

Trucks

2012..............................................

9.8

17.9 2013..............................................

9.3

17.1 2014..............................................

8.9

16.3 2015..............................................

6.9

12.6

EPA also requests comments on basing the calculated CO2 credit limit on the individual manufacturer standards calculated from the footprint curves. For example, if a manufacturer's 2012 car standard was 260 g/mile, the credit limit in CO2terms would be 9.5 g/mile and if it were 270 g/mile the limit would be 10.2 g/mile.

This approach would be somewhat more complex and would mean that the

FFV CO2credit limits would vary by manufacturer as their footprint based standards vary. However, it would more closely track

CAFE FFV credit limits. ii. Dedicated Alternative Fuel Vehicles

EPA proposes to calculate CO2emissions from dedicated alternative fuel vehicles for MY 2012--2015 by measuring the

CO2emissions over the test procedure and multiplying the results by the 0.15 conversion factor described above. For example, for a dedicated alternative fuel vehicle that would achieve 330 g/mi

CO2while operating on alcohol (ethanol or methanol), the effective CO2emissions of the vehicle for use in determining the vehicle's CO2) emissions would be calculated as follows:

CO2= 330 x 0.15 = 49.5 g/mi b. Model Years 2016 and Later i. FFVs

For 2016 and later model years, EPA proposes to treat FFVs similarly to conventional fueled vehicles in that FFV emissions would be based on actual CO2results from emission testing on the alternative fuel. The manufacturer would also be required to demonstrate that the alternative fuel is actually being used in the vehicles. The manufacturer would need to establish the ratio of operation that is on the alternative fuel compared to the conventional fuel. The ratio would be used to weight the CO2emissions performance over the 2-cycle test on the two fuels. The 0.15 conversion factor would no longer be included in the CO2emissions calculation. For example, for a flexible-fuel vehicle that emitted 300 g/mi CO2operating on E-85 ten percent of the time and 350 g/mi CO2operating on gasoline ninety percent of the time, the CO2emissions for the vehicles to be used in the manufacturer's fleet average would be calculated as follows:

CO2= (300 x 0.10) + (350 x 0.90)= 345 g/mi

The most complex part of this approach is to establish what data are needed for a manufacturer to accurately demonstrate use of the alternative fuel. One option EPA is considering is establishing a rebuttable presumption using a ``top-down'' approach based on national

E-85 fuel use to assign credits to FFVs sold by manufacturers under this program. For example, national E-85 volumes and national FFV sales could be used to prorate E-85 use by manufacturer sales volumes and

FFVs already in-use. EPA would conduct an analysis of vehicle miles travelled (VMT) by year for all FFVs using its emissions inventory

MOVES model. Using the VMT ratios and the overall E-85 sales, E-85 usage could be assigned to each vehicle. This method would account for the VMT of new FFVs and FFVs already in the existing fleet using VMT data in the model. The model could then be used to determine the ratio of E-85 and gasoline for new vehicles being sold. Fluctuations in E-85 sales and FFV sales would be taken into account to adjust the credits annually. EPA believes this is a reasonable way to apportion E-85 use across the fleet.

If manufacturers decided not to use EPA's assigned credits based on the top-down analysis, they would have a second option of presenting their own data for consideration as the basis for credits.

Manufacturers have suggested demonstrations using vehicle on-board data gathering through the use of on-board sensors and computers.

California's program allows FFV credits based on FFV use and envisioned manufacturers collecting fuel use data from vehicles in fleets with on- site refueling. Any approach must reasonably ensure that no

CO2emissions reductions anticipated under the program are lost.

EPA proposes that manufacturers would need to present a statistical analysis of alternative fuel usage data collected on actual vehicle operation. EPA is not attempting to specify how the data is collected or the amount of data needed. However, the analysis must be based on sound statistical methodology. Uncertainty in the analysis must be accounted for in a way that provides reasonable certainty that the program does not result in loss of emissions reductions. EPA requests comment on how this demonstration could reasonably be made.

EPA recognizes that under EPCA FFV credits are entirely phased-out of the CAFE program by MY 2020, and apply in the prior years with certain limitations, but without a requirement that the manufacturers demonstrate actual use of the alternative fuel. Under this proposal EPA would treat FFV credits the same as under EPCA for model years 2012- 2015, but would apply a different approach starting with model year 2016. Unlike EPCA, CAA section 202(a) does not mandate that EPA treat

FFVs in a specific way. Instead EPA is required to exercise its own judgment and determine an appropriate approach that best promotes the goals of this CAA section. Under these circumstances, EPA proposes to treat FFVs for model years 2012-2015 the same as under EPCA, for the lead time reasons described above. Starting

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with model year 2016, EPA believes the appropriate approach is to ensure that emissions reduction credits are based upon a demonstration that emissions reductions have been achieved, to ensure the credits are for real reductions instead of reductions that have not likely occurred. This will promote the environmental goals of this proposal.

At the same time, the ability to generate credits upon a demonstration of usage of the alternative fuel will provide an actual incentive to see that such fuels are used. Under the EPCA credit provision, there is an incentive to produce FFVs but no actual incentive to ensure that the alternative fuels are used. GHG and energy security benefits are only achieved if the alternative fuel is actually used, and EPA's approach will now provide such an incentive. This approach will promote greater use of renewable fuels, as compared to a situation where there is a credit but no usage requirement. This is also consistent with the agency's overall commitment to the expanded use of renewable fuels.

Therefore EPA is not proposing to phase-out the FFV program for MYs 2016 and later but instead to base the program on real-world reductions

(i.e., actual vehicle CO2emissions levels based on actual use of the two fuels, without the 0.15 conversion factor specified under EISA). Based on existing certification data, E-85 FFV

CO2emissions are typically about 5 percent lower on E-85 than CO2emissions on 100 percent gasoline. However, currently there is little incentive to optimize CO2 performance for vehicles when running on E-85. EPA believes the above approach would provide such an incentive to manufacturers and that E-85 vehicles could be optimized through engine redesign and calibration to provide additional CO2reductions. EPA requests comments on the above. ii. Dedicated Alternative Fuel Vehicles

EPA proposes that for model years 2016 and later dedicated alternative fuel vehicles, CO2would be measured over the 2- cycle test in order to be included in a manufacturer's fleet average

CO2calculations. As noted above, this is different than

CAFE methodology which provides a methodology for calculating a petroleum-based mpg equivalent for alternative fuel vehicles so they can be included in CAFE. However, because CO2can be measured directly from alternative fuel vehicles over the test procedure, EPA believes this is the simplest and best approach since it is consistent with all other vehicle testing under the proposed

CO2program. 3. Advanced Technology Vehicle Credits for Electric Vehicles, Plug-in

Hybrids, and Fuel Cells

EPA is proposing additional credit opportunities to encourage the early commercialization of advanced vehicle powertrains, including electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles. These technologies have the potential for more significant reductions of GHG emissions than any technology currently in commercial use, and EPA believes that encouraging early introduction of such technologies will help to enable their wider use in the future, promoting the technology-based emission reduction goals of section 202(a)(1) of the Clean Air Act.

EPA proposes that these advanced technology credits would take the form of a multiplier that would be applied to the number of vehicles sold such that they would count as more than one vehicle in the manufacturer's fleet average. These advanced technology vehicles would then count more heavily when calculating fleet average CO2 levels. The multiplier would not be applied when calculating the manufacturer's foot-print-based standard, only when calculating the manufacturer's fleet average levels. EPA proposes to use a multiplier in the range of 1.2 to 2.0 for all EVs, PHEVs, and fuel cell vehicles produced from MY 2012 through MY 2016. EPA proposes that starting in MY 2017, the multiplier would no longer be used. As described in Section

III.C.5, EPA is also proposing to allow early advanced technology vehicle credits to be generated for model years 2009-2011. EPA requests comment on the level of the multiplier and whether it should be the same value for each of these three technologies. Further, if EPA determines that a multiplier of 2.0, or another level near the higher end of this range, is appropriate for the final rule, EPA requests comment on whether the multiplier should be phased down over time, such as: 2.0 for MY 2009 through MY 2012, 1.8 in MY 2013, 1.6 in MY 2014, 1.4 in MY 2015, and 1.2 in MY 2016 (i.e., the multiplier could phase- down by 0.2 per year). In addition, EPA requests comment on whether or not it would be appropriate to differentiate between EVs and PHEVs for advanced technology credits. Under such an approach, PHEVs could be provided a lesser multiplier compare to EVs. Also, the PHEV multiplier could be prorated based on the equivalent electric range (i.e., the extent to which the PHEV operates on average as an EV) of the vehicle in order to incentivize battery technology development. This approach would give more credits to ``stronger'' PHEV technology.

EPA has provided this type of credit previously, in the Tier 2 program. This approach provides an incentive for manufacturers to prove out ultra-clean technology during the early years of the program. In

Tier 2, early credits for Tier 2 vehicles certified to the very cleanest bins (equivalent to California's standards for super ultra low emissions vehicles (SULEVs) and zero emissions vehicles (ZEVs)) had a multiplier of 1.5 or 2.0.\154\ The multiplier range of 1.2 to 2.0 being proposed for GHGs is consistent with the Tier 2 approach. EPA believes it is appropriate to provide incentives to manufacturers to produce vehicles with very low emissions levels and that these incentives may help pave the way for greater and/or more cost effective emission reductions from future vehicles. EPA would like to finalize an approach which appropriately balances the benefits of encouraging advanced technologies with the overall environmental reductions of the proposed standards as a whole.

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

As with other vehicles, CO2for these vehicles would be determined as part of vehicle certification, based on emissions over the 2-cycle test procedures, to be included in the fleet average

CO2levels.

For electric vehicles, EPA proposes that manufacturers would include them in the average with CO2emissions of zero grams/mile both for early credits, and for the MY 2012-2016 time frame.

Similarly, EPA proposes to include as zero grams/mile of CO2 the electric portion of PHEVs (i.e., when PHEVs are operating as electric vehicles) and fuel cell vehicles. EPA recognizes that for each

EV that is sold, in reality the total emissions off-set relative to the typical gasoline or diesel powered vehicle is not zero, as there is a corresponding increase in upstream CO2emissions due to an increase in the requirements for electric utility generation. However, for the time frame of this proposed rule, EPA is also interested in promoting very advanced technologies such as EVs which offer the future promise of significant reductions in GHG emissions, in particular when coupled with a broader context which would include reductions from the electricity generation. For the California Paley 1 program, California assigned EVs a CO2performance value of 130 g/mile, which was intended to represent the average CO2emissions required to charge an EV using representative CO2values for the

California electric utility grid. For this

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proposal, EPA is assigning an EV a value of zero g/mile, which should be viewed as an interim solution for how to account for the emission reduction potential of this type of vehicle, and may not be the appropriate long-term approach. EPA requests comment on this proposal and whether alternative approaches to address EV emissions should be considered, including approaches for considering the lifecycle emissions from such advanced vehicle technologies.

The criteria and definitions for what vehicles qualify for the multiplier are provided in Section III.E. As described in Section

III.E, EPA is proposing definitions for EVs, PHEVs, and fuel cell vehicles to ensure that only credible advanced technology vehicles are provided credits.

EPA requests comments on the proposed approach for advanced technology vehicle credits. 4. Off-Cycle Technology Credits

EPA is proposing an optional credit opportunity intended to apply to new and innovative technologies that reduce vehicle CO2 emissions, but for which the CO2reduction benefits are not captured over the 2-cycle test procedure used to determine compliance with the fleet average standards (i.e., ``off-cycle''). Eligible innovative technologies would be those that are relatively newly introduced in one or more vehicle models, but that are not yet implemented in widespread use in the light-duty fleet. EPA will not approve credits for technologies that are not innovative or novel approaches to reducing greenhouse gas emissions. Further, any credits for these off-cycle technologies must be based on real-world GHG reductions not captured on the current 2-cycle tests and verifiable test methods, and represent average U.S. driving conditions.

Similar to the technologies used to reduce A/C system indirect

CO2emissions such as compressor efficiency improvements, eligible technologies would not be active during the 2-cycle test and therefore the associated improvements in CO2emissions would not be captured. EPA will not consider technologies to be eligible for these credits if the technology has a significant impact on

CO2emissions over the FTP and HFET tests. Because these technologies are not nearly so well developed and understood, EPA is not prepared to require their utilization to meet the CO2 standards. However, EPA is aware of some emerging and innovative technologies and concepts in various stages of development with

CO2reduction potential that might not be adequately captured on the FTP or HFET, and that some of these technologies might merit some additional CO2credit for the manufacturer.

Examples include solar panels on hybrids or electric vehicles, adaptive cruise control, and active aerodynamics. EPA believes it would be appropriate to provide an incentive to encourage the introduction of these types of technologies and that a credit mechanism is an effective way to do this. This optional credit opportunity would be available through the 2016 model year.

EPA is proposing that manufacturers quantify CO2 reductions associated with the use of the off-cycle technologies such that the credits could be applied on a g/mile equivalent basis, as is proposed for A/C system improvements. Credits would have to be based on real additional reductions of CO2emissions and would need to be quantifiable and verifiable with a repeatable methodology. Such submissions of data should be submitted to EPA subject to public scrutiny. EPA proposes that the technologies upon which the credits are based would be subject to full useful life compliance provisions, as with other emissions controls. Unless the manufacturer can demonstrate that the technology would not be subject to in-use deterioration over the useful life of the vehicle, the manufacturer would have to account for deterioration in the estimation of the credits in order to ensure that the credits are based on real in-use emissions reductions over the life of the vehicle.

As discussed below, EPA is proposing a two-tiered process for demonstrating the CO2reductions of an innovative and novel technology with benefits not captured by the FTP and HFET test procedures. First, a manufacturer would determine whether the benefit of the technology could be captured using the 5-cycle methodology currently used to determine fuel economy label values. EPA established the 5-cycle test methods to better represent real-world factors impacting fuel economy, including higher speeds and more aggressive driving, colder temperature operation, and the use of air conditioning.

If this determination is affirmative, the manufacturer would follow the protocol laid out below and in the proposed regulations. If the manufacturer finds that the technology is such that the benefit is not adequately captured using the 5-cycle approach, then the manufacturer would have to develop a robust methodology, subject to EPA approval, to demonstrate the benefit and determine the appropriate CO2 gram per mile credit. a. Technology Demonstration Using EPA 5-Cycle Methodology

As noted above, the CO2reduction benefit of some innovative technologies could be demonstrated using the 5-cycle approach currently used for EPA's fuel economy labeling program. The 5- cycle methodology was finalized in EPA's 2006 fuel economy labeling rule,\155\ which provides a more accurate fuel economy label estimate to consumers starting with 2008 model year vehicles. In addition to the

FTP and HFET test procedures, the 5-cycle approach folds in the test results from three additional test procedures to determine fuel economy. The additional test cycles include cold temperature operation, high temperature, high humidity and solar loading, and aggressive and high-speed driving; thus these tests could be used to demonstrate the benefit of a technology that reduces CO2over these types of driving and environmental conditions. Using the test results from these additional test cycles collectively with the 2-cycle data provides a more precise estimate of the average fuel economy and CO2 emissions of a vehicle for both the city and highway independently. A significant benefit of using the 5-cycle methodology to measure and quantify the CO2reductions is that the test cycles are properly weighted for the expected average U.S. operation, meaning that the test results could be used without further adjustments.

\155\ Fuel Economy Labeling of Motor Vehicles: Revisions to

Improve Calculation of Fuel Economy Estimates; Final Rule (71 FR 77872, December 27, 2006).

The use of these supplemental cycles may provide a method by which technologies not demonstrated on the baseline 2-cycles can be quantified. The cold temperature FTP can capture new technologies that improve the CO2performance of vehicles during colder weather operation. These improvements may be related to warm-up of the engine or other operation during the colder temperature. An example of such a new, innovative technology is a waste heat capture device that provides heat to the cabin interior, enabling additional engine-off operation during colder weather not previously enabled due to heating and defrosting requirements. The additional engine-off time would result in additional CO2reductions that otherwise would not have been realized without the heat capture technology.

While A/C credits for efficiency improvements will largely be captured in the A/C credits proposal through the credit menu of known efficiency improving components and controls,

Page 49535

certain new technologies may be able to use the high temperatures, humidity, and solar load of the SC03 test cycle to accurately measure their impact. An example of a new technology may be a refrigerant storage device that accumulates pressurized refrigerant during driving operation or uses recovered vehicle kinetic energy during deceleration to pressurize the refrigerant. Much like the waste heat capture device used in cold weather, this device would also allow additional engine- off operation while maintaining appropriate vehicle interior occupant comfort levels. SC03 test data measuring the relative impact of innovative A/C-related technologies could be applied to the 5-cycle equation to quantify the CO2reductions of the technology.

Another example is glazed windows. This reflects sunlight away from the cabin so that the energy required to stabilize the cabin air to a comfortable level is decreased. The impact of these windows may be measureable on an SC03 test (with and without the window option).

The US06 cycle may be used to capture innovative technologies designed to reduce CO2emissions during higher speed and more aggressive acceleration conditions, but not reflected on the 2- cycle tests. An example of this is an active aerodynamic technology.

This technology recognizes the benefits of reduced aerodynamic drag at higher speeds and makes changes to the vehicle at those speeds. The changes may include active front or grill air deflection devices designed to redirect frontal airflow. Certain active suspension devices designed primarily to reduce aerodynamic drag by lowering the vehicle at higher speeds may also be measured on the US06 cycle. To properly measure these technologies on the US06, the vehicle would require unique load coefficients with and without the technologies. The different load coefficient (properly weighted for the US06 cycle) could effectively result in reduced vehicle loads at the higher speeds when the technologies are active. Similar to the previously discussed cycles, the results from the US06 test with and without the technology could then use the 5-cycle methodology to quantify CO2 reductions.

If the 5-cycle procedures can be used to demonstrate the innovative technology, then the process would be relatively simple. The manufacturer would simply test vehicles with and without the technology installed or operating and compare results. All 5-cycles would be tested with the technology enabled and disabled, and the test results would be used to calculate a combined city/highway CO2value with the technology and without the technology. These values would be compared to determine the amount of the credit; the combined city/ highway CO2value with the technology operating would be subtracted from the combined city/highway CO2value without the technology operating to determine the gram per mile CO2 credit. It is likely that multiple tests of each of the five test procedures would need to be performed in order to achieve the necessary strong degree of statistical significance of the credit determination results. This would have to be done for each model type for which a credit was being sought, unless the manufacturer could demonstrate that the impact of the technology was independent of the vehicle configuration on which it was installed. In this case, EPA may consider allowing the test to be performed on an engine family basis or other grouping. At the end of the model year, the manufacturer would determine the number of vehicles produced subject to each credit amount and report that to EPA in the final model year report. The gram per mile credit value determined with the 5-cycle comparison testing would be multiplied by the total production of vehicles subject to that value to determine the total number of credits. b. Alternative Off-Cycle Credit Methodologies

In cases where the benefit of a technological approach to reducing

CO2emissions can not be adequately represented using existing test cycles, EPA will work with and advise manufacturers in developing test procedures and analytical approaches to estimate the effectiveness of the technology for the purpose of generating credits.

Clearly the first step should be a thorough assessment of whether the 5-cycle approach can be used, but if the manufacturer finds that the 5- cycle process is fundamentally inadequate for the specific technology being considered by the manufacturer, then an alternative approach may be developed and submitted to EPA for approval. The demonstration program should be robust, verifiable, and capable of demonstrating the real-world emissions benefit of the technology with strong statistical significance.

The CO2benefit of some technologies may be able to be demonstrated with a modeling approach, using engineering principles. An example would be where a roof solar panel is used to charge the on- board vehicle battery. The amount of potential electrical power that the panel could supply could be modeled for average U.S. conditions and the units of electrical power translated to equivalent fuel energy or annualized CO2emission rate reduction from the captured solar energy. The CO2reductions from other technologies may be more challenging to quantify, especially if they are interactive with the driver, geographic location, environmental condition, or other aspect related to operation on actual roads. In these cases, manufacturers might have to design extensive on-road test programs. Any such on-road testing programs would need to be statistically robust and based on average U.S. driving conditions, factoring in differences in geography, climate, and driving behavior across the U.S.

Whether the approach involves on-road testing, modeling, or some other analytical approach, the manufacturer would be required to present a proposed methodology to EPA. EPA would approve the methodology and credits only if certain criteria were met. Baseline emissions and control emissions would need to be clearly demonstrated over a wide range of real world driving conditions and over a sufficient number of vehicles to address issues of uncertainty with the data. Data would need to be on a vehicle model-specific basis unless a manufacturer demonstrated model specific data was not necessary.

Approval of the approach to determining a CO2benefit would not imply approval of the results of the program or methodology; when the testing, modeling, or analyses are complete the results would likewise be subject to EPA review and approval. EPA believes that manufacturers could work together to develop testing, modeling, or analytical methods for certain technologies, similar to the SAE approach used for A/C refrigerant leakage credits.

EPA requests comments on the proposed approach for off-cycle emissions credits, including comments on how best to structure the program. EPA particularly requests comments on how the case-by-case approach to assessing off-cycle innovative technology credits could best be designed, including ways to ensure the verification of real- world emissions benefits and to ensure transparency in the process of reviewing manufacturer's proposed test methods. 5. Early Credit Options

EPA is proposing to allow manufacturers to generate early credits in model years 2009-2011. As described below, credits could be generated through early additional fleet average CO2 reductions, early A/C system improvements, early advanced

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technology vehicle credits, and early off-cycle credits. As with other credits, early credits would be subject to a five year carry-forward limit based on the model year in which they are generated. Early credits could also be transferred between vehicle categories (e.g., between the car and truck fleet) or traded among manufacturers without limits. The agencies note that CAFE credits earned in MYs prior to MY 2011 will still be available to manufacturers for use in the CAFE program in accordance with applicable regulations.

EPA is not proposing certification, compliance, or in-use requirements for vehicles generating early credits. MY 2009 would be complete and MY 2010 would be well underway by the time the rule is promulgated. This would make certification, compliance, and in-use requirements unworkable. As discussed below, manufacturers would be required to submit an early credits report to EPA for approval no later than the time they submit their final CAFE report for MY 2011. This report would need to include details on all early credits the manufacturer generates, why the credits are bona fide, how they are quantified, and how they can be verified.

As a general principle, EPA believes these early credit programs must be designed in a way to ensure that they are capturing real-world reductions. In addition, EPA wants to ensure these credit programs do not provide an opportunity for manufacturers to earn ``windfall'' credits that do not result in actual, surplus CO2emission reductions. EPA seeks comments on how to best ensure these objectives are achieved in the design of the early credit program options. a. Credits Based on Early Fleet Average CO2Reductions

EPA is proposing opportunities for early credit generation in MYs 2009-2011 through over-compliance with a fleet average CO2 baseline established by EPA. EPA is proposing four pathways for doing so. Manufacturers would select one of the four paths for credit generation for the entire three year period and could not switch between pathways for different model years. For two pathways, the baseline would be set by EPA to be equivalent to the California standards for the relevant model year. Generally, manufacturers that over-comply with those CARB standards would earn credits. Two additional pathways, described below, would include credits based on over-compliance with CAFE standards in States that have not adopted the

California standards.

Pathway 1 would be to earn credits by over-complying with the

California equivalent baseline over the manufacturer's fleet of vehicles sold nationwide. Pathway 2 would be for manufacturers to generate credits against the baseline only for the fleet of vehicles sold in California and the CAA section 177 States.\156\ This approach would include any CAA 177 States as of the date of promulgation of the

Final Rule in this proceeding. Manufacturers would be required to include both cars and trucks in the program. Under Pathways 1 and 2,

EPA proposes that manufacturers would be required to cover any deficits incurred against the baseline levels established by EPA during the three year period 2009-2011 before credits could be carried forward into the 2012 model year. For example, a deficit in 2011 would have to be subtracted from the sum of credits earned in 2009 and 2010 before any credits could be applied to 2012 (or later) model year fleets. EPA is proposing this provision to help ensure the early credits generated under this program are consistent with the credits available under the

California program during these model years.

\156\ CAA 177 States refers to States that have adopted the

California GHG standards. At present, there are thirteen CAA 177

States including New York, Massachusetts, Maryland, Vermont, Maine,

Connecticut, Arizona, New Jersey, New Mexico, Oregon, Pennsylvania,

Rhode Island, Washington, and Washington, DC.

Table III.C.5-1 provides the California equivalent baselines EPA proposes to use as the basis for CO2credit generation under the California-based pathways. These are the California GHG standards for the model years shown, with a 2.0 g/mile adjustment to account for the exclusion of N2O and CH4, which are included in the California GHG standards, but not included in the credits program. Manufacturers would generate CO2credits by achieving fleet average CO2levels below these baselines. As shown in the table, the California-based early credit pathways are based on the California vehicle categories. Also, the California-based baseline levels are not footprint-based, but universal levels that all manufacturers would use. Manufacturers would need to achieve fleet levels below those shown in the table in order to earn credits.

Table III.C.5-1--California Equivalent Baselines CO2 Emissions Levels for Early Credit Generation

Light trucks with a LVW

Passenger cars and

of 3,751 or more and a

Model year

light trucks with an GVWR of up to 8,500 lbs

LVW of 0-3,750 lbs

plus medium-duty passenger vehicles

2009..........................................................

321

437 2010..........................................................

299

418 2011..........................................................

265

388

EPA proposes that manufacturers using Pathways 1 or 2 above would use year end car and truck sales in each category. Although production data is used for the program starting in 2012, EPA is proposing to use sales data for the early credits program in order to apportion vehicles by State. This is described further below. Manufacturers would calculate actual fleet average emissions over the appropriate vehicle fleet, either for vehicles sold nationwide for Pathway 1, or California plus 177 States sales for Pathway 2. Early CO2credits would be based on the difference between the baseline shown in the table above and the actual fleet average emissions level achieved. Any early

A/C credits generated by the manufacturer, described below in Section

III.C.5.b, would be included in the fleet average level determination.

In model year 2009, the California CO2standards for cars

(321 g/mi CO2) are only slightly more stringent than the 2009 CAFE car standard of 27.5 mpg, which is approximately equivalent to 323 g/mi CO2, and the California light-truck standard

(437 g/mi CO2) is less stringent than the equivalent CAFE standard, recognizing that there are some differences between the way the California program and the CAFE

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program categorize vehicles. Under the proposed option, manufacturers would have to show that they over comply over the entire three model year time period, not just the 2009 model year, to generate early credits under either Pathways 1, 2 or 3. A manufacturer cannot use credits generated in model year 2009 unless they offset any debits from model years 2010 and 2011. EPA expects that the requirement to over comply over the entire time period covering these three model years should mean that the credits that are generated are real and are in excess of what would have otherwise occurred. However, because of the circumstances involving the 2009 model year, in particular for companies with significant truck sales, there is some concern that under Pathways 1, 2, and 3, there is a potential for a large number of credits generated in 2009 against the California standard, in particular for a number of companies who have significantly over- achieved on CAFE in recent model years. EPA wants to avoid a situation where, contrary to expectation, some part of the early credits generated by a manufacturer are in fact not excess, where companies could trade such credits to other manufacturers, risking a delay in the addition of new technology across the industry from the 2012 and later

EPA CO2standards. For this reason, EPA requests comment on the merits of prohibiting the trading of model year 2009 generated early credits between firms.

In addition, for Pathways 1 and 2, EPA proposes that manufacturers may also include alternative compliance credits earned per the

California alternative compliance program.\157\ These alternative compliance credits are based on the demonstrated use of alternative fuels in flex fuel vehicles. As with the California program, the credits would be available beginning in MY 2010. Therefore, these early alternative compliance credits would be available under EPA's program for the 2010 and 2011 model years. FFVs would otherwise be included in the early credit fleet average based on their emissions on the conventional fuel. This would not apply to EVs and PHEVs. The emissions of EVs and PHEVs would be determined as described in Section III.E.

Manufacturers could choose to either include their EVs and PHEVs in one of the four pathways described in this section or under the early advanced technology emissions credits described below, but not both due to issues of credit double counting.

\157\ See Section 6.6.E, California Environmental Protection

Agency Air Resources Board, Staff Report: Initial Statement of

Reasons For Proposed Rulemaking, Public Hearing to Consider Adoption of Regulations to Control Greenhouse Gas Emissions From Motor

Vehicles, August 6, 2004.

EPA is also proposing two additional early credit pathways manufacturers could select. Pathways 3 and 4 incorporate credits based on over-compliance with CAFE standards for vehicles sold outside of

California and CAA 177 States in MY 2009-2011. Pathway 3 would allow manufacturers to earn credits as under Pathway 2, plus earn CAFE-based credits in other States. Credits would not be generated for cars sold in California and CAA 177 States unless vehicle fleets in those States are performing better than the standards which otherwise would apply in those States, i.e. the baselines shown in Table III.C.5-1 above.

Pathway 4 would be for manufacturers choosing to forego California- based early credits entirely and earn only CAFE-based credits outside of California and CAA 177 States. EPA proposes that manufacturers would not be able to include FFV credits under the CAFE-based early credit pathways since those credits do not automatically reflect actual reductions in CO2emissions.

The proposed baselines for CAFE-based early pathways are provided in Table III.C.5-2 below. They are based on the CAFE standards for the 2009-2011 model years. For CAFE standards in 2009-2011 model years that are footprint-based, the baseline would vary by manufacturer.

Footprint-based standards are in effect for the 2011 model year CAFE standards.\158\ Additionally, for Reform CAFE truck standards, footprint standards are optional for the 2009-2010 model years. Where

CAFE footprint-based standards are in effect, manufacturers would calculate a baseline using the footprints and sales of vehicles outside of California and CAA 177 States. The actual fleet CO2 performance calculation would also only include the vehicles sold outside of California and CAA 177 States, and as mentioned above, may not include FFV credits.

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

Table III.C.5-2--CAFE Equivalent Baselines CO2 Emissions Levels for

Early Credit Generation

Model year

Cars

Trucks

2009............................ 323............... 381.* 2010............................ 323............... 376.* 2011............................ Footprint-based

Footprint-based standard.

standard.

* Would be footprint-based standard for manufacturers selecting footprint option under CAFE.

For the CAFE-based pathways, EPA proposes to use the NHTSA car and truck definitions that are in place for the model year in which credits are being generated. EPA understands that the NHTSA definitions change starting in the 2011 model year, and would therefore change part way through the early credits program. EPA further recognizes that MDPVs are not part of the CAFE program until the 2011 model year, and therefore would not be part of the early credits calculations for 2009- 2010 under the CAFE-based pathways.

Pathways 2 through 4 involve splitting the vehicle fleet into two groups, vehicles sold in California and CAA 177 States and vehicles sold outside of these States. This approach would require a clear accounting of location of vehicle sales by the manufacturer. EPA believes it will be reasonable for manufacturers to accurately track sales by State, based on its experience with the National Low Emissions

Vehicle (NLEV) Program. NLEV required manufacturers to meet separate fleet average standards for vehicles sold in two different regions of the country.\159\ As with NLEV, the determination would be based on where the completed vehicles are delivered as a point of first sale, which in most cases would be the dealer.\160\

\159\ 62 FR 31211, June 6, 1997.

\160\ 62 FR 31212, June 6, 1997.

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

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later than 90 days after the end of the model year). Manufacturers would have until then to decide which pathway to select. This would give manufacturers enough time to determine which pathway works best for them. This timing may be necessary in cases where manufacturers earn credits in MY 2011 and need time to assess data and prepare an early credits submittal for final EPA approval.

The table below provides a summary of the four fleet average-based

CO2early credit pathways EPA is proposing. As noted above,

EPA is concerned with potential ``windfall'' credits and is seeking comments on how to best ensure the objective of achieving surplus, real-world reductions is achieved in the design of the credit programs.

In addition, EPA requests comments on the merits of each of these pathways. Specifically, EPA requests comment on whether or not any of the pathways could be eliminated to simplify the program without diminishing its overall flexibility. For example, Pathway 2 may not be particularly useful to manufacturers if the California/177 State and overall national fleets are projected to be similar during these model years. EPA also requests comment on proposed program implementation structure and provisions.

Table III.C.5-3--Summary of Proposed Early Fleet Average CO2 Credit

Pathways

Common Elements................... --Manufacturers would select a pathway. Once selected, may not switch among pathways.

--All credits subject to 5 year carry-forward restrictions.

--For Pathways 2-4, vehicles apportioned by State based on point of first sale.

Pathway 1: California-based

--Manufacturers earn credits based

Credits for National Fleet..

on fleet average emissions compared with California equivalent baseline set by EPA.

--Based on nationwide CO2 sales- weighted fleet average.

--Based on use of California vehicle categories.

--FFV alternative compliance credits per California program may be included.

--Once in the program, manufacturers must make up any deficits that are incurred prior to 2012 in order to carry credits forward to 2012 and later.

Pathway 2: California-based

--Same as Pathway 1, but

Credits for vehicles sold in

manufacturers only includes

California plus CAA 177 States.

vehicles sold in California and CAA 177 States in the fleet average calculation.

Pathway 3: Pathway 2 plus CAFE-

--Manufacturer earns credits as based Credits outside of

provided by Pathway 2: California-

California plus CAA 177 States.

based credits for vehicles sold in

California plus CAA 177 States, plus:

--CAFE-based credits allowed for vehicles sold outside of California and CAA 177 States.

--For CAFE-based credits, manufacturers earn credits based on fleet average emissions compared with baseline set by EPA.

--CAFE-based credits based on NHTSA car and truck definitions.

--FFV credits not allowed to be included for CAFE-based credits.

Pathway 4: Only CAFE-based Credits --Manufacturer elects to only earn outside of California plus CAA

CAFE-based credits for vehicles 177 States.

sold outside of California and CAA 177 States. Earns no California and 177 State credits.

--For CAFE-based credits, manufacturers earn credits based on fleet average emissions compared with baseline set by EPA.

--CAFE-based credits based on NHTSA car and truck definitions.

--FFV credits not allowed to be included for CAFE-based credits.

b. Early A/C Credits

EPA proposes that manufacturers could earn early A/C credits in MYs 2009-2011 using the same A/C system design-based EPA provisions being proposed for MYs commencing in 2012, as described in Section III.C.1, above. Manufacturers would be able to earn early A/C CO2- equivalent credits by demonstrating improved A/C system performance, for both direct and indirect emissions. To earn credits for vehicles sold in California and CAA 177 States, the vehicles would need to be included in one of the California-based early credit pathways described above in III.C.5.a. EPA is proposing this constraint in order to avoid credit double counting with the California program in place in those

States, which also allows A/C system credits in this time frame.

Manufacturers would fold the A/C credits into the fleet average

CO2calculations under the California-based pathway. For example, the MY 2009 California-based program car baseline would be 321 g/mile (see Table III.C.5-1). If a manufacturer under Pathway 1 had a

MY 2009 car fleet average CO2level of 320 g/mile and then earned an additional 9 g/mile CO2-equivalent A/C credit, the manufacturers would earn a total of 10 g/mile of credit. Vehicles sold outside of California and 177 States would be eligible for the early A/

C credits whether or not the manufacturers participate in other aspects of the early credits program. c. Early Advanced Technology Vehicle Credits

EPA is proposing to allow early advanced technology vehicle credits for sales of EVs, PHEVs, and fuel cell vehicles. To avoid double- counting, manufacturers would not be allowed to generate advanced technology credits for vehicles they choose to include in Pathways 1 through 4 described in III.C.5.a, above. EPA proposes to use a similar methodology to that proposed for MYs 2012 and later, as described in

Section III.C.3, above. EPA proposes to use a multiplier in the range of 1.2 to 2.0 for all eligible vehicles (i.e., EVs, PHEVs, and fuel cells). Manufacturers, however, would track the number of these vehicles sold in the model years 2009--2011, and the emissions level of the vehicles, rather than a CO2credit. When a manufacturer chooses to use the vehicle credits to comply with 2012 or later standards, the vehicle counts including the multiplier would be folded into the CO2fleet average. For example, if a manufacturer sells 1,000 EVs in MY 2011, and if the final multiplier level were 2.0, the manufacturer would apply the multiplier of 2.0 and then be able to include 2,000 vehicles at 0 g/mile in their MY 2012 fleet to decrease the fleet average for that model year. As with other early credits, these early advanced technology vehicle credits would be tracked by model year (2009, 2010, or 2011) and would be subject to 5 year carry- forward restrictions. Again,

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manufacturers would not be allowed to include the EVs, PHEVs, or fuel cell vehicles in the early credit pathways discussed above in Section

III.C.5.a, otherwise the vehicles would be double counted. As discussed in Section III.C.3, EPA is requesting comment on a multiplier in the range of 1.2 to 2.0, including a potential phase-down in the multiplier by model year 2016, if a multiplier near the higher end of this range is determined for the final rule. This request for comment also extends to the potential for early advance technology vehicle credits. EPA is also requesting comment on the appropriate gram/mile metric for EVs and fuel cellvehicles, as well as for the EV-only contribution for a PHEV. d. Early Off-Cycle Credits

EPA's proposed off-cycle innovative technology credit provisions are provided in Section III.C.4. EPA requests comment on beginning these credits in the 2009-2011 time frame, provided manufacturers are able to make the necessary demonstrations outlined in Section III.C.4, above.

D. Feasibility of the Proposed CO2Standards

This proposal is based on the need to obtain significant GHG emissions reductions from the transportation sector, and the recognition that there are cost-effective technologies to achieve such reductions in the 2012-2016 time frame. As in many prior mobile source rulemakings, the decision on what standard to set is largely based on the effectiveness of the emissions control technology, the cost and other impacts of implementing the technology, and the lead time needed for manufacturers to employ the control technology. The standards derived from assessing these issues are also evaluated in terms of the need for reductions of greenhouse gases, the degree of reductions achieved by the standards, and the impacts of the standards in terms of costs, quantified benefits, and other impacts of the standards. The availability of technology to achieve reductions and the cost and other aspects of this technology are therefore a central focus of this rulemaking.

EPA is taking the same basic approach in this rulemaking, although the technological problems and solutions involved in this rulemaking differ in some ways from prior mobile source rulemakings. Here, the focus of the emissions control technology is on reducing CO2 and other greenhouse gases. Vehicles combust fuel to perform two basic functions: (1) Transport the vehicle, its passengers and its contents, and (2) operate various accessories during the operation of the vehicle such as the air conditioner. Technology can reduce CO2 emissions by either making more efficient use of the energy that is produced through combustion of the fuel or reducing the energy needed to perform either of these functions.

This focus on efficiency calls for looking at the vehicle as an entire system. In addition to fuel delivery, combustion, and aftertreatment technology, any aspect of the vehicle that affects the need to produce energy must also be considered. For example, the efficiency of the transmission system, which takes the energy produced by the engine and transmits it to the wheels, and the resistance of the tires to rolling both have major impacts on the amount of fuel that is combusted while operating the vehicle. The braking system, the aerodynamics of the vehicle, and the efficiency of accessories, such as the air conditioner, all affect how much fuel is combusted.

In evaluating vehicle efficiency, we have excluded fundamental changes in vehicles' size and utility. For example, we did not evaluate converting minivans and SUVs to station wagons, converting vehicles with four wheel drive to two wheel drive, or reducing headroom in order to lower the roofline and reduce aerodynamic drag. We have limited our assessment of technical feasibility and resultant vehicle cost to technologies which maintain vehicle utility as much as possible.

Manufacturers may decide to alter the utility of the vehicles which they sell in response to this rule. Assessing the societal cost of such changes is very difficult as it involves assessing consumer preference for a wide range of vehicle features.

This need to focus on the efficient use of energy by the vehicle as a system leads to a broad focus on a wide variety of technologies that affect almost all the systems in the design of a vehicle. As discussed below, there are many technologies that are currently available which can reduce vehicle energy consumption. These technologies are already being commercially utilized to a limited degree in the current light- duty fleet. These technologies include hybrid technologies that use higher efficiency electric motors as the power source in combination with or instead of internal combustion engines. While already commercialized, hybrid technology continues to be developed and offers the potential for even greater efficiency improvements. Finally, there are other advanced technologies under development, such as lean burn gasoline engines, which offer the potential of improved energy generation through improvements in the basic combustion process. In addition, the available technologies are not limited to powertrain improvements but also include mass reduction, electrical system efficiencies, and aerodynamic improvements.

The large number of possible technologies to consider and the breadth of vehicle systems that are affected mean that consideration of the manufacturer's design and production process plays a major role in developing the proposed standards. Vehicle manufacturers typically develop many different models by basing them on a limited number of vehicle platforms. The platform typically consists of a common vehicle architecture and structural components. This allows for efficient use of design and manufacturing resources. Given the very large investment put into designing and producing each vehicle model, manufacturers typically plan on a major redesign for the models approximately every 5 years. At the redesign stage, the manufacturer will upgrade or add all of the technology and make most other changes supporting the manufacturer's plans for the next several years, including plans related to emissions, fuel economy, and safety regulations.

This redesign often involves a package of changes designed to work together to meet the various requirements and plans for the model for several model years after the redesign. This often involves significant engineering, development, manufacturing, and marketing resources to create a new product with multiple new features. In order to leverage this significant upfront investment, manufacturers plan vehicle redesigns with several model years of production in mind. Vehicle models are not completely static between redesigns as limited changes are often incorporated for each model year. This interim process is called a refresh of the vehicle and generally does not allow for major technology changes although more minor ones can be done (e.g., small aerodynamic improvements, valve timing improvements, etc). More major technology upgrades that affect multiple systems of the vehicle thus occur at the vehicle redesign stage and not in the time period between redesigns.

As discussed below, there are a wide variety of CO2 reducing technologies involving several different systems in the vehicle that are available for consideration. Many can involve major changes to the vehicle, such as changes to the engine block and cylinder heads, redesign of the transmission and its

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packaging in the vehicle, changes in vehicle shape to improve aerodynamic efficiency and the application of aluminum in body panels to reduce mass. Logically, the incorporation of emissions control technologies would be during the periodic redesign process. This approach would allow manufacturers to develop appropriate packages of technology upgrades that combine technologies in ways that work together and fit with the overall goals of the redesign. It also allows the manufacturer to fit the process of upgrading emissions control technology into its multi-year planning process, and it avoids the large increase in resources and costs that would occur if technology had to be added outside of the redesign process.

This proposed rule affects five years of vehicle production, model years 2012-2016. Given the now-typical five year redesign cycle, nearly all of a manufacturer's vehicles will be redesigned over this period.

EPA projects could be used to show compliance with the proposed

CO2standards in both 2012 and 2013. In order to account for the relatively short lead time available prior to the 2012 and 2013 model years, albeit mitigated by their existing plans, EPA has factored this reality into how the availability is modeled for much of the technology being considered for model years 2012-2016 as a whole. If the technology to control greenhouse gas emissions is efficiently folded into this redesign process, then EPA projects that 85 percent of each manufacturer's sales will be able to be redesigned with many of the CO2emission reducing technologies by the 2016 model year, and as discussed below, to reduce emissions of HFCs from the air conditioner.

In determining the level of this first ever GHG emissions standard under the CAA for light-duty vehicles, EPA proposes to use an approach that accounts for and builds on this redesign process. This provides the opportunity for several control technologies to be incorporated into the vehicle during redesign, achieving significant emissions reductions from the model at one time. This is in contrast to what would be a much more costly approach of trying to achieve small increments of reductions over multiple years by adding technology to the vehicle piece by piece outside of the redesign process.

As described below, the vast majority of technology required by this proposal is commercially available and already being employed to a limited extent across the fleet. The vast majority of the emission reductions which would result from this proposed rule would result from the increased use of these technologies. EPA also believes that this proposed rule would encourage the development and limited use of more advanced technologies, such as PHEVs and EVs.

In developing the proposed standard, EPA built on the technical work performed by the State of California during its development of its statewide GHG program. EPA began by evaluating a nationwide CAA standard for MY 2016 that would require the levels of technology upgrade, across the country, which California standards would require for the subset of vehicles sold in California under Pavley 1. In essence, EPA evaluated the stringency of the California Pavley 1 program but for a national standard. As mentioned above, and as described in detail in Section II.C of this preamble and Chapter 3 of the Joint TSD, one of the important technical documents included in EPA and NHTSA's assessment of vehicle technology effectiveness and costs was the 2004 NESCCAF report which was the technical foundation for

California's Pavley 1 standard. However, in order to evaluate the impact of standards with similar stringency on a national basis to the

California program EPA chose not to evaluate the specific California standards for several reasons. First, California's standards are universal standards (one for cars and one for trucks), while EPA is proposing attribute-based standards using vehicle footprint. Second,

California's definitions of what vehicles are classified as cars and which are classified as trucks are different from those used by NHTSA for CAFE purposes and different from EPA's proposed classifications in this notice (which harmonizes with the CAFE definitions). In addition, there has been progress in the refinement of the estimation of the effectiveness and cost estimation for technologies which can be applied to cars and trucks since the California analysis in 2004 which could lead to different relative stringencies between cars and trucks than what California determined for its Pavley 1 program. There have also been improvements in the fuel economy and CO2performance of the actual new vehicle fleet since California's 2004 analysis which EPA wanted to reflect in our current assessment. For these reasons, EPA developed an assessment of an equivalent national new vehicle fleet- wide CO2performance standards for model year 2016 which would result in the new vehicle fleet in the State of California having

CO2performance equal to the performance from the California

Pavley 1 standards. This assessment is documented in Chapter 3.1 of the

DRIA. The results of this assessment predicts that a national light- duty vehicle fleet which adopts technology that achieves performance of 250 g/mile CO2for model year 2016 would result in vehicles sold in California that would achieve the CO2performance equivalent to the Pavley 1 standards.

EPA then analyzed a level of 250 g/mi CO2in 2016 using the OMEGA model, and the car and truck footprint curves relative stringency discussed in Section II to determine what technology would be needed to achieve a fleet wide average of 250 g/mi CO2.

As discussed later in this section we believe this level of technology application to the light-duty vehicle fleet can be achieved in this time frame, that such standards will produce significant reductions in

GHG emissions, and that the costs for both the industry and the costs to the consumer are reasonable. EPA also developed standards for the model years 2012 through 2015 that lead up to the 2016 level.

EPA's independent technical assessment of the technical feasibility of the proposed MY2012-2016 standards is described below. EPA has also evaluated a set of alternative standards for these model years, one that is more stringent than the proposed standards and one that is less stringent. The technical feasibility of these alternative standards is discussed at the end of this section.

Evaluating the feasibility of these standards primarily includes identifying available technologies and assessing their effectiveness, cost, and impact on relevant aspects of vehicle performance and utility. The wide number of technologies which are available and likely to be used in combination requires a more sophisticated assessment of their combined cost and effectiveness. An important factor is also the degree that these technologies are already being used in the current vehicle fleet and thus, unavailable for use to improve energy efficiency beyond current levels. Finally, the challenge for manufacturers to design the technology

Page 49541

into their products, and the appropriate lead time needed to employ the technology over the product line of the industry must be considered.

Applying these technologies efficiently to the wide range of vehicles produced by various manufacturers is a challenging task. In order to assist in this task, EPA has developed a computerized model called the Optimization Model for reducing Emissions of Greenhouse gases from Automobiles (OMEGA) model. Broadly, the model starts with a description of the future vehicle fleet, including manufacturer, sales, base CO2emissions, footprint and the extent to which emission control technologies are already employed. For the purpose of this analysis, over 200 vehicle platforms were used to capture the important differences in vehicle and engine design and utility of future vehicle sales of roughly 16 million units in the 2016 timeframe.

The model is then provided with a list of technologies which are applicable to various types of vehicles, along with their cost and effectiveness and the percentage of vehicle sales which can receive each technology during the redesign cycle of interest. The model combines this information with economic parameters, such as fuel prices and a discount rate, to project how various manufacturers would apply the available technology in order to meet various levels of emission control. The result is a description of which technologies are added to each vehicle platform, along with the resulting cost. While OMEGA can apply technologies which reduce CO2emissions and HFC refrigerant emissions associated with air conditioner use, this task is currently handled outside of the OMEGA model. The model can be set to account for various types of compliance flexibilities, such as FFV credits.

EPA invites comment on all aspects of this feasibility assessment.

Both the OMEGA model and its inputs have been placed in the docket to this proposed rule and available for review.

The remainder of this section describes the technical feasibility analysis in greater detail. Section III.D.1 describes the development of our projection of the MY 2012-2016 fleet in the absence of this proposed rule. Section III.D.2 describes our estimates of the effectiveness and cost of the control technologies available for application in the 2012-2016 timeframe. Section III.D.3 combines these technologies into packages likely to be applied at the same time by a manufacturer. In this section, the overall effectiveness of the technology packages vis-[agrave]-vis their effectiveness when combined individually is described. Section III.D.4 describes the process which manufacturers typically use to apply new technology to their vehicles.

Section III.D.5 describes EPA's OMEGA model and its approach to estimating how manufacturers would add technology to their vehicles in order to comply with CO2emission standards. Section III.D.6 presents the results of the OMEGA modeling, namely the level of technology added to manufacturers' vehicles and its cost. Section

III.D.7 discusses the feasibility of the alternative 4-percent-per-year and 6-percent-per-year standards. Further detail on all of these issues can be found in EPA and NHTSA's draft Joint Technical Support Document as well as EPA's draft Regulatory Impact Analysis. 1. How Did EPA Develop a Reference Vehicle Fleet for Evaluating Further

CO2Reductions?

In order to calculate the impacts of this proposed regulation, it is necessary to project the GHG emissions characteristics of the future vehicle fleet absent this proposed regulation. This is called the

``reference'' fleet. EPA developed this reference fleet by determining the characteristics of a specific model year (in this case, 2008) of vehicles, called the baseline fleet, and then projecting what changes if any would be made to these vehicles to comply with the MY2011 CAFE standards. Thus, the MY 2008 fleet is our ``baseline fleet,'' and the projection of the baseline to MY 2011-2016 is called the ``reference fleet.''

EPA used 2008 model year vehicles as the basis for its baseline fleet. 2008 model year is the most recent model year for which data is publicly available. Sources of data for the baseline include the EPA vehicle certification data, Ward's Automotive Group data,

Motortrend.com, Edmunds.com, manufacturer product plans, and other sources to a lesser extent (such as articles about specific vehicles) revealed from Internet search engine research. EPA then projects this fleet out to the 2016 MY, taking into account factors such as changes in overall sales volume. Section II.B describes the development of the

EPA reference fleet, and further details can be found in Section II.B of this preamble and Chapter 1 of the Draft Joint TSD.

The light-duty vehicle market is currently in a state of flux due to the volatility in fuel prices over the past several years and the current economic downturn. These factors have changed the relative sales of the various types of light-duty vehicles marketed, as well as total sales volumes. EPA and NHTSA desire to account for these changes to the degree possible in our forecast of the make-up of the future vehicle fleet. EPA wants to include improvements in fuel economy associated with the existing CAFE program. It is possible that manufacturers could increase fuel economy beyond the level of the 2011

MY CAFE standards for marketing purposes. However, it is difficult to separate fuel economy improvements in those years for marketing purposes from those designed to facilitate compliance with anticipated

CAFE or CO2emission standards. Thus, EPA limits fuel economy improvements in the reference fleet to those projected to result from the existing CAFE standards. The addition of technology to the baseline fleet so that it complies with the MY 2011 CAFE standards is described later in Section III.D.4, as this uses the same methodology used to project compliance with the proposed CO2 emission standards. In summary, the reference fleet represents vehicle characteristics and sales in the 2012 and later model years absent this proposed rule. Technology is then added to these vehicles in order to reduce CO2emissions to achieve compliance with the proposed

CO2standards. EPA did not factor in any changes to vehicle characteristics or sales in projecting manufacturers' compliance with this proposal.

After the reference fleet is created, the next step aggregates vehicle sales by a combination of manufacturer, vehicle platform, and engine design. As discussed in Section III.D.4 below, manufacturers implement major design changes at vehicle redesign and tend to implement these changes across a vehicle platform. Because the cost of modifying the engine depends on the valve train design (such as SOHC,

DOHC, etc.), the number of cylinders and in some cases head design, the vehicle sales are broken down beyond the platform level to reflect relevant engine differences. The vehicle groupings are shown in Table

III.D.1-1.

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Table III.D.1-1--Vehicle Groupings \a\

Vehicle

Vehicle description

type

description

type

Large SUV (Car) V8+ OHV........

13 Subcompact Auto

I4.

Large SUV (Car) V6 4v..........

16 Large Pickup V8+

DOHC.

Large SUV (Car) V6 OHV.........

12 Large Pickup V8+

SOHC 3v.

Large SUV (Car) V6 2v SOHC.....

9 Large Pickup V8+

OHV.

Large SUV (Car) I4 and I5......

7 Large Pickup V8+

SOHC.

Midsize SUV (Car) V6 2v SOHC...

8 Large Pickup V6

DOHC.

Midsize SUV (Car) V6 S/DOHC 4v.

5 Large Pickup V6

OHV.

Midsize SUV (Car) I4...........

7 Large Pickup V6

SOHC 2v.

Small SUV (Car) V6 OHV.........

12 Large Pickup I4 S/

DOHC.

Small SUV (Car) V6 S/DOHC......

4 Small Pickup V6

OHV.

Small SUV (Car) I4.............

3 Small Pickup V6

8 2v SOHC.

Large Auto V8+ OHV.............

13 Small Pickup I4..

Large Auto V8+ SOHC............

10 Large SUV V8+

DOHC.

Large Auto V8+ DOHC, 4v SOHC...

6 Large SUV V8+

SOHC 3v.

Large Auto V6 OHV..............

12 Large SUV V8+ OHV

Large Auto V6 SOHC 2/3v........

5 Large SUV V8+

SOHC.

Midsize Auto V8+ OHV...........

13 Large SUV V6 S/

DOHC 4v.

Midsize Auto V8+ SOHC..........

10 Large SUV V6 OHV.

Midsize Auto V7+ DOHC, 4v SOHC.

6 Large SUV V6 SOHC

9 2v.

Midsize Auto V6 OHV............

12 Large SUV I4/....

Midsize Auto V6 2v SOHC........

8 Midsize SUV V6

OHV.

Midsize Auto V6 S/DOHC 4v......

5 Midsize SUV V6 2v

SOHC.

Midsize Auto I4................

3 Midsize SUV V6 S/

DOHC 4v.

Compact Auto V7+ S/DOHC........

6 Midsize SUV I4 S/

DOHC.

Compact Auto V6 OHV............

12 Small SUV V6 OHV.

Compact Auto V6 S/DOHC 4v......

4 Minivan V6 S/DOHC

Compact Auto I5................

7 Minivan V6 OHV...

Compact Auto I4................

2 Minivan I4.......

Subcompact Auto V8+ OHV........

13 Cargo Van V8+ OHV

Subcompact Auto V8+ S/DOHC.....

6 Cargo Van V8+

SOHC.

Subcompact Auto V6 2v SOHC.....

8 Cargo Van V6 OHV.

Subcompact Auto I5/V6 S/DOHC 4v

4 ................. .........

\a\ I4 = 4 cylinder engine, I5 = 5 cylinder engine, V6, V7, and V8 = 6, 7, and 8 cylinder engines, respectively, DOHC = Double overhead cam,

SOHC = Single overhead cam, OHV = Overhead valve, v = number of valves per cylinder, ``/'' = and, ``+'' = or larger.

As mentioned above, the second factor which needs to be considered in developing a reference fleet against which to evaluate the impacts of this proposed rule is the impact of the 2011 MY CAFE standards, which were published earlier this year. Since the vehicles which comprise the above reference fleet are those sold in the 2008 MY, when coupled with our sales projections, they do not necessarily meet the 2011 MY CAFE standards.

The levels of the 2011 MY CAFE standards are straightforward to apply to future sales fleets, as is the potential fine-paying flexibility afforded by the CAFE program (i.e., $55 per mpg of shortfall). However, projecting some of the compliance flexibilities afforded by EISA and the CAFE program are less clear. Two of these compliance flexibilities are relevant to EPA's analysis: (1) The credit for FFVs, and (2) the limit on the transferring of credits between car and truck fleets. The FFV credit is limited to 1.2 mpg in 2011 and EISA gradually reduces this credit, to 1.0 mpg in 2015 and eventually to zero in 2020. In contrast, the limit on car truck transfer is limited to 1.0 mpg in 2011, and EISA increases this to 1.5 mpg beginning in 2015 and then to 2.0 mpg beginning in 2020. The question here is whether to hold the 2011 MY CAFE provisions constant in the future or incorporate the changes in the FFV credit and car-truck credit trading limits contained in EISA.

EPA decided to hold the 2011 MY limits on FFV credit and car-truck credit trading constant in projecting the fuel economy and

CO2emission levels of vehicles in our reference case. This approach treats the changes in the FFV credit and car-truck credit trading provisions consistently with the other EISA-mandated changes in the CAFE standards themselves. All EISA provisions relevant to 2011 MY vehicles are reflected in our reference case fleet, while all post-2011

MY provisions are not. Practically, relative to the alternative, this increases both the cost and benefit of the proposed standards. In our analysis of this proposed rule, any quantified benefits from the presence of FFVs in the fleet are not considered. Thus, the only impact of the FFV credit is to reduce onroad fuel economy. By assuming that the FFV credit stays at 1.2 mpg in the future absent this rule, the assumed level of onroad fuel economy that would occur absent this proposal is reduced. As this proposal eliminates the FFV credit starting in 2016, the net result is to increase the projected level of fuel savings from our proposed standards. Similarly, the higher level of FFV credit reduces projected compliance cost for manufacturers to meet the 2011 MY standards in our reference case. This increases the projected cost of meeting the proposed 2012 and later standards.

As just implied, EPA needs to project the technology (and resultant costs) required for the 2008 MY vehicles to comply with the 2011 MY

CAFE standards in those cases where they do not automatically do so.

The technology and costs are projected using the same methodology that projects compliance with the proposed 2012 and later CO2 standards. The description of this process is described in the following four sections.

A more detailed description of the methodology used to develop these sales projections can be found in the Draft Joint TSD. Detailed sales projections by model year and manufacturer can also be found in the TSD. EPA requests comments on both

Page 49543

the methodology used to develop the reference fleet, as well as the characteristics of the reference fleet. 2. What Are the Effectiveness and Costs of CO2-Reducing

Technologies?

EPA and NHTSA worked together to jointly develop information on the effectiveness and cost of the CO2-reducing technologies, and fuel economy-improving technologies, other than A/C related control technologies. This joint work is reflected in Chapter 3 of the Draft

Joint TSD and in Section II of this preamble. A summary of the effectiveness and cost of A/C related technology is contained here. For more detailed information on the effectiveness and cost of A/C related technology, please refer to Section III.C of this preamble and Chapter 2 of EPA's DRIA.

A/C improvements are an integral part of EPA's technology analysis and have been included in this section along with the other technology options. While discussed in Section III.C as a credit opportunity, air conditioning-related improvements are included in Table III.D.2- 1.because A/C improvements are a very cost-effective technology at reducing CO2(or CO2-equivalent) emissions. EPA expects most manufacturers will choose to use AC improvement credit opportunities as a strategy for meeting compliance with the

CO2standards. Note that the costs shown in Table III.D.2-1 do not include maintenance savings that would be expected from the new

AC systems. Further, EPA does not include AC-related maintenance savings in our cost and benefit analysis presented in Section III.H.

EPA discusses the likely maintenance savings in Chapter 2 of the DRIA and requests comment on that discussion because we may include maintenance savings in the final rule and would like to have the best information available in order to do so. The EPA approximates that the level of the credits earned will increase from 2012 to 2016 as more vehicles in the fleet are redesigned. The penetrations and average levels of credit are summarized in Table III.D.2-2, though the derivation of these numbers (and the breakdown of car vs. truck credits) is described in the DRIA. As demonstrated in the IMAC study

(and described in Section III.C as well as the DRIA), these levels are feasible and achievable with technologies that are available and cost- effective today.

These improvements are categorized as either leakage reduction, including use of alternative refrigerants, or system efficiency improvements. Unlike the majority of the technologies described in this section, A/C improvements will not be demonstrated in the test cycles used to quantify CO2reductions in this proposal. As described earlier, for this analysis A/C-related CO2 reductions are handled outside of OMEGA model and therefore their

CO2reduction potential is expressed in grams per mile rather than a percentage used by the OMEGA model. See Section III.C for the method by which potential reductions are calculated or measured.

Further discussion of the technological basis for these improvements is included in Chapter 2 of the DRIA.

Table III.D.2-1--Total CO2 Reduction Potential and 2016 Cost for A/C

Related Technologies for All Vehicle Classes

Costs in 2007 dollars

CO2 reduction

Incremental potential

compliance costs

A/C refrigerant leakage

7.5 g/mi \161\.......

$17 reduction.

A/C efficiency improvements... 5.7 g/mi.............

Table III.D.2-2 A/C Related Tech- nology Penetration and Credit Levels

Expected To Be Earned

Technology

Average penetration credit over

(Percent)

entire fleet

2012....................................

3.1 2013....................................

5.0 2014....................................

7.5 2015....................................

10.0 2016....................................

10.6

3. How Can Technologies Be Combined into ``Packages'' and What Is the

Cost and Effectiveness of Packages?

Individual technologies can be used by manufacturers to achieve incremental CO2reductions. However, as mentioned in Section

III.D.1, EPA believes that manufacturers are more likely to bundle technologies into ``packages'' to capture synergistic aspects and reflect progressively larger CO2reductions with additions or changes to any given package. In addition, manufacturers would typically apply new technologies in packages during model redesigns-- which occur once roughly every five years--rather than adding new technologies one at a time on an annual or biennial basis. This way, manufacturers can more efficiently make use of their redesign resources and more effectively plan for changes necessary to meet future standards.

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

GWP refrigerant.

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

Page 49544

configuration. Note also that these 19 vehicle types span the range of vehicle footprints--smaller footprints for smaller vehicles and larger footprints for larger vehicles--which serve as the basis for the standards proposed in this rule. A complete list of vehicles and their associated vehicle types is shown above in Table III.D.1-1.

Within each of the 19 vehicle types multiple technology packages were created in increasing technology content and, hence, increasing effectiveness. Important to note is that the effort in creating the packages attempted to maintain a constant utility for each package as compared to the baseline package. As such, each package is meant to provide equivalent driver-perceived performance to the baseline package. The initial packages represent what a manufacturer will most likely implement on all vehicles, including low rolling resistance tires, low friction lubricants, engine friction reduction, aggressive shift logic, early torque converter lock-up, improved electrical accessories, and low drag brakes.\162\ Subsequent packages include advanced gasoline engine and transmission technologies such as turbo/ downsizing, GDI, and dual-clutch transmission. The most technologically advanced packages within a segment included HEV, PHEV and EV designs.

The end result being a list of several packages for each of 19 different vehicle types from which a manufacturer could choose in order to modify its fleet such that compliance could be achieved.

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

Before using these technology packages as inputs to the OMEGA model, the cost and effectiveness for the package was calculated. The first step--mentioned briefly above--was to apply the scaling class for each technology package and vehicle type combination. The scaling class establishes the cost and effectiveness for each technology with respect to the vehicle size or type. The Large Car class was provided as an example in Section III.D.2. Additional classes include Small Car,

Minivan, Small Truck, and Large Truck and each of the 19 vehicle types was mapped into one of those five classes. In the next step, the cost for a particular technology package, was determined as the sum of the costs of the applied technologies. The final step, determination of effectiveness, requires greater care due to the synergistic effects mentioned in Section III.D.2. This step is described immediately below.

Usually, the benefits of the engine and transmission technologies can be combined multiplicatively. For example, if an engine technology reduces CO2emissions by five percent and a transmission technology reduces CO2emissions by four percent, the benefit of applying both technologies is 8.8 percent (100%-(100%-4%) *

(100%-5%)). In some cases, however, the benefit of the transmission- related technologies overlaps with many of the engine technologies.

This occurs because the primary goal of most of the transmission technologies is to shift operation of the engine to more efficient locations on the engine map. Some of the engine technologies have the same goal, such as cylinder deactivation. In order to account for this overlap and avoid over-estimating emissions reduction effectiveness,

EPA has developed a set of adjustment factors associated with specific pairs of engine and transmission technologies.

The various transmission technologies are generally mutually exclusive. As such, the effectiveness of each transmission technology generally supersedes each other. For example, the 9.5-14.5 percent reduction in CO2emissions associated with the automated manual transmission includes the 4.5-6.5 percent benefit of a 6-speed automatic transmission. Exceptions are aggressive shift logic and early torque converter lock-up. The former can be applied to any vehicle and the latter can be applied to any vehicle with an automatic transmission.

EPA has chosen to use an engineering approach known as the lumped- parameter technique to determine these adjustment factors. The results from this approach were then applied directly to the vehicle packages.

The lumped-parameter technique is well documented in the literature, and the specific approach developed by EPA is detailed in Chapter 3 of the Draft Joint TSD.

Table III.D.3-1 presents several examples of the reduction in the effectiveness of technology pairs. A complete list and detailed discussion of these synergies is presented in Chapter 3 of the Draft

Joint TSD.

Table III.D.3-1--Reduction in Effectiveness for Selected Technology

Pairs

Reduction in

Transmission

combined

Engine technology

technology

effectiveness

(percent)

Intake cam phasing.............. 5 speed automatic..

0.5

Coupled cam phasing............. 5 speed automatic..

0.5

Coupled cam phasing............. Aggressive shift

0.5 logic.

Cylinder deactivation........... 5 speed automatic..

1.0

Cylinder deactivation........... Aggressive shift

0.5 logic.

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

TSD.

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Table III.D.3-2--CO2 Reducing Technology Vehicle Packages for a Large Car Effectiveness and Costs in 2016

Costs in 2007 dollars

Transmission

CO2

Package

Engine technology

technology

Additional technology reduction

cost

3.3L V6............................. 4 speed automatic...... None...................

Baseline

3.0L V6 + GDI + CCP................. 6 speed automatic...... 3% Mass Reduction......

17.9%

$1,022 3.0L V6 + GDI + CCP + Deac.......... 6 speed automatic...... 5% Mass Reduction......

20.6

1,280 3.0L V6 + GDI + CCP + Deac.......... 6 speed DCT............ 10% Mass Reduction

34.2

2,108

Start-Stop. 2.2L I4 + GDI + Turbo + DCP......... 6 speed DCT............ 10% Mass Reduction

34.3

2,245

Start-Stop.

4. Manufacturers' Application of Technology

Vehicle manufacturers often introduce major product changes together, as a package. In this manner the manufacturers can optimize their available resources, including engineering, development, manufacturing and marketing activities to create a product with multiple new features. In addition, manufacturers recognize that a vehicle will need to remain competitive over its intended life, meet future regulatory requirements, and contribute to a manufacturer's CAFE requirements. Furthermore, automotive manufacturers are largely focused on creating vehicle platforms to limit the development of entirely new vehicles and to realize economies of scale with regard to variable cost. In very limited cases, manufacturers may implement an individual technology outside of a vehicle's redesign cycle. In following with these industry practices, EPA has created a set of vehicle technology packages that represent the entire light duty fleet.

EPA has historically allowed manufacturers of new vehicles or nonroad equipment to phase in available emission control technology over a number of years. Examples of this are EPA's Tier 2 program for cars and light trucks and its 2007 and later PM and NOX emission standards for heavy-duty vehicles. In both of these rules, the major modifications expected from the rules were the addition of exhaust aftertreatment control technologies. Some changes to the engine were expected as well, but these were not expected to affect engine size, packaging or performance. The CO2reduction technologies described above potentially involve much more significant changes to car and light truck designs. Many of the engine technologies involve changes to the engine block and heads. The transmission technologies could change the size and shape of the transmission and thus, packaging. Improvements to aerodynamic drag could involve body design and therefore, the dies used to produce body panels. Changes of this sort potentially involve new capital investment and the obsolescence of existing investment.

At the same time, vehicle designs are not static, but change in major ways periodically. The manufacturers' product plans indicate that vehicles are usually redesigned every 5 years on average. Vehicles also tend to receive a more modest ``refresh'' between major redesigns, as discussed above. Because manufacturers are already changing their tooling, equipment and designs at these times, further changes to vehicle design at these times involve a minimum of stranded capital equipment. Thus, the timing of any major technological changes is projected to coincide with changes that manufacturers would already tend to be making to their vehicles. This approach effectively avoids the need to quantify any costs associated with discarding equipment, tooling, emission and safety certification, etc. when CO2- reducing equipment is incorporated into a vehicle.

This proposed rule affects five years of vehicle production, model years 2012-2016. Given the now-typical five-year redesign cycle, nearly all of a manufacturer's vehicles will be redesigned over this period.

However, this assumes that a manufacturer has sufficient lead time to redesign the first model year affected by this proposed rule with the requirements of this proposed rule in mind. In fact, the lead time available for model year 2012 is relatively short. The time between a likely final rule and the start of 2013 model year production is likely to be just over two years. At the same time, the manufacturer product plans indicate that they are planning on introducing many of the technologies projected to be required by this proposed rule in both 2012 and 2013. In order to account for the relatively short lead time available prior to the 2012 and 2013 model years, albeit mitigated by their existing plans, EPA projects that only 85 percent of each manufacturer's sales will be able to be redesigned with major

CO2emission-reducing technologies by the 2016 model year.

Less intrusive technologies can be introduced into essentially all a manufacturer's sales. This resulted in three levels of technology penetration caps, by manufacturer. Common technologies (e.g., low friction lubes, aerodynamic improvements) had a penetration cap of 100%. More advanced powertrain technologies (e.g., stoichiometric GDI, turbocharging) had a penetration cap of 85%. The most advanced technologies considered in this analysis (e.g., diesel engines, as well as IMA, powersplit and 2-mode hybrids) had a 15% penetration cap. 5. How Is EPA Projecting That a Manufacturer Would Decide Between

Options To Improve CO2Performance To Meet a Fleet Average

Standard?

There are many ways for a manufacturer to reduce CO2- emissions from its vehicles. A manufacturer can choose from a myriad of

CO2reducing technologies and can apply one or more of these technologies to some or all of its vehicles. Thus, for a variety of levels of CO2emission control, there are an almost infinite number of technology combinations which produce the desired

CO2reduction. EPA has created a new vehicle model, the

Optimization Model for Emissions of Greenhouse gases from Automobiles

(OMEGA) in order to make a reasonable estimate of how manufacturers will add technologies to vehicles in order to meet a fleet-wide

CO2emissions level. EPA has described OMEGA's specific methodologies and algorithms in a memo to the docket for this rulemaking (Docket EPA-HQ-OAR-2009-0472).

The OMEGA model utilizes four basic sets of input data. The first is a description of the vehicle fleet. The key pieces of data required for each vehicle are its manufacturer, CO2emission level, fuel type, projected sales and footprint. The model also requires that

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each vehicle be assigned to one of the 19 vehicle types, which tells the model which set of technologies can be applied to that vehicle.

(For a description of how the 19 vehicle types were created, reference

Section III.D.3.) In addition, the degree to which each vehicle already reflects the effectiveness and cost of each available technology must also be input. This avoids the situation, for example, where the model might try to add a basic engine improvement to a current hybrid vehicle. Except for this type of information, the development of the required data regarding the reference fleet was described in Section

III.D.1 above and in Chapter 1 of the Draft Joint TSD.

The second type of input data used by the model is a description of the technologies available to manufacturers, primarily their cost and effectiveness. Note that the five vehicle classes are not explicitly used by the model, rather the costs and effectiveness associated with each vehicle package is based on the associated class. This information was described in Sections III.D.2 and III.D.3 above as well as Chapter 3 of the Draft Joint TSD. In all cases, the order of the technologies or technology packages for a particular vehicle type is determined by the model user prior to running the model. Several criteria can be used to develop a reasonable ordering of technologies or packages. These are described in the Draft Joint TSD.

The third type of input data describes vehicle operational data, such as annual scrap rates and mileage accumulation rates, and economic data, such as fuel prices and discount rates. These estimates are described in Section II.F above, Section III.H below and Chapter 4 of the Draft Joint TSD.

The fourth type of data describes the CO2emission standards being modeled. These include the CO2emission equivalents of the 2011 MY CAFE standards and the proposed

CO2standards for 2016. As described in more detail below, the application of A/C technology is evaluated in a separate analysis from those technologies which impact CO2emissions over the 2-cycle test procedure. Thus, for the percent of vehicles that are projected to achieve A/C related reductions, the CO2credit associated with the projected use of improved A/C systems is used to adjust the proposed CO2standard which would be applicable to each manufacturer to develop a target for CO2emissions over the 2-cycle test which is assessed in our OMEGA modeling.

As mentioned above for the market data input file utilized by

OMEGA, which characterizes the vehicle fleet, our modeling must and does account for the fact that many 2008 MY vehicles are already equipped with one or more of the technologies discussed in Section

III.D.2 above. Because of the choice to apply technologies in packages, and 2008 vehicles are equipped with individual technologies in a wide variety of combinations, accounting for the presence of specific technologies in terms of their proportion of package cost and

CO2effectiveness requires careful, detailed analysis. The first step in this analysis is to develop a list of individual technologies which are either contained in each technology package, or would supplant the addition of the relevant portion of each technology package. An example would be a 2008 MY vehicle equipped with variable valve timing and a 6-speed automatic transmission. The cost and effectiveness of variable valve timing would be considered to be already present for any technology packages which included the addition of variable valve timing or technologies which went beyond this technology in terms of engine related CO2control efficiency. An example of a technology which supplants several technologies would be a 2008 MY vehicle which was equipped with a diesel engine. The effectiveness of this technology would be considered to be present for technology packages which included improvements to a gasoline engine, since the resultant gasoline engines have a lower

CO2control efficiency than the diesel engine. However, if these packages which included improvements also included improvements unrelated to the engine, like transmission improvements, only the engine related portion of the package already present on the vehicle would be considered. The transmission related portion of the package's cost and effectiveness would be allowed to be applied in order to comply with future CO2emission standards.

The second step in this process is to determine the total cost and

CO2effectiveness of the technologies already present and relevant to each available package. Determining the total cost usually simply involves adding up the costs of the individual technologies present. In order to determine the total effectiveness of the technologies already present on each vehicle, the lumped parameter model described above is used. Because the specific technologies present on each 2008 vehicle are known, the applicable synergies and dis-synergies can be fully accounted for.

The third step in this process is to divide the total cost and

CO2effectiveness values determined in step 2 by the total cost and CO2effectiveness of the relevant technology packages. These fractions are capped at a value of 1.0 or less, since a value of 1.0 causes the OMEGA model to not change either the cost or

CO2emissions of a vehicle when that technology package is added.

As described in Section III.D.3 above, technology packages are applied to groups of vehicles which generally represent a single vehicle platform and which are equipped with a single engine size

(e.g., compact cars with four cylinder engine produced by Ford). These groupings are described in Table III.D.1-1. Thus, the fourth step is to combine the fractions of the cost and effectiveness of each technology package already present on the individual 2008 vehicles models for each vehicle grouping. For cost, percentages of each package already present are combined using a simple sales-weighting procedure, since the cost of each package is the same for each vehicle in a grouping. For effectiveness, the individual percentages are combined by weighting them by both sales and base CO2emission level. This appropriately weights vehicle models with either higher sales or

CO2emissions within a grouping. Once again, this process prevents the model from adding technology which is already present on vehicles, and thus ensures that the model does not double count technology effectiveness and cost associated with complying with the 2011 MY CAFE standards and the proposed CO2standards.

Conceptually, the OMEGA model begins by determining the specific

CO2emission standard applicable for each manufacturer and its vehicle class (i.e., car or truck). Since the proposed rule allows for averaging across a manufacturer's cars and trucks, the model determines the CO2emission standard applicable to each manufacturer's car and truck sales from the two sets of coefficients describing the piecewise linear standard functions for cars and trucks in the inputs, and creates a combined car-truck standard. This combined standard considers the difference in lifetime VMT of cars and trucks, as indicated in the proposed regulations which would govern credit trading between these two vehicle classes. For both the 2011 CAFE and 2016 CO2standards, these standards are a function of each manufacturer's sales of cars and trucks and their footprint values.

When evaluating the 2011 MY CAFE standards, the car-truck trading was limited to 1.2 mpg. When evaluating the proposed CO2 standards, the OMEGA model was run only for MY 2016. OMEGA is designed to evaluate technology addition over a complete

Page 49547

redesign cycle and 2016 represents the final year of a redesign cycle starting with the first year of the proposed CO2standards, 2012. Estimates of the technology and cost for the interim model years are developed from the model projections made for 2016. This process is discussed in Chapter 6 of EPA's DRIA to this proposed rule. When evaluating the 2016 standards using the OMEGA model, the proposed

CO2standard which manufacturers would otherwise have to meet to account for the anticipated level of A/C credits generated was adjusted. On an industry wide basis, the projection shows that manufacturers would generate 11 g/mi of A/C credit in 2016. Thus, the 2016 CO2target for the fleet evaluated using OMEGA was 261 g/mi instead of 250 g/mi.

The cost of the improved A/C systems required to generate the 11 g/ mi credit was estimated separately. This is consistent with our proposed A/C credit procedures, which would grant manufacturers A/C credits based on their total use of improved A/C systems, and not on the increased use of such systems relative to some base model year fleet. Some manufacturers may already be using improved A/C technology.

However, this represents a small fraction of current vehicle sales. To the degree that such systems are already being used, EPA is over- estimating both the cost and benefit of the addition of improved A/C technology relative to the true reference fleet to a small degree.

The model then works with one manufacturer at a time to add technologies until that manufacturer meets its applicable standard. The

OMEGA model can utilize several approaches to determining the order in which vehicles receive technologies. For this analysis, EPA used a

``manufacturer-based net cost-effectiveness factor'' to rank the technology packages in the order in which a manufacturer would likely apply them. Conceptually, this approach estimates the cost of adding the technology from the manufacturer's perspective and divides it by the mass of CO2the technology will reduce. One component of the cost of adding a technology is its production cost, as discussed above. However, it is expected that new vehicle purchasers value improved fuel economy since it reduces the cost of operating the vehicle. Typical vehicle purchasers are assumed to value the fuel savings accrued over the period of time which they will own the vehicle, which is estimated to be roughly five years. It is also assumed that consumers discount these savings at the same rate as that used in the rest of the analysis (3 or 7 percent). Any residual value of the additional technology which might remain when the vehicle is sold is not considered. The CO2emission reduction is the change in CO2emissions multiplied by the percentage of vehicles surviving after each year of use multiplied by the annual miles travelled by age, again discounted to the year of vehicle purchase.

Given this definition, the higher priority technologies are those with the lowest manufacturer-based net cost-effectiveness value

(relatively low technology cost or high fuel savings leads to lower values). Because the order of technology application is set for each vehicle, the model uses the manufacturer-based net cost-effectiveness primarily to decide which vehicle receives the next technology addition. Initially, technology package 1 is the only one available to any particular vehicle. However, as soon as a vehicle receives technology package 1, the model considers the manufacturer-based net cost-effectiveness of technology package 2 for that vehicle and so on. In general terms, the equation describing the calculation of manufacturer-based cost effectiveness is as follows:

GRAPHIC

TIFF OMITTED TP28SE09.013

Where:

ManufCostEff = Manufacturer-Based Cost Effectiveness (in dollars per kilogram CO2),

TechCost = Marked up cost of the technology (dollars),

PP = Payback period, or the number of years of vehicle use over which consumers value fuel savings when evaluating the value of a new vehicle at time of purchase, dFSi= Difference in fuel consumption due to the addition of technology times fuel price in year i, dCO2= Difference in CO2emissions due to the addition of technology

VMTi = product of annual VMT for a vehicle of age i and the percentage of vehicles of age i still on the road, 1- Gap = Ratio of onroad fuel economy to two-cycle (FTP/HFET) fuel economy

EPA describes the technology ranking methodology and manufacturer- based cost effectiveness metric in greater detail in a technical memo to the Docket for this proposed rule (Docket EPA-HQ-OAR-2009-0472).

When calculating the fuel savings, the full retail price of fuel, including taxes is used. While taxes are not generally included when calculating the cost or benefits of a regulation, the net cost component of the manufacturer-based net cost-effectiveness equation is not a measure of the social cost of this proposal, but a measure of the private cost, (i.e., a measure of the vehicle purchaser's willingness to pay more for a vehicle with higher fuel efficiency). Since vehicle operators pay the full price of fuel, including taxes, they value fuel costs or savings at this level, and the manufacturers will consider this when choosing among the technology options.

This definition of manufacturer-based net cost-effectiveness ignores any change in the residual value of the vehicle due to the additional technology when the vehicle is five years old. As discussed in Chapter 1of the DRIA, based on historic used car pricing, applicable sales taxes, and insurance, vehicles are worth roughly 23% of their original cost after five years, discounted to year of vehicle purchase at 7% per annum. It is reasonable to estimate that the added technology to improve CO2level and fuel economy would retain this same percentage of value when the vehicle is five years old. However, it is less clear whether first purchasers, and thus, manufacturers would consider this residual value when ranking technologies and making vehicle purchases, respectively. For this proposal, this factor was not included in our determination of manufacturer-based net cost- effectiveness in the analyses performed in support of this proposed rule. Comments are requested on the benefit of including an increase

Page 49548

in the vehicle's residual value after five years in the calculation of effective cost.

The values of manufacturer-based net cost-effectiveness for specific technologies will vary from vehicle to vehicle, often substantially. This occurs for three reasons. First, both the cost and fuel-saving component cost, ownership fuel-savings, and lifetime

CO2effectiveness of a specific technology all vary by the type of vehicle or engine to which it is being applied (e.g., small car versus large truck, or 4-cylinder versus 8-cylinder engine). Second, the effectiveness of a specific technology often depends on the presence of other technologies already being used on the vehicle (i.e., the dis-synergies. Third, the absolute fuel savings and CO2 reduction of a percentage an incremental reduction in fuel consumption depends on the CO2level of the vehicle prior to adding the technology. Chapter 1 of the DRIA of this proposed rule contains further detail on the values of manufacturer-based net cost- effectiveness for the various technology packages.

EPA requests comment on the use of manufacturer-based net cost- effectiveness to rank CO2emission reduction technologies in the context of evaluating alternative fleet average standards for this rule. EPA believes this manufacturer-based net cost-effectiveness metric is appropriate for ranking technology in this proposed program because it considers effectiveness values that may vary widely among technology packages when determining the order of technology addition.

Comments are requested on this option and on any others thought to be appropriate. 6. Why Are the Proposed CO2Standards Feasible?

The finding that the proposed standards would be technically feasible is based primarily on two factors. One is the level of technology needed to meet the proposed standards. The other is the cost of this technology. The focus is on the proposed standards for 2016, as this is the most stringent standard and requires the most extensive use of technology.

With respect to the level of technology required to meet the standards, EPA established technology penetration caps. As described in

Section III.D.4, EPA used two constraints to limit the model's application of technology by manufacturer. The first was the application of common fuel economy enablers such as low rolling resistance tires and transmission logic changes. These were allowed to be used on all vehicles and hence had no penetration cap. The second constraint was applied to most other technologies and limited their application to 85% with the exception of the most advanced technologies

(e.g., powersplit and 2-mode hybrids) whose application was limited to 15%.

EPA used the OMEGA model to project the technology (and resultant cost) required for manufacturers to meet the current 2011 MY CAFE standards and the proposed 2016 MY CO2emission standards.

Both sets of standards were evaluated using the OMEGA model. The 2011

MY CAFE standards were applied to cars and trucks separately with the transfer of credits from one category to the other allowed up to an increase in fuel economy of 1.0 mpg. Chrysler, Ford and General Motors are assumed to utilize FFV credits up to the maximum of 1.2 mpg for both their car and truck sales. Nissan is assumed to utilize FFV credits up to the maximum of 1.2 mpg for only their truck sales. The use of any banked credits from previous model years was not considered.

The modification of the reference fleet to comply with the 2011 CAFE standards through the application of technology by the OMEGA model is the final step in creating the final reference fleet. This final reference fleet forms the basis for comparison for the model year 2016 standards.

Table III.D.6-1 shows the usage level of selected technologies in the 2008 vehicles coupled with 2016 sales prior to projecting their compliance with the 2011 MY CAFE standards. These technologies include converting port fuel-injected gasoline engines to direct injection

(GDI), adding the ability to deactivate certain engine cylinders during low load operation (Deac), adding a turbocharger and downsizing the engine (Turbo), increasing the number of transmission speeds to 6 or, converting automatic transmissions to dual-clutch automated manual transmissions (Dual-Clutch Trans), adding 42 volt start-stop capability

(Start-Stop), and converting a vehicle to a intermediate or strong hybrid design. This last category includes three current hybrid designs: integrated motor assist (IMA), power-split (PS) and 2-mode hybrids.

Table III.D.6-1--Penetration of Technology in 2008 Vehicles With 2016 Sales: Cars and Trucks

Percent of sales

6 Speed or Dual clutch

GDI

GDI+ deac

GDI+ turbo

Diesel

CV trans

trans

Start-stop

Hybrid

BMW.............................................

6.7

0.0

98.8

0.8

0.0

0.1

Chrysler........................................

0.0

27.9

0.0

Daimler.........................................

6.2

0.0

6.2

74.7

11.4

0.0

Ford............................................

0.6

0.0

28.1

0.0

General Motors..................................

3.3

0.0

13.7

0.0

0.1

Honda...........................................

1.2

0.0

4.2

0.0

2.1

Hyundai.........................................

0.0

4.9

0.0

Kia.............................................

0.0

0.9

0.0

Mazda...........................................

11.8

0.0

37.1

0.0

Mitsubishi......................................

0.0

76.1

0.0

0.1

Nissan..........................................

17.7

0.0

33.3

0.0

Porsche.........................................

0.0

3.9

0.0

Subaru..........................................

0.0

29.0

0.0

Suzuki..........................................

0.0

100.0

0.0

Tata............................................

0.0

Toyota..........................................

7.5

0.0

30.6

0.0

12.8

Volkswagen......................................

52.2

0.0

0.1

82.8

10.9

0.0

Overall.........................................

6.4

0.0

0.1

27.1

0.6

0.0

2.8

Page 49549

As can be seen, all of these technologies except for the direct injection gasoline engines with either cylinder deactivation or turbocharging and downsizing, were already being used on some 2008 MY vehicles. High speed transmissions were the most prevalent, with some manufacturers (e.g., BMW, Suzuki) using them on essentially all of their vehicles. Both Daimler and VW equip many of their vehicles with automated manual transmissions, while VW makes extensive use of direct injection gasoline engine technology. Toyota has converted a significant percentage of its 2008 vehicles to strong hybrid design.

Table III.D.6-2 shows the usage level of the same technologies in the reference case fleet after projecting their compliance with the 2011 MY CAFE standards. Except for mass reduction, the figures shown represent the percentages of each manufacturer's sales which are projected to be equipped with the indicated technology. For mass reduction, the overall mass reduction projected for that manufacturer's sales is shown. The last row in Table III.D.6-2 shows the increase in projected technology penetration due to compliance with the 2011 MY

CAFE standards. The results of DOT's Volpe Modeling were used to project that all manufacturers would comply with the 2011 MY standards in 2016 without the need to pay fines, with one exception. This exception was Porsche in the case of their car fleet. When projecting

Porsche's compliance with the 2011 MY CAFE standard for cars, the car fleet was assumed to achieve a CO2emission level of 293.2 g/mi instead of the required 285.2 g/mi level (30.3 mpg instead of 31.2 mpg).

Table III.D.6-2--Penetration of Technology Under 2011 MY CAFE Standards in 2016 Sales: Cars and Trucks

Percent of sales

Mass

GDI

GDI+ deac

GDI+ turbo 6 Speed or Dual clutch Start-stop

Hybrid

reduction

CV trans

trans

(percent)

BMW.............................................

7.3

11.1

0.0

86.3

11.1

0.1

0.5

Chrysler........................................

0.0

27.9

0.0

Daimler.........................................

16.4

10.3

14.3

45.8

36.0

24.6

0.0

0.9

Ford............................................

0.6

0.0

28.1

0.0

General Motors..................................

3.3

0.0

13.7

0.0

0.1

0.0

Honda...........................................

1.2

0.0

4.2

0.0

2.1

0.0

Hyundai.........................................

0.0

4.9

0.0

Kia.............................................

0.0

0.9

0.0

Mazda...........................................

11.8

0.0

37.1

0.0

Mitsubishi......................................

0.0

2.2

0.0

76.0

2.2

0.1

0.0

Nissan..........................................

17.7

0.0

33.3

0.0

Porsche.........................................

0.0

25.0

23.2

0.0

48.2

37.1

0.0

1.2

Subaru..........................................

0.0

29.0

0.0

Suzuki..........................................

4.5

0.0

100.0

0.0

Tata............................................

14.5

60.9

0.0

14.5

60.9

0.0

2.6

Toyota..........................................

7.5

0.0

30.6

0.0

12.8

0.0

Volkswagen......................................

51.2

6.9

11.8

60.8

29.6

18.7

0.0

0.3

Overall.........................................

6.7

1.2

0.8

25.4

2.6

2.0

2.8

0.1

Increase over 2008 MY...........................

0.3

1.2

0.8

-1.7

2.0

0.0

As can be seen, the 2011 MY CAFE standards, when evaluated on an industry wide basis, require only a modest increase in the use of these technologies. Higher speed automatic transmission use actually decreases due to conversion of these units to more efficient designs such as automated manual transmissions and hybrids. However, the impact of the 2011 MY CAFE standards is much greater on selected manufacturers, particularly BMW, Daimler, Porsche, Tata (Jaguar/Land

Rover) and VW. All of these manufacturers are projected to increase their use of advanced direct injection gasoline engine technology, advanced transmission technology, and start-stop technology. It should be noted that these manufacturers have traditionally paid fines under the CAFE program. However, with higher fuel prices and the lead-time available by 2016, these manufacturers would likely find it in their best interest to improve their fuel economy levels instead of continuing to pay fines (again with the exception of Porsche cars).

While not shown, no gasoline engines were projected to be converted to diesel technology.

This 2008 baseline fleet, modified to meet 2011 standards, becomes our ``reference'' case. This is the fleet by which the control program

(or 2016 rule) will be compared. Thus, it is also the fleet that would be assumed to exist in the absence of this rule. No air conditioning improvements are assumed for model year 2011 vehicles. The average

CO2emission levels of this reference fleet vary slightly from 2012-2016 due to small changes in the vehicle sales by market segments and manufacturer. CO2emissions from cars range from 282-284 g/mi, while those from trucks range from 382-384 g/mi.

CO2emissions from the combined fleet range from 316-320.

These estimates are described in greater detail in Section 5.3.2.2 of the DRIA.

Conceptually, both EPA and NHTSA perform the same projection in order to develop their respective reference fleets. However, because the two agencies use two different models to modify the baseline fleet to meet the 2011 CAFE standards, the technology added will be slightly different. The differences, however, are small since most manufacturers do not require a lot of additional technology to meet the 2011 standards.

EPA then used the OMEGA model once again to project the level of technology needed to meet the proposed 2016 CO2emission standards. Using the results of the OMEGA model, every manufacturer was projected to be able to meet the proposed 2016 standards with the technology described above except for four: BMW, VW, Porsche and Tata due to the OMEGA cap on technology penetration by manufacturer. For these manufacturers, the results presented below are those with the fully allowable

Page 49550

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

Table III.D.6-3--Penetration of Technology for Proposed 2016 CO2 Standards: Cars and Trucks

Percent of sales

6 Speed

Dual clutch

Mass

GDI

GDI+ deac

GDI+ turbo auto trans

trans

Start-stop

Hybrid

reduction

BMW.............................................

Chrysler........................................

Daimler.........................................

Ford............................................

General Motors..................................

Honda...........................................

Hyundai.........................................

Kia.............................................

Mazda...........................................

Mitsubishi......................................

Nissan..........................................

Porsche.........................................

Subaru..........................................

Suzuki..........................................

Tata............................................

Toyota..........................................

Volkswagen......................................

Overall.........................................

Increase over 2011 CAFE.........................

-7

As can be seen, the overall average reduction in vehicle weight is projected to be 4%. This reduction varies across the two vehicle classes and vehicle base weight. For cars below 2,950 pounds curb weight, the average reduction is 2.3% (62 pounds), while the average was 4.4% (154 pounds) for cars above 2,950 curb weight. For trucks below 3,850 pounds curb weight, the average reduction is 3.5% (119 pounds), while it was 4.5% (215 pounds) for trucks above 3,850 curb weight. Splitting trucks at a higher weight, for trucks below 5,000 pounds curb weight, the average reduction is 3.3% (140 pounds), while it was 6.7% (352 pounds) for trucks above 5,000 curb weight.

The levels of requisite technologies differ significantly across the various manufacturers. Therefore, several analyses were performed to ascertain the cause. Because the baseline case fleet consists of 2008 MY vehicle designs, these analyses were focused on these vehicles, their technology and their CO2emission levels.

Comparing CO2emissions across manufacturers is not a simple task. In addition to widely varying vehicle styles, designs, and sizes, manufacturers have implemented fuel efficient technologies to varying degrees, as indicated in Table III.D.6-1. The projected levels of requisite technology to enable compliance with the proposed 2016 standards shown in Table III.D.6-3 account for two of the major factors which can affect CO2emissions: (1) Level of technology already being utilized and (2) vehicle size, as represented by footprint.

For example, the fuel economy of a manufacturer's 2008 vehicles may be relatively high because of the use of advanced technology. This is the case with Toyota's high sales of their Prius hybrid. However, the presence of this technology in a 2008 vehicle eliminates the ability to significantly reduce CO2further through the use of this technology. In the extreme, if a manufacturer were to hybridize a high level of its sales in 2016, it doesn't matter whether this technology was present in 2008 or whether it would be added in order to comply with the standards. The final level of hybrid technology would be the same. Thus, the level at which technology is present in 2008 vehicles does not explain the difference in requisite technology levels shown in

Table III.D.6-3.

Similarly, the proposed CO2emission standards adjust the required CO2level according to a vehicle's footprint, requiring lower absolute emission levels from smaller vehicles. Thus, just because a manufacturer produces larger vehicles than another manufacturer does not explain the differences seen in Table III.D.6-3.

In order to remove these two factors from our comparison, the EPA lumped parameter model described above was used to estimate the degree to which technology present on each 2008 MY vehicle in our reference fleet was improving fuel efficiency. The effect of this technology was removed and each vehicle's CO2emissions were estimated as if it utilized no additional fuel efficiency technology beyond the baseline. The differences in vehicle size were accounted for by determining the difference between the sales-weighted average of each manufacturer's ``no technology'' CO2levels to their required CO2emission level under the proposed 2016 standards. The industry-wide difference was subtracted from each manufacturer's value to highlight which manufacturers had lower and higher than average ``no technology'' emissions. The results are shown in Figure III.D.6-1.

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Page 49552

As can be seen in Table III.D.6-3 the manufacturers projected to require the greatest levels of technology also show the highest offsets relative to the industry. The greatest offset shown in Figure III.D.6-1 is for Tata's trucks (Land Rover). These vehicles are estimated to have 100 g/mi greater CO2emissions than the average 2008 MY truck after accounting for differences in the use of fuel saving technology and footprint. The lowest adjustment is for Subaru's trucks, which have 50 g/mi CO2lower emissions than the average truck.

While this comparison confirms the differences in the technology penetrations shown in Table III.D.6-3, it does not yet explain why these differences exist. Two well known factors affecting vehicle fuel efficiency are vehicle weight and performance. The footprint-based form of the proposed CO2standard accounts for most of the difference in vehicle weight seen in the 2008 MY fleet. However, even at the same footprint, vehicles can have varying weights. Higher performing vehicles also tend to have higher CO2emissions over the two-cycle test procedure. So manufacturers with higher average performance levels will tend to have higher average CO2 emissions for any given footprint.

The impact of these two factors on each manufacturer's ``no technology'' CO2emissions was estimated. First, the ``no technology'' CO2emissions levels were statistically analyzed to determine the average impact of weight and the ratio of horsepower to weight on CO2emissions. Both factors were found to be statistically significant at the 95 percent confidence level. Together, they explained over 80 percent of the variability in vehicles' CO2emissions for cars and over 70 percent for trucks. These relationships were then used to adjust each vehicle's

``no technology'' CO2emissions to the average weight for its footprint value and to the average horsepower to weight ratio of either the car or truck fleet. The comparison was repeated as shown in

Figure III.D.6-1. The results are shown in Figure III.D.6-2.

Continued on page 49553

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

]

pp. 49553-49602

Proposed Rulemaking To Establish Light-Duty Vehicle Greenhouse

Gas Emission Standards and Corporate Average Fuel Economy Standards

Continued from page 49552

Page 49553

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First, note that the scale in Figure III.D.6-2 is much smaller by a factor of 3 than that in Figure III.D.6-1. In other words, accounting for differences in vehicle weight (at constant footprint) and performance dramatically reduces the differences in various manufacturers' CO2emissions. Most of the manufacturers with high offsets in Figure III.D.6-1 now show low or negative offsets. For example, BMW's and VW's trucks show very low CO2emissions.

Tata's emissions are very close to the industry average. Daimler's vehicles are no more than 10 g/mi above the average for the industry.

This analysis indicates that the primary reasons for the differences in technology penetrations shown for the various manufacturers in Table

III.D.6-3 are weight and performance. EPA has not determined why some manufacturers' vehicle weight is relatively high for its footprint value, or whether this weight provides additional utility for the consumer. Performance is more

Page 49554

straightforward. Some consumers desire high performance and some manufacturers orient their sales towards these consumers. However, the cost in terms of CO2emissions is clear. Producing relatively heavy or high performance vehicles increases CO2 emissions and will require greater levels of technology in order to meet the proposed CO2standards.

As can be seen from Table III.D.6-3 above, widespread use of several technologies is projected due to the proposed standards. The vast majority of engines are projected to be converted to direct injection, with some of these engines including cylinder deactivation or turbocharging and downsizing. More than 60 percent of all transmissions are projected to be either high speed automatic transmissions or dual-clutch automated manual transmissions. More than one third of the fleet is projected to be equipped with 42 volt start- stop capability. This technology was not utilized in 2008 vehicles, but as discussed above, promises significant fuel efficiency improvement at a moderate cost.

EPA foresees no significant technical or engineering issues with the projected deployment of these technologies across the fleet, with their incorporation being folded into the vehicle redesign process. All of these technologies are commercially available now. The automotive industry has already begun to convert its port fuel-injected gasoline engines to direct injection. Cylinder deactivation and turbocharging technologies are already commercially available. As indicated in Table

III.D.6-1, high speed transmissions are already widely used. However, while more common in Europe, automated manual transmissions are not currently used extensively in the U.S. Widespread use of this technology would require significant capital investment but does not present any significant technical or engineering issues. Start-stop systems also represent a significant challenge because of the complications involved in a changeover to a higher voltage electrical architecture. However, with appropriate capital investments (which are captured in the costs), these technology penetration rates are achievable within the timeframe of this rule. While most manufacturers have some plans for these systems, our projections indicate that their use may exceed 35 percent of sales, with some manufacturers requiring higher levels.

Most manufacturers would not have to hybridize any vehicles due to the proposed standards. The hybrids shown for Toyota are projected to be sold even in the absence of the proposed standards. However the relatively high hybrid penetrations (15%) projected for BMW, Daimler,

Porsche, Tata and Volkswagen deserve further discussion. These manufacturers are all projected by the OMEGA model to utilize the maximum application of full hybrids allowed by our model in this time frame, which is 15 percent.

As discussed in the EPA DRIA, a 2016 technology penetration rate of 85% is projected for the vast majority of available technologies, however, for full hybrid systems the projection shows that given the available lead-time full hybrids can only be applied to approximately 15% of a manufacturer's fleet. This number of course can vary by manufacturer.

While the hybridization levels of BMW, Daimler, Porsche, Tata and

Volkswagen are relatively high, the sales levels of these five manufacturers are relatively low. Thus, industry-wide, hybridization reaches only 8 percent, compared with 3 percent in the reference case.

This 8 percent level is believed to be well within the capability of the hybrid component industry by 2016. Thus, the primary challenge for these five companies would be at the manufacturer level, redesigning a relatively large percentage of sales to include hybrid technology. The proposed TLAAS provisions will provide significant aid to these manufacturers in pre-2016 compliance, since all qualified companies are expected to be able to take advantage of these provisions. By 2016, it is likely that these manufacturers would also be able to change vehicle characteristics which currently cause their vehicles to emit much more

CO2than similar sized vehicles produced by other manufacturers. These factors may include changes in model mix, further lightweighting, downpowering, electric and/or plug-in hybrid vehicles, or downsizing (our current baseline fleet assumes very little change in footprint from 2012-2016), as well as technologies that may not be included in our packages. Also, companies may have technology penetration rates of less costly technologies (listed in the above tables) greater than 85%, and they may also be able to apply hybrid technology to more than 15 percent of their fleet (as the 15% for hybrid technology is an industry average). For example, a switch to a low GWP alternative refrigerant in a large fraction of a fleet can replace many other much more costly technologies, but this option is not captured in the modeling. In addition, these manufacturers can also take advantage of flexibilities, such as early credits for air conditioning and trading with other manufacturers. The EPA expects that there will be certain high volume manufacturers that will earn a significant amount of early GHG credits starting in 2009 and 2010 that will expire 5 years later, by 2014 and 2015, unused. The EPA believes that these manufacturers will be willing to sell these expiring credits to manufacturers with whom there is no direct competition. Furthermore, some of these manufacturers have also stated either publicly or in confidential discussions with EPA that they will be able to comply with 2016 standards. Because of the confidential nature of this information sharing, EPA is unable to capture these packages specifically in our modeling. The following companies have all submitted letters in support of the national program, including the 2016 MY levels discussed above:

BMW, Chrysler, Daimler, Ford, GM, Honda, Mazda, Toyota, and Volkswagen.

This supports the view that the emissions reductions needed to achieve the standards are technically and economically feasible for all these companies, and that EPA's projection of non-compliance for four of the companies is based on an inability of our model to fully account for the full flexibilities of the EPA program as well as the potentially unique technology approaches or new product offerings which these manufactures are likely to employ.

In addition, manufacturers do not need to apply technology exactly according to our projections. Our projections simply indicate one path which would achieve compliance. Those manufacturers whose vehicles are heavier and higher performing than average in particular have additional options to facilitate compliance and reduce their technological burden closer to the industry average. These options include decreasing the mass of the vehicles and/or decreasing the power output of the engines. Finally, EPA allows compliance to be shown through the use of emission credits obtained from other manufacturers.

Especially for the lower volume sales of some manufacturers that could be one component of an effective compliance strategy, reducing the technology that needs to be employed on their vehicles.

For the vast majority of light-duty cars and trucks, manufacturers have available to them a range of technologies that are currently commercially available and can feasibly be employed in their vehicles by MY 2016. Our modeling projects widespread use of these technologies as a technologically feasible approach to complying with the proposed standards.

Page 49555

In sum, EPA believes that the emissions reductions called for by the proposed standards are technologically feasible, based on projections of widespread use of commercially available technology, as well as use by some manufacturers of other technology approaches and compliance flexibilities not fully reflected in our modeling.

EPA also projected the cost associated with these projections of technology penetration. Table III.D.6-4 shows the cost of technology in order for manufacturers to comply with the 2011 MY CAFE standards, as well as those associated with the proposed 2016 CO2emission standards. The latter costs are incremental to those associated with the 2011 MY standards and also include $60 per vehicle, on average, for the cost of projected use of improved air-conditioning systems.\163\

\163\ Note that the actual cost of the A/C technology is estimated at $78 per vehicle as shown in Table III.D.2-3. However, we expect only 85 percent of the fleet to add that technology.

Therefore, the cost of the technology when spread across the entire fleet is $66 per vehicle ($78x85%=$66).

Table III.D.6-4--Cost of Technology per Vehicle in 2016 ($2007)

2011 MY CAFE standards

Proposed 2016 CO2 standards

Cars

Trucks

All

Cars

Trucks

All

BMW...............................

$319

$479

$361

$1,701

$1,665

$1,691

Chrysler..........................

125

1,331

1,505

1,408

Daimler...........................

431

632

495

1,631

1,357

1,543

Ford..............................

211

109

1,435

1,485

1,457

General Motors....................

136

969

1,782

1,311

Honda.............................

606

695

633

Hyundai...........................

739

1,680

907

Kia...............................

741

1,177

812

Mazda.............................

946

1,030

958

Mitsubishi........................

322

123

1,067

1,263

1,090

Nissan............................

1,013

1,194

1,064

Porsche...........................

535

1,074

706

1,549

666

1,268

Subaru............................

100

903

1,329

1,057

Suzuki............................

231

133

1,093

1,263

1,137

Tata..............................

691

1,574

1,161

1,270

674

952

Toyota............................

600

436

546

Volkswagen........................

269

758

354

1,626

949

1,509

Overall...........................

141

968

1,214

1,051

As can be seen, the industry average cost of complying with the 2011 MY CAFE standards is quite low, $78 per vehicle. The range of costs across manufacturers is quite large, however. Honda, Mazda and

Toyota are projected to face no cost, while Daimler, Porsche and Tata face costs of at least $495 per vehicle. As described above, these last three manufacturers face such high costs to meet even the 2011 MY CAFE standards due to both their vehicles' weight per unit footprint and performance. Also, these cost estimates apply to sales in the 2016 MY.

These three manufacturers, as well as others like Volkswagen, may choose to pay CAFE fines prior to this or even in 2016.

As shown in the last row of Table III.D.6-4, the average cost of technology to meet the proposed 2016 standards for cars and trucks combined relative to the 2011 MY CAFE standards is $1051 per vehicle.

The projection shows that the average cost for cars would be slightly lower than that for trucks. Toyota and Honda show projected costs significantly below the average, while BMW, Porsche, Tata and

Volkswagen show significantly higher costs. On average, the $1051 per vehicle cost is significant, representing roughly 5% of the total cost of a new vehicle. However, as discussed below, the fuel savings associated with the proposed standards exceeds this cost significantly.

While the CO2emission compliance modeling using the

OMEGA model focused on the proposed 2016 MY standards, EPA believes that the proposed standards for 2012-2015 would also be feasible. As discussed above, EPA believes that manufacturers develop their vehicle designs with several model years in view. Generally, the technology estimated above for 2016 MY vehicles represents the technology which would be added to those vehicles which are being redesigned in 2012- 2015. The proposed CO2standards for 2012-2016 reduce

CO2emissions at a fairly steady rate. Thus, manufacturers which redesign their vehicles at a fairly steady rate will automatically comply with the interim standard as they plan for compliance in 2016.

Manufacturers which redesign much fewer than 20% of their sales in the early years of the proposed program would face a more difficult challenge, as simply implementing the ``2016 MY'' technology as vehicles are redesigned may not enable compliance in the early years.

However, even in this case, manufacturers would have several options to enable compliance. One, they could utilize the proposed debit carry- forward provisions described above. This may be sufficient alone to enable compliance through the 2012-2016 MY time period, if their redesign schedule exceeds 20% per year prior to 2016. If not, at some point, the manufacturer might need to increase their use of technology beyond that projected above in order to generate the credits necessary to balance the accrued debits. For most manufacturers representing the vast majority of U.S. sales, this would simply mean extending the same technology to a greater percentage of sales. The added cost of this in the later years of the program would be balanced by lower costs in the earlier years. Two, the manufacturer could buy credits from another manufacturer. As indicated above, several manufacturers are projected to require less stringent technology than the average. These manufacturers would be in a position to provide credits at a reasonable technology cost. Thus, EPA believes the proposed standards for 2012- 2016 would be feasible. 7. What Other Fleet-Wide CO2Levels Were Considered?

Two alternative sets of CO2standards were considered.

One set would reduce

Page 49556

CO2emissions at a rate of 4 percent per year. The second set would reduce CO2emissions at a rate of 6 percent per year. The analysis of these standards followed the exact same process as described above for the proposed standards. The only difference was the level of CO2emission standards. The footprint-based standard coefficients of the car and truck curves for these two alternative control scenarios were discussed above. The resultant

CO2standards in 2016 for each manufacturer under these two alternative scenarios and under the proposal are shown in Table

III.D.7-1.

Table III.D.7-1--Overall Average CO2 Emission Standards by Manufacturer in 2016

4% per

6% per year

Proposed

year

BMW....................................

245

241

222

Chrysler...............................

266

262

241

Daimler................................

257

253

233

Ford...................................

270

266

245

General Motors.........................

272

268

247

Honda..................................

243

239

219

Hyundai................................

235

231

212

Kia....................................

237

234

215

Mazda..................................

231

227

208

Mitsubishi.............................

226

223

204

Nissan.................................

251

247

227

Porsche................................

234

230

210

Subaru.................................

237

233

213

Suzuki.................................

227

223

203

Tata...................................

267

263

241

Toyota.................................

247

243

223

Volkswagen.............................

233

230

211

Overall................................

254

250

230

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

Table III.D.7-2--Technology Penetration--4% per Year CO2 Standards in 2016: Cars and Trucks Combined

Mass

GDI

GDI+ deac

GDI+ turbo 6 Speed

Dual clutch Start-stop

Hybrid

reduction auto trans

trans

(%)

BMW.............................................

35%

47%

15%

71%

14%

Chrysler........................................

Daimler.........................................

Ford............................................

General Motors..................................

Honda...........................................

Hyundai.........................................

Kia.............................................

Mazda...........................................

Mitsubishi......................................

Nissan..........................................

Porsche.........................................

Subaru..........................................

Suzuki..........................................

Tata............................................

Toyota..........................................

Volkswagen......................................

Overall.........................................

Increase over 2011 CAFE.........................

-5

Table III.D.7-3--Technology Penetration--6% per Year Alternative Standards in 2016: Cars and Trucks Combined

Weight

GDI

GDI+ deac

GDI+ turbo 6 Speed

Dual clutch Start-stop

Hybrid

reduction auto trans

trans

(%)

BMW.............................................

35%

47%

15%

71%

14%

Chrysler........................................

Daimler.........................................

Ford............................................

General Motors..................................

Honda...........................................

Hyundai.........................................

Kia.............................................

Mazda...........................................

Page 49557

Mitsubishi......................................

Nissan..........................................

Porsche.........................................

Subaru..........................................

Suzuki..........................................

Tata............................................

Toyota..........................................

Volkswagen......................................

Overall.........................................

Increase over 2011 CAFE.........................

-15

With respect to the 4 percent per year standards, the levels of requisite control technology decreased relative to those under the proposed standards, as would be expected. Industry-wide, the largest decrease was a 2 percent decrease in the application of start-stop technology. On a manufacturer specific basis, the most significant decreases were a 6 percent decrease in hybrid penetration for BMW and a 2 percent drop for Daimler. These are relatively small changes and are due to the fact that the 4 percent per year standards only require 4 g/ mi CO2less control than the proposed standards in 2016.

Porsche, Tata and Volkswagen continue to be unable to comply with the

CO2standards in 2016.

With respect to the 6 percent per year standards, the levels of requisite control technology increased relative to those under the proposed standards, as again would be expected. Industry-wide, the largest increase was an 8 percent increase in the application of start- stop technology. On a manufacturer specific basis, the most significant increases were a 42 percent increase in hybrid penetration for BMW and a 38 percent increase for Daimler. These are more significant changes and are due to the fact that the 6 percent per year standards require 20 g/mi CO2more control than the proposed standards in 2016. Porsche, Tata and Volkswagen continue to be unable to comply with the CO2standards in 2016. However, BMW joins this list, as well, though just by 1 g/mi. Most manufacturers experience the increase in start-stop technology application, with the increase ranging from 5 to 17 percent.

Table III.D.7-4 shows the projected cost of the two alternative sets of standards.

Table III.D.7-4--Technology Cost per Vehicle in 2016--Alternative Standards ($2007)

4 Percent per year standards

6 Percent per year standards

Cars

Trucks

All

Cars

Trucks

All

BMW...............................

$1,701

$1,665

$1,691

$1,701

$1,665

$1,691

Chrysler..........................

1,340

1,211

1,283

1,642

2,211

1,893

Daimler...........................

1,631

1,357

1,543

1,631

1,357

1,543

Ford..............................

1,429

1,305

1,374

2,175

2,396

2,273

General Motors....................

969

1,567

1,221

1,722

2,154

1,904

Honda.............................

633

402

564

777

1,580

1,016

Hyundai...........................

685

1,505

832

1,275

1,680

1,347

Kia...............................

741

738

741

1,104

1,772

1,213

Mazda.............................

851

914

860

1,369

1,030

1,320

Mitsubishi........................

1,132

247

1,028

1,495

2,065

1,563

Nissan............................

910

1,194

991

1,654

2,274

1,830

Porsche...........................

1,549

666

1,268

1,549

666

1,268

Subaru............................

903

1,131

985

1,440

1,615

1,503

Suzuki............................

1,093

1,026

1,076

1,718

2,219

1,846

Tata..............................

1,270

674

952

1,270

674

952

Toyota............................

518

366

468

762

1,165

895

Volkswagen........................

1,626

949

1,509

1,626

949

1,509

Overall...........................

940

1,054

978

1,385

1,859

1,544

As can be seen, the average cost of the 4 percent per year standards is only $73 per vehicle less than that for the proposed standards. In contrast, the average cost of the 6 percent per year standards is nearly $500 per vehicle more than that for the proposed standards. Compliance costs are entering the region of non-linearity.

The $73 cost savings of the 4 percent per year standards relative to the proposal represents $18 per g/mi CO2increase. The $493 cost increase of the 6 percent per year standards relative to the proposal represents $25 per g/mi CO2increase.

EPA does not believe the 4% per year alternative is an appropriate standard for the MY2012-2016 time frame. As discussed above, the 250 g/ mi proposal is technologically feasible in this time frame at reasonable costs, and provides higher GHG emission reductions at a modest cost increase over the 4% per year alternative (less than $100 per vehicle). In addition, the 4% per year alternative does not result in a harmonized National Program for the country. Based on California's letter of May 18, 2009, the emission standards under this alternative would not result in the State of California revising its regulations such that compliance with

Page 49558

EPA's GHG standards would be deemed to be in compliance with

California's GHG standards for these model years. Thus, the consequence of promulgating a 4% per year standard would be to require manufacturers to produce two vehicle fleets: a fleet meeting the 4% per year Federal standard, and a separate fleet meeting the more stringent

California standard for sale in California and the section 177 States.

This further increases the costs of the 4% per year standard and could lead to additional difficulties for the already stressed automotive industry.

EPA also does not believe the 6% per year alternative is an appropriate standard for the MY 2012-2016 time frame. As shown in

Tables III.D.7-3 and III.D.7-4, the 6% per year alternative represents a significant increase in both the technology required and the overall costs compared to the proposed standards. In absolute percent increases in the technology penetration, compared to the proposed standards the 6% per year alternative requires for the industry as a whole: an 18% increase in GDI fuel systems, an 11% increase in turbo-downsize systems, a 6% increase in dual-clutch automated manual transmissions

(DCT), and a 9% increase in start-stop systems. For a number of manufacturers the expected increase in technology is greater: for GM, a 15% increase in both DCTs and start-stop systems, for Nissan a 9% increase in full hybrid systems, for Ford an 11% increase in full hybrid systems, for Chrysler a 34% increase in both DCT and start-stop systems and for Hyundai a 23% increase in the overall penetration of

DCT and start-stop systems. For the industry as a whole, the per- vehicle cost increase for the 6% per year alternative is nearly $500.

On average this is a 50% increase in costs compared to the proposed standards. At the same time, CO2emissions would be reduced by about 8%, compared to the 250 g/mi target level.

These technology and cost increases are significant, given the amount of lead-time between now and model years 2012-2016. In order to achieve the levels of technology penetration for the proposed standards, the industry needs to invest significant capital and product development resources right away, in particular for the 2012 and 2013 model year, which is only 2-3 years from now. For the 2014-2016 time frame, significant product development and capital investments will need to occur over the next 2-3 year in order to be ready for launching these new products for those model years. Thus a major part of the required capital and resource investment will need to occur in the next few years, under the proposed standards. EPA believes that the proposal

(a target of 250 gram/mile in 2016) already requires significant investment and product development costs for the industry, focused on the next few years.

It is important to note, and as discussed later in this preamble, as well as in the draft Joint Technical Support Document and the draft

EPA Regulatory Impact Analysis document, the average model year 2016 per-vehicle cost increase of nearly $500 includes an estimate of both the increase in capital investments by the auto companies and the suppliers as well as the increase in product development costs. These costs can be significant, especially as they must occur over the next 2-3 years. Both the domestic and transplant auto firms, as well as the domestic and world-wide automotive supplier base, is experiencing one of the most difficult markets in the U.S. and internationally that has been seen in the past 30 years. One major impact of the global downturn in the automotive industry and certainly in the U.S. is the significant reductions in product development engineers and staffs, as well as a tightening of the credit markets which allow auto firms and suppliers to make the near-term capital investments necessary to bring new technology into production. EPA is concerned that the significantly increased pressure on capital and other resources from the 6% per year alternative may be too stringent for this time frame, given both the relatively limited amount of lead-time between now and model years 2012-2016, the need for much of these resources over the next few years, as well the current financial and related circumstances of the automotive industry. EPA is not concluding that the 6% per year alternative standards are technologically infeasible, but EPA believes such standards for this time frame would be overly stringent given the significant strain it would place on the resources of the industry under current conditions. EPA believes this degree of stringency is not warranted at this time. Therefore EPA does not believe the 6% per year alternative would be an appropriate balance of various relevant factors for model years 2012-1016.

These alternative standards represent two possibilities out of many. The EPA believes that the current proposed standards represent an appropriate balance of the factors relevant under section 202(a). For further discussion of this issue, see Chapter 4 of the DRIA.

E. Certification, Compliance, and Enforcement 1. Compliance Program Overview

This section of the preamble describes EPA's proposal for a comprehensive program to ensure compliance with EPA's proposed emission standards for carbon dioxide (CO2), nitrous oxide

(N2O), and methane (CH4), as described in Section

III.B. An effective compliance program is essential to achieving the environmental and public health benefits promised by these mobile source GHG standards. EPA's proposal for a GHG compliance program is designed around two overarching priorities: (1) To address Clean Air

Act (CAA) requirements and policy objectives; and (2) to streamline the compliance process for both manufacturers and EPA by building on existing practice wherever possible, and by structuring the program such that manufacturers can use a single data set to satisfy both the new GHG and Corporate Average Fuel Economy (CAFE) testing and reporting requirements. The program proposed by EPA and NHTSA recognizes, and replicates as closely as possible, the compliance protocols associated with the existing CAA Tier 2 vehicle emission standards, and with CAFE standards. The certification, testing, reporting, and associated compliance activities closely track current practices and are thus familiar to manufacturers. EPA already oversees testing, collects and processes test data, and performs calculations to determine compliance with both CAFE and CAA standards. Under this proposed coordinated approach, the compliance mechanisms for both programs are consistent and non-duplicative.

Vehicle emission standards established under the CAA apply throughout a vehicle's full useful life. In this case EPA is proposing fleet average standards where compliance with the fleet average is determined based on the testing performed at time of production, as with the current CAFE fleet average. EPA is also proposing in-use standards that apply throughout a vehicle's useful life, with the standard determined by adding a 10% adjustment factor to the model- level emission results used to calculate the fleet average. Therefore,

EPA's proposed program must not only assess compliance with the fleet average standards described in Section III.B, but must also assess compliance with the in-use standards. As it does now, EPA would use a variety of compliance mechanisms to conduct these assessments, including pre-production certification and post-production, in-use

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monitoring once vehicles enter customer service. Specifically, EPA is proposing a compliance program for the fleet average that utilizes CAFE program protocols with respect to testing, a certification procedure that operates in conjunction with the existing CAA Tier 2 certification procedures, and assessment of compliance with the in-use standards concurrent with existing EPA and manufacturer Tier 2 emission compliance testing programs. Under the proposed compliance program manufacturers would also be afforded numerous flexibilities to help achieve compliance, both stemming from the program design itself in the form of a manufacturer-specific CO2fleet average standard, as well as in various credit banking and trading opportunities, as described in Section III.C. EPA's proposed compliance program is outlined in further detail below. EPA requests comment on all aspects of the compliance program design including comments about whether differences between the proposed compliance scheme for GHG and the existing compliance scheme for other regulated pollutants are appropriate. 2. Compliance With Fleet-Average CO2Standards

Fleet average emission levels can only be determined when a complete fleet profile becomes available at the close of the model year. Therefore, EPA is proposing to determine compliance with the fleet average CO2standards when the model year closes out, as is currently the protocol under EPA's Tier 2 program as well as under the current CAFE program. The compliance determination would be based on actual production figures for each model and on model-level emissions data collected through testing over the course of the model year. Manufacturers would submit this information to EPA in an end-of- year report which is discussed in detail in Section III.E.5.h below.

Manufacturers currently conduct their CAFE testing over an entire model year to maximize efficient use of testing and engineering resources. Manufacturers submit their CAFE test results to EPA and EPA conducts confirmatory fuel economy testing at its laboratory on a subset of these vehicles under EPA's Part 600 regulations. EPA is proposing that manufacturers continue to perform the model level testing currently required for CAFE fuel economy performance and measure and report the CO2values for all tests conducted.

Thus, manufacturers will submit one data set in satisfaction of both

CAFE and GHG requirements such that EPA's proposed program would not impose additional timing or testing requirements on manufacturers beyond that required by the CAFE program. For example, manufacturers currently submit fuel economy test results at the subconfiguration and configuration levels to satisfy CAFE requirements. Under this proposal manufacturers would also submit CO2values for the same vehicles. Section III.E.3 discusses how this will be implemented in the certification process. a. Compliance Determinations

As described in Section III.B above, the fleet average standards would be determined on a manufacturer by manufacturer basis, separately for cars and trucks, using the proposed footprint attribute curves.

Under this proposal, EPA would calculate the fleet average emission level using actual production figures and, for each model type,

CO2emission test values generated at the time of a manufacturer's CAFE testing. EPA would then compare the actual fleet average to the manufacturer's footprint standard to determine compliance, taking into consideration use of averaging and/or other types of credits.

Final determination of compliance with fleet average CO2 standards may not occur until several years after the close of the model year due to the flexibilities of carry-forward and carry-back credits and the remediation of deficits (see Section III.C). A failure to meet the fleet average standard after credit opportunities have been exhausted could ultimately result in penalties and injunctive orders under the CAA as described in Section III.E.6 below.

EPA periodically provides mobile source emissions and fuel economy information to the public, for example through the annual Compliance

Report \164\ and Fuel Economy Trends Report.\165\ EPA plans to expand these reports to include GHG performance and compliance trends information, such as annual status of credit balances or debits, use of various credit programs, attained versus projected fleet average emission levels, and final compliance status for a model year after credit reconciliation occurs. We seek comment on all aspects of public dissemination of GHG compliance information

\164\ 2007 Progress Report Vehicle and Engine Compliance

Activities; EPA-420-R-08-011; October 2008. This document is available electronically at http://www.epa.gov/otaq/about/ 420r08011.pdf.

\165\ Light-Duty Automotive Technology and Fuel-Economy Trends: 1975 Through 2008; EPA-420-S-08-003; September 2008. This document is available electronically at http://www.epa.gov/otaq/fetrends.htm.

b. Required Minimum Testing for Fleet Average CO2

As noted, EPA is proposing that the same test data required for determining a manufacturer's compliance with the CAFE standard also be used to determine the manufacturer's compliance with the fleet average

CO2emissions standard. CAFE requires manufacturers to submit test data representing at least 90% of the manufacturer's model year production, by configuration.\166\ The CAFE testing covers the vast majority of models in a manufacturer's fleet. Manufacturers industry-wide currently test more than 1,000 vehicles each year to meet this requirement. EPA believes this minimum testing requirement is necessary and applicable for calculating accurate CO2fleet average emissions. Manufacturers may test additional vehicles, at their option. As described above, EPA would use the emissions results from the model-level testing to calculate a manufacturer's fleet average

CO2emissions and to determine compliance with the

CO2standard.

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

EPA is proposing to continue to allow certain testing flexibilities that exist under the CAFE program. EPA has always permitted manufacturers some ability to reduce their test burden in tradeoff for lower fuel economy numbers. Specifically the practice of ``data substitution'' enables manufacturers to apply fuel economy test values from a ``worst case'' configuration to other configurations in lieu of testing them. The substituted values may only be applied to configurations that would be expected to have better fuel economy and for which no actual test data exist. Substituted data would only be accepted for the GHG program if it is also used for CAFE purposes.

EPA's regulations for CAFE fuel economy testing permit the use of analytically derived fuel economy data in lieu of an actual fuel economy test in certain situations.\167\ Analytically derived data is generated mathematically using expressions determined by EPA and is allowed on a limited basis when a manufacturer has not tested a specific vehicle configuration. This has been done as a means to reduce some of the testing burden on manufacturers without sacrificing accuracy in fuel economy measurement. EPA has issued guidance that provides details on analytically

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derived data and that specifies the conditions when analytically derived fuel economy may be used. EPA would also apply the same guidance to the GHG program and would allow any analytically derived data used for CAFE to also satisfy the GHG data reporting requirements.

EPA would, however, need to revise the terms in the current equations for analytically derived fuel economy to specify them in terms of

CO2. Analytically derived CO2data would not be permitted for the Emission Data Vehicle representing a test group for pre-production certification, only for the determination of the model level test results used to determine actual fleet-average

CO2levels.

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

EPA is retaining the definitions needed to determine CO2 levels of each model type (such as ``subconfiguration,''

``configuration,'' ``base level,'' etc.) as they are currently defined in EPA's fuel economy regulations. 3. Vehicle Certification

CAA section 203(a)(1) prohibits manufacturers from introducing a new motor vehicle into commerce unless the vehicle is covered by an

EPA-issued certificate of conformity. Section 206(a)(1) of the CAA describes the requirements for EPA issuance of a certificate of conformity, based on a demonstration of compliance with the emission standards established by EPA under section 202 of the Act. The certification demonstration requires emission testing, and must be done for each model year.\168\

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

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

\169\ The specific test group criteria are described in 40 CFR 86.1827-01, car lines and model types have the meaning given in 40

CFR 86.1803-01.

\170\ Initially in-use standards were different from the bin level determined at certification as the useful life level. The current in-use standards, however, are the same as the bin levels.

In all cases, the bin level, reflecting useful life levels, has been used for determining compliance with the fleet average.

Since compliance with the Tier 2 fleet average depends on actual test group sales volumes and bin levels, it is not possible to determine compliance at the time the manufacturer applies for and receives a certificate of conformity for a test group. Instead, EPA requires the manufacturer to make a good faith demonstration in the certification application that vehicles in the test group will both (1) comply throughout their useful life with the emissions bin assigned, and (2) contribute to fleetwide compliance with the Tier 2 average when the year is over. EPA issues a certificate for the vehicles included in the test group based on this demonstration, and includes a condition in the certificate that if the manufacturer does not comply with the fleet average, then production vehicles from that test group will be treated as not covered by the certificate to the extent needed to bring the manufacturer's fleet average into compliance with Tier 2.

The certification process often occurs several months prior to production and manufacturer testing may occur months before the certificate is issued. The certification process for the Tier 2 program is an efficient way for manufacturers to conduct the needed testing well in advance of certification, and to receive the needed certificates in a time frame which allows for the orderly production of vehicles. The use of a condition on the certificate has been an effective way to ensure compliance with the Tier 2 fleet average.

EPA is proposing to similarly condition each certificate of conformity for the GHG program upon a manufacturer's good faith demonstration of compliance with the manufacturer's fleetwide average

CO2standard. The following discussion explains how EPA proposes to integrate the proposed vehicle certification program into the existing certification program. a. Compliance Plans

EPA is proposing that manufacturers submit a compliance plan to EPA prior to the beginning of the model year and prior to the certification of any test group. This plan would include the manufacturer's estimate of its footprint-based standard (Section III.B), along with a demonstration of compliance with the standard based on projected model- level CO2emissions, and production estimates. Manufacturers would submit the same information to NHTSA in the pre-model year report required for CAFE compliance. However, the GHG compliance plan could also include additional information relevant only to the EPA program.

For example, manufacturers seeking to take advantage of air conditioning or other credit flexibilities (Section III.C) would include these in their compliance demonstration. Similarly, the compliance demonstration would need to include a credible plan for addressing deficits accrued in prior model years. EPA would review the compliance plan for technical viability and conduct a certification preview discussion with the manufacturer. EPA would view the compliance plan as part of the manufacturer's good faith demonstration, but understands that initial projections can vary considerably from the reality of final production and emission results. EPA requests comment on the proposal to evaluate manufacturer compliance plans prior to the beginning of model year certification. EPA also requests comment on what criteria the agency should use to evaluate the sufficiency of the plan and on what steps EPA should take if it determines that a plan is unlikely to offset a deficit. b. Certification Test Groups and Test Vehicle Selection

Manufacturers currently divide their fleet into ``test groups'' for certification purposes. The test group is EPA's unit of certification; one certificate is issued per test group. These groupings cover vehicles with similar emission control system designs expected to have similar emissions performance.\171\ The factors considered for determining test groups include combustion cycle, engine type, engine displacement, number of cylinders and cylinder arrangement, fuel type, fuel metering system, catalyst construction and precious metal composition, among others. Vehicles having these features in common are generally placed in the same test group.\172\ Cars and trucks may be included in the same test group as long as they have similar emissions performance (manufacturers frequently produce cars and trucks that have identical engine designs and emission controls).

\171\ 40 CFR 86.1827-01.

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

EPA is proposing to retain the current Tier 2 test group structure for cars and light trucks in the certification requirements for

CO2. At the time of certification, manufacturers would use the CO2emission level from the Tier 2 Emission Data Vehicle as a surrogate to represent all of the models in the test group.

However, following certification

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further testing would generally be required for compliance with the fleet average CO2standard as described below. EPA's issuance of a certificate would be conditioned upon the manufacturer's subsequent model level testing and attainment of the actual fleet average. Further discussion of these requirements is presented in

Section III.E.6.

EPA recognizes that the Tier 2 test group criteria do not necessarily relate to CO2emission levels. For instance, while some of the criteria, such as combustion cycle, engine type and displacement, and fuel metering, may have a relationship to

CO2emissions, others, such as those pertaining to the catalyst, may not. In fact, there are many vehicle design factors that impact CO2generation and emission but are not included in

EPA's test group criteria.\173\ Most important among these may be vehicle weight, horsepower, aerodynamics, vehicle size, and performance features.

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

(Sept. 10, 1976).

EPA considered, but is not proposing, a requirement for separate

CO2test groups established around criteria more directly related to CO2emissions. Although CO2-specific test groups might more consistently predict CO2emissions of all vehicles in the test group, the addition of a CO2test group requirement would greatly increase the pre-production certification burden for both manufacturers and EPA. For example, a current Tier 2 test group would need to be split into two groups if automatic and manual transmissions models had been included in the same group. Two- and four-wheel drive vehicles in a current test group would similarly require separation, as would weight differences among vehicles. This would at least triple the number of test groups. EPA believes that the added burden of creating separate CO2test groups is not warranted or necessary to maintain an appropriately rigorous certification program because the test group data are later replaced by model specific data which are used as the basis for determining compliance with a manufacturer's fleet average standard.

EPA believes that the current test group concept is appropriate for

N2O and CH4because the technologies that would be employed to control N2O and CH4emissions would generally be the same as those used to control the criteria pollutants.

As just discussed, the ``worst case'' vehicle a manufacturer selects as the Emissions Data Vehicle to represent a test group under

Tier 2 (40 CFR 86.1828-01) may not have the highest levels of

CO2in that group. For instance, there may be a heavier, more powerful configuration that would have higher CO2, but may, due to the way the catalytic converter has been matched to the engine, actually have lower NOX, CO, PM or HC.

Therefore, in lieu of a separate CO2-specific test group, EPA considered requiring manufacturers to select a

CO2test vehicle from within the Tier 2 test group that would be expected, based on good engineering judgment, to have the highest CO2emissions within that test group. The

CO2emissions results from this vehicle would be used to establish an in-use CO2emission standard for the test group. The requirement for a separate, worst case CO2 vehicle would provide EPA with some assurance that all vehicles within the test group would have CO2emission levels at or below those of the selected vehicle, even if there is some variation in the

CO2control strategies within the test group (such as different transmission types). Under this approach, the test vehicle might or might not be the same one that would be selected as worst case for criteria pollutants. Thus, manufacturers might be required to test two vehicles in each test group, rather than a single vehicle. This would represent an added timing burden to manufacturers because they might need to build additional test vehicles at the time of certification that previously weren't required to be tested.

Instead, EPA is proposing to require a single Emission Data Vehicle that would represent the test group for both Tier 2 and CO2 certification. The manufacturer would be allowed to initially apply the

Emission Data Vehicle's CO2emissions value to all models in the test group, even if other models in the test group are expected to have higher CO2emissions. However, as a condition of the certificate, this surrogate CO2emissions value would generally be replaced with actual, model-level CO2values based on results from CAFE testing that occurs later in the model year.

This model level data would become the official certification test results (as per the conditioned certificate) and would be used to determine compliance with the fleet average. Only if the test vehicle is in fact the worst case CO2vehicle for the test group could the manufacturer elect to apply the Emission Data Vehicle emission levels to all models in the test group for purposes of calculating fleet average emissions. Manufacturers would be unlikely to make this choice, because doing so would ignore the emissions performance of vehicle models in their fleet with lower CO2 emissions and would unnecessarily inflate their CO2fleet average. Testing at the model level already occurs and data are already being submitted to EPA for CAFE and labeling purposes, so it would be an unusual situation that would cause a manufacturer to ignore these data and choose to accept a higher CO2fleet average.

EPA requests comment regarding whether the Tier 2 test group can adequately represent CO2emissions for certification purposes, and whether the Emission Data Vehicle's CO2 emission level is an appropriate surrogate for all vehicles in a test group at the time of certification, given that the certificate would be conditioned upon additional model level testing occurring during the year (see Section III.E.6) and that the surrogate CO2 emission values would be replaced with model-level emissions data from those tests. Comments should also address EPA's desire to minimize the up-front pre-production testing burden and whether the proposed efficiencies would be balanced by the requirement to test all model types in the fleet by the conclusion of the model year in order to establish the fleet average CO2levels.

There are two standards that the manufacturer would be subject to, the fleet average standard and the in-use standard for the useful life of the vehicle. Compliance with the fleet average standard is based on production-weighted averaging of the test data that applies for each model. For each model, the in-use standard is set at 10% higher than the level used for that model in calculating the fleet average. The certificate would cover both of these standards, and the manufacturer would have to demonstrate compliance with both of these standards for purposes of receiving a certificate of conformity. The certification process for the in-use standard is discussed below in Section III.E.4. c. Certification Testing Protocols and Procedures

To be consistent with CAFE, EPA proposes to combine the

CO2emissions results from the FTP and HFET tests using the same calculation method used to determine fuel economy for CAFE purposes. This approach is appropriate for CO2because

CO2and fuel economy are so closely related. Other than the fact that fuel economy is calculated using a harmonic average and

CO2emissions can be calculated using a conventional average, the calculation methods are very similar. The FTP

CO2

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data will be weighted at 55%, and the highway CO2data at 45%, and then averaged to determine the combined number. See Section

III.B.1 for more detailed information on CO2test procedures, Section III.C.1 on Air Conditioning Emissions, and Section

III.B.6 for N2O and CH4test procedures.

For the purposes of compliance with the fleet average and in-use standards, the emissions measured from each test vehicle will include hydrocarbons (HC) and carbon monoxide (CO), in addition to

CO2. All three of these exhaust constituents are currently measured and used to determine the amount of fuel burned over a given test cycle using a ``carbon balance equation'' defined in the regulations, and thus measurement of these is an integral part of current fuel economy testing. As explained in Section III.C, it is important to account for the total carbon content of the fuel.

Therefore the carbon-related combustion products HC and CO must be included in the calculations along with CO2. CO emissions are adjusted by a coefficient that reflects the carbon weight fraction

(CWF) of the CO molecule, and HC emissions are adjusted by a coefficient that reflects the CWF of the fuel being burned (the molecular weight approach doesn't work since there are many different hydrocarbons being accounted for). Thus, EPA is proposing that the carbon-related exhaust emissions of each test vehicle be calculated according to the following formula, where HC, CO, and CO2 are in units of grams per mile:

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

CO2

As part of the current CAFE and Tier 2 compliance programs, EPA selects a subset of vehicles for confirmatory testing at its National

Vehicle and Fuel Emissions Laboratory. The purpose of confirmatory testing is to validate the manufacturer's emissions and/or fuel economy data. Under this proposal, EPA would add CO2,

N2O, and CH4to the emissions measured in the course of Tier 2 and CAFE confirmatory testing. The emission values measured at the EPA laboratory would continue to stand as official, as under existing regulatory programs.

As is the current practice with fuel economy testing, if during

EPA's confirmatory testing the EPA CO2value differs from the manufacturer's value by more than 3%, manufacturers could request a re-test. Also as with current practice, the results of the re-test would stand as official, even if they differ from the manufacturer value by more than 3%. EPA is proposing to allow a re-test request based on a 3% or greater disparity since a manufacturer's fleet average emissions level would be established on the basis of model level testing only (unlike Tier 2 for which a fixed bin standard structure provides the opportunity for a compliance buffer). EPA requests comment on whether the 3% value currently used during CAFE confirmatory testing is appropriate and should be retained under the proposed GHG program. 4. Useful Life Compliance

Section 202(a)(1) of the CAA requires emission standards to apply to vehicles throughout their statutory useful life, as further described in Section III.A. For emission programs that have fleet average standards, such as Tier 2 and the proposed CO2 standards, the useful life requirement applies to individual vehicles rather than to the fleet average standard. For example, in Tier 2 the useful life requirements apply to the individual emission standard levels or ``bins'' that the vehicles are certified to, not the fleet average standard. For Tier 2, the useful life requirement is 10 years or 120,000 miles with an optional 15 year or 150,000 mile provision.

For each model, the proposed CO2standards in-use are the model specific levels used in calculating the fleet average, adjusted to be 10% higher. EPA is proposing the 10% adjustment factor to provide some margin for production and test-to-test variability that could result in differences between initial model-level emission results used in calculating the fleet average and any subsequent in-use testing. EPA requests comment on whether a separate in-use standard is an appropriate means of addressing issues of variability and whether 10% is an appropriate adjustment.

This in-use standard would apply for the same useful life period as in Tier 2. Section 202(i)(3)(D) of the CAA allows EPA to adopt useful life periods for light-duty vehicles and light-duty trucks which differ from those in section 202(d). Similar to Tier 2, the useful life requirements would be applicable to the model-level CO2 certification values (similar to the Tier 2 bins), not to the fleet average standard.

EPA believes that the useful life period established for criteria pollutants under Tier 2 is also appropriate for CO2. Data from EPA's current in-use compliance test program indicate that

CO2emissions from current technology vehicles increase very little with age and in some cases may actually improve slightly. The stable CO2levels are expected because unlike criteria pollutants, CO2emissions in current technology vehicles are not controlled by after treatment systems that may fail with age.

Rather, vehicle CO2emission levels depend primarily on fundamental vehicle design characteristics that do not change over time. Therefore, vehicles designed for a given CO2emissions level would be expected to sustain the same emissions profile over their full useful life.

The CAA requires emission standards to be applicable for the vehicle's full useful life. Under Tier 2 and other vehicle emission standard programs, EPA requires manufacturers to demonstrate at the time of certification that the new vehicles being certified will continue to meet emission standards throughout their useful life. EPA allows manufacturers several options for predicting in-use deterioration, including full vehicle testing, bench-aging specific components, and application of a deterioration factor based on data and/or engineering judgment.

In the specific case of CO2, EPA does not currently anticipate notable deterioration and is therefore proposing that an assigned deterioration factor be applied at the time of certification.

EPA is further proposing an additive assigned deterioration factor of zero, or a multiplicative factor of one. EPA anticipates that the deterioration factor would be updated from time to time, as new data regarding emissions deterioration for CO2are obtained and analyzed. Additionally, EPA may consider technology-specific deterioration factors, should data indicate that certain CO2 control technologies deteriorate differently than others.

During compliance plan discussions prior to the beginning of the certification process, EPA would explore with each manufacturer any new technologies that could warrant use of a different deterioration factor. Manufacturers would not be allowed to use the assigned deterioration factor but rather would be required to establish an appropriate factor for any vehicle model determined likely to experience increases in CO2emissions over the vehicle's useful life. If such an instance were to occur, EPA is also proposing to allow manufacturers to use the whole-vehicle mileage accumulation method currently offered in EPA's regulations.

EPA requests comments on the proposal to allow manufacturers to use an EPA-assigned deterioration factor for CO2useful life compliance, and to set that factor at zero (additive) or one

(multiplicative). Particularly helpful would be data from in-use vehicles that demonstrate the rate of change in CO2 emissions over a vehicle's useful life,

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separated according to vehicle technology.

N2O and CH4emissions are directly affected by vehicle emission control systems. Any of the durability options offered under EPA's current compliance program can be used to determine how emissions of N2O and CH4change over time. a. Ensuring Useful Life Compliance

The CAA requires a vehicle to comply with emission standards over its regulatory useful life and affords EPA broad authority for the implementation of this requirement. As such, EPA has authority to require a manufacturer to remedy any noncompliance issues. The remedy can range from the voluntary or mandatory recall of any noncompliant vehicles to the recalculation of a manufacturers fleet average emissions level. This provides manufacturers with a strong incentive to design and build complying vehicles.

Currently, EPA regulations require manufacturers to conduct in-use testing as a condition of certification. Specifically, manufacturers must commit to later procure and test privately-owned vehicles that have been normally used and maintained. The vehicles are tested to determine the in-use levels of criteria pollutants when they are in their first and third years of service. This testing is referred to as the In-Use Verification Program (IUVP) testing, which was first implemented as part of EPA's CAP 2000 certification program.\174\ The emissions data collected from IUVP serves several purposes. It provides

EPA with annual real-world in-use data representing the majority of certified vehicles. EPA uses IUVP data to identify in-use problems, validate the accuracy of the certification program, verify the manufacturer's durability processes, and support emission modeling efforts. Manufacturers are required to test low mileage and high mileage vehicles over the FTP and US06 test cycles. They are also required to provide evaporative emissions and on-board diagnostics

(OBD) data.

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

Manufacturers are required to provide data for all regulated criteria pollutants. Some manufacturers voluntarily submit

CO2data as part of IUVP. EPA is proposing that for IUVP testing, all manufacturers will provide emission data for

CO2and also for N2O and CH4. EPA is also proposing that manufacturers perform the highway test cycle as part of IUVP. Since the proposed CO2standard reflects a combined value of FTP and highway results, it is necessary to include the highway emission test in IUVP to enable EPA to compare an in-use

CO2level with a vehicle's in-use standard. EPA requests comments on adding the highway test cycle as part of the IUVP requirements.

Another component of the CAP 2000 certification program is the In-

Use Confirmatory Program (IUCP). This is a manufacturer-conducted recall quality in-use test program that can be used as the basis for

EPA to order an emission recall. In order to qualify for IUCP, there is a threshold of 1.30 times the certification emission standard and an additional requirement that at least 50% of the test vehicles for the test group fail for the same pollutant. EPA is proposing to exclude

IUVP data for CO2, N2O, and CH4 emissions from the IUCP thresholds. At this time, EPA does not have sufficient data to determine if the existing thresholds are appropriate or even applicable to those emissions. Once EPA can gather more data from the IUVP program and from EPA's internal surveillance program described below, EPA will reassess the need to exclude IUCP thresholds, and if warranted, propose a separate rulemaking establishing IUCP threshold criteria which may include CO2, N2O, and CH4emissions. EPA requests comment on the proposal to exclude CO2, N2O, and CH4from the

IUCP threshold.

EPA has also administered its own in-use testing program for light- duty vehicles under authority of section 207(c) of the CAA for more than 30 years. In this program, EPA procures and tests representative privately owned vehicles to determine whether they are complying with emission standards. When testing indicates noncompliance, EPA works with the manufacturer to determine the cause of the problem and to conduct appropriate additional testing to determine its extent or the effectiveness of identified remedies. This program operates in conjunction with the IUVP program and other sources of information to provide a comprehensive picture of the compliance profile for the entire fleet and address compliance problems that are identified. EPA proposes to add CO2, N2O, and CH4to the emissions measurements it collects during surveillance testing. b. In-Use Compliance Standard

For Tier 2, the in-use standard and the certification standard are the same. In-use compliance for an individual vehicle is determined by comparing the vehicle's in-use emission results with the emission standard levels or ``bin'' to which the vehicle is certified rather than to the Tier 2 fleet average standard for the manufacturer. This is because as part of a fleet average standard, individual vehicles can be certified to various emission standard levels, which could be higher or lower than the fleet average standard. Thus, comparing an individual vehicle to the fleet average, where that vehicle was certified to an emission level that could be different than the fleet average level, would be inappropriate.

This would also be true for the proposed CO2fleet average standard. Therefore, to ensure that an individual vehicle complies with the proposed CO2standards in-use, it is necessary to compare the vehicle's in-use CO2emission result with the appropriate model-level certification CO2 level used in determining the manufacturer's fleet average result.

There is a fundamental difference between the proposed

CO2standards and Tier 2 standards. For Tier 2, the certification standard is one of eight different emission levels, or

``bins,'' whereas for the proposed CO2fleet average standard, the certification standard is the model-level certification

CO2result. The Tier 2 fleet average standard is calculated using the ``bin'' emission level or standard, not the actual certification emission level of the certification test vehicle. So no matter how low a manufacturer's actual certification emission results are, the fleet average is still calculated based on the ``bin'' level rather than the lower certification result. In contrast, EPA is proposing that the CO2fleet average standard would be calculated using the actual vehicle model-level CO2values from the certification test vehicles. With a known certification emission standard, such as the Tier 2 ``bins,'' manufacturers typically attempt to over-comply with the standard to give themselves some cushion for potentially higher in-use testing results due to emissions performance deterioration and/or variability that could result in higher emission levels during subsequent in-use testing. For our proposed CO2standards, the certification standard is the actual certification vehicle test result, thus manufacturers cannot over comply since the certification test vehicle result will always be the value used in determining the CO2fleet average. If the manufacturer attempted to design the vehicle to achieve a lower

CO2value, similar to Tier 2 for in-use purposes, the new lower CO2value would simply become the new certification standard.

The CO2fleet average standard is based on the performance of pre-production technology that is

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representative of the point of production, and while there is expected to be limited if any deterioration in effectiveness for any vehicle during the useful life, the fleet average standard does not take into account the test to test variability or production variability that can affect in-use levels. Therefore, EPA believes that unlike Tier 2, it is necessary to have a different in-use standard for CO2to account for these variabilities. EPA is proposing to set the in-use standard at 10% higher than the appropriate model-level certification

CO2level used in determining the manufacturer's fleet average result.

As described above, manufacturers typically design their vehicles to emit at emission levels considerably below the standards. This intentional difference between the actual emission level and the emission standard is referred to as ``certification margin,'' since it is typically the difference between the certification emission level and the emission standard. The certification margin can provide manufacturers with some protection from exceeding emission standards in-use, since the in-use standards are typically the same as the certification standards. For Tier 2, the certification margin is the delta between the specific emission standard level, or ``bin,'' to which the vehicle is certified, and the vehicle's certification emission level.

Since the level of the fleet average standard does not reflect this kind of variability, EPA believes it is appropriate to set an in-use standard that provides manufacturers with an in-use compliance factor of 10% that will act as a surrogate for a certification margin. The factor would only be applicable to CO2emissions, and would be applied to the model-level test results that are used to establish the model-level in-use standard.

If the in-use emission result for the vehicle exceeds the model- level CO2certification result multiplied by the in-use compliance factor of 10%, then the vehicle would have exceeded the in- use emission standard. The in-use compliance factor would apply to all in-use compliance testing including IUVP, selective enforcement audits, and EPA's internal test program.

The intent of the separate in-use standard, based on a 10% compliance factor adjustment, is to provide a reasonable margin such that vehicles are not automatically deemed as exceeding standards simply because of normal variability in test results. EPA has some concerns however that this in-use compliance factor could be perceived as providing manufacturers with the ability to design their fleets to generate CO2emissions up to 10% higher than the actual values they use to certify and to calculate the year end fleet average value that determines compliance with the fleet average standard. This concern provides additional rationale for requiring FTP and HFET IUVP data for CO2emissions to ensure that in-use values are not regularly 10% higher than the values used in the fleet average calculation. If in the course of reviewing a manufacturer's IUVP data it becomes apparent that a manufacturer's CO2results are consistently higher than the values used for certification, EPA would discuss the matter with the manufacturer and consider possible resolutions such as changes to ensure that the emissions test data more accurately reflects the emissions level of vehicles at the time of production, increased EPA confirmatory testing, and other similar measures.

EPA selected a value of 10% for the in-use standard based on a review of EPA's fuel economy labeling and CAFE confirmatory test results for the past several vehicle model years. The EPA data indicate that it is common for test variability to range between three to six percent and only on rare occasions to exceed 10%. EPA believes that a value of 10% should be sufficient to account for testing variability and any production variability that a manufacturer may encounter. EPA considered both higher and lower values. The Tier 2 fleet as a whole, for example, has a certification margin approaching 50%.\175\ However, there are some fundamental differences between CO2emissions and other criteria pollutants in the magnitude of the pollutants. Tier 2 NMOG and NOXemission standards are hundredths of a gram per mile (e.g., 0.07 g/mi NOX& 0.09 g/mi NMOG), whereas the

CO2standards are four orders of magnitude greater (e.g., 250 g/mi). Thus EPA does not believe it is appropriate to consider a value on the order of 50 percent. In addition, little deterioration in emissions control is expected in-use. The adjustment factor addresses only one element of what is usually built into a compliance margin.

\175\ See pages 39-41 of EPA's Vehicle and Engine Compliance

Activities 2007 Progress Report (EPA-420-R-08-011) published in

October 2008. This document is available electronically at http:// epa.gov/otaq/about/420r08011.pdf.

EPA requests comments regarding a proposed in-use standard that uses an in-use compliance factor. Specifically, is a factor the best way to address the technical and other feasibility of the in-use standard; is 10% the appropriate factor; can EPA expect variability to decrease as manufacturing experience increases, in which case would it be appropriate for the in-use compliance factor of 10% to decrease over time? EPA especially requests any data to support such comments. 5. Credit Program Implementation

As described in Section III.E.2 above, for each manufacturer's model year production, EPA is proposing that the manufacturer would average the CO2emissions within each of the two averaging sets (passenger cars and trucks) and compare that with its respective fleet average CO2standards (which in turn would have been determined from the appropriate footprint curve applicable to that model year). In addition to this within-company averaging, EPA is proposing that when a manufacturer's fleet average CO2 emissions of vehicles produced in an averaging set over-complies compared to the applicable fleet average standard, the manufacturer could generate credits that it could save for later use (banking) or could transfer to another manufacturer (trading). Section III.C discusses opportunities that EPA is proposing for manufacturers to earn additional credits, beyond those simply calculated by ``over- achieving'' their applicable standard. Implementation of the credit program generally involves two steps: calculation of the credit amount and reporting the amount and the associated data and calculations to

EPA.

Of the various credit programs being proposed by EPA, there are two broad types. One type of credit directly lowers a manufacturer's actual fleet average by virtue of being applied to the methodology for calculating the fleet average emissions. Examples of this type of credit include the credits available for alternative fuel vehicles and for advanced technology vehicles. The second type of credit is independent of the calculation of a manufacturer's fleet average.

Rather than giving credit by lowering a manufacturer's fleet average via a credit mechanism, these credits (in megagrams) are calculated separately and are simply added to the manufacturer's overall ``bank'' of credits (or debits). Using a fictional example, the remainder of this section will step through the different types of credits and show where and how they are calculated and how they impact a manufacturer's available credits. a. Basic Credits for a Fleet With Average CO2Emissions

Below the Standard

Basic credits are earned by doing better than the applicable standard. Manufacturers calculate their standards

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(separate standards are calculated for cars and trucks) using the footprint-based equations described in Section III.B. A manufacturer's actual end-of-year fleet average CO2is calculated similarly to the way in which CAFE values are currently calculated; in fact, the regulations are essentially identical. The current CAFE calculation methods are in 40 CFR Part 600. EPA is proposing to amend key subparts and sections of Part 600 to require that fleet average CO2 be calculated in a manner parallel to the way CAFE values are calculated. First manufacturers would determine a CO2- equivalent value for each model type. The CO2-equivalent value is a summation of the carbon-containing constituents of the exhaust emissions, with each weighted by a coefficient that reflects the carbon weight fraction of that constituent. For gasoline and diesel vehicles this simply involves measurement of total hydrocarbons and carbon monoxide in addition to CO2, but becomes somewhat more complex for alternative fuel vehicles due to the different nature of their exhaust emissions. For example, for ethanol-fueled vehicles, the emission tests must measure ethanol, methanol, formaldehyde, and acetaldehyde in addition to CO2. However, all these measurements are necessary to determine fuel economy and thus no new testing or data collection would be required. Second, manufacturers would calculate a fleet average by weighting the CO2- equivalent value for each model type by the production of that model type, as they currently do for the CAFE program. Again, this would be done separately for cars and trucks. Finally, the manufacturer would compare the calculated standard with the average that is actually achieved to determine the credits (or debits). Both the determination of the applicable standard and the actual fleet average would be done after the model year is complete and using final model year production data.

Consider a basic example where Manufacturer ``A'' has calculated a car standard of 300 grams/mile and a fleet average of 290 grams/mile

(Figure III.E.5-1). Further assume that the manufacturer produced 500,000 cars. The credit is calculated by taking the difference between the standard and the fleet average (300-290=10) and multiplying it by the production of 500,000. This result is then multiplied by the lifetime vehicle miles travelled (for cars this is 190,971 miles), then finally divided by 1,000,000 to convert from grams to total megagrams.

The result is the number of CO2megagrams of credit (or deficit, if the manufacturer was not able to comply with the fleet average standard) generated by the manufacturer's car fleet. In this example, the result is 954,855 megagrams.

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TIFF OMITTED TP28SE09.016 b. Advanced Technology Credits

Advanced technology credits directly impact a manufacturer's fleet average, thus increasing the amount of credits they earn (or reducing the amount of debits that would otherwise accrue). To earn these credits, manufacturers that produce electric vehicles, plug-in hybrid electric vehicles, or fuel cell electric vehicles would include these vehicles in the fleet average calculation with their model type emission values (0 g/m for electric vehicles and fuel cell electric vehicles, and a measured CO2value for plug-in hybrid electric vehicles), but would apply the proposed multiplier of 2.0 to the production volume of each of these vehicles. This approach would thus enhance the impact that each of these low-CO2advanced technology vehicles has on the manufacturer's fleet average.

EPA is proposing to limit availability of advanced technology credits to the technologies noted above, with the additional limitation that the vehicles must be certified to Tier 2 Bin 5 emission standards or cleaner (this obviously applies primarily to plug-in hybrid electric vehicles). EPA is proposing to use the following definitions to determine which vehicles

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are eligible for the advanced technology credits:

Electric vehicle means a motor vehicle that is powered solely by an electric motor drawing current from a rechargeable energy storage system, such as from storage batteries or other portable electrical energy storage devices, including hydrogen fuel cells, provided that:

cir

(1) Recharge energy must be drawn from a source off the vehicle, such as residential electric service; and

cir

(2) The vehicle must be certified to the emission standards of Bin 1 of Table S04-1 in paragraph (c)(6) of Sec. 86.1811.

Fuel cell electric vehicle means a motor vehicle propelled solely by an electric motor where energy for the motor is supplied by a fuel cell.

Fuel cell means an electrochemical cell that produces electricity via the reaction of a consumable fuel on the anode with an oxidant on the cathode in the presence of an electrolyte.

Plug-in hybrid electric vehicle (PHEV) means a hybrid electric vehicle that: (1) Has the capability to charge the battery from an off-vehicle electric source, such that the off-vehicle source cannot be connected to the vehicle while the vehicle is in motion, and

(2) has an equivalent all-electric range of no less than 10 miles.

With some simplifying assumptions, assume that 25,000 of

Manufacturer A's fleet are now plug-in hybrid electric vehicles with

CO2emissions of 100 g/mi, and the remaining 475,000 are conventional technology vehicles with average CO2emissions of 290 grams/mile. By applying the factor of 2.0 to the electric vehicle production numbers in the appropriate places in the fleet average calculation formula Manufacturer A now has more than 2.6 million credits (Figure III.E.5-2). Without the use of the multiplier

Manufacturer A's fleet average would be 281 instead of 272, which would generate about 1.8 million credits.

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TIFF OMITTED TP28SE09.017 c. Flexible-Fuel Vehicle Credits

As noted in Section III.C, treatment of flexible-fuel vehicle (FFV) credits differs between 2012 to 2015 and 2016 and later. For the 2012 through 2015 model years the FFV credits will be calculated as they are in the CAFE program for the same model years, except that formulae in the regulations would be modified as needed to do the calculations in terms of grams per mile of CO2rather than miles per gallon.

Like the advanced technology vehicle credits, these credits are integral to the fleet average calculation, but rather than crediting the vehicles with an artificially inflated quantity as in the advanced technology credit program described above, the FFV credit program allows the vehicles to be represented by artificially reduced emissions. To use this credit program, the CO2emissions of

FFVs will be represented by the average of two things: the

CO2emissions while operating on gasoline, and the

CO2emissions operating on the alternative fuel multiplied by 0.15.

For example, Manufacturer A now makes 30,000 FFVs with

CO2emissions of 280 g/mi using gasoline and 260 g/mi using ethanol. The CO2emissions that would represent the FFVs in the fleet average calculation would be calculated as follows:

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

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

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TIFF OMITTED TP28SE09.018

In the 2016 and later model years the calculation of FFV emissions would be much the same except that the determination of the

CO2value to represent an FFV model type would be based upon the actual use of the alternative fuel and on actual CO2 emissions while operating on that fuel. EPA's default assumption in the regulations is that the alternative fuel is used negligibly, and the

CO2value that would apply to an FFV by default would be the value determined for operation on conventional fuel. However, if the manufacturer believes

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that the alternative fuel is used in real-world driving and that accounting for this use could improve the fleet average, the manufacturer would have two options. First, the regulations would allow a manufacturer to request that EPA determine an appropriate weighting value for an alternative fuel to reflect the degree of use of that fuel in FFVs relative to real-world use of the conventional fuel. Section

III.C describes how EPA might make this determination. Any value determined by EPA would be published via guidance letter to manufacturers, and that weighting value would be available for all manufacturers to use for that fuel. A second option proposed in the regulations would allow a manufacturer to determine the degree of alternative fuel use for their own vehicle(s), using a variety of potential methods. Both the method and the use of the final results would have to be approved by EPA before their use would be allowed. In either case, whether EPA supplies the weighting factors or the manufacturer determines them, the CO2emissions of an FFV in 2016 and later would be as follows (assuming non-zero use of the alternative fuel):

(W1xCO2conv)+(W2xCO2alt),

Where,

W1 and W2 are the proportion of miles driven using conventional fuel and alternative fuel, respectively, CO2conv is the

CO2value while using conventional fuel, and

CO2alt is the CO2value while using the alternative fuel. d. Dedicated Alternative Fuel Vehicle Credits

Like the FFV credit program described above, these credits would be treated differently in the first years of the program than in the 2016 and later model years. In fact, these credits are essentially identical to the FFV credits except for two things: (1) There is no need to average CO2values for gasoline and alternative fuel, and

(2) in 2016 and later there is no demonstration needed to get a benefit from the alternative fuel. The CO2values are essentially determined the same way they are for FFVs operating on the alternative fuel. For the 2012 through 2015 model years the CO2test results are multiplied by the credit adjustment factor of 0.15, and the result is production-weighted in the fleet average calculation. For example, assume that Manufacturer A now produces 20,000 dedicated CNG vehicles with CO2emissions of 220 grams/mile, in addition to the FFVs and PHEVs already included in their fleet (Figure III.E.5- 4). Prior to the 2016 model year the CO2emissions representing these CNG vehicles would be 33 grams/mile (220 x 0.15).

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TIFF OMITTED TP28SE09.019

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The calculation for 2016 and later would be exactly the same except the 0.15 credit adjustment factor would be removed from the equation, and the CNG vehicles would simply be production-weighted in the equation using their actual emissions value of 220 grams/mile instead of the ``credited'' value of 33 grams/mile. e. Air Conditioning Leakage Credits

Unlike the credit programs described above, air conditioning- related credits do not affect the overall calculation of the fleet average. Whether a manufacturer generates zero air conditioning credits or many, the calculated fleet average remains the same. Air conditioning credits are calculated and added to any credits (or deficit) that results from the fleet average calculation. Thus, these credits can increase a manufacturer's credit balance or offset a deficit, but their calculation is external to the fleet average calculation. As noted in Section III.C, manufacturers could generate credits for reducing the leakage of refrigerant from their air conditioning systems. To do this the manufacturer would identify an air conditioning system improvement, indicate that they

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intend to use the improvement to generate credits, and then calculate an annual leakage rate (grams/year) for that system based on the method defined by the proposed regulations. Air conditioning credits would be determined separately for cars and trucks using the car and truck- specific equations described in Section III.C.

In order to put these credits on the same basis as the basic and other credits describe above, the air conditioning leakage credits would need to be calculated separately for cars and trucks. Thus, the resulting grams per mile credit determined from the appropriate car or truck equation would be multiplied by the lifetime VMT (190,971 for cars; 221,199 for trucks), and then divided by 1,000,000 to get the total megagrams of CO2credits generated by the improved air conditioning system. Although the calculations are done separately for cars and trucks, the total megagrams would be summed and then added to the overall credit balance maintained by the manufacturer.

For example, assume that Manufacturer A has improved an air conditioning system that is installed in 250,000 cars and that the calculated leakage rate is 12 grams/year. Assume that the manufacturer has also implemented a new refrigerant with a Global Warming Potential of 850. In this case the credit per air conditioning unit, rounded to the nearest gram per mile would be:

13.8 x [1--(12/16.6 x 850/1430)

= 7.9 g/mi.

Total megagrams of credits would then be:

7.9 x 250,000 x 190971

/ 1,000,000 = 377,168 Mg.

These credits would be added directly to a manufacturer's total balance; thus in this example Manufacturer A would now have, after consideration of all the above credits, a total of 5,437,900 Megagrams of credits. f. Air Conditioning Efficiency Credits

As noted in Section III.C.1.b, manufacturers could earn credits for improvements in air conditioning efficiency that reduce the impact of the air conditioning system on fuel consumption. These credits are similar to the air conditioning leakage credits described above, in that these credits are determined independently from the manufacturer's fleet average calculation, and the resulting credits are added to the manufacturer's overall balance for the respective model year. Like the air conditioning leakage credits, these credits can increase a manufacturer's credit balance or offset a deficit, but their calculation is external to the fleet average calculation.

CO2credits generated by the improved air conditioning system. Although the calculations are done separately for cars and trucks, the total megagrams can be summed and then added to the overall credit balance maintained by the manufacturer.

As described in Section III.C, manufacturers would determine their credit based on selections from a menu of technologies, each of which provides a gram per mile credit amount. The credits would be summed for all the technologies implemented by the manufacturer, but could not exceed 5.7 grams per mile. Once this is done, the calculation is a straightforward translation of a gram per mile credit to total car or truck megagrams, using the same methodology described above. For example, if Manufacturer A implements enough technologies to get the maximum 5.7 grams per mile for an air conditioning system that sells 250,000 units in cars, the calculation of total credits would be as follows:

5.7 x 250,000 x 190971

/ 1,000,000 = 272,134 Mg.

These credits would be added directly to a manufacturer's total balance; thus in this example Manufacturer A would now have, after consideration of all the above credits, a total of 5,710,034 Megagrams of credits. g. Off-Cycle Technology Credits

As described in Section III.C, these credits would be available for certain technologies that achieve real-world CO2reductions that aren't adequately captured on the city or highway test cycles used to determine compliance with the fleet average standards. Like the air conditioning credits, these credits are independent of the fleet average calculation. Section III.C.4 describes two options for generating these credits: either using EPA's 5-cycle fuel economy labeling methodology, or if that method fails to capture the

CO2-reducing impact of the technology, the manufacturer could propose and use, with EPA approval, a different analytical approach to determining the credit amount. Like the air conditioning credits above, these credits would have to be determined separately for cars and trucks because of the differing lifetime mileage assumptions between cars and trucks.

Using the 5-cycle approach would be relatively straightforward, and because the 5-cycle formulae account for nationwide variations in driving conditions, no additional adjustments to the test results would be necessary. The manufacturer would simply calculate a 5-cycle

CO2value with the technology installed and operating and compare it with a 5-cycle CO2value determined without the technology installed and/or operating. Existing regulations describe how to calculate 5-cycle fuel economy values, and the proposed regulations contain provisions that describe how to calculate 5-cycle

CO2values. The manufacturer would have to design a test program that accounts for vehicle differences if the technology is installed in different vehicle types, and enough data would have to be collected to address data uncertainty issues. A description of such a test program and the results would be submitted to EPA for approval.

As noted in Section III.C.4, a manufacturer-developed testing, data collection and analysis program would require some additional EPA approval and oversight. Once the demonstration of the CO2 reduction of an off-cycle technology is complete, however, and the resulting value accounts for variations in driving, climate and other conditions across the country, the two approaches are treated fundamentally the same way and in a way that parallels the approach for determining the air conditioning credits described above. Once a gram per mile value is approved by the EPA, the manufacturer would determine the total credit value by multiplying the gram per mile per vehicle credit by the volume of vehicles with that technology and approved for use of the credit. This would then be multiplied by the lifetime vehicle miles for cars or trucks, whichever applies, and divided by 1,000,000 to obtain total Megagrams of CO2credits. These credits would then be added to the manufacturer's total balance for the given model year. Just like the above air conditioning case, an off- cycle technology that is demonstrated to achieve an average

CO2reduction of 4 grams/mile and that is installed in 175,000 cars would generate credits as follows:

4 x 175,000 x 190971

/ 1,000,000 = 133,680 Mg.

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h. End-of-Year Reporting

In general, implementation of the averaging, banking, and trading

(ABT) program, including the calculation of credits and deficits, would be accomplished via existing reporting mechanisms. EPA's existing regulations define how manufacturers calculate fleet average miles per gallon for CAFE compliance purposes, and EPA is proposing to modify these regulations to also require the parallel calculation of fleet average CO2levels for car and light truck compliance categories. These regulations already require an end-of-year report for each model year, submitted to EPA, which details the test results and calculations that determine each manufacturer's CAFE levels. EPA is proposing to require that this report also include fleet average

CO2levels. In addition to requiring reporting of the actual fleet average achieved, this end-of-year report would also contain the calculations and data determining the manufacturer's applicable fleet average standard for that model year. As under the existing Tier 2 program, the report would be required to contain the fleet average standard, all values required to calculate the fleet average standard, the actual fleet average CO2that was achieved, all values required to calculate the actual fleet average, the number of credits generated or debits incurred, all the values required to calculate the credits or debits, and the resulting balance of credits or debits.

Because of the multitude of credit programs that are available, the end-of-year report will be required to have more data and a more defined and specific structure than the CAFE end-of-year report does today. Although requiring ``all the data required'' to calculate a given value should be inclusive, the proposed report would contain some requirements specific to certain types of credits.

For advanced technology credits that apply to vehicles like electric vehicles and plug-in hybrid electric vehicles, manufacturers would be required to identify the number and type of these vehicles and the effect of these credits on their fleet average. The same would be true for credits due to flexible-fuel and alternative-fuel vehicles, although for 2016 and later flexible-fuel credits manufacturers would also have to provide a demonstration of the actual use of the alternative fuel in-use and the resulting calculations of

CO2values for such vehicles. For air conditioning leakage credits manufacturers would have to include a summary of their use of such credits that would include which air conditioning systems were subject to such credits, information regarding the vehicle models which were equipped with credit-earning air conditioning systems, the production volume of these air conditioning systems, the leakage score of each air conditioning system generating credits, and the resulting calculation of leakage credits. Air conditioning efficiency reporting will be somewhat more complicated given the phase-in of the efficiency test, and reporting would have to detail compliance with the phase-in as well as the test results and the resulting efficiency credits generated. Similar reporting requirements would also apply to the variety of possible off-cycle credit options, where manufacturers would have to report the applicable technology, the amount of credit per unit, the production volume of the technology, and the total credits from that technology.

Although it is the final end-of-year report, when final production numbers are known, that will determine the degree of compliance and the actual values of any credits being generated by manufacturers, EPA is also proposing that manufacturers be prepared to discuss their compliance approach and their potential use of the variety of credit options in pre-certification meetings that EPA routinely has with manufacturers. In addition, and in conjunction with a pre-model year report required under the CAFE program, the manufacturer would be required to submit projections of all of the elements described above.

Finally, to the extent that there are any credit transactions, the manufacturer would have to detail in the end-of-year report documentation on all credit transactions that the manufacturer has engaged in. Information for each transaction would include: The name of the credit provider, the name of the credit recipient, the date the transfer occurred, the quantity of credits transferred, and the model year in which the credits were earned. Failure by the manufacturer to submit the annual report in the specified time period would be considered to be a violation of section 203(a)(1) of the Clean Air Act. 6. Enforcement

As discussed above in Section III.E.5 under the proposed program, manufacturers would report to EPA their fleet average standard for a given model year (reporting separately for each of the car and truck averaging sets), the credits or deficits generated in the current year, the balance of credit balances or deficits (taking into account banked credits, deficit carry-forward, etc. see Section III.E.5), and whether they were in compliance with the fleet average standard under the terms of the regulations. EPA would review the annual reports, figures, and calculations submitted by the manufacturer to determine any nonconformance. EPA requests comments on the above approach for monitoring and enforcement of the fleet average standard.

Each certificate, required prior to introduction into commerce, would be conditioned upon the manufacturer attaining the CO2 fleet average standard. If a manufacturer failed to meet this condition and had not generated or purchased enough credits to cover the fleet average exceedance following the three year deficit carry-forward

(Section III.B.4, then EPA would review the manufacturer's sales for the most recent model year and designate which vehicles caused the fleet average standard to be exceeded. EPA would designate as nonconforming those vehicles with the highest emission values first, continuing until a number of vehicles equal to the calculated number of non-complying vehicles as determined above is reached and those vehicles would be considered to be not covered by the certificates of conformity covering those model types. In a test group where only a portion of vehicles would be deemed nonconforming, EPA would determine the actual nonconforming vehicles by counting backwards from the last vehicle sold in that model type. A manufacturer would be subject to penalties and injunctive orders on an individual vehicle basis for sale of vehicles not covered by a certificate. This is the same general mechanism used for the National LEV and Tier 2 corporate average standards, except that these programs operate slightly differently in that the non-compliant vehicles would be designated not in the most recent model year, but in the model year in which the deficit originated. EPA requests comment on which approach is most appropriate; the Tier 2 approach of penalizing vehicles from the year in which the deficit was generated, or the proposed approach that would penalize vehicles from the year in which the manufacturer failed to make up the deficit as required.

Section 205 of the CAA authorizes EPA to assess penalties of up to

$37,500 per vehicle for violations of the requirements or prohibitions of this proposed rule.\176\ This section of the

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CAA provides that the agency shall take the following penalty factors into consideration in determining the appropriate penalty for any specific case: The gravity of the violation, the economic benefit or savings (if any) resulting from the violation, the size of the violator's business, the violator's history of compliance with this title, action taken to remedy the violation, the effect of the penalty on the violator's ability to continue in business, and such other matters as justice may require.

\176\ 42 U.S.C. 7524(a), Civil Monetary Penalty Inflation

Adjustment, 69 FR 7121 (Feb. 13, 2004) and Civil Monetary Penalty

Inflation Adjustment Rule, 73 FR 75340 (Dec. 11, 2008).

EPA recognizes that it may be appropriate, should a manufacturer fail to comply with the NHTSA fuel economy standards as well as the

CO2standard proposed today in a case arising out of the same facts and circumstances, to take into account the civil penalties that NHTSA has assessed for violations of the CAFE standards when determining the appropriate penalty amount for violations of the

CO2emissions standards. This approach is consistent with

EPA's broad discretion to consider ``such other matters as justice may require,'' and will allow EPA to exercise its discretion to prevent injustice and ensure that penalties for violations of the

CO2rule are assessed in a fair and reasonable manner.

The statutory penalty factor that allows EPA to consider ``such other matters as justice may require'' vests EPA with broad discretion to reduce the penalty when other adjustment factors prove insufficient or inappropriate to achieve justice.\177\ The underlying principle of this penalty factor is to operate as a safety mechanism when necessary to prevent injustice.\178\

\177\ In re Spang & Co., 6 E.A.D. 226, 249 (EAB 1995).

\178\ B.J. Carney Industries, 7 E.A.D. 171, 232, n. 82 (EAB 1997).

In other environmental statutes, Congress has specifically required

EPA to consider penalties assessed by other government agencies where violations arise from the same set of facts. For instance, section 311(b)(8) of the Clean Water Act, 33 U.S.C. 1321(b)(8) authorizes EPA to consider any other penalty for the same incident when determining the appropriate Clean Water Act penalty. Likewise, section 113(e) of the CAA authorizes EPA to consider ``payment by the violator of penalties previously assessed for the same violation'' when assessing penalties for certain violations of Title I of the Act. 7. Prohibited Acts in the CAA

Section 203 of the Clean Air Act describes acts that are prohibited by law. This section and associated regulations apply equally to the greenhouse standards proposed today as to any other regulated pollutant. 8. Other Certification Issues a. Carryover/Carry Across Certification Test Data

EPA's certification program for vehicles allows manufacturers to carry certification test data over and across certification testing from one model year to the next, when no significant changes to models are made. EPA expects that this policy could also apply to

CO2, N2O and CH4certification test data. A manufacturer may also be eligible to use carryover and carry across data to demonstrate CO2fleet average compliance if they had done so for CAFE purposes. b. Compliance Fees

The CAA allows EPA to collect fees to cover the costs of issuing certificates of conformity for the classes of vehicles and engines covered by this proposal. On May 11, 2004, EPA updated its fees regulation based on a study of the costs associated with its motor vehicle and engine compliance program (69 FR 51402). At the time that cost study was conducted the current rulemaking was not considered.

At this time the extent of any added costs to EPA as a result of this proposal is not known. EPA will assess its compliance testing and other activities associated with the proposed rule and may amend its fees regulations in the future to include any warranted new costs. c. Small Entity Deferment

EPA is proposing to defer CO2standards for certain small entities, and these entities (necessarily) would not be subject to the certification requirements of this proposal.

As discussed in Section III.B.7, businesses meeting the Small

Business Administration (SBA) criterion of a small business as described in 13 CFR 121.201 would not be subject to the proposed GHG requirements, pending future regulatory action. EPA is proposing that such entities submit a declaration to EPA containing a detailed written description of how that manufacturer qualifies as a small entity under the provisions of 13 CFR 121.201 in order to ensure EPA is aware of the deferred companies. This declaration would have to be signed by a chief officer of the company, and would have to be made at least 30 days prior to the introduction into commerce of any vehicles for each model year for which the small entity status is requested, but not later than

December of the calendar year prior to the model year for which deferral is requested. For example, if a manufacturer will be introducing model year 2012 vehicles in October of 2011, then the small entity declaration would be due in September of 2011. If 2012 model year vehicles are not planned for introduction until March of 2012, then the declaration would have to be submitted in December of 2011.

Such entities are not automatically exempted from other EPA regulations for light-duty vehicles and light-duty trucks; therefore, absent this annual declaration EPA would assume that each entity was not deferred from compliance with the proposed greenhouse gas standards. d. Onboard Diagnostics (OBD) and CO2Regulations

The light-duty on-board diagnostics (OBD) regulations require manufacturers to detect and identify malfunctions in all monitored emission-related powertrain systems or components.\179\ Specifically, the OBD system is required to monitor catalysts, oxygen sensors, engine misfire, evaporative system leaks, and any other emission control systems directly intended to control emissions, such as exhaust gas recirculation (EGR), secondary air, and fuel control systems. The monitoring threshold for all of these systems or components is 1.5 times the applicable standards, which typically include NMHC, CO,

NOX, and PM. EPA is confident that many of the emission- related systems and components currently monitored would effectively catch any malfunctions related to CO2emissions. For example, malfunctions resulting from engine misfire, oxygen sensors, the EGR system, the secondary air system, and the fuel control system would all have an impact on CO2emissions. Thus, repairs made to any of these systems or components should also result in an improvement in CO2emissions. In addition, EPA does not have data on the feasibility or effectiveness of monitoring various emission systems and components for CO2emissions and does not believe it would be prudent to include CO2emissions without such information. Therefore, at this time, EPA does not plan to require

CO2emissions as one of the applicable standards required for the OBD monitoring threshold. EPA plans to evaluate OBD monitoring technology, with regard to monitoring CO2emissions-related systems and components, and may choose to propose to include

CO2emissions as part of the OBD requirements in a future regulatory

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

\179\ 40 CFR 86.1806-04.

e. Applicability of Current High Altitude Provisions to Greenhouse

Gases

EPA is proposing that vehicles covered by this proposal meet the

CO2, N2O and CH4standard at altitude.

The CAA requires emission standards under section 202 to apply at all altitudes.\180\ EPA does not expect vehicle CO2,

CH4, or N2O emissions to be significantly different at high altitudes based on vehicle calibrations commonly used at all altitudes. Therefore, EPA is proposing to retain its current high altitude regulations so manufacturers would not normally be required to submit vehicle CO2test data for high altitude.

Instead, they would submit an engineering evaluation indicating that common calibration approaches will be utilized at high altitude. Any deviation in emission control practices employed only at altitude would need to be included in the auxiliary emission control device (AECD) descriptions submitted by manufacturers at certification. In addition, any AECD specific to high altitude would be required to include emissions data to allow EPA evaluate and quantify any emission impact and validity of the AECD. EPA requests comment on this approach, and specifically requests data on impact of altitude on FTP and HFET

CO2emissions.

\180\ See CAA 206(f).

f. Applicability of Standards to Aftermarket Conversions

With the exception of the small entity deferment option EPA is proposing, EPA's emission standards, including the proposed greenhouse gas standards, would continue to apply as stated in the applicability sections of the relevant regulations. The proposed greenhouse gas standards are being incorporated into 40 CFR part 86, subpart S, the provisions of which include exhaust and evaporative emission standards for criteria pollutants. Subpart S includes requirements for new light- duty vehicles, light-duty trucks, medium-duty passenger vehicles, Otto- cycle complete heavy-duty vehicles, and some incomplete light-duty trucks. Subpart S is currently specifically applicable to aftermarket conversion systems, aftermarket conversion installers, and aftermarket conversion certifiers, as those terms are defined in 40 CFR 85.502. EPA expects that some aftermarket conversion companies would qualify for and seek the small entity deferment, but those that do not qualify would be required to meet the applicable emission standards, including the proposed greenhouse gas standards. 9. Miscellaneous Revisions to Existing Regulations a. Revisions and Additions to Definitions

EPA is proposing to amend its definitions of ``engine code,''

``transmission class,'' and ``transmission configuration'' in its vehicle certification regulations (Part 86) to conform with the definitions for those terms in its fuel economy regulations (Part 600).

The exact terms in Part 86 are used for reporting purposes and are not used for any compliance purpose (e.g., an engine code would not determine which vehicle was selected for emission testing). However, the terms are used for this purpose in Part 600 (e.g., engine codes, transmission class, and transmission configurations are all criteria used to determine which vehicles are to be tested for the purposes of establishing corporate average fuel economy). Here, EPA is proposing that the same vehicles tested to determine corporate average fuel economy also be tested to determine fleet average CO2, so the same definitions should apply. Thus EPA is proposing to amend its

Part 86 definitions of the above terms to conform to the definitions in

Part 600.

To bring EPA's fuel economy regulations in Part 600 into conformity with this proposal for fleet average CO2and NHTSA's reform truck regulations two amendments are proposed. First, the definition of

``footprint'' that is proposed in this rule is also being proposed for addition to EPA's Part 86 and 600 regulations. This definition is based on the definition promulgated by NHTSA at 49 CFR 523.2. Second, EPA is proposing to amend its model year CAFE reporting regulations to include the footprint information necessary for EPA to determine the reformed truck standards and the corporate average fuel economy. This same information is proposed to be included in this proposal for fleet average CO2and fuel economy compliance. b. Addition of Ethanol Fuel Economy Calculation Procedures

EPA is proposing to add calculation procedures to part 600 for determining the carbon-related exhaust emissions and calculating the fuel economy of vehicles operating on ethanol fuel. Manufacturers have been using these procedures as needed, but the regulatory language-- which specifies how to determine the fuel economy of gasoline, diesel, compressed natural gas, and methanol fueled vehicles--has not previously been brought up-to-date to provide procedures for vehicles operating on ethanol. Thus EPA is proposing a carbon balance approach similar to other fuels for the determination of carbon-related exhaust emissions for the purpose of determining fuel economy and for compliance with the proposed fleet average CO2standards.

The carbon balance formula is similar to that for methanol, except that ethanol-fueled vehicles must also measure the emissions of ethanol and acetaldehyde. The proposed carbon balance equation for determining fuel economy is as follows, where CWF is the carbon weight fraction of the fuel and CWFexHCis the carbon weight fraction of the exhaust hydrocarbons: mpg = (CWF x SG x 3781.8)/((CWFexHCx HC) + (0.429 x CO) +

(0.273 x CO2) + (0.375 x CH3OH) + (0.400 x

HCHO) + (0.521 x C2H5OH) + (0.545 x

C2H4O))

The proposed equation for determining the total carbon-related exhaust emissions for compliance with the CO2fleet average standards is the following, where CWFexHCis the carbon weight fraction of the exhaust hydrocarbons:

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

C2H5OH) + (0.545 x

C2H4O) + CO2.

EPA requests comment on the use of these formulae to determine fuel economy and carbon emissions. c. Revision of Electric Vehicle Applicability Provisions

In 1980 EPA issued a rule that provided for the inclusion of electric vehicles in the CAFE program.\181\ EPA now believes that certain provisions of the regulations should be updated to reflect the current state of motor vehicle emission and fuel economy regulations.

In particular, EPA believes that the exemption of electric vehicles in certain cases from fuel economy labeling and CAFE requirements should be reevaluated and revised.

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

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

Page 49576

produces fewer than 10,000 vehicles of all kinds worldwide. EPA believes that this exemption language is no longer appropriate and proposes to delete it from the affected regulations. First, since 1980 many regulatory provisions have been put in place to address the concerns of small manufacturers and enable them to comply with fuel economy and emission programs with reduced burden. EPA believes that all small volume manufacturers should compete on a fair and level regulatory playing field and that there is no longer a need to treat small volume electric vehicles any differently than small volume manufacturers of other types of vehicles. Current regulations contain streamlined certification procedures for small companies, and because electric vehicles emit no direct pollution there is effectively no certification emission testing burden. For example, the proposed greenhouse gas regulations contain a provision allowing the exemption of certain small entities. Meeting the requirements for fuel economy labeling and CAFE will entail a testing, reporting, and labeling burden, but these burdens are not extraordinary and should be applied equally to all small volume manufacturers, regardless of the fuel that moves their vehicles. EPA has been working with existing electric vehicle manufacturers on fuel economy labeling, and EPA believes it is important for the consumer to have impartial, accurate, and useful label information regarding the energy consumption of these vehicles.

Second, EPCA does not provide for an exemption of electric vehicles from NHTSA's CAFE program, and NHTSA regulations regarding the applicability of the CAFE program do not provide an exemption for electric vehicles. Third, the blanket exemption for any manufacturer of only electric vehicles assumed at the time that these companies would all be small, but the exemption language inappropriately did not account for size and would allow large manufacturers to be exempt as well. Finally, because of growth expected in the electric vehicle market in the future, EPA believes that the labeling and CAFE regulations need to be designed to more specifically accommodate electric vehicles and to require that consumers be provided with appropriate information regarding these vehicles. For these reasons EPA is proposing revisions to 40 CFR Part 600 applicability regulations such that these electric vehicle exemptions are deleted starting with the 2012 model year. d. Miscellaneous Conforming Regulatory Amendments

Throughout the regulations EPA has made a number of minor amendments to update the regulations as needed or to conform with amendments discussed in this preamble. For example, for consistency with the ethanol fuel economy calculation procedures discussed above,

EPA has amended regulations where necessary to require the collection of emissions of ethanol and acetaldehyde. Other changes are made to applicability sections to remove obsolete regulatory requirements such as phase-ins related to EPA's Tier 2 emission standards program, and still other changes are made to better accommodate electric vehicles in

EPA emission control regulations. Not all of these minor amendments are noted in this preamble, thus the reader should carefully evaluate the proposed regulatory text to ensure a complete understanding of the regulatory changes being proposed by EPA. 10. Warranty, Defect Reporting, and Other Emission-Related Components

Provisions

Under section 207(a) of the CAA, manufacturers must warrant that a vehicle is designed to comply with the standards and will be free from defects that may cause it to not comply over the specified period which is 2 years/24,000 miles (whichever is first) or, for major emission control components, 8 years/80,000 miles. Under certain conditions, manufacturers may be liable to replace failed emission components at no expense to the owner. EPA regulations define ``emission related parts'' for the purpose of warranty. This definition includes parts which must function properly to assure continued compliance with the emission standards.\182\

\182\ 40 CFR 85.2102(14).

The air conditioning system and its components have not previously been covered under the CAA warranty provisions. However, the proposed

A/C leakage and A/C-related CO2emission standards are dependent upon the proper functioning of a number of components on the

A/C system, such as rings, fittings, compressors, and hoses. Therefore,

EPA is proposing that these components be included under the CAA section 207(a) emission warranty provisions, with a warranty of 2 years/24,000 miles.

EPA requests comment as to whether any other parts or components should be designated as ``emission related parts'' subject to warranty and defect reporting provisions under this proposal. 11. Light Duty Vehicles and Fuel Economy Labeling

American consumers need accurate and meaningful information about the environmental and fuel economy performance of new light vehicles.

EPA believes it is important that the fuel-economy label affixed to the new vehicles provide consumers with the critical information they need to make smart purchase decisions. This is a special challenge in light of the expected increase in market share of electric and other advanced technology vehicles. Consumers may need new and different information than today's vehicle labels provide in order to help them understand the energy use and associated cost of owning these electric and advanced technology vehicles. As discussed below, these two issues are key to determining whether the current MPG-based fuel-economy label is adequate.

Therefore, as part of this action, EPA seeks comments on issues surrounding consumer vehicle labeling in general, and labeling of advanced technology vehicles in particular. EPA also plans to initiate a separate rulemaking to explore in detail the information displayed on the fuel economy label and the methodology for deriving that information. The purposes of this new rulemaking would be to ensure that American consumers continue to have the most accurate, meaningful, and useful information available to them when purchasing new vehicles, and that the information is presented to them in clear and understandable terms. a. Background

EPA has considerable experience in providing vehicle information to consumers through its fuel-economy labeling activities and related web- based programs. Under 49 U.S.C. 32908(b) EPA is responsible for developing the fuel economy labels that are posted on window stickers of all new light duty cars and trucks sold in the U.S. and, beginning with the 2011 model year, on all new medium-duty passenger vehicles (a category that includes large sport-utility vehicles and passenger vans). The statutory requirements established by EPCA require that the label contain the following:

The fuel economy of the vehicle; \183\

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

The estimated annual fuel cost of operating the vehicle;

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The range of fuel economy of comparable vehicles among all manufacturers;

A statement that a fuel economy booklet is available from the dealer; \184\ and

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

The amount of the ``gas guzzler'' tax imposed on the vehicle by the Internal Revenue Service.

Other information required or authorized by EPA that is related to the information required above.

Fuel economy is defined as the number of miles traveled by an automobile for each gallon of gasoline (or equivalent amount of other fuel). It is relatively easy to determine the miles per gallon (MPG) for vehicles that use liquid fuels (e.g., gasoline or diesel), but an expression that uses gallons--whether miles per gallon or gallons per mile--may not be a useful metric for vehicles that have limited to no operation on liquid fuel such as electric or compressed natural gas vehicles. The mpg metric is the one generally used today to provide comparative fuel economy information to consumers.

As part of its vehicle certification, CAFE, and fuel economy labeling authorities, EPA works with stakeholders on the testing and other regulatory requirements necessary to bring advanced technology vehicles to market. With increasing numbers of advanced technology vehicles beginning to be sold, EPA believes it is now appropriate to address potential regulatory and certification issues associated with these technologies including how best to provide relevant consumer information about their environmental impact, energy consumption, and cost. b. Test Procedures

As discussed in this notice, there are explicit and very long- standing test procedures and calculation methodologies associated with

CAFE that EPA uses to test conventionally-fueled vehicles and to calculate their fuel economy. These test procedures and calculations also generally apply to advanced technology vehicles (e.g., an electric

(EV) or plug-in hybrid vehicle (PHEV)).

The basic test procedure for an electric vehicle follows a standardized practice--an EV is fully charged and then driven over the city cycle (Urban Dynamometer Drive Schedule) until the vehicle can no longer maintain the required drive cycle vehicle speed. For some vehicles, this could require operation over multiple drive cycles. The

EV is then fully recharged and the AC energy to the charger is recorded.

To derive the CAFE value for electric vehicles, the amount of AC energy needed to recharge the battery is divided by the range the vehicle reached in the repeated city drive cycle. This calculation provides a raw CAFE energy consumption value expressed in kilowatt hours per 100 miles. The raw CAFE number is then converted to miles per gallon of equivalent gasoline using a Department of Energy (DOE) conversion factor of 82,700 Kwhr/gallon of gasoline.\185\ The DOE conversion factor combines several adjustments including: an adjustment similar to the statutory 6.67 multiplier credit \186\ used in deriving the final CAFE value for alternative fueled vehicles; a factor representing the gasoline-equivalent energy content of electricity; and various adjustments to account for the relative efficiency of producing and transporting the electricity. The resulting value after the DOE conversion factor is applied becomes the final CAFE city value.

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

\186\ 49 U.S.C. 32905.

The label value calculation for an EV uses a different conversion factor than the CAFE value calculation. To come up with the final city fuel economy label value for an EV, a conversion factor of 33,705 Kwhr/ gallon of gasoline equivalent is applied to the raw consumption number instead of the 82,700 Kwhr/gallon used for CAFE. The conversion factor used for labeling purposes represents only the gasoline-equivalent energy content of electricity, without the multiplier credit and other adjustments used in the CAFE calculation. The consumption, now expressed as a fuel economy in miles per gallon equivalent, is then applied to the derived 5-cycle equation required under EPA's fuel economy labeling regulations. The above process is then repeated for the EV highway fuel economy label number. Finally, the combined city/ highway numbers for the EV use the same 55/45 weighting as conventional vehicles to determine the final fuel economy label values. CAFE numbers end up being significantly higher for EVs than the associated fuel economy label values, both because a higher adjustment factor applies under CAFE regulations and also because other real-world adjustments such as the 5-cycle test are not applied to the CAFE values.

For PHEVs, a similar process would be followed, except that PHEVs require testing in both charge sustain (CS) and charge depleting (CD) modes to capture how these vehicles operate. For charge sustain modes,

PHEVs essentially operate as conventional Hybrid Electric Vehicles

(HEVs). PHEVs therefore test in all 5-cycles (for further information on these test cycles, see Section III.C.4) just as HEVs do for CS fuel economy. For CD fuel economy, PHEVs are only required to test on the

Urban Dynamometer Drive Schedule and Highway Fuel Economy cycles just like other alternative fueled vehicles--the 5-cycle fuel economy testing is optional in the CD mode. There are additional processes that address different PHEV modes, such as for PHEVs that operate solely on electricity throughout the CD mode.

As this discussion shows, the CAFE and fuel economy labeling test procedures and calculations for advanced technology vehicles such as

EVs and PHEVs can be very complicated. EPA is interested in comments on these processes, including views on the appropriate use of adjustment factors. Currently in guidance, EPA references SAE J1634 for EV range and consumption test procedures. EPA currently includes the

``California Exhaust Emission Standards and Test Procedures for 2003 and Subsequent Model Zero-Emission Vehicles, in the Passenger Car,

Light Truck, and Medium-duty Vehicle Classes'' by reference in 40 CFR 86.1. As California requirements and SAE test procedures are updated these may be included by reference in the future. c. Current Fuel Economy Label

In 2006 EPA redesigned the window stickers to make them more informative for consumers. More particular, the redesigned stickers more prominently feature annual fuel cost information, to provide contemporary and easy-to-use graphics for comparing the fuel economy of different vehicles, to use clearer text, and to include a Web site reference to www.fueleconomy.gov which provides additional information.

In addition, EPA updated how the city and highway fuel economy values were calculated, to reflect typical real-world driving patterns.\187\

This rulemaking involved significant stakeholder outreach in determining how best to calculate and display this new information. The feedback EPA has received to date on the new label design and values has been generally very positive.

\187\ 71 FR 77872 (December 27, 2006). Fuel Economy Labeling of

Motor Vehicles: Revisions to Improve Calculations of Fuel Economy

Estimates. U.S. EPA.

During the 2006 label rulemaking process EPA requested comments on

Page 49578

how a fuel consumption metric (such as gallons per 100 miles) could be used and represented to the public, including presentation in the annual Fuel Economy Guide. EPA received a number of comments from both vehicle manufacturers and consumer organizations, suggesting that the

MPG measures can be misleading and that a fuel consumption metric might be more meaningful to consumers than the established MPG metric found on fuel economy labels. The reason is that fuel consumption metric, directly measures the amount of fuel used and is thus directly related to cost that consumers incur when filling up.

The problem with the MPG metric is that it is inversely related to fuel consumption and cost. As higher MPG values are reached, the relative impact of these higher values on fuel consumption and fuel costs decreases. For example, a 25 percent increase in gallons per 100 miles will always lead to a 25 percent increase in the fuel cost, but a similar 25 percent increase in MPG will have varying impacts on actual fuel cost depending on whether the percent increase occurs to a low or high MPG value. Many consumers do not understand this nonlinear relationship between MPG and fuel costs. Evidence suggest that people tend to see the MPG as being linear with fuel cost, which will lead to erroneous decisions regarding vehicle purchases. Figure III.E.11-1 below illustrates the issue; one can see that changes in MPG at low MPG levels can result in large changes in the fuel cost, while changes in

MPG values at high MPG levels result in small changes in the fuel cost.

For example, a change from 10 to 15 MPG will reduce the 10-mile fuel cost from $2.50 to $1.60, but a similar increase in MPG from 20 to 25

MPG will only reduce the 10-mile fuel cost by less than $0.30.

Page 49579

GRAPHIC

TIFF OMITTED TP28SE09.020

Because of the potential for consumers to misunderstand this MPG/ cost relationship, commenters on the 2006 labeling rule universally agreed that any change to the label metric should involve a significant public education campaign directed toward both dealers and consumers.

In 2006, EPA did not include a consumption-based metric on the redesigned fuel economy label in 2006. It was concerned about potential confusion associated with introducing a second metric on the label (MPG is a required element, as noted above). EPA has developed an interactive feature on www.fueleconomy.gov which allows consumers, while viewing data on a specific vehicle, to switch units between the

MPG and gallons per 100 miles metrics. The tool also displays the cost and the amount of fuel needed to drive 25 miles. As indicated above, however, EPA is alert to the problems with the MPG measure and the importance of providing consumers with a clear sense

Page 49580

of the consequences of their purchasing decisions; a gallon-per mile measure would have significant advantages. EPA plans to seek comment and engage in extensive public debate about fuel consumption and other appropriate consumer information metrics as part of a new labeling rule initiative. EPA also welcomes comments on this topic in response to this GHG proposal. d. Labeling for Advanced Technology Vehicles

Even though a fuel consumption metric may more directly represent likely fuel costs than a fuel economy metric, any expression that uses gallons--whether miles per gallon or gallons per mile--is not a useful metric for vehicles that have limited to no operation on liquid fuel

(e.g., electricity or compressed natural gas). For example, PHEVs and extended range electric vehicles (EREVs) can use two types of energy sources: (1) An onboard battery, charged by plugging the vehicle into the electrical grid via a conventional wall outlet, to power an electric motor, as well as (2) a gas or diesel-powered engine to propel the vehicle or power a generator used to provide electricity to the electric motor. Depending on how these vehicles are operated, they can use electricity exclusively, never use electricity and operate like a conventional hybrid, or operate in some combination of these two modes.

The use of a MPG figure alone would not account for the electricity used to propel the vehicle.

EPA has worked closely with numerous stakeholders including vehicle manufacturers, the Society of Automotive Engineers (SAE), the State of

California, the Department of Energy (DOE) and others to develop possible approaches for both estimating fuel economy and labeling vehicles that can operate using more than one energy source. At the present time, EPA believes the appropriate method for estimating fuel economy of PHEVs and EREVs would be a weighted average of fuel economy for the two modes of operation. A methodology developed by SAE and DOE to predict the fractions of total distance driven in each mode of operation (electricity and gas) uses a term known as a utility factor

(UF). By using a utility factor, it is possible to determine a weighted average for fuel economy of the electric and gasoline modes. For example, a UF of 0.8 would indicate that a PHEV or EREV operates in an all electric mode 80% of the time and uses the gasoline engine the other 20% of the time. In this example, the weighted average fuel economy value would be influenced more by the electrical operation than the gasoline operation.

Under this approach, a UF could be assigned to each successive fuel economy test until the battery charge was depleted and the PHEV or EREV needed power from the gasoline engine to propel the vehicle or to recharge the battery. One minus the sum of all the utility factors would then represent the fraction of driving performed in this

``gasoline mode.'' Fuel economy could then be expressed as:

GRAPHIC

TIFF OMITTED TP28SE09.021

Likewise, the electrical consumption would be expressed by adding the fuel consumption from each mode. Since there is no electrical consumption in hybrid mode, the equation for electricity consumption would be as follows:

GRAPHIC

TIFF OMITTED TP28SE09.074

Utility factors could be cycle specific not only due to different battery ranges on different test cycles but also due to the fact that

``highway'' type driving may imply longer trips than urban driving.

That is to say that the average city trip could be shorter than the average highway trip. e. Request for Comments

EPA is interested in comments on both topics raised in this section. For the methodology, we are interested in comments addressing how the utility factor is calculated and which data should be used in establishing the UF. Additionally, commenters should address: The appropriateness of this approach for estimating fuel economy for PHEVs and EREVs, including the concept of using a UF to determine the fuel economy for vehicles operated in multiple modes; the appropriate form and value of the factor, including the type of data that would be necessary to confidently develop it accurately; and availability of other potential methodologies for determining fuel economy for vehicles that can operate in multiple modes, such as ``all electric'' and

``hybrid,'' including the use of fuel consumption, cost, GHG emissions, or other metrics in addition to miles per gallon.

EPA is also requesting comment on how the agency can satisfy statutory labeling requirements while providing relevant information to consumers. For example, the statute indicates that EPA may provide other related items on the label beyond those that are required.\188\

EPA is interested in receiving comments on the potential approaches and supporting data we might consider for adding additional information regarding fuel economics while maintaining our statutory obligation to report MPG on the label.

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

There are a number of different metrics that are available that could be useful in this regard. Two possible options would be to show consumption in fuel use per distance (e.g., gallons/100 miles) or in cost per distance (e.g., $/100 miles). As discussed above, these two metrics have benefits over a straight mpg value in showing a more direct relationship between fuel consumption and cost. The cost/ distance metric has an added potential benefit of providing a common basis for comparing differently fueled or powered vehicles, for example being able to show the cost of gasoline used over a specified distance or time for a conventional gasoline-powered vehicle in comparison to the gasoline and electricity used over the same period for a plug-in hybrid vehicle. Another approach would be to use a metric that provides information about a vehicle's greenhouse gas emissions per unit of travel, such as carbon dioxide equivalent grams per mile (g

CO2e/mi). This type of metric would allow consumers to directly compare among vehicles on the basis of their overall greenhouse gas impact. A total annual energy cost would be another way to look at this information, and is currently used on the fuel economy label. As is currently done, EPA would need to determine and show a common set of fuel costs used to calculate such values, recognizing that energy costs vary across the country.

The Agency is also interested in comments on the usefulness of adding other types of information, such as an estimated driving range for electric vehicles. The label design is also an important issue to consider and any changes to the existing label would need to show information in a technologically accurate, meaningful and understandable manner, while ensuring that the label does not become overcrowded and difficult for consumers to comprehend. EPA is also interested in what and how other information paths, such as web-based programs, could be used to enhance the consumer education process.

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

Effects?

This action is an important step towards curbing steady growth of

GHG emissions from cars and light trucks. In the absence of control,

GHG emissions worldwide and in the U.S. are projected to continue steady growth; Table III.F-1 shows emissions of CO2, methane, nitrous oxide and air conditioning refrigerants on a

CO2-equivalent basis for calendar years 2010, 2020, 2030, 2040 and 2050. U.S. GHGs are estimated to make up roughly 15 percent of total worldwide emissions, and the contribution of direct emissions from cars and light trucks to this U.S. share is growing over time, reaching an estimated 20 percent of U.S. emissions by 2030 in the absence of control. As discussed later in this section, this steady rise in GHG emissions is associated with numerous adverse impacts on human health, food and agriculture, air quality, and water and forestry resources.

Table III.F-1--Reference Case GHG Emissions by Calendar Year

MMTCO2 Eq

2010

2020

2030

2040

2050

All Sectors (Worldwide) a................................

41,016

48,059

52,870

56,940

60,209

All Sectors (U.S. Only) a................................

7,118

7,390

7,765

8,101

8,379

U.S. Cars/Light Truck Only b.............................

1,359

1,332

1,516

1,828

2,261

a ADAGE model projections, U.S. EPA.\189\ b MOVES (2010), OMEGA Model (2020-50) U.S. EPA. See DRIA Chapter 5.3 for modeling details.

EPA's proposed GHG rule, if finalized, will result in significant reductions as newer, cleaner vehicles come into the fleet, and the rule is estimated to have a measurable impact on world global temperatures.

As discussed in Section I, this GHG proposal is part of a joint

National Program such that a large majority of the projected benefits would be achieved jointly with NHTSA's proposed CAFE standards which are described in detail in Section IV of this preamble. EPA estimates the reductions attributable to the GHG program over time assuming the proposed 2016 standards continue indefinitely post-2016,\190\ compared to a baseline scenario in which the 2011 model year fuel economy standards continue beyond 2011.

\189\ U.S. EPA (2009). ``EPA Analysis of the American Clean

Energy and Security Act of 2009: H.R. 2454 in the 111th Congress.''

U.S. Environmental Protection Agency, Washington, DC, USA.

(www.epa.gov/climatechange/economics/economicanalyses.html)

\190\ This analysis does not include the EISA requirement for 35

MPG through 2020 or California's Pavley 1 GHG standards. The proposed standards are intended to supersede these requirements, and the baseline case for comparison is the emissions that would result without further action above the currently promulgated fuel economy standards.

Using this approach, EPA estimates these standards would cut annual fleetwide car and light truck tailpipe CO2emissions 21 percent by 2030, when 90 percent of car and light truck miles will be travelled by vehicles meeting the new standards. Roughly 20 percent of these reductions are due to emission reductions from gasoline extraction, production and distribution processes as a result of reduced gasoline demand associated with this proposal. Some of the overall emission reductions also come from projected improvements in the efficiency of vehicle air conditioning systems, which will substantially reduce direct emissions of HFCs, one of the most potent greenhouse gases, as well as indirect emissions of tailpipe

CO2emissions attributable to reduced engine load from air conditioning. In total, EPA estimates that compared to a baseline of indefinite 2011 model year standards, net GHG emission reductions from the proposed program would be 325 million metric tons CO2- equivalent (MMTCO2eq) annually by 2030, which represents a reduction of 4 percent of total U.S. GHG emissions and 0.6 percent of total worldwide GHG emissions projected in that year. This estimate accounts for all upstream fuel production and distribution emission reductions, vehicle tailpipe emission reductions including air conditioning benefits, as well as increased vehicle miles travelled

(VMT) due to the ``rebound'' effect discussed in Section III.H. EPA estimates this would be the equivalent of removing nearly 60 million cars and light trucks from the road in this timeframe.

EPA projects the total reduction of the program over the full life of model year 2012-2016 vehicles is about 950 MMTCO2eq, with fuel savings of 76 billion gallons (1.8 billion barrels) of gasoline over the life of these vehicles, assuming that some manufacturers take advantage of low-cost HFC reduction strategies to help meet these proposed standards.

These reductions are projected to reduce global mean temperature by approximately 0.007-0.016[deg]C by 2100, and global mean sea level rise is projected to be reduced by approximately 0.06-0.15 cm by 2100. 1. Impact on GHG Emissions a. Calendar Year Reductions Due to GHG Standards

This action, if finalized, will reduce GHG emissions emitted directly from vehicles due to reduced fuel use and more efficient air conditioning systems. In addition to these ``downstream'' emissions, reducing CO2emissions translates directly to reductions in the emissions associated with the processes involved in getting petroleum to the pump, including the extraction and transportation of crude oil, and the production and distribution of finished gasoline

(termed ``upstream'' emissions). Reductions from tailpipe GHG standards grow over time as the fleet turns over to vehicles affected by the standards, meaning the benefit of the program will continue as long as the oldest vehicles in the fleet are replaced by newer, lower

CO2emitting vehicles.

EPA is not projecting any reductions in tailpipe CH4or

N2O emissions as a result of these proposed emission caps, which are meant to prevent emission backsliding and to bring diesel vehicles equipped with advanced technology aftertreatment into alignment with current gasoline vehicle emissions.

As detailed in the DRIA, EPA estimated calendar year tailpipe

CO2reductions based on pre- and post-control CO2 gram per mile levels from EPA's OMEGA model and assumed to continue indefinitely into the future, coupled with VMT projections from

AEO2009. These estimates reflect the real-world CO2 emissions reductions projected for the entire U.S. vehicle fleet in a specified calendar year, including the projected effect of air conditioning credits, TLAASP credits and FFV credits. EPA also estimated full lifetime reductions for model years 2012-2016

Page 49582

using pre- and post-control CO2levels projected by the

OMEGA model, coupled with projected vehicle sales and lifetime mileage estimates. These estimates reflect the real-world CO2 emissions reductions projected for model years 2012 through 2016 vehicles over their entire life.

This proposal would allow manufacturers to earn credits for improved vehicle air conditioning efficiency. Since these improvements are relatively low cost, EPA projects that manufacturers will take advantage of this flexibility, leading to reductions from emissions associated with vehicle air conditioning systems. As explained above, these reductions will come from both direct emissions of air conditioning refrigerant over the life of the vehicle and tailpipe

CO2emissions produced by the increased load of the A/C system on the engine. In particular, EPA estimates that direct emissions of HFCs, one of the most potent greenhouse gases, would be reduced 40 percent from light-duty vehicles when the fleet has turned over to more efficient vehicles. The fuel savings derived from lower tailpipe CO2would also lead to reductions in upstream emissions. Our estimated reductions from the A/C credits program are based on our analysis of how manufacturers are expected to take advantage of this credit opportunity in complying with the

CO2fleetwide average tailpipe standards.

Upstream emission reductions associated with the production and distribution of fuel were estimated using emission factors from DOE's

GREET1.8 model, with some modifications as detailed in the DRIA. These estimates include both international and domestic emission reductions, since reductions in foreign exports of finished gasoline and/or crude would make up a significant share of the fuel savings resulting from the proposed GHG standards. Thus, significant portions of the upstream

GHG emission reductions will occur outside of the U.S.; a breakdown of projected international versus domestic reductions is included in the

DRIA.

Table III.F.1-1 shows reductions estimated from these proposed GHG standards assuming a pre-control case of 2011 MY standards continuing indefinitely beyond 2011, and a post-control case in which 2016 MY standards continue indefinitely beyond 2016. These reductions are broken down by upstream and downstream components, including air conditioning improvements, and also account for the offset from a 10 percent VMT ``rebound'' effect as discussed in Section III.H. Including the reductions from upstream emissions, total reductions are estimated to reach 325 MMTCO2eq annually by 2030 (a 21 percent reduction in U.S. car and light truck emissions), and grow to over 500

MMTCO2eq in 2050 as cleaner vehicles continue to come into the fleet (a 23 percent reduction in U.S. car and light truck emissions).

Table III.F.1-1--Projected Net GHG Reductions

MMTCO2 Eq per year

Calendar year

2020

2030

2040

2050

Net Reduction Due to Tailpipe Standards *.......

165.2

324.6

417.5

518.5

Tailpipe Standards..............................

107.7

211.4

274.1

344.0

A/C--indirect CO2...............................

11.0

21.1

27.3

34.2

A/C--direct HFCs................................

13.5

27.2

32.1

34.9

Upstream........................................

33.1

64.9

84.1

105.5

Percent reduction relative to U.S. reference

12.4%

21.4%

22.8%

22.9%

(cars + light trucks)..........................

Percent reduction relative to U.S. reference

2.2%

4.2%

5.2%

6.2%

(all sectors)..................................

Percent reduction relative to worldwide

0.3%

0.6%

0.7%

0.9% reference......................................

* Includes impacts of 10% VMT rebound rate presented in Table III.F.1-3. b. Lifetime Reductions for 2012-2016 Model Years

EPA also analyzed the emission reductions over the full life of the 2012-2016 model year cars and trucks affected by this proposal.\191\

These results, including both upstream and downstream GHG contributions, are presented in Table III.F.1-2, showing lifetime reductions of nearly 950 MMTCO2eq, with fuel savings of 76 billion gallons (1.8 billion barrels) of gasoline.

\191\ As detailed in the DRIA, for this analysis the full life of the vehicle is represented by average lifetime mileages for cars

(190,000 miles) and trucks (221,000 miles) averaged over calendar years 2012 through 2030, a function of how far vehicles drive per year and scrappage rates.

Table III.F.1-2--Projected Net GHG Reductions

MMTCO2 Eq per year

Lifetime GHG

Lifetime fuel

Model year

reduction (MMT savings (billion

CO2 EQ)

gallons)

2012................................

81.4

6.6 2013................................

125.0

10.0 2014................................

174.1

13.9 2015................................

243.2

19.5 2016................................

323.6

26.3

Total Program Benefit...........

947.4

76.2

Page 49583

c. Impacts of VMT Rebound Effect

As noted above and discussed more fully in Section III.H., the effect of fuel cost on VMT (``rebound'') was accounted for in our assessment of economic and environmental impacts of this proposed rule.

A 10 percent rebound case was used for this analysis, meaning that VMT for affected model years is modeled as increasing by 10 percent as much as the increase in fuel economy; i.e., a 10 percent increase in fuel economy would yield a 1.0 percent increase in VMT. Results are shown in

Table III.F.1-3; using the 10 percent rebound rate results in an overall emission increase of 26.4 MMTCO2eq annually in 2030

(this increase is accounted for in the reductions presented in Tables

III.F.1-1 and III.F.1-2). Our estimated changes in CH4or

N2O emissions as a result of these proposed vehicle GHG standards are attributed solely to this rebound effect.

As discussed in Section III.H, EPA will be reassessing the appropriate rate of VMT rebound for the final rule. Although EPA has not directly quantified the GHG emissions effect of using a lower rebound rate for this analysis, lowering the rebound rate would reduce the emission increases in Tables III.F.1-1 and III.F.1-2 in proportion

(i.e., zero rebound equals zero emissions effect), and, thus, would increase our estimates of emission reductions due to these proposed standards.

Table III.F.1-3--GHG Impact of 10% VMT Rebound a

MMTCO2 Eq per year

2020

2030

2040

2050

Total GHG Increase..............................

13.6

26.4

34.2

42.9

Tailpipe & Indirect A/C CO2.....................

10.6

20.6

26.6

33.4

Upstream GHGs b.................................

2.95

5.74

7.43

9.32

Tailpipe N2O....................................

0.040

0.085

0.113

0.142

Tailpipe CH4....................................

0.008

0.016

0.021

0.027

a These impacts are included in the reductions shown in Table III.F.1-1 and III.F.1-2. b Upstream rebound impact calculated as upstream total CO2 effect times ratio of downstream tailpipe rebound CO2 effect to downstream tailpipe total CO2 effect. d. Analysis of Alternatives

EPA analyzed two alternative scenarios, including 4% and 6% annual increases in 2 cycle (CAFE) fuel economy. In addition to this annual increase, EPA assumed that manufacturers would use air conditioning improvements in identical penetrations as in the primary scenario.

Under these assumptions, EPA expects achieved fleetwide average emission levels of 254 g/mile CO2EQ (4%), and 230 g/mile

CO2EQ (6%) in 2016.

As in the primary scenario, EPA assumed that the fleet complied with the standards. For full details on modeling assumptions, please refer to DRIA Chapter 5.

Table III.F.1-4--Calendar Year Impacts of Alternative Scenarios

Calendar year

Scenario

CY 2020

CY 2030

CY 2040

CY 2050

Total GHG Reductions (MMT CO2EQ).... Primary...............

165.2

324.6

417.5

518.5 4%....................

152.8

305.9

394.1

489.3 6%....................

215.2

426.2

549.3

683.9

Fuel Savings (Billion Gallons

Primary...............

13.4

26.2

33.9

42.6

Gasoline Equivalent). 4%....................

12.2

24.5

31.8

39.9 6%....................

17.8

35.1

45.5

57.1

Table III.F.1-5--Model Year Impacts of Alternative Scenarios

Model year lifetime

Scenario

MY 2012

MY 2013

MY 2014

MY 2015

MY 2016

Total

Total GHG Reductions (MMT CO2EQ)........... Primary......................

81.4

125.0

174.1

243.2

323.6

947.4 4%...........................

41.8

93.5

160.8

231.0

305.2

832.3 6%...........................

60.2

146.4

239.9

333.3

424.9

1,204.7

Fuel Savings (Billion Gallons Gasoline

Primary......................

6.6

10.0

13.9

19.5

26.3

76.2

Equivalent). 4%...........................

3.1

7.2

12.7

18.4

24.7

66.1 6%...........................

4.7

11.9

19.7

27.4

35.2

99.0

2. Overview of Climate Change Impacts From GHG Emissions

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

Page 49584

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

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

This section provides a broad overview of some of the impacts of

GHG emissions. The best sources of information include the major assessment reports of both the Intergovernmental Panel on Climate

Change (IPCC) and the U.S. Global Change Research Program (USGCRP, formerly referred to as the U.S. Climate Change Science Program). The

IPCC and USGCRP assessments base their findings on the large body of individual, peer- reviewed studies in the literature, and then the IPCC and USGCRP assessments themselves go through a transparent peer- reviewed process. The USGCRP reports, where possible, are specific to impacts in the U.S. and therefore represent the best available syntheses of relevant impacts.

Most recently, the USGCRP released a report entitled ``Global

Climate Change Impacts in the United States''.\193\ The report summarizes the science and the impacts of climate change on the United

States, now and in the future. It focuses on climate change impacts in different regions of the U.S. and on various aspects of society and the economy such as energy, water, agriculture, and human health. It's also a report written in plain language, with the goal of better informing public and private decision making at all levels. The foundation of this report is a set of 21 Synthesis and Assessment Products (SAPs), which were designed to address key policy-relevant issues in climate science. The report was extensively reviewed and revised based on comments from experts and the public. The report was approved by its lead USGCRP Agency, the National Oceanic and Atmospheric

Administration, the other USGCRP agencies, and the Committee on the

Environment and Natural Resources on behalf of the National Science and

Technology Council. This report meets all Federal requirements associated with the Information Quality Act, including those pertaining to public comment and transparency. Readers are encouraged to review this report.

\193\ Global Climate Change Impacts in the United States, Thomas

R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge

University Press, 2009. http://www.globalchange.gov/publications/ reports/scientific-assessments/us-impacts.

The source document for the section below is the draft endangerment

Technical Support Document (TSD). In EPA's Proposed Endangerment and

Cause or Contribute Findings Under the Clean Air Act,\194\ EPA provides a summary of the USGCRP and IPCC reports in a draft TSD. The draft TSD reviews observed and projected changes in climate based on current and projected atmospheric GHG concentrations and emissions, as well as the related impacts and risks from climate change that are projected in the absence of GHG mitigation actions, including this proposal and other

U.S. and global actions. The TSD serves as an important support document to EPA's proposed Endangerment Finding; however, the document is a draft and is still undergoing comment and review as part of EPA's rulemaking process, and is subject to change based upon comments to the final endangerment finding.

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

a. Changes in Atmospheric Concentrations of GHGs From Global and U.S.

Emissions

Concentrations of six key GHGs (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride) are at unprecedented levels compared to the recent and distant past.

The global atmospheric CO2concentration has increased about 38% from pre-industrial levels to 2009, and almost all of the increase is due to anthropogenic emissions.

Based on data from the most recent Inventory of U.S. Greenhouse Gas

Emissions and Sinks (2008),\195\ total U.S. GHG emissions increased by 905.9 teragrams of CO2-equivalent (Tg CO2Eq), or 14.7%, between 1990 and 2006. U.S. transportation sources subject to control under section 202(a) of the Clean Air Act (passenger cars, light duty trucks, other trucks and buses, motorcycles, and cooling

\196\) emitted 1665 Tg CO2Eq in 2006, representing almost 24% of the total U.S. GHG emissions. Total global emissions, calculated by summing emissions of the six greenhouse gases by country, for 2005 was 38,725.9 Tg CO2Eq. This represents an increase of 26% from the 1990 level. See the EPA report ``Inventory of U.S. Greenhouse

Gas Emissions and Sinks: 1990-2006'',\197\ Section 2 of the proposed

Endangerment TSD, and IPCC's Working Group I (WGI) Fourth Assessment

Report (AR4) \198\ for a more complete discussion of GHG emissions and concentrations.

\195\ U.S. EPA (2008) Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2006. EPA-430-R-08-005, Washington, DC.

\196\ Cooling refers to refrigerants/air conditioning from all transportation sources and is related to HFCs.

\197\ U.S. EPA (2008) Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2006. EPA-430-R-08-005, Washington, DC. http:// www.epa.gov/climatechange/emissions/usgginv_archive.html.

\198\ Climate Change 2007: The Physical Science Basis.

Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin,

M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L.

Miller (eds.)]. Cambridge University Press, Cambridge, United

Kingdom and New York, NY, USA.

b. Observed Changes in Climate i. Temperature

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

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

It can be stated with confidence that global mean surface temperature was higher during the last few decades of the 20th century than during any comparable period during the preceding four centuries.

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

\200\ Global Climate Change Impacts in the United States, Thomas

R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.) Cambridge

University Press, 2009.

For additional information, please see Section 4 of the proposed

Endangerment

Page 49585

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

\201\ Climate Change 2007: The Physical Science Basis.

Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin,

M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L.

Miller (eds.)]. Cambridge University Press, Cambridge, United

Kingdom and New York, NY, USA.

\202\ Global Climate Change Impacts in the United States, Thomas

R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge

University Press, 2009. http://www.globalchange.gov/publications/ reports/scientific-assessments/us-impacts.

ii. Precipitation

Observations show that changes are occurring in the amount, intensity, frequency and type of precipitation. Global, long-term trends from 1900 to 2005 have been observed in the amount of precipitation over many large regions. Patterns in precipitation change are more spatially and seasonally variable than temperature change, but where significant precipitation changes do occur they are consistent with measured changes in stream flow. Significantly increased precipitation has been observed in eastern parts of North and South

America, northern Europe and northern and central Asia.\200\ More intense and longer droughts have been observed over wider areas since the 1970s, particularly in the tropics and subtropics. It is likely there has been an increase in heavy precipitation events (e.g., 95th percentile) within many land regions, even in those where there has been a reduction in total precipitation amount, consistent with a warming climate and observed significant increasing amounts of water vapor in the atmosphere. Rising temperatures have generally resulted in rain rather than snow in locations and seasons such as in northern and mountainous regions where the average (1961-1990) temperatures were close to 0 [deg]C. Over the contiguous U.S., total annual precipitation increased at an average rate of 6.5% from 1901-2006, with the greatest increases in precipitation in the East and North Central climate regions (11.2% per century).

For additional information, please see Section 4 of the proposed

Endangerment TSD, IPCC WGI AR4,\203\ and the USGCRP report ``Global

Climate Change Impacts in the United States''.\204\

\203\ Climate Change 2007: The Physical Science Basis.

Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin,

M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L.

Miller (eds.)]. Cambridge University Press, Cambridge, United

Kingdom and New York, NY, USA.

\204\ Global Climate Change Impacts in the United States, Thomas

R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge

University Press, 2009. http://www.globalchange.gov/publications/ reports/scientific-assessments/us-impacts.

iii. Extreme Events

Changes in climate extremes have been observed related to temperature, precipitation, tropical cyclones, and sea level. In the last 50 years, there have been widespread changes in extreme temperatures observed across the globe. For example, cold days, cold nights, and frost have become less frequent, while hot days, hot nights, and heat waves have become more frequent. Globally, a reduction in the number of daily cold extremes has been observed in 70 to 75% of the land regions where data is available. Cold nights (lowest or coldest 10% of nights, based on the period 1961-1990) have become rarer over the last 50 years.

Observational evidence indicates an increase in intense tropical cyclone (i.e., tropical storms and/or hurricanes) activity in the North

Atlantic. Since about 1970, increases in cyclone developments that affect the U.S. East and Gulf Coasts have been correlated with increases of tropical sea surface temperatures In the contiguous U.S., studies find statistically significant increases in heavy precipitation

(the heaviest 5%) and very heavy precipitation (the heaviest 1%) of 14 and 20%, respectively. Much of this increase occurred during the last three decades of the 20th century and is most apparent over the eastern parts of the country. Trends in drought also have strong regional variations. In much of the Southeast and large parts of the western

U.S., the frequency of drought has increased coincident with rising temperatures over the past 50 years. Although there has been an overall increase in precipitation and no clear trend in drought for the nation as a whole, increasing temperatures have made droughts more severe and widespread than they would have otherwise been.

For additional information, please see Section 4 of the proposed

Endangerment TSD, the CCSP report ``Weather and Climate Extremes in a

Changing Climate. Regions of Focus: North America, Hawaii, Caribbean, and U.S. Pacific Islands'',\205\ IPCC WGI AR4,\206\ and the report

``Global Climate Change Impacts in the United States''.\207\

\205\ Weather and Climate Extremes in a Changing Climate.

Regions of Focus: North America, Hawaii, Caribbean, and U.S. Pacific

Islands. A Report by the U.S. Climate Change Science Program and the

Subcommittee on Global Change Research. [Thomas R. Karl, Gerald A.

Meehl, Christopher D. Miller, Susan J. Hassol, Anne M. Waple, and

William L. Murray (eds.)]. Department of Commerce, NOAA's National

Climatic Data Center, Washington, D.C., USA, 164 pp.

\206\ Climate Change 2007: The Physical Science Basis.

Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin,

M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L.

Miller (eds.)]. Cambridge University Press, Cambridge, United

Kingdom and New York, NY, USA.

\207\ Global Climate Change Impacts in the United States, Thomas

R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge

University Press, 2009. http://www.globalchange.gov/publications/ reports/scientific-assessments/us-impacts.

iv. Physical and Biological Changes

Observations show that climate change is currently affecting U.S. physical and biological systems in significant ways. Observations of the cryosphere (the ``frozen'' component of the climate system) have revealed changes in sea ice, glaciers and snow cover, freezing and thawing, and permafrost. Satellite data since 1978 show that annual average Arctic sea ice extent has shrunk by 2.7% (+/- 0.6%) per decade, with larger decreases in summer. Subtropical and tropical corals in shallow waters have already suffered major bleaching events that are primarily driven by increases in sea surface temperatures. Heat stress from warmer ocean water can cause corals to expel the microscopic algae that live inside them which are essential to their survival. Another stressor on coral populations is ocean acidification which occurs as

CO2is absorbed from the atmosphere by the oceans. About one-third of the carbon dioxide emitted by human activities has been absorbed by the ocean, resulting in a decrease in the ocean's pH. A lower pH affects the ability of living things to create and maintain shells or skeletons of calcium carbonate. Other documented bio-physical impacts include a significant lengthening of the growing season and increase in net primary productivity \208\ in higher latitudes of North

America. Over the last 19 years, global satellite data indicate an earlier onset of spring across the temperate latitudes by 10 to 14 days.

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

Page 49586

For additional information, please see Section 4 of the proposed

Endangerment TSD and IPCC WGI AR4.\209\

\209\ IPCC (2007a) Climate Change 2007: The Physical Science

Basis. Contribution of Working Group I to the Fourth Assessment

Report of the Intergovernmental Panel on Climate Change [Solomon,

S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor and H.L. Miller (eds.)]. Cambridge University Press, Cambridge,

United Kingdom and New York, NY, USA.

c. Projected Changes in Climate

Most future scenarios that assume no explicit GHG mitigation actions (beyond those already enacted) project increasing global GHG emissions over the century, with corresponding climbing GHG concentrations. Carbon dioxide is expected to remain the dominant anthropogenic GHG over the course of the 21st century. The radiative forcing \210\ associated with the non-CO2GHGs is still significant and increasing over time. As a result, warming over this century is projected to be considerably greater than over the last century and climate related changes are expected to continue while new ones develop. Described below are projected changes in climate for the

U.S.

\210\ Radiative forcing is a measure of the change that a factor causes in altering the balance of incoming (solar) and outgoing

(infrared and reflected shortwave) energy in the Earth-atmosphere system and thus shows the relative importance of different factors in terms of their contribution to climate change.

See Section 6 of the proposed Endangerment TSD, IPCC WGI AR4,\211\ the USGCRP report ``Global Climate Change Impacts in the United

States'',\212\ and the CCSP report ``Weather and Climate Extremes in a

Changing Climate, Regions of Focus: North America, Hawaii, Caribbean, and U.S. Pacific Islands'' \213\ for a more complete discussion of projected changes in climate.

\211\ Climate Change 2007: The Physical Science Basis.

Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin,

M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L.

Miller (eds.)]. Cambridge University Press, Cambridge, United

Kingdom and New York, NY, USA.

\212\ Global Climate Change Impacts in the United States, Thomas

R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge

University Press, 2009. http://www.globalchange.gov/publications/ reports/scientific-assessments/us-impacts.

\213\ Weather and Climate Extremes in a Changing Climate.

Regions of Focus: North America, Hawaii, Caribbean, and U.S. Pacific

Islands. A Report by the U.S. Climate Change Science Program and the

Subcommittee on Global Change Research. [Thomas R. Karl, Gerald A.

Meehl, Christopher D. Miller, Susan J. Hassol, Anne M. Waple, and

William L. Murray (eds.)]. Department of Commerce, NOAA's National

Climatic Data Center, Washington, DC, USA, 164 pp.

i. Temperature

Future warming over the course of the 21st century, even under scenarios of low emissions growth, is very likely to be greater than observed warming over the past century. The range of IPCC SRES scenarios provides a global warming range of 1.8 [deg]C to 4.0 [deg]C

(3.2 [deg]F to 7.2 [deg]F) with an uncertainty range of 1.1 [deg]C to 6.4 [deg]C (2.0 [deg]F to 11.5 [deg]F). All of the U.S. is very likely to warm during this century, and most areas of the U.S. are expected to warm by more than the global average. The average warming in the U.S. through 2100 is projected by nearly all the models used in the IPCC assessment to exceed 2 [deg]C (3.6 [deg]F) for all scenarios, with 5 out of 21 models projecting average warming in excess of 4 [deg]C (7.2

deg

F) for the mid-range emissions scenario. The number of days with high temperatures above 90 [deg]F is projected to increase throughout the U.S. Temperature increases in the next couple of decades will be primarily determined by past emissions of heat-trapping gases. As a result, there is less difference in projected temperature scenarios in the near-term (around 2020) than in the middle (2050) and end of the century, which will be determined more by future emissions. ii. Precipitation

Increases in the amount of precipitation are very likely in higher latitudes, while decreases are likely in most subtropical latitudes and the southwestern U.S., continuing observed patterns. The mid- continental area is expected to experience drying during the summer, indicating a greater risk of drought. Climate models project continued increases in the heaviest downpours during this century, while the lightest precipitation is projected to decrease. With more intense precipitation expected to increase, the risk of flooding and greater runoff and erosion will also increase. In contrast, droughts are likely to become more frequent and severe in some regions. The Southwest, in particular, is expected to experience increasing drought as changes in atmospheric circulation patterns cause the dry zone just outside the tropics to expand farther northward into the United States. iii. Extreme Events

It is likely that hurricanes will become more intense, especially along the Gulf and Atlantic coasts, with stronger peak winds and more heavy precipitation associated with ongoing increases of tropical sea surface temperatures. Heavy rainfall events are expected to increase, increasing the risk of flooding, greater runoff and erosion, and thus the potential for adverse water quality effects. These projected trends can increase the number of people at risk from suffering disease and injury due to floods, storms, droughts, and fires. Severe heat waves are projected to intensify, which can increase heat-related mortality and sickness. iv. Physical and Biological Changes

IPCC projects a six-inch to two-foot rise in sea level during the 21st century from processes such as thermal expansion of sea water and the melting of land-based polar ice sheets. Ocean acidification is projected to continue, resulting in the reduced biological production of marine calcifiers, including corals. In addition to ocean acidification, coastal waters are very likely to continue to warm by as much as 4 to 8 [deg]F in this century, both in summer and winter. This will result in a northward shift in the geographic distribution of marine life along the coasts. Warmer ocean temperatures will also contribute to increased coral bleaching. d. Key Climate Change Impacts and Risks

The effects of climate changes observed to date and/or projected to occur in the future include: More frequent and intense heat waves, more wildfires, degraded air quality, more heavy downpours and flooding, increased drought, greater sea level rise, more intense storms, water quantity and quality problems, and negative impacts to human health, water supply, agriculture, forestry, coastal areas, wildlife and ecosystems, and many other aspects of society and the natural environment. i. Human Health

Warm temperatures and extreme weather already cause and contribute to adverse human health outcomes through heat-related mortality and morbidity, storm-related fatalities and injuries, and disease. In the absence of effective adaptation, these effects are likely to increase with climate change. Health effects related to climate change include increased deaths, injuries, infectious diseases, and stress-related disorders and other adverse effects associated with social disruption and migration from more frequent extreme weather. Severe heat waves are projected to intensify in magnitude and duration over the portions of the U.S. where these events already occur, with potential increases in mortality and morbidity, especially among the elderly, young and other sensitive populations.

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However, reduced human mortality from cold exposure is projected through 2100. It is not clear whether reduced mortality from cold will be greater or less than increased heat-related mortality, especially among the elderly, young and frail. Public health effects from climate change will likely disproportionately impact the health of certain segments of the population, such as the poor, the very young, the elderly, those already in poor health, the disabled, those living alone and/or indigenous populations dependent on one or a few resources.

Increases are expected in potential ranges and exposure of certain diseases affected by temperature and precipitation changes, including vector and waterborne diseases (i.e., malaria, dengue fever, West Nile virus). See the CCSP Report ``Analyses of the effects of global change on human health and welfare and human systems'',\214\ IPCC's Working

Group II (WG2) AR4,\215\ and Section 7 of the proposed Endangerment TSD for a more complete discussion regarding climate change and impacts on human health.

\214\ Analyses of the effects of global change on human health and welfare and human systems. A Report by the U.S. Climate Change

Science Program and the Subcommittee on Global Change Research.

Gamble, J.L. (ed.), K.L. Ebi, F.G. Sussman, T.J. Wilbanks,

(Authors)

. U.S. Environmental Protection Agency, Washington, DC,

USA.

\215\ Climate Change 2007: Impacts, Adaptation and

Vulnerability. Contribution of Working Group II to the Fourth

Assessment Report of the Intergovernmental Panel on Climate Change

M.L. Parry, O.F. Canziani, J.P. Palutikof, P.J. van der Linden and

C.E. Hanson (eds.)

. Cambridge University Press, Cambridge, United

Kingdom and New York, NY, USA.

ii. Air Quality

Climate change can be expected to influence the concentration and distribution of air pollutants through a variety of direct and indirect processes, including the modification of biogenic emissions, the change of chemical reaction rates, wash-out of pollutants by precipitation, and modification of weather patterns that influence pollutant build-up.

Higher temperatures and weaker circulation patterns associated with climate change are expected to worsen regional ozone pollution in the

U.S., with associated risks in respiratory infection, aggravation of asthma, and premature death. In addition to human health effects, elevated levels of tropospheric ozone have significant adverse effects on crop yields, pasture and forest growth, and species composition. See

Section 8 of the proposed Endangerment TSD, EPA's report ``Assessment of the Impacts of Global Change on Regional U.S. Air Quality: A

Synthesis of Climate Change Impacts on Ground-Level Ozone'', \216\ the

CCSP report ``Analyses of the effects of global change on human health and welfare and human systems'' \217\ and IPCC WGII AR4 \218\ for a more complete discussion regarding human health impacts resulting from climate change effects on air quality.

\216\ EPA (2009) Assessment of the Impacts of Global Change on

Regional U.S. Air Quality: A Synthesis of Climate Change Impacts on

Ground-Level Ozone. An Interim Report of the U.S. EPA Global Change

Research Program. U.S. Environmental Protection Agency, Washington,

DC, EPA/600/R-07/094.

\217\ Analyses of the effects of global change on human health and welfare and human systems. A Report by the U.S. Climate Change

Science Program and the Subcommittee on Global Change Research.

Gamble, J.L. (ed.), K.L. Ebi, F.G. Sussman, T.J. Wilbanks,

(Authors)

. U.S. Environmental Protection Agency, Washington, DC,

USA.

\218\ Climate Change 2007: Impacts, Adaptation and

Vulnerability. Contribution of Working Group II to the Fourth

Assessment Report of the Intergovernmental Panel on Climate Change

M.L. Parry, O.F. Canziani, J.P. Palutikof, P.J. van der Linden and

C.E. Hanson (eds.)

. Cambridge University Press, Cambridge, United

Kingdom and New York, NY, USA.

iii. Food and Agriculture

The CCSP concluded that, with increased CO2and temperature, the life cycle of grain and oilseed crops will likely progress more rapidly. But, as temperature rises, these crops will increasingly begin to experience failure, especially if climate variability increases and precipitation lessens or becomes more variable. Furthermore, the marketable yield of many horticultural crops

(e.g., tomatoes, onions, fruits) is very likely to be more sensitive to climate change than grain and oilseed crops. Higher temperatures will very likely reduce livestock production during the summer season, but these losses will very likely be partially offset by warmer temperatures during the winter season. Cold water fisheries will likely be negatively affected; warm-water fisheries will generally benefit; and the results for cool-water fisheries will be mixed, with gains in the northern and losses in the southern portions of ranges. See Section 9 of the proposed Endangerment TSD, the CCSP report ``The Effects of

Climate Change on Agriculture, Land Resources, Water Resources, and

Biodiversity in the United States'', and the USGCRP report ``Global

Climate Change Impacts in the United States'' for a more complete discussion regarding climate science and impacts to food production and agriculture. iv. Forestry

Climate change has very likely increased the size and number of forest fires, insect outbreaks, and tree mortality in the interior west, the Southwest, and Alaska, and will continue to do so.

Disturbances like wildfire and insect outbreaks are increasing and are likely to intensify in a warmer future with drier soils and longer growing seasons. Although recent climate trends have increased vegetation growth, continuing increases in disturbances are likely to limit carbon storage, facilitate invasive species, and disrupt ecosystem services. Overall forest growth for North America as a whole will likely increase modestly (10-20%) as a result of extended growing seasons and elevated CO2over the next century, but with important spatial and temporal variation. Forest growth is slowing in areas subject to drought and has been subject to significant loss due insect infestations such as the spruce bark beetle in Alaska. See

Section 10 of the proposed Endangerment TSD, the CCSP report ``The

Effects of Climate Change on Agriculture, Land Resources, Water

Resources, and Biodiversity in the United States'', IPCC WGII, and the

USGCRP report ``Global Climate Change Impacts in the United States'' for a more complete discussion regarding climate science and impacts to forestry. v. Water Resources

The vulnerability of freshwater resources in the United States to climate change varies from region to region. Climate change will likely further constrain already over-allocated water resources in some sections of the U.S., increasing competition among agricultural, municipal, industrial, and ecological uses. Although water management practices in the U.S. are generally advanced, particularly in the western U.S climate change may increasingly create conditions well outside of historic observations impacting managed water systems.

Rising temperatures will diminish snowpack and increase evaporation, affecting seasonal availability of water. Groundwater systems generally respond more slowly to climate change than surface water systems. In semi-arid and arid areas, groundwater resources are particularly vulnerable because of precipitation and stream flow are concentrated over a few months, year-to-year variability is high, and deep groundwater wells or reservoirs generally do not exist. Availability of groundwater is likely to be influenced by changes in withdrawals

(reflecting development, demand, and availability of other sources).

In the Great Lakes and major river systems, lower levels are likely to exacerbate challenges relating to water quality, navigation, recreation,

Page 49588

hydropower generation, water transfers, and bi-national relationships.

Decreased water supply and lower water levels are likely to exacerbate challenges relating to aquatic navigation. Higher water temperatures, increased precipitation intensity, and longer periods of low flows will exacerbate many forms of water pollution, potentially making attainment of water quality goals more difficult. As waters become warmer, the aquatic life they now support will be replaced by other species better adapted to warmer water. In the long-term, warmer water and changing flow may result in deterioration of aquatic ecosystems. See Section 11 of the proposed Endangerment TSD, the CCSP report ``The Effects of

Climate Change on Agriculture, Land Resources, Water Resources, and

Biodiversity in the United States'', IPCC WGII, and the USGCRP report

``Global Change Impacts in the United States'' for a more complete discussion regarding climate science and impacts to water resources. vi. Sea Level Rise and Coastal Areas

Warmer temperatures raise sea level by expanding ocean water, melting glaciers, and possibly increasing the rate at which ice sheets discharge ice and water into the oceans. Rising sea level and the potential for stronger storms pose an increasing threat to coastal cities, residential communities, infrastructure, beaches, wetlands, and ecosystems. Coastal communities and habitats will be increasingly stressed by climate change effects interacting with development and pollution. Sea level is rising along much of the U.S. coast, and the rate of change will increase in the future, exacerbating the impacts of progressive inundation, storm-surge flooding, and shoreline erosion.

Studies find 75% of the shoreline removed from the influence of spits, tidal inlets and engineering structures is eroding along the U.S. East

Coast probably due to sea level rise. Storm impacts are likely to be more severe, especially along the Gulf and Atlantic coasts. Salt marshes, estuaries, other coastal habitats, and dependent species will be further threatened by sea level rise. The interaction with coastal zone development and climate change effects such as sea level rise will further stress coastal communities and habitats. Population growth and rising value of infrastructure in coastal areas increases vulnerability and risk of climate variability and future climate change. Sea level rise and high rates of water withdrawal promote the intrusion of saline water in to groundwater supplies, which adversely affects water quality. See Section 12 of the proposed Endangerment TSD, the CCSP report ``Coastal Sensitivity to Sea Level Rise: A Focus on the Mid-

Atlantic Region'',\219\ the USGCRP report ``Global Change Impacts in the United States'', and IPCC WGII for a more complete discussion regarding climate science and impacts to sea level rise and coastal areas.

\219\ CCSP (2009) Coastal Sensitivity to Sea-Level Rise: A Focus on the Mid-Atlantic Region. A report by the U.S. Climate Change

Science Program and the Subcommittee on Global Change Research.

James G. Titus (Coordinating Lead Author), K. Eric Anderson, Donald

R. Cahoon, Dean B. Gesch, Stephen K. Gill, Benjamin T. Gutierrez, E.

Robert Thieler, and S. Jeffress Williams (Lead Authors)

, U.S.

Environmental Protection Agency, Washington DC, USA, 320 pp.

vii. Energy, Infrastructure and Settlements

Most of the effects of climate change on the U.S. energy sector will be related to energy use and production. The research evidence is relatively clear that climate warming will mean reductions in total

U.S. heating requirements and increases in total cooling requirements for building. These changes will vary by region and by season and will affect household and business energy costs. Studies project that temperature increases due to global warming are very likely to increase peak demand for electricity in most regions of the country as rising temperatures are expected to increase energy requirements for cooling residential and commercial buildings. An increase in peak demand for electricity can lead to a disproportionate increase in energy infrastructure investment. Extreme weather events can threaten coastal energy infrastructures and electricity transmission and distribution in the U.S. Increases in hurricane intensity are likely to cause further disruptions to oil and gas operations in the Gulf, like those experienced in 2005 with Hurricane Katrina. Climate change is likely to affect some renewable energy sources across the nation, such as hydropower production in regions subject to changing patterns of precipitation or snowmelt. The U.S. energy sector, which relies heavily on water for both hydropower and cooling capacity, may be adversely impacted by changes to water supply and quality in reservoirs and other water bodies.

Water infrastructure, including drinking water and wastewater treatment plants, and sewer and storm water management systems, will be at greater risk of flooding, sea level rise and storm surge, low flows, and other factors that could impair performance. In addition, as water supply is constrained and demand increases it will become more likely that water will have to be transported and moved which will require additional energy capacity. See Section 13 of the proposed Endangerment

TSD, the CCSP reports ``the Effects of Climate Change on Energy

Production in the United States'' \220\ and ``Impacts of Climate Change and Variability on Transportation Systems and Infrastructure'',\221\ and the USGCRP report ``Global Change Impacts in the United States'' for a more complete discussion regarding climate science and impacts to energy, infrastructure and settlements.

\220\ CCSP (2007): Effects of Climate Change on Energy

Production and Use in the United States. A Report by the U.S.

Climate Change Science Program and the subcommittee on Global Change

Research. Thomas J. Wilbanks, Vatsal Bhatt, Daniel E. Bilello,

Stanley R. Bull, James Ekmann, William C. Horak, Y. Joe Huang, Mark

D. Levine, Michael J. Sale, David K. Schmalzer, and Michael J.

Scott). Department of Energy, Office of Biological & Environmental

Research, Washington, DC, USA, 160 pp.

\221\ CCSP (2008) Impacts of Climate Change and Variability on

Transportation Systems and Infrastructure: Gulf Coast Study, Phase

I. A Report by the U.S. Climate Change Science Program and the

Subcommittee on Global Change Research [Savonis, M.J., V.R. Burkett, and J.R. Potter (eds.)]. Department of Transportation, Washington,

DC, USA, 445 pp.

viii. Ecosystems and Wildlife

Disturbances such as wildfires and insect outbreaks are increasing in the U.S. and are likely to intensify in a warmer future with drier soils and longer growing seasons. Although recent climate trends have increased vegetation growth, continuing increases in disturbances are likely to limit carbon storage, facilitate invasive species, and disrupt ecosystem services. Over the 21st century, changes in climate will cause species to shift north and to higher elevations and fundamentally rearrange U.S. ecosystems. Differential capacities for range shifts are constrained by development, habitat fragmentation, invasive species, and broken ecological connections. IPCC consequently predicts significant disruption of ecosystem structure, function, and services. See Section 14 of the proposed Endangerment TSD, IPCC WGII, the CCSP report ``The Effects of Climate Change on Agriculture, Land

Resources, Water Resources, and Biodiversity in the United States'', and the USGCRP report ``Global Change Impacts in the United States'' for a more complete discussion regarding climate science and impacts to ecosystems and wildlife.

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3. Changes in Global Mean Temperature and Sea Level Rise Associated

With the Proposal's GHG Emissions Reductions

EPA examined \222\ the reductions in CO2and other GHGs associated with the proposal and analyzed the projected effects on global mean surface temperature and sea level, two common indicators of climate change. The analysis projects that the proposal will reduce climate warming and sea level rise. Although the projected reductions are small in overall magnitude by themselves, they are quantifiable and would contribute to reducing climate change risks.

\222\ Using the Model for the Assessment of Greenhouse Gas

Induced Climate Change (MAGICC, http://www.cgd.ucar.edu/cas/wigley/ magicc/), EPA estimated the effects of this action's greenhouse gas emissions reductions on global mean temperature and sea level.

Please refer to Chapter 7.4 of the DRIA for additional information.

a. Estimated Projected Reductions in Global Mean Surface Temperatures and Sea Level Rise

EPA estimated changes in the atmospheric CO2 concentration, global mean surface temperature and sea level to 2100 resulting from the emissions reductions in this proposal using the

Model for the Assessment of Greenhouse Gas Induced Climate Change

(MAGICC, version 5.3). This widely used, peer reviewed modeling tool was also used to project temperature and sea level rise under different emissions scenarios in the Third and Fourth Assessments of the

Intergovernmental Panel on Climate Change (IPCC).

GHG emissions reductions from Section III.F.1a were applied as net reductions to a peer reviewed global reference case (or baseline) emissions scenario to generate an emissions scenario specific to this proposal. For the proposal scenario, all emissions reductions were assumed to begin in 2012, with zero emissions change in 2011 (from the reference case) followed by emissions linearly increasing to equal the value supplied in Section III.F.1.a for 2020 and then continuing to 2100. Details about the reference case scenario and how the emissions reductions were applied to generate the proposal scenario can be found in the DRIA Chapter 7.

The atmospheric CO2concentration, temperature, and sea- level increases for both the reference case and the proposal emissions scenarios were computed using MAGICC. To compute the reductions in the atmospheric CO2concentrations as well as in temperature and sea level resulting from the proposal, the output from the proposal scenario was subtracted from an existing MiniCAM emission scenario. To capture some key uncertainties in the climate system with the MAGICC model, changes in temperature and sea-level rise were projected across the most current IPCC range for climate sensitivities which ranges from 1.5 [deg]C to 6.0 [deg]C (representing the 90% confidence interval).\223\ This wide range reflects the uncertainty in this measure of how much the global mean temperature would rise if the concentration of carbon dioxide in the atmosphere were to double.

Details about this modeling analysis can be found in the DRIA Chapter 7.4.

\223\ In IPCC reports, equilibrium climate sensitivity refers to the equilibrium change in the annual mean global surface temperature following a doubling of the atmospheric equivalent carbon dioxide concentration. The IPCC states that climate sensitivity is

``likely'' to be in the range of 2 [deg]C to 4.5 [deg]C, ``very unlikely'' to be less than 1.5 [deg]C, and ``values substantially higher than 4.5 [deg]C cannot be excluded.'' IPCC WGI, 2007, Climate

Change 2007--The Physical Science Basis, Contribution of Working

Group I to the Fourth Assessment Report of the IPCC, http:// www.ipcc.ch/.

The results of this modeling show small, but quantifiable, reductions in the atmospheric CO2concentration, the projected global mean surface temperature and sea level resulting from this proposal (assuming it is finalized), across all climate sensitivities. As a result of this proposal's emission reductions, the atmospheric CO2concentration is projected to be reduced by approximately 2.9 to 3.2 parts per million (ppm), the global mean temperature is projected to be reduced by approximately 0.007-0.016

deg

C by 2100, and global mean sea level rise is projected to be reduced by approximately 0.06-0.15cm by 2100. The reductions are small relative to the IPCC's 2100 ``best estimates'' for global mean temperature increases (1.8-4.0 [deg]C) and sea level rise (0.20-0.59m) for all global GHG emissions sources for a range of emissions scenarios. EPA used a peer reviewed model, the MAGICC model, to do this analysis. This analysis is specific to the proposed rule and therefore cannot come from some previously published work. The Agency welcomes comment on the use of the MAGICC model for these purposes. Further discussion of EPA's modeling analysis is found in Chapter 7 of the

Draft RIA.

As a substantial portion of CO2emitted into the atmosphere is not removed by natural processes for millennia, each unit of CO2not emitted into the atmosphere avoids essentially permanent climate change on centennial time scales. Though the magnitude of the avoided climate change projected here is small, these reductions would represent a reduction in the adverse risks associated with climate change (though these risks were not formally estimated for this proposal) across all climate sensitivities. 4. Weight Reduction and Potential Safety Impacts

In this section, EPA will discuss potential safety impacts of the proposed standards. In the joint technology analysis, EPA and NHTSA agree that automakers could reduce weight as one part of the industry's strategy for meeting the proposed standards. As shown in table III.D.6- 3, of this Preamble, EPA's modeling projects that vehicle manufacturers will reduce the weight of their vehicles by 4% on average between 2011 and 2016 although individual vehicles may have greater or smaller weight reduction (NHTSA's results are similar using the Volpe model).

The penetration and magnitude of these modeled changes are consistent with the public announcements made by many manufacturers since early 2008 and are consistent with meetings that EPA has had with senior engineers and technical leadership at many of the automotive companies during 2008 and 2009.

EPA also projects that automakers will not reduce footprint in order to meet the proposed CO2standards in our modeling analysis. NHTSA and EPA have taken two measures to help ensure that the proposed rules provide no incentive for mass reduction to be accompanied by a corresponding decrease in the footprint of the vehicle

(with its concomitant decrease in crush and crumple zones). The first design feature of the proposed rule is that the CO2or fuel economy targets are based on the attribute of footprint (which is a surrogate for vehicle size).\224\ The second design feature is that the shape of the footprint curve (or function) has been carefully chosen such that it neither encourages manufacturers to increase, nor decrease the footprint of their fleet. Thus, the standard curves are designed to be approximately ``footprint neutral'' within the sloped portion of the function.\225\ For further discussion on this, refer to Section II.C of the preamble, or Chapter 2 of the joint TSD. Thus the agencies are assuming in their

Page 49590

modeling analysis that the manufacturers could reduce vehicle mass without reducing vehicle footprint as one way to respond to the proposed rule.\226\

\224\ As the footprint attribute is defined as wheelbase times track width, the footprint target curves do not discourage manufacturers from reducing vehicle size by reducing front, rear, or side overhang, which can impact safety by resulting in less crush space.

\225\ This neutrality with respect to footprint does not extend to the smallest and largest vehicles, because the function is limited, or flattened, in these footprint ranges.

\226\ See Chapter 1 of the joint TSD for a description of potential footprint changes in the 2016 reference fleet.

In Section IV of this preamble, NHTSA presents a safety analysis of the proposed CAFE standards based on the 2003 Kahane analysis. As discussed in Section IV, NHTSA has developed a worse case estimate of the impact of weight reductions on fatalities. The underlying data used for that analysis does not allow NHTSA to analyze the specific impact of weight reduction at constant footprint because historically there have not been a large number of vehicles produced that relied substantially on material substitution. Rather, the data set includes vehicles that were either smaller and lighter or larger and heavier.

The numbers in the NHTSA analysis predict the safety-related fatality consequences that would occur in the unlikely event that weight reduction for model years 2012-2016 is accomplished by reducing mass and reducing footprint. EPA concurs with NHTSA that the safety analysis conducted by NHTSA and presented in Section IV is a worst case analysis for fatalities, and that the actual impacts on vehicle safety could be much less. However, EPA and NHTSA are not able to quantify the lower- bound potential impacts at this time.

The agencies believe that reducing vehicle mass without reducing the size of the vehicle or the structural integrity is technically feasible in the rulemaking time frame. Many of the technical options for doing so are outlined in Chapter 3 of the joint TSD and in EPA's

DRIA. Weight reduction can be accomplished by the proven methods described below. Every manufacturer will employ these methodologies to some degree, the magnitude to which each will be used will depend on opportunities within individual vehicle design.

Material Substitution: Substitution of lower density and/ or higher strength materials in a manner that preserves or improves the function of the component. This includes substitution of high-strength steels, aluminum, magnesium or composite materials for components currently fabricated from mild steel (e.g., the magnesium-alloy front structure used on the 2009 Ford F150 pickups).\227\ Light-weight materials with acceptable energy absorption properties can maintain structural integrity and absorption of crash energy relative to previous designs while providing a net decrease in component weight.

\227\ We note that since these MY 2009 F150s have only begun to enter the fleet, there is little real-world crash data available to evaluate the safety impacts of this new design.

Smart Design: Computer aided engineering (CAE) tools can be used to better optimize load paths within structures by reducing stresses and bending moments without adversely affecting structural integrity. This allows better optimization of the sectional thicknesses of structural components to reduce mass while maintaining or improving the function of the component. Smart designs also integrate separate parts in a manner that reduces mass by combining functions or the reduced use of separate fasteners. In addition, some ``body on frame'' vehicles are redesigned with a lighter ``unibody'' construction with little compromise in vehicle functionality.

Reduced Powertrain Requirements: Reducing vehicle weight sufficiently can allow for the use of a smaller, lighter and more efficient engine while maintaining or even increasing performance.

Approximately half of the reduction is due to these reduced powertrain output requirements from reduced engine power output and/or displacement, lighter weight transmission and final drive gear ratios.

The subsequent reduced rotating mass (e.g. transmission, driveshafts/ halfshafts, wheels and tires) via weight and/or size reduction of components are made possible by reduced torque output requirements.

Mass Compounding: Following from the point above, the compounded weight reductions of the body, engine and drivetrain can reduce stresses on the suspension components, steering components, brakes, and thus allow further reductions in the weight of these subsystems. The reductions in weight for unsprung masses such as brakes, control arms, wheels and tires can further reduce stresses in the suspension mounting points which can allow still further reductions in weight. For example, lightweighting can allow for the reduction in the size of the vehicle brake system, while maintaining the same stopping distance.

Therefore, EPA believes it is both technically feasible to reduce weight without reducing vehicle size, footprint or structural strength and manufacturers have indicated to the agencies that they will use these approaches to accomplish these tasks. We request written comment on this assessment and this projection, including up-to-date plans regarding the extent of use by each manufacturer of each of the methodologies described above.

For this proposed rule, as noted earlier, EPA's modeling analysis projects that weight reduction by model year 2016 on the order of 4% on average for the fleet will occur (see Section III.D.6 for details on our estimated mass reduction). EPA believes that such modeled changes in the fleet could result in much smaller fatality impacts than those in the worst case scenario presented in Section IV by NHTSA, since manufacturers have many safer options for reducing vehicle weight than doing so by simultaneously reducing footprint. The NHTSA analysis, based solely on 4-door vehicles, does not independently differentiate between weight reduction which comes from vehicle downsizing (a physically smaller vehicle) and vehicle weight reduction solely through design and material changes (i.e., making a vehicle weigh less without changing the size of the vehicle or reducing structural integrity).

Dynamic Research Incorporated (DRI) has assessed the independent effects of vehicle weight and size on safety in order to determine if there are tradeoffs between improving vehicle safety and fuel consumption. In their 2005 studies 228 229one of which was published as a Society of Automotive Engineers Technical Paper and received peer review through that body, DRI presented results that indicate that vehicle weight reduction tends to decrease fatalities, but vehicle wheelbase and track reduction tends to increase fatalities.

The DRI work focused on four major points, with 1 and 4 being discussed with additional detail below:

\228\ ``Supplemental Results on the Independent Effects of Curb

Weight, Wheelbase and Track on Fatality Risk'', Dynamic Research,

Inc., DRI-TR-05-01, May 2005.

\229\ ``An Assessment of the Effects of Vehicle Weight and Size on Fatality Risk in 1985 to 1998 Model Year Passenger Cars and 1985 to 1997 Model Year'', M. Van Auken and J. Zellner, Dynamic Research

Inc., Society of Automotive Engineers Technical Paper 2005-01-1354.

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

Page 49591

The data used for the DRI analysis was similar to NHTSA's 2003

Kahane study, using Fatality Analysis Reporting System (FARS) data for vehicle model years 1985 through 1998 for cars, and 1985 through 1997 trucks. This data overlaps Kahane's FARS data on model year 1991 to 1999 vehicles. However, DRI included 2-door passenger cars, whereas the

Kahane study excluded all 2-door vehicles. The 2003 Kahane study excluded 2-door passenger cars because it found that for MY 1991-1999 vehicles, sports and muscle cars constituted a significant proportion of those vehicles. These vehicles have relatively high weight relative to their wheelbase, and are also disproportionately involved in crashes. Thus, Kahane concluded that including these vehicles in the analysis excessively skewed the regression results. However, as of July 1, 1999, 2-door passenger cars represented 29% of the registered cars in the United States. DRI's position was that this is a significant portion of the light duty fleet, too large to be ignored, and conclusions regarding the effects of weight and safety should be based on data for all cars, not just 4-doors. DRI did state in their conclusions that the results are sensitive to removing data for 2-doors and wagons, and that the results for 4-door cars with respect to the effects of wheelbase and track width were no longer statistically significant when 2-door cars were removed. EPA and NHTSA recognize that it is important to properly account for 2-door cars in a regression analysis evaluating the impacts of vehicle weight on safety. Thus, the agencies seek comment on how to ensure that any analysis supporting the final rule accounts as fully as possible for the range of safety impacts due to weight reduction on the variety of vehicles regulated under these proposed standards.

The DRI and Kahane studies also differ with respect to the impact of vehicle weight on rollover fatalities. The Kahane study treated curb weight as a surrogate for size and weight and analyzed them as a single variable. Using this method, the 2003 Kahane analysis indicates that curb weight reductions would increase fatalities due to rollovers. The

DRI study differed by analyzing curb weight, wheelbase, and track as multiple variables and concluded that curb weight reduction would decrease rollover fatalities, and wheelbase and track reduction would increase rollover fatalities. DRI offers two potential root causes for higher curb weight resulting in higher rollover fatalities. The first is that a taller vehicle tends to be heavier than a shorter vehicle; therefore heavier vehicles may be more likely to rollover because the vehicle height and weight are correlated with vehicle center of gravity height. The second is that FMVSS 216 for roof crush strength requirements for passenger cars of model years 1995 through 1999 were proportional to the unloaded vehicle weight if the weight is less than 3,333 lbs, however they were a constant if the weight is greater than 3,333 lbs. Therefore heavier vehicles may have had relatively less rollover crashworthiness.

NHTSA has rejected the DRI analysis, and has not relied on it for its evaluation of safety impact changes in CAFE standards. See Section

IV.G.6 of this Notice, as well as NHTSA's March 2009 Final Rulemaking for MY2011 CAFE standards (see 74 FR at 14402-05).

The DRI and Kahane analyses of the FARS data appear similar in one respect because the results are reproducible between the two studies when using aggregated vehicle attributes for 4-door cars.230 231 232However, when DRI and NHTSA separately analyzed individual vehicle attributes of mass, wheelbase and track width, DRI and NHTSA obtained different results for passenger cars.

NHTSA has raised this as a concern with the DRI study. When 2-door vehicles are removed from the data set EPA is concerned that the results may no longer be statistically significant with respect to independent vehicle attributes due to the small remaining data set, as

DRI stated in the 2005 study.

\230\ ``Supplemental Results on the Independent Effects of Curb

Weight, Wheelbase and Track on Fatality Risk'', Dynamic Research,

Inc., DRI-TR-05-01, May 2005.

\231\ ``An Assessment of the Effects of Vehicle Weight and Size on Fatality Risk in 1985 to 1998 Model Year Passenger Cars and 1985 to 1997 Model Year'', M. Van Auken and J. Zellner, Dynamic Research

Inc., Society of Automotive Engineers Technical Paper 2005-01-1354.

\232\ FR Vol. 74, No. 59, beginning on pg. 14402.

The DRI analysis concluded that there would be a small reduction in fatalities for cars and for trucks for a 100 pound reduction in curb weight without accompanied vehicle footprint or size changes. EPA notes that if DRI's results were to be applied using the curb weight reductions predicted by the OMEGA model, an overall reduction in fatalities would be predicted. EPA invites comment on all aspects of the issue of the impact of this kind of weight reduction on safety, including the usefulness of the DRI study in evaluating this issue.

The agencies are committed to continuing to analyze vehicle safety issues so a more informed evaluation can be made. We request comment on this issue. These comments should include not only further discussion and analysis of the relevant studies but data and analysis which can allow the agencies to more accurately quantify any potential safety issues with the proposed standards.

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

Effects?

In addition to reducing the emissions of greenhouse gases, this proposal would influence the emissions of ``criteria'' air pollutants and air toxics (i.e., hazardous air pollutants). The criteria air pollutants include carbon monoxide (CO), fine particulate matter

(PM2.5), sulfur dioxide (SOX) and the ozone precursors hydrocarbons (VOC) and oxides of nitrogen (NOX); the air toxics include benzene, 1,3-butadiene, formaldehyde, acetaldehyde, and acrolein. Our estimates of these non-GHG emission impacts from the proposed program are shown by pollutant in Table

III.G-1 and Table III.G-2 in total, and broken down by the two drivers of these changes: (a) ``Upstream'' emission reductions due to decreased extraction, production and distribution of motor gasoline; and (b)

``downstream'' emission increases, reflecting the effects of VMT rebound (discussed in Sections III.F and III.H). Total program impacts on criteria and toxics emissions are discussed below, followed by individual discussions of the upstream and downstream impacts. Those are followed by discussions of the effects on air quality, health, and other environmental concerns.

As discussed in Chapter 5 of the DRIA, the impacts presented here are only from petroleum (i.e., EPA assumes that total volumes of ethanol and other renewable fuels will remain unchanged due to this program). Ethanol use was modeled at the volumes projected in AEO2007 for the reference and control case; thus no changes are projected in upstream emissions related to ethanol production and distribution.

However, due to the decreased gasoline volume associated with this proposal, a greater market share of E10 is expected relative to E0, which would be expected to have some effect on fleetwide average non-

GHG emission rates. This effect, which is likely small relative to the other effects considered here, has not been accounted for in the downstream emission modeling conducted for this proposal, but EPA does plan to address it in the final rule air quality analysis, for which localized impacts could be more significant. A more comprehensive analysis of the impacts of different

Page 49592

ethanol and gasoline volume scenarios is being prepared as part of

EPA's RFS2 rulemaking package.\233\

\233\ 74 FR 24904. See also Docket EPA-HQ-OAR-2005-0161.

As shown in Table III.G-1, EPA estimates that this program would result in reductions of NOX, VOC, PM and SOX, but would increase CO emissions. For NOX, VOC, PM and

SOX, we estimate net reductions in criteria pollutant emissions because the emissions reductions from upstream sources are larger than the emission increases due to additional driving (i.e., the

``rebound effect''). In the case of CO, we estimate slight emission increases, because there are relatively small reductions in upstream emissions, and thus the projected emission increases due to additional driving are greater than the projected emission decreases due to reduced fuel production. EPA estimates that the proposed program would result in small changes for toxic emissions compared to total U.S. inventories across all sectors. For all pollutants the overall impact of the program would be relatively small compared to total U.S. inventories across all sectors. In 2030 EPA estimates the proposed program would reduce these total NOX, PM and SOX inventories by 0.2 to 0.3 percent and reduce the VOC inventory by 1.2 percent, while increasing the total national CO inventory by 0.4 percent.

As shown in Table III.G-2, EPA estimates that the proposed program would result in small changes for toxic emissions compared to total

U.S. inventories across all sectors. In 2030 EPA estimates the program would reduce total benzene and formaldehyde by 0.04 percent. Total acrolein, acetaldehyde, and 1,3-butadiene would increase by 0.03 to 0.2 percent.

Other factors which may impact non-GHG emissions, but are not estimated in this analysis, include:

Vehicle technologies used to reduce tailpipe

CO2emissions; because the regulatory standards for non-GHG emissions are the primary driver for these emissions, EPA expects the impact of this program to be negligible on non-GHG emission rates per mile.

The potential for increased market penetration of diesel vehicles; because these vehicles would be held to the same certification and in-use standards for criteria pollutants as their gasoline counterparts, EPA expects their impact to be negligible on criteria pollutants and other non-GHG emissions.

Early introduction of electric vehicles and plug-in hybrid electric vehicles, which would reduce criteria emissions in cases where they are able to certify to lower certification standards. It would also likely reduce gaseous air toxics.

Reduced refueling emissions due to less frequent refueling events and reduced annual refueling volumes resulting from the GHG standards.

Increased hot soak evaporative emissions due to the likely increase in number of trips associated with VMT rebound modeled in this proposal.

Increased market share of E10 relative to E0 due to the decreased overall gasoline consumption of this proposal combined with an unchanged fuel ethanol volume.

EPA invites comments on the possible contribution of these factors to non-GHG emissions.

BILLING CODE 4910-59-P

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GRAPHIC

TIFF OMITTED TP28SE09.022

BILLING CODE 4910-59-C 1. Upstream Impacts of Program

Reducing tailpipe CO2emissions from light-duty cars and trucks through tailpipe standards and improved A/C efficiency will result in reduced fuel demand and reductions in the emissions associated with all of the processes involved in getting petroleum to the pump. These upstream emission impacts on criteria pollutants are summarized in Table III.G-1. The upstream reductions grow over time as the fleet turns over to cleaner CO2vehicles, so that by 2030 VOC would decrease by 148,000 tons, NOXby 43,000 tons, and PM2.5 by 6,000 tons. Table III.G-2 shows the corresponding impacts on upstream air toxic emissions in 2030. Formaldehyde decreases by 112 tons, benzene by 320 tons, acetaldehyde by 15 tons, acrolein by 2 tons, and 1,3-butadiene by 3 tons.

To determine these impacts, EPA estimated the impact of reduced petroleum volumes on the extraction and transportation of crude oil as well as the production and distribution of finished gasoline. For the purpose of assessing domestic-only emission reductions it was necessary to estimate the fraction of fuel savings attributable to domestic finished gasoline, and of this gasoline what fraction is produced from domestic crude. For this analysis EPA estimated that 50 percent of fuel savings is attributable to domestic finished gasoline and that 90 percent of this gasoline originated from imported crude. Emission factors for most upstream emission sources are based on the GREET1.8 model, developed by DOE's Argonne National Laboratory,\234\ but in some cases the GREET values were modified or updated by EPA to be consistent with the National Emission Inventory (NEI).\235\ The primary updates for this analysis were to incorporate newer information on gasoline distribution emissions for VOC from the NEI, which were significantly higher than GREET estimates; and the incorporation of upstream emission factors for the air toxics estimated in this analysis: benzene, 1,3- butadiene, acetaldehyde, acrolein, and

Page 49594

formaldehyde. The development of these emission factors is detailed in

DRIA Chapter 5.

\234\ Greenhouse Gas, Regulated Emissions, and Energy Use in

Transportation model (GREET), U.S. Department of Energy, Argonne

National Laboratory, http://www.transportation.anl.gov/modeling_ simulation/GREET/.

\235\ EPA. 2002 National Emissions Inventory (NEI) Data and

Documentation, http://www.epa.gov/ttn/chief/net/2002inventory.html.

2. Downstream Impacts of Program

As discussed in more detail in Section III.H, the effect of fuel cost on VMT (``rebound'') was accounted for in our assessment of economic and environmental impacts of this proposed rule. A 10 percent rebound case was used for this analysis, meaning that VMT for affected model years is modeled as increasing by 10 percent as much as the increase in fuel economy; i.e., a 10 percent increase in fuel economy would yield a 1.0 percent increase in VMT.

Downstream emission impacts of the rebound effect are summarized in

Table III.G-1 for criteria pollutants and precursors and Table III.G-2 for air toxics. The emission increases from the rebound effect grow over time as the fleet turns over to cleaner CO2vehicles, so that by 2030 VOC would increase by 5,500 tons, NOXby 16,000 tons, and PM2.5 by 570 tons. Table III.G-2 shows the corresponding impacts on air toxic emissions. The most noteworthy of these impacts in 2030 are 40 additional tons of 1,3-butadiene, 75 tons of acetaldehyde, 240 tons of benzene, 96 tons of formaldehyde, and 4 tons of acrolein.

For this analysis the reference case non-GHG emissions for light duty vehicles and trucks were derived using EPA's MOtor Vehicle

Emission Simulator (MOVES) model for VOC, CO, NOX, PM and air toxics. PM2.5 emission estimates include additional adjustments for low temperatures, discussed in detail in the DRIA. Because this modeling was based on calendar year estimates, estimating the rebound effect required a fleet-weighted rebound factor to be calculated for calendar years 2020 and 2030; these factors are presented in DRIA

Chapter 5.

As discussed in Section III.H, EPA will be taking comment on the appropriate level of rebound rate for this analysis. The sensitivity of the downstream emission increases shown in Tables III.G-1 and III.G-2 to the level of rebound would be in direct proportion to the rebound rate itself; since zero rebound would result in zero emission increase, the downstream results presented in Table III.G-1 and Table III.G-2 can be directly scaled to estimate the effect of lower rebound rates. 3. Health Effects of Non-GHG Pollutants a. Particulate Matter i. Background

Particulate matter is a generic term for a broad class of chemically and physically diverse substances. It can be principally characterized as discrete particles that exist in the condensed (liquid or solid) phase spanning several orders of magnitude in size. Since 1987, EPA has delineated that subset of inhalable particles small enough to penetrate to the thoracic region (including the tracheobronchial and alveolar regions) of the respiratory tract

(referred to as thoracic particles). Current NAAQS use PM2.5 as the indicator for fine particles (with PM2.5referring to particles with a nominal mean aerodynamic diameter less than or equal to 2.5 [micro]m), and use PM10as the indicator for purposes of regulating the coarse fraction of PM10(referred to as thoracic coarse particles or coarse-fraction particles; generally including particles with a nominal mean aerodynamic diameter greater than 2.5 [micro]m and less than or equal to 10 [micro]m, or

PM10-2.5). Ultrafine particles are a subset of fine particles, generally less than 100 nanometers (0.1 [mu]m) in aerodynamic diameter.

Fine particles are produced primarily by combustion processes and by transformations of gaseous emissions (e.g., SOX,

NOXand VOC) in the atmosphere. The chemical and physical properties of PM2.5may vary greatly with time, region, meteorology, and source category. Thus, PM2.5may include a complex mixture of different pollutants including sulfates, nitrates, organic compounds, elemental carbon and metal compounds. These particles can remain in the atmosphere for days to weeks and travel hundreds to thousands of kilometers. ii. Health Effects of PM

Scientific studies show ambient PM is associated with a series of adverse health effects. These health effects are discussed in detail in

EPA's 2004 Particulate Matter Air Quality Criteria Document (PM AQCD) and the 2005 PM Staff Paper. 236 237 238Further discussion of health effects associated with PM can also be found in the DRIA for this rule.

\236\ U.S. EPA (2004). Air Quality Criteria for Particulate

Matter. Volume I EPA600/P-99/002aF and Volume II EPA600/P-99/002bF.

Retrieved on March 19, 2009 from Docket EPA-HQ-OAR-2003-0190 at http://www.regulations.gov/.

\237\ U.S. EPA. (2005). Review of the National Ambient Air

Quality Standard for Particulate Matter: Policy Assessment of

Scientific and Technical Information, OAQPS Staff Paper. EPA-452/R- 05-005a. Retrieved March 19, 2009 from http://www.epa.gov/ttn/naaqs/ standards/pm/data/pmstaffpaper_20051221.pdf.

\238\ The PM NAAQS is currently under review and the EPA is considering all available science on PM health effects, including information which has been published since 2004, in the development of the upcoming PM Integrated Science Assessment Document (ISA). A second draft of the PM ISA was completed in July 2009 and was submitted for review by the Clean Air Scientific Advisory Committee

(CASAC) of EPA's Science Advisory Board. Comments from the general public have also been requested. For more information, see http:// cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=210586.

Health effects associated with short-term exposures (hours to days) to ambient PM include premature mortality, aggravation of cardiovascular and lung disease (as indicated by increased hospital admissions and emergency department visits), increased respiratory symptoms including cough and difficulty breathing, decrements in lung function, altered heart rate rhythm, and other more subtle changes in blood markers related to cardiovascular health.\239\ Long-term exposure to PM2.5and sulfates has also been associated with mortality from cardiopulmonary disease and lung cancer, and effects on the respiratory system such as reduced lung function growth or development of respiratory disease. A new analysis shows an association between long-term PM2.5exposure and a measure of atherosclerosis development.240 241

\239\ U.S. EPA. (2006). National Ambient Air Quality Standards for Particulate Matter; Proposed Rule. 71 FR 2620, January 17, 2006.

\240\ K[uuml]nzli, N., Jerrett, M., Mack, W.J., et al. (2004).

Ambient air pollution and atherosclerosis in Los Angeles. Environ

Health Perspect., 113, 201-206.

\241\ This study is included in the 2006 Provisional Assessment of Recent Studies on Health Effects of Particulate Matter Exposure.

The provisional assessment did not and could not (given a very short timeframe) undergo the extensive critical review by CASAC and the public, as did the PM AQCD. The provisional assessment found that the ``new'' studies expand the scientific information and provide important insights on the relationship between PM exposure and health effects of PM. The provisional assessment also found that

``new'' studies generally strengthen the evidence that acute and chronic exposure to fine particles and acute exposure to thoracic coarse particles are associated with health effects. Further, the provisional science assessment found that the results reported in the studies did not dramatically diverge from previous findings, and taken in context with the findings of the AQCD, the new information and findings did not materially change any of the broad scientific conclusions regarding the health effects of PM exposure made in the

AQCD. However, it is important to note that this assessment was limited to screening, surveying, and preparing a provisional assessment of these studies. For reasons outlined in Section I.C of the preamble for the final PM NAAQS rulemaking in 2006 (see 71 FR 61148-49, October 17, 2006), EPA based its NAAQS decision on the science presented in the 2004 AQCD.

Studies examining populations exposed over the long term (one or more years) to different levels of air pollution, including the Harvard

Six Cities Study

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and the American Cancer Society Study, show associations between long- term exposure to ambient PM2.5and both total and cardiopulmonary premature mortality.242 243 244In addition, an extension of the American Cancer Society Study shows an association between PM2.5and sulfate concentrations and lung cancer mortality.\245\

\242\ Dockery, D.W., Pope, C.A. III, Xu, X, et al. (1993). An association between air pollution and mortality in six U.S. cities.

N Engl J Med, 329, 1753-1759. Retrieved on March 19, 2009 from http://content.nejm.org/cgi/content/full/329/24/1753.

\243\ Pope, C.A., III, Thun, M.J., Namboodiri, M.M., Dockery,

D.W., Evans, J.S., Speizer, F.E., and Heath, C.W., Jr. (1995).

Particulate air pollution as a predictor of mortality in a prospective study of U.S. adults. Am. J. Respir. Crit. Care Med, 151, 669-674.

\244\ Krewski, D., Burnett, R.T., Goldberg, M.S., et al. (2000).

Reanalysis of the Harvard Six Cities study and the American Cancer

Society study of particulate air pollution and mortality. A special report of the Institute's Particle Epidemiology Reanalysis Project.

Cambridge, MA: Health Effects Institute. Retrieved on March 19, 2009 from http://es.epa.gov/ncer/science/pm/hei/Rean-ExecSumm.pdf.

\245\ Pope, C.A., III, Burnett, R.T., Thun, M. J., Calle, E.E.,

Krewski, D., Ito, K., Thurston, G.D., (2002). Lung cancer, cardiopulmonary mortality, and long-term exposure to fine particulate air pollution. J. Am. Med. Assoc., 287, 1132-1141.

b. Ozone i. Background

Ground-level ozone pollution is typically formed by the reaction of

VOC and NOXin the lower atmosphere in the presence of heat and sunlight. These pollutants, often referred to as ozone precursors, are emitted by many types of pollution sources, such as highway and nonroad motor vehicles and engines, power plants, chemical plants, refineries, makers of consumer and commercial products, industrial facilities, and smaller area sources.

The science of ozone formation, transport, and accumulation is complex.\246\ Ground-level ozone is produced and destroyed in a cyclical set of chemical reactions, many of which are sensitive to temperature and sunlight. When ambient temperatures and sunlight levels remain high for several days and the air is relatively stagnant, ozone and its precursors can build up and result in more ozone than typically occurs on a single high-temperature day. Ozone can be transported hundreds of miles downwind of precursor emissions, resulting in elevated ozone levels even in areas with low local VOC or

NOXemissions.

\246\ U.S. EPA. (2006). Air Quality Criteria for Ozone and

Related Photochemical Oxidants (Final). EPA/600/R-05/004aF-cF.

Washington, DC: U.S. EPA. Retrieved on March 19, 2009 from Docket

EPA-HQ-OAR-2003-0190 at http://www.regulations.gov/.

ii. Health Effects of Ozone

The health and welfare effects of ozone are well documented and are assessed in EPA's 2006 Air Quality Criteria Document (ozone AQCD) and 2007 Staff Paper.247 248Ozone can irritate the respiratory system, causing coughing, throat irritation, and/or uncomfortable sensation in the chest. Ozone can reduce lung function and make it more difficult to breathe deeply; breathing may also become more rapid and shallow than normal, thereby limiting a person's activity. Ozone can also aggravate asthma, leading to more asthma attacks that require medical attention and/or the use of additional medication. In addition, there is suggestive evidence of a contribution of ozone to cardiovascular-related morbidity and highly suggestive evidence that short-term ozone exposure directly or indirectly contributes to non- accidental and cardiopulmonary-related mortality, but additional research is needed to clarify the underlying mechanisms causing these effects. In a recent report on the estimation of ozone-related premature mortality published by the National Research Council (NRC), a panel of experts and reviewers concluded that short-term exposure to ambient ozone is likely to contribute to premature deaths and that ozone-related mortality should be included in estimates of the health benefits of reducing ozone exposure.\249\ Animal toxicological evidence indicates that with repeated exposure, ozone can inflame and damage the lining of the lungs, which may lead to permanent changes in lung tissue and irreversible reductions in lung function. People who are more susceptible to effects associated with exposure to ozone can include children, the elderly, and individuals with respiratory disease such as asthma. Those with greater exposures to ozone, for instance due to time spent outdoors (e.g., children and outdoor workers), are of particular concern.

\247\ U.S. EPA. (2006). Air Quality Criteria for Ozone and

Related Photochemical Oxidants (Final). EPA/600/R-05/004aF-cF.

Washington, DC: U.S. EPA. Retrieved on March 19, 2009 from Docket

EPA-HQ-OAR-2003-0190 at http://www.regulations.gov/.

\248\ U.S. EPA. (2007). Review of the National Ambient Air

Quality Standards for Ozone: Policy Assessment of Scientific and

Technical Information, OAQPS Staff Paper. EPA-452/R-07-003.

Washington, DC. U.S. EPA. Retrieved on March 19, 2009 from Docket

EPA-HQ-OAR-2003-0190 at http://www.regulations.gov/.

\249\ National Research Council (NRC), 2008. Estimating

Mortality Risk Reduction and Economic Benefits from Controlling

Ozone Air Pollution. The National Academies Press: Washington, DC.

The 2006 ozone AQCD also examined relevant new scientific information that has emerged in the past decade, including the impact of ozone exposure on such health effects as changes in lung structure and biochemistry, inflammation of the lungs, exacerbation and causation of asthma, respiratory illness-related school absence, hospital admissions and premature mortality. Animal toxicological studies have suggested potential interactions between ozone and PM with increased responses observed to mixtures of the two pollutants compared to either ozone or PM alone. The respiratory morbidity observed in animal studies along with the evidence from epidemiologic studies supports a causal relationship between acute ambient ozone exposures and increased respiratory-related emergency room visits and hospitalizations in the warm season. In addition, there is suggestive evidence of a contribution of ozone to cardiovascular-related morbidity and non- accidental and cardiopulmonary mortality. c. NOXand SOX i. Background

Nitrogen dioxide (NO2) is a member of the NOX family of gases. Most NO2is formed in the air through the oxidation of nitric oxide (NO) emitted when fuel is burned at a high temperature. SO2, a member of the sulfur oxide

(SOX) family of gases, is formed from burning fuels containing sulfur (e.g., coal or oil derived), extracting gasoline from oil, or extracting metals from ore.

SO2and NO2can dissolve in water vapor and further oxidize to form sulfuric and nitric acid which react with ammonia to form sulfates and nitrates, both of which are important components of ambient PM. The health effects of ambient PM are discussed in Section III.G.3.a of this preamble. NOXalong with non-methane hydrocarbon (NMHC) are the two major precursors of ozone. The health effects of ozone are covered in Section III.G.3.b. ii. Health Effects of NO2

Information on the health effects of NO2can be found in the U.S. Environmental Protection Agency Integrated Science Assessment

(ISA) for Nitrogen Oxides.\250\ The U.S. EPA has concluded that the findings of epidemiologic, controlled human

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exposure, and animal toxicological studies provide evidence that is sufficient to infer a likely causal relationship between respiratory effects and short-term NO2exposure. The ISA concludes that the strongest evidence for such a relationship comes from epidemiologic studies of respiratory effects including symptoms, emergency department visits, and hospital admissions. The ISA also draws two broad conclusions regarding airway responsiveness following NO2 exposure. First, the ISA concludes that NO2exposure may enhance the sensitivity to allergen-induced decrements in lung function and increase the allergen-induced airway inflammatory response at exposures as low as 0.26 ppm NO2for 30 minutes. Second, exposure to NO2has been found to enhance the inherent responsiveness of the airway to subsequent nonspecific challenges in controlled human exposure studies of asthmatic subjects. Enhanced airway responsiveness could have important clinical implications for asthmatics since transient increases in airway responsiveness following

NO2exposure have the potential to increase symptoms and worsen asthma control. Together, the epidemiologic and experimental data sets form a plausible, consistent, and coherent description of a relationship between NO2exposures and an array of adverse health effects that range from the onset of respiratory symptoms to hospital admission.

\250\ U.S. EPA (2008). Integrated Science Assessment for Oxides of Nitrogen--Health Criteria (Final Report). EPA/600/R-08/071.

Washington, DC: U.S. EPA. Retrieved on March 19, 2009 from http:// cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645.

Although the weight of evidence supporting a causal relationship is somewhat less certain than that associated with respiratory morbidity,

NO2has also been linked to other health endpoints. These include all-cause (nonaccidental) mortality, hospital admissions or emergency department visits for cardiovascular disease, and decrements in lung function growth associated with chronic exposure. iii. Health Effects of SO2

Information on the health effects of SO2can be found in the U.S. Environmental Protection Agency Integrated Science Assessment for Sulfur Oxides.\251\ SO2has long been known to cause adverse respiratory health effects, particularly among individuals with asthma. Other potentially sensitive groups include children and the elderly. During periods of elevated ventilation, asthmatics may experience symptomatic bronchoconstriction within minutes of exposure.

Following an extensive evaluation of health evidence from epidemiologic and laboratory studies, the EPA has concluded that there is a causal relationship between respiratory health effects and short-term exposure to SO2. Separately, based on an evaluation of the epidemiologic evidence of associations between short-term exposure to

SO2and mortality, the EPA has concluded that the overall evidence is suggestive of a causal relationship between short-term exposure to SO2and mortality.

\251\ U.S. EPA. (2008). Integrated Science Assessment (ISA) for

Sulfur Oxides--Health Criteria (Final Report). EPA/600/R-08/047F.

Washington, DC: U.S. Environmental Protection Agency. Retrieved on

March 18, 2009 from http://cfpub.epa.gov/ncea/cfm/ recordisplay.cfm?deid=198843.

d. Carbon Monoxide

Carbon monoxide (CO) forms as a result of incomplete fuel combustion. CO enters the bloodstream through the lungs, forming carboxyhemoglobin and reducing the delivery of oxygen to the body's organs and tissues. The health threat from CO is most serious for those who suffer from cardiovascular disease, particularly those with angina or peripheral vascular disease. Healthy individuals also are affected, but only at higher CO levels. Exposure to elevated CO levels is associated with impairment of visual perception, work capacity, manual dexterity, learning ability and performance of complex tasks. Carbon monoxide also contributes to ozone nonattainment since carbon monoxide reacts photochemically in the atmosphere to form ozone.\252\ Additional information on CO related health effects can be found in the Carbon

Monoxide Air Quality Criteria Document (CO AQCD).253 254

\252\ U.S. EPA (2000). Air Quality Criteria for Carbon Monoxide,

EPA/600/P-99/001F. This document is available in Docket EPA-HQ-OAR- 2004-0008.

\253\ U.S. EPA (2000). Air Quality Criteria for Carbon Monoxide,

EPA/600/P-99/001F. This document is available in Docket EPA-HQ-OAR- 2004-0008.

\254\ The CO NAAQS is currently under review and the EPA is considering all available science on CO health effects, including information which has been published since 2000, in the development of the upcoming CO Integrated Science Assessment Document (ISA). A first draft of the CO ISA was completed in March 2009 and was submitted for review by the Clean Air Scientific Advisory Committee

(CASAC) of EPA's Science Advisory Board. For more information, see http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=203935.

e. Air Toxics

Motor vehicle emissions contribute to ambient levels of air toxics known or suspected as human or animal carcinogens, or that have noncancer health effects. The population experiences an elevated risk of cancer and other noncancer health effects from exposure to air toxics. \255\ These compounds include, but are not limited to, benzene, 1,3-butadiene, formaldehyde, acetaldehyde, acrolein, polycyclic organic matter (POM), and naphthalene. These compounds, except acetaldehyde, were identified as national or regional risk drivers in the 2002

National-scale Air Toxics Assessment (NATA) and have significant inventory contributions from mobile sources.\256\ Emissions and ambient concentrations of compounds are discussed in the DRIA chapter on emission inventories and air quality (Chapters 5 and 7, respectively).

\255\ U. S. EPA. 2002 National-Scale Air Toxics Assessment. http://www.epa.gov/ttn/atw/nata12002/risksum.html.

\256\ U.S. EPA. 2009. National-Scale Air Toxics Assessment for 2002. http://www.epa.gov/ttn/atw/nata2002/.

i. Benzene

The EPA's IRIS database lists benzene as a known human carcinogen

(causing leukemia) by all routes of exposure, and concludes that exposure is associated with additional health effects, including genetic changes in both humans and animals and increased proliferation of bone marrow cells in mice.257 258 259EPA states in its

IRIS database that data indicate a causal relationship between benzene exposure and acute lymphocytic leukemia and suggest a relationship between benzene exposure and chronic non-lymphocytic leukemia and chronic lymphocytic leukemia. The International Agency for Research on

Carcinogens (IARC) has determined that benzene is a human carcinogen and the U.S. Department of Health and Human Services (DHHS) has characterized benzene as a known human carcinogen.260 261

\257\ U.S. EPA. 2000. Integrated Risk Information System File for Benzene. This material is available electronically at http:// www.epa.gov/iris/subst/0276.htm.

\258\ International Agency for Research on Cancer (IARC). 1982.

Monographs on the evaluation of carcinogenic risk of chemicals to humans, Volume 29. Some industrial chemicals and dyestuffs, World

Health Organization, Lyon, France, p. 345-389.

\259\ Irons, R.D.; Stillman, W.S.; Colagiovanni, D.B.; Henry,

V.A. 1992. Synergistic action of the benzene metabolite hydroquinone on myelopoietic stimulating activity of granulocyte/macrophage colony-stimulating factor in vitro, Proc. Natl. Acad. Sci. 89:3691- 3695.

\260\ International Agency for Research on Cancer (IARC). 1987.

Monographs on the evaluation of carcinogenic risk of chemicals to humans, Volume 29. Supplement 7, Some industrial chemicals and dyestuffs, World Health Organization, Lyon, France.

\261\ U.S. Department of Health and Human Services National

Toxicology Program 11th Report on Carcinogens available at http:// www.ntp.niehs.nih.gov/go/16183.

A number of adverse noncancer health effects including blood disorders, such as preleukemia and aplastic anemia, have also been associated with

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long-term exposure to benzene.262 263The most sensitive noncancer effect observed in humans, based on current data, is the depression of the absolute lymphocyte count in blood.264 265

In addition, recent work, including studies sponsored by the Health

Effects Institute (HEI), provides evidence that biochemical responses are occurring at lower levels of benzene exposure than previously know 266 267 268 269EPA's IRIS program has not yet evaluated these new data.

\262\ Aksoy, M. (1989). Hematotoxicity and carcinogenicity of benzene. Environ. Health Perspect. 82: 193-197.

\263\ Goldstein, B.D. (1988). Benzene toxicity. Occupational medicine. State of the Art Reviews. 3: 541-554.

\264\ Rothman, N., G.L. Li, M. Dosemeci, W.E. Bechtold, G.E.

Marti, Y.Z. Wang, M. Linet, L.Q. Xi, W. Lu, M.T. Smith, N. Titenko-

Holland, L.P. Zhang, W. Blot, S.N. Yin, and R.B. Hayes (1996)

Hematotoxicity among Chinese workers heavily exposed to benzene. Am.

J. Ind. Med. 29: 236-246.

\265\ U.S. EPA (2002) Toxicological Review of Benzene (Noncancer

Effects). Environmental Protection Agency, Integrated Risk

Information System (IRIS), Research and Development, National Center for Environmental Assessment, Washington DC. This material is available electronically at http://www.epa.gov/iris/subst/0276.htm.

\266\ Qu, O.; Shore, R.; Li, G.; Jin, X.; Chen, C.L.; Cohen, B.;

Melikian, A.; Eastmond, D.; Rappaport, S.; Li, H.; Rupa, D.;

Suramaya, R.; Songnian, W.; Huifant, Y.; Meng, M.; Winnik, M.; Kwok,

E.; Li, Y.; Mu, R.; Xu, B.; Zhang, X.; Li, K. (2003) HEI Report 115,

Validation & Evaluation of Biomarkers in Workers Exposed to Benzene in China.

\267\ Qu, Q., R. Shore, G. Li, X. Jin, L.C. Chen, B. Cohen, et al. (2002) Hematological changes among Chinese workers with a broad range of benzene exposures. Am. J. Industr. Med. 42: 275-285.

\268\ Lan, Qing, Zhang, L., Li, G., Vermeulen, R., et al. (2004)

Hematotoxically in Workers Exposed to Low Levels of Benzene. Science 306: 1774-1776.

\269\ Turtletaub, K.W. and Mani, C. (2003) Benzene metabolism in rodents at doses relevant to human exposure from Urban Air. Research

Reports Health Effect Inst. Report No.113.

ii. 1,3-Butadiene

EPA has characterized 1,3-butadiene as carcinogenic to humans by inhalation.270 271The IARC has determined that 1,3- butadiene is a human carcinogen and the U.S. DHHS has characterized 1,3-butadiene as a known human carcinogen.272 273There are numerous studies consistently demonstrating that 1,3-butadiene is metabolized into genotoxic metabolites by experimental animals and humans. The specific mechanisms of 1,3-butadiene-induced carcinogenesis are unknown; however, the scientific evidence strongly suggests that the carcinogenic effects are mediated by genotoxic metabolites. Animal data suggest that females may be more sensitive than males for cancer effects associated with 1,3-butadiene exposure; there are insufficient data in humans from which to draw conclusions about sensitive subpopulations. 1,3-butadiene also causes a variety of reproductive and developmental effects in mice; no human data on these effects are available. The most sensitive effect was ovarian atrophy observed in a lifetime bioassay of female mice.\274\

\270\ U.S. EPA (2002) Health Assessment of 1,3-Butadiene. Office of Research and Development, National Center for Environmental

Assessment, Washington Office, Washington, DC. Report No. EPA600-P- 98-001F. This document is available electronically at http:// www.epa.gov/iris/supdocs/buta-sup.pdf.

\271\ U.S. EPA (2002) Full IRIS Summary for 1,3-butadiene (CASRN 106-99-0). Environmental Protection Agency, Integrated Risk

Information System (IRIS), Research and Development, National Center for Environmental Assessment, Washington, DC http://www.epa.gov/ iris/subst/0139.htm.

\272\ International Agency for Research on Cancer (IARC) (1999)

Monographs on the evaluation of carcinogenic risk of chemicals to humans, Volume 71, Re-evaluation of some organic chemicals, hydrazine and hydrogen peroxide and Volume 97 (in preparation),

World Health Organization, Lyon, France.

\273\ U.S. Department of Health and Human Services (2005)

National Toxicology Program 11th Report on Carcinogens available at: ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E- 7FCE50709CB4C932.

\274\ Bevan, C.; Stadler, J.C.; Elliot, G.S.; et al. (1996)

Subchronic toxicity of 4-vinylcyclohexene in rats and mice by inhalation. Fundam. Appl. Toxicol. 32:1-10.

iii. Formaldehyde

Since 1987, EPA has classified formaldehyde as a probable human carcinogen based on evidence in humans and in rats, mice, hamsters, and monkeys.\275\ EPA is currently reviewing recently published epidemiological data. For instance, research conducted by the National

Cancer Institute (NCI) found an increased risk of nasopharyngeal cancer and lymphohematopoietic malignancies such as leukemia among workers exposed to formaldehyde.276 277In an analysis of the lymphohematopoietic cancer mortality from an extended follow-up of these workers, NCI confirmed an association between lymphohematopoietic cancer risk and peak exposures.\278\ A recent National Institute of

Occupational Safety and Health (NIOSH) study of garment workers also found increased risk of death due to leukemia among workers exposed to formaldehyde.\279\ Extended follow-up of a cohort of British chemical workers did not find evidence of an increase in nasopharyngeal or lymphohematopoietic cancers, but a continuing statistically significant excess in lung cancers was reported.\280\ Recently, the IARC re- classified formaldehyde as a human carcinogen (Group 1).\281\

\275\ U.S. EPA (1987) Assessment of Health Risks to Garment

Workers and Certain Home Residents from Exposure to Formaldehyde,

Office of Pesticides and Toxic Substances, April 1987.

\276\ Hauptmann, M.; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.;

Blair, A. 2003. Mortality from lymphohematopeotic malignancies among workers in formaldehyde industries. Journal of the National Cancer

Institute 95: 1615-1623.

\277\ Hauptmann, M.; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.;

Blair, A. 2004. Mortality from solid cancers among workers in formaldehyde industries. American Journal of Epidemiology 159: 1117- 1130.

\278\ Beane Freeman, L. E.; Blair, A.; Lubin, J. H.; Stewart, P.

A.; Hayes, R. B.; Hoover, R. N.; Hauptmann, M. 2009. Mortality from lymphohematopoietic malignancies among workers in formaldehyde industries: The National Cancer Institute cohort. J. National Cancer

Inst. 101: 751-761.

\279\ Pinkerton, L. E. 2004. Mortality among a cohort of garment workers exposed to formaldehyde: an update. Occup. Environ. Med. 61: 193-200.

\280\ Coggon, D, EC Harris, J Poole, KT Palmer. 2003. Extended follow-up of a cohort of British chemical workers exposed to formaldehyde. J National Cancer Inst. 95:1608-1615.

\281\ International Agency for Research on Cancer (IARC). 2006.

Formaldehyde, 2-Butoxyethanol and 1-tert-Butoxypropan-2-ol. Volume 88. (in preparation), World Health Organization, Lyon, France.

Formaldehyde exposure also causes a range of noncancer health effects, including irritation of the eyes (burning and watering of the eyes), nose and throat. Effects from repeated exposure in humans include respiratory tract irritation, chronic bronchitis and nasal epithelial lesions such as metaplasia and loss of cilia. Animal studies suggest that formaldehyde may also cause airway inflammation--including eosinophil infiltration into the airways. There are several studies that suggest that formaldehyde may increase the risk of asthma-- particularly in the young.282 283

\282\ Agency for Toxic Substances and Disease Registry (ATSDR). 1999. Toxicological profile for Formaldehyde. Atlanta, GA: U.S.

Department of Health and Human Services, Public Health Service. http://www.atsdr.cdc.gov/toxprofiles/tp111.html.

\283\ WHO (2002) Concise International Chemical Assessment

Document 40: Formaldehyde. Published under the joint sponsorship of the United Nations Environment Programme, the International Labour

Organization, and the World Health Organization, and produced within the framework of the Inter-Organization Programme for the Sound

Management of Chemicals. Geneva.

iv. Acetaldehyde

Acetaldehyde is classified in EPA's IRIS database as a probable human carcinogen, based on nasal tumors in rats, and is considered toxic by the inhalation, oral, and intravenous routes.\284\

Acetaldehyde is reasonably anticipated to be a human carcinogen by the

U.S. DHHS in the 11th Report on Carcinogens and is classified as possibly carcinogenic to humans (Group 2B) by

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the IARC.285 286EPA is currently conducting a reassessment of cancer risk from inhalation exposure to acetaldehyde. The primary noncancer effects of exposure to acetaldehyde vapors include irritation of the eyes, skin, and respiratory tract.\287\ In short-term (4 week) rat studies, degeneration of olfactory epithelium was observed at various concentration levels of acetaldehyde exposure.288 289Data from these studies were used by EPA to develop an inhalation reference concentration. Some asthmatics have been shown to be a sensitive subpopulation to decrements in functional expiratory volume (FEV1 test) and bronchoconstriction upon acetaldehyde inhalation.\290\ The agency is currently conducting a reassessment of the health hazards from inhalation exposure to acetaldehyde.

\284\ U.S. EPA. 1991. Integrated Risk Information System File of

Acetaldehyde. Research and Development, National Center for

Environmental Assessment, Washington, DC. This material is available electronically at http://www.epa.gov/iris/subst/0290.htm.

\285\ U.S. Department of Health and Human Services National

Toxicology Program 11th Report on Carcinogens available at: ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E- 7FCE50709CB4C932.

\286\ International Agency for Research on Cancer (IARC). 1999.

Re-evaluation of some organic chemicals, hydrazine, and hydrogen peroxide. IARC Monographs on the Evaluation of Carcinogenic Risk of

Chemical to Humans, Vol. 71. Lyon, France.

\287\ U.S. EPA. 1991. Integrated Risk Information System File of

Acetaldehyde. This material is available electronically at http:// www.epa.gov/iris/subst/0290.htm.

\288\ Appleman, L. M., R. A. Woutersen, V. J. Feron, R. N.

Hooftman, and W. R. F. Notten. 1986. Effects of the variable versus fixed exposure levels on the toxicity of acetaldehyde in rats. J.

Appl. Toxicol. 6: 331-336.

\289\ Appleman, L.M., R.A. Woutersen, and V.J. Feron. 1982.

Inhalation toxicity of acetaldehyde in rats. I. Acute and subacute studies. Toxicology. 23: 293-297.

\290\ Myou, S.; Fujimura, M.; Nishi K.; Ohka, T.; and Matsuda,

T. 1993. Aerosolized acetaldehyde induces histamine-mediated bronchoconstriction in asthmatics. Am. Rev. Respir. Dis.148(4 Pt 1): 940-3.

v. Acrolein

Acrolein is extremely acrid and irritating to humans when inhaled, with acute exposure resulting in upper respiratory tract irritation, mucus hypersecretion and congestion. Levels considerably lower than 1 ppm (2.3 mg/m3) elicit subjective complaints of eye and nasal irritation and a decrease in the respiratory rate.291 292Lesions to the lungs and upper respiratory tract of rats, rabbits, and hamsters have been observed after subchronic exposure to acrolein. Based on animal data, individuals with compromised respiratory function (e.g., emphysema, asthma) are expected to be at increased risk of developing adverse responses to strong respiratory irritants such as acrolein. This was demonstrated in mice with allergic airway-disease by comparison to non-diseased mice in a study of the acute respiratory irritant effects of acrolein.\293\ The intense irritancy of this carbonyl has been demonstrated during controlled tests in human subjects, who suffer intolerable eye and nasal mucosal sensory reactions within minutes of exposure.\294\

\291\ Weber-Tschopp, A; Fischer, T; Gierer, R; et al. (1977)

Experimentelle reizwirkungen von Acrolein auf den Menschen. Int Arch

Occup Environ Hlth 40(2):117-130. In German

\292\ Sim, VM; Pattle, RE. (1957) Effect of possible smog irritants on human subjects. J Am Med Assoc 165(15):1908-1913.

\293\ Morris JB, Symanowicz PT, Olsen JE, et al. 2003. Immediate sensory nerve-mediated respiratory responses to irritants in healthy and allergic airway-diseased mice. J Appl Physiol 94(4):1563-1571.

\294\ Sim VM, Pattle RE. Effect of possible smog irritants on human subjects JAMA165: 1980-2010, 1957.

EPA determined in 2003 that the human carcinogenic potential of acrolein could not be determined because the available data were inadequate. No information was available on the carcinogenic effects of acrolein in humans and the animal data provided inadequate evidence of carcinogenicity.\295\ The IARC determined in 1995 that acrolein was not classifiable as to its carcinogenicity in humans.\296\

\295\ U.S. EPA. 2003. Integrated Risk Information System File of

Acrolein. Research and Development, National Center for

Environmental Assessment, Washington, DC. This material is available at http://www.epa.gov/iris/subst/0364.htm.

\296\ International Agency for Research on Cancer (IARC). 1995.

Monographs on the evaluation of carcinogenic risk of chemicals to humans, Volume 63, Dry cleaning, some chlorinated solvents and other industrial chemicals, World Health Organization, Lyon, France.

vi. Polycyclic Organic Matter (POM)

POM is generally defined as a large class of organic compounds which have multiple benzene rings and a boiling point greater than 100 degrees Celsius. Many of the compounds included in the class of compounds known as POM are classified by EPA as probable human carcinogens based on animal data. One of these compounds, naphthalene, is discussed separately below. Polycyclic aromatic hydrocarbons (PAHs) are a subset of POM that contain only hydrogen and carbon atoms. A number of PAHs are known or suspected carcinogens. Recent studies have found that maternal exposures to PAHs (a subclass of POM) in a population of pregnant women were associated with several adverse birth outcomes, including low birth weight and reduced length at birth, as well as impaired cognitive development at age three.297 298

EPA has not yet evaluated these recent studies.

\297\ Perera, F.P.; Rauh, V.; Tsai, W-Y.; et al. (2002) Effect of transplacental exposure to environmental pollutants on birth outcomes in a multiethnic population. Environ Health Perspect. 111: 201-205.

\298\ Perera, F.P.; Rauh, V.; Whyatt, R.M.; Tsai, W.Y.; Tang,

D.; Diaz, D.; Hoepner, L.; Barr, D.; Tu, Y.H.; Camann, D.; Kinney,

P. (2006) Effect of prenatal exposure to airborne polycyclic aromatic hydrocarbons on neurodevelopment in the first 3 years of life among inner-city children. Environ Health Perspect 114: 1287- 1292.

vii. Naphthalene

Naphthalene is found in small quantities in gasoline and diesel fuels. Naphthalene emissions have been measured in larger quantities in both gasoline and diesel exhaust compared with evaporative emissions from mobile sources, indicating it is primarily a product of combustion. EPA released an external review draft of a reassessment of the inhalation carcinogenicity of naphthalene based on a number of recent animal carcinogenicity studies.\299\ The draft reassessment completed external peer review.\300\ Based on external peer review comments received, additional analyses are being undertaken. This external review draft does not represent official agency opinion and was released solely for the purposes of external peer review and public comment. Once EPA evaluates public and peer reviewer comments, the document will be revised. The National Toxicology Program listed naphthalene as ``reasonably anticipated to be a human carcinogen'' in 2004 on the basis of bioassays reporting clear evidence of carcinogenicity in rats and some evidence of carcinogenicity in mice.\301\ California EPA has released a new risk assessment for naphthalene, and the IARC has reevaluated naphthalene and re-classified it as Group 2B: possibly carcinogenic to humans.\302\ Naphthalene also causes a number of chronic non-cancer effects in animals, including

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abnormal cell changes and growth in respiratory and nasal tissues.\303\

\299\ U. S. EPA. 2004. Toxicological Review of Naphthalene

(Reassessment of the Inhalation Cancer Risk), Environmental

Protection Agency, Integrated Risk Information System, Research and

Development, National Center for Environmental Assessment,

Washington, DC. This material is available electronically at http:// www.epa.gov/iris/subst/0436.htm.

\300\ Oak Ridge Institute for Science and Education. (2004).

External Peer Review for the IRIS Reassessment of the Inhalation

Carcinogenicity of Naphthalene. August 2004. http://cfpub.epa.gov/ ncea/cfm/recordisplay.cfm?deid=84403.

\301\ National Toxicology Program (NTP). (2004). 11th Report on

Carcinogens. Public Health Service, U.S. Department of Health and

Human Services, Research Triangle Park, NC. Available from: http:// ntp-server.niehs.nih.gov.

\302\ International Agency for Research on Cancer (IARC).

(2002). Monographs on the Evaluation of the Carcinogenic Risk of

Chemicals for Humans. Vol. 82. Lyon, France.

\303\ U. S. EPA. 1998. Toxicological Review of Naphthalene,

Environmental Protection Agency, Integrated Risk Information System,

Research and Development, National Center for Environmental

Assessment, Washington, DC. This material is available electronically at http://www.epa.gov/iris/subst/0436.htm.

viii. Other Air Toxics

In addition to the compounds described above, other compounds in gaseous hydrocarbon and PM emissions from vehicles will be affected by this proposed action. Mobile source air toxic compounds that would potentially be impacted include ethylbenzene, polycyclic organic matter, propionaldehyde, toluene, and xylene. Information regarding the health effects of these compounds can be found in EPA's IRIS database.\304\

\304\ U.S. EPA Integrated Risk Information System (IRIS) database is available at: www.epa.gov/iris.

4. Environmental Effects of Non-GHG Pollutants a. Visibility

Visibility can be defined as the degree to which the atmosphere is transparent to visible light. Airborne particles degrade visibility by scattering and absorbing light. Visibility is important because it has direct significance to people's enjoyment of daily activities in all parts of the country. Individuals value good visibility for the well- being it provides them directly, where they live and work and in places where they enjoy recreational opportunities. Visibility is also highly valued in significant natural areas such as national parks and wilderness areas and special emphasis is given to protecting visibility in these areas. For more information on visibility, see the final 2004

PM AQCD as well as the 2005 PM Staff Paper.305 306

\305\ U.S. EPA. (2004). Air Quality Criteria for Particulate

Matter (AQCD). Volume I Document No. EPA600/P-99/002aF and Volume II

Document No. EPA600/P-99/002bF. Washington, DC: U.S. Environmental

Protection Agency. Retrieved on March 18, 2009 from http:// cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=87903.

\306\ U.S. EPA. (2005). Review of the National Ambient Air

Quality Standard for Particulate Matter: Policy Assessment of

Scientific and Technical Information, OAQPS Staff Paper. EPA-452/R- 05-005. Washington, DC: U.S. Environmental Protection Agency.

EPA is pursuing a two-part strategy to address visibility. First, to address the welfare effects of PM on visibility, EPA has set secondary PM2.5standards which act in conjunction with the establishment of a regional haze program. In setting this secondary standard, EPA has concluded that PM2.5causes adverse effects on visibility in various locations, depending on PM concentrations and factors such as chemical composition and average relative humidity. Second, section 169 of the Clean Air Act provides additional authority to address existing visibility impairment and prevent future visibility impairment in the 156 national parks, forests and wilderness areas categorized as mandatory class I Federal areas (62

FR 38680-81, July 18, 1997).\307\ In July 1999, the regional haze rule

(64 FR 35714) was put in place to protect the visibility in mandatory class I Federal areas. Visibility can be said to be impaired in both

PM2.5nonattainment areas and mandatory class I Federal areas.

\307\ These areas are defined in section 162 of the Act as those national parks exceeding 6,000 acres, wilderness areas and memorial parks exceeding 5,000 acres, and all international parks which were in existence on August 7, 1977.

b. Plant and Ecosystem Effects of Ozone

Elevated ozone levels contribute to environmental effects, with impacts to plants and ecosystems being of most concern. Ozone can produce both acute and chronic injury in sensitive species depending on the concentration level and the duration of the exposure. Ozone effects also tend to accumulate over the growing season of the plant, so that even low concentrations experienced for a longer duration have the potential to create chronic stress on vegetation. Ozone damage to plants includes visible injury to leaves and impaired photosynthesis, both of which can lead to reduced plant growth and reproduction, resulting in reduced crop yields, forestry production, and use of sensitive ornamentals in landscaping. In addition, the impairment of photosynthesis, the process by which the plant makes carbohydrates (its source of energy and food), can lead to a subsequent reduction in root growth and carbohydrate storage below ground, resulting in other, more subtle plant and ecosystems impacts.

These latter impacts include increased susceptibility of plants to insect attack, disease, harsh weather, interspecies competition and overall decreased plant vigor. The adverse effects of ozone on forest and other natural vegetation can potentially lead to species shifts and loss from the affected ecosystems, resulting in a loss or reduction in associated ecosystem goods and services. Lastly, visible ozone injury to leaves can result in a loss of aesthetic value in areas of special scenic significance like national parks and wilderness areas. The final 2006 ozone AQCD presents more detailed information on ozone effects on vegetation and ecosystems. c. Atmospheric Deposition

Wet and dry deposition of ambient particulate matter delivers a complex mixture of metals (e.g., mercury, zinc, lead, nickel, aluminum, cadmium), organic compounds (e.g., POM, dioxins, furans) and inorganic compounds (e.g., nitrate, sulfate) to terrestrial and aquatic ecosystems. The chemical form of the compounds deposited depends on a variety of factors including ambient conditions (e.g., temperature, humidity, oxidant levels) and the sources of the material. Chemical and physical transformations of the compounds occur in the atmosphere as well as the media onto which they deposit. These transformations in turn influence the fate, bioavailability and potential toxicity of these compounds. Atmospheric deposition has been identified as a key component of the environmental and human health hazard posed by several pollutants including mercury, dioxin and PCBs.\308\

\308\ U.S. EPA (2000) Deposition of Air Pollutants to the Great

Waters: Third Report to Congress. Office of Air Quality Planning and

Standards. EPA-453/R-00-0005. This document is available in Docket

EPA-HQ-OAR-2003-0190.

Adverse impacts on water quality can occur when atmospheric contaminants deposit to the water surface or when material deposited on the land enters a water body through runoff. Potential impacts of atmospheric deposition to water bodies include those related to both nutrient and toxic inputs. Adverse effects to human health and welfare can occur from the addition of excess nitrogen via atmospheric deposition. The nitrogen-nutrient enrichment contributes to toxic algae blooms and zones of depleted oxygen, which can lead to fish kills, frequently in coastal waters. Deposition of heavy metals or other toxins may lead to the human ingestion of contaminated fish, human ingestion of contaminated water, damage to the marine ecology, and limits to recreational uses. Several studies have been conducted in

U.S. coastal waters and in the Great Lakes Region in which the role of ambient PM deposition and runoff is investigated.309 310 311 312 313

\309\ U.S. EPA (2004) National Coastal Condition Report II.

Office of Research and Development/Office of Water. EPA-620/R-03/ 002. This document is available in Docket EPA-HQ-OAR-2003-0190.

\310\ Gao, Y., E.D. Nelson, M.P. Field, et al. 2002.

Characterization of atmospheric trace elements on PM2.5 particulate matter over the New York-New Jersey harbor estuary.

Atmos. Environ. 36: 1077-1086.

\311\ Kim, G., N. Hussain, J.R. Scudlark, and T.M. Church. 2000.

Factors influencing the atmospheric depositional fluxes of stable

Pb, 210Pb, and 7Be into Chesapeake Bay. J. Atmos. Chem. 36: 65-79.

\312\ Lu, R., R.P. Turco, K. Stolzenbach, et al. 2003. Dry deposition of airborne trace metals on the Los Angeles Basin and adjacent coastal waters. J. Geophys. Res. 108(D2, 4074): AAC 11-1 to 11-24.

\313\ Marvin, C.H., M.N. Charlton, E.J. Reiner, et al. 2002.

Surficial sediment contamination in Lakes Erie and Ontario: A comparative analysis. J. Great Lakes Res. 28(3): 437-450.

Page 49600

Atmospheric deposition of nitrogen and sulfur contributes to acidification, altering biogeochemistry and affecting animal and plant life in terrestrial and aquatic ecosystems across the U.S. The sensitivity of terrestrial and aquatic ecosystems to acidification from nitrogen and sulfur deposition is predominantly governed by geology.

Prolonged exposure to excess nitrogen and sulfur deposition in sensitive areas acidifies lakes, rivers and soils. Increased acidity in surface waters creates inhospitable conditions for biota and affects the abundance and nutritional value of preferred prey species, threatening biodiversity and ecosystem function. Over time, acidifying deposition also removes essential nutrients from forest soils, depleting the capacity of soils to neutralize future acid loadings and negatively affecting forest sustainability. Major effects include a decline in sensitive forest tree species, such as red spruce (Picea rubens) and sugar maple (Acer saccharum), and a loss of biodiversity of fishes, zooplankton, and macro invertebrates.

In addition to the role nitrogen deposition plays in acidification, nitrogen deposition also causes ecosystem nutrient enrichment leading to eutrophication that alters biogeochemical cycles. Excess nitrogen also leads to the loss of nitrogen sensitive lichen species as they are outcompeted by invasive grasses as well as altering the biodiversity of terrestrial ecosystems, such as grasslands and meadows. For a broader explanation of the topics treated here, refer to the description in

Chapter 7 of the DRIA.

Adverse impacts on soil chemistry and plant life have been observed for areas heavily influenced by atmospheric deposition of nutrients, metals and acid species, resulting in species shifts, loss of biodiversity, forest decline and damage to forest productivity.

Potential impacts also include adverse effects to human health through ingestion of contaminated vegetation or livestock (as in the case for dioxin deposition), reduction in crop yield, and limited use of land due to contamination.

Atmospheric deposition of pollutants can reduce the aesthetic appeal of buildings and culturally important articles through soiling, and can contribute directly (or in conjunction with other pollutants) to structural damage by means of corrosion or erosion. Atmospheric deposition may affect materials principally by promoting and accelerating the corrosion of metals, by degrading paints, and by deteriorating building materials such as concrete and limestone.

Particles contribute to these effects because of their electrolytic, hygroscopic, and acidic properties, and their ability to adsorb corrosive gases (principally sulfur dioxide). The rate of metal corrosion depends on a number of factors, including the deposition rate and nature of the pollutant; the influence of the metal protective corrosion film; the amount of moisture present; variability in the electrochemical reactions; the presence and concentration of other surface electrolytes; and the orientation of the metal surface. d. Environmental Effects of Air Toxics

Fuel combustion emissions contribute to ambient levels of pollutants that contribute to adverse effects on vegetation. Volatile organic compounds (VOCs), some of which are considered air toxics, have long been suspected to play a role in vegetation damage.\314\ In laboratory experiments, a wide range of tolerance to VOCs has been observed.\315\ Decreases in harvested seed pod weight have been reported for the more sensitive plants, and some studies have reported effects on seed germination, flowering and fruit ripening. Effects of individual VOCs or their role in conjunction with other stressors

(e.g., acidification, drought, temperature extremes) have not been well studied. In a recent study of a mixture of VOCs including ethanol and toluene on herbaceous plants, significant effects on seed production, leaf water content and photosynthetic efficiency were reported for some plant species.\316\

\314\ U.S. EPA. 1991. Effects of organic chemicals in the atmosphere on terrestrial plants. EPA/600/3-91/001.

\315\ Cape JN, ID Leith, J Binnie, J Content, M Donkin, M

Skewes, DN Price AR Brown, AD Sharpe. 2003. Effects of VOCs on herbaceous plants in an open-top chamber experiment. Environ.

Pollut. 124:341-343.

\316\ Cape JN, ID Leith, J Binnie, J Content, M Donkin, M

Skewes, DN Price AR Brown, AD Sharpe. 2003. Effects of VOCs on herbaceous plants in an open-top chamber experiment. Environ.

Pollut. 124:341-343.

Research suggests an adverse impact of vehicle exhaust on plants, which has in some cases been attributed to aromatic compounds and in other cases to nitrogen oxides.317 318 319The impacts of

VOCs on plant reproduction may have long-term implications for biodiversity and survival of native species near major roadways. Most of the studies of the impacts of VOCs on vegetation have focused on short-term exposure and few studies have focused on long-term effects of VOCs on vegetation and the potential for metabolites of these compounds to affect herbivores or insects.

\317\ Viskari E-L. 2000. Epicuticular wax of Norway spruce needles as indicator of traffic pollutant deposition. Water, Air, and Soil Pollut. 121:327-337.

\318\ Ugrekhelidze D, F Korte, G Kvesitadze. 1997. Uptake and transformation of benzene and toluene by plant leaves. Ecotox.

Environ. Safety 37:24-29.

\319\ Kammerbauer H, H Selinger, R Rommelt, A Ziegler-Jons, D

Knoppik, B Hock. 1987. Toxic components of motor vehicle emissions for the spruce Pciea abies. Environ. Pollut. 48:235-243.

5. Air Quality Impacts of Non-GHG Pollutants a. Current Levels of PM2.5, Ozone, CO and Air Toxics

This proposal may have impacts on levels of PM2.5, ozone, CO and air toxics. Nationally, levels of PM2.5, ozone, CO and air toxics are declining.320 321However, in 2005 EPA designated 39 nonattainment areas for the 1997

PM2.5National Ambient Air Quality Standard (NAAQS) (70 FR 943, January 5, 2005). These areas are composed of 208 full or partial counties with a total population exceeding 88 million. The 1997

PM2.5NAAQS was recently revised and the 2006 24-hour

PM2.5NAAQS became effective on December 18, 2006. The numbers above likely underestimate the number of counties that are not meeting the PM2.5NAAQS because the nonattainment areas associated with the more stringent 2006 24-hour PM2.5NAAQS have not yet been designated. Area designations for the 2006 24-hour

PM2.5NAAQS are expected to be promulgated in 2009 and become effective 90 days after publication in the Federal Register.

\320\ U.S. EPA (2008) National Air Quality Status and Trends through 2007. Office of Air Quality Planning and Standards, Research

Triangle Park, NC. Publication No. EPA 454/R-08-006. http://epa.gov/ airtrends/2008/index.html.

\321\ U.S. EPA (2007) Final Regulatory Impact Analysis: Control of Hazardous Air Pollutants from Mobile Sources, Office of

Transportation and Air Quality, Ann Arbor, MI, Publication No.

EPA420-R-07-002. http://www.epa.gov/otaq/toxics.htm.

In addition, the U.S. EPA has recently amended the ozone NAAQS (73

FR 16436, March 27, 2008). That final 2008 ozone NAAQS rule set forth revisions to the previous 1997 NAAQS for ozone to provide increased protection of public health and welfare. As of June 5, 2009, there are 55 areas designated as

Page 49601

nonattainment for the 1997 8-hour ozone NAAQS, comprising 290 full or partial counties with a total population of approximately 132 million people. These numbers do not include the people living in areas where there is a future risk of failing to maintain or attain the 1997 8-hour ozone NAAQS. The numbers above likely underestimate the number of counties that are not meeting the ozone NAAQS because the nonattainment areas associated with the more stringent 2008 8-hour ozone NAAQS have not yet been designated.

The proposed vehicle standards may also impact levels of ambient

CO, a criteria pollutant (see Table III.G-1 above for co-pollutant emission impacts). As of June 5, 2009 there are approximately 479,000 people living in a portion of Clark Co., NV which is currently the only area in the country that is designated as nonattainment for CO.\322\

\322\ Carbon Monoxide Nonattainment Area Summary: http:// www.epa.gov/air/oaqps/greenbk/cnsum.html.

Further, the majority of Americans continue to be exposed to ambient concentrations of air toxics at levels which have the potential to cause adverse health effects.\323\ The levels of air toxics to which people are exposed vary depending on where people live and work and the kinds of activities in which they engage, as discussed in detail in

U.S. EPA's recent mobile source air toxics rule.\324\

\323\ U.S. Environmental Protection Agency (2007). Control of

Hazardous Air Pollutants from Mobile Sources; Final Rule. 72 FR 8434, February 26, 2007.

\324\ U.S. Environmental Protection Agency (2007). Control of

Hazardous Air Pollutants from Mobile Sources; Final Rule. 72 FR 8434, February 26, 2007.

b. Impacts of Proposed Standards on Future Ambient PM2.5,

Ozone, CO and Air Toxics

Full-scale photochemical air quality modeling is necessary to accurately project levels of PM2.5, ozone, CO and air toxics. For the final rule, a national-scale air quality modeling analysis will be performed to analyze the impacts of the vehicle standards on PM2.5, ozone, and selected air toxics (i.e., benzene, formaldehyde, acetaldehyde, acrolein and 1,3-butadiene). The length of time needed to prepare the necessary emissions inventories, in addition to the processing time associated with the modeling itself, has precluded us from performing air quality modeling for this proposal.

Section III.G.1 of the preamble presents projections of the changes in criteria pollutant and air toxics emissions due to the proposed vehicle standards; the basis for those estimates is set out in Chapter 5 of the DRIA. The atmospheric chemistry related to ambient concentrations of PM2.5, ozone and air toxics is very complex, and making predictions based solely on emissions changes is extremely difficult. However, based on the magnitude of the emissions changes predicted to result from the proposed vehicle standards, EPA expects that there will be an improvement in ambient air quality, pending a more comprehensive analysis for the final rule.

For the final rule, EPA intends to use a 2005-based Community

Multi-scale Air Quality (CMAQ) modeling platform as the tool for the air quality modeling. The CMAQ modeling system is a comprehensive three-dimensional grid-based Eulerian air quality model designed to estimate the formation and fate of oxidant precursors, primary and secondary PM concentrations and deposition, and air toxics, over regional and urban spatial scales (e.g. over the contiguous

U.S.).325 326 327The CMAQ model is a well-known and well- established tool and is commonly used by EPA for regulatory analyses, for instance the recent ozone NAAQS proposal, and by States in developing attainment demonstrations for their State Implementation

Plans.\328\ The CMAQ model (version 4.6) was peer-reviewed in February of 2007 for EPA as reported in ``Third Peer Review of CMAQ Model,'' and the EPA Office of Research and Development (ORD) peer review report which includes version 4.7 is currently being finalized.\329\

\325\ U.S. Environmental Protection Agency, Byun, D.W., and

Ching, J.K.S., Eds, 1999. Science algorithms of EPA Models-3

Community Multiscale Air Quality (CMAQ modeling system, EPA/600/R- 99/030, Office of Research and Development).

\326\ Byun, D.W., and Schere, K.L., 2006. Review of the

Governing Equations, Computational Algorithms, and Other Components of the Models-3 Community Multiscale Air Quality (CMAQ) Modeling

System, J. Applied Mechanics Reviews, 59 (2), 51-77.

\327\ Dennis, R.L., Byun, D.W., Novak, J.H., Galluppi, K.J.,

Coats, C.J., and Vouk, M.A., 1996. The next generation of integrated air quality modeling: EPA's Models-3, Atmospheric Environment, 30, 1925-1938.

\328\ U.S. EPA (2007). Regulatory Impact Analysis of the

Proposed Revisions to the National Ambient Air Quality Standards for

Ground-Level Ozone. EPA document number 442/R-07-008, July 2007.

\329\ Aiyyer, A., Cohan, D., Russell, A., Stockwell, W.,

Tanrikulu, S., Vizuete, W., Wilczak, J., 2007. Final Report: Third

Peer Review of the CMAQ Model. p. 23.

CMAQ includes many science modules that simulate the emission, production, decay, deposition and transport of organic and inorganic gas-phase and particle-phase pollutants in the atmosphere. EPA intends to use the most recent CMAQ version (version 4.7), which was officially released by EPA's Office of Research and Development (ORD) in December 2008 and reflects updates to earlier versions in a number of areas to improve the underlying science. These include (1) enhanced secondary organic aerosol (SOA) mechanism to include chemistry of isoprene, sesquiterpene, and aged in-cloud biogenic SOA in addition to terpene;

(2) improved vertical convective mixing; (3) improved heterogeneous reaction involving nitrate formation; and (4) an updated gas-phase chemistry mechanism, Carbon Bond 05 (CB05), with extensions to model explicit concentrations of air toxic species as well as chlorine and mercury. This mechanism, CB05-toxics, also computes concentrations of species that are involved in aqueous chemistry and that are precursors to aerosols.

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

Proposal?

In this section, EPA presents the costs and impacts of EPA's proposed GHG program. It is important to note that NHTSA's CAFE standards and EPA's GHG standards will both be in effect, and each will lead to increases in average fuel economy and CO2emissions reductions. The two agencies' standards comprise the National Program, and this discussion of costs and benefits of EPA's GHG standard does not change the fact that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program.

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

Page 49602

already considered these benefits in their vehicle purchase decisions.

If so, then the inclusion of private benefits in the net benefits calculation may be inappropriate. If these conditions do not hold, then the private benefits may be a part of the net benefits. Section III.H.1 discusses this issue more fully.

EPA's proposed program costs consist of the vehicle program costs

(costs of complying with the vehicle CO2standards, taking into account FFV credits through 2015, the temporary lead-time alternative allowance standard program (TLAASP), full car/truck trading, and the A/C credit program), along with the fuel savings associated with reduced fuel usage resulting from the proposed program.

These proposed program costs also include external costs associated with noise, congestion, accidents, time spent refueling vehicles, and energy security impacts. EPA also presents the cost-effectiveness of the proposed standards and our analysis of the expected economy-wide impacts. The projected monetized benefits of reducing GHG emissions and co-pollutant health and environmental impacts are also presented. EPA also presents our estimates of the impact on vehicle miles traveled and the impacts associated with those miles as well as other societal impacts of the proposed program, including energy security impacts.

The total monetized benefits (excluding fuel savings) under the proposed program are projected to be $21 to $54 billion in 2030, assuming a 3 percent discount rate and depending on the value used for the social cost of carbon. The costs of the proposed program in 2030 are estimated to be approximately $18 billion for new vehicle technology less $90 billion in savings realized by consumers through fewer fuel expenditures (calculated using pre-tax fuel prices).

EPA has undertaken an analysis of the economy-wide impacts of the proposed GHG tailpipe standards as an exploratory exercise that EPA believes could provide additional insights into the potential impacts of the proposal.\330\ These results were not a factor regarding the appropriateness of the proposed GHG tailpipe standards. It is important to note that the results of this modeling exercise are dependent on the assumptions associated with how consumers will respond to increases in higher vehicle costs and improved vehicle fuel economy as a result of the proposal. Section III.H.1 discusses the underlying distinctions and implications of the role of consumer response in economic impacts.

\330\ See Memorandum to Docket, ``Economy-Wide Impacts of

Proposed Greenhouse Gas Tailpipe Standards,'' September 14, 2009

(Docket EPA-HQ-OAR-2009-0472).

Further information on these and other aspects of the economic impacts of our proposed rule are summarized in the following sections and are presented in more detail in the DRIA for this rulemaking. EPA requests comment on all aspects of the cost, savings, and benefits analysis presented here and in the DRIA. EPA also requests comment on the inputs used in these analyses as described in the Draft Joint TSD. 1. Conceptual Framework for Evaluating Consumer Impacts

For this proposed rule, EPA projects significant private gains to consumers in three major areas: (1) Reductions in spending on fuel, (2) time saved due to less refueling, and (3) welfare gains from additional driving that results from the rebound effect. In combination, these private savings, mostly from fuel savings, appear to outweigh by a large margin the costs of the program, even without accounting for externalities.

Admittedly, these findings pose a conundrum. On the one hand, consumers are expected to gain significantly from the proposed rules, as the increased cost of fuel efficient cars appears to be far smaller than the fuel savings (assuming modest discount rates). Yet fuel efficient cars are currently offered for sale, and consumers' purchasing decisions may suggest a preference for lower fuel economy than the proposed rule mandates. Assuming full information and perfect foresight, standard economic theory suggests that the private gains to consumers, large as they are, must therefore be accompanied by a consumer welfare loss. This calculation assumes that consumers accurately predict all the benefits they will get from a new vehicle, even if they underestimated fuel savings at the time of purchase. Even if there is some such loss, EPA believes that under realistic assumptions, the private gains from the proposed rule, together with the social gains (in the form of reduction of externalities), significantly outweigh the costs. But EPA seeks comments on the underlying issue.

The central conundrum has been referred to as the Energy Paradox in this setting (and in several others).\331\ In short, the problem is that consumers appear not to purchase products that are in their economic self-interest. There are strong theoretical reasons why this might be so.\332\ Consumers might be myopic and hence undervalue the long-term; they might lack information or a full appreciation of information even when it is presented; they might be especially averse to the short-term losses associated with energy efficient products (the behavioral phenomenon of ``loss aversion''); even if consumers have relevant knowledge, the benefits of energy efficient vehicles might not be sufficiently salient to them at the time of purchase. A great deal of work in behavioral economics identifies factors of this sort, which help account for the Energy Paradox.\333\ This point holds in the context of fuel savings (the main focus here), but it applies equally to the other private benefits, including reductions in refueling time and additional driving.\334\

\331\ Jaffe, A.B., & Stavins, R.N. (1994). The Energy Paradox and the Diffusion of Conservation Technology. Resource and Energy

Economics, 16(2), 91-122.

\332\ For an overview, see id.

\333\ Id.; Thaler, Richard. Quasi-Rational Economics. New York:

Russell Sage, 1993.

\334\ For example, it might be maintained that at the time of purchase, consumers take full account of the time potentially saved by fuel-efficient cars, but it might also be questioned whether they have adequate information to do so, or whether that factor is sufficiently salient to play the proper role in purchasing decisions.

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

\335\ Sanstad, A., and R. Howarth (1994). `` `Normal' Markets,

Market Imperfections, and Energy Efficiency.'' Energy Policy 22(10): 811-818; Larrick, R.P., and J.B. Soll (2008). ``The MPG illusion.''

Science 320: 1593-1594.

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

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are based on sales of existing vehicles, vehicle models are likely to change, both independently and in response to this proposed rule; the models may not predict well in response to these changes. Instead, EPA compares the value of the fuel savings associated with this rule with the increase in technology costs. EPA will continue its efforts to review the literature, but, given the known difficulties, EPA has not conducted an analysis using these models for this proposal.

Consumer vehicle choice models (referred to as ``market shift'' models by NHTSA in Section IV.C.4.c) are a tool that attempts to estimate how consumers decide what vehicles they buy. The models typically take into consideration both household characteristics (such as income, family size, and age) and vehicle characteristics (including a vehicle's power, price, and fuel economy). These models are often used to examine how a consumer's vehicle purchase decision is affected by a change in vehicle or personal characteristics. Although these models focus on the consumer, some have also linked consumer choice models with information on vehicle technologies and costs, to estimate an integrated system of consumer and auto maker response.

The outputs from consumer vehicle choice models typically include the market shares of each category of vehicle in the model. In addition, consumer vehicle choice models are often used to estimate the effect of market or regulatory changes on consumer surplus. Consumer surplus is the benefit that a consumer gets over and above the market price paid for the good. For instance, if a consumer is willing to pay up to $30,000 for a car but is able to negotiate a price of $25,000, the $5,000 difference is consumer surplus. Information on consumer surplus can be used in benefit-cost analysis to measure whether consumers are likely to consider themselves better or worse off due to the changes.

Consumer vehicle choice modeling has not previously been applied in

Federal regulatory analysis of fuel economy, and EPA has not used a consumer vehicle choice model in its analysis of the effects of this proposed rule. EPA has not done so, to this point, due to concern over the wide variation in the methods and results of existing models, as well as some of the limitations of existing applications of consumer choice modeling. Our preliminary review of the literature indicates that these models vary in a number of dimensions, including data sources used, modeling methods, vehicle characteristics included in the analysis, and the research questions for which they were designed.

These dimensions are likely to affect the models' results and their interpretation. In addition, their ability to incorporate major changes in the vehicle fleet appears unproven.

One problem for this rule is the variation in the value that consumers place on fuel economy in their vehicle purchase decisions. A number of consumer vehicle choice models make the assumption that auto producers provide as much fuel economy in their vehicles as consumers are willing to purchase, and consumers are satisfied with the current combinations of vehicle fuel economy and price in the marketplace.\336\

If this assumption is true, then consumers will not benefit from required improvements in fuel economy, even if the fuel savings that they receive exceed the additional costs from the fuel-saving technology. Other vehicle choice models, in contrast, find that consumers are willing to pay more for additional fuel economy than the costs to auto producers of installing that technology.\337\ If this result is true, then both consumers and producers would benefit from increased fuel economy. This result leaves open the question why auto producers do not follow the market incentive to provide more fuel economy, and why consumers do not seek out more fuel-efficient vehicles.

\336\ E.g., Kleit, Andrew N. (2004). ``Impacts of Long-Range

Increases in the Fuel Economy (CAFE) Standard.'' Economic Inquiry 42(2): 279-294 (Docket EPA-HQ-OAR-2009-0472); Austin, David, and

Terry Dinan (2005). ``Clearing the Air: The Costs and Consequences of Higher CAFE Standards and Increased Gasoline Taxes.'' Journal of

Environmental Economics and Management 50: 562-582 (Docket EPA-HQ-

OAR-2009-0472); Klier, Thomas, and Joshua Linn (2008). ``New Vehicle

Characteristics and the Cost of the Corporate Average Fuel Economy

Standard,'' working paper. http://www.chicagofed.org/publications/ workingpapers/wp2008_13.pdf (Docket EPA-HQ-OAR-2009-0472);

Jacobsen, Mark. ``Evaluating U.S. Fuel Economy Standards In a Model with Producer and Household Heterogeneity,'' http:// www.econ.ucsd.edu/~m3jacobs/Jacobsen_CAFE.pdf, accessed 5/11/09

(Docket EPA-HQ-OAR-2009-0472).

\337\ E.g., Gramlich, Jacob (2008). ``Gas Prices and Endogenous

Product Selection in the U.S. Automobile Industry,'' http:// www.econ.yale.edu/seminars/apmicro/am08/gramlich-081216.pdf, accessed 5/11/09 (Docket EPA-HQ-OAR-2009-0472); McManus, Walter M.

(2007). ``The Impact of Attribute-Based Corporate Average Fuel

Economy (CAFE) Standards: Preliminary Findings.'' University of

Michigan Transportation Research Institute paper UMTRI-2007-31

(Docket EPA-HQ-OAR-2009-0472); McManus, W. and R. Kleinbaum (2009).

``Fixing Detroit: How Far, How Fast, How Fuel Efficient.'' Working

Paper, Transportation Research Institute, University of Michigan

(Docket EPA-HQ-OAR-2009-0472).

Whether consumers and producers will benefit from improved fuel economy depends on the value of improved fuel economy to consumers.

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

\338\ Greene, David L., and Jin-Tan Liu (1988). ``Automotive

Fuel Economy Improvements and Consumers' Surplus.'' Transportation

Research Part A 22A(3): 203-218 (Docket EPA-HQ-OAR-2009-0472). The study actually calculated the willingness to pay for reduced vehicle operating costs, of which vehicle fuel economy is a major component.

Although EPA has not found an updated survey of these values, a few examples suggest that the existing consumer vehicle choice models still demonstrate wide variation in estimates of how much people are willing to pay for fuel savings. For instance, Espey and Nair (2005) and

McManus (2006) find that consumers are willing to pay around $600 for one additional mile per gallon.\339\ In contrast, Gramlich (2008) finds that consumers' willingness to pay for an increase from 25 mpg to 30 mpg varies between $4,100 (for luxury cars when gasoline costs $2/ gallon) to $20,560 (for SUVs when gasoline costs $3.50/gallon).\340\

\339\ Espey, Molly, and Santosh Nair (2005). ``Automobile Fuel

Economy: What is it Worth?'' Contemporary Economic Policy 23(3): 317-323 (Docket EPA-HQ-OAR-2009-0472); McManus, Walter M. (2006).

``Can Proactive Fuel Economy Strategies Help Automakers Mitigate

Fuel-Price Risks?'' University of Michigan Transportation Research

Institute (Docket EPA-HQ-OAR-2009-0472).

\340\ Gramlich, Jacob (2008). ``Gas Prices and Endogenous

Product Selection in the U.S. Automobile Industry,'' http:// www.econ.yale.edu/seminars/apmicro/am08/gramlich-081216.pdf, accessed 5/11/09 (Docket EPA-HQ-OAR-2009-0472).

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

For instance, the calculation of fuel savings is complex, and consumers

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

\341\ Turrentine, T. and K. Kurani (2007). ``Car Buyers and Fuel

Economy?'' Energy Policy 35: 1213-1223 (Docket EPA-HQ-OAR-2009- 0472); Larrick, R.P., and J.B. Soll (2008). ``The MPG illusion.''

Science 320: 1593-1594 (Docket EPA-HQ-OAR-2009-0472).

\342\ Busse, Meghan R., Christopher R. Knittel, and Florian

Zettelmeyer (2009). ``Pain at the Pump: How Gasoline Prices Affect

Automobile Purchasing in New and Used Markets,'' Working paper

(accessed 6/30/09), available at http://www.econ.ucdavis.edu/ faculty/knittel/papers/gaspaper_latest.pdf (Docket EPA-HQ-OAR-2009- 0472).

If there is a difference between fuel savings and consumers' willingness to pay for fuel savings, the next question is, which is the appropriate measure of consumer benefit? Fuel savings measure the actual monetary value that consumers will receive after purchasing a vehicle; the willingness to pay for fuel economy measures the value that, before a purchase, consumers place on additional fuel economy. As noted, there are a number of reasons that consumers may incorrectly estimate the benefits that they get from improved fuel economy, including risk or loss aversion, poor ability to estimate savings, and a lack of salience of fuel economy savings.

Considerable evidence suggests that consumers discount future benefits more than the government when evaluating energy efficiency gains. The Energy Information Agency (1996) has used discount rates as high as 111 percent for water heaters and 120 percent for electric clothes dryers.\343\ In the transportation sector, evidence also points to high private discount rates: Kubik (2006) conducts a representative survey that finds consumers are impatient or myopic (e.g., use a high discount rate) with regard to vehicle fuel savings.\344\ On average, consumers indicated that fuel savings would have to pay back the additional cost in only 2.9 years to persuade them to buy a higher fuel-economy vehicle. EPA also incorporate a relatively short ``payback period'' into OMEGA to evaluate and order technologies that can be used to increase fuel economy, assuming that buyers value the resulting fuel savings over the first five years of a new vehicle's lifetime. This assumption is based on the current average term of consumer loans to finance the purchase of new vehicles. That said, there is no consensus in the literature on what the private discount rate is or should be in this context.

\343\ Energy Information Administration, U.S. Department of

Energy (1996). Issues in Midterm Analysis and Forecasting 1996, DOE/

EIA-0607(96), Washington, DC., http://www.osti.gov/bridge/ purl.cover.jsp?purl=/366567-BvCFp0/webviewable/, accessed 7/7/09.

\344\ Kubik, M. (2006). Consumer Views on Transportation and

Energy. Second Edition. Technical Report: National Renewable Energy

Laboratory.

One possibility is that the discounting framework may not be a good model for consumer decision-making and for determining consumer welfare regarding fuel economy. Buying a vehicle involves trading off among dozens of vehicle characteristics, including price, vehicle class, safety, performance, and even audio systems and cupholders. Fuel economy is only one of these attributes, and its role in consumer vehicle purchase decisions is not well understood (see DRIA Section 8.1.2 for further discussion). As noted above, if consumers do not fully consider fuel economy at the time of vehicle purchase, then the fuel savings from this rule provide a realized benefit to consumers after purchase. There are two distinct ideas at work here: one is that efficiency improvements change the nature of the cost of the car, requiring higher up-front vehicle costs while enabling lower long-run fuel costs; the other is that while consumers may benefit from the lower long-run fuel costs, they may also experience some loss in welfare on account of the possible change in vehicle mix.

A second problem with use of consumer vehicle choice models, as they now stand, is that they are even less reliable in the face of significant changes otherwise occurring in fleet composition. One attempt to analyze the effect of the oil shock of 1973 on consumer vehicle choice found that, after two years, the particular model did not predict well due to changes in the vehicle fleet.\345\ It is likely that, in the next few years, many of the vehicles that will be offered for sale will change. In coming years, new vehicles will be developed, and existing vehicles will be redesigned. For instance, over the next few years, new vehicles that have both high fuel economy and high safety factors, in combinations that consumers have not previously been offered, are likely to appear in the market. Models based on the existing vehicle fleet may not do well in predicting consumers' choices among the new vehicles offered. Given that consumer vehicle choice models appear to be less effective in predicting vehicle choices when the vehicles are likely to change, EPA is reluctant to use the models for this proposed rulemaking.

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

In sum, the estimates of consumer surplus from consumer vehicle choice models depend heavily on the value to consumers of improved fuel economy, a value for which estimates are highly varied. In addition, the predictive ability of consumer vehicle choice models may be limited as consumers face new vehicle choices that they previously did not have.

Nonetheless, because there are potential advantages to using consumer vehicle choice models if these difficulties can be addressed,

EPA plans to continue our investigation and evaluation of consumer vehicle choice models. This effort includes further review of existing consumer vehicle choice models and the estimates of consumers' willingness to pay for increased fuel economy. In addition, EPA is developing capacity to examine the factors that may affect the results of consumer vehicle choice models, and to explore their impact on analysis of regulatory scenarios.

A detailed discussion of the state of the art of consumer choice modeling is provided in the DRIA. For this rulemaking, EPA is not able to estimate the consumer welfare loss which may accompany the actual fuel savings from the proposal, and so any such loss must remain unquantified. EPA seeks comments on how to assess these difficult questions in the future. 2. Costs Associated With the Vehicle Program

In this section EPA presents our estimate of the costs associated with the proposed vehicle program. The presentation here summarizes the costs associated with the new vehicle technology expected to be added to meet the proposed GHG standards, including hardware costs to comply with the proposed A/C credit program. The analysis summarized here provides our estimate of incremental costs on a per vehicle basis and on an annual total basis.

The presentation here summarizes the outputs of the OMEGA model that was discussed in some detail in Section III.D of this preamble.

For details behind the analysis such as the OMEGA model inputs and the estimates of costs associated with individual technologies, the reader is directed to Chapters 1 and 2 of the DRIA, and Chapter 3 of the Draft

Joint TSD. For more detail on the

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outputs of the OMEGA model and the overall vehicle program costs summarized here, the reader is directed to Chapters 4 and 7 of the

DRIA.

With respect to the cost estimates for vehicle technologies, EPA notes that, because these estimates relate to technologies which are in most cases already available, these cost estimates are technically robust. EPA notes further that, in all instances, its estimates are within the range of estimates in the most widely-utilized sources and studies. In that way, EPA believes that we have been conservative in estimating the vehicle hardware costs associated with this proposal.

With respect to the aggregate cost estimations presented in Section

III.H.2.b, EPA notes that there are a number of areas where the results of our analysis may be conservative and, in general, EPA believes we have directionally overestimated the costs of compliance with these proposed standards, especially in not accounting for the full range of credit opportunities available to manufacturers. For example, some cost saving programs are considered in our analysis, such as full car/truck trading, while others are not, such as cross-manufacturer trading and advanced technology credits. a. Vehicle Compliance Costs Associated With the Proposed CO2

Standards

For the technology and vehicle package costs associated with adding new CO2-reducing technology to vehicles, EPA began with

EPA's 2008 Staff Report and NHTSA's 2011 CAFE FRM both of which presented costs generated using existing literature, meetings with manufacturers and parts suppliers, and meetings with other experts in the field of automotive cost estimation.\346\ EPA has updated some of those technology costs with new information from our contract with FEV, through further discussion with NHTSA, and by converting from 2006 dollars to 2007 dollars using the GDP price deflator. The estimated costs presented here represent the incremental costs associated with this proposal relative to what the future vehicle fleet would be expected to look like absent this proposed rule. A more detailed description of the factors considered in our reference case is presented in Section III.D.

\346\ ``EPA Staff Technical Report: Cost and Effectiveness

Estimates of Technologies Used to Reduce Light-duty Vehicle Carbon

Dioxide Emissions,'' EPA 420-R-08-008; NHTSA 2011 CAFE FRM is at 74

FR 14196; both documents are contained in Docket EPA-HQ-OAR-2009- 0472.

The estimates of vehicle compliance costs cover the years of implementation of the program--2012 through 2016. EPA has also estimated compliance costs for the years following implementation so that we can shed light on the long term--2022 and later--cost impacts of the proposal.\347\ EPA used the year 2022 here because our short- term and long-term markup factors described shortly below are applied in five year increments with the 2012 through 2016 implementation span and the 2017 through 2021 span both representing the short-term. Some of the individual technology cost estimates are presented in brief in

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

\347\ Note that the assumption made here is that the standards proposed would continue to apply for years beyond 2016 so that new vehicles sold in model years 2017 and later would continue to incur costs as a result of this rule. Those costs are estimated to get lower in 2022 because some of the indirect costs attributable to this proposal in the years prior to 2022 would be eliminated in 2022 and later.

\348\ Alex Rogozhin et al., Automobile Industry Retail Price

Equivalent and Indirect Cost Multipliers. Prepared for EPA by RTI

International and Transportation Research Institute, University of

Michigan. EPA-420-R-09-003, February 2009 (Docket EPA-HQ-OAR-2009- 0472).

\349\ Gloria Helfand and Todd Sherwood, ``Documentation of the

Development of Indirect Cost Multipliers for Three Automotive

Technologies,'' Office of Transportation and Air Quality, USEPA,

August 2009 (Docket EPA-HQ-OAR-2009-0472).

The argument has been made that the ICM approach may be more appropriate for regulatory cost estimation than the more traditional retail price equivalent, or RPE, markup. The RPE is based on the historical relationship between direct costs and consumer prices; it is intended to reflect the average markup over time required to sustain the industry as a viable operation. Unlike the RPE approach, the ICM focuses more narrowly on the changes that are required in direct response to regulation-induced vehicle design changes which may not directly influence all of the indirect costs that are incurred in the normal course of business. For example, an RPE markup captures all indirect costs including costs such as the retirement benefits of retired employees. However, the retirement benefits for retired employees are not expected to change as a result of a new GHG regulation and, therefore, those indirect costs should not increase in relation to newly added hardware in response to a regulation. So, under the ICM approach, if a newly added piece of technology has an incremental direct cost of $1, its direct plus indirect costs should not be $1 multiplied by an RPE markup of say 1.5, or $1.50, but rather something less since the manufacturer is not paying more for retired- employee retirement benefits as a direct result of adding the new piece of technology. Further, as noted above, the indirect cost multiplier can be adjusted for different levels of technological complexity. For example, a move to low rolling resistance tires is less complex than converting a gasoline vehicle to a plug-in hybrid. Therefore, the incremental indirect costs for the tires should be lower in magnitude than those for the plug-in hybrid. For the analysis underlying these proposed standards, the agencies have based our estimates on the ICM approach, but EPA notes that discussion continues about the use of the

RPE approach and the ICM approach for safety and environmental regulations. We discuss our ICM factors and the complexity levels used in our analysis in more detail in Chapter 3 of the Draft Joint TSD and

EPA requests comment on the approach described there as well as the general concepts of both the ICM and RPE approaches.

EPA has also considered the impacts of manufacturer learning on the technology cost estimates. Consistent with past EPA rulemakings, EPA has estimated that some costs would decline by 20 percent with each of the first two doublings of production beginning with the first year of implementation. These

Page 49606

volume-based cost declines--which EPA calls ``volume'' based learning-- take place after manufacturers have had the opportunity to find ways to improve upon their manufacturing processes or otherwise manufacture these technologies in a more efficient way. After two 20 percent cost reduction steps, the cost reduction learning curve flattens out considerably as only minor improvements in manufacturing techniques and efficiencies remain to be had. By then, costs decline roughly three percent per year as manufacturers and suppliers continually strive to reduce costs. These time-based cost declines--which EPA calls ``time'' based learning--take place at a rate of three percent per year. EPA has considered learning impacts on most but not all of the technologies expected to be used because some of the expected technologies are already used rather widely in the industry and, presumably, learning impacts have already occurred. EPA has considered volume-based learning for only a handful of technologies that EPA considers to be new or emerging technologies such as the hybrids and electric vehicles. For most technologies, EPA has considered them to be more established given their current use in the fleet and, hence, we have applied the lower time based learning. We have more discussion of our learning approach and the technologies to which we have applied which type of learning in the Draft Joint TSD.

The technology cost estimates discussed in Section III.D and detailed in Chapter 3 of the Draft Joint TSD are used to build up package cost estimates which are then used as inputs to the OMEGA model. EPA discusses our packages and package costs in Chapter 1 of the

DRIA. The model determines what level of CO2improvement is required considering the reference case for each manufacturer's fleet.

The vehicle compliance costs are the outputs of the model and take into account FFV credits through 2015, TLAASP, full car/truck trading, and the A/C credit program. Table III.H.2-1 presents the fleet average incremental vehicle compliance costs for this proposal. As the table indicates, 2012-2016 costs increase every year as the standards become more stringent. Costs per car and per truck then remain stable through 2021 while cost per vehicle (car/truck combined) decline slightly as the fleet mix trends slowly to increasing car sales. In 2022, costs per car and per truck decline as the long-term ICM kicks in because some indirect costs are no longer considered attributable to the proposed program. Costs per car and per truck remain constant thereafter while the cost per vehicle declines slightly as the fleet continues to trend toward cars. By 2030, projections of fleet mix changes become static and the cost per vehicle remains constant. EPA has a more detailed presentation of vehicle compliance costs on a manufacturer by manufacturer basis in the DRIA.

Table III.H.2-1--Industry Average Vehicle Compliance Costs Associated With the Proposed Tailpipe CO2 Standards

$/vehicle in 2007 dollars

$/vehicle (car

Calendar year

$/car

$/truck

& truck combined)

2012............................................................

374

358

368 2013............................................................

531

539

534 2014............................................................

663

682

670 2015............................................................

813

886

838 2016............................................................

968

1,213

1,050 2017............................................................

968

1,213

1,047 2018............................................................

968

1,213

1,044 2019............................................................

968

1,213

1,042 2020............................................................

968

1,213

1,040 2021............................................................

968

1,213

1,039 2022............................................................

890

1,116

955 2030............................................................

890

1,116

953 2040............................................................

890

1,116

953 2050............................................................

890

1,116

953

b. Annual Costs of the Proposed Vehicle Program

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

Table III.H.2-2--Quantified Annual Costs Associated With the Proposed

Vehicle Program

$Millions of 2007 dollars

Quantified

Year

annual costs

2012....................................................

$5,400 2013....................................................

$8,400 2014....................................................

$10,900 2015....................................................

$13,900 2016....................................................

$17,500 2020....................................................

$18,000 2030....................................................

$17,900 2040....................................................

$19,300 2050....................................................

$20,900

NPV, 3%.................................................

$390,000

NPV, 7%.................................................

$216,600

3. Cost per Ton of Emissions Reduced

EPA has calculated the cost per ton of GHG (CO2- equivalent, or CO2e) reductions associated with this proposal using the above costs and the emissions reductions described in Section III.F. More detail on the costs, emission reductions, and the cost per ton can be found in the DRIA and Draft Joint TSD. EPA has calculated the cost per metric ton of GHG emissions reductions in the years 2020, 2030, 2040, and 2050 using the annual vehicle compliance costs and emission reductions for each of those years. The value in 2050 represents the long-term cost per ton of the emissions reduced.

Note that EPA has not included the savings associated with

Page 49607

reduced fuel consumption, nor any of the other benefits of this proposal in the cost per ton calculations. If EPA were to include fuel savings in the cost estimates, the cost per ton would be less than $0, since the estimated value of fuel savings outweighs these costs. With regard to the proposed CH4and N2O standards, since these standards would be emissions caps designed to ensure manufacturers do not backslide from current levels, EPA has not estimated costs associated with the standards (since the standards would not require any change from current practices nor does EPA estimate they would result in emissions reductions).

The results for CO2e costs per ton under the proposed vehicle program are shown in Table III.H.3-1.

Table III.H.3-1--Annual Cost Per Metric Ton of CO2e Reduced, in $2007 Dollars

CO2e Reduced

Year

Cost \a\

(million

Cost per ton

($millions) metric tons)

2020............................................................

$18,000

170

$110 2030............................................................

17,900

320

60 2040............................................................

19,300

420

50 2050............................................................

20,900

520

\a\ Costs here include vehicle compliance costs and do not include any fuel savings (discussed in Section

III.H.4) or other benefits of this proposal (discussed in Sections III.H.6 through III.H 10). 4. Reduction in Fuel Consumption and Its Impacts a. What Are the Projected Changes in Fuel Consumption?

The proposed CO2standards would result in significant improvements in the fuel efficiency of affected vehicles. Drivers of those vehicles would see corresponding savings associated with reduced fuel expenditures. EPA has estimated the impacts on fuel consumption for both the proposed tailpipe CO2standards and the proposed A/C credit program. To do this, fuel consumption is calculated using both current CO2emission levels and the proposed

CO2standards. The difference between these estimates represents the net savings from the proposed CO2standards.

Note that the total number of miles that vehicles are driven each year is different under each of the control case scenarios than in the reference case due to the ``rebound effect,'' which is discussed in

Section III.H.4.c.

The expected impacts on fuel consumption are shown in Table

III.H.4-1. The gallons shown in the tables reflect impacts from the proposed CO2standards, including the proposed A/C credit program, and include increased consumption resulting from the rebound effect.

Table III.H.4-1--Fuel Consumption Impacts of the Proposed Vehicle

Standards and A/C Credit Programs

Million gallons

Year

Total

2012.........................................................

530 2013.........................................................

1,320 2014.........................................................

2,410 2015.........................................................

3,910 2016.........................................................

5,930 2020.........................................................

13,350 2030.........................................................

26,180 2040.........................................................

33,930 2050.........................................................

42,570

b. What Are the Fuel Savings to the Consumer?

Using the fuel consumption estimates presented in Section

III.H.4.a, EPA can calculate the monetized fuel savings associated with the proposed CO2standards. To do this, we multiply reduced fuel consumption in each year by the corresponding estimated average fuel price in that year, using the reference case taken from the AEO 2009.\350\ AEO is the government consensus estimate used by NHTSA and many other government agencies to estimate the projected price of fuel.

EPA has included all fuel taxes in these estimates since these are the prices paid by consumers. As such, the savings shown reflect savings to the consumer. These results are shown in Table III.H.4-2. Note that EPA presents the monetized fuel savings using pre-tax fuel prices in

Section III.H.10. The fuel savings based on pre-tax fuel prices reflect the societal savings in contrast to the consumer savings presented in

Table III.H.4-2. Also in Section III.H.10, EPA presents the benefit- cost of the proposal and, for that reason, present the fuel impacts as negative costs of the program while here EPA presents them as positive savings.

\350\ Energy Information Administration, Supplemental tables to the Annual Energy Outlook 2009, Updated Reference Case with American

Recovery and Reinvestment Act. Available http://www.eia.doe.gov/ oiaf/aeo/supplement/stimulus/regionalarra.html. April 2009.

Table III.H.4-2--Estimated Fuel Consumption Savings to the Consumer \a\

Millions of 2007 dollars

Calendar year

Total

2012....................................................

$1,400 2013....................................................

3,800 2014....................................................

7,200 2015....................................................

12,400 2016....................................................

19,400 2020....................................................

48,400 2030....................................................

100,000 2040....................................................

136,800 2050....................................................

181,000

NPV, 3%.................................................

1,850,200

NPV, 7%.................................................

826,900

\a\ Fuel consumption savings calculated using taxed fuel prices. Fuel consumption impacts using pre-tax fuel prices are presented in Section

III.H.10 as negative costs of the vehicle program

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

Page 49608

on their personal preferences. This issue is discussed further in

Section III.H.5 and in Chapter 8 of the DRIA. c. VMT Rebound Effect

The fuel economy rebound effect refers to the fraction of fuel savings expected to result from an increase in vehicle fuel economy-- particularly one required by higher fuel efficiency standards--that is offset by additional vehicle use. The increase in vehicle use occurs because higher fuel economy reduces the fuel cost of driving, which is typically the largest single component of the monetary cost of operating a vehicle, and vehicle owners respond to this reduction in operating costs by driving slightly more.

For this proposal, EPA is using an estimate of 10% for the rebound effect. This value is based on the most recent time period analyzed in the Small and Van Dender 2007 paper,\351\ and falls within the range of the larger body of historical work on the rebound effect.\352\ Recent work by David Greene on the rebound effect for light-duty vehicles in the U.S. further supports the hypothesis that the rebound effect is decreasing over time.\353\ If we were to use a dynamic estimate of the future rebound effect, our analysis shows that the rebound effect could be in the range of 5% or lower.\354\ The rebound effect is also discussed in Section II.F of the preamble; the TSD, Section 4.2.5, reviews the relevant literature and discusses in more depth the reasoning for the rebound values used here.

\351\ Small, K. and K. Van Dender, 2007a. ``Fuel Efficiency and

Motor Vehicle Travel: The Declining Rebound Effect'', The Energy

Journal, vol. 28, no. 1, pp. 25-51 (Docket EPA-HQ-OAR-2009-0472).

\352\ Sorrell, S. and J. Dimitropoulos, 2007. ``UKERC Review of

Evidence for the Rebound Effect, Technical Report 2: Econometric

Studies'', UKERC/WP/TPA/2007/010, UK Energy Research Centre, London,

October (Docket EPA-HQ-OAR-2009-0472).

\353\ Report by Kenneth A. Small of University of California at

Irvine to EPA, ``The Rebound Effect from Fuel Efficiency Standards:

Measurement and Projection to 2030'', June 12, 2009 (Docket EPA-HQ-

OAR-2009-0472).

\354\ Report by David Greene of Oak Ridge National Laboratory to

EPA, ``Rebound 2007: Analysis of National Light-Duty Vehicle Travel

Statistics,'' March 24, 2009 (Docket EPA-HQ-OAR-2009-0472). Note, this report has been submitted for peer review. Completion of the peer review process is expected prior to the final rule.

EPA also invites comments on other alternatives for estimating the rebound effect. As one illustration, variation in the price per gallon of gasoline directly affects the per-mile cost of driving, and drivers may respond just as they would to a change in the cost of driving resulting from a change in fuel economy, by varying the number of miles they drive. Because vehicles' fuel economy is fixed in the short run, variation in the number of miles driven in response to changes in fuel prices will be reflected in changes in gasoline consumption. Under the assumption that drivers respond similarly to changes in the cost of driving whether they are caused by variation in fuel prices or fuel economy, the short-run price elasticity of demand for gasoline--which measures the sensitivity of gasoline consumption to changes in its price per gallon--may provide some indication about the magnitude of the rebound effect itself. EPA invites comment on the extent to which the short run elasticity of demand for gasoline with respect to its price can provide useful information about the size of the rebound effect. Specifically, we seek comment on whether it would be appropriate to use the price elasticity of demand for gasoline, or other alternative approaches, to guide the choice of a value for the rebound effect. 5. Impacts on U.S. Vehicle Sales and Payback Period a. Vehicle Sales Impacts

The methodology EPA used for estimating the impact on vehicle sales is relatively straightforward, but makes a number of simplifying assumptions. According to the literature, the price elasticity of demand for vehicles is commonly estimated to be -1.0.\355\ In other words, a one percent increase in the price of a vehicle would be expected to decrease sales by one percent, holding all other factors constant. For our estimates, EPA calculated the effect of an increase in vehicle costs due to the proposed standards and assume that consumers will face the full increase in costs, not an actual

(estimated) change in vehicle price. (The estimated increases in vehicle cost due to the rule are discussed in Section III.H.2) This is a conservative methodology, since an increase in cost may not pass fully into an increase in market price in an oligopolistic industry such as the automotive sector.\356\ EPA also notes that we have not used these estimated sales impacts in the OMEGA Model.

\355\ Kleit A.N., 1990. ``The Effect of Annual Changes in

Automobile Fuel Economy Standards.'' Journal of Regulatory Economics 2: 151-172 (Docket EPA-HQ-OAR-2009-0472); McCarthy, Patrick S., 1996. ``Market Price and Income Elasticities of New Vehicle

Demands.'' Review of Economics and Statistics 78: 543-547 (Docket

EPA-HQ-OAR-2009-0472); Goldberg, Pinelopi K., 1998. ``The Effects of the Corporate Average Fuel Efficiency Standards in the U.S.,''

Journal of Industrial Economics 46(1): 1-33 (Docket EPA-HQ-OAR-2009- 0472).

\356\ See, for instance, Gron, Ann, and Deborah Swenson, 2000.

``Cost Pass-Through in the U.S. Automobile Market,'' Review of

Economics and Statistics 82: 316-324 (Docket EPA-HQ-OAR-2009-0472).

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

\357\ There is not a consensus in the literature on how consumers consider fuel economy in their vehicle purchases. Results are inconsistent, possibly due to fuel economy not being a major focus of many of the studies. Espey, Molly, and Santosh Nair (1995,

``Automobile Fuel Economy: What Is It Worth?'' Contemporary Economic

Policy 23: 317-323, (Docket EPA-HQ-OAR-2009-0472) find that their results are consistent with consumers using the lifetime of the vehicle, not just the first five years, in their fuel economy purchase decisions. This result suggests that the five-year time horizon used here may be an underestimate.

This increase in costs has other effects on consumers as well: If vehicle prices increase, consumers will face higher insurance costs and sales tax, and additional finance costs if the vehicle is bought on credit. In addition, the resale value of the vehicles will increase.

EPA estimates that, with corrections for these factors, the effect on consumer expenditures of the cost of the new technology should be 0.932 times the cost of the technology at a 3% discount rate, and 0.892 times the cost of the technology at a 7% discount rate. The details of this calculation are in the DRIA, Chapter 8.l.

Once the cost estimates are adjusted for these additional factors, the fuel cost savings associated with the rule, discussed in Section

III.H.4, are subtracted to get the net effect on consumer expenditures for a new vehicle. With the assumed elasticity of demand of -1, the percent change in this ``effective price,'' estimated as the adjusted increase in cost, is equal to the negative of the percent change in vehicle purchases. The net effect of this calculation is in Table

III.H.5-1 and Table III.H.5-2.

Page 49609

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

Table III.H.5-1--Vehicle Sales Impacts Using a 3% Discount Rate

Change in car

Change in truck sales

Percent change

sales

Percent change

2012....................................

66,600

0.7

27,300

0.5 2013....................................

93,300

0.9

161,300

2.8 2014....................................

134,400

1.3

254,400

4.4 2015....................................

236,300

2.2

368,400

6.5 2016....................................

375,400

3.4

519,000

9.4

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

Table III.H.5-2--New Vehicle Sales Impacts Using a 7% Discount Rate

Change in car

Change in truck sales

Percent change

sales

Percent change

2012..................................

61,900

0.7

25,300

0.5 2013..................................

86,600

0.9

60,000

1 2014..................................

125,200

1.2

122,900

2.1 2015..................................

221,400

198,100

3.5 2016..................................

353,100

3.2

291,500

5.3

Table III.H.5-2 shows the impacts on new vehicle sales using a 7% interest rate. While a 7% interest rate shows slightly lower impacts than using a 3% discount rate, the results are qualitatively similar to those using a 3% discount rate. Sales increase for every year. For both cars and trucks, sales become increasingly positive over time, as higher fuel prices make improved fuel economy more valuable. The car market grows more than the truck market in absolute numbers, but less on a percentage basis.

The effect of this rule on the use and scrappage of older vehicles will be related to its effects on new vehicle prices, the fuel efficiency of new vehicle models, and the total sales of new vehicles.

If the value of fuel savings resulting from improved fuel efficiency to the typical potential buyer of a new vehicle outweighs the average increase in new models' prices, sales of new vehicles will rise, while scrappage rates of used vehicles will increase slightly. This will cause the ``turnover'' of the vehicle fleet--that is, the retirement of used vehicles and their replacement by new models--to accelerate slightly, thus accentuating the anticipated effect of the rule on fleet-wide fuel consumption and CO2emissions. However, if potential buyers value future fuel savings resulting from the increased fuel efficiency of new models at less than the increase in their average selling price, sales of new vehicles will decline, as will the rate at which used vehicles are retired from service. This effect will slow the replacement of used vehicles by new models, and thus partly offset the anticipated effects of the proposed rules on fuel use and emissions.

Because the agencies are uncertain about how the value of projected fuel savings from the proposed rules to potential buyers will compare to their estimates of increases in new vehicle prices, we have not attempted to estimate explicitly the effects of the rule on scrappage of older vehicles and the turnover of the vehicle fleet. We seek comment on the methods that might be used to estimate the effect of the proposed rule on the scrappage and use of older vehicles as part of the analysis to be conducted for the final rule.

A detailed discussion of the vehicle sales impacts methodology is provided in the DRIA. EPA invites comments on this approach to estimating the vehicle sales impacts of this proposal. b. Consumer Payback Period and Lifetime Savings on New Vehicle

Purchases

Another factor of interest is the payback period on the purchase of a new vehicle that complies with the proposed standards. In other words, how long would it take for the expected fuel savings to outweigh the increased cost of a new vehicle? For example, a new 2016 MY vehicle is estimated to cost $1,050 more (on average, and relative to the reference case vehicle) due to the addition of new GHG reducing technology (see Section III.D.6 for details on this cost estimate).

This new technology will result in lower fuel consumption and, therefore, savings in fuel expenditures (see Section III.F.1 for details on fuel savings). But how many months or years would pass before the fuel savings exceed the upfront cost of $1,050?

Table III.H.5-3 provides the answer to this question for a vehicle purchaser who pays for the new vehicle upfront in cash (we discuss later in this section the payback period for consumers who finance the new vehicle purchase with a loan). The table uses annual miles driven

(vehicle miles traveled, or VMT) and survival rates consistent with the emission and benefits analyses

Page 49610

presented in Chapter 4 of the draft joint TSD. The control case includes rebound VMT but the reference case does not, consistent with other parts of the analysis. Also included are fuel savings associated with A/C controls (in the control case only), but the expected A/C- related maintenance savings are not included. The likely A/C-related maintenance savings are discussed in Chapter 2 of EPA's draft RIA.

Further, this analysis does not include other societal impacts such as the value of increased driving, or noise, congestion and accidents since the focus is meant to be on those factors consumers consider most while in the showroom considering a new car purchase. Car/truck fleet weighting is handled as described in Chapter 1 of the draft joint TSD.

As can be seen in the table, it will take under 3 years (2 years and 8 months at a 3% discount rate, 2 years and 10 months at a 7% discount rate) for the cumulative discounted fuel savings to exceed the upfront increase in vehicle cost. More detail on this analysis can be found in

Chapter 8 of EPA's draft RIA.

Table III.H.5-3--Payback Period on a 2016 MY New Vehicle Purchase via Cash

2007 dollars

Cumulative

Year of ownership

Increased

Annual fuel

discounted fuel discounted fuel vehicle cost \a\

savings \b\

savings at 3%

savings at 7%

1.......................................

$1,128

$443

$436

$428 2....................................... ................

444

860

829 3....................................... ................

443

1,272

1,203 4....................................... ................

434

1,663

1,546

\a\ Increased cost of the proposed rule is $1,050; the value here includes nationwide average sales tax of 5.3% and increased insurance premiums of 1.98%; both of these percentages are discussed in Section 8.1.1 of EPA's draft RIA.

\b\ Calculated using AEO 2009 reference case fuel price including taxes.

However, most people purchase a new vehicle using credit rather than paying cash up front. The typical car loan today is a five year, 60 month loan. As of August 24, 2009, the national average interest rate for a 5 year new car loan was 7.41 percent. If the increased vehicle cost is spread out over 5 years at 7.41 percent, the analysis would look like that shown in Table III.H.5-4. As can be seen in this table, the fuel savings immediately outweigh the increased payments on the car loan, amounting to $162 in discounted net savings (3% discount rate) saved in the first year and similar savings for the next two years before reduced VMT starts to cause the fuel savings to fall.

Results are similar using a 7% discount rate. This means that for every month that the average owner is making a payment for the financing of the average new vehicle their monthly fuel savings would be greater than the increase in the loan payments. This amounts to a savings on the order of $9 to $14 per month throughout the duration of the 5 year loan. Note that in year six when the car loan is paid off, the net savings equal the fuel savings (as would be the case for the remaining years of ownership).

Table III.H.5-4--Payback Period on a 2016 MY New Vehicle Purchase via Credit

2007 dollars

Annual

Year of ownership

Increased

Annual fuel

discounted net discounted net vehicle cost \a\

savings \b\

savings at 3%

savings at 7%

1.......................................

$278

$443

$162

$159 2.......................................

278

444

158

150 3.......................................

278

443

153

139 4.......................................

278

434

141

123 5.......................................

278

423

127

107 6.......................................

403

343

278

\a\ This uses the same increased cost as Table III.H.4-3 but spreads it out over 5 years assuming a 5 year car loan at 7.41 percent.

\b\ Calculated using AEO 2009 reference case fuel price including taxes.

The lifetime fuel savings and net savings can also be calculated for those who purchase the vehicle using cash and for those who purchase the vehicle with credit. This calculation applies to the vehicle owner who retains the vehicle for its entire life and drives the vehicle each year at the rate equal to the national projected average. The results are shown in Table III.H.5-5. In either case, the present value of the lifetime net savings is greater than $3,200 at a 3% discount rate, or $2,400 at a 7% discount rate.

Page 49611

Table III.H.5-5--Lifetime Discounted Net Savings on a 2016 MY New Vehicle Purchase

2007 dollars

Increased

Lifetime

Purchase option

discounted

discounted fuel discounted net vehicle cost

savings \b\

savings

3% discount rate

Cash......................................................

$1,128

$4,558

$3,446

Credit \a\................................................

1,293

4,558

3,265

7% discount rate

Cash......................................................

1,128

3,586

2,495

Credit \a\................................................

1,180

3,586

2,406

\a\ Assumes a 5 year loan at 7.41 percent.

\b\ Fuel savings here were calculated using AEO 2009 reference case fuel price including taxes.

Note that throughout this consumer payback discussion, the average number of vehicle miles traveled per year has been used. Drivers who drive more miles than the average would incur fuel related savings more quickly and, therefore, the payback would come sooner. Drivers who drive fewer miles than the average would incur fuel related savings more slowly and, therefore, the payback would come later. 6. Benefits of Reducing GHG Emissions a. Introduction

This proposal is designed to reduce greenhouse gas (GHG) emissions from light-duty vehicles. This section provides monetized estimates of some of the economic benefits of this proposal's projected GHG emissions reductions.\358\ The total benefit estimates were calculated by multiplying a marginal dollar value (i.e., cost per ton) of carbon emissions, also referred to as ``social cost of carbon'' (SCC), by the anticipated level of emissions reductions in tons. We request comment on the approach used to estimate the set of SCC values used for this coordinated proposal as well as the other options considered.

\358\ The marginal and total benefit estimates presented in this section are limited to the impacts that can be monetized. Section

III.F.2 of this preamble discusses the physical impacts of climate change, some of which are not monetized and are therefore omitted from the monetized benefits discussed here.

The estimates presented here are interim values. EPA and other agencies will continue to explore the underlying assumptions and issues.

As discussed below, the interim dollar estimates of the SCC represent a partial accounting of climate change impacts. The quantitative account presented here is accompanied by a qualitative appraisal of climate-related impacts presented elsewhere in this proposal. For example, Section III.F.2 of the preamble presents a summary of the impacts and risks of climate change projected in the absence of actions to mitigate GHG emissions. Section III.F.2 is based on EPA documents that synthesize major findings from the best available scientific assessments of the scientific literature that have gone through rigorous and transparent peer review, including the major assessment reports of both the Intergovernmental Panel on Climate

Change (IPCC) and the U.S. Climate Change Science Program.\359\

\359\ U.S. Environmental Protection Agency, ``Advance Notice of

Proposed Rulemaking for Greenhouse Gases Under the Clean Air Act,

Technical Support Document on Benefits of Reducing GHG Emissions,''

June 2008. See www.regulations.gov and search for ID ``EPA-HQ-OAR- 2008-0138-0078.''

The rest of this preamble section will provide the basis for the interim SCC values, and the estimates of the total climate-related benefits of the proposed rule that follow from these interim values. b. Derivation of Interim Social Cost of Carbon Values

The ``social cost of carbon'' (SCC) is intended to be a monetary measure of the incremental damage resulting from carbon dioxide

(CO2) emissions, including (but not limited to) net agricultural productivity loss, human health effects, property damages from sea level rise, and changes in ecosystem services. Any effort to quantify and to monetize the consequences associated with climate change will raise serious questions of science, economics, and ethics.

But with full regard for the limits of both quantification and monetization, the SCC can be used to provide an estimate of the social benefits of reductions in GHG emissions.

For at least three reasons, any particular figure will be contestable. First, scientific and economic knowledge about the impacts of climate change continues to grow. With new and better information about relevant questions, including the cost, burdens, and possibility of adaptation, current estimates will inevitably change over time.

Second, some of the likely and potential damages from climate change-- for example, the loss of endangered species--are generally not included in current SCC estimates. These omissions may turn out to be significant, in the sense that they may mean that the best current estimates are too low. As noted by the IPCC Fourth Assessment Report,

``It is very likely that globally aggregated figures underestimate the damage costs because they cannot include many non-quantifiable impacts.'' \360\ Third, when economic efficiency criteria, under specific assumptions, are juxtaposed with ethical considerations, the outcome may be controversial.\361\ These ethical considerations, including those involving the treatment of future generations, should and will also play a role in judgments about the SCC (see in particular the discussion of the discount rate, below).

\360\ IPCC WGII. 2007. Climate Change 2007--Impacts, Adaptation and Vulnerability Contribution of Working Group II to the Fourth

Assessment Report of the IPCC. See EPA Docket, EPA-HQ-OAR-2009-0472.

\361\ See, e.g., Discounting and Intergenerational Equity (Paul

Portney and John P. Weyant eds. 1999).

To date, SCC estimates presented in recent regulatory documents have varied within and among agencies, including DOT, DOE, and EPA. For example, a regulation proposed by DOT in 2008 assumed a value of $7 per metric ton CO2(2006$) for 2011 emission reductions (with a range of $0-14 for sensitivity analysis; see EPA Docket, EPA-HQ-OAR- 2009-0472).\362\

Page 49612

A regulation proposed by DOE in 2009 used a range of $0-$20 (2007$).

Both of these ranges were designed to reflect the value of damages to the United States resulting from carbon emissions, or the ``domestic''

SCC. In the final MY2011 CAFE EIS, DOT used both a domestic SCC value of $2/tCO2and a global SCC value of $33/tCO2

(with sensitivity analysis at $80/tCO2) (in 2006 dollars for 2007 emissions), increasing at 2.4% per year thereafter. The final

MY2011 CAFE rule also presented a range from $2 to $80/tCO2

(see EPA Docket, EPA-HQ-OAR-2009-0472, for the MY2011 EIS and final rule). EPA's Advance Notice of Proposed Rulemaking for Greenhouse Gases discussed the benefits of reducing GHG emissions and identified what it described as ``very preliminary'' SCC estimates ``subject to revision'' that spanned three orders of magnitude. EPA's global mean values were

$68 and $40/tCO2for discount rates of 2% and 3% respectively (in 2006 real dollars for 2007 emissions).\363\

\362\ For the purposes of this discussion, we present all values of the SCC as the cost per metric ton of CO2emissions.

Some discussions of the SCC in the literature use an alternative presentation of a dollar per metric ton of carbon. The standard adjustment factor is 3.67, which means, for example, that a SCC of

$10 per ton of CO2would be equivalent to a cost of

$36.70 for a ton of carbon emitted. Unless otherwise indicated, a

``ton'' refers to a metric ton.

\363\ 73 FR 44416 (July 30, 2008). EPA, ``Advance Notice of

Proposed Rulemaking for Greenhouse Gases Under the Clean Air Act,

Technical Support Document on Benefits of Reducing GHG Emissions,''

June 2008. www.regulations.gov. Search for ID ``EPA-HQ-OAR-2008- 0318-0078.

The current Administration has worked to develop a transparent methodology for selecting a set of interim SCC estimates to use in regulatory analyses until a more comprehensive characterization of the

SCC is developed. This discussion proposes a set of values for the interim social cost of carbon resulting from this methodology. It should be emphasized that the analysis here is preliminary. This proposed joint rulemaking presents SCC estimates that reflect the

Administration's current understanding of the relevant literature and will be used for the short-term while an interagency group develops a more comprehensive characterization of the distribution of SCC values for future economic and regulatory analyses. The interim values should not be viewed as an expectation about the results of the longer-term process. The Administration is seeking comment in this proposed rule on all of the scientific, economic, and ethical issues before establishing improved estimates for use in future rulemakings.

The outcomes of the Administration's process to develop interim values are judgments in favor of (a) global rather than domestic values, (b) an annual growth rate of 3%, and (c) interim global SCC estimates for 2007 (in 2007 dollars) of $56, $34, $20, $10, and $5 per ton of CO2. The proposed figures are based on the following judgments. i. Global and Domestic Measures

Because of the distinctive nature of the climate change problem, we present both a global SCC and a fraction of that value that represents impacts that may occur within the borders of the U.S. alone, or a

``domestic'' SCC, but fix our attention on the global measure. This approach represents a departure from past practices, which relied, for the most part, on domestic measures. As a matter of law, both global and domestic values are permissible; the relevant statutory provisions are ambiguous and allow selection of either measure.\364\

\364\ It is true that Federal statutes are presumed not to have extraterritorial effect, in part to ensure that the laws of the

United States respect the interests of foreign sovereigns. But use of a global measure for the SCC does not give extraterritorial effect to Federal law and hence does not intrude on such interests.

It is true that under OMB guidance, analysis from the domestic perspective is required, while analysis from the international perspective is optional. The domestic decisions of one nation are not typically based on a judgment about the effects of those decisions on other nations. But the climate change problem is highly unusual in the sense that it involves (a) a global public good in which (b) the emissions of one nation may inflict significant damages on other nations and (c) the United States is actively engaged in promoting an international agreement to reduce worldwide emissions.

In these circumstances, we believe that the global measure is preferred. Use of a global measure reflects the reality of the problem and is consistent with the continuing efforts of the United States to ensure that emissions reductions occur in many nations.

Domestic SCC values are also presented. The development of a domestic SCC is greatly complicated by the relatively few region- or country-specific estimates of the SCC in the literature. One potential source of estimates comes from EPA's ANPR Benefits TSD, using the

Climate Framework for Uncertainty, Negotiation and Distribution (FUND) model.\365\ The resulting estimates suggest that the ratio of domestic to global benefits varies with key parameter assumptions. With a 3% discount rate, for example, the U.S. benefit is about 6% of the global benefit of GHG reductions for the ``central'' (mean) FUND results, while, for the corresponding ``high'' estimates associated with a higher climate sensitivity and lower global economic growth, the U.S. benefit is less than 4% of the global benefit. With a 2% discount rate, the U.S. share is about 2-5% of the global estimate. Comments are requested on whether the share of U.S. SCC is correlated with the discount rate.

\365\ 73 FR 44416 (July 30, 2008). EPA, ``Advance Notice of

Proposed Rulemaking for Greenhouse Gases Under the Clean Air Act,

Technical Support Document on Benefits of Reducing GHG Emissions,''

June 2008. www.regulations.gov. Search for ID ``EPA-HQ-OAR-2008- 0318-0078.

Based on this available evidence, an interim domestic SCC value equal to 6% of the global damages is proposed. This figure is around the middle of the range of available estimates cited above. It is recognized that the 6% figure is approximate and highly speculative.

Alternative approaches will be explored before establishing improved values for future rulemakings. However, it should be noted that it is difficult to apportion global benefits to different regions. For example, impacts outside the U.S. border can have significant welfare implications for U.S. populations (e.g. tourism, disaster relief) and if not included, these omissions will lead to an underestimation of the

``domestic'' SCC. We request comment on this issue. ii. Filtering Existing Analyses

There are numerous SCC estimates in the existing literature, and it is reasonable to make use of those estimates in order to produce a figure for current use. A starting point is provided by the meta- analysis in Richard Tol, 2008.\366\ With that starting point, the

Administration proposes to ``filter'' existing SCC estimates by using those that (1) are derived from peer-reviewed studies; (2) do not weight the monetized damages to one country more than those in other countries; (3) use a ``business as usual'' climate scenario; and (4) are based on the most recent published version of each of the three major integrated assessment models (IAMs): FUND, Policy Analysis for the Greenhouse Effect (PAGE), and DICE.

\366\ Richard Tol, The Social Cost of Carbon: Trends, Outliers, and Catastrophes, Economics: The Open-Access, Open-Assessment E-

Journal, Vol. 2, 2008-25. http://www.economics-ejournal.org/ economics/journalarticles/2008-25 (2008). See also EPA Docket, EPA-

HQ-OAR-2009-0472.

Proposal (1) is based on the view that those studies that have been subject to peer review are more likely to be reliable than those that have not. Proposal (2) avoids treating the citizens of one nation (or different citizens within the U.S.) differently on the basis

Page 49613

of income considerations, which some may find controversial and in any event would significantly complicate that analysis. In addition, that approach is consistent with the potential compensation tests of Kaldor

(1939) and Hicks (1940), which form the conceptual foundations of benefit-cost analysis and use unweighted sums of willingness to pay.

Finally, this is the approach used in rulemakings across a variety of settings and consequently keeps USG policy consistent across contexts.

Proposal (3) stems from the judgment that as a general rule, the proper way to assess a policy decision is by comparing the implementation of the policy against a counterfactual state where the policy is not implemented. In addition, our expectation is that most policies to be evaluated using these interim SCC estimates will constitute sufficiently small changes to the larger economy to make it safe to assume that the marginal benefits of emissions reductions will not change between the baseline and policy scenarios.

Proposal (4) is based on four complementary judgments. First, the

FUND, PAGE, and DICE models now stand as the most comprehensive and reliable efforts to measure the economic damages from climate change.

Second, the latest versions of the three IAMs are likely to reflect the most recent evidence and learning, and hence they are presumed to be superior to those that preceded them.\367\

\367\ However, it is acknowledged that the most recently published results do not necessarily repeat prior modeling exercises with an updated model, so valuable information may be lost, for instance, estimates of the SCC using specific climate sensitivities or economic scenarios. In addition, although some older model versions were used to produce estimates between 1996 and 2001, there have been no significant modeling paradigm changes since 1996.

Third, any effort to choose among them, or to reject one in favor of the others, would be difficult to defend at the present time. In the absence of a clear reason to choose among them, it is reasonable to base the SCC on all of them. Fourth, in light of the uncertainties associated with the SCC, a range of values is more representative and the additional information offered by different models should be taken into account. iii. Use a Model-Weighted Average of the Estimates at Each Discount

Rate

We have just noted that at this time, a strong reason to prefer any of the three major IAMs (FUND, PAGE, and DICE) over the others has not been identified. To address the concern that certain models not be given unequal weight relative to the others, the estimates are based on an equal weighting of the means of the estimates from each of the models. Among estimates that remain after applying the filter, we begin by taking the average of all estimates within a model. The estimated

SCC is then calculated as the average of the three model-specific averages. This approach is used to ensure that models with a greater number of published results do not exert unequal weight on the interim

SCC estimates.

It should be noted, however, that the resulting set of SCC estimates does not provide information about variability among or within models except in so far as they have different discounting assumptions. Comment is sought on whether model-weighting averaging of published estimates is appropriate for developing interim SCC estimates. iv. Apply a 3% Annual Growth Rate to the Chosen SCC Values

SCC is expected to increase over time, because future emissions are expected to produce larger incremental damages as physical and economic systems become more stressed as the magnitude of climate change increases. Indeed, an implied growth rate in the SCC can be produced by most of the models that estimate economic damages caused by increased

GHG emissions in future years. But neither the rate itself nor the information necessary to derive its implied value is commonly reported.

In light of the limited amount of debate thus far about the appropriate growth rate of the SCC, applying a rate of 3% per year seems appropriate at this stage. This value is consistent with the range recommended by IPCC (2007) and close to the latest published estimate

(Hope 2008) (see EPA Docket, EPA-HQ-OAR-2009-0472, for both citations).

(1) Discount Rates

For estimation of the benefits associated with the mitigation of climate change, one of the most complex issues involves the appropriate discount rate. OMB's current guidance offers a detailed discussion of the relevant issues and calls for discount rates of 3% and 7%. It also permits a sensitivity analysis with low rates (1-3%) for intergenerational problems: ``If your rule will have important intergenerational benefits or costs you might consider a further sensitivity analysis using a lower but positive discount rate in addition to calculating net benefits using discount rates of 3 and 7 percent.'' \368\

\368\ See OMB Circular A-4, pp. 35-36, citing Portney and

Weyant, eds. (1999), Discounting and Intergenerational Equity,

Resources for the Future, Washington, DC. See EPA Docket, EPA-HQ-

OAR-2009-0472.

The choice of a discount rate, especially over long periods of time, raises highly contested and exceedingly difficult questions of science, economics, philosophy, and law. See, e.g., William Nordhaus,

The Challenge of Global Warming (2008); Nicholas Stern, The Economics of Climate Change (2008); Discounting and Intergenerational Equity

(Paul Portney and John Weyant eds. 1999), in the EPA Docket, EPA-HQ-

OAR-2009-0472. Under imaginable assumptions, decisions based on cost- benefit analysis with high discount rates might harm future generations--at least if investments are not made for the benefit of those generations. See Robert Lind, Analysis for Intergenerational

Discounting, id. at 173, 176-177 (1999), in the EPA Docket, EPA-HQ-OAR- 2009-0472. It is not clear that future generations would be willing to trade environmental quality for consumption at the same rate as the current generations. It is also possible that the use of low discount rates for particular projects might itself harm future generations, by diverting resources from private or public sector investments with higher rates of return for future generations. In the context of climate change, questions of intergenerational equity are especially important.

Because of the substantial length of time in which CO2 and other GHG emissions reside in the atmosphere, choosing a high discount rate could result in irreversible changes in CO2 concentrations, and possibly irreversible climate changes (unless substantial reductions in short-lived climate forcing emissions are achieved). Even if these changes are reversible, delaying mitigation efforts could result in substantially higher costs of stabilizing

CO2concentrations. On the other hand, using too low a discount rate in benefit-cost analysis may suggest some potentially economically unwarranted investments in mitigation. It is also possible that the use of low discount rates for particular projects might itself harm future generations, by ensuring that resources are not used in a way that would greatly benefit them. We invite comment on the methods used to select discount rates for application in deriving SCC values, and in particular, application of the Newell and Pizer work on uncertainty in discount rates in developing the SCC used in evaluating the climate-related benefits of this proposal. Comments are requested on the use of the rates discussed in this preamble and on alternative rates. We

Page 49614

also invite comment on how to best address the ethical and policy concerns in the context of selecting the appropriate discount rate.

Reasonable arguments support the use of a 3% discount rate. First, that rate is among the two figures suggested by OMB guidance, and hence it fits with existing national policy. Second, it is standard to base the discount rate on the compensation that people receive for delaying consumption, and the 3% is close to the risk-free rate of return, proxied by the return on long term inflation-adjusted U.S. Treasury

Bonds, as of this writing. Although these rates are currently closer to 2.5%, the use of 3% provides an adjustment for the liquidity premium that is reflected in these bonds' returns. However, this approach does not adjust for the significantly longer time horizon associated with climate change impacts. It could also be argued that the discount rate should be lower than 3% if the benefits of climate mitigation policies tend to be higher than expected in time periods when the returns to investments in rest of the economy are lower than normal.

At the same time, others would argue that a 5% discount rate can be supported. The argument relies on several assumptions. First, this rate can be justified by reference to the level of compensation for delaying consumption, because it fits with market behavior with respect to individuals' willingness to trade-off consumption across periods as measured by the estimated post-tax average real returns to risky private investments (e.g., the S&P 500). In the climate setting, the 5% discount rate may be preferable to the riskless rate because the benefits to mitigation are not known with certainty. In principal, the correct discount rate would reflect the variance in payoff from climate mitigation policy and the correlation between the payoffs of the policy and the broader economy.\369\

\369\ Specifically, if the benefits of the policy are highly correlated with the returns from the broader economy, then the market rate should be used to discount the benefits. If the benefits are uncorrelated with the broader economy the long term government bond rate should be applied. Furthermore, if the benefits are negatively correlated with the broader economy, a rate less than that on long term government bonds should be used (Lind, 1982 pp. 89-90).

Second, 5%, and not 3%, is roughly consistent with estimates implied by inputs to the theoretically derived Ramsey equation presented below, which specifies the optimal time path for consumption.

That equation specifies the optimal discount rate as the sum of two components. The first term (the product of the elasticity of the marginal utility of consumption and the growth rate of consumption) reflects the fact that consumption in the future is likely to be higher than consumption today, so diminishing marginal utility implies that the same monetary damage will cause a smaller reduction of utility in the future. Standard estimates of this term from the economics literature are in the range of 3%-5%.\370\ The second component reflects the possibility that a lower weight should be placed on utility in the future, to account for social impatience or extinction risk, which is specified by a pure rate of time preference (PRTP). A common estimate of the PRTP is 2%, though some observers believe that a principle of intergenerational equity suggests that the PRTP should be close to zero. It follows that discount rate of 5% is near the middle of the range of values that are able to be derived from the Ramsey equation.\371\

\370\ For example, see: Arrow KJ, Cline WR, Maler K-G,

Munasinghe M, Squitieri R, Stiglitz JE. 1996. Intertemporal equity, discounting, and economic efficiency. Chapter 4 in Economic and

Social Dimensions of Climate Change: Contribution of Working Group

III to the Second Assessment Report, Summary for Policy Makers.

Cambridge: Cambridge University Press; Dasgupta P. 2008. Discounting climate change. Journal of Risk and Uncertainty 37:141-169; Hoel M,

Sterner T. 2007. Discounting and relative prices. Climatic Change 84:265-280; Nordhaus WD. 2008. A Question of Balance: Weighing the

Options on Global Warming Policies. New Haven, CT: Yale University

Press; Stern N. 2008. The economics of climate change. The American

Economic Review 98(2):1-37. See EPA Docket, EPA-HQ-OAR-2009-0472.

\371\ Sterner and Persson (2008) note that a consistent treatment of the marginal utility of consumption would require that if higher discount rates are justified by the diminishing marginal utility of consumption, e.g., a dollar of damages is worth less to future generations because they have greater income, then so-called equity weights should be used to account for the higher value that countries with lower income would place on a dollar of damages relative to the U.S. This is a consistent and logical outcome of application of the Ramsey framework. Because the distribution of climate change related damages is expected to be skewed towards developing nations with lower incomes, this can have significant implications for estimates of total global SCC if the Ramsey framework is used to derive discount rates. See EPA Docket, EPA-HQ-

OAR-2009-0472 for Sterner and Persson (2008).

It is recognized that the arguments above--for use of market behavior and the Ramsey equation--face objections in the context of climate change, and of course there are alternative approaches. In light of climate change, it is possible that consumption in the future will not be higher than consumption today, and if so, the Ramsey equation will suggest a lower figure. The historical evidence is consistent with rising consumption over time.\372\

\372\ However, because climate change impacts may be outside the bounds of historical evidence, predictions about future growth in consumption based on past experience may be inaccurate.

Some critics contend that using observed interest rates for inter- generational decisions imposes current preferences on future generations. For intergenerational equity, they argue that the discount rate should be below market rates to correct for market distortions and inefficiencies in intergenerational transfers of wealth (which are presumed to compensate future generations for damage), and to treat generations equitably based on ethical principles (see Broome 2008 in the EPA Docket, EPA-HQ-OAR-2009-0472).\373\

\373\ For relevant discussion, see Arrow, K.J., W.R. Cline, K-G

Maler, M. Munasinghe, R. Squiteri, J.E.Stiglitz, 1996.

``Intertemporal equity, discounting and economic efficiency,'' in

Climate Change 1995: Economic and Social Dimensions of Climate

Change, Contribution of Working Group III to the Second Assessment

Report of the Intergovernmental Panel on Climate Change. See also

Weitzman, M.L., 1999, in Portney P.R. and Weyant J.P. (eds.),

Discounting and Intergenerational Equity, Resources for the Future,

Washington, DC. See EPA Docket, EPA-HQ-OAR-2009-0472.

Additionally, some analyses attempt to deal with uncertainty with respect to interest rates over time. We explore below how this might be done.\374\

\374\ Richard Newell and William Pizer, Discounting the distant future: how much do uncertain rates increase valuations? J. Environ.

Econ. Manage. 46 (2003) 52-71. See EPA Docket, EPA-HQ-OAR-2009-0472.

(2) Proposed Interim Estimates

The application of the methodology outlined above yields interim estimates of the SCC that are reported in Table III.H.6-1. These estimates are reported separately using 3% and 5% discount rates. The cells are empty in rows 10 and 11, because these studies did not report estimates of the SCC at a 3% discount rate. The model-weighted means are reported in the final or summary row; they are $34 per tCO2at a 3% discount rate and $5 per tCO2with a 5% discount rate.

Page 49615

Table III.H.6-1--Global Social Cost of Carbon (SCC) Estimates ($/tCO2 in 2007 (2007$)), Based on 3% and 5%

Discount Rates \a\

Model

Study \b\

Climate Scenario

1........................ FUND............. Anthoff et al. 2009 FUND default.......

-1 2........................ FUND............. Anthoff et al. 2009 SRES A1b...........

-1 3........................ FUND............. Anthoff et al. 2009 SRES A2............

-1 4........................ FUND............. Link and Tol 2004.. No THC.............

3 5........................ FUND............. Link and Tol 2004.. THC continues......

2 6........................ FUND............. Guo et al. 2006.... Constant PRTP......

-1 7........................ FUND............. Guo et al. 2006.... Gollier discount 1.

0 8........................ FUND............. Guo et al. 2006.... Gollier discount 2.

-1

FUND Mean..........

8.47

0 9........................ PAGE............. Wahba & Hope 2006.. A2-scen............

7 10....................... PAGE............. Hope 2006.......... ................... ...........

7 11....................... DICE............. Nordhaus 2008...... ................... ...........

Summary..................

Model-weighted Mean

\a\ The sample includes all peer reviewed, non-equity-weighted estimates included in Tol (2008), Nordhaus

(2008), Hope (2008), and Anthoff et al. (2009), that are based on the most recent published version of FUND,

PAGE, or DICE and use business-as-usual climate scenarios.375 376 All values are based on the best available information from the underlying studies about the base year and year dollars, rather than the Tol (2008) assumption that all estimates included in his review are 1995 values in 1995$. All values were updated to 2007 using a 3% annual growth rate in the SCC, and adjusted for inflation using GDP deflator.

\b\ See EPA Docket, EPA-HQ-OAR-2009-0472, for each study.

In this proposal, benefits of reducing GHG emissions have been estimated using global SCC values of $34 and $5 as these represent the estimates associated with the 3% and 5% discount rates, respectively.\377\ The 3% and 5% estimates have independent appeal and at this time a clear preference for one over the other is not warranted. Thus, we have also included--and centered our current attention on--the average of the estimates associated with these discount rates, which is $20. (Based on the $20 global value, the approximate domestic fraction of these benefits would be $1.20 per ton of CO2assuming that domestic benefits are 6% of the global benefits.)

\375\ Most of the estimates in Table 1 rely on climate scenarios developed by the Intergovernmental Panel on Climate Change (IPCC).

The IPCC published a new set of scenarios in 2000 for use in the

Third Assessment Report (Special Report on Emissions Scenarios--

SRES). The SRES scenarios define four narrative storylines: A1, A2,

B1 and B2, describing the relationships between the forces driving greenhouse gas and aerosol emissions and their evolution during the 21st century for large world regions and globally. Each storyline represents different demographic, social, economic, technological, and environmental developments that diverge in increasingly irreversible ways. The storylines are summarized in the SRES report

(Nakicenovic et al., 2000; see also http:// sedac.ciesin.columbia.edu/ddc/sres/) (see EPA Docket, EPA-HQ-OAR- 2009-0472). Although they were intended to represent BAU scenarios, at this point in time the B1 and B2 storylines are widely viewed as representing policy cases rather than business-as-usual projections, estimates derived from these scenarios to be less appropriate for use in benefit-cost analysis. They are therefore excluded.

\376\ Guo et al. (2006) report estimates based on two Gollier discounting schemes. The Gollier discounting assumes complex specifications about individual utility functions and risk preferences. After various conditions are satisfied, declining social discount rates emerge. Gollier Discounting Scheme 1 employs a certainty-equivalent social rate of time preference (SRTP) derived by assuming the regional growth rate is equally likely to be 1% above or below the original forecast growth rate. Gollier

Discounting Scheme 2 calculates a certainty-equivalent social rate of time preference (SRTP) using five possible growth rates, and applies the new SRTP instead of the original. Hope (2008) conducts

Monte Carlo analysis on the PRTP component of the discount rate. The

PRTP is modeled as a triangular distribution with a min value of 1%/ yr, a most likely value of 2%/yr, and a max value of 3%/yr. See EPA

Docket, EPA-HQ-OAR-2009-0472 for the studies.

\377\ It should be noted that reported discount rates may not be consistently derived across models or specific applications of models: While the discount rate may be identical, it may reflect different assumptions about the individual components of the Ramsey equation identified earlier.

The distinctions between sets of estimates generated using different discount rates are due only in part to discount rate differences, because the models and parameters used to generate the estimates in the sets associated with different discount rates also vary.

It is true that there is uncertainty about interest rates over long time horizons. Recognizing that point, Newell and Pizer (2003) have made a careful effort to adjust for that uncertainty (see EPA Docket,

EPA-HQ-OAR-2009-0472). The Newell-Pizer approach models discount rate uncertainty as something that evolves over time.\378\ This is a different way to model discount rate uncertainty than the approach outlined above, which assumes there is a single discount rate with equal probability of 3% and 5%. Since Newell and Pizer (2003) is a relatively recent contribution to the literature, estimates based on this method are included with the aim of soliciting comment.

\378\ In contrast, an alternative approach based on Weitzman

(2001) would assume that there is a constant discount rate that is uncertain and represented by a probability distribution. The Newell and Pizer, and Weitzman approaches are relatively recent contributions and we invite comment on the advantages and disadvantages of each. See EPA Docket, EPA-HQ-OAR-2009-0472.

Table III.H.6-2 reports on the application of the Newell-Pizer adjustments. The precise numbers depend on the assumptions about the data generating process that governs interest rates. Columns (1a) and

(1b) assume that ``random walk'' model best describes the data and uses 3% and 5% discount rates, respectively. Columns (2a) and (2b) repeat this, except that it assumes a ``mean-reverting'' process. While the empirical evidence does not rule out a mean-reverting model, Newell and

Pizer find stronger empirical support for the random walk model. EPA solicits comment on these and other models for representing the variation in interest rates over time.

Page 49616

Table III.H.6-2--Global Social Cost of Carbon (SCC) Estimates ($ per metric ton CO2 in 2007 (2007$)) a, Using

Newell & Pizer (2003) Adjustment for Future Discount Rate Uncertainty b

Random-walk

Mean-reverting model

model

Model

Study \c\

Climate scenario ----------------------------------- 3% (1a) 5% (1b) 3% (2a) 5% (2b)

1..................... FUND.......... Anthoff et al.

FUND default.....

-1 2009. 2..................... FUND.......... Anthoff et al.

SRES A1b.........

-1 2009. 3..................... FUND.......... Anthoff et al.

SRES A2..........

-1 2009. 4..................... FUND.......... Link and Tol 2004 No THC...........

4 5..................... FUND.......... Link and Tol 2004 THC continues....

2 6..................... FUND.......... Guo et al. 2006.. Constant PRTP....

-1 7..................... FUND.......... Guo et al. 2006.. Gollier discount

0 1. 8..................... FUND.......... Guo et al. 2006.. Gollier discount

-1

-1 2.

FUND Mean........

0 9..................... PAGE.......... Wahba & Hope 2006 A2-scen..........

100

8 10.................... PAGE.......... Hope 2006........ ................. .......

13 .......

8 11.................... DICE.......... Nordhaus 2008.... ................. .......

15 .......

Summary...............

Model-weighted

Mean.

\a\ The sample includes all peer reviewed, non-equity-weighted estimates included in Tol (2008), Nordhaus

(2008), Hope (2008), and Anthoff et al. (2009), that are based on the most recent published version of FUND,

PAGE, or DICE and use business-as-usual climate scenarios. All values are based on the best