Federal Register, Volume 74 Issue 59 (Monday, March 30, 2009)

[Federal Register Volume 74, Number 59 (Monday, March 30, 2009)]
[Rules and Regulations]
[Pages 14196-14456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-6839]

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Part II

Department of Transportation

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National Highway Traffic Safety Administration

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49 CFR Parts 523, 531, 533, et al.

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

Federal Register / Vol. 74, No. 59 / Monday, March 30, 2009 / Rules
and Regulations

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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

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

[Docket No. NHTSA-2009-0062]
RIN 2127-AK29

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

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

ACTION: Final rule; record of decision.

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SUMMARY: The future of this country's economy, security, and
environment are linked to one key challenge: energy. To reduce fuel
consumption, NHTSA has been issuing Corporate Average Fuel Economy
(CAFE) standards since the late 1970's under the Energy Policy and
Conservation Act (EPCA). However, the principal effects of these
standards are broader than their statutory purpose. Reducing fuel
consumption conserves petroleum, a non-renewable energy source, saves
consumers money, and promotes energy independence and security by
reducing dependence on foreign oil. It also directly reduces the motor
vehicle tailpipe emissions of carbon dioxide (CO2), which is
the principal greenhouse gas emitted by motor vehicles.
The Energy Independence and Security Act (EISA) amended EPCA by
mandating that the model year (MY) 2011-2020 CAFE standards be set
sufficiently high to ensure that the industry-wide average of all new
passenger cars and light trucks, combined, is not less than 35 miles
per gallon by MY 2020. This is a minimum requirement, as NHTSA must set
standards at the maximum feasible level in each model year. NHTSA will
determine, based on all of the relevant circumstances, whether that
additional requirement calls for establishing standards that reach the
35 mpg goal earlier than MY 2020.
NHTSA published a proposal in May 2008 to begin implementing EISA
by establishing CAFE standards for MYs 2011-2015. A draft final rule
for those model years was completed, but not issued.
In the context of his calls for the development of new national
policies to prompt sustained domestic and international actions to
address the closely intertwined issues of energy independence, energy
security and climate change, the President issued a memorandum on
January 26, 2009, requesting NHTSA to divide its rulemaking into two
parts. First, he requested the agency to issue a final rule adopting
CAFE standards for MY 2011 only. Given the substantial time and
analytical effort involved in developing CAFE standards and the limited
amount of time before the statutory deadline of March 30, 2009 for
establishing the MY 2011 standards, the agency has necessarily based
this one year final rule almost wholly on the information available to
it and the analysis performed by it in support of the draft final rule
completed last fall.
Second, the President requested NHTSA to establish standards for MY
2012 and later after considering the appropriate legal factors, the
comments filed in response to the May 2008 proposal, the relevant
technological and scientific considerations, and, to the extent
feasible, a forthcoming report by the National Academy of Sciences,
mandated under section 107 of EISA, assessing existing and potential
automotive technologies and costs that can practicably be used to
improve fuel economy. The deferral of action on standards for the later
model years provides the agency with an opportunity to review its
approach to CAFE standard setting, including its methodologies,
economic and technological inputs and decisionmaking criteria, so as to
ensure that it will produce standards that contribute, to the maximum
extent possible within the limits of EPCA/EISA, to meeting the energy
and environmental challenges and goals outlined by the President.
NHTSA estimates that the MY 2011 standards will raise the industry-
wide combined average to 27.3 mpg, save 887 million gallons of fuel
over the lifetime of the MY 2011 cars and light trucks, and reduce
CO2 emissions by 8.3 million metric tons during that period.

DATES: This final rule is effective May 29, 2009.
Petitions for reconsideration must be received by May 14, 2009.

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

FOR FURTHER INFORMATION CONTACT: For policy and technical issues: Ms.
Julie Abraham or Mr. Peter Feather, Office of Rulemaking, National
Highway Traffic Safety Administration, 1200 New Jersey Avenue, SE.,
Washington, DC 20590. Telephone: Ms. Abraham (202) 366-1455; Mr.
Feather (202) 366-0846.
For legal issues: Mr. Stephen Wood or Ms. Rebecca Yoon, Office of
the Chief Counsel, National Highway Traffic Safety Administration, 1200
New Jersey Avenue, SE., Washington, DC 20590. Telephone: (202) 366-
2992.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Executive overview
A. The President's January 26, 2009 Memorandum on CAFE Standards
for Model Years 2011 and Beyond
1. Rulemaking Background
2. Requests in the President's Memorandum
(a) CAFE Standards for Model Year 2011
(b) CAFE Standards for Model Years 2012 and Beyond
3. Implementing the President's Memorandum
B. Energy Independence and Security Act of 2007
C. Notice of Proposed Rulemaking for MYs 2011-2015 and Request
for New Product Plans
1. Key Economic Values for Benefits Computations and Standard
Setting
2. Standards
(a) Classification of Vehicles
(b) Stringency
(c) Benefits and Costs
(i) Benefits
(ii) Costs
(d) Effect of Flexibilities on Benefits and Costs
3. Credits
4. Preemption
D. Brief Summary of Public Comments on the NPRM
E. New Information Received or Developed by NHTSA Between the
NPRM and Final Rule
1. New Manufacturer Product Plans
2. Revised Assessment of Technology Effectiveness and Costs
3. Final Environmental Impact Statement
F. Final Rule for MY 2011
1. Introduction
2. Key Economic Values for Benefits Computations
3. Standards
(a) Classification
(b) Stringency
(c) Benefits and Costs
(i) Benefits
(ii) Costs
(d) Flexibilities
4. Credits
5. Preemption
II. Background
A. Role of Fuel Economy Improvements in Promoting Energy
Independence, Energy Security, and a Low Carbon Economy
B. Contributions of Fuel Economy Improvements to CO2
Tailpipe Emission Reductions Since 1975
C. Chronology of Events Since the National Academy of Sciences
Called for Reforming and Increasing CAFE Standards
1. National Academy of Sciences Issues Report on Future of CAFE
Program (February 2002)
(a) Significantly Increasing CAFE Standards Without Making Them

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Attribute-Based Would Adversely Affect Safety
(b) Climate Change and Other Externalities Justify Increasing
the CAFE Standards
2. NHTSA Issues Final Rule Establishing Attribute-Based CAFE
Standards for MY 2008-2011 Light Trucks (March 2006)
3. Supreme Court Issues Decision in Massachusetts v. EPA (April
2007)
4. NHTSA and EPA Coordinate on Development of Rulemaking
Proposals (Summer-Fall 2007)
5. Ninth Circuit Issues Decision Re Final Rule for MY 2008-2011
Light Trucks (November 2007)
6. Congress Enacts Energy Security and Independence Act of 2007
(December 2007)
7. NHTSA Proposes CAFE Standards for MYs 2011-2015 and Requests
New Product Plans for Those Years (April 2008)
8. NHTSA Contracts With ICF International To Conduct Climate
Modeling and Other Analyses in Support of Draft and Final
Environmental Impact Statements (May 2008)
9. Manufacturers Submit New Product Plans (June 2008)
10. NHTSA Contracts With Ricardo To Aid in Assessing Public
Comments On Cost and Effectiveness of Fuel Saving Technologies (June
2008)
11. Ninth Circuit Revises Its Decision Re Final Rule for MY
2008-2011 Light Trucks (August 2008)
12. NHTSA Releases Final Environmental Impact Statement (October
2008)
13. Office of Information and Regulatory Affairs Completes
Review of a Draft MY 2011-2015 Final Rule (November 2008)
14. Department of Treasury Extends Loans to General Motors and
Chrysler (December 2008)
15. Department of Transportation Decides Not To Issue MY 2011-
2015 Final Rule (January 2009)
16. The President Requests NHTSA To Issue Final Rule for MY 2011
Only (January 2009)
17. General Motors and Chrysler Submit Restructuring Reports to
Department of Treasury (February 2009)
D. Energy Policy and Conservation Act, as Amended
1. Vehicles Subject to Standards for Automobiles
2. Mandate To Set Standards for Automobiles
3. Attribute-Based Standards
4. Factors Considered in the Setting of Standards
(a) Factors That Must Be Considered
(i) Technological Feasibility
(ii) Economic Practicability
(iii) The Effect of Other Motor Vehicle Standards of the
Government on Fuel Economy
(iv) The Need of the United States To Conserve Energy
1. Fuel Prices and the Value of Saving Fuel
2. Petroleum Consumption and Import Externalities
3. Air Pollutant Emissions
(v) Other Factors--Safety
(b) Factors That Cannot Be Considered
(c) Weighing and Balancing of Factors
5. Consultation in Setting Standards
6. Test Procedures for Measuring Fuel Economy
7. Enforcement and Compliance Flexibility
III. The Anticipated Vehicles in the MY 2011 Fleets and NHTSA's
Baseline Market Forecast
A. Why does NHTSA establish a baseline market forecast?
B. How does NHTSA develop the baseline market forecast?
1. NHTSA first asks manufacturers for updated product plan data
(a) Why does NHTSA use manufacturer product plans to develop the
baseline?
(b) What product plan data did NHTSA use in the NPRM?
(c) What product plan data did NHTSA receive for the final rule?
(d) How is the product plan data received for the final rule
different from what the agency used in the NPRM analysis, and how
does it impact the baseline?
2. Once NHTSA has the product plans, how does it develop the
baseline?
3. How does NHTSA's market forecast reflect current market
conditions?
IV. Fuel Economy-Improving Technologies
A. NHTSA Analyzes What Technologies Can Be Applied Beyond Those
in the Manufacturers' Product Plans
B How NHTSA Decides Which Technologies To Include
1. How NHTSA Did This Historically, and How for the NPRM
2. NHTSA's Contract With Ricardo for the Final Rule
C. What technology assumptions has NHTSA used for the final
rule?
1. How do NHTSA's technology assumptions in the final rule
differ from those used in the NPRM?
2. How are the technologies applied in the model?
3. Technology Application Decision Trees
4. Division of Vehicles Into Subclasses Based on Technology
Applicability, Cost and Effectiveness
5. How did NHTSA develop technology cost and effectiveness
estimates for the final rule?
6. Learning Curves
7. Technology Synergies
8. How does NHTSA use full vehicle simulation?
9. Refresh and Redesign Schedule
10. Phase-In Caps
D. Specific Technologies Considered for Application and NHTSA's
Estimates of Their Incremental Costs and Effectiveness
1. What data sources did NHTSA evaluate?
2. Individual Technology Descriptions and Cost/Effectiveness
Estimates
(a) Gasoline Engine Technologies
(i) Overview
(ii) Low Friction Lubricants (LUB)
(iii) Engine Friction Reduction (EFR)
(iv) Variable Valve Timing (VVT)
1. Intake Cam Phasing (ICP)
2. Coupled Cam Phasing (CCPS and CCPO)
3. Dual Cam Phasing (DCP)
(v) Discrete Variable Valve Lift (DVVLS, DVVLD, DVVLO)
(vi) Continuously Variable Valve Lift (CVVL)
(vii) Cylinder Deactivation (DEACS, DEACD, DEACO)
(viii) Conversion to Double Overhead Camshaft Engine With Dual
Cam Phasing (CDOHC)
(ix) Stoichiometric Gasoline Direct Injection (SGDI)
(x) Combustion Restart (CBRST)
(xi) Turbocharging and Downsizing (TRBDS)
(xii) Cooled Exhaust Gas Recirculation Boost (EGRB)
(b) Diesel Engine Technologies
(i) Diesel Engine With Lean NOX Trap (LNT) Catalyst
After-Treatment
(ii) Diesel Engine With Selective Catalytic Reduction (SCR)
After-Treatment
(c) Transmission Technologies
(i) Improved Transmission Controls and Externals (IATC)
(ii) Automatic 6-, 7- and 8-Speed Transmissions (NAUTO)
(iii) Dual Clutch Transmissions/Automated Manual Transmissions
(DCTAM)
(iv) Continuously Variable Transmission (CVT)
(v) 6-Speed Manual Transmissions (6MAN)
(d) Hybrid and Electrification/Accessory Technologies
(i) Overview
(ii) Hybrid System Sizing and Cost Estimating Methodology
(iii) Electrical Power Steering (EPS)
(iv) Improved Accessories (IACC)
(v) 12V Micro Hybrid (MHEV)
(vi) High Voltage/Improved Alternator (HVIA)
(vii) Integrated Starter Generator (ISG)
(viii) Power Split Hybrid
(ix) 2-Mode Hybrid
(x) Plug-In Hybrid
(e) Vehicle Technologies
(i) Material Substitution (MS1, MS2, MS5)
(ii) Low Drag Brakes (LDB)
(iii) Low Rolling Resistance Tires (ROLL)
(iv) Front or Secondary Axle Disconnect for Four-Wheel Drive
Systems (SAX)
(v) Aerodynamic Drag Reduction (AERO)
(f) Technologies Considered But Not Included in the Final Rule
Analysis
(i) Camless Valve Actuation
(ii) Lean-Burn Gasoline Direct Injection Technology
(iii) Homogeneous Charge Compression Ignition
(iv) Electric Assist Turbocharging
E. Cost and Effectiveness Tables
V. Economic Assumptions Used in NHTSA's Analysis
A. Introduction: How NHTSA Uses the Economic Assumptions in Its
Analysis
B. What economic assumptions does NHTSA use in its analysis?
1. Determining Retail Price Equivalent
2. Potential Opportunity Costs of Improved Fuel Economy
3. The On-Road Fuel Economy `Gap'
4. Fuel Prices and the Value of Saving Fuel
5. Consumer Valuation of Fuel Economy and Payback Period
6. Vehicle Survival and Use Assumptions
7. Growth in Total Vehicle Use
8. Accounting for the Rebound Effect of Higher Fuel Economy
9. Benefits From Increased Vehicle Use
10. Added Costs From Congestion, Crashes, and Noise

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11. Petroleum Consumption and Import Externalities
12. Air Pollutant Emissions
(a) Impacts on Criteria Pollutant Emissions
(b) Reductions in CO2 Emissions
(c) Economic Value of Reductions in CO2 Emissions
13. The Value of Increased Driving Range
14. Discounting Future Benefits and Costs
15. Accounting for Uncertainty in Benefits and Costs
VI. How NHTSA Sets the CAFE Standards
A. Which attributes does NHTSA use to determine the standards?
B. Which mathematical function does NHTSA use to set the
standards?
C. What other types of standards did commenters propose?
D. How does NHTSA fit the curve and estimate the stringency that
maximizes net benefits to society?
E. Why has NHTSA used the Volpe model to support its analysis?
VII. Determining the Appropriate Level of the Standards
A. Analyzing the Preferred Alternative
B. Alternative Levels of Stringency Considered for Establishment
as the Maximum Feasible Level of Average Fuel Economy
C. EPCA Provisions Relevant to the Selection of the Final
Standards
1. 35 in 2020
2. Annual Ratable Increase
3. Maximum Feasibility and the Four Underlying EPCA
Considerations
(a) Technological Feasibility
(b) Economic Practicability
(c) Effect of Other Motor Vehicle Standards of the Government on
Fuel Economy
(d) Need of the United States To Conserve Energy
(i) Consumer Cost
(ii) National Balance of Payments
(iii) Environmental Implications
(iv) Foreign Policy Considerations
4. Comparison of Alternatives
5. Other Considerations Under EPCA
(a) Safety
(b) AMFA Credits
(c) Flexibility Mechanisms: Credits, Fines
D. Analysis of Environmental Consequences in Selecting the Final
Standards
E. Picking the Final Standards
1. Eliminating the Alternatives Facially Inconsistent With EPCA
(a) No-Action Alternative
(b) Technology Exhaustion Alternative
2. Choosing Among the Remaining Alternatives
(a) Difficulty and Importance of Achieving a Reasonable
Balancing of the Factors
(b) The Correct Balancing of the Factors for Setting the MY 2011
Standards Is To Maximize Societal Net Benefits
VIII. Safety
A. Summary of NHTSA's Approach in This Final Rule
B. Background
1. NHTSA's Early Studies
2. The 2002 National Academy of Sciences Study
3. NHTSA's updated 2003 Study
4. Summary of Studies Prior to This Rulemaking
B. Response to Comments in This Rulemaking on Safety and Vehicle
Weight
1. Views of Other Government Agencies
2. Comments From Other Parties
C. Comments on Other Issues Related to Safety
1. Vehicle Compatibility Design Issues
2. Whether Manufacturers Downweight in Response to Increased
CAFE Stringency
3. Whether Flat Standards Are More or Less Harmful to Safety
Than Footprint-Based Standards
4. Whether NHTSA Should Set Identical Targets for Passenger Cars
and Light Trucks for Safety Reasons
5. Whether NHTSA Should Have Considered the 2002 NAS Report
Dissent in Deciding Not To Apply Material Substitution for Vehicles
Under 5,000 Pounds
IX. The Final Fuel Economy Standards for MY 2011
A. Final Passenger Car Standard
B. Final Light Truck Standard
C. Energy and Environmental Backstop
D. Combined Fleet Performance
E. Costs and Benefits of Final Standards
1. Benefits
2. Costs
F. Environmental Impacts of Final Standards
X. Other Fuel Economy Standards Required by EISA
XI. Vehicle Classification
A. Summary of Comments
B. Response to Comments
1. This Rule Substantially Tightens NHTSA's Vehicle
Classification Definitions
(a) Under Sec. 523.5(b), Only Vehicles That Actually Have 4WD
Will Be Classified as 4WD Vehicles
(b) The Final Rule Amends Sec. 523.5(a)(4) To Prevent Gaming
That Might Jeopardize Fuel Savings Created by NHTSA's Clarified
Position on 2WD Vehicles
2. Especially as Tightened by This Rule, NHTSA's Classification
Definitions Are More Difficult to Game Than Commenters Suggest
3. Additional Changes in NHTSA's Classification Definitions
Would Not Result in Greater Fuel Savings and Lower CO2
Emissions
4. The Vehicle Classification Definitions Embodied in This Final
Rule Are Consistent With NHTSA's Statutory Authority and Respond to
the Ninth Circuit's Opinion
XII. Flexibility Mechanisms and Enforcement
A. NHTSA's Request for Comment Regarding Whether the Agency
Should Consider Raising the Civil Penalty for CAFE Non-Compliance
B. CAFE Credits
C. Extension and Phasing Out of Flexible-Fuel Incentive Program
XIII. Test Procedure for Measuring Wheelbase and Track Width and
Calculating Footprint
A. Test Procedure Execution
B. Measured Value Tolerances
C. Administrative and Editorial Issues
XIV. Sensitivity and Monte Carlo Analysis
XV. NHTSA's Record of Decision
XVI. Regulatory Notices and Analyses
A. Executive Order 12866 and DOT Regulatory Policies and
Procedures
B. National Environmental Policy Act
1. Clean Air Act (CAA)
2. National Historic Preservation Act (NHPA)
3. Executive Order 12898 (Environmental Justice)
4. Fish and Wildlife Conservation Act (FWCA)
5. Coastal Zone Management Act (CZMA)
6. Endangered Species Act (ESA)
7. Floodplain Management (Executive Order 11988 & DOT Order
5650.2)
8. Preservation of the Nation's Wetlands (Executive Order 11990
& DOT Order 5660.1a)
9. Migratory Bird Treaty Act (MBTA), Bald and Golden Eagle
Protection Act (BGEPA), Executive Order 13186
10. Department of Transportation Act (Section 4(f))
C. Regulatory Flexibility Act
D. Executive Order 13132 (Federalism)
E. Executive Order 12988 (Civil Justice Reform)
F. Unfunded Mandates Reform Act
G. Paperwork Reduction Act
H. Regulation Identifier Number (RIN)
J. Executive Order 13045
K. National Technology Transfer and Advancement Act
L. Executive Order 13211
M. Department of Energy Review
N. Privacy Act
XVII. Regulatory Text

I. Executive Overview

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

1. Rulemaking Background
On May 2, 2008, NHTSA published a Notice of Proposed Rulemaking
entitled Average Fuel Economy Standards, Passenger Cars and Light
Trucks; Model Years 2011-2015, 73 FR 24352. In mid-October, the agency
completed and released a final environmental impact statement in
anticipation of issuing standards for those years. Based on its
consideration of the public comments and other available information,
including information on the financial condition of the automotive
industry, the agency adjusted its analysis and the standards and
prepared a final rule for MYs 2011-2015. On November 14, the Office of
Information and Regulatory Affairs (OIRA) of the Office of Management
and Budget cleared the rule as consistent with the Order.\1\ However,
issuance of the final rule was held in abeyance. On January 7, 2009,

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the Department of Transportation announced that the final rule would
not be issued, saying:
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\1\ Record of OIRA's action can be found at http://www.reginfo.gov/public/do/eoHistReviewSearch (last visited March 8,
2009). To find the report on the clearance of the draft final rule,
select ``Department of Transportation'' under ``Economically
Significant Reviews Completed'' and select ``2008'' under ``Select
Calendar Year.''

The Bush Administration will not finalize its rulemaking on
Corporate Fuel Economy Standards. The recent financial difficulties
of the automobile industry will require the next administration to
conduct a thorough review of matters affecting the industry,
including how to effectively implement the Energy Independence and
Security Act of 2007 (EISA). The National Highway Traffic Safety
Administration has done significant work that will position the next
Transportation Secretary to finalize a rule before the April 1, 2009
deadline.\2\
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\2\ The statement can be found at http://www.dot.gov/affairs/dot0109.htm (last accessed February 11, 2009).
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2. Requests in the President's Memorandum
In light of the requirement to prescribe standards for MY 2011 by
March 30, 2009 and in order to provide additional time to consider
issues concerning the analysis used to determine the appropriate level
of standards for MYs 2012 and beyond, the President issued a memorandum
on January 26, 2009, requesting the Secretary of Transportation and
Administrator \3\ of the National Highway Traffic Safety Administration
NHTSA to divide the rulemaking into two parts: (1) MY 2011 standards,
and (2) standards for MY 2012 and beyond.
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\3\ Currently, the National Highway Traffic Safety
Administration does not have an Administrator. Ronald L. Medford is
the Acting Deputy Administrator.
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(a) CAFE Standards for Model Year 2011
The request that the final rule establishing CAFE standards for MY
2011 passenger cars and light trucks be prescribed by March 30, 2009
was based on several factors. One was the requirement that the final
rule regarding fuel economy standards for a given model year must be
adopted at least 18 months before the beginning of that model year (49
U.S.C. 32902(g)(2)). The other was that the beginning of MY 2011 is
considered for the purposes of CAFE standard setting to be October 1,
2010. As part of that final rule, the President requested that NHTSA
consider whether any provisions regarding preemption are consistent
with the EISA, the Supreme Court's decision in Massachusetts v. EPA and
other relevant provisions of law and the policies underlying them.
(b) CAFE Standards for Model Years 2012 and Beyond
The President requested that, before promulgating a final rule
concerning the model years after model year 2011, NHTSA

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

In addition, the President requested that NHTSA further consider
whether any provisions regarding preemption are appropriate under
applicable law and policy.
3. Implementing the President's Memorandum
In keeping with the President's remarks on January 26 for new
national policies to address the closely intertwined issues of energy
independence, energy security and climate change, and for the
initiation of serious and sustained domestic and international action
to address them, NHTSA will develop CAFE standards for MY 2012 and
beyond only after collecting new information, conducting a careful
review of technical and economic inputs and assumptions, and standard
setting methodology, and completing new analyses.
For MY 2011, however, time limitations precluded the adoption of
this approach. As noted above, EPCA requires that standards for that
model year be established by the end of March of this year. Thus,
immediate decisions had to be made about the establishment of the MY
2011 standards. There was insufficient time between the issuance of the
President's memorandum in late January and the end of March to revisit
and, if and as appropriate, revise the extensive and complex analysis
in any substantively significant way. This is particularly so given the
requirement under EPCA to consult with the Environmental Protection
Agency and the Department of Energy on these complicated and important
technical matters. Decisions regarding those matters potentially affect
not just NHTSA's CAFE rulemaking, but also programs of other
departments and agencies. Accordingly, the methodologies, economic and
technological inputs and decisionmaking criteria used in this rule are
necessarily largely those developed by NHTSA in the fall of 2008.
In looking ahead to the next CAFE rulemaking, the agency emphasizes
that while the methodologies, economic and technological inputs and
decisionmaking criteria used in this rule were well-supported choices
for the purposes of the MY 2011 rulemaking, they were not the only
reasonable choices that the agency could have made for that purpose.
Many of the key aspects of this rulemaking reflect decisions among
several reasonable alternatives. The choices made in the context of
last fall may or may not be the choices that will be made in the
context of the follow-on rulemaking.
The deferral of action on the CAFE standards for the years after MY
2011 provides the agency with an opportunity to review its approach to
CAFE standard setting, including its methodologies, economic and
technological inputs, and decisionmaking criteria. It is reasonable to
anticipate that this process may lead to changes, given the further
review and analysis that will be conducted pursuant to the President's
request, and given the steady and potentially substantial evolution in
technical and policy factors relevant to the next CAFE rulemaking.
These factors include, but are not limited to, energy and climate
change needs and policy choices regarding goals and approaches to
achieving them, developments in domestic legislation and international
negotiations regarding those goals and approaches, the financial health
of the industry, technologies for reducing fuel consumption, fuel
prices, and climate change science and damage valuation.
The goal of the review and re-evaluation will be to ensure that the
approach used for MY 2012 and thereafter produces standards that
contribute, to the maximum extent possible under EPCA/EISA, to meeting
the energy and environmental challenges and goals outlined by the
President. We will seek to craft our program with the goal of creating
the maximum incentives for innovation, providing flexibility to the
regulated parties, and meeting the goal of making substantial and
continuing reductions in the consumption of fuel. To that end, we are
committed to ensuring that the CAFE program for beyond MY 2011 is based
on the best scientific, technical, and economic information available,
and that such information is developed in close coordination with other
federal agencies and our stakeholders, including the states and the
vehicle manufacturers.
We will also re-examine EPCA, as amended by EISA, to consider
whether additional opportunities exist for achieving the President's
goals. For example, EPCA authorizes, within relatively narrow limits
and subject to making specified findings, for increasing the amount of
civil penalties

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for violating the CAFE standards.\4\ Further, while EPCA prohibits
updating the test procedures used for measuring passenger car fuel
economy, it places no such limitation on the test procedures for light
trucks.\5\ If the test procedures used for light trucks were revised to
provide for the operation of air conditioning during fuel economy
testing, vehicle manufacturers would have a regulatory incentive to
increase the efficiency and reduce the weight of air conditioning
systems, thereby reducing fuel consumption and tailpipe emissions of
CO2.
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\4\ Under 49 U.S.C. 32904(c), EPA must ``use the same procedures
for passenger automobiles the Administrator used for model year 1975
(weighted 55 percent urban cycle and 45 percent highway cycle), or
procedures that give comparable results.''
\5\ 49 U.S.C. 32912(c).
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In response to the President's request that NHTSA consider whether
any provisions regarding preemption are consistent with EISA, the
Supreme Court's decision in Massachusetts v. EPA and other relevant
provisions of law and the policies underlying them, NHTSA has decided
not to include any provisions addressing preemption in the Code of
Federal Regulations at this time. The agency will re-examine the issue
of preemption in the content of its forthcoming rulemaking to establish
Corporate Average Fuel Economy standards for 2012 and later model
years.

B. Energy Independence and Security Act of 2007

The mandates in the Energy Independence and Security Act of 2007
(EISA) \6\ for reducing fuel consumption by motor vehicles and
expanding the production of renewable fuels represent major steps
forward in promoting energy independence and security and in addressing
climate change risks by reducing CO2 emissions. EISA
requires the first statutory increase in fuel economy standards for
passenger automobiles (referred to below as ``passenger cars'') since
those standards were originally mandated in 1975. It also includes an
important reform--switching to ``attribute-based standards.'' This
switch will help to ensure that increased fuel efficiency does not come
at the expense of automotive safety.
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\6\ Public Law 110-140, 121 Stat. 1492 (Dec. 18, 2007).
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More specifically, EISA made a number of important changes to EPCA.
EISA:
Establishes a statutory mandate to establish passenger car
standards for each model year at the maximum feasible level and
eliminates the old statutory default standard of 27.5 mpg for passenger
cars and the provision giving us discretion to amend that default
standard. Thus, given that there will no longer be a default standard,
the agency must act affirmatively to establish a new passenger car
standard for each model year.
Retains the requirement to establish separate standards
for passenger cars and light trucks and to set them at the maximum
feasible level, but sets forth special requirements for the MY 2011-
2020 standards.
The standards must increase ratably each year and, at a
minimum, be set sufficiently high to ensure that the average fuel
economy of the combined industry-wide fleet of all new passenger cars
and light trucks sold in the United States during MY 2020 is at least
35 mpg.\7\
---------------------------------------------------------------------------

\7\ Although NHTSA previously established an attribute-based
standard for MY 2011 light trucks in its 2006 final rule, EISA
mandates a new rulemaking, reflecting new statutory considerations
and a new administrative record, and consistent with EPCA as amended
by EISA, to establish the standard for those light trucks.
---------------------------------------------------------------------------

Mandates the reforming of CAFE standards for passenger
cars by requiring that all CAFE standards be based on one or more
vehicle attributes related to fuel economy (like size or weight). Fuel
economy targets are set for individual vehicles and increase as the
attribute decreases and vice versa. For example, size-based (i.e.,
size-indexed) standards assign higher fuel economy targets to smaller
vehicles and lower ones to larger vehicles. Use of this approach helps
to ensure that the improvements in fuel economy do not come at the
expense of safety. NHTSA pioneered that approach in its last rulemaking
on CAFE standards for light trucks.
Requires that for each model year, beginning with MY 2011,
each manufacturer's domestically-manufactured passenger car fleet must
achieve a measured average fuel economy that is not less than 92
percent of the average fuel economy of the combined industry-wide fleet
of domestic and non-domestic passenger cars sold in the United States
in that model year.
Limits to five the number of model years for which
standards can be established in a single rulemaking.
Provides greater flexibility for automobile manufacturers
by (a) increasing from three to five the number of years that a
manufacturer can carry forward the compliance credits it earns by
exceeding CAFE standards, (b) allowing a manufacturer to transfer the
credits it has earned from one of its compliance categories of
automobiles to another class, and (c) authorizing the trading of
credits between manufacturers.

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

1. Key Economic Values for Benefits Computations and Standard Setting
NHTSA's analysis of the proposed and alternative CAFE standards in
the Notice of Proposed Rulemaking (NPRM) \8\ relied on a range of
information, economic estimates, and input parameters. These economic
assumptions play a role in the determination of the level of the
standards, with some having greater impacts than others. The cost of
technologies, the price of gasoline, and discount rate used for
discounting future benefits had the greatest influence over the level
of the standards. In order of impact, the full list of the economic
assumptions is as follows: (1) Technology cost; (2) fuel prices; (3)
discount rate; (4) oil import externalities; (5) rebound effect; (6)
criteria air pollutant damage costs; (7) carbon costs. The table below
shows the NPRM assumptions on which the agency received the most
extensive public comment.
---------------------------------------------------------------------------

\8\ 73 FR 24352, May 2, 2008. In a separate notice published on
the same day, the agency requested automobile manufacturers to
submit new product plans for MYs 2011-15. 73 FR 24190.
\9\ Although Table V-3 Economic Values for Benefits Computations
in the NPRM indicated that all of the values in that table were
2006$, several values were actually in 2005$. Thus, the monopsony
component, which was shown in that table as $0.176, should have been
shown as $0.182. Likewise, the price shock component should have
been $0.113, instead of $0.109. The sum of those two values should
have been $0.295, not $0.285.

Table I-1--NPRM Key Economic Values for Benefits Computations (2006$)
\9\
------------------------------------------------------------------------

------------------------------------------------------------------------
Fuel Prices (average retail gasoline price per gallon, 2011- $2.34
30).........................................................
Discount Rate Applied to Future Benefits..................... 7%
Economic Costs of Oil Imports ($/gallon):
``Monopsony'' Component.................................. $0.182

[[Page 14201]]

Price Shock Component.................................... $0.113
Military Security Component.............................. .........
----------
Total Economic Costs................................. $0.295
Emission Damage Costs:
Carbon Dioxide ($/metric ton)............................ $7.00
Annual Increase in CO2 Damage Cost....................... 2.4%
------------------------------------------------------------------------

2. Standards
(a) Classification of Vehicles
In the NPRM, the agency classified the vehicles subject to the
proposed standards as passenger cars or as light trucks in the same way
that the vehicles had been traditionally classified under the CAFE
program. In particular, sport utility vehicles (SUVs), mini-vans and
pickup trucks were classified as light trucks. However, the agency
raised the possibility of reclassifying many of the two-wheel drive
SUVs as passenger cars for the purposes of the final rule.
(b) Stringency
We proposed setting separate attribute-based fuel economy standards
for passenger cars and light trucks consistent with the size-based
approach that NHTSA used in establishing the light truck standards for
MY 2008-2011 light trucks.
Compared to the April 2006 final rule that established those
attribute-based standards, the NPRM more thoroughly evaluated the value
of the costs and benefits of setting CAFE standards. This was important
because assumptions regarding projected gasoline prices, along with
assumptions about the value of reducing the negative externalities
(economic and environmental) from producing and consuming fuel, were
based on changed economic, environmental, and energy security
conditions. These environmental externalities include, among other
things, an estimation of the value of reducing tailpipe emissions of
CO2.\10\
---------------------------------------------------------------------------

\10\ The externalities included in our analysis do not, however,
include those associated with the reduction of the other GHG emitted
by automobiles, i.e., methane (CH4), nitrous oxide
(N2O), and hydroflurocarbons (HFCs). Actual air
conditioner operation is not included in the test procedures used to
obtain both (1) emission rates for purposes of determining
compliance with EPA criteria pollutant emission standards and (2)
fuel economy values for purposes of determining compliance with
NHTSA CAFE standards, although air conditioner operation is included
in ``supplemental'' federal test procedures used to determine
compliance with corresponding and separate EPA criteria pollutant
emission standards. As noted above, EPCA precludes basing passenger
car standards on those other test procedures, but places no such
limit on the test procedures used as the basis for light truck
standards.
---------------------------------------------------------------------------

In light of EISA and the need to balance the statutory
considerations in a way that reflects the current need of the nation to
conserve energy, including the current assessment of climate change
risks, the agency revisited the various assumptions used to determine
the level of the standards. Specifically, the agency used higher
gasoline prices and higher estimates for energy security values ($0.29
per gallon instead of $0.09 per gallon). The agency also monetized
carbon dioxide (at $7.00/ton), which it did not do in the previous
rulemaking, and expanded the list of technologies it used in assessing
the capability of manufacturers to improve fuel economy. In addition,
the agency used cost estimates that reflect economies of scale and
estimated ``learning''-driven reductions in the cost of technologies as
well as quicker penetration rates for advanced technologies.
The agency could not set out the exact level of CAFE that each
manufacturer would be required to meet for each model year under the
passenger car or light truck standards since the levels would depend on
information that would not be available until the end of each of the
model years, i.e., the final actual production figures for each of
those years. The agency could, however, project what the industry-wide
level of average fuel economy would be for passenger cars and for light
trucks if each manufacturer produced its expected mix of automobiles
and just met its obligations under the proposed ``optimized'' standards
for each model year. Adjacent to each average fuel economy figure in
the NPRM was the estimated associated level of tailpipe emissions of
CO2 that would be achieved.\11\
---------------------------------------------------------------------------

\11\ Given the contributions made by CAFE standards to
addressing not only energy independence and security, but also to
reducing tailpipe emissions of CO2, fleet performance was
stated in the above discussion both in terms of fuel economy and the
associated reductions in tailpipe emissions of CO2 since
the CAFE standards would have the practical effect of limiting those
emissions approximately to the indicated levels during the official
CAFE test procedures established by EPA. The relationship between
fuel consumption and carbon dioxide emissions is discussed
ubiquitously, such as at www.fueleconomy.gov, a fuel economy-related
web site managed by DOE and EPA (see http://www.fueleconomy.gov/feg/contentIncludes/co2_inc.htm, which provides a rounded value of 20
pounds of CO2 per gallon of gasoline). (Last accessed
March 8, 2009.) The CO2 emission rates shown were based
on gasoline characteristics. Because diesel fuel contains more
carbon (per gallon) than gasoline, the presence of diesel engines in
the fleet--which NHTSA expects to increase in response to the
proposed CAFE standards--will cause the actual CO2
emission rate corresponding to any given CAFE level to be slightly
higher than shown here. (The agency projected that 4 percent of the
MY 2015 passenger car fleet and 10 percent of the MY 2015 light
truck fleet would have diesel engines.) Conversely (and
hypothetically), applying the same CO2 emission standard
to both gasoline and diesel vehicles would discourage manufacturers
from improving diesel engines, which show considerable promise as a
means to improve fuel economy.
---------------------------------------------------------------------------

For passenger cars:

MY 2011: 31.2 mpg (285 g/mi of tailpipe emissions of CO2)
MY 2012: 32.8 mpg (271 g/mi of tailpipe emissions of CO2)
MY 2013: 34.0 mpg (261 g/mi of tailpipe emissions of CO2)
MY 2014: 34.8 mpg (255 g/mi of tailpipe emissions of CO2)
MY 2015: 35.7 mpg (249 g/mi of tailpipe emissions of CO2)

For light trucks:

MY 2011: 25.0 mpg (355 g/mi of tailpipe emissions of CO2)
MY 2012: 26.4 mpg (337 g/mi of tailpipe emissions of CO2)
MY 2013: 27.8 mpg (320 g/mi of tailpipe emissions of CO2)
MY 2014: 28.2 mpg (315 g/mi of tailpipe emissions of CO2)
MY 2015: 28.6 mpg (310 g/mi of tailpipe emissions of CO2)

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

MY 2011: 27.8 mpg (2.5 mpg increase above MY 2010; 320 g/mi
CO2)
MY 2012: 29.2 mpg (1.4 mpg increase above MY 2011; 304 g/mi
CO2)
MY 2013: 30.5 mpg (1.3 mpg increase above MY 2012; 291 g/mi
CO2)
MY 2014: 31.0 mpg (0.5 mpg increase above MY 2013; 287 g/mi
CO2)
MY 2015: 31.6 mpg (0.6 mpg increase above MY 2014; 281 g/mi
CO2)

The annual average increase during this five year period was
approximately

[[Page 14202]]

4.5 percent. Due to the uneven distribution of new model introductions
during this period and to the fact that significant technological
changes could be most readily made in conjunction with those
introductions, the annual percentage increases were greater in the
early years in this period.
(c) Benefits and Costs
(i) Benefits
We estimated that the proposed standards for the five-year period
would save approximately 54.7 billion gallons of fuel (18.7 billion
gallons for passenger cars and 36 billion gallons for light trucks) and
reduce tailpipe CO2 emissions by 521 million metric tons
(178 million metric tons for passenger cars and 343 million metric tons
for light trucks) over the lifetime of the vehicles sold during those
model years, compared to the fuel use and emissions reductions that
would occur if the standards remained at the adjusted baseline (i.e.,
the higher of manufacturer's plans and the manufacturer's required
level of average fuel economy for MY 2010).
We estimated that the value of the total benefits of the proposed
standards would be approximately $88 billion ($31 billion for passenger
cars and $57 billion for light trucks) over the lifetime of the
vehicles sold during those model years.
(ii) Costs
The total costs for manufacturers to comply with the standards for
the five-year period would be approximately $47 billion ($16 billion
for passenger cars and $31 for light trucks) compared to the costs they
would incur if the standards remained at the adjusted baseline.
(d) Effect of Flexibilities on Benefits and Costs
The above benefit and cost estimates did not reflect the
availability and use of flexibility mechanisms, such as compliance
credits and credit trading, because EPCA prohibits NHTSA from
considering the effects of those mechanisms in setting CAFE standards.
However, the agency noted that, in reality, manufacturers were likely
to rely to some extent on flexibility mechanisms provided by EPCA and
would thereby reduce the cost of complying with the proposed standards
to a meaningful extent.
3. Credits
NHTSA also proposed a new Part 536 on trading and transferring
``credits'' earned for exceeding applicable CAFE standards.\12\ Under
the proposed Part 536, credit holders (including, but not limited to,
manufacturers) would have credit accounts with NHTSA, and would be able
to hold credits, apply them to compliance with CAFE standards, transfer
them to another ``compliance category'' for application to compliance
there, or trade them. Traded credits would be subject to an
``adjustment factor'' to ensure total oil savings are preserved, as
required by EISA. EISA also prohibits credits earned before MY 2011
from being transferred, so NHTSA developed several regulatory
restrictions on trading and transferring to facilitate Congress' intent
in this regard.
---------------------------------------------------------------------------

\12\ Congress required that DOT establish a credit
``transferring'' regulation, to allow individual manufacturers to
move credits from one of their fleets to another (e.g., using a
credit earned for exceeding the light truck standard for compliance
in the domestic passenger car standard). Congress allowed DOT to
establish a credit ``trading'' regulation, so that credits may be
bought and sold between manufacturers and other parties.
---------------------------------------------------------------------------

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

D. Brief Summary of Public Comments on the NPRM

Standard stringency: Automobile manufacturers argued that the
standards, especially those for light trucks in the early years, should
be lower. Environmental and consumer groups and states wanted higher
standards throughout the five-year period.
Footprint attribute: Commenters generally supported the agency's
choice of footprint as an attribute, although several urged
consideration of additional attributes and a few argued for different
attributes.
Setting standards at levels at which net benefits are projected to
be maximized (optimized standards) vs. using other decision-making
formulae: A consumer group urged setting standards at the optimized +
50% alternative level, while some environmental groups favored setting
them at levels at which total benefits equal total costs. Manufacturers
contended that the optimized approach does not assure economic
practicability, especially for manufacturers needing to borrow at high
interest rates to finance design changes. A manufacturer association
and other commenters said agency did not assess the ability of the
manufacturers to raise the capital necessary to develop and implement
sufficient technologies.
Front-loading/ratable increase: Some commenters, especially the
manufacturers, argued that the statutory requirement for ``ratable''
increases in standards means that the increases must be proportional or
at least must not be disproportionately large or small in relation to
one another. They did not discuss how that requirement is to be read
together with either the statutory requirement to set standards for
each model year at the level that is the maximum feasible level for
that model year, or the separate statutory requirement for the overall
fleet to achieve at least 35 mpg.
Key economic and other assumptions affecting stringency--
Technology costs and effectiveness--The manufacturers said
that NHTSA underestimated the costs. A manufacturer association
submitted a study by Sierra Research challenging the cost and
effectiveness estimates developed by NHTSA and EPA for the NPRM.
Fuel prices--A manufacturer association and dealer
associations said that Energy Information Administration's (EIA)
reference case should be used. Environmental and consumer groups,
states and some members of Congress said NHTSA should use at least the
EIA high price case. The EIA Administrator stated at a June 2008
Congressional hearing that the then current prices were at or above
EIA's high case and that he would use that case in the CAFE rulemaking.
Discount rate--The manufacturers said the rate should be
at least 7%, while environmental and consumer groups and states said it
should not be greater than 3 percent.
Military costs--Many commenters argued that NHTSA should
place a value other than zero on military security externalities.
Social cost of carbon--Some commenters said the domestic
value of reducing CO2 emissions should be lower than the
NPRM value of $7; environmental and consumer groups and states said it
should be much higher. The former tended to favor a value reflecting
damage to the U.S. only, while the latter favored a global value.
Weight reduction--States and environmental and consumer
groups said that NHTSA should consider downweighting for vehicles under
5,000 lbs; an insurance safety research group supported the proposal
not to consider that.
Rate of application of advanced technologies (diesels and hybrids):

[[Page 14203]]

Manufacturers argued that NHTSA was overly optimistic; environmental/
consumer groups and states argued that NHTSA relied too much on
manufacturer product plans and should require manufacturers to improve
fuel economy more quickly.
Fitting of standard curve to data: A manufacturer association and
two manufacturers questioned the empirical and technical bases for the
shape of the curves.
Steepness of car standard curve: The two manufacturer associations
and several environmental groups said that the proposed car curves were
too steep: manufacturers did so because of impracticability;
environmental groups, because of what they saw as an incentive to
increase vehicle size.
Backstop standard: Environmental and consumer groups argued that
NHTSA must establish absolute backstop standards for all vehicles.
Manufacturers argued that anti-backsliding features of the attribute-
based standards function as a backstop.
``SUV loophole'': In general, manufacturers agreed with the
agency's decision to reclassify 2 WD SUVs from the light truck fleet to
the passenger car fleet, as long as this change would take effect after
MY 2010. Environmental and consumer groups argued that the
classification system should be further revised to address ``gaming''
and did not address the agency's justification for the proposed
revisions.
Credits: Manufacturers argued that earned carry forward/back
credits, as long as they were not acquired by transfer or trade, should
be available to meet the minimum standard for domestic cars.
Manufacturers also requested flexibility to manage their own credit
shortfalls, instead of having the agency automatically decide upon and
implement plans for them. One manufacturer asked that the new statutory
provision giving credits a 5 year life be applied to all existing
credits, instead of only those credits earned in model year 2009 or
thereafter.
Impact on small/limited-line manufacturers: Small/limited-line
manufacturers argued that the proposed standards impact them more than
full-line manufacturers, and requested either that the car standards be
set based on the plans of all car manufacturers, instead of just the
seven largest, or that some alternative form of standard be set for
them.
Preemption: Manufacturers argued that the effects of state
regulation of CO2 emissions are ``related to'' the
regulation of fuel economy within the meaning of section 32919(a) of
EPCA; environmental and consumer groups and states argued that the
purpose of regulating CO2 emissions may overlap with, but is
different from the purpose of regulating fuel economy

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

There were a number of changes after the NPRM that made possible
analytical improvements for the final rule. These changes also caused
the CAFE levels, fuel savings, and CO2 emissions that are
attributable to each alternative and scenario examined for this final
rule to differ from those presented in the NPRM.
1. New Manufacturer Product Plans
As discussed in the NPRM, the agency requested new product plans
from manufacturers to aid in determining appropriate standards for the
final rule. The product plans submitted in May 2007 naturally did not
take into consideration the later passage of EISA and its minimum 35
mpg combined fleet requirement by 2020. In addition, during that time,
the fuel prices rose substantially.
The new product plans submitted in the summer of 2008 in response
to the NPRM reflect those new realities in a couple of ways. First,
companies provided product plans that reflected the manufacturers'
implementation of some of the cost-effective technologies that the
agency had projected in the NPRM. This increased the baseline against
which the fuel saving from the standards are calculated. As a result,
some of the savings and CO2 emission reductions that were
attributed in the NPRM to the rulemaking action are now attributed to
actions taken ``independently by the manufacturers, as reflected in the
improved product plans. Second, the size of the overall fleet had
declined from the time of the NPRM to the final rule, resulting in
fewer vehicle miles traveled.
2. Revised Assessment of Technology Effectiveness and Costs
With the aid of an expert consulting firm, NHTSA revised the
technology assumptions in the NPRM based on comments and new
information received during the comment period and used those revised
assumptions for analyzing alternatives and scenarios for the Final
Environmental Impact Assessment (FEIS) and final rule. In several
cases, the agency concluded on the basis of analysis of that additional
information that the costs in the NPRM and Draft EIS were
underestimated and benefits overestimated, and in most cases, these
estimates were not well differentiated by vehicle class. The agency
also revised its phase-in schedule of the technologies to account more
fully for needed lead time.
3. Final Environmental Impact Statement
With the aid of an expert consulting firm, the agency completed a
final environmental impact statement (FEIS), the first FEIS prepared by
a federal agency to examine climate change issues comprehensively.\13\
The FEIS examines the climate change and other environmental effects of
the changes in emissions of greenhouse gases and criteria air
pollutants resulting from a wide variety of alternative standards. For
this purpose, the agency relied extensively on the 2007 reports of the
Intergovernmental Panel on Climate Change and contracted with ICF
International to perform climate modeling. That impact statement also
carefully assesses the cumulative impacts of past, present and future
CAFE rulemakings.
---------------------------------------------------------------------------

\13\ The Final Environmental Impact Statement can be found on
the NHTSA website at http://www.nhtsa.gov/staticfiles/DOT/NHTSA/Rulemaking/Rules/Associated%20Files/CAFE%20FEIS.pdf (last accessed
March 8, 2009).
---------------------------------------------------------------------------

F. Final Rule for MY 2011

1. Introduction
As discussed above, and at length later in this rule, NHTSA's
review and analysis of comments on its proposal have led the agency to
make many changes to its methods for analyzing potential MY 2011 CAFE
standards, as well as to the data and other information to which the
agency has applied these methods. The following are some of the more
prominent changes:
After receiving, reviewing, and integrating updated
product plans from vehicle manufacturers, NHTSA has revised its
forecast of the future light vehicle market.
NHTSA has changed the methods and inputs it uses to
represent the applicability, availability, cost, and effectiveness of
future fuel-saving technologies.
NHTSA has based its fuel price forecast on the AEO 2008
High Case price scenario instead of the AEO 2008 Reference Case.
NHTSA has reduced mileage accumulation estimates (i.e.,
vehicle miles traveled) to levels consistent with this increased fuel
price forecast.
NHTSA has applied increased estimates for the value of oil
import externalities.
NHTSA has now included all manufacturers--not just the
largest

[[Page 14204]]

seven--in the process used to fit the curve and estimate the stringency
at which societal net benefits are maximized.
NHTSA has tightened its application of the definition of
``nonpassenger automobiles,'' causing a reassigning of over one million
vehicles from the light truck fleet to the passenger car fleet.
NHTSA has now fitted the shape of the curve based on
``exhaustion'' of available technologies instead of on manufacturer-
level optimization of CAFE levels.
These changes affected both the shape and stringency of the
attribute-based standards. Taken together, the last three of the above
changes reduced the steepness of the curves defining fuel economy
targets for passenger cars, and also less significantly reduced the
steepness of the light truck curves.
NHTSA recognizes that, when considered in isolation, some of the
above changes might, on an ``intuitive'' basis, be expected to result
in higher average required fuel economy levels. For example, setting
aside other changes, the increase in estimated fuel prices and oil
import externalities might be expected to result in higher average fuel
economy requirements. On the other hand, again setting aside other
changes, the updated characterization of fuel-saving technologies, the
reassignment of over one million vehicles to the passenger car fleet,
the reduction in mileage accumulation, and the inclusion of all
manufacturers in the standard setting process might intuitively be
expected to result in lower average fuel economy requirements.
However, there are theoretical reasons for which even such isolated
expectations might not be met. For example, if a change in inputs
caused societal net benefits to increase equally at all stringencies,
the level of stringency that maximized societal net benefits would
remain unchanged, although it would produce greater net benefits after
the change in inputs. Further, some of the changes listed above are
interdependent, making it difficult, if not impossible, to isolate the
effect attributable to every change. For example, NHTSA applied the
reduced mileage accumulation, which reduces the benefits of adding
technology, in conjunction with applying increased fuel prices, which
increase the benefits of adding technology.
There is no obvious way to determine reliably the net effect of all
these (and other) changes short of applying all of the revised values
to the model and looking at the results. We devote a good deal of the
preamble discussion to these changes and their net implications for the
standards in this rule.
The final rule reflects the combined effect of all of these
changes, as well as minor changes not listed above.
2. Key Economic Values for Benefits Computations
NHTSA's analysis of the final standards and alternative CAFE
standards for MYs 2011 relied on an expanded range of information and
revised economic estimates and input parameters. These economic
assumptions played a role in the determination of the level of the
standards, with some having greater impacts than others. The agency,
following discussions with other agencies of the U.S. government,
updated its estimate of the global value of the social cost of carbon
(i.e., the value of reducing CO2 emissions) and developed a
domestic value, as well as updated its estimates for other
externalities based on comments and updated information received during
the comment period. Specifically, the final standards are based the
following revised economic assumptions:

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

------------------------------------------------------------------------
Fuel Prices (average retail gasoline price per gallon, 2011- $3.33
30)........................................................
Discount Rates Applied to Future Benefits:
Reductions in CO2 Emissions............................. 3%
Other Benefits.......................................... 7%
Economic Costs of Oil Imports ($/gallon):
``Monopsony'' Component................................ $0.27
Price Shock Component................................... $0.12
Military Security Component............................. ..........
-----------
Total Economic Costs................................ $0.39
Emission Damage Costs:
Carbon Dioxide ($/metric ton):
(U.S. domestic value)............................... 14 $2.00
(Mean global value from Tol (2008))................. $33.00
(One standard deviation above mean global value).... $80.00
Annual Increase in CO2 Damage Cost...................... 2.4%
------------------------------------------------------------------------

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

\14\ Derived from NHTSA's $33 per metric ton estimate of the
global value of reducing CO2 emissions.
---------------------------------------------------------------------------

(b) Stringency
This final rule establishes footprint-based fuel economy standards
for MY 2011 passenger cars and light trucks.
Each vehicle manufacturer's required level of CAFE is based on
target levels of average fuel economy set for vehicles of different
sizes and on the distribution of that manufacturer's vehicles among
those sizes. Size is defined by vehicle footprint. The curves defining
the performance target at each footprint reflect the technological and
economic capabilities of the industry. The target for each footprint is
the same for all

[[Page 14205]]

manufacturers, regardless of differences in their overall fleet mix.
Compliance will be determined by comparing a manufacturer's
harmonically averaged fleet fuel economy levels in a model year with a
required fuel economy level calculated using the manufacturer's actual
production levels and the targets for each footprint of the vehicles
that it produces.
The standards were developed with the aid of a computer model
(known as the ``Volpe Model''). NHTSA uses the Volpe model as a tool to
inform its consideration of potential CAFE standards for MY 2011. The
Volpe model requires the following types of information as inputs: (1)
A forecast of the future vehicle market, (2) estimates of the
availability, applicability, and incremental effectiveness and cost of
fuel-saving technologies, (3) estimates of vehicle survival and mileage
accumulation patterns, the rebound effect, future fuel prices, the
social cost of carbon, and many other economic factors, (4) fuel
characteristics and vehicular emissions rates, and (5) coefficients
defining the shape and level of CAFE curves to be examined. These
inputs are selected by the agency based on best available information
and data.
The agency analyzed seven regulatory alternatives, one of which
maximizes net benefits within the limits of available information and
is known as the ``optimized standards.'' The optimized standards are
set at levels, such that, considering all of the manufacturers
together, no other alternative is estimated to produce greater net
benefits to society. Those net benefits reflect the difference between
(1) the present value of all monetized benefits of the standards, and
(2) the total costs of all technologies applied in response to the
standards. Many of the other alternative standards exceed the level at
which the estimated net benefits are maximized, including one
alternative in which standards are set at a level at which total costs
equal total benefits and another alternative set at a level of maximum
technology application without regard to cost. For each alternative,
the model estimates the costs associated with additional technology
utilization, as well as accompanying changes in travel demand, fuel
consumption, fuel outlays, emissions, and economic externalities
related to petroleum consumption and other factors. These comprehensive
analyses, which also included scenarios with different economic input
assumptions as presented in the Final Environmental Impact Statement
(FEIS) and the Final Regulatory Impact Analysis (FRIA), informed and
contributed to the agency's consideration of the ``need of the United
States to conserve energy,'' as well as the other statutory factors in
49 U.S.C. 32902(f), and safety impacts. In addition, they informed the
agency's consideration of environmental impacts under NEPA. The agency
identified the optimized standards as its preferred alternative in the
FEIS.
NHTSA considered the results of analyses conducted on alternative
standards for MY 2011 by the Volpe model and analyses conducted outside
of the Volpe model, including analysis of the impacts of emissions of
carbon dioxide and criteria pollutants, and analysis of which
technologies are available now and which will not be available until
the longer term, and analysis of the extent to which changes in vehicle
prices and fuel economy might affect vehicle production and sales.
Further, NHTSA considered whether it could expedite the entry of any
technologies into the market through these standards. Using all of this
information, the agency considered the governing statutory factors,
along with environmental issues and other relevant societal issues such
as safety, and is promulgating the maximum feasible standards based on
its best judgment on how to balance these factors.
Upon a considered analysis of all information available, including
all information submitted to NHTSA in comments, the agency is adopting
the ``optimized standard'' alternative as the final standards for MY
2011.\15\ We note that we used the Volpe Model in the last two light
truck rulemakings and that we adopted ``optimized standards'' in the
last light truck rulemaking. We believe that use of the Volpe model is
a valid and objective way to establish attribute-based standards under
EPCA. Further, by limiting the standards to levels that can be achieved
using technologies each of which are estimated to provide benefits that
at least equal its costs, the net benefit maximization approach helps
to assure the marketability of the manufacturers' vehicles and thus
economic practicability of the standards.
---------------------------------------------------------------------------

\15\ The agency notes, for NEPA purposes, that the ``optimized
standard'' alternative adopted as the final standards corresponds to
the ``Optimized Mid-2'' scenario described in Section 2.2.2 of the
FEIS.
---------------------------------------------------------------------------

Providing this assurance assumes increased importance in view of
current and anticipated conditions in the industry in particular and
the economy in general. As has been widely reported in the public
domain throughout this rulemaking, and as shown in public comments, the
national and global economies raise serious concerns. Even before those
recent developments, the automobile manufacturers were already facing
substantial difficulties. Together, these problems have made NHTSA's
economic practicability analysis particularly important and challenging
in this rulemaking.
The agency cannot set out the exact level of CAFE that each
manufacturer will be required to meet for MY 2011 under the passenger
car or light truck standards because the levels will depend on
information that will not be available until the end of that model
year, i.e., the final actual production figures for that year. The
agency can, however, project what the industry-wide level of average
fuel economy will be for passenger cars and for light trucks if each
manufacturer produced its expected mix of automobiles and just met its
obligations under the ``optimized'' standards. Adjacent to each average
fuel economy figure is the estimated associated level of tailpipe
emissions of CO2 that will be achieved.\16\
---------------------------------------------------------------------------

\16\ See supra note 6.

MY 2011 passenger cars: 30.2 mpg (294 g/mi of tailpipe emissions of
CO2)
MY 2011 light trucks: 24.1 mpg (369 g/mi of tailpipe emissions of
CO2)

MY 2011: 27.3 mpg (2.0 mpg increase above MY 2010; 326 g/mi
CO2)

In addition, per EISA, each manufacturer's domestic passenger fleet
is required in MY 2011 to achieve 27.5 mpg or 92 percent of the CAFE of
the industry-wide combined fleet of domestic and non-domestic passenger
cars \17\ for that model year, whichever is higher. This requirement
results in the following alternative minimum standard (not attribute-
based) for domestic passenger cars:
---------------------------------------------------------------------------

\17\ Those numbers set out several paragraphs above.

MY 2011: 27.8 mpg (320 g/mi of tailpipe emissions of CO2)
(c) Benefits and Costs
(i) Benefits
We estimate that the MY 2011 standards will save approximately 887
million gallons of fuel and reduce tailpipe emissions of CO2
by 8.3 million metric tons.

[[Page 14206]]

For passenger cars, the standards will save approximately 463
million gallons of fuel and reduce tailpipe CO2 emissions by
4.3 million metric tons over the lifetime of the MY 2011 passenger
cars, compared to the fuel savings and emissions reductions that would
occur if the standards remained at the adjusted baseline (i.e., the
higher of manufacturer's plans and the manufacturer's required level of
average fuel economy for MY 2010). The value of the total benefits of
the passenger car standards are estimated to be slight over $1 billion
\18\ over the lifetime of the MY 2011 cars. This estimate of societal
benefits includes direct impacts from lower fuel consumption as well as
externalities and also reflects offsetting societal costs resulting
from the rebound effect.
---------------------------------------------------------------------------

\18\ The slightly over $1 billion estimate is based on a 7
percent discount rate for valuing future impacts.
---------------------------------------------------------------------------

We estimate that the standards for light trucks will save
approximately 424 million gallons of fuel and prevent the tailpipe
emission of 4.0 million metric tons of CO2 over the lifetime
of the light trucks sold during those model years, compared to the fuel
savings and emissions reductions that would occur if the standards
remained at the adjusted baseline. The value of the total benefits of
the light truck standards will be approximately $921 million \19\ over
the lifetime of the MY 2011 light trucks. This estimate of societal
benefits includes direct impacts from lower fuel consumption as well as
externalities and also reflects offsetting societal costs resulting
from the rebound effect.
---------------------------------------------------------------------------

\19\ The $921 million estimate is based on a 7 percent discount
rate for valuing future impacts.
---------------------------------------------------------------------------

(ii) Costs
NHTSA estimates that, as a result of the final standards for MY
2011, manufacturers will incur costs of approximately $1.460 billion
for additional fuel-saving technologies, compared to the costs they
would incur if the standards remained at MY 2010 levels.
For passenger cars, we estimate that manufacturers will incur costs
of approximately $595 million for additional fuel-saving technologies,
compared to the costs they would incur if the standards remained at MY
2010 levels. Our estimate is that the resulting vehicle price increases
to buyers of MY 2011 passenger cars will be recovered or paid back \20\
in additional fuel savings in an average of 4.4 years (53 months),
assuming fuel prices ranging from $2.95 per gallon in 2011 to $3.62 per
gallon in 2030.\21\
---------------------------------------------------------------------------

\20\ See Section V.B.5 below for discussion of payback period.
\21\ The fuel prices (shown here in 2007 dollars) used to
calculate the length of the payback period are those projected
(Annual Energy Outlook 2008) by the Energy Information
Administration over the life of the MY 2011 light trucks, not
current fuel prices.
---------------------------------------------------------------------------

The agency further estimates that, in response to the final
standards for MY 2011 light trucks, manufacturers will incur costs of
approximately $865 million for additional fuel-saving technologies,
compared to the costs they would incur if the standards remained at MY
2010 levels. We estimate that the resulting vehicle price increases to
buyers of MY 2011 light trucks will be paid back in additional fuel
savings in an average of 7.7 years (92 months), assuming the same fuel
prices as mentioned above.
(d) Flexibilities
Manufacturers are likely to rely extensively on flexibility
mechanisms provided by EPCA (as described in Section XII) and will
thereby reduce the costs (and benefits) of complying with the standards
to a meaningful extent. However, the benefit and compliance cost
estimates used by the agency in determining the maximum feasible level
of the CAFE standards and shown above assume that manufacturers will
rely solely on the installation of fuel economy technology to achieve
compliance with the standards. The estimates do not reflect the
availability and use of flexibility mechanisms, such as compliance
credits and credit trading. The reason for this is because EPCA
prohibits NHTSA from considering the effects of those mechanisms in
setting CAFE standards. EPCA has precluded consideration of the FFV
adjustments ever since it was amended to provide for those adjustments.
The prohibition against considering compliance credits was added by
EISA.
4. Credits
NHTSA is also adopting a new Part 536 on use of ``credits'' earned
for exceeding applicable CAFE standards. Part 536 will implement the
provisions in EISA authorizing NHTSA to establish by regulation a
credit trading program and directing it to establish by regulation a
credit transfer program.\22\ Since its enactment, EPCA has permitted
manufacturers to earn credits for exceeding the standards and to apply
those credits to compliance obligations in years other than the model
year in which it was earned. EISA extended the ``carry-forward'' period
to five model years, and left the ``carry-back'' period at three model
years. Under Part 536, credit holders (including, but not limited to,
manufacturers) will have credit accounts with NHTSA, and will be able
to hold credits, apply them to compliance with CAFE standards, transfer
them to another ``compliance category'' for application to compliance
there, or trade them. A credit may also be cancelled before its expiry
date, if the credit holder so chooses. Traded and transferred credits
will be subject to an ``adjustment factor'' to ensure total oil savings
are preserved, as required by EISA. EISA also prohibits credits earned
before MY 2011 from being transferred, so NHTSA has developed several
regulatory restrictions on trading and transferring to facilitate
Congress' intent in this regard. Additional information on Part 536 is
available in Section XII below.
---------------------------------------------------------------------------

\22\ Congress required that DOT establish a credit
``transferring'' regulation, to allow individual manufacturers to
move credits from one of their fleets to another (e.g., using a
credit earned for exceeding the light truck standard for compliance
with the domestic passenger car standard). Congress allowed DOT to
establish a credit ``trading'' regulation, so that credits may be
bought and sold between manufacturers and other parties.
---------------------------------------------------------------------------

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

II. Background

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

Improving vehicle fuel economy has been long and widely recognized
as one of the key ways of achieving energy independence, energy
security, and a low carbon economy.\23\ Most recently,

[[Page 14207]]

the United Nations Environment Programme, International Energy Agency,
International Transport Forum and FIA Foundation released a report \24\
in March 2009 calling for a 50 percent increase in fuel economy in
response to predictions by the IEA that fuel consumption and
CO2 emissions from the global light duty fleet will
otherwise roughly double between 2000 and 2050.
---------------------------------------------------------------------------

\23\ Among the reports and studies noting this point are the
following:
John Podesta, Todd Stern and Kim Batten, ``Capturing the Energy
Opportunity; Creating a Low-Carbon Economy,'' Center for American
Progress (November 2007), pp. 2, 6, 8, and 24-29, Available at:
http://www.americanprogress.org/issues/2007/11/pdf/energy_chapter.pdf (last accessed March 8, 2009).
Sarah Ladislaw, Kathryn Zyla, Jonathan Pershing, Frank
Verrastro, Jenna Goodward, David Pumphrey, and Britt Staley, ``A
Roadmap for a Secure, Low-Carbon Energy Economy; Balancing Energy
Security and Climate Change,'' World Resources Institute and Center
for Strategic and International Studies (January 2009), pp. 21-22;
Available at: http://pdf.wri.org/secure_low_carbon_energy_economy_roadmap.pdf. (last accessed March 7, 2009).
Alliance to Save Energy et al., ``Reducing the Cost of
Addressing Climate Change Through Energy Efficiency (2009).
Available at: http://Aceee.org/energy/climate/leg.htm. (last
accessed March 7, 2009).
John DeCicco and Freda Fung, ``Global Warming on the Road; The
Climate Impact of America's Automobiles,'' Environmental Defense
(2006) pp. iv-vii; available at: http://www.edf.org/documents/5301_Globalwarmingontheroad.pdf. (last accessed March 7, 2009).
``Why is Fuel Economy Important?,'' a Web page maintained by the
Department of Energy and Environmental Protection Agency, Available
at http://www.fueleconomy.gov/feg/why.shtml (last accessed February
17, 2009);
Robert Socolow, Roberta Hotinski, Jeffery B. Greenblatt, and
Stephen Pacala, ``Solving The Climate Problem: Technologies
Available to Curb CO2 Emissions,'' Environment, volume
46, no. 10, 2004. pages 8-19. Available at: http://
www.princeton.edu/~cmi/resources/CMI--Resources--new--files/
Environ--08-21a.pdf. (last accessed March 7, 2009).
\24\ ``50BY50 Global Fuel Economy Initiative, Making Cars 50%
More Fuel Efficient by 2050 Worldwide,'' Available at: http://www.fiafoundation.org/50by50/Documents/50BY50_report.pdf (last
accessed March 7, 2009).
---------------------------------------------------------------------------

The significance accorded improving fuel economy reflects several
factors. The emission of CO2 from the tailpipes of cars and
light trucks is one of the largest sources of U.S. CO2
emissions.\25\
---------------------------------------------------------------------------

\25\ EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks:
1990-2006 (April 2008), pp. ES-4, ES-8, and 2-24.
---------------------------------------------------------------------------

Further, using vehicle technology to improve fuel economy, thereby
reducing tailpipe emissions of CO2, is one of the three main
measures of reducing those tailpipe emissions of CO2.\26\
The two other measures for reducing the tailpipe emissions of
CO2 are switching to vehicle fuels with lower carbon content
and changing driver behavior, i.e., inducing people to drive less.
---------------------------------------------------------------------------

\26\ Podesta et al., p. 25; Ladislaw et al. p. 21; DeCicco et
al. p. vii; ``Reduce Climate Change,'' a Web page maintained by the
Department of Energy and Environmental Protection Agency at http://www.fueleconomy.gov/feg/climate.shtml (last accessed March 7, 2009).
---------------------------------------------------------------------------

In order to reduce the amount of tailpipe emissions of
CO2 per mile, either the amount of fuel consumed per mile
must be reduced or lower carbon intensive fuels must be used. While
there are emission control technologies that can capture or destroy the
pollutants (e.g., carbon monoxide) that are produced by imperfect
combustion of fuel, there is no current or anticipated control
technology for CO2. Thus, the technologies for reducing
tailpipe emissions of CO2 are the technologies that reduce
fuel consumption and thereby reduce CO2 emissions as well,
as well as the technologies for accommodating the use of alternative
fuels. Consequently, substantially reducing fuel use through using
automotive technology to improve fuel economy is indispensable if
automobile manufacturers are to make substantial and continuing
progress in reducing those emissions.
The relationship between improving fuel economy and reducing
CO2 tailpipe emissions is a very direct and close one.
CO2 is the natural by-product of the combustion of fuel in
motor vehicle engines. The more fuel efficient a vehicle is, the less
fuel it burns to travel a given distance. The less fuel it burns, the
less CO2 it emits in traveling that distance.\27\ Since the
amount of CO2 emissions is essentially constant per gallon
combusted of a given type of fuel, the amount of fuel consumption per
mile is directly related to the amount of CO2 emissions per
mile. Thus, requiring improvements in fuel economy necessarily has the
effect of requiring reductions in tailpipe emissions of CO2
emissions.
---------------------------------------------------------------------------

\27\ Panel on Policy Implications of Greenhouse Warming,
National Academy of Sciences, National Academy of Engineering,
Institute of Medicine, ``Policy Implications of Greenhouse Warming:
Mitigation, Adaptation, and the Science Base,'' National Academies
Press, 1992. p. 287.
---------------------------------------------------------------------------

This can be seen in the graph \28\ and table below. The graph shows
how the amount of CO2 emitted by a vehicle per year varies
according to the vehicle's fuel economy. The table shows the limit that
a CAFE standard would indirectly place on tailpipe CO2
emissions. To take the first value of fuel economy from the table below
as an example, a standard of 21.0 mpg would indirectly place
substantially the same limit on tailpipe CO2 emissions as a
tailpipe CO2 emission standard of 423.2 g/mi of
CO2, and vice versa.\29\
---------------------------------------------------------------------------

\28\ The graph is the same as the one shown on Reduce Climate
Change, a Web page maintained by the Department of Energy and
Environmental Protection Agency. Available at: http://www.fueleconomy.gov/feg/climate.shtml (last accessed March 8, 2009).
\29\ To the extent that manufacturers comply with a CAFE
standard with diesel automobiles instead of gasoline ones, the level
of CO2 tailpipe emissions would be higher. As noted
above, the agency projects that 4 percent of the MY 2015 passenger
car fleet and 10 percent of the MY 2015 light truck fleet will have
diesel engines. The CO2 tailpipe emissions of a diesel
powered passenger car are 15 percent per mile higher than those of a
comparable gasoline powered-passenger car achieving the same mpg.

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

[[Page 14208]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.000

The relationship between improving fuel economy and reducing
tailpipe emissions of CO2 is so strong that EPA determines
fuel economy by the simple expedient of measuring the amount of
CO2 emitted from the tailpipe, not by attempting to measure
directly the amount of fuel consumed during a vehicle test, a difficult
task to accomplish with precision. EPA then uses the carbon content of
the test fuel \30\ to calculate the amount of fuel that had to be
consumed per mile in order to produce that amount of CO2.
Finally, EPA converts that fuel figure into a miles-per-gallon figure.
---------------------------------------------------------------------------

\30\ This is the method that EPA uses to determine compliance
with NHTSA's CAFE standards.

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

[[Page 14209]]

B. Contribution of Fuel Economy Improvements to CO2 Tailpipe
Emission Reductions Since 1975

The need to take action to reduce GHG emissions, e.g., motor
vehicle tailpipe emissions of CO2, in order to forestall and
even mitigate climate change is well recognized.\31\ Less well
recognized are two related facts.
---------------------------------------------------------------------------

\31\ IPCC (2007): Climate Change 2007: Mitigation of Climate
Change. Contribution of Working Group III to the Fourth Assessment
Report of the Intergovernmental Panel on Climate Change [B. Metz, O.
Davidson, P. Bosch, R. Dave, and L. Meyer (eds.)]. Cambridge
University Press, Cambridge, United Kingdom and New York, NY, USA.
---------------------------------------------------------------------------

First, improving fuel economy is the only method available to motor
vehicle manufacturers for making substantial and continuing reductions
in the CO2 tailpipe emissions of motor vehicles and thus
must be the core element of any effort to achieve those reductions.
Second, the significant improvements in fuel economy since 1975,
due to the CAFE standards and other market conditions as well, have
directly caused reductions in the rate of CO2 tailpipe
emissions per vehicle.
In 1975, passenger cars manufactured for sale in the U.S. averaged
only 15.8 mpg (562.5 grams of CO2 per mile or 562.5 g/mi of
CO2). By 2007, the average fuel economy of new passenger
cars had increased to 31.3 mpg, causing the emission of CO2
to fall to 283.9 g/mi.\32\ Similarly, in 1975, light trucks produced
for sale in the U.S. averaged 13.7 mpg (648.7 g/mi of CO2).
By 2007, the average fuel economy of new light trucks had risen to 23.1
mpg, causing emission of CO2 to fall to 384.7 g/mi.
---------------------------------------------------------------------------

\32\ These figures are not real world fuel economy figures. They
are based on the laboratory figures fuel economy test procedures
used for the CAFE program. Real world fuel economy figures would be
less (and CO2 emission figures higher).
[GRAPHIC] [TIFF OMITTED] TR30MR09.001

[[Page 14210]]

If fuel economy had not increased above the 1975 level, cars and light
trucks would have emitted an additional 11 billion metric tons of
CO2 into the atmosphere between 1975 and 2005. That is
nearly the equivalent of emissions from all U.S. fossil fuel combustion
for two years (2004 and 2005). The figure below shows the amount of
CO2 emissions avoided due to increases in fuel economy.
BILLING CODE 4910-59-P
[GRAPHIC] [TIFF OMITTED] TR30MR09.002

[[Page 14211]]

BILLING CODE 4910-59-C
Some commenters on the NPRM argued that some of improvements in
fuel economy, and thus some of the reductions in CO2, shown
in that figure would have occurred in the absence of any CAFE
standards. We agree. Similarly, and to the same extent, some of the
improvements in fuel economy and accompanying reductions in
CO2 that would occur under a regulation directly regulating
CO2 would occur in the absence of any such regulation. We
note that no published research has isolated the contribution of CAFE
standards themselves to historical increases in fuel economy from those
of the many other factors that can affect fuel economy.

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

1. National Academy of Sciences Issues Report on Future of CAFE Program
(February 2002)
(a) Significantly Increasing CAFE Standards Without Making Them
Attribute-Based Would Adversely Affect Safety
In the 2002 congressionally-mandated report entitled
``Effectiveness and Impact of Corporate Average Fuel Economy (CAFE)
Standards,'' \33\ a committee of the National Academy of Sciences (NAS)
(``2002 NAS Report'') concluded that the then-existing form of
passenger car and light truck CAFE standards permitted vehicle
manufacturers to comply in part by downweighting and even downsizing
their vehicles and that these actions had led to additional fatalities.
The committee explained that this safety problem arose because, at that
time, the CAFE standards were not attributed-based and thus subjected
all passenger cars to the same fuel economy target and all light trucks
to the same target, regardless of their weight, size, or load-carrying
capacity.\34\ The committee said that this experience suggests that
consideration should be given to developing a new system of fuel
economy targets that reflects differences in such vehicle attributes.
---------------------------------------------------------------------------

\33\ National Research Council, ``Effectiveness and Impact of
Corporate Average Fuel Economy (CAFE) Standards,'' National Academy
Press, Washington, DC (2002). Available at http://www.nap.edu/openbook.php?isbn=0309076013 (last accessed March 8, 2009). The
conference committee report for the Department of Transportation and
Related Agencies Appropriations Act for FY 2001 (Pub. L. 106-346)
directed NHTSA to fund a study by NAS to evaluate the effectiveness
and impacts of CAFE standards (H. Rep. No. 106-940, p. 117-118). In
response to the direction from Congress, NAS published this lengthy
report.
\34\ NHTSA formerly used this approach for CAFE standards. EISA
prohibits its use after MY 2010.
---------------------------------------------------------------------------

Looking to the future, the committee made a critical distinction
between possible ways of improving fuel economy and the ways likely to
be chosen for doing so. It said that while it was technically feasible
and potentially economically practicable for manufacturers to improve
fuel economy without reducing vehicle weight or size and, therefore,
without significantly affecting the safety of motor vehicle travel, the
actual strategies chosen by manufacturers to improve fuel economy would
depend on a variety of factors. In the committee's judgment, the
extensive downweighting and downsizing that occurred after fuel economy
requirements were established in the 1970s suggested that the
likelihood of a similar response to further increases in fuel economy
requirements must be considered seriously. Any reduction in vehicle
size and weight would have safety implications.
The committee said, ``to the extent that the size and weight of the
fleet have been constrained by CAFE requirements * * * those
requirements have caused more injuries and fatalities on the road than
would otherwise have occurred.'' \35\ Specifically, it noted: ``the
downweighting and downsizing that occurred in the late 1970s and early
1980s, some of which was due to CAFE standards, probably resulted in an
additional 1300 to 2600 traffic fatalities in 1993.'' \36\
---------------------------------------------------------------------------

\35\ NAS, p. 29.
\36\ NAS, p. 3 (Finding 2).
---------------------------------------------------------------------------

The committee cautioned that the safety effects of future
downsizing and downweighting were likely to be hidden by the generally
increasing safety of the light-duty vehicle fleet.\37\ It said that
some might argue that this improving safety picture means that there is
room to improve fuel economy without adverse safety consequences;
however, such an approach would not achieve the goal of avoiding the
adverse safety consequences of fuel economy increases. Rather, the
safety penalty imposed by increased fuel economy (if weight reduction
were used as one of the fuel economy improving measures) would be more
difficult to identify in light of the continuing improvement in vehicle
safety. NAS said that although it anticipated that these safety
innovations would improve the safety of vehicles of all sizes, that
fact did not mean downsizing to achieve fuel economy improvements would
not have any safety costs. If two vehicles of the same size were
modified, one both by downsizing it and adding the safety innovations
and the other solely by adding safety innovations, the latter vehicle
would in all likelihood be safer.
---------------------------------------------------------------------------

\37\ Two of the 12 members of the committee dissented from the
majority's safety analysis and conclusions.
---------------------------------------------------------------------------

The committee concluded that if an increase in fuel economy were
implemented pursuant to standards that were structured so as to
encourage either downsizing or the increased production of smaller
vehicles, some additional traffic fatalities would be expected. It said
that the larger and faster the required increases, the more likely
adverse impacts. Without a thoughtful restructuring of the program,
there would be the trade-offs that must be made if CAFE standards were
increased by any significant amount.\38\
---------------------------------------------------------------------------

\38\ NAS, p. 9.
---------------------------------------------------------------------------

In response to these conclusions, NHTSA issued attribute-based CAFE
standards for light trucks and sought legislative authority to issue
attribute-based CAFE standards for passenger cars before undertaking to
raise the car standards. Congress went a step further in enacting EISA,
not only authorizing the issuance of attribute-based standards, but
also mandating them.
(b) Climate Change and Other Externalities Justify Increasing the CAFE
Standards
The 2002 NAS report also concluded that the CAFE standards have
increased fuel economy, which in turn has reduced dependence on
imported oil, improved the nation's terms of trade, and reduced
emissions of carbon dioxide, (a principal GHG), relative to what they
otherwise would have been. If fuel economy had not improved, gasoline
consumption (and crude oil imports) in 2002 would have been about 2.8
million barrels per day (mmbd) greater than it was then.\39\ As noted
above, reducing fuel consumption in vehicles also reduces carbon
dioxide emissions. If the nation were using 2.8 mmbd more gasoline in
2002, carbon emissions would have been more than 100 million metric
tons of carbon (mmtc) higher. Thus, improvements in light-duty vehicle
(4 wheeled motor vehicles under 10,000 pounds gross vehicle weight
rating) fuel economy reduced overall U.S. emissions by about 7 percent
as of 2002.\40\
---------------------------------------------------------------------------

\39\ NAS, pp. 3 and 20.
\40\ NAS, p. 20.
---------------------------------------------------------------------------

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

[[Page 14212]]

weight, utility and performance.\41\ Given their lower fuel economy,
light duty trucks were said to offer the greatest potential for
reducing fuel consumption.\42\ The report also noted that vehicle
development cycles--as well as future economic, regulatory, safety and
consumer preferences--would influence the extent to which these
technologies could lead to increased fuel economy in the U.S. market.
---------------------------------------------------------------------------

\41\ NAS, p. 3 (Finding 5).
\42\ NAS, p. 4 (Finding 5).
---------------------------------------------------------------------------

To assess the economic trade-offs associated with the introduction
of existing and emerging technologies to improve fuel economy, the NAS
conducted what it called a ``cost-efficient analysis'' based on the
direct benefits (value of saved fuel) to the consumer--``that is, the
committee identified packages of existing and emerging technologies
that could be introduced over the next 10 to 15 years that would
improve fuel economy up to the point where further increases in fuel
economy would not be reimbursed by fuel savings.'' \43\
---------------------------------------------------------------------------

\43\ NAS, pp. 4 (Finding 6) and 64).
---------------------------------------------------------------------------

The committee emphasized that it is critically important to be
clear about the reasons for considering improved fuel economy. While it
said that the dollar value of the saved fuel would be the largest
portion of the potential benefits, the committee noted that there is
theoretically insufficient reason for the government to issue higher
standards just to obtain those direct benefits since consumers have a
wide variety of opportunities to buy a fuel-efficient vehicle.\44\
---------------------------------------------------------------------------

\44\ NAS, pp. 8-9.
---------------------------------------------------------------------------

The committee said that there are two compelling concerns that
justify a government-mandated increase in fuel economy, both relating
to externalities. The first and most important concern, it argued, is
the accumulation in the atmosphere of greenhouse gases, principally
carbon dioxide.\45\
---------------------------------------------------------------------------

\45\ NAS, pp. 2, 13, and 83.
---------------------------------------------------------------------------

A second concern is that petroleum imports have been steadily
rising because of the nation's increasing demand for gasoline without a
corresponding increase in domestic supply. The high cost of oil imports
poses two risks: downward pressure on the strength of the dollar (which
drives up the cost of goods that Americans import) and an increase in
U.S. vulnerability to macroeconomic shocks that cost the economy
considerable real output.
To determine how much the fuel economy standards should be
increased, the committee urged that all social benefits be considered.
That is, it urged not only that the dollar value of the saved fuel be
considered, but also that the dollar value to society of the resulting
reductions in greenhouse gas emissions and in dependence on imported
oil should be calculated and considered. The committee said that if it
is possible to assign dollar values to these favorable effects, it
becomes possible to make at least crude comparisons between the
socially beneficial effects of measures to improve fuel economy on the
one hand, and the costs (both out-of-pocket and more subtle) on the
other. The committee chose a value of about $0.30/gal of gasoline for
the externalities associated with the combined impacts of fuel
consumption on greenhouse gas emissions and on world oil market
conditions.\46\
---------------------------------------------------------------------------

\46\ NAS, pp. 4 and 85-86.
---------------------------------------------------------------------------

The report expressed concerns about increasing the standards under
the CAFE program as currently structured. While raising CAFE standards
under the existing structure would reduce fuel consumption, doing so
under alternative structures ``could accomplish the same end at lower
cost, provide more flexibility to manufacturers, or address inequities
arising from the present'' structure.\47\
---------------------------------------------------------------------------

\47\ NAS, pp. 4-5 (Finding 10).
---------------------------------------------------------------------------

To address those structural problems, the report suggested various
possible reforms. The report found that the ``CAFE program might be
improved significantly by converting it to a system in which fuel
targets depend on vehicle attributes.'' \48\ The report noted further
that under an attribute-based approach, the required CAFE levels could
vary among the manufacturers based on the distribution of their product
mix. NAS stated that targets could vary among passenger cars and among
trucks, based on some attribute of these vehicles such as weight, size,
or load-carrying capacity. The report explained that a particular
manufacturer's average target for passenger cars or for trucks would
depend upon the fractions of vehicles it sold with particular levels of
these attributes.\49\
---------------------------------------------------------------------------

\48\ NAS, p. 5 (Finding 12).
\49\ NAS, p. 87.
---------------------------------------------------------------------------

2. NHTSA Issues Final Rule Establishing Attribute-Based CAFE Standards
for MY 2008-2011 Light Trucks (March 2006)
The 2006 final rule reformed the structure of the CAFE program for
light trucks by introducing an attribute-based approach and using that
approach to establish higher CAFE standards for MY 2008-2011 light
trucks.\50\ Reforming the CAFE program enables it to achieve larger
fuel savings, while enhancing safety and preventing adverse economic
consequences.
---------------------------------------------------------------------------

\50\ 71 FR 17566; April 6, 2006.
---------------------------------------------------------------------------

As noted above, under Reformed CAFE, fuel economy standards were
restructured so that they are based on a vehicle attribute, a measure
of vehicle size called ``footprint.'' It is the product of multiplying
a vehicle's wheelbase by its track width. A target level of fuel
economy was established for each increment in footprint (0.1 ft\2\).
Trucks with smaller footprints have higher fuel economy targets;
conversely, larger ones have lower targets. A particular manufacturer's
compliance obligation for a model year is calculated as the harmonic
average of the fuel economy targets for the manufacturer's vehicles,
weighted by the distribution of the manufacturer's production volumes
among the footprint increments. Thus, each manufacturer is required to
comply with a single overall average fuel economy level for each model
year of production.
The approach for determining the fuel economy targets was to set
them just below the level where the increased cost of technologies that
could be adopted by manufacturers to improve fuel economy would first
outweigh the added benefits that would result from those technologies.
These targets translate into required levels of average fuel economy
that are technologically feasible because manufacturers can achieve
them using technologies that are or will become available. Those levels
also reflect the need of the nation to reduce energy consumption
because they reflect the economic value of the savings in resources, as
well as of the reductions in economic and environmental externalities
that result from producing and using less fuel.
We carefully balanced the estimates costs of the rule with the
estimated benefits of reducing energy consumption. Compared to
Unreformed (non-attributed-based) CAFE, Reformed CAFE enhances overall
fuel savings while providing vehicle manufacturers with the flexibility
they need to respond to changing market conditions. Reformed CAFE also
provides a more equitable regulatory framework by creating a level
playing field for manufacturers, regardless of whether they are full-
line or limited-line manufacturers. We were particularly encouraged
that Reformed CAFE will confer no compliance advantage if vehicle
makers choose to downsize

[[Page 14213]]

some of their fleet as a CAFE compliance strategy, thereby reducing the
adverse safety risks associated with the Unreformed CAFE program.
3. Supreme Court Issues Decision in Massachusetts v. EPA (April 2007)
On April 2, 2007, the U.S. Supreme Court issued its opinion in
Massachusetts v. EPA,\51\ a case involving a 2003 order of the
Environmental Protection Agency (EPA) denying a petition for rulemaking
to regulate greenhouse gas emissions from motor vehicles under the
Clean Air Act.\52\ The Court ruled that the state of Massachusetts had
standing to sue EPA because it had already lost an amount of land and
stood to lose more due to global warming-induced increases in sea
level; that some portion of this harm was traceable to the absence of a
regulation issued by EPA requiring reductions in GHG emissions
(CO2 emissions, most notably) by motor vehicles; and that
EPA's issuance of such a regulation would reduce the risk of further
harm to Massachusetts.\53\ On the merits, the Court ruled that
greenhouse gases are ``pollutants'' under the Clean Air Act and that
the Act therefore authorizes EPA to regulate greenhouse gas emissions
from motor vehicles if that agency makes the necessary findings and
determinations under section 202 of the Act.
---------------------------------------------------------------------------

\51\ 127 S.Ct. 1438 (2007).
\52\ 68 FR 52922, September 8, 2003.
\53\ As noted above, a CAFE standard and its mathematically
equivalent CO2 tailpipe emission standard would each have
the same effect on those emissions and thus on the risk of further
harm except to the extent, as noted in a footnote above, diesel
engines are used to comply with the CAFE standards.
---------------------------------------------------------------------------

The Court considered EPCA briefly, stating

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

127 S.Ct. at 1462.

The Supreme Court did not address or define the nature or extent of
the overlap or explore the types of benefits considered in establishing
the levels of the CAFE standards. Further, the Court did not address
the express preemption provision in EPCA.
4. NHTSA and EPA Coordinate on Development of Rulemaking Proposals
(Summer-Fall 2007)
In the wake of the Supreme Court's decision, on May 14, 2007,
President Bush responded to the Supreme Court's opinion, stating

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

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

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

The Executive Order goes on to require coordination among the
agencies when taking action to directly regulate (or substantially and
predictably affect) greenhouse gas emissions from motor vehicles,
nonroad vehicles, and use of motor vehicle fuels. Such action is to be
undertaken jointly ``to the maximum extent permitted by law and
determined by the head of the agency to be practicable.''
Consistent with these directives, NHTSA and EPA took the first
steps toward regulations that would cut gasoline consumption and
greenhouse gas emissions from motor vehicles pursuant to Presidential
directive. NHTSA and EPA staff jointly assessed which technologies
would be available and their effectiveness and cost. They also jointly
assessed the key economic and other assumptions affecting the
stringency of future standards. Finally, they worked together in
updating and further improving the Volpe model that had been used to
help determine the stringency of the MY 2008-2011 light truck CAFE
standards. Much of the work between NHTSA and EPA staff was reflected
in rulemaking proposals being developed by NHTSA prior to the enactment
of EISA and was substantially retained when NHTSA revised its proposals
to be consistent with that legislation. Ultimately, the NPRM published
by the agency in May and today's final rule are based on NHTSA's
assessments of how they meet EPCA, as amended by EISA.
5. Ninth Circuit Issues Decision Re Final Rule for MY 2008-2011 Light
Trucks (November 2007)
On November 15, 2007, the United States Court of Appeals for the
Ninth Circuit issued its decision in Center for Biological Diversity v.
NHTSA,\54\ the challenge to the MY 2008-11 light truck CAFE rule. The
Court rejected the petitioners' argument that EPCA precludes the use of
a marginal cost-benefit analysis that attempted to weigh all of the
social benefits (i.e., externalities as well as direct benefits to
consumers) of improved fuel savings in determining the stringency of
the CAFE standards.
---------------------------------------------------------------------------

\54\ 508 F.3d 508.
---------------------------------------------------------------------------

The Court found that NHTSA had been arbitrary and capricious in the
following respects:
NHTSA's decision that it could not monetize the benefit of
reducing CO2 emissions for the purpose of conducting its
marginal benefit-cost analysis based on its view that the value of the
benefit of CO2 emission reductions resulting from fuel
consumption reductions was too uncertain to permit the agency to
determine a value for those emission reductions; \55\
---------------------------------------------------------------------------

\55\ As noted above in the preamble, the agency has developed a
value for those reductions and used it in the analyses underlying
the standards adopted in this final rule. For further discussion,
see Section V of this preamble.
---------------------------------------------------------------------------

NHTSA's lack, in the Court's view, of a reasoned
explanation for its decision not to establish a ``backstop'' (i.e., a
fixed minimum CAFE standard applicable to manufacturers); \56\
---------------------------------------------------------------------------

\56\ EISA's requirement that standards be based on one or more
vehicle attributes appears to preclude the specification of such a
backstop standard for the latter two categories of automobiles. For
further discussion, see Section VI of this preamble.
---------------------------------------------------------------------------

NHTSA's lack, again in the Court's view, of a reasoned
explanation for its decision not to revise the regulatory definitions
for the passenger car and light truck categories of automobiles so that
some vehicles currently classified as light trucks are instead
classified as passenger cars; \57\
---------------------------------------------------------------------------

\57\ In this final rule, NHTSA has moved 1.4 million 2 wheel
drive SUVs from the light truck class to the passenger car class. It
re-examined the legislative history of the statutory definitions of
``automobile'' and ``passenger automobile'' and the term
``nonpassenger automobile'' and analyzed the impact of that moving
any vehicles out of the nonpassenger automobile (light truck)
category into the passenger automobile (passenger car) category
would have the level of standards for both groups of automobiles.
For further discussion, see Section XI of this preamble.
---------------------------------------------------------------------------

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

[[Page 14214]]

rating (GVWR,) to the CAFE standards; \58\
---------------------------------------------------------------------------

\58\ EISA removed these vehicles from the statutory definition
of ``automobile'' and mandated the establishment of CAFE standards
for them following the completion of reports by the National Academy
of Sciences and NHTSA.
---------------------------------------------------------------------------

NHTSA's decision to prepare and publish an Environmental
Assessment (EA) and making a finding of no significant impact
notwithstanding what the Court found to be an insufficiently broad
range of alternatives, insufficient analysis of the climate change
effects of the CO2 emissions, and limited assessment of
cumulative impacts in its EA under the National Environmental Policy
Act (NEPA).\59\
---------------------------------------------------------------------------

\59\ On February 6, 2008, the Government petitioned for en banc
rehearing by the 9th Circuit on the limited issue of whether it was
appropriate for the panel, having held that the agency
insufficiently explored the environmental implications of the MY
2008-11 rulemaking in its EA, to order the agency to prepare an EIS
rather than simply remanding the matter to the agency for further
analysis. The Court subsequently modified its order as described
below.
---------------------------------------------------------------------------

The Court did not vacate the standards, but instead said it would
remand the rule to NHTSA to promulgate new standards consistent with
its opinion ``as expeditiously as possible and for the earliest model
year practicable.\60\ Under the decision, the standards established by
the April 2006 final rule would remain in effect unless and until
amended by NHTSA. In addition, it directed the agency to prepare an
Environmental Impact Statement.
---------------------------------------------------------------------------

\60\ The deadline in EPCA for issuing a final rule establishing,
for the first time, a CAFE standard for a model year is 18 months
before the beginning of that model year. 49 U.S.C. 32902(g)(2). The
same deadline applies to issuing a final rule amending an existing
CAFE standard so as to increase its stringency. Given that the
agency has long regarded October 1 as the beginning of a model year,
the statutory deadline for increasing the MY 2009 standard was March
30, 2007, and the deadline for increasing the MY 2010 standard is
March 30, 2008. Thus, the only model year for which there was
sufficient time at the time of the Court's decision to gather all of
the necessary information, conduct the necessary analyses and
complete a rulemaking was MY 2011. As noted earlier in this notice,
however, EISA requires that a new standard be established for that
model year. This rulemaking was conducted pursuant to that
requirement.
---------------------------------------------------------------------------

As of the date of the issuance of this final rule, the Court has
not yet issued its mandate in this case.
6. Congress Enacts Energy Security and Independence Act of 2007
(December 2007)
As noted above in Section I.B., EISA significantly changed the
provisions of EPCA governing the establishment of future CAFE
standards. These changes made it necessary for NHTSA to pause in its
efforts so that it could assess the implications of the amendments made
by EISA and then, as required, revise some aspects of the proposals it
had been developing (e.g., the model years covered and credit issues).
7. NHTSA Proposes CAFE Standards for MYs 2011-2015 and Requests New
Product Plans for Those Years (April 2008) \61\
---------------------------------------------------------------------------

\61\ A description of the NPRM appears in section I.C of this
preamble.
---------------------------------------------------------------------------

8. NHTSA Contracts With ICF International To Conduct Climate Modeling
and Other Analyses in Support of Draft and Final Environmental Impact
Statements (May 2008)
NHTSA contracted with ICF International (ICF) to support it in
conducting its environmental analyses and preparing the draft and final
environmental impact statements. ICF provides consulting services and
technology solutions in energy, climate change, environment,
transportation, social programs, health, defense, and emergency
management.
9. Manufacturers Submit New Product Plans (June 2008)
These product plans identify which vehicle models manufacturers
intend to build and which technologies the manufacturers intend to
apply and when to their vehicles. NHTSA began its analysis of the MY
2011 CAFE standards with the product plans and used them to establish a
baseline, which is then used to evaluate different potential levels of
future CAFE stringency.
10. NHTSA Contracts With Ricardo To Aid in Assessing Public Comments on
Cost and Effectiveness of Fuel Saving Technologies (June 2008)
NHTSA received numerous public comments on the types of potential
fuel saving technologies that we discussed in the NPRM, their costs and
effectiveness in improving fuel economy, and in which model year and to
which vehicles they may be applied. To aid the agency in analyzing and
responding to these comments, and to ensure that the analysis for the
final rule is thorough and robust, NHTSA contracted with Ricardo, a
highly reputable and neutral source of outside expertise in the areas
of powertrain and vehicle technologies. NHTSA chose Ricardo because of
its extensive experience and expertise in working with both government
and industry on fuel economy-improving technology issues.
11. Ninth Circuit Revises Its Decision Re Final Rule for MY 2008-2011
Light Trucks (August 2008)
In response to the Government petition for rehearing, the Ninth
Circuit modified its decision by replacing its direction to prepare an
EIS with a direction to prepare either a new EA or, if necessary, an
EIS.\62\
---------------------------------------------------------------------------

\62\ See CBD v. NHTSA, 538 F.3d 1172 (9th Cir. 2008).
---------------------------------------------------------------------------

12. NHTSA Releases Final Environmental Impact Statement (October 2008)
On October 17, 2008, EPA published a notice announcing the
availability of NHTSA's final environmental impact statement (FEIS) for
this rulemaking.\63\ Throughout the FEIS, NHTSA relied extensively on
findings of the United Nations Intergovernmental Panel on Climate
Change (IPCC) and the U.S. Climate Change Science Program (USCCSP). In
particular, the agency relied heavily on the most recent, thoroughly
peer-reviewed, and credible assessments of global climate change and
its impact on the United States: the IPCC Fourth Assessment Report
Working Group I4 and II5 Reports, and reports by the USCCSP that
include Scientific Assessments of the Effects of Global Climate Change
on the United States and Synthesis and Assessment Products.
---------------------------------------------------------------------------

\63\ 73 FR 61859.
---------------------------------------------------------------------------

In the FEIS, NHTSA compared the environmental impacts of its
preferred alternative and those of reasonable alternatives. It
considered direct, indirect, and cumulative impacts and describes these
impacts to inform the decisionmaker and the public of the environmental
impacts of the various alternatives.
Among other potential impacts, NHTSA analyzed the direct and
indirect impacts related to fuel and energy use, emissions, including
carbon dioxide and its effects on temperature and climate change, air
quality, natural resources, and the human environment. Specifically,
the FEIS used a climate model to estimate and report on four direct and
indirect effects of climate change, driven by alternative scenarios of
GHG emissions, including:
1. Changes in CO2 concentrations;
2. Changes in global mean surface temperature;
3. Changes in regional temperature and precipitation; and
4. Changes in sea level.
NHTSA also considered the cumulative impacts of the proposed
standards for MY 2011-2015 passenger cars and light trucks, together
with

[[Page 14215]]

estimated impacts of NHTSA's implementation of the CAFE program through
MY 2010 and NHTSA's future CAFE rulemaking for MYs 2016-2020.
NHTSA intends to review all analyses for model years after MY 2011
in connection with the rulemaking for MY 2012 and thereafter,
consistent with the President's Memorandum of January 26, 2009.
13. Office of Information and Regulatory Affairs Completes Review of a
Draft MY 2011-2015 Final Rule (November 2008)
The Office of Information and Regulatory Affairs of the Office of
Management and Budget completed review of the rule under Executive
Order 12866, Regulatory Planning and Review, on November 14, 2008.\64\
---------------------------------------------------------------------------

\64\ http://www.reginfo.gov/public/do/eoHistReviewSearch (last
visited March 8, 2009). To find the report on the clearance of the
draft final rule, select ``Department of Transportation'' under
``Economically Significant Reviews Completed'' and select ``2008''
under ``Select Calendar Year.''
---------------------------------------------------------------------------

14. Department of Treasury Extends Loans to General Motors and Chrysler
(December 2008)
The Department of the Treasury established the Automotive Industry
Financing Program ``to prevent a significant disruption of the American
automotive industry that poses a systemic risk to financial market
stability and will have a negative effect on the real economy of the
United States.'' \65\ Under that program, initial loans were made to
General Motors and Chrysler.
---------------------------------------------------------------------------

\65\ http://www.treasury.gov/initiatives/eesa/program-descriptions/aifp.shtml (last visited March 8, 2009).
---------------------------------------------------------------------------

15. Department of Transportation Decides Not To Issue MY 2011-2015
Final Rule (January 2009)
On January 7, 2009, the Department of Transportation announced that
the Bush Administration would not issue the final rule.
16. The President Requests NHTSA To Issue Final Rule for MY 2011 Only
(January 2009)
As explained above, in his memorandum of January 26, 2009, the
President requested the agency to issue a final rule adopting CAFE
standards for MY 2011 only. Further, the President requested NHTSA to
establish standards for MY 2012 and later after considering the
appropriate legal factors, the comments filed in response to the May
2008 proposal, the relevant technological and scientific
considerations, and, to the extent feasible, a forthcoming report by
the National Academy of Sciences assessing automotive technologies that
can practicably be used to improve fuel economy.
17. General Motors and Chrysler Submit Restructuring Reports to
Department of the Treasury (February 2009)
The reports were required under the terms of the loans made
available to these companies in December to assist the domestic auto
industry in becoming financially viable.

D. Energy Policy and Conservation Act, as Amended

EPCA, which was enacted in 1975, mandates a motor vehicle fuel
economy regulatory program to meet the various facets of the need to
conserve energy, including ones having environmental and foreign policy
implications. EPCA allocates the responsibility for implementing the
program between NHTSA and EPA as follows: NHTSA sets CAFE standards for
passenger cars and light trucks; EPA establishes the procedures for
testing, test vehicles, collects and analyzes manufacturers' data, and
calculates the average fuel economy of each manufacturer's passenger
cars and light trucks; and NHTSA enforces the standards based on EPA's
calculations.
We have summarized below EPCA, as amended by EISA.
1. Vehicles Subject to Standards for Automobiles
With two exceptions specified in EPCA, all four-wheeled motor
vehicles with a gross vehicle weight rating of 10,000 pounds or less
will be subject to the CAFE standards, beginning with MY 2011. The
exceptions will be work trucks \66\ and multi-stage vehicles. Work
trucks are defined as vehicles that are:
---------------------------------------------------------------------------

\66\ While EISA excluded work trucks from ``automobiles,'' it
did not exclude them from regulation under EPCA. As amended by EISA,
EPCA requires that work trucks be subjected to average fuel economy
standards (49 U.S.C. 32902(b)(1)(C)), but only after first the
National Academy of Sciences completes a study and then NHTSA
completes a follow-on study. Congress thus recognized and made
allowances for the practical difficulties that led NHTSA to decline
to include work trucks in its final rule for MY 2008-11 light
trucks.

--Rated at between 8,500 and 10,000 pounds gross vehicle weight; and
--Are not a medium-duty passenger vehicle (as defined in section
86.1803-01 of title 40, Code of Federal Regulations, as in effect on
the date of the enactment of the Ten-in-Ten Fuel Economy Act).\67\
---------------------------------------------------------------------------

\67\ 49 U.S.C. 32902(a)(19).

Medium-duty passenger vehicles (MDPV) include 8,500 to 10,000 lb. GVWR
sport utility vehicles (SUVs), short bed pick-up trucks, and passenger
vans, but exclude pickup trucks with longer beds and cargo vans rated
at between 8,500 and 10,000 lb. GVWR. It is those excluded pickup
trucks and cargo vans that are work trucks. ``Multi-stage vehicle''
includes any vehicle manufactured in different stages by 2 or more
manufacturers, if no intermediate or final-stage manufacturer of that
vehicle manufactures more than 10,000 multi-stage vehicles per
year.\68\
---------------------------------------------------------------------------

\68\ 49 U.S.C. 32902(a)(3).
---------------------------------------------------------------------------

Under EPCA, as it existed before EISA, the agency had discretion
whether to regulate vehicles with a GVWR between 6,000 lb and 10,000
GVWR. It could regulate the fuel economy of vehicles with a GVWR within
that range under CAFE if it determined that (1) standards were feasible
for these vehicles, and (2) either (a) that these vehicles were used
for the same purpose as vehicles rated at not more than 6,000 lbs.
GVWR, or (b) that their regulation would result in significant energy
conservation.
EISA eliminated the need for administrative determinations in order
to subject vehicles between 6,000 and 10,000 lb. GVWR to the CAFE
standards for automobiles. Congress did so by making the determination
itself that all vehicles within that GVWR range should be included,
with the exceptions noted above.
2. Mandate To Set Standards for Automobiles
For each future model year, EPCA requires that the agency establish
standards for all new automobiles at the maximum feasible levels for
that model year. EISA made no change in this requirement. A
manufacturer's individual passenger cars and light trucks are not
required to meet a particular fuel economy level. Instead, EPCA
requires that the average fuel economy of a manufacturer's fleet of
passenger cars (or light trucks) in a particular model year must meet
the standard for those automobiles for that model year.
For MYs 2011-2020 and for MYs 2021-2030, EPCA specifies additional
requirements regarding standard setting. Each of those requirements and
the maximum feasible requirement must be interpreted in the context of
the other requirements. For MYs 2011-2020, separate standards for
passenger cars and for light trucks must be set at high enough levels
to ensure that the CAFE of the industry-wide combined fleet of new
passenger cars and light trucks for MY 2020 is not less than 35 mpg.

[[Page 14216]]

In light of the evident confusion of some commenters about the 35
mpg requirement, we want to emphasize that that figure is not the CAFE
level that any individual manufacturer's combined CAFE will be required
to meet. The 35 mpg requirement applies solely to the agency's standard
setting and concerns the required combined effect that the separate MY
2020 standards for passenger cars and light trucks must achieve with
respect to the single fleet containing the MY 2020 passenger cars and
light trucks of all manufacturers. That single industry-wide fleet must
have a CAFE of at least 35 mpg. If that requirement were exactly met,
we anticipate that manufacturers with relatively larger proportions of
smaller automobiles would be required to achieve combined CAFEs greater
than 35 mpg, while manufacturers with relatively largely proportions of
larger automobiles would be required to achieve combined CAFEs that
might in that year be somewhat below 35 mpg. EISA does not specify
precisely how compliance with this minimum requirement is to be ensured
or how or when the CAFE of the industry-wide combined fleet for MY 2020
is to be calculated for purposes of determining the agency's
compliance.
If the current gap between passenger car CAFE and light truck CAFE
persists, the standard for MY 2020 passenger cars would likely, as a
practical matter, need to be set high enough to ensure that the
industry-wide level of average fuel economy for passenger cars is not
less than 40 mpg in order for the CAFE of the combined industry-wide
fleet to reach 35 mpg,. The standard for MY 2020 light trucks could be
somewhat below 35 mpg. Again, these are the levels of stringency
necessary to meet the minimum requirement of an industry-wide combined
average of at least 35 mpg in MY 2020. Reaching 35 mpg earlier than MY
2020 would require even higher car and light truck standards in MY
2020. In addition, the CAFE of each manufacturer's fleet of domestic
passenger cars must meet a sliding, absolute minimum level in each
model year: 27.5 mpg or 92 percent of the projected CAFE of the
industry-wide fleet of new domestic and non-domestic passenger cars for
that model year.
The standards for passenger cars and those for light trucks must
increase ratably each year. We interpret this requirement, in
combination with the requirement to set the standards for each model
year at the level determined to be the maximum feasible level for that
model year, to mean that the annual increases should not be
disproportionately large or small in relation to each other.
EPCA, as it existed before EISA, required that light truck
standards be set at the maximum feasible level for each model year, but
simply specified a default standard of 27.5 mpg for passenger cars for
MY 1985 and thereafter. It permitted, but did not require that NHTSA
establish a higher or lower standard for passenger cars if the agency
found that the maximum feasible level of fuel economy is higher or
lower than 27.5 mpg. Henceforth, the agency must establish a standard
for each model year at the maximum feasible level.
3. Attribute-Based Standards
The standards for passenger cars and light trucks must be based on
one or more vehicle attributes, like size or weight, that correlate
with fuel economy and must be expressed in terms of a mathematical
function. Fuel economy targets are set for individual vehicles and
increase as the attribute decreases and vice versa. For example, size-
based (i.e., size-indexed) standards assign higher fuel economy targets
to smaller (and generally, but not necessarily lighter) vehicles and
lower ones to larger (and generally, but not necessarily heavier)
vehicles. The fleet wide average fuel economy that a particular
manufacturer must achieve depends on the size mix of its fleet, i.e.,
the proportion of the fleet that is small-, medium- or large-sized.
This approach can be used to require virtually all manufacturers to
increase significantly the fuel economy of a broad range of both
passenger cars and light trucks. Further, this approach can do so
without creating an incentive for manufacturers to make small vehicles
smaller or large vehicles larger, with attendant implications for
safety.
4. Factors Considered in the Setting of Standards
In determining the maximum feasible level of average fuel economy
for a model year, EPCA requires that the agency consider four factors:
Technological feasibility, economic practicability, the effect of other
standards of the Government on fuel economy, and the need of the nation
to conserve energy. EPCA does not define these terms or specify what
weight to give each concern in balancing them; thus, NHTSA defines them
and determines the appropriate weighting based on the circumstances in
each CAFE standard rulemaking.
(a) Factors That Must Be Considered
(i) Technological Feasibility
``Technological feasibility'' refers to whether a particular method
of improving fuel economy can be available for commercial application
in the model year for which a standard is being established. Thus, the
agency is not limited in a CAFE rulemaking to technology that is
already being commercially applied at that time.
(ii) Economic Practicability
``Economic practicability'' refers to whether a standard is one
``within the financial capability of the industry, but not so stringent
as to'' lead to ``adverse economic consequences, such as a significant
loss of jobs or the unreasonable elimination of consumer choice.'' \69\
In an attempt to ensure the economic practicability of attribute based
standards, the agency considers a variety of factors, including the
annual rate at which manufacturers can increase the percentage of its
fleet that has a particular type of fuel saving technology, and cost to
consumers. Since consumer acceptability is an element of economic
practicability, the agency, in this rule, has limited its consideration
of fuel saving technologies to be added to vehicles to those that
provide benefits that match their costs. The agency believes this
approach is reasonable for the MY 2011 standards in view of the facts
before it at this time. The agency is aware, however, that facts
relating to a variety of key issues in CAFE rulemaking are steadily
evolving and will review its balancing of these factors in light of the
facts before it in the next rulemaking proceeding.
---------------------------------------------------------------------------

\69\ 67 FR 77015, 77021; December 16, 2002.
---------------------------------------------------------------------------

At the same time, the law does not preclude a CAFE standard that
poses considerable challenges to any individual manufacturer. The
Conference Report for EPCA, as enacted in 1975, makes clear, and the
case law affirms, ``(A) determination of maximum feasible average fuel
economy should not be keyed to the single manufacturer which might have
the most difficulty achieving a given level of average fuel economy.''
\70\ Instead, the agency is compelled ``to weigh the benefits to the
nation of a higher fuel economy standard against the difficulties of
individual automobile manufacturers.'' Id. The law permits CAFE
standards exceeding the projected capability of any particular
manufacturer as long as the standard is economically practicable for
the industry as a whole. Thus, while

[[Page 14217]]

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.
---------------------------------------------------------------------------

\70\ CEI-I, 793 F.2d 1322, 1352 (D.C. Cir. 1986).
---------------------------------------------------------------------------

(iii) The Effect of Other Motor Vehicle Standards of the Government on
Fuel Economy
``The effect of other motor vehicle standards of the Government on
fuel economy'' means, according to the agency's longstanding view,
``the unavoidable adverse effects on fuel economy of compliance with
emission, safety, noise, or damageability standards.'' \71\ The purpose
of this provision was to ensure that any adverse effects of other
standards on fuel economy were taken into consideration in connection
with the fuel economy standards. The concern about adverse effects is
evident in a 1974 report, entitled ``Potential for Motor Vehicle Fuel
Economy Improvement,'' prepared and submitted to Congress by the
Department of Transportation and Environmental Protection Agency.\72\
That report noted that the weight added by safety standards would
reduce, and one set of emissions standards might temporarily reduce,
the level of achievable fuel economy.\73\ The same concern can also be
found in the congressional committee reports on the bills that became
EPCA.\74\
---------------------------------------------------------------------------

\71\ 42 FR 63184, 63188; Dec. 15, 1977. See also 42 FR 33534,
33537; June 30, 1977.
\72\ This report was prepared in compliance with Section 10 of
the Energy Supply and Environmental Coordination Act of 1974, Public
Law 93-319.
\73\ See pages 6-8 and 91-93.
\74\ See page 22 of Senate Report 94-179, pages 88 and 90 of
House Report 94-340, and pages 155-7 of the Conference Report,
Senate Report 94-516.
---------------------------------------------------------------------------

In the case of emission standards, this includes standards adopted
by the Federal government and can include standards adopted by the
States as well, since in certain circumstances the Clean Air Act allows
States to adopt and enforce State standards different from the Federal
ones.
(iv) The Need of the United States To Conserve Energy
``The need of the United States to conserve energy'' means ``the
consumer cost, national balance of payments, environmental, and foreign
policy implications of our need for large quantities of petroleum,
especially imported petroleum.'' \75\ Environmental implications
principally include reductions in emissions of criteria pollutants and
carbon dioxide. A prime example of foreign policy implications are
energy independence and security concerns.
---------------------------------------------------------------------------

\75\ 42 FR 63184, 63188 (1977).
---------------------------------------------------------------------------

1. Fuel Prices and the Value of Saving Fuel
Projected future fuel prices are a critical input into the
preliminary economic analysis of alternative CAFE standards, because
they determine the value of fuel savings both to new vehicle buyers and
to society. In this rule, NHTSA relies on fuel price projections from
the U.S. Energy Information Administration's (EIA) Annual Energy
Outlook (AEO) for this analysis.
2. Petroleum Consumption and Import Externalities
U.S. consumption and imports of petroleum products impose costs on
the domestic economy that are not reflected in the market price for
crude petroleum, or in the prices paid by consumers of petroleum
products such as gasoline. These costs include (1) higher prices for
petroleum products resulting from the effect of U.S. oil import demand
on the world oil price; (2) the risk of disruptions to the U.S. economy
caused by sudden reductions in the supply of imported oil to the U.S.;
and (3) expenses for maintaining a U.S. military presence to secure
imported oil supplies from unstable regions, and for maintaining the
strategic petroleum reserve (SPR) to cushion against resulting price
increases. Higher U.S. imports of crude oil or refined petroleum
products increase the magnitude of these external economic costs, thus
increasing the true economic cost of supplying transportation fuels
above the resource costs of producing them. Conversely, reducing U.S.
imports of crude petroleum or refined fuels or reducing fuel
consumption can reduce these external costs.
3. Air Pollutant Emissions
While reductions in domestic fuel refining and distribution that
result from lower fuel consumption will reduce U.S. emissions of
various pollutants, additional vehicle use associated with the rebound
effect from higher fuel economy will increase emissions of these
pollutants. Thus, the net effect of stricter CAFE standards on
emissions of each pollutant depends on the relative magnitudes of its
reduced emissions in fuel refining and distribution, and increases in
its emissions from vehicle use.
Fuel savings from stricter CAFE standards also result in lower
emissions of 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.
The agency has considered environmental issues, both within the
context of EPCA and the National Environmental Policy Act, in making
decisions about the setting of standards from the earliest days of the
CAFE program. As courts of appeal have noted in three decisions
stretching over the last 20 years,\76\ the agency defined the ``need of
the Nation to conserve energy'' in the late 1970s as including ``the
consumer cost, national balance of payments, environmental, and foreign
policy implications of our need for large quantities of petroleum,
especially imported petroleum.'' \77\ Pursuant to that view, the agency
declined in the past to include diesel engines in determining the
maximum feasible level of average fuel economy for passenger cars and
for light trucks because particulate emissions from diesels were then
both a source of concern and unregulated.\78\
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\76\ 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, 508 F.3d 508, 529 (9th Cir. 2007).
\77\ 42 FR 63,184, 63,188 (Dec. 15, 1977) (emphasis added).
\78\ For example, the final rules establishing CAFE standards
for MY 1981-84 passenger cars, 42 FR 33533, 33540-1 and 33551; June
30, 1977, and for MY 1983-85 light trucks, 45 FR 81593, 81597;
December 11, 1980.
---------------------------------------------------------------------------

In the late 1980s, NHTSA cited concerns about climate change as one
of its reasons for limiting the extent of its reduction of the CAFE
standard for MY 1989 passenger cars \79\ and for declining to reduce
the standard for MY 1990 passenger cars.\80\
---------------------------------------------------------------------------

\79\ 53 FR 39275, 39302; October 6, 1988.
\80\ 54 FR 21985,
---------------------------------------------------------------------------

Since then, DOT has considered the indirect benefits of reducing
tailpipe carbon dioxide emissions in its fuel economy rulemakings
pursuant to the statutory requirement to consider the nation's need to
conserve energy by reducing consumption. In this rulemaking, consistent
with the Ninth Circuit's decision and its observations about the
potential effect of changing information about climate change on the

[[Page 14218]]

balancing of the EPCA factors and aided by the 2007 reports of the
United Nations Intergovernmental Panel on Climate Change \81\ and other
information, NHTSA has monetized the reductions in tailpipe emissions
of CO2 that will result from the CAFE standards and is
adopting CAFE standards for MY 2011 at levels that reflect an estimated
value of those reductions in CO2 as well as the value of
other benefits of those standards. In setting these CAFE standards,
NHTSA also considered environmental impacts under NEPA, 42 U.S.C. 4321-
4347.
---------------------------------------------------------------------------

\81\ The IPCC 2007 reports can be found at http://www.ipcc.ch/.
(Last accessed March 8, 2009.)
---------------------------------------------------------------------------

(v) Other Factors--Safety
In addition, the agency historically has considered the potential
for adverse safety consequences when deciding upon a maximum feasible
level. This practice is recognized approvingly in case law.\82\
---------------------------------------------------------------------------

\82\ 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 Staets Court of Appeals pointed out in
upholding NHTSA's exercise of judgment in setting the 1987-1989
passenger car standards, ``NHTSA has always examined the safety
consequences of the CAFE standards in its overall consideration of
relevant factors since its earliest rulemaking under the CAFE
program.'' Competitive Enterprise Institute v. NHTSA (CEI I), 901
F.2d 107, 120 at n.11 (D.C. Cir. 1990).
---------------------------------------------------------------------------

(b) Factors That Cannot be Considered
EPCA provides that in determining the level at which it should set
CAFE standards for a particular model year, NHTSA may not consider the
ability of manufacturers to take advantage of several EPCA provisions
that facilitate compliance with the CAFE standards and thereby reduce
the costs of compliance.\83\ As noted below in Section XII,
manufacturers can earn compliance credits by exceeding the CAFE
standards and then use those credits to achieve compliance in years in
which their measured average fuel economy falls below the standards.
Manufacturers can also increase their CAFE levels through MY 2019 by
producing alternative fuel vehicles. EPCA provides an incentive for
producing these vehicles by specifying that their fuel economy is to be
determined using a special calculation procedure that results in those
vehicles being assigned a high fuel economy level.
---------------------------------------------------------------------------

\83\ 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

(c) Weighing and Balancing of Factors
EPCA did not define the factors or specify the relative weight to
be given the factors in weighing and balancing them. Instead, EPCA gave
broad guidelines within which the agency is to exercise discretion in
determining what level of stringency is the maximum feasible level of
stringency. Thus, the agency has substantial discretion in defining and
weighing the terms and accommodating conflicting priorities consistent
with the purposes of EPCA.
5. Consultation in Setting Standards
EPCA provides that NHTSA is to consult with the Department of
Energy (DOE) and Environmental Protection Agency prior to prescribing
CAFE standards. It specifies further that NHTSA is to provide DOE with
an opportunity to provide written comments on draft proposed and final
CAFE standards.\84\
---------------------------------------------------------------------------

\84\ In addition, Executive Order No. 13432 provides that a
Federal agency undertaking a regulatory action that can reasonably
be expected to regulate emissions directly, or to substantially and
predictably affect emissions, of greenhouse gases from motor
vehicles, shall act jointly and consistently with other agencies to
the extent possible and to consider the views of other agencies
regarding such action.
---------------------------------------------------------------------------

6. Test Procedures for Measuring Fuel Economy
EPA's fuel economy test procedures specify equations for
calculating fuel economy. These equations are based on the carbon
balance technique which allows fuel economy to be determined from
measurement of exhaust emissions. As noted above, this technique relies
upon the premise that the quantity of carbon in a vehicle's exhaust gas
is equal to the quantity of carbon consumed by the engine as fuel.
After measuring the amount of CO2 emitted from the
tailpipe of a test vehicle, as well as the amount of carbon in
hydrocarbon (HC) and carbon monoxide (CO), EPA then uses the carbon
content of the test fuel to calculate the amount of fuel that had to be
consumed per mile in order for the vehicle to produce that amount of
carbon containing emissions.\85\ Finally, EPA converts that fuel figure
into a miles-per-gallon figure.
---------------------------------------------------------------------------

\85\ Under the procedures established by EPA, compliance with
the CAFE standards is based on the rates of emission of
CO2, CO, and hydrocarbons from covered vehicles, but
primarily on the emission rates of CO2. In the
measurement and calculation of a given vehicle model's fuel economy
for purposes of determining a manufacturer's compliance with federal
fuel economy standards, the role of CO2 is approximately
100 times greater than the combined role of the other two relevant
carbon exhaust gases. Given that the amount of CO2, CO,
and hydrocarbons emitted by a vehicle varies directly with the
amount of fuel it consumes, EPA can reliably and accurately convert
the amount of those gases emitted by that vehicle into the miles per
gallon achieved by that vehicle.
---------------------------------------------------------------------------

7. Enforcement and Compliance Flexibility
EPA is responsible for measuring automobile manufacturers' CAFE so
that NHTSA can determine compliance with the CAFE standards. In making
these measurements for passenger cars, EPA is required by EPCA \86\ to
use the EPA test procedures in place as of 1975 (or procedures that
give comparable results), which are the city and highway tests of
today, with adjustments for procedural changes that have occurred since
1975. EPA uses similar procedures for light trucks, although, as noted
above, EPCA does not require it to do so.
---------------------------------------------------------------------------

\86\ 49 U.S.C. 32904(c).
---------------------------------------------------------------------------

When NHTSA finds that a manufacturer is not in compliance, it
notifies the manufacturer. Surplus credits generated from the five
previous years can be used to make up the deficit. The amount of credit
earned is determined by multiplying the number of tenths of a mpg by
which a manufacturer exceeds a standard for a particular category of
automobiles by the total volume of automobiles of that category
manufactured by the manufacturer for a given model year. If there are
no (or not enough) credits available, then the manufacturer can either
pay the fine, or submit a carry back plan to the agency. A carry back
plan describes what the manufacturer plans to do in the following three
model years to earn enough credits to make up for the deficit. NHTSA
must examine and determine whether to approve the plan.
In the event that a manufacturer does not comply with a CAFE
standard, even after the consideration of credits, EPCA provides for
the assessing of civil penalties, unless, as provided below, the
manufacturer has earned credits for exceeding a standard in an earlier
year or expects to earn credits in a later year. The Act specifies a
precise formula for determining the amount of civil penalties for such
a noncompliance. The penalty, as adjusted for inflation by law, is
$5.50 for each tenth of a mpg that a manufacturer's average fuel
economy falls short of the standard for a given model year multiplied
by the total volume of those vehicles in the affected fleet (i.e.,
import or domestic passenger car, or light truck), manufactured for
that model year. The amount of the penalty may not be reduced except
under the unusual or extreme circumstances specified in the statute.

[[Page 14219]]

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 \87\ in the Safety Act and
their absence in EPCA is believed to arise from the difference in the
application of the safety standards and CAFE standards. A safety
standard applies to individual vehicles; that is, each vehicle must
possess the requisite equipment or feature which must provide the
requisite type and level of performance. If a vehicle does not, it is
noncompliant. Typically, a vehicle does not entirely lack an item or
equipment or feature. Instead, the equipment or features fails to
perform adequately. Recalling the vehicle to repair or replace the
noncompliant equipment or feature can usually be readily accomplished.
---------------------------------------------------------------------------

\87\ 49 U.S.C. 30120, Remedies for defects and noncompliance.
---------------------------------------------------------------------------

In contrast, a CAFE standard applies to a manufacturer's entire
fleet for a model year. It does not require that a particular
individual vehicle be equipped with any particular equipment or feature
or meet a particular level of fuel economy. It does require that the
manufacturer's fleet, as a whole, comply. Further, although under the
attribute-based approach to setting CAFE standards fuel economy targets
are established for individual vehicles based on their footprints, the
vehicles are not required to comply with those targets. However, as a
practical matter, if a manufacturer chooses to design some vehicles so
that fall below their target levels of fuel economy, it will need to
design other vehicles so that exceed their targets if the
manufacturer's overall fleet average is to meet the applicable
standard.
Thus, under EPCA, there is no such thing as a noncompliant vehicle,
only a noncompliant fleet. No particular vehicle in a noncompliant
fleet is any more, or less, noncompliant than any other vehicle in the
fleet.

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

NHTSA has a long-standing practice of analyzing regulatory options
in fuel economy rulemakings based on the best available information,
including information regarding the future vehicle market and future
fuel economy technologies. The passenger cars and light trucks
currently sold in the United States, and which are anticipated to be
sold in MY 2011, are highly varied and satisfy a wide range of consumer
needs. From the two-seater Mercedes Benz Smart (produced by Daimler) to
the Ford F-150 pickup truck, from the Honda CR-V to the Chrysler Town
and Country to the GMC Savana, American consumers have a great number
of vehicle options to accommodate their needs and preferences.
Automobile manufacturers generally attempt to plan their motor
vehicle production several years in advance. When a new vehicle is
introduced, it is the product of several years of design, testing,
product-specific tooling investment, and regulatory certification. In
order to minimize costs, manufacturers generally attempt to place large
automotive parts supply contracts years in advance. Manufacturers must
therefore attempt to predict the types, characteristics, and quantities
of vehicles that consumers will wish to purchase a few years hence.
These plans include what is currently known about the salability and
marketability of these future vehicles, and hence consider the future
state of prices facing the consumer, including that of gasoline. These
plans also contain not only the specific vehicle models which
manufacturers intend to build and their planned annual production, but
also information about specific design features and configurations as
well as the fuel-efficient technologies they are planning to
incorporate in these vehicles. Manufacturer's plans rapidly become
embodied in special tooling and production configurations in factories
and advance orders for component parts. NHTSA requests, and
manufacturers provide, product plan information to the agency during
rulemaking. NHTSA begins its analysis with the submitted product plans
and uses them to establish a baseline, which is used to analyze varying
levels of future CAFE standards.
In anticipation of the analysis to support today's final rule,
NHTSA issued a request in May 2008 that manufacturers provide the
agency with updated product plans, as well as estimates of the
availability, effectiveness, and cost of fuel-saving technologies.\88\
Considering its past experiences integrating manufacturers' product
plans, reviewing the content of those plans, and seeking clarification
and appropriate correction of those plans, the agency provided
manufacturers with updated tools to facilitate manufacturers' quality
control efforts. NHTSA also tripled the number of agency engineers
assigned to reviewing manufacturers' plans.
---------------------------------------------------------------------------

\88\ See 73 FR 24910 (May 2, 2008) for NHTSA's most recent
request for comments, which accompanied the NPRM.
---------------------------------------------------------------------------

A. Why does NHTSA establish a baseline market forecast?

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

B. How does NHTSA develop the baseline market forecast?

1. NHTSA First Asks Manufacturers for Updated Product Plan Data
NHTSA relies on product plans from manufacturers to help the agency
determine the composition of the future fleets. The product plan
information is provided in response to NHTSA's request for information
from the manufacturers, and responds to very detailed questions about
vehicle model characteristics that influence fuel economy.\89\ The
baseline market forecast that NHTSA uses in its analysis is based
significantly on this confidential product plan information. Individual
manufacturers are better able than any other entity to anticipate what
mix of products they are likely to sell in the future. In this
rulemaking as in prior rulemakings, some commenters requested that
NHTSA make product plan information public to allow members of the
public to comment more fully on the baseline developed by the agency.
For example, the Attorneys General commented that ``the agency should
provide sufficient summaries or aggregations of this information or
make special arrangements so that interested parties such as the state
Attorneys General can view this confidential information under a
confidentiality agreement.''
---------------------------------------------------------------------------

\89\ Id.
---------------------------------------------------------------------------

NHTSA cannot make public the entire contents of the product plans.
The submitted product plans contain confidential business information,
which the agency is prohibited by federal law from disclosing; \90\
making

[[Page 14220]]

this information publicly available would cause competitive harm to
manufacturers. See 5 U.S.C. 552(b)(4); 18 U.S.C. 1905; 49 U.S.C.
30167(a); 49 CFR part 512; Critical Mass Energy Project v. Nuclear
Regulatory Comm'n, 975 F.2d 871 (D.C. Cir. 1992). In its publicly
available rulemaking documents the agency does, however, provide
aggregated information compiled from individual manufacturer
submissions regarding its forecasts of the future vehicle market in
such a way that confidential business information is not disclosed.
This aggregated information, such as appears below and in the
accompanying Regulatory Impact Analysis (RIA), includes vehicle fleet
size and composition (passenger cars versus light trucks), overall fuel
economy baseline and major technology applications and design trends.
---------------------------------------------------------------------------

\90\ NHTSA grants confidentiality to manufacturers' future
specific product plans under 49 CFR Part 512. Once NHTSA has granted
a manufacturer's claim of confidentiality, NHTSA may not release the
covered information except in certain circumstances listed in Sec.
512.23, none of which include increasing the ability of the public
to comment on rulemakings employing the confidential information,
unless the manufacturers consent to the disclosure.
---------------------------------------------------------------------------

(a) Why does NHTSA use manufacturer product plans to develop the
baseline?
In order to analyze potential new CAFE standards in a way that
tries to simulate how manufacturers could comply with them, NHTSA
develops a forecast of the future vehicle market on a model-by-model,
engine-by-engine, and transmission-by-transmission basis, such that
each defined vehicle model refers to a separately-defined engine and a
separately-defined transmission. For the 2011 model year covered by
this final rule, the light vehicle (passenger car and light truck)
market forecast included almost 1,400 vehicle models, 400 specific
engines, and 300 specific transmissions. NHTSA believes that this level
of detail in the representation of the vehicle market is important both
to an accurate analysis of manufacturer-specific costs and to the
analysis of attribute-based CAFE standards. Because CAFE standards
apply to the average fuel economy performance of each manufacturer's
fleets of cars and light trucks, the impact of potential standards on
individual manufacturers is effectively estimated through analysis of
manufacturers' planned fleets. NHTSA has used this level of detail in
CAFE analysis throughout the history of the program. Furthermore,
because required CAFE levels under an attribute-based CAFE standard
depend on manufacturers' fleet composition, the stringency of an
attribute-based standard is effectively predicted by performing
analysis at this level of detail.
EPCA does not require NHTSA to use manufacturers' product plans in
order to develop a baseline for purposes of analyzing potential new
CAFE standards. The agency could use exclusively non-confidential
information to develop a market forecast at the same level of detail as
mentioned above, and has done exactly so for purposes of analytical
development and testing, and to represent manufacturers that have not
provided product plans to NHTSA. However, as discussed above, the
agency believes that one of the most valuable sources of information
about future product mix projections is the product plan information
provided by individual manufacturers, because individual manufacturers
are in a unique position to anticipate what mix of products they are
likely to sell in the future.
Manufacturers generally support NHTSA's use of product plan data in
developing the baseline. Other commenters such as CFA and Public
Citizen, in contrast, stated that the product plans relied upon in the
NPRM are outdated because they were developed before EISA was enacted,
and that the agency should develop its own projections of the vehicle
fleets, which could be made public, instead of relying on confidential
industry plans, which could bias the standards in favor of the
industry. CFA suggested that NHTSA's analysis was based on only ``a
very thin body of knowledge about the veracity, relevance and
predictive value of auto manufacturer product plans, recent changes in
fuel economy and the practices of automakers in adopting fuel economy
technologies.'' Public Citizen stated that because the product plans
are confidential, ``This significantly biases the standards in favor of
industry by shutting the public out of the process,'' and that
``Consumers must essentially trust that NHTSA has set standards in
their interest using information provided by industry.'' Public Citizen
argued that ``In the past, * * * NHTSA has done its own research and
evaluation of these factors which was more transparent.''
NHTSA's analysis of product plan data is much more rigorous than
commenters suggest. NHTSA engineers carefully examine the information
submitted by manufacturers, and upon discovering what appear to be
errors or inconsistencies, request and receive manufacturers'
explanations and, as appropriate, corrections. For example, the
agency's analysis in preparation for the final rule revealed systematic
errors in plans submitted by two major manufacturers, both of which
resubmitted their plans with corrections.\91\ In addition, the agency
found that two manufacturers inappropriately planned to have some 2-
wheel drive sport-utility vehicles (2WD SUVs) classified as light
trucks, even though the agency explained in the NPRM that, for
enforcement purposes, it planned to classify such vehicles as passenger
cars, and other manufacturers submitted product plans consistent with
the agency's intentions. As discussed below and in Section IX, NHTSA
performed its analysis with these vehicles reassigned to the passenger
car fleet.
---------------------------------------------------------------------------

\91\ Specifically, one manufacturer had submitted data with a
structure that had inadvertently been misaligned, such that many
vehicle models were incorrectly identified as using engines
applicable to other vehicle models (e.g., a vehicle known to use an
inline 4-cylinder engine might have been identified as using a V-8
engines). Another manufacturer had submitted vehicle dimensional
estimates based on an incorrect SAE measurement procedure.
---------------------------------------------------------------------------

NHTSA also disagrees with Public Citizen's suggestion that the
agency's use of product plans precludes public participation in the
rulemaking process. As discussed, analysis of confidential product
plans has long been a core feature of developing the CAFE standards,
and the agency is fully transparent in providing aggregated information
about the plans as well as detailed information about the agency's
technology and economic assumptions and the process the agency
undertakes to evaluate and set the standards.
NHTSA could potentially conduct rulemaking analysis as Public
Citizen suggests using exclusively public information, (including
commercially available information). Indeed, the agency has done
exactly so for purposes of development and testing, and to develop
forecasts of fleets likely to be produced by manufacturers that have
not responded to the agency's request for product plans. However, the
agency currently believes that an analysis based exclusively on
publicly- and commercially-available information would be less
accurate--in terms of its representation of the future light vehicle
market--than an analysis based in large measure on product plan data.
Most publicly available information about vehicles and vehicle
technologies concerns the current fleet, not potential future fleets.
In many cases, manufacturers are prepared to provide far more detail in
confidential submissions then they are prepared to provide in public.
This detail may include the manufacturer's expectation of sales for
particular future models; which technologies are being applied to
particular vehicles; and the manufacturer's expectation of fuel

[[Page 14221]]

economy for future vehicles. This information is typically considered
business confidential by the manufacturer, but is helpful in more
accurately ascertaining both the baseline technology level and fuel
economy of manufacturer's future sales as well as the extent of
opportunities for improving fuel economy.
NHTSA notes that manufacturers' public statements about future
vehicles have been very optimistic recently with regard to fuel
economy-enhancing technologies, and NHTSA takes these statements into
account when evaluating the submitted product plans. When manufacturer
statements about future vehicles differ substantially from the
submitted product plans, NHTSA generally contacts the manufacturer to
determine the reason for the discrepancy. However, manufacturers
frequently make announcements regarding vehicles or technologies they
hope to produce in the future. Often, they are conditional statements
and plans, and whether they reach the point of commercialization
depends greatly on how circumstances, including public acceptance,
evolve. Thus, for purposes of analyzing the MY 2011 CAFE standards, the
agency currently concludes that information manufacturers provide
confidentially to NHTSA is more reliable than the information appearing
in public sources such as press reports and speeches by manufacturers'
employees, especially given the short time period between the
submission of this information in 2008 and when manufacturers will
begin building their MY 2011 vehicles.
Nevertheless, EPCA does not require NHTSA to use manufacturers'
confidential business information when evaluating the maximum feasible
levels for new CAFE standards. The agency will base its analysis for
future rulemakings on information--public, commercially-available, or
confidential--it considers most accurate.
NHTSA recognizes that automobile manufacturers are facing a period
of uncertainty with respect to demand for their products that is
without parallel. Recent swings in prices for fuel have altered demand
patterns, while commodity prices have impacted costs of production.
Concurrently, turmoil in the credit markets and recent upswings in
unemployment also affect the vehicle market. The short and long term
implications of such volatility for future sales will not be known for
some time. In light of such conditions, reliance on product plans in
this rulemaking helps to align the analysis with the best available
information.
NHTSA further recognizes that, in connection with their recent
requests for federal assistance, some manufacturers made statements in
December 2008 regarding future technologies and fuel economy levels,
and that some of these statements indicated plans to achieve CAFE
levels considerably higher than reflected in the product plans
submitted to NHTSA in mid-2008.\92\ The information provided in these
submissions to Congress reflects a level of detail much less than NHTSA
typically receives in the confidential product plan submissions, so it
is difficult for NHTSA to determine whether these manufacturer
statements and submissions reflect the same underlying assumptions as
manufacturers' mid-2008 product plans.
---------------------------------------------------------------------------

\92\ Available on the Internet at http://financialservices.house.gov/autostabilization.html (last accessed
February 15, 2009).
---------------------------------------------------------------------------

More recently, in mid-February, Chrysler and General Motors
submitted restructuring plans to the U.S. Department of the Treasury to
support those companies' requests for federal loans. Like the
information these companies provided in December, these plans do not
contain complete and detailed forecasts of the volume and
characteristics of specific vehicle models Chrysler and General Motors
plan to produce. However, the restructuring plans do contain specific
information regarding the CAFE levels that these manufacturers expect
to achieve.
Chrysler's plan shows that, during MYs 2008-2015, Chrysler plans to
exceed required CAFE levels in some model years and to apply credits it
earns in doing so toward shortfalls in other model years.\93\ The
charts in Chrysler's plans specifically reference the ``Dec 2008 Draft
Rule'' (presumably, the final standards NHTSA submitted to OMB in
November 2008), and indicate that Chrysler appears to believe that
attribute-based CAFE standards for those model years will result in
required CAFE levels for Chrysler similar to those originally estimated
by NHTSA for MYs 2011-2015 based on the product plan information that
Chrysler submitted to NHTSA in July 2008.
---------------------------------------------------------------------------

\93\ Chrysler's submission to the Treasury Department, p. 117.
Available at http://www.treasury.gov/initiatives/eesa/agreements/auto-reports/ChryslerRestructuringPlan.pdf, (last accessed Feb. 19,
2009).
---------------------------------------------------------------------------

GM's plan states that GM ``is committed to meeting or exceeding all
Federal fuel economy standards in the 2010-2015 model years'', and
shows the CAFE levels that GM plans to achieve in those model years,
assuming ``full usage of all credit flexibilities under the CAFE
program.'' \94\ However, GM's plan does not show the CAFE levels
expected to be required of GM under new attribute-based CAFE standards,
and it is unclear from GM's plan how specific changes (since July 2008)
in the company's plans relate to its planned CAFE levels. For example,
while GM's restructuring plan refers to plans to increase hybrid
vehicle offerings, the plan does not include production forecasts
needed to understand how those offerings affect GM's planned CAFE
levels.
---------------------------------------------------------------------------

\94\ GM's submission to the Treasury Department, p. 21.
Available at, http://www.treasury.gov/initiatives/eesa/agreements/auto-reports/GMRestructuringPlan.pdf (last accessed Feb. 19, 2009).
---------------------------------------------------------------------------

Considering the context for and generality of the Chrysler and GM
restructuring plans, and the lack of such plans from other
manufacturers, and notwithstanding the considerable uncertainties
currently surrounding the future market for light vehicles, NHTSA
believes that its market forecast for MY 2011, as informed by product
plans submitted to the agency in mid-2008, remains the most useful
available point of reference for the establishment of MY 2011
standards, and the evaluation of the costs and benefits of these new
standards.
(b) What product plan data did NHTSA use in the NPRM?
For the NPRM, NHTSA received product plan information from
Chrysler, Ford, GM, Honda, Nissan, Mitsubishi, Porsche and Toyota
covering multiple model years. The agency did not receive any product
plan information from BMW, Ferrari, Hyundai, Mercedes (Daimler) or VW.
However, only Chrysler and Mitsubishi provided us with product plans
that showed differing production quantities, vehicle introductions,
vehicle redesign/refresh changes, without any carryover production
quantities through MY 2015. For the other companies that provided data,
the agency carried over production quantities for their vehicles,
allowing for growth, starting with the year after their product plan
data showed changes in production quantities or showed the introduction
or redesign/refresh of vehicles.
Product plan information was provided through MY 2013 by Ford and
Toyota, thus the first year that the agency carried over production
quantities for those companies was MY 2014. Product plan information
was provided through MY 2012 for GM and Nissan, thus the first year
that the agency carried over production quantities for those companies
was MY 2013. Product plan information was

[[Page 14222]]

provided by Honda through MY 2008. Honda asked the agency to carry over
those plans and also provided data for the last redesign of a vehicle
and asked the agency to carry them forward. Product plan information
was provided through MY 2008 for Porsche, thus the first year that the
agency carried over production quantities for Porsche was MY 2009.
Because Hyundai was one of the seven largest vehicle manufacturers,
and thus factored explicitly into the optimization process, and NHTSA
desired to conduct this process using the best and most complete
forecast of the future vehicle market, NHTSA used Hyundai's mid-year
2007 data contained in the agency's CAFE database to establish the
baseline models and production quantities for their vehicles.\95\ For
the other manufacturers that did not submit product plans, NHTSA used
the 2005 information from the database, the latest complete data set
that NHTSA had available for use.
---------------------------------------------------------------------------

\95\ Manufacturers must submit pre- and mid-model year CAFE
reports to the agency as part of the CAFE compliance process under
49 CFR part 537.
---------------------------------------------------------------------------

As mentioned above, NHTSA received comments that the product plans
it relied upon in the NPRM were out of date and not reflective of
recent announcements from manufacturers regarding new products. CFA
referred to NHTSA's discussion in the NPRM of the relative completion
of various manufacturers' product plans to argue that the product plans
were incomplete and inaccurate. Public Citizen argued that the product
plans were out of date. The Attorneys General and NRDC argued that
NHTSA should update the product plans, the baseline, and the technology
inputs to the Volpe model in light of recent manufacturer statements
about their intent to introduce advanced technologies, such as plug-in
hybrid vehicles, in the near future.
In response, as noted above, NHTSA published a request for comments
seeking updated information from manufacturers regarding their future
product plans in a companion notice to the NPRM. In examining the
updated product plans received in response to the request for
information, and as discussed more fully below, NHTSA has determined
that the product plans for MY 2011 provided incorporate these
announcements and reflect changes to planned product introduction by
manufacturers in response to the recent market shift towards more fuel-
efficient vehicles, particularly the shift towards increased production
of smaller cars.
(c) What product plan data did NHTSA receive for the final rule?
For the final rule, NHTSA received product plan information from
Chrysler, Ford (Ford's product plans included separate plans for Jaguar
and Land Rover vehicles, both of which are now owned by Tata Motors and
are thus attributed to that company in the final rule), GM, Honda,
Hyundai, Mitsubishi, Nissan, Porsche, Subaru, and Toyota, covering
multiple model years. The agency did not receive product plan
information from BMW, Daimler (Mercedes), Ferrari, Suzuki or VW.
Chrysler, Ford, Hyundai and Mitsubishi provided us with product plans
that showed changes in production quantities, vehicle introductions,
and vehicle redesigns/refreshes changes, without any carryover
production quantities through MY 2015. For the other companies that
provided data, the agency was careful to carry over production
quantities for their vehicles, allowing for growth, starting with the
year after their product plan data showed changes in production
quantities or showed the introduction or redesign/refresh of vehicles.
Further, NHTSA used the pre-model year 2008 CAFE reports as the
basis for the future MY 2011 product plans and filled in gaps in the
data (e.g., engine specifications, wheelbase, track width, etc.) for
those manufacturers with information gathered from the Web sites of the
individual manufacturers and from general automotive Web sites such as
Edmunds.com, Cars.com, and Wards.com.
(d) How is the product plan data received for the final rule different
from what the agency used in the NPRM analysis, and how does it impact
the baseline?
Informed by the overall fleet size and market share estimates
applied by the agency (and discussed below), manufacturers' plans
changed considerably between 2007 and 2008. NHTSA's forecast, based on
the Energy Information Administration's (EIA's) Annual Energy Outlook
(AEO) 2008, of the total number of light vehicles likely to be sold
during MY 2011 through MY 2015 dropped from 85 to 83 million vehicles--
about 16.5 million vehicles annually.\96\ Also, due in part to the
reclassification of roughly 1.4 million 2WD SUVs, the share of MY 2011
vehicles expected to be classified as light trucks fell from 49 percent
in NHTSA's 2007 market forecast to 42 percent in the agency's current
forecast.
---------------------------------------------------------------------------

\96\ NHTSA recognizes that domestic vehicle sales are currently
well below this rate. However, as discussed below, the agency
considers this an aspect (like gasoline prices near $2 per gallon)
of the current economy, and not an indicator of the longer-term
prospect for light vehicle sales in the U.S. Just as the agency
currently expects fuel prices to return to high levels, it expects
vehicle sales to rise well above today's rate.
---------------------------------------------------------------------------

The latter of the above changes is reflected in the baseline
distribution of vehicle models with respect to fuel economy and
footprint. Figures III-1 and III-2 show passenger car and light truck
2011 models, respectively, in the 2007 plans. Figures III-3 and III-4
show passenger car and light truck models, respectively, in the 2008
plans. A comparison of Figures III-1 and III-3 shows that the number of
passenger cars models with footprints between roughly 41 and 52 square
feet has increased considerably, and that the number of passenger car
models with relatively high fuel economy levels (e.g., above 35 mpg)
has increased. Conversely, a comparison of Figures III-2 and III-3
shows less pronounced differences between the 2007 and 2008 plans,
although the number of small light truck models decreased (due to
reclassification).

[[Page 14223]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.003

[[Page 14224]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.004

[[Page 14225]]

NHTSA's expectations regarding manufacturers' market shares (the
basis for which is discussed below) have also changed since 2007. These
changes are reflected below in Table III-1, which shows the agency's
2007 and 2008 sales forecasts for passenger cars and light trucks.\97\
---------------------------------------------------------------------------

\97\ As explained below, although NHTSA normalized each
manufacturer's overall market share to produce a realistically-sized
fleet, the product mix for each manufacturer that submitted product
plans was preserved. The agency has reviewed manufacturers' product
plans in detail, and understands that manufacturers do not sell the
same mix of vehicles in every model year.
[GRAPHIC] [TIFF OMITTED] TR30MR09.006

Additionally, for some advanced technologies, the updated product
plans submitted by manufacturers for the final rule include higher
quantities in MY 2011 and beyond than the older product plans used for
the NPRM had indicated. These changes are consistent with most
manufacturers' indications that their product planning was informed by
expectations that fuel prices considerably higher than those in EIA's
AEO 2008 reference case forecast would prevail during the first half of
the next decade. Most recently, the restructuring plans submitted by
General Motors and Chrysler offer additional information on changes to
product plans, albeit at an aggregate level, that are deemed necessary
to achieve ``operational and functional viability.''
Manufacturers' most recently submitted detailed plans (i.e., those
submitted to NHTSA in July 2008) show significant application of the
following engine technologies in MY 2011 (percent of the entire fleet
having that technology is shown in the parentheses): Intake cam phasing
(34 percent), dual cam phasing (35 percent), stoichiometric gasoline
direction injection (11 percent), and turbocharging and engine
downsizing (6 percent). Regarding transmission technologies,
manufacturers' plans show significant application of the following
technologies by MY 2011: 6-, 7-, or 8-speed automatic transmissions (27
percent), and strong hybrids (4 percent). Manufacturers' plans also
show significant application of electric power steering (3 percent) and
integrated starter/generators (34 percent) by MY 2011.
Though not applicable to today's rulemaking, and while updated
product plans may reflect different rates of technology application,
manufacturers' July 2008 plans also indicated expectations that the use
of some of these and other technologies would continue to increase
after MY 2011. For example, manufacturers' product plans indicated at
the time that use of stoichiometric gasoline direction injection would
increase from 11 percent of the fleet in MY 2011 to 15 percent of the
fleet in MY 2015, and that use of turbocharging and engine downsizing
would increase from 6 percent of the fleet in MY 2011 to 13 percent of
the fleet in MY 2015. These plans further indicated that use of dual
cam phasing, combustion restart, and integrated starter/generators
would increase to 49 percent, 10 percent, and 49 percent, respectively,
by MY 2015.
The restructuring plans Chrysler and GM submitted to the Department
of the Treasury in February 2009 both indicate intentions to increase
the rate of technology adoption and alter the mix towards higher
numbers of flexible fuel, alternative fuel and electric vehicles.
Chrysler's restructuring plan shows plans to introduce three new
electric or hybrid-electric vehicle models in MYs 2010-2011, and an
additional seven such models during MYs 2012-2015.\98\ As mentioned
above, Chrysler's restructuring plan is clearly informed by and
responsive to NHTSA's 2008 draft final standards for MYs 2011-2015.
Though less clear in terms of specific requirements to the company,
GM's restructuring plan also appears to be responsive to those MYs
2011-2015 standards. GM's restructuring plan indicates that in MY 2012,
the company plans greater deployment of 2-step variable valve timing,
new 4-cylinder gasoline engines, dry dual clutch transmissions, ``Gen
2'' strong hybrids, extended range electric vehicles, and possibly
compressed natural gas.\99\ The plan further indicates that in MY 2015,
GM expects to introduce ``Gen 3'' hybrids, lean-burn homogeneous charge
compression ignition (HCCI) gasoline engines, and fuel cell vehicles.
---------------------------------------------------------------------------

\98\ Chrysler, p. 135.
\99\ GM, p. 21.
---------------------------------------------------------------------------

Manufacturers' July 2008 product plans also show increasing numbers
of mid-size ladder-frame SUVs being planned for redesign as unibody
SUVs/crossover vehicles. Additionally, some ladder-frame SUVs and mid-
size pickup

[[Page 14226]]

trucks are planned to be discontinued altogether and replaced with
totally new products that have unibody construction. Some of the trend
for mid-size SUVs being replaced by unibody vehicles is already visible
in the marketplace and reflected in NHTSA's forecast of the MY 2011
light vehicle market.
Concerning engine trends, the manufacturers' plans show a
significant amount of engine downsizing. This downsizing is of two
major types: first, replacing existing engines with smaller
displacement engines while keeping the same number of cylinders per
engine; second, replacing existing engines with engines having a
smaller number of cylinders (e.g., 6-cylinder engines instead of 8-
cylinder engines and 4-cylinder engines instead of 6-cylinder engines).
The plans indicate that for many of the engines being downsized, the
replacement engines have some form of advanced valve actuation (e.g.,
variable valve lift) combined with other technologies, such as engine
friction reduction or direct injection. When such changes occur the
replacement engines appear to provide higher fuel economy, with maximum
power and torque similar to the engines they are replacing. It is not
clear from manufacturers' product plans whether and, if so, how vehicle
prices and other performance measures (e.g., launch, gradeability) will
be affected.
When engines are planned to be replaced with fewer-cylinder engines
(e.g., smaller V6 engines instead of large V8 engines), the plans show
some of these engines having some form of advanced valve actuation,
combined with direct injection and turbocharging. Some of these engines
also have combustion restart. These engines also provide maximum power
and torque similar to the engines they are replacing while delivering
higher fuel economy, although impacts on price and performance measures
are also uncertain.
For some selected technologies, Table III-2 compares MY 2011
penetration rates in manufacturers' product plans from the 2007 plans
to those from the 2008 plans. This comparison reveals both increases
and decreases in planned technology application for MY 2011, including
a doubling in the planned production of hybrid electric vehicles (here,
including only ``strong'' hybrids such as power-split hybrids and plug-
in hybrids). Because this comparison is limited to MY 2011, it does not
evidence manufacturers' plans--discussed above--to redesign many
vehicles in MY 2012 (and later years) and, in doing so, to increase
further the use of some fuel-saving technologies. This also holds true
for the GM and Chrysler restructuring plans, which describe limits to
attaining anticipated MY 2011 targets, in particular for GM trucks in
that year, but at the same time differ markedly in terms of the
estimates of the total number of vehicles sold. Information on the
impact of penetration rates is of course conditioned on sales volumes,
which vary for MY 2011 from 11.1 million for Chrysler to 14.3 million
for GM. While information regarding these later technology improvements
was provided to NHTSA, it did not form the basis for the establishment
of the MY 2011 CAFE standards.
[GRAPHIC] [TIFF OMITTED] TR30MR09.007

Manufacturers have also, in 2008, indicated plans to sell more
dual-fuel or flexible-fuel vehicles (FFVs) than indicated in the plans
they submitted to NHTSA in 2007. FFVs create a potential market for
alternatives to petroleum-based gasoline and diesel fuel. For purposes
of determining compliance with CAFE standards, the fuel economy of a
FFV is, subject to limitations, adjusted upward to account for this
potential.\100\ However, NHTSA is precluded from ``taking credit'' for
the compliance flexibility by accounting for manufacturers' ability to
earn and use credits in determining what standards would be ``maximum
feasible.''\101\ Some manufacturers plan to produce a considerably
greater share of FFVs than can earn full credit under EPCA. The
projected average FFV share of the market in MY 2011 is 14 percent for
the NPRM and 17 percent for the final rule.
---------------------------------------------------------------------------

\100\ See 49 U.S.C. 32905 and 32906.
\101\ 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

Consistent with these expected trends toward wider application of
fuel-saving technologies, the product plan data indicates that almost
all manufacturers expect to produce a more efficient fleet than they
had planned to produce in 2007. However, because manufacturers' product
plans also reflect simultaneous changes in fleet mix and other vehicle
characteristics, the relationship between increased technology
utilization and

[[Page 14227]]

increased fuel economy cannot be isolated with any certainty. To do so
would require an apples-to-apples ``counterfactual'' fleet of vehicles
that are, except for technology and fuel economy, identical--for
example, in terms of fleet mix and vehicle performance and utility. As
a result, NHTSA's baseline market forecast shows industry-wide average
fuel economy levels somewhat higher than shown in the NPRM. Average
fuel economy for MY 2011 is 26.0 mpg in the NPRM baseline forecast, and
26.5 mpg in the final rule.
These changes are shown in greater detail below in Table III-3a,
which shows manufacturer-specific CAFE levels (not counting CAFE
credits that some manufacturers expect to earn by producing flexible
fuel vehicles) planned in 2007 for passenger cars and light trucks.
Table III-3b shows the combined averages of these planned CAFE levels.
Tables III-4a and III-4b show corresponding information from
manufacturers' 2008 plans. These tables demonstrate that, with very few
exceptions, manufacturers are planning to increase overall average fuel
economy beyond the levels shown in the plans they submitted in 2007. In
addition, according to the restructuring plans submitted to the
Treasury Department, GM states that it will reach average fleet fuel
economy of 32.5 mpg for passenger vehicles and 23.6 mpg for trucks in
MY 2011, compared to the 30.3 and 21.4 reported in Table III-4a,
below.\102\ Also, Chrysler's restructuring plan states that the company
plans to accelerate its utilization of more fuel-efficient power
trains, for example, to improve fuel efficiency on a remixed product
line. In addition, Chrysler plans, according to the restructuring, to
offer flexible fuel capability in half of its light trucks by 2012.
---------------------------------------------------------------------------

\102\ Unlike the values shown in Table III-4a, the average fuel
economy levels shown in GM's restructuring plan reflect ``full usage
of all credit flexibilities under the CAFE program.'' It is not
clear how much of the difference between Table III-4a and GM's
February 2009 estimates is accounted for by such flexibilities.
[GRAPHIC] [TIFF OMITTED] TR30MR09.008

[[Page 14228]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.009

[[Page 14229]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.010

Tables III-5 through III-7 summarize other changes in
manufacturers' product plans between those submitted to NHTSA in 2007
(for the NPRM) and 2008 (for the final rule). These tables present
average vehicle footprint, curb weight, and power-to-weight ratios for
each of the seven largest manufacturers, and for the overall industry.
The tables do not identify manufacturers by name, and do not present
them in the same sequence.
Table III-5 shows that manufacturers' latest plans reflect a very
slight (less than 0.1 square feet) increase in overall average
passenger vehicle size, and suggests that manufacturers currently plan
to sell larger trucks than they reported previously. However, these
planned increases are, in the aggregate, attributable to the
reassignment of vehicles from the light truck to the passenger car
fleet. The average planned footprint among all planned passenger cars
and light trucks remained unchanged.
[GRAPHIC] [TIFF OMITTED] TR30MR09.011

Table III-6 shows that manufacturers' latest plans reflect a small
increase in overall average vehicle weight. However, for both the
passenger car and light truck fleets, the reassignment of some light
trucks to the passenger car fleet caused the average curb weight for
both fleets to increase, even though doing so did not (and, of course,
could not) change the overall average curb weight. Without these
reassignments, the average curb weights of the passenger car and light
truck fleets would have dropped by about 5 and 35 pounds,
respectively.\103\
---------------------------------------------------------------------------

\103\ Notwithstanding the reassignment of some vehicles to the
passenger car fleet, manufacturers' July 2008 product plans also
indicated shifts in the mix of passenger cars and light trucks, such
that overall average curb weight increased despite these small
decreases in average passenger car and average light truck curb
weight.

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

[[Page 14230]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.012

Table III-7 shows that manufacturers' latest plans reflect a small
increase (about 1.7 percent) in overall average performance, and
suggests that increases will mostly occur in the light truck fleet.
Considering that this 3.5 percent increase in light truck performance
is accompanied by a 2.7 percent increase in light truck curb weight,
this suggests that (1) the vehicles being reassigned to the passenger
car fleet are among the less powerful (per pound) of the vehicles
previously assigned to the light truck fleet and (2) manufacturers are
planning to install somewhat more powerful engines in many light trucks
than previously reported to NHTSA. This trend is detectable by analysis
of the detailed product plans, and is appears to be corroborated by the
reported change in intended product mix that GM and Chrysler state in
their restructuring plans.
[GRAPHIC] [TIFF OMITTED] TR30MR09.013

These overall trends mask the fact that manufacturers' plans did
not all change in the same ways. In terms of planned average footprint,
changes in manufacturers' plans ranged from a 4 percent decrease to a 5
percent increase. In terms of planned average curb weight and power-to-
weight ratio, these ranges covered -4 percent to 3 percent and -5
percent to 15 percent, respectively.
NHTSA recognizes that some manufacturers' plans to increase vehicle
performance reflect an intention to apply some fuel-saving technologies
in ways that do not hold performance and utility constant, and
therefore do not achieve the same fuel economy increases that NHTSA
would assume when estimating the effect of adding these technologies
for the sole purpose of complying with CAFE standards. This continues
what has long been standard practice in the industry. Vehicle
performance, amenities, and utility have been generally increasing for
more than a century, in response to consumer demand. Manufacturers have
applied innumerable technological advances during that time, and
although they have achieved significant fuel economy gains, they have
not applied these technological advances for the sole purpose of
increasing fuel economy. When applying a given technology to a given
vehicle, a manufacturer does so in a way that balances multiple vehicle
characteristics, including fuel economy. For example, while a
manufacturer might make both a gasoline and diesel version of a given
sedan, the diesel version might offer more weight-increasing amenities
(e.g., luxury seating) and significantly better performance (e.g.,
torque). In this case, the diesel version would have greater value to
the consumer, and would thus command a higher price.
The Union of Concerned Scientists (UCS) and some other commenters
suggested that manufacturers' product plans, and NHTSA's use of these
plans, may have at least the appearance of wrongdoing.\104\ Such
comments cite a ``lack of transparency'' ultimately traceable to the
fact that the submitted product plans contain confidential business
information, which the agency is prohibited by federal law from
disclosing, as discussed above. However, NHTSA believes these
perceptions may also arise because UCS and others realize that
manufacturers often use technology to increase performance (and other
vehicle characteristics), not just to increase fuel economy, and thus
may assign a fuel economy ``effectiveness'' to a technology in their
product plans that is lower than if the technology was used solely to
increase fuel economy. If so, NHTSA rejects the notion that for
manufacturers to do so constitutes any

[[Page 14231]]

form of ``wrongdoing.'' Manufacturers compete in a marketplace that
reflects the values that consumers place on vehicle amenities,
performance, and utility, as well as fuel economy.
---------------------------------------------------------------------------

\104\ See, e.g., UCS, p. 14.
---------------------------------------------------------------------------

When NHTSA estimates the cost and effect of adding technologies in
response to CAFE standards, the agency is treating these technologies
as being applied solely for that purpose; therefore, the agency's
analysis reflects an attempt to hold amenities, performance, and
utility constant. Thus, NHTSA's analysis estimates means by which
manufacturers could comply with CAFE standards. Manufacturers, however,
determine how they actually will comply. As an example, if a
manufacturer plans to apply technologies in ways that increase vehicle
performance in addition to increasing fuel economy, NHTSA would have to
find a way of accounting for the value that those performance increases
represent. While the manufacturers seeking federal funds have reported
plans to alter their product mix in favor of smaller, more fuel-
efficient vehicles, it is too soon to tell to what extent consumers
will adapt to such a product mix for MY 2011 (which may, to a large
extent, depend on fuel prices), or whether the rest of the industry
will follow or instead decide to serve the market for larger
performance vehicles left behind by GM and Chrysler.
Expected model years in which each vehicle model will be redesigned
or freshened constitute another important aspect of NHTSA's market
forecast. As discussed in Section IV, NHTSA's analysis supporting
today's rulemaking times the addition of most technologies to coincide
with either a vehicle redesign or a vehicle freshening. Product plans
submitted to NHTSA preceding both the NPRM and the final rule contained
manufacturers' estimates of vehicle redesign and freshening schedules.
However, as discussed in Section IV, NHTSA estimated that in the
future, most vehicles would be redesigned on a five-year schedule, with
vehicle freshening (i.e., refresh) occurring every two to three years
after a redesign. After applying these estimates, the shares of
manufacturers' passenger car and light truck estimated to be redesigned
in MY 2011 were as summarized below for the seven largest
manufacturers. Table III-8 shows the percentages of each manufacturer's
fleets expected to be redesigned in MY 2011 from the market forecast
used by NHTSA in the analysis documented in the NPRM. To protect
confidential information, manufacturers are not identified by name.
Table III-9 presents corresponding estimates from the analysis
supporting today's final rule. To further protect confidential
information, the numbering of individual manufacturers is different
from that shown in Table III-8.
[GRAPHIC] [TIFF OMITTED] TR30MR09.014

We continue, therefore, to estimate that manufacturers' redesigns
will not be uniformly distributed across model years. This is in
keeping with standard industry practices, and reflects what
manufacturers actually do-NHTSA has observed that manufacturers in fact
do redesign more vehicles in some years than in others. NHTSA staff
have closely examined manufacturers' planned redesign schedules,
contacting some manufacturers for clarification of some plans, and
confirmed that these plans remain unevenly distributed over time. For
example, although Table 9 shows that NHTSA expects Company 2 to
redesign 34 percent of its passenger car models in MY 2011, current
information indicates that this company will then redesign only (a
different) 10 percent of its passenger cars in MY 2012. Similarly,
although Table 9 shows that NHTSA expects four of the largest seven
light truck manufacturers to redesign virtually no light truck models
in MY 2011, current information also indicates that these four
manufacturers will redesign 21-49 percent of their light trucks in MY
2012. GM and Chrysler's recent restructuring plans lend support to
these observations. Chrysler described its planned entries of new
vehicles (its ``launch cadence'') in

[[Page 14232]]

its plan, and there is clear phasing, with MY 2011 experiencing many
new introductions and some later years having none.\105\
---------------------------------------------------------------------------

\105\ Chrysler plan, p. 135.
---------------------------------------------------------------------------

NHTSA understands that a manufacturer may choose to time the
application of technologies to coincide with planned redesigns, and
elect in one model year to apply more technology than needed to meet
its required CAFE level in that year. However, NHTSA has decided not to
attempt to represent this type of manufacturer response to the MY 2011
CAFE standards because it is not relevant for the current
rulemaking.\106\ NHTSA will consider this issue further in future
rulemaking analyses.
---------------------------------------------------------------------------

\106\ Additionally, although the agency will reconsider this
issue in future rulemakings, at this time the agency is not
confident that it has the statutory authority to base its
determination of the maximum feasible CAFE standard in a given model
year on manufacturers' ability to over-comply during prior model
years in which more vehicles were redesigned.
---------------------------------------------------------------------------

2. Once NHTSA has the product plans, how does it develop the baseline?
In all cases, manufacturers' sales volumes were normalized to
produce passenger car and light truck fleets which reflected each
manufacturers' MY 2008 market shares within the aggregate vehicle sales
volume forecast in EIA's 2008 Annual Energy Outlook. NHTSA does this in
order to develop a market forecast that is realistic in terms of both
its overall size as well as manufacturers' relative market shares. The
product mix for each manufacturer that submitted product plans was
preserved and, in the case of those than did not submit plans, the
product mix used was the same as indicated in their pre-model year 2008
CAFE data. As was discussed earlier, the manufacturers themselves are
uncertain about future aggregate sales volumes. Although the market is
facing a downturn of unprecedented magnitude, NHTSA currently expects
that pent-up demand (driven, for example, by the continued use and
eventual scrappage of existing vehicles) and an eventual economic
recovery will, over time, bring sales back to more historic levels.
CBD commented that this method of establishing the baseline fleet
``has illegally constrained [NHTSA's] analysis by locking [NHTSA] into
the assumption that a manufacturer's fleet mix need not, and will not,
change in response to'' increasing consumer demand for vehicles with
improved fuel economy. Whether NHTSA should incorporate market shifts
in its modeling has been a theme in comments for the past several CAFE
rulemakings. Comments with regard to market shift tend to address two
different issues. First, commenters request that NHTSA assume a higher
fuel economy baseline than manufacturer product plans indicate, due to
market shifts occurring because consumers demand higher fuel economy
even without CAFE standards. The Mercatus Center, for example, raised
this point in comments to the NPRM. Second, commenters suggest that
NHTSA should incorporate the market shifts that result due to CAFE
regulation, as manufacturers adjust vehicle prices and fuel economy
levels, and consumers respond to those changes. The Alliance
recommended that NHTSA use NERA's nested logit model, for example,
since it attempts to account for ``actual consumer demand behavior'' to
address this issue.
NHTSA agrees in principle that some kind of ``market shift'' model
could provide useful information regarding the possible effects of
potential new CAFE standards, and has researched how to integrate such
a model into its stringency analysis. NHTSA recognizes that the product
plans on which the agency relies to determine CAFE stringency represent
a snapshot, and are subject to change in response to consumer demand,
whether driven by CAFE or by extrinsic factors. Although NHTSA has now
spent several years considering how to incorporate market shifts into
its analysis of potential CAFE standards, the agency has still not been
able to develop credible coefficients specifying such a model, and we
have therefore continued to refrain in the final rule from integrating
a market share model into the Volpe model.\107\ However, manufacturer
product plans for MY 2011 do already, at a minimum, reflect whatever
market shifts the manufacturers believe will occur in the absence of
regulations. Additionally, the agency conducts a separate analysis of
potential changes in manufacturers' overall sales volumes. NHTSA will
continue to consider ways in which to incorporate market shift modeling
into its analysis for future rulemakings. Recent upheavals in the
economy, including historically quick run-ups in gasoline prices
followed by as dramatic declines, greatly affect consumer demand for
vehicles. Econometric models such as nested logit are necessarily
calibrated on historic data and thus, while offering a consistent
method for describing the future, are constrained to reflect behavior
based on past reactions to events. The release of the restructuring
plans for GM and Chrysler are cases in point. They show considerable
alterations in product plans, including reduction of planned sales
volumes and nameplates, along with introduction of new models and
accelerated adoption of technology, that appear to reflect a break with
historical trends.
---------------------------------------------------------------------------

\107\ NHTSA is aware that Resources for the Future (RFF) has
drafted a report regarding its examination of consumer behavior
modeling. Although a market share model, as currently envisioned by
NHTSA, would also need to address manufacturer behavior (in
particular, regarding pricing), NHTSA will consider RFF's work in
evaluating future changes to NHTSA's analytical methods. NHTSA has
met with EPA and RFF staff to discuss the status of RFF's efforts,
and will consider any results RFF is able to develop.
---------------------------------------------------------------------------

Thus, the baseline fleet for MY 2011, or the baseline market
forecast, consists of the vehicles present in the normalized and
completed product plans, before NHTSA applies technologies to them.
Manufacturers typically provide product plans not only for the years
covered by a CAFE rulemaking, but also for prior years--so, for
purposes of this rulemaking, NHTSA has product plans from many
manufacturers beginning with MY 2008. As discussed above, NHTSA uses
the baseline market forecast as a way of gauging what manufacturer fuel
economy levels would exist in the absence of new CAFE standards. In
order to provide a point of reference for estimating the costs and
benefits of new standards, NHTSA assumes that, without new standards,
the fuel economy standards would remain at the level of the MY 2010
standards.\108\ However, the baseline market forecast, which again, is
based on the product plans, does not show all manufacturers in
compliance with the MY 2010 standards. This results from manufacturers'
ability to use compliance flexibilities, like credits (AMFA and
otherwise) and fines, to meet the standards, which NHTSA is statutorily
prohibited from considering in setting the standards.
---------------------------------------------------------------------------

\108\ As a point of reference for analysis, we note that
assuming that CAFE standards remain at 2010 levels is different from
assuming that manufacturer fuel economy levels remains at their 2010
levels. As a legal matter under EISA, after MY 2011, if NHTSA does
not set standards for a model year, there are no standards for that
model year. However, as a practical matter, it is reasonable to
assume that manufacturers would proceed as if the previous year's
standard carried over, rather than changing their vehicles and
allowing fuel economy to fall without limit.
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In order to ensure that our analysis does not incorporate such
flexibilities and thus result in double-counting of costs that were
evaluated in the previous rulemaking, NHTSA must adjust the baseline
market forecast upwards. For manufacturers whose

[[Page 14233]]

product plans show fuel economy levels below the MY 2010 standards,
NHTSA adjusts them upwards by adding technology to the manufacturer's
fleet in order to get the manufacturer into compliance without use of
credits or payment of fines. For manufacturers whose product plans meet
or exceed the MY 2010 standards, NHTSA incorporates them as-is. NHTSA
develops an adjusted baseline because the costs and benefits of
reaching the MY 2010 standards were already accounted for in prior
rulemakings, just as the costs and benefits of reaching the MY 2011
standards are accounted for in the current rulemaking. To avoid double-
counting the costs to manufacturers or the benefits to society required
to meet the MY 2010 standards, NHTSA develops this adjusted baseline,
which the agency then uses in analyzing the MY 2011 standards.
The Alliance commented that NHTSA should use an ``actual'' baseline
instead of a ``projected'' baseline. The Alliance stated that ``NHTSA
assumes that manufacturers were going to increase fuel economy
significantly in numerous ways apart from a congressional or agency
mandate to do so,'' and argued that ``by failing to consider the price
increases needed to reach its `projected baseline,' NHTSA
underestimates the increase in vehicle prices by about $260 per vehicle
for cars and $920 per vehicle for trucks on average.''
As explained, NHTSA would be double-counting to incorporate the
costs of meeting the MY 2010 standards in the cost/benefit analysis for
the current rulemaking. NHTSA discusses these costs, however, in the
FRIA in Chapter I.
3. How does NHTSA's market forecast reflect current market conditions?
NHTSA's market forecast for MY 2011, which is based significantly
on confidential product plans provided to the agency by vehicle
manufacturers, reflects the agency's best judgment at the time it was
developed. Manufacturers submitted plans during the summer of 2008. In
preceding months, the industry had begun to show signs of stress, and
the agency believes manufacturers' revised plans submitted after the
NPRM were informed by this. NHTSA is well aware that market conditions
have deteriorated since late summer, just as the agency is aware that
gasoline prices have fallen considerably in recent months.
The agency notes, as mentioned above, that manufacturers' product
plans were submitted along with manufacturers' indications that these
plans were generally informed by expectations that relatively high fuel
prices would prevail in the future. Although NHTSA did not request that
manufacturers provide comprehensive and detailed forecasts of the world
economy, including markets for credit and petroleum, the agency
believes that manufacturers anticipated that, at least from MY 2011
forward, the economic environment would look much less dire than more
recent events would suggest. The agency believes these expectations
were consistent with those embodied in the high price scenario in EIA's
AEO 2008, upon which the agency has based the fuel prices and total
light vehicle market size used in the analysis supporting today's final
rule.
NHTSA is cautiously hopeful that market conditions will rebound,
and our market forecast remains consistent with that expectation. The
recent restructuring plans submitted by Chrysler and GM, while
diverging in absolute terms with respect to sales volumes, also
anticipate significant sales growth by the middle part of the decade.
In any event, were NHTSA to adopt more pessimistic expectations, those
expectations would need to be reflected in other economic forecasts--in
particular of petroleum prices. Were NHTSA to apply economic estimates
that assume credit markets remain very constricted during MY 2011, it
should, for internal consistency, apply considerably reduced estimates
of the overall number of light vehicles sold in the U.S., and
potentially lower estimates of gasoline and diesel fuel prices during
the lifetimes of the vehicles covered by the standards.
NHTSA has concluded that the forecasts it has applied in its
current rulemaking for MY 2011 reflect the best internally consistent
information available. The agency will, of course, update these
forecasts in future rulemakings, and will base its analysis in those
rulemakings on information--public, commercially-available, or
confidential--that it considers most indicative of the fleets that
manufacturers are likely to produce in future model years

IV. Fuel Economy-Improving Technologies

As explained above, pursuant to the President's January 26, 2009
memorandum, this final rule establishes passenger car and light truck
CAFE standards for one year, MY 2011. Although this final rule
establishes standards for that year alone, the agency undertook a
comprehensive analysis of fuel economy-improving technologies with a
time horizon similar to the one considered in the 2002 National Academy
of Sciences (NAS) CAFE report. Like NAS, the agency considered
technologies that are readily available, well known and could be
incorporated into vehicles once production decisions are made (these
are referred to as ``production intent'' technologies). Other
technologies considered, called ``emerging'', are beyond the research
phase and under development, but are not widely used at this time. The
agency did not consider technologies in the research stage because
their costs and/or performance are not presently well known.
The agency has elected to include the full analysis in this final
rule for several reasons. First, it supplements the analysis of fuel
saving technology released by the 2002 NAS study. Second, it places in
meaningful context the portion of the analysis that relates directly to
MY 2011, showing which technologies are not available for that year and
why. The agency typically evaluates technologies within a time context
spanning more than a single model year, even if the rulemaking itself
addresses only a single year as in the current rulemaking, because when
manufacturers add technologies to vehicle models in order to meet CAFE
standards, they tend to phase them in over several model years,
consistent with vehicle redesign and refresh schedules, supplier
contract procedures, the need for testing and validation of new
technologies, and so forth. Consequently, although the final rule
establishes standards for MY 2011 only, NHTSA believes that including
the entire technology analysis will increase public understanding of
the agency's estimates for MY 2011 of technology costs, effectiveness,
and availability, as well as manufacturer vehicle freshening and
redesign cycles.
With that in mind, the following section details the cost and
effectiveness estimates completed for technologies in the production
intent or emerging technology phase timeline. The estimates are drawn
from an analysis conducted in the summer of 2008. It relied as much as
possible on published studies and confidential product plan data
submitted by manufacturers on July 1, 2008 in response to the agency's
NPRM request for comments published May 2, 2008. The analysis was
conducted by engineers from DOT and Ricardo, an international
consulting firm that specializes in automotive engineering consulting
(discussed below). The engineering team used all data available at that
time, along with their expert opinion to derive cost and effectiveness
estimates for technologies

[[Page 14234]]

either in production or in the emerging stage of production for
purposes of this rulemaking.
The agency believes that the resulting estimates are the best
available for MY 2011, given the information that existed at the time.
NHTSA recognizes, however, that the analysis of and public debate over
the cost and effectiveness of the various fuel saving technologies is
an ongoing one. It recognizes too that aspects of its technology
analysis will likely require updating or otherwise merit revision for
the next CAFE rulemaking. As time progresses, new research occurs, new
studies become available and product plan information changes. As with
all CAFE rulemakings and pursuant to the President's memorandum, the
agency will take a fresh look at all of its technology-related
assumptions for the purpose of future rulemakings.

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

One of the key statutory factors that NHTSA must consider in
setting maximum feasible CAFE standards for each model year is the
availability and feasibility of fuel saving technologies. When
manufacturers submit their product plans to NHTSA, they identify the
technologies they are planning for each vehicle model in each model
year. They also provide their assessments of the costs and
effectiveness of those fuel saving technologies. The agency uses the
manufacturers' product plan data to ascertain the ``baseline''
capabilities and average fuel economy of each manufacturer. Given the
agency's need to consider economic practicability in determining how
quickly additional fuel saving technologies can be added to the
manufacturers' vehicle planned fleets, the agency researches and
develops, based on the best available information and data, its own
list of technologies that it believes will be ready for implementation
during the model years covered by the rulemaking. This includes
developing estimates of the costs and effectiveness of each technology
and lead time needs. The resultant technology assumptions form an input
into the Volpe model. The model simulates how manufacturers can comply
with a given CAFE level by adding technologies beyond those they
planned in a systematic, efficient and reproducible manner. The
following sections describe NHTSA's fuel-saving technology assumptions
and methodology for estimating them, and their applicability to MY 2011
vehicles.

B. How NHTSA Decides Which Technologies to Include

1. How NHTSA Did This Historically, and How for the NPRM
In the agency's last two CAFE rulemakings, which established light
truck CAFE standards for MYs 2005-2007 and MYs 2008-2011, NHTSA relied
on the 2002 National Academy of Sciences' report, ``Effectiveness and
Impact of Corporate Average Fuel Economy Standards'' \109\ (``the 2002
NAS Report'') for estimating potential fuel economy effectiveness
values and associated retail costs of applying combinations of
technologies in 10 classes of production vehicles. The NAS study was
commissioned by the agency, at the direction of Congress, in order to
provide independent and peer reviewed estimates of cost and
effectiveness numbers. The NAS list was determined by a panel of
experts formed by the National Academy of Sciences, and was then peer-
reviewed by individuals chosen for their diverse perspectives and
technical expertise in accordance with procedures approved by the
Report Review Committee of the National Research.
---------------------------------------------------------------------------

\109\ National Research Council, ``Effectiveness and Impact of
Corporate Average Fuel Economy (CAFE) Standards,'' National Academy
Press, Washington, DC (2002). Available at http://www.nap.edu/openbook.php?isbn=0309076013 (last accessed October 11, 2008).
---------------------------------------------------------------------------

In the NPRM for the MY 2011-2015 CAFE standards, NHTSA explained
that there has been substantial advancement in fuel-saving automotive
technologies since the publication of the 2002 NAS Report. New
technologies, i.e., ones that were not assessed in the NAS report, have
appeared in the market place or are expected to appear in the timeframe
of the proposed rulemaking. Also, new studies have been conducted and
reports issued by several other organizations providing new or
different information regarding the fuel economy technologies that will
be available and their costs and effectiveness values. To aid the
agency in assessing these developments, NHTSA contracted with the NAS
to update the fuel economy section, Chapter 3, of the 2002 NAS Report.
However, as NHTSA explained, the NAS update was not available in time
for this rulemaking.
Accordingly, NHTSA worked with EPA staff to update the technology
assumptions, and used the results as a basis for its NPRM. EPA staff
published a related report and submitted it to the NAS committee.\110\
---------------------------------------------------------------------------

\110\ EPA Staff Technical Report: Cost and Effectiveness
Estimates of Technologies Used to Reduce Light-Duty Vehicle Carbon
Dioxide Emissions, EPA 420-R-08-008, March 2008.
---------------------------------------------------------------------------

2. NHTSA's Contract with Ricardo for the Final Rule
NHTSA specifically sought comment on the estimates, which it had
developed jointly with EPA, of the availability, applicability, cost,
and effectiveness of fuel-saving technologies, and the order in which
the technologies were applied. See 73 FR 24352, 24367. To aid the
agency in analyzing those comments and increasing the accuracy, clarity
and transparency of its technology assumptions and methodologies
employed in developing them, it hired an international consulting firm,
Ricardo, which specializes in automotive engineering consulting.
Ricardo, which describes itself as an eco-innovation technology
company, is a leading independent provider of technology, product
innovation, engineering solutions, software and strategic consulting.
Its skill base includes the state-of-the-art in low emissions and fuel-
efficient powertrain and vehicle technology. Its customers include
government agencies here and abroad and the world's automotive,
transport and new-energy industries.\111\ For example, it has provided
technical consulting on low CO2 strategies to the UK
Department for Transport (DfT).\112\ Additionally, in December 2007,
Ricardo completed an important study for EPA titled ``A Study of
Potential Effectiveness of Carbon Dioxide Reducing Vehicle
Technologies.'' \113\
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\111\ More information about Ricardo's work is available at
their Web site, http://www.ricardo.com (last accessed September 20,
2008). Its 2007 Annual Report provides a comprehensive view of some
of its current work. See http://www.ricardo.com/investors/download/annualreport2007.pdf (last accessed September 22, 2008).
\112\ Ricardo UK Ltd., ``Understanding manufacturers' responses
to policy measures to incentivise fuel efficiency,'' Oct. 5, 2007.
Available at http://www.dft.gov.uk/consultations/closed/co2emissions/ricardoreport.pdf (last accessed Oct. 4, 2008).
\113\ A slightly updated (June 2008) version of Ricardo's study
for EPA is available on EPA's Web site, at http://www.epa.gov/otaq/technology/420r08004a.pdf (last accessed September 20, 2008).
---------------------------------------------------------------------------

Ricardo's role was as a technical advisor to NHTSA staff. In this
capacity, Ricardo helped NHTSA undertake a comprehensive review of the
NPRM technology assumptions and all comments received on those
assumptions, based on both old and new public and confidential
manufacturer information. NHTSA and Ricardo staff reviewed and compared
comments on the availability and applicability of technologies, and the
logical progression between them. NHTSA also reviewed and compared the
methodologies used for determining

[[Page 14235]]

the costs and effectiveness of the technologies as well as the specific
estimates provided. Relying on the technical expertise of Ricardo and
taking into consideration all the information available, NHTSA revised
its estimates of the availability and applicability of many
technologies, and revised its estimate of the order in which the
technologies were applied and how they are differentiated by vehicle
class, as well as the costs and effectiveness estimates and used the
revised numbers in analyzing alternative levels of stringency.
While NHTSA sought Ricardo's expertise and relied significantly on
their assistance as a neutral expert in developing its technical
assumptions, it retained responsibility for the final estimates. The
agency believes that the representation of technologies for MY 2011--
that is, estimates of the availability, applicability, cost, and
effectiveness of fuel-saving technologies, and the order in which the
technologies were applied--used in this rulemaking is more accurate
than that used in the NPRM, and is the best available for purposes of
this rulemaking.

C. What Technology Assumptions has NHTSA Used for the Final Rule?

1. How do NHTSA's technology assumptions in the final rule differ from
those used in the NPRM?
This final rule uses the same basic framework as the NPRM. However,
NHTSA made several changes to its technology assumptions based on
comments and information received during the rulemaking. As in the NPRM
and the MY 2008-2011 light truck rule, the agency relied on the Volpe
model CAFE Compliance and Effects Modeling System which was developed
by the Department of Transportation's Volpe National Transportation
Systems Center (Volpe Center) to apply technologies. The model, known
as the Volpe model, is the primary tool the agency has used in
conducting a ``compliance analysis'' of various CAFE stringencies. The
Volpe model relied on the same types of technology related inputs as in
previous rules, including market data files, technology cost and
effectiveness estimates by vehicle classification, technology
synergies, phase-in rates, learning curve adjustments, and technology
decision trees.
Regarding the decision trees, both the structure of the trees and
ordering of the technologies were revised. The decision trees have been
expanded so that NHTSA is better able to track the incremental and net/
cumulative cost and effectiveness of each technology, which
substantially improves the ``accounting'' of costs and effectiveness
for the final rule.\114\ The revised decision trees also have improved
integration, accuracy, and technology representations.
---------------------------------------------------------------------------

\114\ In addition to the (simplified) decision trees, as
published in this document, NHTSA also utilized ``expanded''
decision trees in the final rule analysis. Expanded decision trees
graphically represent each unique path, considering the branch
points available to the Volpe model, which can be utilized for
applying fuel saving technologies. For instance, the engine decision
tree shown in this document has 20 boxes representing engine
technologies, whereas the expanded engine decision tree requires a
total of 45 boxes to accurately represent all available application
variants. Expanded decision trees presented a significant
improvement, compared to the NPRM analysis, in the overall
assessment and tracking of applied technologies since they allowed
NHTSA staff to accurately view and assess both the incremental and
the accumulated, or net cost and effectiveness at any stage of
technology application in a decision tree. Because of the large
format of the expanded decision trees, they could not be included in
the Federal Register, so NHTSA refers the reader to Docket No.
NHTSA-2008-0177. Expanded decision trees for the engine,
electrification/transmission/hybridization, and the vehicle
technologies (three separate decision trees) were developed for each
of the 12 vehicle technology application classes (the vehicle
subclasses discussed in Section IV.D.4) and the three expanded
decision trees for the Large Car subclass have been placed in the
docket as an example for the reader's information.
---------------------------------------------------------------------------

In revising the decision trees, NHTSA updated, combined, split and/
or renamed technologies. Several technologies were added, while others
were deleted. The three technologies that were deleted because they do
not appear in either public or confidential data and are primarily in
the research phase of development are: Camless Valve Actuation, Lean-
Burn Gasoline Direct-Injection and Homogenous Charge Compression
Ignition.\115\ NHTSA also added three advanced technologies based on
confidential manufacturer submissions which showed these technologies
as being emerging and currently under development. These technologies
are: Combustion Restart, Exhaust Gas Recirculation Boost, and Plug-in
Hybrids.
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\115\ We note that GM included lean burn HCCI in its
restructuring plans submitted to Congress, but the restructuring
plans were submitted too late for the agency to consider them in its
technology analysis, among other reasons. GM Restructuring Plan, p.
22.
---------------------------------------------------------------------------

The Volpe model was modified to allow a non-linear phase-in rate
across the five model years, rather than a constant phase-in rate as
was used in the NPRM and in previous rules. Most technology
applications have tighter phase-in caps in the early years to provide
for additional lead time.
In the NPRM, NHTSA applied volume-based learning factors to
technology costs for the first time. These learning factors were
developed using the parameters of learning threshold, learning rate
(decremented over two cycles), and the initial (unlearned) cost. In the
NPRM, NHTSA applied a learning rate discount of 20 percent each time a
technology was projected for use on 25,000 vehicles per manufacturer,
which was the threshold volume for learning rate discounts. The
discounts were only taken twice, at 25,000 and 50,000 vehicles. A
technology was viewed as being fully learned out at 100,000 units.
The agency also reconsidered volume-based learning factors and made
significant revisions. First, the volume learning is now applied on an
industry basis as opposed to a manufacturer basis. This takes into
account the fact that the automobile industry shares best practices and
that manufacturers learn from that sharing to produce their vehicles at
lower costs. For the final rule, the revised learning threshold is set
to 300,000 vehicles per year by the automobile industry. This number
was developed based on comments indicating that many of the publicly
available technology cost estimates are based on production quantities
of 900,000 to 1.5 million vehicles by at least 3 manufacturers. The
agency notes, however, that none of the technologies applied in MY 2011
receive volume-based learning, due to the time frame applicable.
For the technologies applied in the final rule, a time-based
learning factor was used in response to public comments from Ford and
others. This learning factor was not applied in the NPRM. Time-based
learning is applied to widely available, high volume, stable and mature
technologies typically purchased under negotiated multi-year
contractual agreement with suppliers. This type of an agreement is
typical of most supplier-provided fuel saving technologies. With time-
based learning, the initial cost of a technology is reduced by a fixed
amount in its second and subsequent year of availability. A fixed rate
3 percent year-over-year cost reduction is applied up to a maximum of
12 percent cost reduction.
In the NPRM NHTSA divided vehicles into ten subclasses based on
technology applicability: four for cars and six for trucks. NHTSA
assigned passenger cars into one of the following subclasses:
Subcompact, Compact, Midsize, or Large Car. NHTSA assigned light trucks
into one of the following subclasses: Minivan, Small SUV, Medium SUV,
Large SUV, Small Pickup

[[Page 14236]]

Truck, or Large Pickup Truck. In its 2008 NPRM for MY 2011-2015, NHTSA
included some differentiation in cost and effectiveness numbers between
the various classes to account for differences in technology costs and
effectiveness that are observed when technologies are applied on to
different classes and subclasses of vehicles.
For the final rule, NHTSA, working with Ricardo, increased the
accuracy of its technology assumptions by reexamining the subclasses
developed for the purpose of modeling technology application. For
passenger cars, NHTSA divided vehicles into eight subclasses based on
technology applicability by creating a performance class under each of
the four subclasses. For trucks, NHTSA established four subclasses,
including a minivan subclass, and small, midsize and large SUV/Pickup/
Van subclasses. NHTSA also provided more differentiation in the costs
and effectiveness values by vehicle subclass. The agency found it
important to make that differentiation because the agency estimated
that some technologies would have different implications for large
vehicles than for smaller vehicles.
In summary, the revisions to NHTSA's methodology for technology
application and cost and effectiveness estimates are designed to
respond to comments, many of which focused on various inaccuracies and
lack of clarity in the NPRM. NHTSA believes that the methodology for
the final rule, as compared to the NPRM methodology, is much clearer,
more accurate, and more representative of likely manufacturer behavior,
although, of course, manufacturers are free to respond to the CAFE
standards with whatever application of technology they choose. The
revised technology related assumptions help substantially ensure the
technological feasibility and economic practicability of the MY 2011
CAFE standards promulgated in this final rule.
2. How are the technologies applied in the model?
For the final rule, as in the NPRM, NHTSA made significant use of
the CAFE Volpe model as discussed above. The NPRM contained a detailed
discussion of the Volpe model and specifically stated its two primary
objectives as (1) identifying technologies that manufacturers could
apply in order to comply with a specified CAFE standard, and (2)
calculating the cost and effects of manufacturers' technology
applications. The NPRM also discussed other modeling systems and
approaches that NHTSA considered to accomplish these same objectives,
and also discusses why ultimately the agency chose to use the Volpe
model (see 79 FR 24352, 24391). However, having done so for this final
rule does not limit the agency's ability to use another approach for
future CAFE rulemakings, and NHTSA will continue to consider other
methods for estimating the costs and effects of adding technologies to
manufacturers' future fleets.
The Volpe model relies on several inputs and data files to conduct
the compliance analysis, and each of these are discussed in detail in
the NPRM. Many of these inputs contain economic and environmental data
required for the full CAFE analysis. However, for the purposes of
applying technologies, the subject of this section, the Volpe model
primarily uses three data files, one that contains data on the vehicles
being manufactured, one that identifies the appropriate stage within
the vehicle's life-cycle for the technology to be applied, and one that
contains data/parameters regarding the available technologies the model
can apply. These inputs are discussed below.
The Volpe model begins with an ``initial state'' of the domestic
vehicle market, which in this case is the market for passenger cars and
light trucks to be sold during the period covered by the final rule.
The vehicle market is defined on a model, engine, and transmission
basis, such that each defined vehicle model refers to a separately-
defined engine and a separately-defined transmission. For the final
rule, this represented roughly 5,500 cars and trucks, 700 engines, and
600 transmissions. The information, which is stored in a file called
the ``vehicle market forecast,'' is informed significantly by product
plans provided to NHTSA by vehicle manufacturers.\116\ However, the
Volpe model does not require that the market forecast be based on
confidential product plans, and the model is often tested using input
files developed using only publicly- and commercially-available
information. Also, as discussed in Section III above, EPCA does not
require NHTSA to use manufacturers' confidential product plans as a
basis for setting future CAFE standards, and the agency will continue
to base its market forecasts on whatever it determines is the best
available information, whether from public, commercially-available, or
confidential sources.
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\116\ The market forecast is developed by NHTSA using the
product plan information provided to the agency by individual
vehicle manufacturers in response to NHTSA's requests. The submitted
product plans contain confidential business information (CBI), which
the agency is prohibited by federal law from disclosing.
---------------------------------------------------------------------------

In addition to containing data about each vehicle, engine, and
transmission, this file contains information for each technology under
consideration as it pertains to the specific vehicle (whether the
vehicle is equipped with it or not), the model year the vehicle is
undergoing redesign, and information about the vehicle's subclass for
purposes of technology application.
The market forecast file provides NHTSA the ability to identify, on
a technology by technology basis, which technologies may already be
present (manufactured) on a particular vehicle, engine, or
transmission, or which technologies are not applicable (due to
technical considerations) to a particular vehicle, engine, or
transmission. These identifications are made on a model-by-model,
engine-by-engine, and transmission-by-transmission basis. For example,
if Manufacturer X advises NHTSA that Vehicle Y will be manufactured
with Technology Z, then for this vehicle Technology Z will be shown as
used. Or alternatively, NHTSA might conclude based on its own
assessment that for a given four cylinder engine, Manufacturer A cannot
utilize a particular Technology C due to an engineering issue that
prohibits it. In this case, NHTSA would, in the market forecast file,
indicate that Technology C should not be applied to this particular
engine (i.e., is unavailable). Since multiple vehicle models may be
equipped with this engine, this may affect multiple models. In using
this aspect of the market forecast file, NHTSA ensures the Volpe model
only applies technologies in an appropriate manner, since before any
application of a technology can occur, the model checks the market
forecast to see if it is either already present or unavailable.
Manufacturers typically plan vehicle changes to coincide with
certain stages of a vehicle's life cycle that are appropriate for the
change, or in this case the technology being applied. For instance,
some technologies (e.g., those that require significant revision) are
nearly always applied only when the vehicle is expected to be
redesigned. Other technologies can be applied only when the vehicle is
expected to be refreshed or redesigned and some others can be applied
at any time, regardless of whether a refresh or redesign event is
conducted. Accordingly, the model will only apply a technology at the
particular point deemed suitable. These constraints are intended to
produce results consistent with manufacturers' product planning
practices. For each technology under consideration,

[[Page 14237]]

NHTSA stipulates whether it can be applied any time, at refresh/
redesign, or only at redesign. The data forms another input to the
Volpe model, as discussed in detail below, called the Technology
Refresh and Redesign Application table (Table IV-6). Each manufacturer
identifies its planned redesign model year for each of its vehicles,
and this data is also stored in the market forecast file. Vehicle
redesign/refresh assumptions are discussed in Section IV.C.9 below.
As discussed in Section IV.C.4 on vehicle subclasses below, NHTSA
assigns one of 12 subclasses to each vehicle manufactured in the
rulemaking period. The vehicle subclass data is used for the purposes
of technology application. Each vehicle's class is stored in the market
forecast file. When conducting a compliance analysis, if the Volpe
model seeks to apply technology to a particular vehicle, it checks the
market forecast to see if the technology is available and if the
refresh/redesign criteria are met. If these conditions are satisfied,
the model determines the vehicle's subclass, which it then uses to
reference another input called the technology input file.
In the technology input file, NHTSA has developed a separate set of
technology data variables for each of the twelve vehicle subclasses.
Each set of variables is referred to as an ``input sheet,'' so for
example, the subcompact input sheet holds the technology data that is
appropriate for the subcompact subclass. Each input sheet contains a
list of technologies available for members of the particular vehicle
subclass. The following items are provided for each technology: a brief
description, its abbreviation, the decision tree with which it is
associated, the (first) year in which it is available, the upper and
lower cost and effectiveness (fuel consumption reduction) estimates,
the learning type and rate, the cost basis, its applicability, and the
phase-in values.
The input sheets are another method NHTSA uses to determine how to
properly apply, or in some cases constrain, a technology's application,
as well as to establish the costs and fuel consumption changes that
occur as it is applied. Examples of how technologies are applied (or
constrained) include the ``Applicability'' variable: if it is set to
``TRUE,'' then the technology can be applied to all members of the
vehicle subclass (a value of ``FALSE'' would prevent the Volpe model
from applying the technology to any member). Another example would be
the ``Year Available'' variable, which if set to ``2012'' means the
model can apply it to MY 2012 and later members, but cannot apply the
technology to MY 2011 models. The ``Learning Type'' and ``Learning
Rate'' define reductions in technology costs, if any are appropriate,
that the Volpe model may apply under certain conditions, as discussed
in the Learning Curve section below. ``Phase-in Values'' are intended
to address the various constraints that limit a manufacturer's ability
to apply technologies within a short period of time. For phase-ins,
once the model applies a given technology to a percentage of a given
manufacturers' fleet up to a specified phase-in cap, the model then
ceases to apply it further instead applying other technologies. Phase-
in caps are also discussed below in Section IV.C.10.
Perhaps the most important data contained in the input sheets are
the cost and effectiveness information associated with each technology.
One important concept to understand about the cost and effectiveness
values is that they are ``incremental'' in nature, meaning that the
estimates are ``referenced'' to some prior technology state in the
decision tree in which the applied technology is represented, typically
the preceding technology. Therefore, when considering values shown in
the input sheet, the reader must understand that in all but a few cases
they cannot fully deduce the accumulated or ``NET'' cost and
effectiveness, referenced back to the base condition (i.e., start of
the decision tree), without performing a more detailed analysis. The
method for conducting this analysis, and a brief example of how it is
done, is discussed in the Decision Tree section below. For the final
rule, to help readers better understand Volpe model net or accumulated
costs and fuel consumption reductions, NHTSA has published net values
to key technology locations on the decision trees (e.g., to diesel
engine conversion, or a strong hybrid). See the Tables showing
Approximate Net Technology Costs and Approximate Net Technology
Effectiveness, located in Section IV.E below. The tables have been
produced for each of the four vehicle subclasses in the passenger car,
performance passenger car, and light truck vehicle groups.
The incremental costs of some technologies are dependent on certain
factors specific to the vehicle to which they are applied. For
instance, when the Material Substitution technology is applied, the
cost of application is based on a cost per unit weight reduction, in
dollars per pound, since the weight removed is a percentage of the curb
weight of the vehicle (which differs from one vehicle to the next).
Similarly, some engine technologies need to be calculated on a cost per
cylinder basis, or a cost per configuration basis (i.e., a cost per
bank basis, so that a V-configured engine would cost twice as much as
an in-line, single bank engine). For each technology, the input sheet
also contains a Cost Basis variable which indicates whether the costs
need to be adjusted in this manner. This functionality, some of which
is new for the final rule, allows NHTSA to estimate more accurately the
costs of technology application, since in the NPRM the vehicles in a
subclass were assumed to have common cylinder counts and configurations
(thus the costs were underestimated for some vehicles and overestimated
for others).
Lastly for the technology input file, the term ``synergy'' as it
applies to the Volpe modeling process refers to the condition that
occurs when two or more technologies are applied to a vehicle and their
effects interact with each other, resulting in a different net effect
than the combination of the individual technologies. The term synergy
usually connotes a positive interaction (e.g., 1 + 1 is more than 2),
but as used here it also includes negative interactions (e.g., 1 + 1 is
less than 2). Synergies are discussed in greater detail below in
Section IV.C.7, and the values for the synergy factors NHTSA used in
the final rule are stored in the technology input file.
In some cases more than one decision tree path can lead to a
subsequently applied technology. For example, the power split hybrid
technology can be reached from one of two prior transmission
technologies (CVT or DCTAM). Accordingly the incremental cost and
effectiveness for applying the technology may vary depending on the
path and the modifications made in the prior technology. To ensure
accurate tracking of net costs and effectiveness, the Volpe model
utilizes path correction factors, as discussed further in the decision
tree discussion below. This functionality is an improvement to the
final rule, and the specific factors used are stored in the technology
input sheets. A copy of the final rule input sheets, titled ``2011-
2015--LV--CAFE--FinalRuleInputSheets20081019.pdf,'' can be obtained
from the final rule docket.
One additional concept to understand about how the Volpe model
functions is called an ``engineering constraint,'' a programmatic
method of controlling technology application that is independent of
those discussed above. NHTSA has determined that some technologies are
only suitable or

[[Page 14238]]

unsuitable when certain vehicle, engine, or transmission conditions
exist. For example, secondary axle disconnect is only suitable for 4WD
vehicles, and cylinder deactivation is unsuitable for any engine with
fewer than 6 cylinders, while material substitution is only available
for vehicles with curb weights greater than 5,000 pounds. Additionally,
in response to comments received, an engineering constraint was added
for purposes of the final rule to prevent the cylinder deactivation
technology from being applied to vehicles equipped with manual
transmissions, due primarily to driveability and NVH concerns
documented by the commenter. Where appropriate and required, NHTSA has
utilized engineering constraints to ensure accurate application of the
fuel saving technologies.
3. Technology Application Decision Trees
Several changes were made to the Volpe model between the analysis
reported in the NPRM and the final rule. This section will discuss two
of those changes: First, the updates to the set of technologies; and
second, the updates to the logical sequence for progressing through
these technologies, which NHTSA describes as ``decision trees.''
As discussed above, the set of technologies considered by the
agency has evolved since the NPRM. The set of technologies now included
in the Volpe model is shown below in Table IV-1, with abbreviations
used by the model to refer to each technology in the interest of
brevity. Section IV.D below explains each technology in much greater
detail, including definitions and cost and effectiveness values.

[[Page 14239]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.015

As in the NPRM, each technology is assigned to one of the five
following categories based on the system it affects or impacts: engine,
transmission, electrification/accessory, hybrid or vehicle. Each of
these categories has its own decision tree that the Volpe model uses to
apply technologies sequentially during the compliance analysis. The
decision trees were designed and configured to allow the Volpe model to
apply technologies in a cost-effective, logical order that also
considers ease of implementation. For example, effective software or
control logic changes are implemented before replacing a component or
system with a completely redesigned one, which is typically a much more
expensive option.
Each technology within the decision trees has an incremental cost
and an incremental effectiveness estimate associated with it, and the
estimates are specific to a particular vehicle subclass (see the tables
provided below in Section IV.D). Each technology's

[[Page 14240]]

incremental estimate takes into account its position in the decision
tree path. If a technology is located further down the decision tree,
the estimates for the costs and effectiveness values attributed to that
technology are influenced by the incremental estimates of costs and
effectiveness values for prior technology applications. In essence,
this approach accounts for ``in-path'' effectiveness synergies and cost
effects that occur between the technologies in the same path. When
comparing cost and effectiveness estimates from various sources and
those provided by commenters, it is vital that the estimates are
evaluated in the proper context, especially as concerns their likely
position in the decision trees and other technologies that may be
present or missing. Not all estimates provided by commenters can be
considered an ``apples-to-apples'' comparison with those used by the
Volpe model, since in some cases the order of application, or included
technology content, is inconsistent with that assumed in the decision
tree.
For the final rule, significant revisions have been made to the
sequence of technology applications within the decision trees, and in
some cases the paths themselves have been modified and additional paths
have been added. The additional paths allow for a more accurate
application of technology, insofar as the model now considers the
existing configuration of the vehicle when applying technology. In this
analysis, single overhead camshaft (SOHC), dual overhead camshaft
(DOHC) and overhead valve (OHV) configured engines now have separate
paths that allow for unique path-dependent versions of certain engine
technologies. Thus, the cylinder deactivation technology (DEAC) now
consists of three unique versions that depend on whether the engine
being evaluated is an SOHC, DOHC or OHV design; these technologies are
designated by the abbreviations DEACS, DEACD and DEACO, respectively,
to designate which engine path they are located on. Similarly the last
letter for the Coupled Cam Phasing (CCP) and Discrete Variable Valve
Lift (DVVL) abbreviations are used to identify which path the
technology is applicable to.
Use of separate valvetrain paths and unique path-dependent
technology variations also ensures that the incremental cost and
effectiveness estimates properly account for technology effects so as
not to ``double-count.'' For example, in the SOHC path, the incremental
effectiveness estimate for DVVLS assumes that some pumping loss
reductions have already been accomplished by the preceding technology,
CCPS, which reduces or diminishes the effectiveness estimate for DVVLS
because part of the efficiency gain associated with the reduction of
the pumping loss mechanism has already occurred. Commenters pointed out
several instances in the NPRM where double-counting appeared to have
occurred, and the accounting approach used in the final rule resolves
these concerns.
In reviewing NPRM comments, NHTSA noted several questions regarding
the retention of previously applied technologies when more advanced
technologies (i.e., those further down the decision tree) were applied.
In response, NHTSA has clarified the final rule discussions on this
issue. In both the NPRM and final rule, as appropriate and feasible,
previously-applied technologies are retained in combination with the
new technology being applied, but this is not always the case. For
instance, one exception to this would be the application of diesel
technology, where the entire engine is assumed to be replaced, so
gasoline engine technologies cannot carry over. This exception for
diesels, along with a few other technologies, is documented below in
the detailed discussion of changes to each decision tree and
corresponding technologies.
As the Volpe model steps through the decision trees and applies
technologies, it accumulates total or ``NET'' cost and effectiveness
values. Net costs are accumulated using an additive approach while net
effectiveness estimates are accumulated multiplicatively. To help
readers better understand the accumulation process, and in response to
comments expressing confusion on this subject, the following examples
demonstrate how the Volpe model calculates net values.
Accumulation of net cost is explained first as this is the simpler
process. This example uses the Electrification/Accessory decision tree
sequentially applying the EPS, IACC, MHEV, HVIA and ISG technologies to
a subcompact vehicle using the cost and effectiveness estimates from
its input sheet. As seen in Table IV-2 below, the input sheet cost
estimates have a lower and upper value which may be the same or a
different value (i.e., a single value or a range) as shown in columns
two and three. The Volpe model first averages the values (column 4),
and then sums the average values to calculate the net cost of applying
each technology (column 5). Accordingly, the net cost to apply the MHEV
technology for example would be ($112.50 + $192.00 + $372.00 =
$676.50). Net costs are calculated in a similar manner for all the
decision trees.
[GRAPHIC] [TIFF OMITTED] TR30MR09.016

[[Page 14241]]

The same decision tree, technologies, and vehicle are used for the
example demonstrating the model's net effectiveness calculation. Table
IV-3 below shows average incremental effectiveness estimates in column
two; this value is calculated in the same manner as the cost estimates
above (average of lower and upper value taken from the input sheet). To
calculate the change in fuel consumption due to application of the EPS
technology with incremental effectiveness of 1.5 percent (or 0.015 in
decimal form, column 3), when applied multiplicatively, means that the
vehicle's current fuel consumption `X' would be reduced by a factor of
(1-0.015) = 0.985,\117\ or mathematically 0.985*X. To represent the
changed fuel consumption in the normal fashion (as a percentage
change), this value is subtracted from 1 (or 100%) to show the net
effectiveness in column 5.
---------------------------------------------------------------------------

\117\ A decrease in fuel consumption (FC) means the fuel economy
(FE) will be increased since fuel consumption and economy are
related by the equation FC = 1/FE.
---------------------------------------------------------------------------

As the IACC technology is applied, the vehicle's fuel consumption
is already reduced to 0.985 of its original value. Therefore the
reduction for an additional incremental 1.5 percent results in a new
fuel consumption value of 0.9702, or a net 2.98 percent effectiveness,
as shown in the table. Net effectiveness is calculated in a similar
manner for the all decision trees. It should be noted that all
incremental effectiveness estimates were derived with this
multiplicative approach in mind; calculating the net effectiveness
using an additive approach will yield a different and incorrect net
effectiveness.
[GRAPHIC] [TIFF OMITTED] TR30MR09.017

To improve the accuracy of accumulating net cost and effectiveness
estimates for the final rule, ``path-dependent corrections'' were
employed. The NPRM analysis had the potential to either overestimate or
underestimate net cost and effectiveness depending on which decision
tree path the Volpe model followed when applying the technologies. For
example, if in the NPRM analysis a diesel technology was applied to a
vehicle that followed the OHV path, the net cost and effectiveness
could be different from the net estimates for a vehicle that followed
the OHC path even though the intention was to have the same net cost
and effectiveness. In order to correct this issue, the final rule
analysis has added path-dependent correction tables to the input
sheets. The model uses these tables to correct net cost and
effectiveness estimate differences that occur when multiple paths lead
into a single technology that is intended to have the same net cost and
effectiveness no matter which path was followed.\118\ Path-dependent
corrections were used when applying cylinder deactivation (on the DOHC
path), turbocharging and downsizing, diesel and strong hybrids. This is
essentially an accounting issue and the path-dependent corrections are
meant to remedy the accuracy issues reported in the NPRM comment
responses.
---------------------------------------------------------------------------

\118\ The correction tables are used for path deviations within
the same decision tree. However, there is one exception to this
rule, specifically that the tables are used to keep the model from
double-counting cost and effectiveness estimates when both the CBRST
and MHEV are applied to the same vehicle. Both technologies try to
accomplish the same goal of reducing fuel consumption, by limiting
idle time, but through different means. If either of these
technologies exists on a vehicle and the Volpe model applies the
other, the correction tables are used to remove the cost and
effectiveness estimates for CBRST, thus ensuring that double-
counting does not occur.
---------------------------------------------------------------------------

The following paragraphs explain, in greater detail, the revisions
to the decision trees and technologies from the NPRM to the final rule.
Revisions were made in response to comments received and pursuant to
NHTSA's analysis, and were made to improve the accuracy of the Volpe
compliance analysis, or to correct other concerns from the NPRM
analysis.
Engine Technology Decision Tree
Figure IV-1 below shows the final rule decision tree for the engine
technology category. For the final rule, NHTSA removed camless valve
actuation (CVA), lean-burn GDI (LBDI), and homogenous charge
compression ignition (HCCI) from the decision trees because these
technologies were determined to be still in the research phase of
development. NHTSA did not receive any new information or comments that
suggested these technologies are under development, so NHTSA removed
them from the decision trees. At the top of the engine decision tree
Low Friction Lubricants (LUB) and Engine Friction Reduction (EFR)
technologies are retained as utilized in the NPRM.
As stated above, SOHC, DOHC and OHV engines have separate paths,
whereas as the NPRM only made the distinction between OHC and OHV
engines. The separation of SOHC and DOHC engines allowed the model to
more accurately apply unique path-dependent valvetrain technologies
including variations of Variable Valve Timing (VVT), Variable Valve
Lift (VVL) and cylinder deactivation that are tailored to either SOHC
or DOHC engines. This separation also allowed for a more accurate
method of accounting for net cost and effectiveness

[[Page 14242]]

compared to the NPRM. For both the SOHC and DOHC paths, VVL
technologies were moved upstream of cylinder deactivation in response
to comments from the Alliance, additional confidential manufacturer
comments and submitted product plan trends, and NHTSA's analysis.
Confidential comments stated that applying cylinder deactivation to an
OHC engine is more complex and expensive than applying it to an OHV
engine. The Alliance additionally stated that cylinder deactivation is
very application-dependent, and is more effective when applied to
vehicles with high power-to-weight ratios. Taking in account the
application-specific nature of cylinder deactivation and the fact the
VVL technologies are more suitable to a broader range of applications,
NHTSA moved VVL technologies ``upstream'' of cylinder deactivation on
the SOHC and DOHC to more accurately represent how a manufacturer might
apply these technologies.
BILLING CODE 4910-59-P

[[Page 14243]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.018

BILLING CODE 4910-59-C
On the OHV path, the ordering of cylinder deactivation (DEACO) then
Coupled Cam Phasing (CCPO), which is opposite the order of the SOHC and
DOHC paths, was retained as defined in the NPRM. This ordering depicts
most accurately how manufacturers would actually implement these
technologies and was reflected in the submitted product plans for OHV
engines, which are largely used on trucks with high power-to-weight
ratios. After the application of CCPO on the OHV decision tree, the
model chooses between Discrete Variable Valve Lift (DVVLO) and the
conversion to a dual overhead camshaft engine (CDOHC). This conversion
now includes Dual Cam Phasing (DCP) instead of Continuously Variable
Valve Lift (CVVL) because it is assumed that DCP, with its higher
application rates, would more likely be

[[Page 14244]]

applied than CVVL, with its lower application rates.
At this stage, and similar to the NPRM, the decision tree paths all
converge into Stoichiometric Gasoline Direct Injection (SGDI). All
previously applied technologies are retained with the assumption that
SGDI is applied in addition to the pre-existing engine technologies.
After SGDI, a newly defined technology, Combustion Restart (CBRST), has
been added.
The ``branch point'' after CBRST has been limited to two paths
instead of the three paths in NPRM. This is due to the removal of HCCI
from the final rule decision trees. The final rule engine decision tree
allowed the model to apply either Turbocharging and Downsizing (TRBDS)
or the conversion to diesel (DSLC). TRBDS is considered to be a
completely new engine that has been converted to DOHC, if not already
converted, with only LUB, EFR, DCP, SGDI and CBRST applied.
The conversion to diesel is also considered to be a completely new
engine that replaces the gasoline engine (although it carries over the
LUB and EFR technologies). If the model chooses to follow the TRBDS
path, the next technology that can be applied is another newly-added
technology, EGR Boost (EGRB). After EGRB, the model is allowed to then
convert the engine to diesel (DSLT). It should be noted that the path-
dependent variations of diesel, (DSLC) and (DSLT), result in the exact
same technology. The net cost and effectiveness estimates are the same
for both but DSLT's incremental cost and effectiveness estimates are
slightly lower to account for the TRBDS and EGRB technologies that have
already been applied.
Electrification/Accessory Technology Decision Tree
This path, shown in Figure IV-2, was named simply ``Accessory
Technology'' in the NPRM. Electric Power Steering (EPS) is now the
first technology in this decision tree, since it is a primary enabler
for both mild and strong hybrids. Improved Accessories (IACC) has been
redefined to include only an intelligent cooling system and follows EPS
(in the NPRM, IACC was the first technology in the tree). The 42-volt
Electrical System (42V) technology has been removed because it is no
longer viewed as the voltage of choice by manufactures and is being
replaced by higher voltage systems. Micro-Hybrid (MHEV), which follows
IACC, has been added as a 12-volt stop/start system to replace
Integrated Starter/Generator with Idle-Off (ISGO), which was on the
``Transmission/Hybrid Technology'' decision tree in the NPRM. Higher
Voltage/Improved Alternator (HVIA), a higher efficiency alternator that
can incorporate higher voltages (greater than 42V) follows MHEV.
Integrated Starter Generator Hybrid (ISG) replaced IMA/ISAD/BSG Hybrid
(which was also on the Transmission/Hybrid Technology decision tree in
the NPRM) as a higher voltage hybrid system with limited regenerative
capability. ISG takes into account all the previously applied
Electrification/Accessory technologies and is the final step necessary
in order to convert the vehicle to a (full) strong hybrid. All
Electrification/Accessory technologies can be applied to both automatic
and manual transmission vehicles.
Transmission Technology Decision Tree
This decision tree, shown in Figure IV-2, contains two paths: one
for automatic transmissions and one for manual transmissions. On the
automatic path, the Aggressive Shift Logic (ASL) and Early Torque
Converter Lockup (TORQ) technologies from the NPRM have been combined
into an Improved Auto Trans Controls/Externals (IATC) technology, as
both these technologies typically include only software or calibration-
related transmission modifications. This technology was moved to the
top of the decision tree since it was deemed to be easier and less
expensive to implement than a major redesign of the existing
transmission. The 5-Speed Automatic Transmission (5SP) technology from
the NPRM has been deleted due to several factors. First, the updated
decision tree logic seeks to optimize the current hardware as an
initial step, instead of applying an expensive redesign technology.
Second, NHTSA determined an industry trend of 4-speed automatics going
directly to 6-speed automatics, as reflected in the submitted product
plans. And finally, confidential manufacturer comments indicated that
in some cases 5-speed transmissions offered little or no fuel economy
improvement over 4-speed transmissions (primarily due to higher
internal mechanical and hydraulic losses, and increased rotating mass),
making the technology less attractive from a cost and effectiveness
perspective. In the final rule, both 4-speed and 5-speed automatic
transmissions get the IATC technology applied first, before progressing
through the rest of the transmission decision tree.
After IATC the decision tree splits into a ``Unibody only'' and
``Unibody or Ladder Frame'' paths, which is identical to the NRPM
version of the decision tree. Both of these paths represent a
conversion to new and fully optimized designs. The Unibody only path
contains the Continuously Variable Transmission (CVT) technology, while
the Unibody or Ladder Frame path has the 6-Speed Automatic Transmission
(6SP) technology being replaced by 6/7/8-Speed Automatic Transmission
with Improved Internals (NAUTO). The NAUTO technology represents a new
generation of automatics with lower internal losses from gears and
hydraulic systems.
The NPRM technology ``Automated Manual Transmission (AMT)'' has
been renamed Dual Clutch Transmission/Automated Manual Transmission
(DCTAM) to more accurately reflect the true intent of this technology
to be a Dual Clutch Transmission (DCT). The NPRM's use of the
abbreviation ``AMT'' was confusing to many commenters, including the
Alliance, BorgWarner, Chrysler, Ford and General Motors, and appeared
to indicate that the NPRM analysis applied true automated manual
transmissions, which exhibit a torque interrupt characteristic that
many in the industry feel will not be customer acceptable. DCT does not
have the torque interrupt concern. The technology DCTAM for the final
rule assumes the use of a DCT type transmission only.
The manual transmission path only has one technology application,
like the NPRM. However, the technology being applied has been defined
as conversion to a 6-Speed Manual with Improved Internals (6MAN)
instead of a conversion to a 6/7/8-Speed Manual Transmission as defined
in the NRPM. Extremely limited use of manual transmissions with more
than 6 speeds is indicated in the updated product plans, so NHTSA
believes this is a more accurate option for replacing a 4 or 5-speed
manual transmission.
Hybrid Technology Decision Tree
The strong hybrid options, 2-Mode (2MHEV) and Power Split (PSHEV),
are no longer sequential as defined in the NPRM's Transmission/Hybrid
decision tree. For the final rule, the model only applies strong hybrid
technologies when both the Electrification/Accessory and Transmission
(automatic transmissions only) technologies have been fully added to
the vehicle, as seen in Figure IV-2. The final rule analysis and logic
ensures that the model does not double-count the cost and effectiveness
estimates for previously applied technologies that are included (e.g.,
EPS) or replaced (e.g., transmission) by strong hybrid systems, which
is responsive to General Motors' comment

[[Page 14245]]

stating that the NPRM analysis had the potential to double-count
effectiveness estimates when applying strong hybrids. For the final
rule analysis, when the Volpe model applies strong hybrids it now takes
into account that some of the fuel consumption reductions have already
been accounted for when technologies like EPS or IACC have been
previously applied. Once all the Electrification/Accessory and
Transmission technologies have been applied, the model is allowed to
choose between the application of 2MHEV, PSHEV and the newly added
Plug-in Hybrid Vehicle (PHEV). The NPRM decision tree required the
Volpe model to step through 2MHEV in order to apply PSHEV. This updated
final rule decision tree is a more realistic representation of how
manufacturers might apply strong hybrids, and allows the Volpe model to
choose the strong hybrid that is most appropriate for each vehicle
based on its vehicle subclass or the most cost-effective technology
application. The PHEV technology was added to the decision tree in the
final rule based upon information in the public domain and submitted
product plans showing that limited quantities of these vehicles will be
available from some manufacturers in this timeframe.
[GRAPHIC] [TIFF OMITTED] TR30MR09.019

Vehicle Technology Decision Tree
Material Substitution (MS1), (MS2), and (MS5) are now located on
dedicated material substitution path in the Vehicle Technology Decision
Tree, shown in Figure IV-3. Low Rolling Resistance Tires (ROLL), Low
Drag Brakes (LDB) and Secondary Axle Disconnect (SAX) now reside as a
separate path, due to the relocation of material substitution
technologies. Secondary Axle Disconnect has been redefined for the
final rule to apply to 4WD vehicles only to more accurately reflect
feasible applications of this technology. Aerodynamic Drag Reduction
(AERO) remains a separate tree, and is now a 10 percent reduction for
both car and truck classes (excluding performance cars, which are
exempt).

[[Page 14246]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.020

4. Division of Vehicles Into Subclasses Based on Technology
Applicability, Cost and Effectiveness
In assessing the feasibility of technologies under consideration,
the agency evaluated whether each of these technologies could be
implemented on all types and sizes of vehicles and whether some
differentiation is necessary with respect to the potential to apply
certain technologies to certain types and sizes of vehicles, and with
respect to the cost incurred and fuel consumption achieved when doing
so. The 2002 NAS Report differentiated technology application using ten
vehicle classes (4 cars classes and 6 truck classes, including
subcompact cars, compact cars, midsize cars, large cars, small SUVs,
midsize SUVs, large SUVs, small pickups, large pickups, and minivans),
but did not determine how cost and effectiveness values differ from
``class'' to ``class.'' NAS's purpose in separating vehicles into these
``classes'' was to create groups of ``like'' vehicles, i.e., vehicles
similar in size, powertrain configuration, weight, and consumer use,
and for which similar technologies are applicable. This vehicle
differentiation is done solely for the purpose of applying technologies
to vehicles and assessing their incremental costs and effectiveness,
and should not be confused with, the regulatory classifications
pursuant to 49 CFR part 523 discussed in Chapter XI.
The Volpe model, which NHTSA has used to perform analysis
supporting today's notice, divides the vehicle fleet into subclasses
based on model inputs, and applies subclass-specific estimates, also
from model inputs, of the applicability, cost, and effectiveness of
each fuel-saving technology. Therefore, the model's estimates of the
cost to improve the fuel economy of each vehicle model depend upon the
subclass to which the vehicle model is assigned.
In its MY 2005-2007 and MY 2008-2011 light truck CAFE standards as
well as NPRM, NHTSA performed analysis using the same vehicle classes
defined by NAS in its 2002 Report. In its 2008 NPRM for MY 2011-2015,
NHTSA included some differentiation in cost and effectiveness numbers
between the various classes to account for differences in technology
costs and effectiveness that are observed when technologies are applied
on to different classes and subclasses of vehicles. The agency found it
important to make that differentiation because the agency estimated
that, for example, engine turbocharging and downsizing would have
different implications for large vehicles than for smaller vehicles.
For the final rule, NHTSA, working with Ricardo, increased the accuracy
of its technology assumptions by reexaming the subclasses developed for
the purpose of modeling technology application and by providing more
differentiation in the costs and effectiveness values by vehicle
subclass.
In the request for comments accompanying the NPRM, NHTSA asked
manufacturers to identify the style of each vehicles model they submit
in their product plans from eight possible groupings (convertible,
coupe, hatchback, pickup, sedan, sport utility, van, or wagon) or
sixteen possible market segments (cargo van, compact car, large car,
large pickup, large station wagon, midsize car, midsize station wagon,
mini-compact, minivan, passenger van, small pickup, small station
wagon, special purpose, sport utility truck, subcompact car, and two-
seat car). NHTSA also requested that manufacturers identify many
specific characteristics relevant to each vehicle model, such as the
number of cylinders of the vehicle's engine and other engine,
transmission and vehicle characteristics. This information was
evaluated by NHTSA staff, entered in NHTSA's market data file, and used
by NHTSA to assess how to divide the vehicles into subclasses for
purposes of differentiating the applicability, effectiveness, and cost
of available technologies.
In response to the NPRM, the Alliance commented that NHTSA's
classification approach is not robust enough. With regard to subclasses
of cars, the Alliance stated that NHTSA did not distinguish high-
performance and sports cars which cannot accommodate certain
technologies without changing the purpose and configuration of the
vehicle. With regard to subclasses of trucks, the Alliance argued that
SUVs were not adequately distinguished by size. The Alliance further
stated the classification used by Sierra Research in

[[Page 14247]]

its report to distinguish groups of like vehicles for technology
application purposes was more realistic and representative of
differences in market segments than NHTSA's classification. The
Alliance suggested that NHTSA consider the classes identified by Sierra
Research in the final rule.
NHTSA is not adopting Sierra's approach to classification for the
following reasons. First, Sierra's classification scheme is too
dependent on vehicle characteristics for which NHTSA often did not
receive complete information from manufacturers. For example, although
NHTSA requested that manufacturers provide estimates of the aerodynamic
drag coefficient of each vehicle model planned for MY2011-2015, the
agency received no estimates for many vehicles. NHTSA believes
manufacturers are too far from production on many vehicles to
confidently provide such estimates. Second, Sierra's classification
scheme is, for NHTSA's purposes, excessively fine-grained. Sierra's
analysis relied on 25 subclasses in total, 13 for cars and 12 for
trucks. While their report provided tables comparing their classes to
those of NHTSA's and cited product examples for each class, it did not
provide a reason for why this detailed differentiation would
significantly improve the outcome. NHTSA's review of the Sierra report
did not reveal many differences in technology-application between these
subclasses. In addition, the agency does not believe that the effort
required by the agency to create a more detailed yet more complex
modeling structure based on 25 subclasses would result in significant
improvement in the accuracy of the results. Sierra may have found this
additional differentiation important for the full vehicle simulation
approach that the Alliance claimed should be used throughout NHTSA's
analysis. However, as discussed below, NHTSA has concluded that this
approach is neither necessary nor practical for CAFE analysis.
The agency agrees with the Alliance, however, that some refinement
in the classification approach used by NHTSA in the NPRM is merited in
order to ensure the practicability of technologies being added. The
agency also believes that the limited differentiation in costs and
effectiveness values by vehicle class needs to be expanded in order to
better account for fuel savings and costs.
For the final rule, NHTSA first reexamined the Volpe model
technology output files from the NPRM to identify where and why
technologies may have been inappropriately applied by the model. Where
this reexamination revealed logical errors, the Volpe model was revised
accordingly. However, the review revealed that most of the observed
inaccuracies resulted from the manner in which vehicles were assigned
to subclasses for the purpose of technology applications. NHTSA also
reviewed the confidential vehicle level information received from
manufacturers, how manufacturers classified their vehicles by style or
market segment groupings requested by NHTSA and the specific engine,
transmission and other vehicle characteristics identified by the
manufacturers for each vehicle model. This conclusion was among those
that led NHTSA to assign more staff to perform quality control when
reviewing and integrating manufacturers' product plans.
In order to improve the accuracy of technology application
modeling, NHTSA examined at the car and truck segments separately.
First, for the car segment, NHTSA plotted the footprint distribution of
vehicles in the product plans and divided that distribution into four
equivalent footprint range segments. The footprint ranges were named
Subcompact, Compact, Midsize, and Large classes in ascending order.
Cars were then assigned to one of these classes based on their specific
footprint size. Vehicles in each range were then manually reviewed by
NHTSA staff to evaluate and confirm that they represented a fairly
reasonable homogeneity of size, weight, powertrains, consumer use, etc.
However, as the Alliance pointed out, some vehicles in each group were
sports or high-performance models. Since different technologies and
cost and effectiveness estimates are appropriate for these vehicles,
NHTSA created a performance subclass within each car class to maximize
the accuracy of technology application. To determine which cars would
be assigned to the performance subclasses, NHTSA graphed (in ascending
rank order) the power-to-weight ratio for each vehicle in a class. An
example of the Compact subclass plot is shown below. The subpopulation
was then manually reviewed by NHTSA staff to determine an appropriate
transition point between ``performance'' and ``non-performance'' models
within each class.
[GRAPHIC] [TIFF OMITTED] TR30MR09.021

[[Page 14248]]

A total of eight classes (including performance subclasses) were
identified for the car segment: Subcompact, Subcompact Performance,
Compact, Compact Performance, Midsize, Midsize Performance, Large,
Large Performance. In total, the number of cars that were ultimately
assigned to a performance subclass was less than 10 percent. The table
below shows the difference in the classification between the NPRM and
Final Rule and provides examples of the types of vehicles assigned to
each.
[GRAPHIC] [TIFF OMITTED] TR30MR09.074

[GRAPHIC] [TIFF OMITTED] TR30MR09.022

For light trucks, in reviewing the updated manufacturer product
plans and in reconsidering how to divide trucks into classes and
subclasses based on technology applicability, NHTSA found less of a
distinction between SUVs and pickup trucks than appeared to exist in
earlier rulemakings. Manufacturers appear to be planning fewer ladder-
frame and more unibody pickups, and many pickups will share common
powertrains with SUVs. Consequently, NHTSA condensed the classes
available to trucks, such that SUVs and pickups are no longer divided.
Recognizing structural differences between various types of ``Vans,''
NHTSA revisited how it assigned the different types of ``Vans.''
Instead of merging minivans, cargo vans, utility and multi-passenger
type vans under the same class, as it did for the NPRM and in previous
rules, NHTSA formed a separate minivan class, because minivans (e.g.,
the Honda Odyssey) are expected to remain closer in terms of structural
and other engineering characteristics than vans (e.g., Ford's E-
Series--also known as Econoline--vans) intended for more passengers
and/or heavier cargo.
The remaining vehicles (other vans, pickups, and SUVs) were then
segregated into three footprint ranges and assigned a class of Small
Truck/SUV, Midsize Truck/SUV, and Large Truck/SUV based on their
footprints. NHTSA staff then manually reviewed each population for
inconsistent vehicles based on engine cylinder count, weight (curb and/
or gross), or intended usage, since these are important considerations
for technology application, and reassigned vehicles to classes as
appropriate. This system produced four truck segment classes--minivans
and small, medium, and large SUVs/Pickups/Vans. The table below shows
the difference in the classification between the NPRM and Final Rule.

[[Page 14249]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.023

Based on a close review of detailed output from the Volpe model,
NHTSA has concluded that its revised classification for purposes of
technology applicability substantially improves the overall accuracy of
the results as compared to the system employed in the NPRM. The new
method uses footprint as a first indicator for both the car and truck
segments, and all are then manually reviewed for the types of
technologies applicable to them and revised by NHTSA to ensure that
they have been properly assigned. The addition of the performance
subclasses in the car segment and the condensing of classes in the
truck segment further refine the system. The new method increases the
accuracy of technology application without overly complicating the
Volpe modeling process, and the revisions address comments received in
response to the NPRM.
5. How did NHTSA develop technology cost and effectiveness estimates
for the final rule?
In the NPRM, NHTSA employed technology cost and effectiveness
estimates developed in consultation with EPA. They represented NHTSA
and EPA staff's best assessment of the costs for each technology
considered based on the available public and confidential information
and data sources that the agencies had back in 2007 when the rulemaking
was initiated. EPA also published a report and submitted it to the NRC
committee on fuel economy of light-duty vehicles.\119\
---------------------------------------------------------------------------

\119\ 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.
---------------------------------------------------------------------------

Public comments on the NPRM's technology cost estimates generally
fell into four categories: (1) That costs are underestimated because
NHTSA did not account for all changes/costs required to apply a
technology or because although NHTSA correctly identified all the
changes required, it did not cost those changes appropriately; (2) that
costs are underestimated because the Retail Price Equivalent (RPE)
factors have been applied incorrectly to technologies; (3) that costs
are either over- or underestimated because learning curves have been
applied incorrectly to technologies; and (4) that cost assumptions are
overly simplified as applied to the full range of fleet vehicles and do
not properly account for the differences in cost impacts across vehicle
and engine types (e.g., technologies applied to a sub-compact car will
be unique to those same technologies applied to a large SUV). Many
commenters also stated that they found it difficult to understand how
NHTSA and EPA had derived the cost estimates. In addition to commenting
on NHTSA's methodology, many commenters, particularly manufacturers,
also submitted their own cost estimates for each technology and
requested that NHTSA consider them for the final rule.
As explained above, NHTSA contracted with Ricardo to aid the agency
in analyzing the comments on the technology assumptions used in the
NPRM, and relied considerably on Ricardo's expertise in developing the
final technology cost and effectiveness estimates based on that
analysis. For every technology included in NHTSA's analysis of
technology costs and effectiveness, Ricardo and NHTSA engineers
reviewed the comments thoroughly and exercised their expertise in
assessing the merits of the comments, and in resolving the differences
and determining which estimates should be used for the final rule.
For each technology, NHTSA relied on Ricardo's experience with
``bill of materials'' (BOM) costing. Some commenters criticized NHTSA
for not using a BOM as the basis for its cost analysis. The 2008 Martec
report,\120\ which updated the Martec report on which the 2004 NESCCAF
study was based, was submitted by auto industry commenters to NHTSA's
NPRM docket for the agency's consideration. This report provides cost
estimates developed on a ``bill of materials'' basis and methodology.
NHTSA, with Ricardo's assistance, reviewed the ``bill of materials''
methodology in the Martec report and found it to be, compared to the
methodology used in the NPRM, a more defensible and transparent basis
for evaluating the costs of applicable technologies.
---------------------------------------------------------------------------

\120\ Martec, ``Variable Costs of Fuel Economy Technologies,''
June 1, 2008.
---------------------------------------------------------------------------

A bill of materials in a general sense is a list of components that
make up a system--in this case, an item of fuel economy-improving
technology. In

[[Page 14250]]

order to determine what a system costs, one of the first steps is to
determine its components and what they cost. In cases in which it was
not practicable for the agency and Ricardo to estimate the cost of each
component on a BOM basis because there was a shift to a more advanced
technology and or because of difficulty in accounting for the sum of
costs of all added components less the sum of costs of all deleted
components (e.g., in the transition from a gas engine to a diesel
engine), incremental costs were estimated to be those of the entire new
technology platform (in this example, the diesel engine) less those of
the entire old technology platform (in this example, the gas engine).
This ``net difference'' process was only used where developing a
ground-up description of all component changes necessitated by the
incremental technology was deemed to be impracticable.
With that framework in mind, Ricardo and NHTSA engineers proceeded
with reviewing cost information for each major component of each
technology. They compared the multiple sources available in the docket
and assessed their validity. While NHTSA and Ricardo engineers relied
considerably on the 2008 Martec Report for costing contents of some
technologies, they did not do so for all. When relevant publicly
available information and data sets, including the 2008 Martec report,
were determined to be incomplete or non-existent, NHTSA looked to prior
published data, including the NPRM, or to values provided to NHTSA by
commenters familiar with the material costs of the described
technologies.
Generally, whenever cost information for a technology component
existed in a non-confidential and publicly available report submitted
to the NPRM docket and that information agreed with Ricardo's
independent review of cost estimates based on Ricardo's historical
institutional knowledge, Ricardo and NHTSA cited that information.
Ricardo and NHTSA were able to take that approach frequently, as is
evident in the explanation of the cost figures of each technology. When
that approach was not possible, but there was confidential manufacturer
data that had been submitted to NHTSA in response to the NPRM, and
those costs were consistent with Ricardo's independently-reviewed cost
estimates, NHTSA and Ricardo cited those data. When multiple
confidential data sources differed greatly and conflicted with the
Martec valuation or when the technical assumptions described by NHTSA
for purposes of this rulemaking did not match exactly with the content
costed by either Martec or other commenters, NHTSA and Ricardo
engineers used component-level data to build up a partial cost,
substituting Ricardo's institutional knowledge for the remaining gaps
in component level data.
Occasionally, NHTSA and Ricardo found that some cost information
submitted by the public was either not very clearly described or
revealed a lack of knowledge on the part of the commenter about NHTSA's
methodology. In those cases, and in cases for which no cost data
(either public or confidential) was available, NHTSA worked with
Ricardo either to confirm the estimates it used in the NPRM, or to
revise and update them.
In several cases, values described in the NPRM were simply adjusted
from 2006 dollars to 2007 dollars, using a ratio of GDP values for the
associated calendar years.\121\ In many instances, an RPE factor of 1.5
was determined to have been omitted from the cost estimates provided in
the NPRM, so NHTSA applied the multiplier where necessary to calculate
the price to the consumer.
---------------------------------------------------------------------------

\121\ 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.
---------------------------------------------------------------------------

Finally, in response to comments stating that cost estimates for
individual technologies should be varied, based on the type and size of
vehicle to which they are applied, NHTSA worked with Ricardo to account
for that. Additionally, application of some technologies might be more
or less expensive, depending on content (e.g., with or without a noise
attenuation package), for particular vehicles. In these cases, NHTSA
and Ricardo described a range of costs for this technology, and
referred to sources that indicate the appropriate boundaries of that
range.
The agency notes that several technologies considered in the final
rule have been updated with substantially different cost estimates
relative to those costs described in the NPRM. For example, RPE
estimates for turbocharging and downsizing (TRBDS), diesel technologies
(DSLT) and hybrid technologies (like ISG) are much higher than the
costs cited in the NPRM for those technologies. This is due in large
part to the updated cost estimates of the 2008 Martec Report and
others, referenced in the final rule, which reflect the dramatic rise
of global costs for raw materials associated with the above
technologies since the 2004 Martec report and other prior referenced
cost estimates were conducted. The NPRM costs were not updated to
reflect that rise in commodities prices. As described in the 2008
Martec Report, advanced battery technologies with substantial copper,
nickel or lithium content, and engine technologies employing high
temperature steels or catalysts with considerable platinum group metals
usage, have experienced tremendous inflation of raw material prices
since the cost studies referenced in the NPRM were conducted. As of the
time the sources were developed, prices of nickel, platinum, lithium,
copper, dysprosium and rhodium had demonstrated cost inflation
amounting to between 300 and 750 percent of global prices at the time
of the original NESCCAF study \122\ and this is reflected in the higher
costs described in the 2008 Martec report, and thus in the final rule.
NHTSA is aware that commodity prices, like those for steel and platinum
group metals described above, have dropped over the last several
months. However, there is little information in the record to determine
how prices of components used in MY 2011 could be impacted by the
prices of metals and other commodities over the last few years. It is
not clear whether the prices of components built and used in MY 2011
are more likely to reflect the high price of commodities in the years
prior to 2008, the current low prices of commodities, the prices of
commodities closer to MY 2011, or some mixture of these. The agency
notes, though, as mentioned above, that manufacturers' product plans
were submitted along with manufacturers' indications that these plans
were generally informed by expectations that relatively high commodity
prices would prevail in the future. Therefore, in the expectation that
economic conditions will improve by MY 2011, the agency relies on the
commodity prices reflected in, for example, the 2008 Martec report.
However, the agency further notes that these decisions are limited to
the MY 2011 rulemaking. We intend to monitor commodity prices carefully
and will adjust affected technology costs as appropriate in future
rulemakings.
---------------------------------------------------------------------------

\122\ 2008 Martec report, at 13-20.
---------------------------------------------------------------------------

Some commenters referenced the price differential between vehicles
with advanced technologies and more standard versions as evidence of
those advanced technologies' costs, and argued that NHTSA should
consider these price differentials in its cost estimation process. In
response, NHTSA believes that the ``bottom-up, material cost based''
cost estimation methodology employed for the final rule is preferable
to estimating costs based

[[Page 14251]]

on manufacturer price differentials between versions of vehicle models.
Wherever possible, technologies were costed based on the estimation of
variable material cost impacts to vehicle manufacturers at a fixed
point in time (in 2007 dollar terms) for a prescribed set of component
changes anticipated to be required in implementing the technology on a
particular platform (e.g., wastegate turbo, increased high nickel
alloyed exhaust manifolds, air charge cooler, etc. for TRBDS). The
content assumptions are modified or scaled to account for differences
across the range of vehicle sizes and functional requirements and
associated material cost impacts are adjusted to account for the
revised content. The material cost impacts to the vehicle manufacturers
are then summed and converted to retail price equivalent impacts by
multiplying by 1.5 to account for fixed costs and other overheads
incurred in the implementation of new vehicle technologies but not
contained in the variable material price impacts to the manufacturers.
In employing this methodology, NHTSA relied on information provided
to NHTSA by the suppliers and vehicle manufacturers themselves. Though
this estimation process relies on often confidential data and employs a
simplifying assumption in relating all variable material costs to
retail impacts through the use of a consistent 1.5 RPE, the methodology
is preferable to a ``top-down, retail price based'' methodology as
might be used by comparing retail price differences of vehicles with
different technologies. The ``bottom-up'' approach offers the benefits
of providing a consistent and reasonable assessment of true, total
costs for all technologies independent of geographic, or strategic
pricing policies by vehicle manufacturers that could result in selling
products at sub-standard or even negative margins. For many vehicle
manufacturers, contribution to corporate profit varies dramatically
across vehicle segment. Given that vehicle pricing is often decoupled
from true costs and will vary with sales cycle, product maturity,
geography, vehicle class, and marque, a ``top-down'' approach, while
offering improved data transparency, is inherently limited in providing
a consistent means of cost estimation. As such, NHTSA has adopted the
described ``bottom-up'' cost estimation approach and has attempted to
mitigate transparency issues with a reliance on Martec 2008 (where in
agreement with other provided cost data), because it provides a
detailed description of the costed content. Fundamentally, NHTSA
believes that a ``bottom-up'' cost estimation methodology with a common
RPE adjustment factor offers an intuitive, consistent process across
all technologies, whether mature or otherwise, that avoids the pitfalls
of reliance on significantly more variable and volatile pricing
policies.
Regarding estimates for technology effectiveness, NHTSA, working
with Ricardo, also reexamined its NPRM estimates and those in the EPA
Staff Technical Report,\123\ which largely mirrored NHTSA's NPRM
estimates. We compared these estimates to estimates provided in
comments, reports and confidential data received in response to our
NPRM. Comments on the NPRM's effectiveness estimates generally fell
into three categories: (1) That NHTSA did not account sufficiently for
fuel economy or performance impacts because it used the Volpe model
approach rather than full vehicle simulation; (2) that the synergy
values used did not properly account for technology interactions; and
(3) that NHTSA made errors when using estimates provided by
manufacturers. In addition to commenting on NHTSA's methodology, many
commenters, particularly manufacturers, also submitted their own fuel
consumption reduction estimates for each technology and requested that
NHTSA consider them for the final rule. NHTSA addresses comments
relating to vehicle simulation in Section IV.C.8 and synergies in
Section IV.C.7, but the section below describes NHTSA's process for
developing effectiveness estimates for the final rule, which addresses
the comments regarding NHTSA's use of estimates submitted by
manufacturers.
---------------------------------------------------------------------------

\123\ 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.
---------------------------------------------------------------------------

For each technology, NHTSA also relied on Ricardo's experience with
``bill of materials'' (BOM) technology descriptions. Some commenters
argued that the same BOM used as the basis for the cost analysis could
and should be used to define the technologies being studied for
effectiveness. In fact, Ricardo's methodology for cost and
effectiveness estimates for this rule was to define a vehicle class-
specific BOM or BOMs, depending upon the number of variants possible
within a class and within a decision tree. These BOMs were defined for
the baseline configuration for each class and then for each incremental
step in the decision tree. Use of a consistently-defined BOM is very
important to estimating the impacts of technologies accurately, as it
helps to ensure that technologies are not applied to baseline vehicles
that already contain the technology (with the exception of items that
are not well-defined such as aerodynamic drag reduction, reduced
rolling resistance tires, weight reduction, and engine friction
reduction.)
In defining these BOMs, Ricardo relied on its experience working
with industry over many years and its recent experience preparing the
December 2007 study for EPA. Ricardo built on its vehicle simulation
work for EPA to help NHTSA evaluate appropriate effectiveness values
for individual fuel-saving technologies. In considering the comments,
NHTSA and Ricardo evaluated the 10 ``vehicle subclasses'' used in the
NPRM for applicability of technologies and determined that the cost and
effectiveness estimates could be more accurate by revising the
``vehicle subclasses'' as described above so that they better
represented the parameters of the vehicles they included. This, in
turn, enabled NHTSA and Ricardo to distinguish more clearly the
differences in fuel consumption reduction occurring when a technology
is added to different vehicles.
Then, with the BOM framework applied to more precisely-defined
vehicle subclasses, NHTSA and Ricardo engineers reviewed effectiveness
information from multiple sources for each technology. Together, they
compared the multiple sources available in the docket and assessed
their validity, taking care to ensure that common BOM definitions and
other vehicle attributes such as performance, refinement, and
drivability were not compromised.
Generally, whenever relevant effectiveness information for a
technology component existed in a non-confidential and publicly-
available report submitted to the NPRM docket, and that information
agreed with Ricardo's independent review of estimates based on
Ricardo's historical institutional knowledge, NHTSA and Ricardo cited
that information. NHTSA and Ricardo were able to take that approach
frequently, as is evident in the explanation of the effectiveness for
each technology. When that approach was not possible, but there was
confidential manufacturer data that had been submitted to NHTSA in
response to the NPRM, and those values were consistent with Ricardo's
independently-reviewed estimates, NHTSA and Ricardo cited those data.
When multiple confidential data sources differed greatly or when the
technical assumptions described by NHTSA for purposes of this
rulemaking

[[Page 14252]]

did not match the content included in Ricardo's study for EPA or in
other comments, NHTSA and Ricardo engineers relied on Ricardo's
experience and an understanding of the maximum theoretical losses that
could be eliminated by particular technologies to build up an
effectiveness estimate, substituting Ricardo's institutional knowledge
for the remaining gaps in data.
Occasionally, NHTSA and Ricardo found that some fuel consumption
reduction information submitted by the public was either not very
clearly described or revealed a lack of knowledge on the part of the
commenter about NHTSA's methodology. In those cases, and in cases for
which no effectiveness data (either public or confidential) was
available, NHTSA worked with Ricardo either to confirm the estimates it
used in the NPRM, or to revise and enhance them. In other cases, the
commenters appeared unsure how to evaluate the data from the NPRM, and
so NHTSA and Ricardo provided more detailed explanations on the process
used or the components involved.
In response to comments stating that estimates for individual
technologies should be varied based on the type and size of vehicle to
which they are applied, NHTSA worked with Ricardo to account for those
differences mostly through the refined vehicle subclass definitions.
However, even after making these adjustments, there are still some
classes that require spanning different engine architectures and
performance thresholds. Just as the application of some technologies
might be more or less expensive, depending on content (e.g., with or
without a noise attenuation package), particular vehicle technologies
may have more or less impact between classes where maintaining
equivalent performance led to a reduced effectiveness. In these cases,
NHTSA and Ricardo described a range of effectiveness values for this
technology, and referred to sources that indicate the appropriate
boundaries of that range.
With Ricardo's assistance, the technology cost and effectiveness
estimates for the final rule were developed consistently, using this
systematic approach. While NHTSA still believes that the ideal
estimates for the final rule would be those that have been through a
peer-reviewed process such as that used for the 2002 NAS Report, and
will continue to work with NAS, as required by EISA, to update the
technology cost and effectiveness estimates for subsequent CAFE
rulemakings, this approach, combined with the BOM methodology for cost
and effectiveness, expanded number and types of vehicle subclasses and
the changes to the synergistic effects described below, not only help
to address the concerns raised by commenters, but also represent a
considerable improvement in terms of accuracy and transparency over the
approach used to develop the cost and effectiveness estimates in the
NPRM.
6. Learning Curves
As explained in the NPRM, historically NHTSA did not explicitly
account for the cost reductions a manufacturer might realize through
learning achieved from experience in actually applying a technology.
However, based on its work with EPA, in the NPRM NHTSA employed a
learning factor for certain newer, emerging technologies. The
``learning curve'' describes the reduction in unit incremental
production costs as a function of accumulated production volume and
small redesigns that reduce costs. The NPRM implemented technology
learning curves by using three parameters: (1) The initial production
volume that must be reached before cost reductions begin to be realized
(referred to as ``threshold volume''); (2) the percent reduction in
average unit cost that results from each successive doubling of
cumulative production volume (usually referred to as the ``learning
rate''); and (3) the initial cost of the technology. The majority of
technologies considered in the NPRM did not have learning cost
reductions applied to them.
NHTSA assumed that learning-based reductions in technology costs
occur at the point that a manufacturer applies the given technology to
the first 25,000 cars or trucks, and are repeated a second time as it
produces another 25,000 cars or trucks for the second learning
step.\124\ NHTSA explained that the volumes chosen represented the
agency's best estimate for where learning would occur, and that they
were better suited to NHTSA's analysis than using a single number for
the learning curve factor, because each manufacturer would implement
technologies at its own pace in the rule, rather than assuming that all
manufacturers implement identical technology at the same time.
---------------------------------------------------------------------------

\124\ NHTSA treated car and truck volumes separately for
determining those sales volumes.
---------------------------------------------------------------------------

NHTSA further assumed that after having produced 25,000 cars or
trucks with a specific part or system, sufficient learning will have
taken place such that costs will be lower by 20 percent for some
technologies and 10 percent for others. For those technologies, NHTSA
additionally assumed that another cost reduction would be realized
after another 25,000 units. If a technology was already in widespread
use (e.g., on the order of several million units per year) or expected
to be so by the MY 2011-2012 time frame, NHTSA assumed that the
technology was ``learned out,'' and that no more cost reductions were
available for additional volume increases. If a technology was not
estimated to be available until later in the rulemaking period at that
time, like MY 2014-2015, NHTSA did not apply learning for those
technologies until those model years. Most of the technologies for
which learning was applied after MY 2014 were adopted from the 2004
NESCCAF study, which was completed by Martec. Whenever source data,
like the 2004 NESCCAF study, indicated that manufacturer cost reduction
from future learning would occur, NHTSA took that information into
account.
Comments received regarding NHTSA's approach to technology cost
reductions due to manufacturer learning generally disagreed with the
agency's method. The Alliance, AIAM, Honda, GM, and Chrysler all
commented that NHTSA had substantially overestimated, and essentially
``double-counted,'' learning effects by applying learning reductions to
component costs, specifically Martec estimates, which were already at
high volume. The Alliance submitted the 2008 Martec Report, which
stated that NHTSA had ``misstated'' Martec's approach to cost
reductions due to learning in the NPRM. As Martec explained,

Martec did not ask suppliers to quote prices that would be valid
for three years, and Martec did not receive cost reductions from
suppliers for some components in years two and three. Rather,
industry respondents were asked to establish mature component
pricing on a forward basis given the following conditions: At least
three (3) manufacturers demanding 500,000 units per year and at
least three (3) globally-capable suppliers available to supply the
needs of each manufacturer.
In no case did Martec ask industry respondents to provide low
volume, launch or transition costs for fuel consumption/
CO2 reducing technologies. Martec specifically designed
the economic parameters in order to capture the effects of learning
which is a reality in the low margin, high capital cost, high
volume, highly competitive global automotive industry. Applying
additional reductions attributable to ``learning'' based on 25,000
unit improvements in cumulative volume after production launch (as
described on pages 118-125 of the NHTSA NPRM) on top of Martec's
mature costs is an error. Martec's costs are based on 1.5-2.0
equivalent modules of powertrain capacity (500,000 units/year) so
25,000 unit

[[Page 14253]]

incremental changes in cumulative production, as defined by NHTSA,
will have no effect on costs.

The 2008 Martec Report also stated that current industry practice
consists of using competitive bidding based on long-term, high-volume
contracts that are negotiated before technology implementation
decisions are made. Martec stated that this practice considers the
effects of volume, learning, and capital depreciation. Martec also
indicated that most of the technologies evaluated in the study are in
high volume production in the global automotive industry today, and
thus this forms a solid basis from which to estimate future costs.
Honda also commented on NHTSA's 25,000 unit (per manufacturer per
year) volume threshold stating that, in their experience, costs were
only likely to decrease due to learning at volumes exceeding about
300,000 units per year per manufacturer. GM agreed, stating that
suppliers do not respond to, change processes, or change contract terms
for relatively small volume changes like NHTSA's 25,000 unit increment,
thus volume changes of this magnitude have no effect on component
pricing. GM also commented that its learning cycles are based on time,
not volume, and agreed with Martec's assessment that contracts with
suppliers typically specify volumes and costs over a period, which are
usually equal to a product life cycle, a 4- to 5-year period.
Ford commented that base costs in the automotive industry are
determined by a target setting process, where manufacturers develop
pricing with suppliers for a set period, and manufacturers receive cost
reductions from the suppliers due to learning as time passes,
apparently at a set amount year over year for several years. Ford also
commented that NHTSA's approach to learning curves had not accounted
for current economic factors, like increases in commodity and energy
prices, and cited the example of costs of batteries for hybrids and
PHEVs which Ford stated ``are not likely to depend solely on experience
learned, but, to a large extent, on the additional energy and material
costs they incur relative to the vehicles without the new technology.''
Ford commented that NHTSA should account for these costs, and the
factor of declining vehicle sales, in its learning curve approach.
BorgWarner, a components supplier, commented that learning-related
costs savings are valid for technologies that ``start at low volume''
(commenter's emphasis). BorgWarner argued, however, that NHTSA's
assumed learning curve would not apply to the technologies it supplies
to manufacturers,\125\ since these components are well-developed and in
high volume use already, and are thus already ``learned out.''
BorgWarner further commented that an increase in demand could in fact
lead to higher prices if demand for raw materials exceeded supply.
---------------------------------------------------------------------------

\125\ BorgWarner manufacturers and supplies turbochargers, dual
clutch transmissions, variable valve timing systems, diesel engine
components (EGR and starting), aggressive shift logic and early
torque convertor lockup systems.
---------------------------------------------------------------------------

UCS, in contrast, commented that NHTSA had not accounted for enough
cost reductions due to learning. UCS stated that NHTSA should have
provided ``source data'' for manufacturer-specific learning curves, and
argued that NHTSA's approach was ``fundamentally flawed'' for two
primary reasons: First, because NHTSA had not considered the fact that
manufacturers engage in joint ventures to develop new technologies, and
second, because manufacturers may also learn from one another ``through
the standard practice of tearing down competitors' products.'' UCS
argued that NHTSA's learning-based cost reductions should account for
these methods of learning. UCS further stated that NHTSA should not
``treat[] car and truck sales volumes separately when estimating
learning curves'' because there may be much overlap in terms of
technology application, especially for vehicles like crossovers which
may be either cars or trucks. UCS concluded that NHTSA should use EPA's
suggested learning factor of 20 percent, citing EPA's Staff Technical
Report.
Public Citizen agreed that NHTSA should account for economies of
scale, but argued that NHTSA should not have relied on initial cost
estimates from industry, which the commenter stated were ``often
overestimated.'' Public Citizen cited a 1997 briefing paper by the
Economic Policy Institute in support of this point, and argued that
compliance cost estimates were often much lower than actual costs.
Public Citizen concluded that NHTSA's use of learning curve factors
``impedes transparency'' in NHTSA's analysis.
Agency response: Based on the comments received and on its work
with Ricardo, NHTSA has revised its approach to accounting for
technology cost reductions due to manufacturer learning. The method of
learning used in the NPRM has been retained, but the threshold volume
has been revised and is now calculated on an industry-wide production
basis. However, learning of this type, which NHTSA now refers to as
``volume-based'' learning, is not applicable to any technologies for MY
2011. Additionally, NHTSA has adopted a fixed rate, year-over-year
(YOY) cost reduction for widely-available, high-volume, mature
technologies, in response to comments from Ford and others. NHTSA
refers to this type cost reduction as ``time-based'' learning. For each
technology, if learning is applicable, only one type of learning would
be applied, either volume-based or time-based (i.e., the types are
independent of each other). These revisions are discussed below.
For volume-based learning, NHTSA considered comments from UCS and
decided to revise the method used to calculate the threshold volume
from a per-manufacturer to an industry-wide production volume basis.
NHTSA agreed with UCS' comment that cars and trucks may share common
components--this is true across many makes and models which share
common engines, transmissions, accessory systems, and mild or strong
hybrid systems, all of which can potentially utilize the technologies
under consideration. These systems are often manufactured by suppliers
who contract with multiple OEMs, all of whom benefit (in the form of
cost reductions for the technology) from the supplier's learning. The
2008 Martec Report and the BorgWarner comments additionally both
indicated that when manufacturers demand components in high volumes,
suppliers are able to pass on learning-based savings to all
manufacturers with whom they contract. Thus, it made sense to NHTSA to
revise its method of determining whether the threshold volume has been
achieved from an annual per-manufacturer to an annual industry-wide
production volume basis.
NHTSA also changed the threshold volume for volume-based learning
from 25,000 to 300,000 units. The 2008 Martec Report and comments from
multiple manufacturers indicated that 25,000 units was far too small a
production volume to affect component costs. In response, NHTSA began
with the Martec estimate that technologies were fully learned-out at
1.5 million units of production (which met the production needs of
three manufacturers, according to that report). NHTSA then applied two
cycles of learning in a reverse direction to determine what the proper
threshold volume would be for these conditions. One cycle would be
applied at 750,000 units (1.5 million divided by 2, which would
represent the second volume doubling) and one at 375,000 units (750,000
divided by 2, which would represent the first volume doubling).

[[Page 14254]]

NHTSA thus estimated that the Martec analysis would suggest a threshold
volume of 375,000 units. However, the agency notes that Martec stated
that it chose the 1.5 million units number specifically because Martec
knew it was well beyond the point where learning is a factor, which
means that 1.5 million was beyond the cusp of the learning threshold.
NHTSA therefore concluded that 375,000 units should represent the upper
bound for the threshold volume for Martec's analysis.
Having determined this, NHTSA sought to establish a lower bound for
the threshold volume. The 2008 Martec report indicated that production
efficiencies are maximized at 250,000-350,000 units (which averages to
300,000 units), and that manufacturers consequently target this range
when planning and developing manufacturing operations. Honda also cited
this production volume. Thus, for three manufacturers, the annual
volume requirement would be 900,000 units.\126\ NHTSA concluded this
could also represent high volume where learned costs could be
available, and considered it as a lower bound estimate. With the upper
and lower values established, and given that Martec specifically
indicated that 1.5 million did not represent the cusp of the learning
threshold, NHTSA chose the mid-point of 1.2 million units as the best
estimate of annual industry volumes where learned costs would be
experienced. For proper forward learning, this would mean the first
learning cycle would occur at 300,000 and the second at 600,000.
Accordingly NHTSA has established the threshold volume for the final
rule at 300,000 industry units per year.
---------------------------------------------------------------------------

\126\ An industry volume of 900,000 would imply a threshold
volume of 225,000 units according to NHTSA's analysis. This is still
nine times the value used at the NPRM.
---------------------------------------------------------------------------

Having established the threshold volume, NHTSA next considered
which technologies to apply volume learning to. Comments confirmed that
NHTSA had been correct in the NPRM to assume that learning would be
applicable to low-volume, emerging technologies that could benefit from
economies of scale, so NHTSA consulted confidential product plans to
determine the volumes of technologies to be applied by manufacturers
during the rulemaking period. If the product plans indicated that the
technologies would be in high-volume use (i.e., above 600,000 units
produced annually for cars and trucks by all manufacturers) at the
beginning of its first year of availability, then volume-based learning
was not considered applicable, since at this volume the technology
would be available at learned cost. If the volume was below 600,000
units annually, then NHTSA also looked at the Volpe model's application
of the technology. If the model applied more than 600,000 units within
the first year of availability, NHTSA did not apply volume-based
learning. If neither manufacturers nor the model applied more than
600,000 units within the first year, then volume learning was applied
to the technology.
Based on this analysis, NHTSA determined that volume-based learning
would be applicable to three technologies for purposes of the final
rule: integrated starter generator, 2-mode hybrid, and plug-in hybrid.
For these three technologies, and where the agency's initial cost
estimates reflected full learning, NHTSA reverse-learned the cost by
dividing the estimate by the learning rate twice to properly offset the
learned cost estimate. NHTSA used a 20 percent learning rate in the
NPRM for these technologies, and concluded that that rate was still
applicable for the final rule. This learning rate was validated using
manufacturer-submitted current and forecast cost data for advanced-
battery hybrid vehicle technology, and accepted industry forecasts for
U.S. sales volumes of these same vehicles. This limited study indicated
that cost efficiencies were approximately 20 percent for a doubling of
U.S. market annual sales of a particular advanced battery technology,
and the learning rate was thus used as a proxy for other advanced
vehicle technologies.
Commenters also indicated that learning-related cost reductions
could occur not only as a result of production volume changes, but also
as a function of time. For example, Ford stated that technology cost
reductions were negotiated as part of the contractual agreement to
purchase components from suppliers, a target-setting process which Ford
described as common in the automotive industry. In this arrangement
suppliers agree to reduce costs on a fixed percentage year over year
according to negotiated terms. GM described a cost reduction process
that occurs over the course of a product life cycle, typically no less
than 4-5 years, where costs are reduced as production experience
increases. GM stated that its cost reductions included engineering,
manufacturing, investment, and material costs, and were also defined
through supplier contracts that anticipate volume and costs over the
whole period. The components involved are assumed to be high volume,
mature technologies being used in current vehicle production. These are
the types of components that would typically be subject to ``cost-
down'' \127\ efforts that target savings through small, incremental
design, manufacturing, assembly, and material changes on a recurring or
periodic basis.
---------------------------------------------------------------------------

\127\ Cost-down efforts are a common practice in competitive
manufacturing environments like the automotive industry.
---------------------------------------------------------------------------

In response to these comments, NHTSA has adopted this approach as
an additional type of learning related cost reduction, referring to it
as ``time-based'' learning. For purposes of the final rule, time-based
learning is applied to high-volume, mature technologies likely to be
purchased by OEMs on a long-term contractual basis. This would include
most of the fuel-saving technologies under consideration, except those
where volume-based learning is applied, or those where components might
consist of commodity materials, such as oil or rubber, where pricing
fluctuations prevent long-term or fixed value contracts. NHTSA has used
a 3 percent reduction rate for time-based learning, based on
confidential manufacturer information and NHTSA's understanding of
current industry practice. Thus, if time-based learning is deemed
applicable, then in year two of a technology's application, and in each
subsequent year (if any), the initial cost is reduced by 3 percent.
This approach is responsive to comments about compliance costs
estimation, and improves the accuracy of projecting future costs
compared to the NPRM.
With regard to the comments from UCS, NHTSA recognizes that joint-
venture collaboration and competitor tear-downs are methods used by
manufacturers for designing and developing new products and components,
but notes that these methods are used prior to the manufacturing stage,
and thus are not considered manufacturing costs. NHTSA has received no
specific manufacturer learning curve-related data, and thus has no
``source data'' to disclose. NHTSA continues to use a 20 percent
learning factor for volume-based learning, which is consistent with
EPA's learning factor recommended by UCS for NHTSA's use.
With regard to the comments from Public Citizen, although NHTSA
reviewed the paper cited by the commenter, the agency found its
analysis largely irrelevant to NHTSA's estimation of cost reduction
factors due to automobile manufacturer learning, and thus declines to
adopt its findings.
Table IV-4 below shows the applicability and type of learning
applied in the final rule.
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BILLING CODE 4910-59-C
7. Technology Synergies
When two or more technologies are added to a particular vehicle
model to improve its fuel efficiency, the resultant fuel consumption
reduction may sometimes be higher or lower than the product of the
individual effectiveness values for those items.\128\ This may

[[Page 14256]]

occur because one or more technologies applied to the same vehicle
partially address the same source or sources of engine, drivetrain or
vehicle losses. Alternately, this effect may be seen when one
technology shifts the engine operating points, and therefore increases
or reduces the fuel consumption reduction achieved by another
technology or set of technologies. The difference between the observed
fuel consumption reduction associated with a set of technologies and
the product of the individual effectiveness values in that set is
referred to for purposes of this rulemaking as a ``synergy.'' Synergies
may be positive (increased fuel consumption reduction compared to the
product of the individual effects) or negative (decreased fuel
consumption reduction).
---------------------------------------------------------------------------

\128\ More specifically, the products of the differences between
one and the technology-specific levels of effectiveness in reducing
fuel consumption. For example, not accounting for interactions, if
technologies A and B are estimated to reduce fuel consumption by 10%
(i.e., 0.1) and 20% (i.e., 0.2) respectively, the ``product of the
individual effectiveness values'' would be 1-0.1 times 1-0.2, or 0.9
times 0.8, which equals 0.72, corresponding to a combined
effectiveness of 28% rather than the 30% obtained by adding 10% to
20%. The ``synergy factors'' discussed in this section further
adjust these multiplicatively combined effectiveness values.
---------------------------------------------------------------------------

For the NPRM, the Volpe model was modified to estimate the
interactions of technologies using estimates of incremental synergies
associated with a number of technology pairs identified by NHTSA. The
use of discrete technology pair incremental synergies is similar to
that in DOE's National Energy Modeling System (NEMS).\129\ Inputs to
the Volpe model incorporate NEMS-identified pairs, as well as
additional pairs for the final rule from the set of technologies
considered in the Volpe model. However, to maintain an approach that
was consistent with the technology sequencing developed by NHTSA, new
incremental synergy estimates for all pairs were obtained from a first-
order ``lumped parameter'' analysis tool created by EPA.\130\
---------------------------------------------------------------------------

\129\ U.S. Department of Energy, Energy Information
Administration, Transportation Sector Module of the National Energy
Modeling System: Model Documentation 2007, May 2007, Washington, DC,
DOE/EIAM070(2007), at 29-30. Available at http://tonto.eia.doe.gov/ftproot/modeldoc/m070(2007).pdf (last accessed Oct. 24, 2008).
\130\ 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.
---------------------------------------------------------------------------

The lumped parameter tool is a spreadsheet model that represents
energy consumption in terms of average performance over the fuel
economy test procedure, rather than explicitly analyzing specific drive
cycles. The tool begins with an apportionment of fuel consumption
across several loss mechanisms and accounts for the average extent to
which different technologies affect these loss mechanisms using
estimates of engine, drivetrain and vehicle characteristics that are
averaged over the EPA fuel economy drive cycle. Results of this
analysis were generally consistent with those of full-scale vehicle
simulation modeling performed by Ricardo, Inc. However, regardless of a
generally consistent set of results for the vehicle class and set of
technologies studied, the lumped parameter tool is not a full vehicle
simulation and cannot replicate the physics of such a simulation.
Many comments were received that stated this and pointed to errors
in the synergies listed in the NPRM being in some cases inaccurate or
even directionally incorrect. NHTSA recognizes that the estimated
synergies applied for the NPRM were not all correct, and has
reevaluated all estimated synergies applied in the analysis supporting
today's final rule. In response to commenters calling for NHTSA to use
full vehicle simulation, either in the first instance or as a check on
the synergy factors that NHTSA developed, the agency has concluded that
the vehicle simulation analyses conducted previously by Ricardo provide
a sufficient point of reference, especially considering the time
constraints for establishing the final rule. NHTSA did, however,
improve the predictive capability of the lumped parameter tool.
The lumped parameter tool was first updated with the new list of
technologies and their associated effectiveness values. Second, NHTSA
conducted a more rigorous qualitative analysis of the technologies for
which a competition for losses would be expected, which led to a much
larger list of synergy pairings than was present in the NRPM. The types
of losses that were analyzed were tractive effort, transmission/
drivetrain, engine mechanical friction, engine pumping, engine
indicated (combustion) efficiency and accessory (see Table IV-5). As
can be seen from Table IV-5, engine mechanical friction, pumping and
accessory losses are improved by various technologies from engine,
transmission, electrification and hybrid decision trees and must be
accounted for within the model with a synergy value. The updated lumped
parameter model was then re-run to develop new synergy estimates for
the expanded list of pairings. That list is shown in Tables IV-6a-d.
The agency notes that synergies that occur within a decision tree are
already addressed within the incremental values assigned and therefore
do not require a synergy pair to address. For example, all engine
technologies take into account incremental synergy factors of preceding
engine technologies, and all transmission technologies take into
account incremental synergy factors of preceding transmission
technologies. These factors are expressed in the fuel consumption
improvement factors in the input files used by the Volpe model.
For applying incremental synergy factors in separate path
technologies, the Volpe model uses an input table (see Tables IV-6a-d)
which lists technology pairings and incremental synergy factors
associated with those pairings, most of which are between engine
technologies and transmission/electrification/hybrid technologies. When
a technology is applied to a vehicle by the Volpe model, all instances
of that technology in the incremental synergy table which match
technologies already applied to the vehicle (either pre-existing or
previously applied by the Volpe model) are summed and applied to the
fuel consumption improvement factor of the technology being applied.
Synergies for the strong hybrid technology fuel consumption reductions
are included in the incremental value for the specific hybrid
technology block since the model applies technologies in the order of
the most effectiveness for least cost and also applies all available
electrification and transmission technologies before applying strong
hybrid technologies.
As another possible alternative to using synergy factors, NHTSA has
also considered modifying the Volpe model to apply inputs--for each
vehicle model--specifying the share of total fuel consumption
attributable to each of several energy loss mechanisms. The agency has
determined that this approach, discussed in greater detail below,
cannot be implemented at this time because the requisite information is
not available.

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[GRAPHIC] [TIFF OMITTED] TR30MR09.029

BILLING CODE 4910-59-C
8. How does NHTSA use full vehicle simulation?
For regulatory purposes, the fuel economy of any given vehicle is
determined by placing the vehicle on a chassis dynamometer (akin to a
large treadmill that puts the vehicle's wheels in contact with one or
more rollers, rather than with a belt stretched between rollers) in a
controlled

[[Page 14262]]

environment, driving the vehicle over a specific driving cycle (in
which driving speed is specified for each second of operation),
measuring the amount of carbon dioxide emitted from the vehicle's
tailpipe, and calculating fuel consumption based on the density and
carbon content of the fuel.
One means of determining the effectiveness of a given technology as
applied to a given vehicle model would be to measure the vehicle's fuel
economy on a chassis dynamometer, install the new technology, and then
re-measure the vehicle's fuel economy. However, most technologies
cannot simply be ``swapped out,'' and even for those that can, simply
doing so without additional engineering work may change other vehicle
characteristics (e.g., ride, handling, performance, etc.), producing an
``apples to oranges'' comparison.
Some technologies can also be more narrowly characterized through
bench or engine dynamometer (i.e., in which the engine drives a
generator that is, in turn, used to apply a controlled load to the
engine) testing. For example, engine dynamometer testing could be used
to evaluate the brake-specific fuel consumption (e.g., grams per
kilowatt-hour) of a given engine before and after replacing the engine
oil with a less viscous oil. However, such testing does not provide a
direct measure of overall vehicle fuel economy or changes in overall
vehicle fuel economy.
For a vehicle that does not yet exist, as in NHTSA's analysis of
CAFE standards applicable to future model years, even physical testing
can provide only an estimate of the vehicle's eventual fuel economy.
Among the alternatives to physical testing, automotive engineers
involved in vehicle design make use of computer-based analysis tools,
including a powerful class of tools commonly referred to as ``full
vehicle simulation.'' Given highly detailed inputs regarding vehicle
engineering characteristics, full vehicle simulation provides a means
of estimating vehicle fuel consumption over a given drive cycle, based
on the explicit representation of the physical laws governing vehicle
propulsion and dynamics. Some vehicle simulation tools also incorporate
combustion simulation tools that represent the combustion cycle in
terms of governing physical and chemical processes. Although these
tools are computationally intensive and required a great deal of input
data, they provide engineers involved in vehicle development and design
with an alternative that can be considerably faster and less expensive
than physical experimentation and testing.
Properly executed, methods such as physical testing and full
vehicle simulation can provide reasonably (though not absolutely)
certain estimates of the vehicle fuel economy of specific vehicles to
be produced in the future. However, when analyzing potential CAFE
standards, NHTSA is not actually designing specific vehicles. The
agency is considering implications of new standards that will apply to
the average performance of manufacturers' entire production lines. For
this type of analysis, precision in the estimation of the fuel economy
of individual vehicle models is not essential; although it is important
that the agency avoid systematic upward or downward bias, uncertainty
at the level of individual models is mitigated by the fact that
compliance with CAFE standards is based on average fleet performance.
As discussed above, the Volpe Model, which the agency has used to
perform the analysis supporting today's final rule, applies an
incrementally multiplicative approach to estimating the fuel savings
achieved through the progressive addition of fuel-saving technologies.
NAS' use of the same approach in its 2002 report was, at the time and
henceforth, criticized by a small number of observers as being prone to
systematic overestimation of available fuel savings. This assertion was
based on the fact that, among the technologies present on any given
vehicle, more than one may address the same energy loss mechanism
(notably, pumping losses on throttled engines). Once all energy losses
of a given type are eliminated, even theoretical improvements
attributable to that loss mechanism are no longer available.
The most direct critique of NAS' methods appeared in a 2002 SAE
paper by four General Motors researchers (Patton, et al.), who compared
some of NAS' calculations to fuel consumption estimates obtained
through vehicle testing and simulation, and concluded that, as
increasing numbers of technologies were applied, NAS' estimates became
increasingly subject to overestimation of available fuel consumption
reductions.\131\
---------------------------------------------------------------------------

\131\ Patton, K.J., et al., General Motors Corporation,
``Aggregating Technologies for Reduced Fuel Consumption: A Review of
the Technical Content in the 2002 National Research Council Report
on CAFE'', 2002-01-0628, Society of Automotive Engineers, Inc.,
2002.
---------------------------------------------------------------------------

In response to such concerns, which had also been raised as the NAS
committee performed its analysis, the NAS report concluded that vehicle
simulation performed for the committee indicated that the report's
incremental fuel savings estimates were ``quite reasonable'' for the
less aggressive two of the three product development paths it
evaluated. The report did, however, conclude that uncertainty increased
with consideration of more technologies, especially under the more
aggressive ``path 3'' evaluated by the committee. The report did not,
however, mention any directional bias to this uncertainty.\132\
---------------------------------------------------------------------------

\132\ NRC (2002), op. cit., p. 151.
---------------------------------------------------------------------------

Notwithstanding this prior response to concerns about the possible
overestimation of available fuel savings, and considering that analyses
supporting the development of the NPRM, the Volpe model applies
``synergy factors'' that adjust fuel savings calculations when some
pairs of technologies are applied to the same vehicle, as discussed
above in Section IV.C.7. These factors reduce uncertainty and the
potential for positive or negative biases in the Volpe model's
estimates of the effects of technologies.
As an alternative to estimating fuel consumption through
incremental multiplication and the application of ``synergy'' factors
to address technology interactions, NHTSA considered basing its
analysis of fuel economy standards on full vehicle simulation at every
step. However, considering the nature of CAFE analysis (in particular,
the analysis of fleets projected to be sold in the future by each
manufacturer), as well as the quantity and availability of information
required to perform vehicle simulation, the agency explained that it
believed detailed simulation when analyzing the entire fleet of future
vehicles is neither necessary nor feasible. Still, when estimating
synergies between technologies, the agency did make use of vehicle
simulation studies, as discussed above. The agency has also done so
when re-estimating synergies before performing the analysis supporting
today's final rule.
NHTSA also considered estimating changes in fuel consumption by
explicitly accounting for each of several energy loss mechanisms--that
is, physical mechanisms to which the consumption of (chemical) energy
in fuel may be attributed. This approach would be similar to that
proposed in 2002 by Patton et al. The agency invited comment on this
approach, requested that manufacturers submit product plans
disaggregating fuel consumption into each of nine loss mechanisms, and
sought estimates of the extent to which fuel-saving technologies affect
each of these loss mechanisms.

[[Page 14263]]

In response to the NPRM, the Alliance presented a detailed analysis
by Sierra Research, which used a modified version of VEHSIM (a vehicle
simulation tool) to estimate the fuel consumption resulting from the
application of various vehicle technologies to 25 vehicle categories
intended to represent the fleet. The Alliance commented that this
simulation-based approach is more accurate than that applied by NHTSA,
and indicated that Sierra's ability to perform this analysis
demonstrates that NHTSA should be able to do the same.
General Motors also raised questions regarding the multiplicative
approach to fuel consumption estimation NHTSA has implemented using the
Volpe model. GM indicated that the Volpe model should be enhanced with
modifications to ``take into account the basic physics of vehicles.''
\133\ Although GM's comments did not explicitly mention vehicle
simulation, GM did express full support for the Alliance's comments.
---------------------------------------------------------------------------

\133\ GM comments at 2, Docket No. NHTSA-2008-0089-0162.
---------------------------------------------------------------------------

The California Air Resources Board (CARB) presented comparisons of
different simulation studies, commenting that these demonstrate that
the VEHSIM model used by Sierra Research ``cannot accurately simulate
vehicles that use advanced technologies such as variable valve timing
and lift and advanced transmissions.'' \134\ CARB also questioned
Sierra Research's simulation capabilities and suggested that, in
support of actual product development, manufacturers neither contract
with Sierra Research for such services nor make use of VEHSIM. CARB
further commented that both AVL (which performed simulation studies for
CARB's evaluation of potential greenhouse gas standards) and Ricardo
(which has recently performed simulation studies and related analysis
for both EPA and NHTSA) provide such services to manufacturers.\135\
---------------------------------------------------------------------------

\134\ CARB comments at 5, Docket No. NHTSA-2008-0089-0173. In
developing potential greenhouse gas (GHG) emissions standards for
light vehicles, CARB made significant use of vehicle simulation
results presented in ``Reducing Greenhouse Gas Emissions from Light-
Duty Motor Vehicles'', which was published in 2004 by the Northeast
States Center for a Clean Air Future (NESCCAF). As NHTSA discussed
in the NPRM, CARB's and NESCCAF's approach, which effectively
reduces each manufacturer's fleet to five ``representative''
vehicles and two average vehicle weights, is too limited for
purposes of CAFE analysis.
\135\ California Air Resources Board, ``Air Resources Board
Staff Comments on Sierra and Martec NRC Presentations'', p. 2.
---------------------------------------------------------------------------

However, the Alliance and GM have criticized technical aspects of
the AVL and Ricardo vehicle simulation studies mentioned by CARB.
Regarding the AVL vehicle simulations CARB utilized, GM raised concerns
that, among other things, some of AVL's simulations assumed the use of
premium-grade gasoline, and some effectively assume vehicle performance
and utility would be compromised.\136\ Similarly, the Alliance raised
concerns that some of the simulations performed by Ricardo for EPA
assumed the use of premium fuel, and that many of the simulations
assumed vehicle performance would be reduced.\137\ The Alliance also
indicated that the five vehicles analyzed by Ricardo for EPA were not
representative of all vehicles in the fleet, leading to overstatement
of the degree of improvement potentially available to vehicles that
already use technologies not present in the vehicles examined by EPA.
The Alliance further argued that the report did not reveal sufficient
detail regarding important simulation details (related, e.g., to
cylinder deactivation), that it failed to account for some parasitic
and accessory loads, and that EPA directed Ricardo to unrealistically
assume universal improvements in aerodynamics, tire efficiency, and
powertrain friction.\138\
---------------------------------------------------------------------------

\136\ Testimony of Kenneth Patton (GM); Testimony of Kevin
McMahon (Martec); Plaintiffs' Proposed Findings of Fact, June 15,
2007, pp. 103 -113.
\137\ Alliance of Automobile Manufacturers, ``Detailed Technical
Comments on Ricardo `Study of Potential Effectiveness of Carbon
Dioxide Reducing Vehicle Technologies' Report'', March 6, 2008.
\138\ For the reader's reference, Ricardo's study for EPA was
based on specific EPA-defined requirements, such as performing full
vehicle simulations of 26 different technology packages on the EPA-
specified 5 baseline vehicles. Thus, to the extent that Ricardo's
numbers do not reflect specific differences in technology
effectiveness by vehicle model, in conducting the analysis for
NHTSA's final rule, NHTSA and Ricardo drew on Ricardo's knowledge to
develop incremental benefits based in part on Ricardo's simulation
work. Ricardo also noted differences between its report for EPA and
the EPA Staff Technical Report in terms of the incremental benefits
for individual technologies developed by EPA based on Ricardo's
simulation.
---------------------------------------------------------------------------

Although submitted after the close of the comment period specified
in the NPRM, comments by several state Attorneys General and other
state and local official questioned the need and merits of full vehicle
simulation within the context of CAFE analysis, stating that

Computer simulation models such as VEHSIM are not practical
except perhaps during vehicle development to determine the
performance of specific vehicle models where all vehicle engineering
parameters are known and can be accounted for in the inputs to the
model. Such an exercise is extremely data intensive, and extending
it to the entire fleet makes it subject to multiple errors unless
the specific parameters for each vehicle model are known and
accounted for in the model inputs.\139\
---------------------------------------------------------------------------

\139\ Attorneys General of the States of California, Arizona,
Connecticut, Illinois, Maryland, Massachusetts, New Jersey, New
Mexico, Oregon, and Vermont, the Executive Officer of the California
Air Resources Board, the Commissioner of the New Jersey Department
of Environmental Protection, the Secretary of the New Mexico
Environment Department, the Secretary of the Commonwealth of
Pennsylvania Department of Environmental Protection, and the
Corporation Counsel of the City of New York, Supplemental Comments
Regarding Alliance of Automobile Manufacturers Comments, Docket No.
NHTSA-2008-0089-0495, October 8, 2008, p. 3.

Considering the comments summarized above, the analyses to which
they refer, and the nature of the analysis the agency performs when
evaluating potential CAFE standards, NHTSA has concluded that full
vehicle simulation, though useful to manufacturers' own product
development efforts, remains neither necessary nor feasible for the MY
2011 CAFE analysis. NHTSA's basis for this conclusion is as follows:
Full vehicle simulation involves estimating the fuel consumption
(and, typically, emissions) of a specific vehicle over a specific
driving cycle. Many engineering characteristics of the vehicle must be
specified, including, but not limited to weight, rolling resistance,
tire radius, aerodynamic drag coefficient, frontal area, engine
maps\140\ and detailed transmission characteristics (gear ratios, shift
logic, etc.), other drivetrain characteristics, and accessory loads.
Additional engine test data would also be required in order to update
engine maps when evaluating the application of advanced engine
technologies. Driving cycles--vehicle speeds over time--are specified
on a second-by-second (or more finely-grained) basis. Using full
vehicle simulation to estimate average fuel consumption under the test
procedures relevant to CAFE involves many simulations to capture all
the potential combinations of technologies that could be used.
---------------------------------------------------------------------------

\140\ An engine map specifies the engine's efficiency under many
different operating conditions, each of which is defined in terms of
rotational speed (i.e., revolutions per minute, or RPM) and load
(i.e., torque).
---------------------------------------------------------------------------

Given all of the requisite data representing a specific vehicle,
full vehicle simulation can provide a powerful means of estimating
vehicle performance while accounting for interactions between various
vehicle components and systems. Full simulation can also provide a
means of estimating vehicle performance under driving conditions not
represented by the fuel economy test procedures. For

[[Page 14264]]

an engineer involved in the design of a specific vehicle or vehicle
component or system, or a manufacturer making specific decisions
regarding the fleet of vehicles it will produce, vehicle simulation can
be a powerful tool. However, even the most detailed simulation
involving full combustion cycle simulation is not the ``gold standard''
for product design. Chrysler, for example, has portrayed simulation as
one of several tools in its CAFE planning process, which also involves
physical testing (i.e., bench testing, chassis dynamometer testing) of
actual components and assembled vehicles.\141\
---------------------------------------------------------------------------

\141\ Fodale, F., Chrysler LLC, ``Fuel Economy/Fuels--Presented
to NRC Committee on Fuel Economy of Light-Duty Vehicles'', November
27, 2007.
---------------------------------------------------------------------------

In purpose and corresponding requirements, NHTSA's evaluation of
regulatory options is fundamentally different from the type of product
planning and development that a manufacturer conducts. A manufacturer
must make specific decisions regarding every component that will be
installed in every vehicle it plans to produce, and it must ultimately
decide how many of each vehicle it will produce. Although manufacturers
have some ability to make ``mid-course adjustments,'' that ability is
limited by a range of factors, such as contracts and tooling
investments. By comparison, NHTSA attempts only to estimate how a given
manufacturer might attempt to comply with a potential CAFE standard;
given the range of options available to each manufacturer, NHTSA has
little hope of predicting specifically what a given manufacturer will
do. CAFE standards require average levels of performance, not specific
technology outcomes. Therefore, while it is important that NHTSA avoid
systematic bias when estimating the potential to increase the fuel
economy of specific vehicle models, it is not important that the
agency's estimates precisely forecast results for every future vehicle.
Furthermore, NHTSA evaluates the impact of CAFE standards on all
manufacturers, based on a forecast of specific vehicle models each
manufacturer will produce for sale in the U.S. in the future. An
analysis for MY 2011 can involve thousands of unique vehicle models,
hundreds of unique engines, and hundreds of unique transmissions.
Model-by-model representation, as used in the analysis for this final
rule, allows the agency to, among other things, account for
technologies expected to be present on each vehicle under ``business as
usual'' conditions, thereby avoiding errors regarding the potential to
add further technologies.
Because of the intense informational and computational
requirements, industry-wide studies that rely on vehicle simulation
reduce the fleet to a limited number of ``representative'' vehicles.
This reduction limits the ability to account for technological and
other heterogeneity of the fleet, virtually ensuring the overestimation
of improvements available to some vehicles (e.g., vehicles that begin
with a great deal of technology) and some manufacturers (e.g.,
manufacturers that sell many high-technology vehicles). AVL's analysis
for NESCCAF and Ricardo's analysis for EPA, each of which considered
only five vehicle models, are both, therefore, of severely limited use
for the kind of fleetwide analysis used in this final rule, although
both provide useful information regarding the range of fuel savings
achieved by specific technologies and ``packages'' of technologies.
The analysis conducted by Sierra Research for the Alliance
considers a significantly greater number (25) of ``representative''
vehicles, drawing important distinctions between similarly-sized cars
based on performance. Sierra was able to do so in part because it
analyzed historical vehicles. For example, Sierra indicates that model
year 1998 engines were used to supply VEHSIM with baseline, ``blended''
engine maps applied universally (rather than specific maps for each
manufacturer and vehicle model) for vehicle model years out to 2020.
Considering that, even without increases in CAFE standards, many
vehicles produced for sale in the U.S. during the time period
considered in a CAFE rulemaking are likely to have technologies such as
VVLT and cylinder deactivation, NHTSA doubts ``blended'' 1998 engines
are as representative as implied by Sierra's analysis.
Although NHTSA could, in principle, integrate full vehicle
simulation of every vehicle model into its analysis of the future
fleet, the agency expects that manufacturers would be unable to provide
much of the required information for future vehicles. Even if
manufacturers were to provide such information, using full vehicle
simulation to estimate the effect of further technological improvements
to future vehicles would involve uncertain detailed estimates, such as
valve timing, cylinder deactivation operating conditions, transmission
shift points, and hybrid vehicle energy management strategies for each
specific vehicle, engine, and transmission combination. Even setting
aside the vast increases in computational demands that would accompany
the use of full vehicle simulation in model-by-model analysis of the
entire fleet, the agency remains convinced that the availability of
underlying information and data would be too limited for this approach
to be practical.
As a third alternative, one that might be more explicitly
``physics-based'' than the use of synergy factors and vastly more
practical than full vehicle simulation, NHTSA requested comment on the
use of partitioned fuel consumption accounting. Aside from GM's
nonspecific recommendation that the Volpe model be modified to account
for the ``basic physics of vehicles,'' NHTSA did not receive comments
regarding the relative merits of partitioning fuel consumption into
several energy loss mechanisms for purposes of estimating the effects
of fuel-saving technologies, even though the concept is similar to that
proposed by Patton, et al. in 2002.\142\ Some manufacturers provided
some of the information that would have been necessary for the
implementation of this approach. However, as a group, manufacturers
that submitted product plan information to the agency provided far too
little disaggregated fuel consumption information to support the
development of this approach. Although NHTSA continues to believe that
partitioning fuel consumption into various loss mechanisms could
provide a practical and sound basis for future analysis, the
information required to support this approach is not available at this
time.
---------------------------------------------------------------------------

\142\ Patton, et al., present an energy balance calculation that
disaggregates fuel consumption into six energy loss categories,
indicating that ``an accounting of the effects of individual
technologies on energy losses within these categories provides a
practical, physically-based means to evaluate and compare the fuel
consumption effects of the various technologies.'' (Patton, et al.,
(2002), op. cit., p. 11.)
---------------------------------------------------------------------------

In conclusion, NHTSA observes that with respect to the CAFE
analysis prepared for this final rule, full vehicle simulation could
theoretically be used at three different levels. First, full vehicle
simulation could be used only to provide specific estimates, that,
combined with other data (e.g., from bench testing) would provide a
basis for estimates of the effectiveness of specific individual
technologies. While NHTSA will continue considering this type of
analysis, the agency anticipates that it will continue to be feasible
and informative to make somewhat greater use of full vehicle
simulation. Second, full vehicle simulation could be fully integrated
into NHTSA's model-by-model analysis of the entire fleet to be

[[Page 14265]]

projected to be produced in future model years. NHTSA expects, however,
that this level of integration will remain infeasible considering the
size and complexity of the fleet. Also, considering the forward-looking
nature of NHTSA's analysis, and the amount of information required to
perform full vehicle simulation, NHTSA anticipates that this level of
integration would involve misleadingly precise estimates of fuel
consumption, even for MY 2011. Finally, full vehicle simulation can be
used to develop less complex representations of interactions between
technologies (such as was done using the lumped parameter model to
develop the synergies for the final rule), and to perform reference
points to which vehicle-specific estimates may be compared. NHTSA views
this as a practical and productive potential use of full vehicle
simulation, and will consider following this approach in the future.
NHTSA has contracted with NAS to, among other things, evaluate the
potential use of full vehicle simulation and other fuel consumption
estimation methodologies. Nevertheless, in addition to considering
further modifications to the Volpe model, NHTSA will continue to
consider other methods for evaluating the cost and effect of adding
technology to manufacturers' fleets.
9. Refresh and Redesign Schedule
In addition to, and as discussed below, developing analytical
methods that address limitations on overall rates at which new
technologies can be expected to feasibly penetrate manufacturers'
fleets, the agency has also developed methods to address the feasible
scheduling of changes to specific vehicle models. In the Volpe model,
which the agency has used to support the current rulemaking, these
scheduling-related methods were first applied in 2003, in response to
concerns that an early version of the model would sometimes add and
then subsequently remove some technologies.\143\ By 2006, these methods
were integrated into a new version of the model, one which explicitly
``carried forward'' technologies added to one vehicle model to
succeeding vehicle models in the next model year, and which timed the
application of many technologies to coincide with the redesign or
freshening of any given vehicle model.\144\
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\143\ 68 FR 16874 (Apr. 7, 2003).
\144\ 71 FR 17582 (Apr. 6, 2006).
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Even within the context of the phase-in caps discussed below, NHTSA
considers these model-by-model scheduling constraints necessary in
order to produce an analysis that reasonably accounts for the need for
a period of stability following the redesign of any given vehicle
model. If engineering, tooling, testing, and other redesign-related
resources were free, every vehicle model could be redesigned every
year. In reality, however, every vehicle redesign consumes resources
simply to address the redesign. Phase-in caps, which are applied at the
level of manufacturer's entire fleet, do not constrain the scheduling
of changes to any particular vehicle model. Conversely, scheduling
constraints to address vehicle freshening and redesign do not
necessarily yield realistic overall penetration rates (e.g., for strong
hybrids).
In the automobile industry there are two terms that describe when
changes to vehicles occur: redesign and refresh (i.e., freshening).
Vehicle redesign usually encompasses changes to a vehicle's appearance,
shape, dimensions, and powertrain, and is traditionally associated with
the introduction of ``new'' vehicles into the market, which is often
characterized as the next generation of a vehicle. In contrast, vehicle
refresh usually encompasses only changes to a vehicle's appearance, and
may include an upgraded powertrain. Refresh is traditionally associated
with mid-cycle cosmetic changes to a vehicle, within its current
generation, to make it appear ``fresh.'' Vehicle refresh traditionally
occurs no earlier than two years after a vehicle redesign or at least
two years before a scheduled redesign. In the NPRM, NHTSA tied the
application of the majority of the technologies to a vehicle's refresh/
redesign cycle, because their application was significant enough that
it could involve substantial engineering, testing, and calibration
work.
NHTSA based the redesign and refresh schedules used in the NPRM as
inputs to the Volpe model on a combination of manufacturers'
confidential product plans and NHTSA's engineering judgment. In most
instances, NHTSA reviewed manufacturers' planned redesign and refresh
schedules and used them in the same manner it did in past rulemakings.
However, in NHTSA's judgment, manufacturers' planned redesign and
refresh schedules for some vehicle models were unrealistically slow
considering overall market trends. In these cases, the agency re-
estimated redesign and refresh schedules more consistent with the
agency's expectations, as discussed below. Also, if companies did not
provide product plan data, NHTSA used publicly available data about
vehicle redesigns to project the redesign and refresh schedules for the
vehicles produced by these companies.\145\
---------------------------------------------------------------------------

\145\ Sources included, but were not limited to manufacturers'
web sites, industry trade publications (e.g., Automotive News), and
commercial data sources (e.g., Wards Automotive, etc.).
---------------------------------------------------------------------------

Unless a manufacturer submitted plans for a more rapid redesign and
refresh schedule, NHTSA assumed that passenger cars would normally be
redesigned every 5 years, based on the trend over the last 10-15 years
showing that passenger cars are typically redesigned every 5 years.
These trends were reflected in the manufacturer product plans that
NHTSA used in the NPRM analysis, and were also confirmed by many
automakers in meetings held with NHTSA to discuss various general
issues regarding the rulemaking.
NHTSA explained that it believes that the vehicle design process
has progressed and improved rapidly over the last decade and that these
improvements have made it possible for some manufacturers to shorten
the design process for some vehicles in order to introduce vehicles
more frequently in response to competitive market forces. Although
manufacturers have likely already taken advantage of most available
improvements, according to public and confidential data available to
NHTSA, almost all passenger cars will be on a 5-year redesign cycle by
the end of the decade, with the exception being some high performance
vehicles and vehicles with specific market niches.
NHTSA also stated in the NPRM that light trucks are currently
redesigned every 5 to 7 years, with some vehicles (like full-size vans)
having longer redesign periods. In the most competitive SUV and
crossover vehicle segments, the redesign cycle currently averages
slightly above 5 years. NHTSA explained that it is expected that the
light truck redesign schedule will be shortened in the future due to
competitive market forces Thus, for almost all light trucks scheduled
for a redesign in model year 2014 and later, NHTSA projected a 5-year
redesign cycle. Exceptions were made for high performance vehicles and
other vehicles that traditionally had longer than average design
cycles. For those vehicles, NHTSA attempted to preserve their
historical redesign cycle rates.
NHTSA discussed these assumptions with several manufacturers at the
NPRM stage, before the current economic crisis. Two manufacturers
indicated at

[[Page 14266]]

that time that their vehicle redesign cycles take at least five years
for cars and 6 years and longer for trucks because they rely on those
later years to earn a profit on the vehicles. They argued that they
would not be able to sustain their business if forced by CAFE standards
to a shorter redesign cycle. The agency recognizes that some
manufacturers are severely stressed in the current economic
environment, and that some manufacturers may be hoping to delay planned
vehicle redesigns in order to conserve financial resources. However,
consistent with its forecast of the overall size of the light vehicle
market from MY 2011 on, the agency currently expects that the
industry's status will improve, and that manufacturers will typically
redesign both car and truck models every 5 years in order to compete in
that market.
NHTSA received relatively few comments regarding its refresh/
redesign schedule assumptions. UCS commented that redesign schedules
should be shortened to 3 years, based on recent public statements by
Ford that they intended to move to that cycle, and based on other
recent manufacturer behavior.
Although NHTSA agrees with UCS that remarks by one Ford official at
a January 2008 conference suggest that that company was then hoping to
accelerate its vehicle ``cycle time'' to 3 years, the agency questions
the context, intended meaning and scope, and representation of those
remarks.\146\ Further, the agency notes that the article referenced by
UCS also indicates that ``most manufacturers make changes to their
vehicle lines every four years or more, depending on the segment of the
market, with mid-cycle freshenings every two years or so.'' \147\
Although some manufacturers have, in their product plans, indicated
that they plan to redesign some vehicle models more frequently than has
been the industry norm, all manufacturers have also indicated that they
expect to redesign some other vehicle models considerably less
frequently. The CAR report submitted by the Alliance, prepared by the
Center for Automotive Research and EDF, states that ``For a given
vehicle line, the time from conception to first production may span two
and one-half to five years,'' but that ``The time from first production
(``Job 1'') to the last vehicle off the line (``Balance Out'')
may span from four to five years to eight to ten years or more,
depending on the dynamics of the market segment.'' The CAR report then
states that ``At the point of final production of the current vehicle
line, a new model with the same badge and similar characteristics may
be ready to take its place, continuing the cycle, or the old model may
be dropped in favor of a different product.'' \148\
---------------------------------------------------------------------------

\146\ Zoia, D.E. 2008. Ford to cut cycle times to three years.
Online at http://www.wardsauto.com. January 24.
\147\ Id.
\148\ See NHTSA-2008-0089-0170.1, Attachment 16, at 8 (393 of
pdf).
---------------------------------------------------------------------------

NHTSA believes that this description, which states that a vehicle
model will be redesigned or dropped after 4-10 years, is consistent
with other characterizations of the redesign and freshening process,
and supports its 5-year redesign assumption and its 2-3 year refresh
cycle assumptions.\149\ Thus, for purposes of the final rule, NHTSA is
retaining the 5-year redesign/2-3 year refresh assumptions employed in
the NPRM. However, NHTSA will continue to monitor manufacturing trends
and will reconsider these assumptions in subsequent rulemakings if
warranted.
---------------------------------------------------------------------------

\149\ See id., at 9 (394 of pdf).
---------------------------------------------------------------------------

For purposes of the final rule, NHTSA has also considered
confidential product plans where applicable and industry trends on
refresh and redesign timing as discussed above, to apply specific
technologies at redesign, refresh, or any model years as shown in Table
IV-7 below.
BILLING CODE 4910-59-P

[[Page 14267]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.030

BILLING CODE 4910-59-C
As the table shows, most technologies are applied by the Volpe
model when a specific vehicle is due for a redesign or refresh.
However, for low friction lubricants, the model is not restricted to
applying it during a refresh/redesign year and thus it was made
available for application at any time. Low friction lubricants are very
cost-effective, can apply to multiple vehicle models/platforms and can
be applied across multiple vehicle models/platforms in one year.
Although they can also be applied during a refresh/redesign year, they
are not restricted to that timeframe because their application is not
viewed as necessitating a major engineering redesign and associated
testing/calibration.
For several technologies estimated in the NPRM to be available for
application during any model year, NHTSA now estimates that these
technologies will be available only at refresh or redesign. Those
technologies include aggressive shift logic, improved accessories, low
rolling resistance tires and low drag

[[Page 14268]]

brakes. Aggressive shift logic is now one of the technologies included
under improved automatic transmission controls. This technology
requires a recalibration specific to each vehicle, such that it can
therefore be applied only at refresh or redesign model years. The
``improved accessories'' technology has been redefined to include
intelligent engine cooling systems, which require a considerable change
to the vehicle and engine cooling system; therefore, improved
accessories also can be applied only at refresh or redesign model
years. Also, NHTSA concurs with manufacturers' confidential statements
that indicating that low drag brakes and low rolling resistance tires
can be applied only at refresh or redesign model years due to the need
for vehicle testing and calibration (e.g., to ensure safe handling and
braking) when these technologies are applied.
10. Phase-In Caps
In 2002, NHTSA proposed the first increases in CAFE standards in
six years due to a previous statutorily-imposed prohibition on setting
new standards. That proposal, for MY 2005-2007 light truck standards,
relied, in part, on a precursor to the current Volpe model. This
earlier model used a ``technology application algorithm'' to estimate
the technologies that manufacturers could apply in order to comply with
new CAFE standards.
NHTSA received more than 65,000 comments on that proposal. Among
those were many manufacturer comments concerning lead time and the
potential for rapid widespread use of new technologies. The agency
noted that DaimlerChrysler and Ford ``argued that the agency had
underestimated the lead time necessary to incorporate fuel economy
improvements in vehicles, as well as the difficulties of introducing
new technologies across a high volume fleet.'' Specific to Volpe's
technology application algorithm, the agency noted that General Motors
took issue with the algorithm's ``application of technologies to all
truck lines in a single model year.'' \150\
---------------------------------------------------------------------------

\150\ 68 FR 16874 (Apr. 7, 2003).
---------------------------------------------------------------------------

In response to those concerns, Volpe's algorithm was modified ``to
recognize that capital costs require employment of technologies for
several years, rather than in a single year.'' \151\ Those changes
moderated the rates at which technologies were estimated to penetrate
manufacturers' fleets in response to the new (MY 2005-MY 2007) CAFE
standards. These changes produced more realistic estimates of the
technologies manufacturers could apply in response to the new
standards, and thereby produced more realistic estimates of the costs
of those standards.
---------------------------------------------------------------------------

\151\ Id., at 16885.
---------------------------------------------------------------------------

Prior to the next rulemaking, the Volpe model underwent significant
integration and improvement, including the accommodation of explicit
``phase-in caps'' to constrain the rates at which each technology would
be estimated to penetrate each manufacturer's fleet in response to new
CAFE standards.\152\ As documented in 2006, the agency's final
standards for light trucks sold in MY 2008-MY 2011 were based on phase-
in caps ranging from 17 percent to 25 percent (corresponding to full
penetration of the fleet within 4 to 6 years) for most technologies,
and from 3 percent to 10 percent (full penetration within 10 to 33
years) for more advanced technologies such as hybrid electric
vehicles.\153\ The agency based these rates on consideration of
comments and on the 2002 NAS Committee's findings that ``widespread
penetration of even existing technologies will probably require 4 to 8
years'' and that for emerging technologies ``that require additional
research and development, this time lag can be considerably
longer''.\154\
---------------------------------------------------------------------------

\152\ These caps constrain the extent to which additional
technology is applied by the model, beyond the levels projected in
each manufacturer's baseline fleet. Also, because manufacturers'
fleets are comprised of vehicles, engines, and transmissions sold in
discrete volumes, phase-in caps cannot be applied as precise limits.
In some cases (when a phase-in cap is small or a manufacturer has a
limited product line), doing so would prevent the technology from
being applied at all. Therefore, the Volpe model enforces each
phase-in cap constraint as soon as it has been exceeded by
application of technologies to manufacturers.
\153\ 71 FR 17572, 17679 (Apr. 6, 2006).
\154\ Id. at 17572. See also 2002 NAS Report, at 5.
---------------------------------------------------------------------------

In its 2008 NPRM proposing new CAFE standards for passenger cars
and light trucks sold during MY 2011-MY 2015, NHTSA considered
manufacturers' planned product offerings and estimates of technology
availability, cost, and effectiveness, as well as broader market
conditions and technology developments. The agency concluded that many
technologies could be deployed more rapidly than it had estimated
during the prior rulemaking.\155\ For most engine technologies, the
agency increased these caps from 17 percent to 20 percent, equivalent
to reducing the estimated time for potential fleet penetration from 6
years to 5 years. For stoichiometric gasoline direct injection (GDI)
engines, the agency increased the phase-in cap from 3 percent to 20
percent, equivalent to estimating that such engines could potentially
penetrate a given manufacturer's fleet in 5 years rather than the
previously-estimated 33 years. However, as in its earlier CAFE
rulemakings, the agency continued to recognize that myriad constraints
prohibit most technologies from being applied across an entire fleet of
vehicles within a year, even if those technologies are available in the
market.
---------------------------------------------------------------------------

\155\ 73 FR 24387-88 (May 2, 2008).
---------------------------------------------------------------------------

In addition to requesting further explanation of NHTSA's use of
phase-in caps, commenters addressing phase-in caps generally asserted
one of three themes: (1) That hybrid phase-in caps were much lower than
market trends or manufacturer announcements would otherwise suggest;
(2) that the phase-in caps proposed in the NPRM were too high in the
early years of the rulemaking and did not reflect the very small (from
a manufacturing perspective) amount of lead-time between the final rule
and the MY 2011 standards, and/or were too low in the later years of
the rulemaking given the relatively-increased amount of lead-time for
those model years; (3) that there are insufficient resources (either in
terms of capital or engineering) to implement the number of
technologies implied by the phase-in caps simultaneously.
Agency response: NHTSA continues to recognize that many factors
constrain the rates at which manufacturers will be able to feasibly add
fuel-saving technologies to the fleets they will sell in the United
States. For a given technology, examples of these factors may include,
but would not be limited to the following:
Is the technology ready for commercial use? For example,
can it operate safely and reliably under real-world driving conditions
for several years and many miles?
If the technology requires special infrastructure (e.g.,
new electrical generation and charging facilities), how quickly will
that be put in place?
How quickly can suppliers ramp up to produce the
technology in mass quantities? For example, how quickly can they obtain
the materials, tooling, and engineering resources they will need?
Are original equipment manufacturers (OEMs) ready to
integrate the technology into vehicles? For example, how quickly can
they obtain the necessary tooling (e.g., retool factories),
engineering, and financial resources?
How long will it take to establish failure and warranty
data, and to make sure dealers and maintenance and repair businesses
have any new training and tooling required in order to work with the
new technology?

[[Page 14269]]

Will OEMs be able to reasonably recoup prior investments
for tooling and other capital?
To what extent are suppliers and OEMs constrained by
preexisting contracts?
NHTSA cannot explicitly and quantitatively evaluate every one of
these and other factors with respect to each manufacturer's potential
deployment of each technology available during the production intent or
emerging technology framework. Attempting to do so would require an
extraordinary effort by the agency, and would likely be subject to
tremendous uncertainties. For example, in the current economic and
market environment, the agency expects that it would be impossible to
reliably predict specific characteristics of future supply chains.
Therefore, the agency has concluded that it is appropriate to continue
using phase-in caps to apply the agency's best judgment of the extent
to which such factors combine to constrain the rates at which
technologies may feasibly be deployed. We note, however, that many of
the assumptions about phase-in caps made in this final rule apply to
years beyond MY 2011, because as the NAS Committee and commenters
indicated, technologies are phased in over several years, so the agency
evaluated the phasing-in of technologies over the five-year period
proposed in the NPRM. NHTSA provides these assumptions both in response
to comments and to provide context for the agency's decisions regarding
MY 2011 phase-in caps. We emphasize that all assumptions for years
other than MY 2011 will be reconsidered for future rulemakings and may
be subject to change at that time.
Considering the above-mentioned comments, NHTSA has concluded that
the phase-in caps it applied during its analysis documented in the 2008
NPRM resulted in technology penetration rates that were unrealistically
high in the earlier model years covered by its proposal, particularly
for MY 2011. This was a significant basis for the proposed standards'
``front loading'' about which manufacturers expressed serious concerns.
In response, and based on this conclusion, the Volpe model was modified
for purposes of the final rule analysis to use phase-in caps for each
technology that vary from one year to the next, and that in many cases
would have increased more rapidly in the later years of the agency's
analysis than in earlier years. In making these changes, particularly
to the MY 2011 phase-in caps, the agency has been mindful of the need
to provide manufacturers sufficient lead time to add technologies to
their fleets. In the agency's judgment, its revised approach more
realistically represents manufacturers' capabilities and therefore
produces more realistic estimates of the costs of new CAFE standards.
For some technologies, NHTSA also concluded that slower overall
rates of fleet penetration are more likely than the rates shown in the
NPRM. The agency estimates that cylinder deactivation, stoichiometric
GDI, and turbocharging with downsizing would be able to potentially be
added to 12-14 percent of the fleet per year on average, rather than
the 20 percent phase-in caps used in the NPRM for these technologies.
Considering manufacturers' comments and some aspects of its
reevaluation of the incremental benefits of available engine
technologies, the agency has concluded that these technologies will,
for some engines, require more significant hardware changes and
certification burden than previously recognized, such that feasible
deployment is likely to be somewhat slower than estimated in the NPRM.
NHTSA has also concluded, considering the complexities involved in
deploying strongly hybridized vehicles (i.e., power split, two mode,
and plug-in hybrids), it is unrealistic to expect that, in response to
new CAFE standards, manufacturers can produce more of such vehicles in
MY 2011 than they are already planning. Therefore, NHTSA has set the MY
2011 phase-in cap for strong hybrids to zero in that model year. Based
on new information regarding engineering resources entailed in
developing new power split and two-mode hybrid vehicles, the agency
estimated in its analysis that these technologies could be added to up
to 11 percent and 8 percent, respectively, of a given manufacturer's
long run fleet, rather than the 15 percent the agency estimated for the
NPRM. The agency also considered a less aggressive 1 percent longer run
phase-in cap for plug-in hybrids, in part because although the agency
expects that plug-in hybrids will rely on lithium-ion batteries, it is
not clear whether and, if so, how the supply chain for large and robust
lithium-ion batteries will develop.
On the other hand, NHTSA has also concluded that some technologies
can potentially be deployed more widely than estimated in the NPRM. For
example, the agency estimates that 6/7/8-speed transmissions, dual
clutch or automated manual transmissions, secondary axle disconnect,
and aerodynamic improvements can potentially (notwithstanding
engineering constraints that, for example, preclude the application of
aerodynamic improvements to some performance vehicles) be added at an
average rate of 20 percent per year of a given manufacturer's fleet
rather than the 14-17 percent average annual phase-in caps used in the
NPRM for these technologies. In the agency's judgment, increased phase-
in caps are appropriate for these transmission technologies, in part
because the agency's review of confidential product plans which
indicated a higher than anticipated application rate of these
technologies than existed at the time of the NPRM. Additionally,
several manufacturers indicated a high likelihood of significant usage
of dual clutch transmissions across their fleet of vehicles. The
secondary axle disconnect technology was redefined for the final rule
to consist of a somewhat basic, existing technology applicable only to
4 wheel-drive vehicles (a smaller population) rather than the NPRM-
defined technology (which was applicable to both 4 and all wheel drive
vehicles). The agency has also concluded that, because it has
identified performance vehicles as such, and has estimated that
aerodynamic improvements are not applicable to these vehicles,
aerodynamic dynamic improvements can be applied more widely as long as
they are applied consistent with vehicle redesign schedules.
Furthermore, considering changes in manufacturers' stated expectations
regarding prospects for diesel engines, the agency estimates that
diesel engines could be added to as much as 4 percent of a
manufacturer's light truck fleet each year on average, rather than the
3 percent estimated in the NPRM. These changes in NHTSA's estimates
stem from the agency's reevaluation of the status of these
technologies, as revealed by manufacturers' plans and confidential
statements, as well as other related comments submitted in response to
the NPRM.
Regarding comments that manufacturers' public statements reflect
the ability to deploy technology more rapidly than reflected in the
phase-in caps NHTSA applied in the NPRM, NHTSA notes that it did
consider such statements. Combined with other information, these led
the agency to conclude that, as mentioned above, some technologies
could, particularly in later years, be applied more widely than the
agency had previously estimated. However, in their confidential
statements to NHTSA, manufacturers

[[Page 14270]]

are typically more candid about factors--both positive and negative--
that affects their ability to deploy new technologies than they are in
public statements available to their competitors. Therefore, NHTSA
places greater weight on manufacturers' confidential statements,
especially when they are consistent with statements made by other
manufacturers and/or suppliers. NHTSA also observes that some
organizations have exhibited a tendency to take manufacturers'
statements out of context, or overlook important caveats included in
such statements, which are largely used for marketing purposes.
Table IV-8 below outlines the phase-in caps for each discrete
technology for MY 2011. These phase-in caps, along with the expanded
number and types of vehicle subclasses, address the concerns raised by
commenters and represent a substantial improvement in terms of
consideration of the factors affecting technology penetration rates
over those used in the NPRM. Additional considerations regarding
specific phase-in caps, including nonlinear increases in these caps,
are presented in the more detailed technology-by-technology analysis
summarized below.
For some of the technologies applied in the final rule, primarily
the valvetrain and diesel engine technologies, NHTSA has utilized
combined phase-ins caps since the technologies are effectively the same
from the standpoints of engineering and implementation. The final rule
represented diesel engines as two technologies that both result in the
conversion of gasoline engine vehicles. The annual phase-in caps for
these two technologies, which are both set to a maximum of 3 percent
for passenger cars (4 percent for light trucks) have been combined so
that the maximum total application of either or both technologies to
any manufacturers' passenger car fleet is limited to 3 percent (not 6
percent). For example, if 3 percent of a manufacturers' passenger car
fleet has received diesel following combustion restart in a given year,
diesel following turbocharging and downsizing will not be applied
because the phase-in cap for diesels would have been reached. These
combined phase-in caps are discussed below where applicable to each
technology.
BILLING CODE 4910-59-P
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[[Page 14271]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.032

BILLING CODE 4910-59-C

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

1. What data sources did NHTSA evaluate?
In developing the technology assumptions in the final rule, NHTSA,
working with Ricardo, examined a wide range of data sources and
comments. We reexamined the sources we relied on for the NPRM such as
the 2002 NAS Report, the 2004 NESCCAF report developed for CARB by AVL
and Martec, the 2006 EEA report and the EPA certification data. We also
considered more recent and updated sources of information and reports
submitted to the NPRM docket, including the (1) Sierra Research report
submitted by the Alliance as an attachment to its comments as another
set of estimates for fuel economy cost and effectiveness,\156\ (2)
CARB's response to aspects of that report, which was filed as
supplemental comment on October 14, 2008, (3) the 2008 Martec
Report,\157\ which updated the Martec report on which the 2004 NESCCAF
study was based, and the EPA Staff Technical Report,\158\ which largely
mirrored NHTSA's NPRM estimates.
---------------------------------------------------------------------------

\156\ Sierra Research, ``Attachment to Comment Regarding the
NHTSA Proposal for Average Fuel Economy Standards Passenger Cars and
light Trucks Model Years 2011-2015,'' June 27, 2008. Available at
Docket No. NHTSA-2008-0089-0179.1.
\157\ Martec, ``Variable Costs of Fuel Economy Technologies,''
June 1, 2008. Available at Docket No. NHTSA-2008-0089-0169.1.
\158\ 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.
---------------------------------------------------------------------------

The agency also evaluated confidential data from a number of
vehicle manufacturers and technology component suppliers.\159\ We note
that vehicle manufacturers updated their product plans in response to
NHTSA's May 2008 Request for Comment.\160\
---------------------------------------------------------------------------

\159\ The major suppliers that provided NHTSA with fuel economy
cost and effectiveness estimates in response to our request for
comments included Borg-Warner, Cummins, and Delphi, while Borg-
Warner, Bosch, Coring, Cummins, Delphi, and Siemens also provided
NHTSA with fuel economy cost and effectiveness estimates during
confidential meetings.
\160\ Manufacturers that provided NHTSA with fuel economy cost
and effectiveness estimates in response to our request for comments
include BMW, Chrysler, Daimler, Ford, GM, Honda, Nissan, and Toyota.
---------------------------------------------------------------------------

2. Individual technology descriptions and cost/effectiveness estimates
(a) Gasoline Engine Technologies
(i) Overview
Most passenger cars and light trucks in the U.S. have gasoline-
fueled spark ignition internal combustion engines. These engines move
the vehicle by converting the chemical energy in gasoline fuel to
useful mechanical work output as shaft torque and power delivered to
the transmission and to the vehicle's driving wheels. Vehicle fuel
economy is directly proportional to the efficiency of the engine. Two
common terms are used to define the efficiency of an engine are (1)
Brake Specific Fuel Consumption (BSFC), which is the ratio of the mass
of fuel used to the output mechanical energy; and (2) Brake Thermal
Efficiency (BTE), which is the ratio of the fuel chemical energy, known

[[Page 14272]]

as calorific value, to the output mechanical energy.
The efficiency of an automotive spark ignition engine varies
considerably with the rotational speed and torque output demanded from
the engine. The most efficient operating condition for most current
engine designs occurs around medium speed (30-50 percent of the maximum
allowable engine rpm) and typically between 70-85 percent of maximum
torque output at that speed. At this operating condition, BTE is
typically 33-36 percent. However, at lower engine speeds and torque
outputs, at which the engine operates in most consumer vehicle use and
on standardized drive cycles, BTE typically drops to 20-25 percent.
Spark ignition engine efficiency can be improved by reducing the
energy losses that occur between the point of combustion of the fuel in
the cylinders to the point where that energy reaches the output
crankshaft. Reduction in this energy loss results in a greater
proportion of the chemical energy of the fuel being converted into
useful work. For improving engine efficiency at lighter engine load
demand points, which are most relevant for CAFE fuel economy, the
technologies that can be added to a given engine may be characterized
by which type of energy loss is reduced, as shown in Table IV-9 below.
[GRAPHIC] [TIFF OMITTED] TR30MR09.033

As Table IV-9 shows, the main types of energy losses that can be
reduced in gasoline engines to improve fuel economy are exhaust energy
losses, engine friction losses, and gas exchange losses. Converting the
gasoline engine to a diesel engine can also reduce heat losses.
Exhaust Energy Loss Reduction
Exhaust energy includes the kinematic and thermal energy of the
exhaust gases, as well as the wasted chemical energy of unburned fuel.
These losses represent approximately 32 percent of the initial fuel
chemical energy and can be reduced in three ways: first, by recovering
mechanical or electrical energy from the exhaust gases; second, by
improving the hydrocarbon fuel conversion; and third, by improving the
cycle thermodynamic efficiency. The thermodynamic efficiency can be
improved by either increasing the engine's compression ratio or by
operating with a lean air/fuel ratio. The latter is not considered to
be at the emerging technology point yet due to the non-availability of
lean NOX aftertreatment, as discussed below. However, the
compression ratio may potentially be raised by 1 to 1.5 ratios using
stoichiometric direct fuel injection.
Engine Friction Loss Reduction
Friction losses can represent a significant proportion of the
global losses at low load. These losses are dissipated through the
cooling system in the form of heat. Besides via direct reduction
measures, friction can also be reduced through downsizing the engine by
means of increasing the engine-specific power output.
Gas Exchange Loss Reduction
The energy expended while delivering the combustion air to the
cylinders and expelling the combustion products is known as gas
exchange loss, commonly referred to as pumping loss. The main source of
pumping loss in a gasoline engine is the use of an inlet air throttle,
which regulates engine output by controlling the pre-combustion
cylinder air pressure, but is an inefficient way to achieve this
pressure control. A more efficient way of controlling the cylinder air
pressure is to modify the valve timing or lift. Another way to reduce
the average pumping losses is to ``downsize'' the

[[Page 14273]]

engine, making it run at higher loads or higher pressures.
As illustrated in Table IV-9, several different technologies target
pumping loss reduction, but it is important to note that the fuel
consumption reduction from these technologies is not necessarily
cumulative. Once most of the pumping work has been eliminated, adding
further technologies that also target reduced pumping loss will have
little additional effectiveness. Thus, in the revised decision trees,
the effectiveness value shown for additional technologies targeting
pumping loss depends on the existing technology combination already
present on the engine.
(ii) Low Friction Lubricants (LUB)
One of the most basic methods of reducing fuel consumption in
gasoline engines is the use of lower viscosity engine lubricants. More
advanced multi-viscosity engine oils are available today with improved
performance in a wider temperature band and with better lubricating
properties. CAFE standards notwithstanding, the trend towards lower
friction lubricants is widespread. Within the next several year, most
vehicles are likely to use 5W-30 motor oil, and some will use even less
viscous oils, such as 5W-20 or possibly even 0W-20, to reduce cold
start friction.
The NPRM reflected NHTSA's belief that manufacturer estimates are
the most accurate, and it estimated that low friction lubricants could
reduce fuel consumption by 0.5 percent for all vehicle types at an
incremental cost of $3, which represented the mid-point of manufacturer
estimates range, rounded up to the next dollar. For the final rule
NHTSA used the $3 cost from the NPRM, updated it to 2007 dollars, and
marked it up to a retail price equivalent (RPE) of $5. Several
manufacturers commented confidentially that low friction lubricants
could reduce fuel consumption by 0 to 1 percent, and the Alliance
suggested 0.5 percent relative to the baseline fleet. These comments
confirm NHTSA's NPRM effectiveness estimate, so NHTSA has retained it
for the final rule.
Low friction lubricants may be applied to any class of vehicles.
The phase-in for low friction lubricants is capped at 50 percent for MY
2011. Honda commented that low friction lubricants cannot be applied to
engines that have not been developed specifically for them.\161\ NHTSA
understands that in some cases there could be a need for design changes
and durability verification to implement low friction lubricants in
existing engines. However, aftermarket low friction lubricant products
already exist, and have been approved for use in existing engines.
---------------------------------------------------------------------------

\161\ Docket NHTSA-2008-0089-0191.1.
---------------------------------------------------------------------------

(iii) Engine Friction Reduction (EFR)
Besides low friction lubricants, manufacturers can also reduce
friction and improve fuel economy by improving the design of engine
components and subsystems. Examples include improvements in low-tension
piston rings, roller cam followers, improved crankshaft design and
bearings, material coatings, material substitution, more optimal
thermal management, and piston and cylinder surface treatments.
In the NPRM, based on confidential manufacturer data and the NAS,
NESCCAF, and EEA reports, NHTSA estimated that friction reduction could
incrementally reduce fuel consumption for all vehicles by 1 to 3
percent at a cost of $0 to $21 per cylinder resulting in cost estimates
of $0-$84 for a 4-cylinder, $0-$126 for a V-6, and $0-$168 for a V-8.
For the final rule, NHTSA assumed there would be some cost associated
with reducing engine friction, since at a minimum engineering and
validation testing is required, in addition to any new components
required such as roller followers or improved bearings. Additionally
some revised components, such as improved surface materials/treatments,
piston rings, etc., have costs that vary by component size which need
to account for the full range of engines under consideration in the
rulemaking, from small displacement gasoline to large displacement
diesel engines.
Considering the above, NHTSA relied on confidential manufacturer
comments in response to the NPRM to determine a lower technology cost
bound of $35 for a 4-cylinder engine and an upper cost of $195 for a 6
cylinder engine. These costs were marked up by a 1.5 RPE factor to
arrive at per-cylinder costs of $13 to $49 which were used to establish
costs based on cylinder count. Costs of $52 to $196 for a 4-cylinder
engine, $78 to $294 for a 6-cylinder engine, and $104 to $392 for an 8-
cylinder engine were used in the final rule.
Confidential manufacturer comments submitted in response to the
NPRM showed an effectiveness range of 0.3 to 2 percent for engine
friction reduction. Besides the comments received another effectiveness
estimate, a November 2007 press release from Renault, claimed a gain of
2 percent over the NEDC cycle \162\ from engine friction
reduction.\163\ Based on the available sources, NHTSA established the
fuel consumption effectiveness estimate for the final rule as 1 to 2
percent.
---------------------------------------------------------------------------

\162\ Due to the advanced nature of many of the technologies
discussed in the NPRM, and in an effort to find broad based
rationale for the specific benefits of each technology type,
reference data has been gathered that specifies fuel consumption
benefits as measured on the NEDC test cycle. To make this
conversion, data from the International Council on Clean
Transportation (ICCT) showed excellent correlation between CAFE test
cycle results and NEDC test cycle results. While there was an offset
in the linear best fit, the slope was nearly equal to 1; therefore,
for this report, any percentage improvement found on the NEDC cycle
will be assumed to be equivalent to gains found on the CAFE test
cycle.
\163\ Renault press release, ``Renault Introduces The
Ecological, Economical Logan `Renault Eco[sup2]' Concept At The
Michelin Organized Challenge Bibendum, November 14, 2007. Available
at http://www. renault.com/renault_ com/en/images/15181%2015181_
DP_logan_eco2_Shanghai_14_nov_DEF_DB_2_tcm1120-686305.pdf
(last accessed October 27, 2008).
---------------------------------------------------------------------------

Engine friction-reducing technologies are available from model year
2011 and may be applied to all vehicle subclasses. No learning factors
were applied to costs as the technology has a loosely defined BOM which
may in part consist of materials (surface treatments, raw materials)
that are commodity based. As was the case in the NPRM, an average of 20
percent year-over-year phase-in rate starting in 2011 was adopted. As
confirmed by manufacturers' comments, NHTSA has maintained the NPRM
position that engine friction reduction may only be applied in
conjunction with a refresh cycle.
(iv) Variable Valve Timing (VVT)
Variable valve timing (VVT) is a classification of valve-train
designs that alter the timing of the intake valve, exhaust valve, or
both, primarily to reduce pumping losses, increase specific power, and
control the level of residual gases in the cylinder. VVT reduces
pumping losses when the engine is lightly loaded by positioning the
valve at the optimum position needed to sustain horsepower and torque.
VVT can also improve thermal efficiency at higher engine speeds and
loads. Additionally, VVT can be used to alter (and optimize) the
effective compression ratio where it is advantageous for certain engine
operating modes.
VVT has now become a widely adopted technology: For the 2007 model
year, over half of all new cars and light trucks have engines with some
method of variable valve timing. Therefore, the degree of further
improvement across the fleet is limited by the level of valvetrain
technology already

[[Page 14274]]

implemented on the vehicles. Comments from Ford received in response to
the NPRM indicate that many of its new and upgraded engines during the
specified time period will launch with or upgrade to advanced forms of
VVT, which are discussed below.\164\ Information found in the submitted
product plans is used to determine the degree to which VVT technologies
have already been applied to particular vehicles to ensure the proper
level of VVT technology, if any, is applied. There are three different
implementation classifications of variable valve timing: ICP (Intake
Cam Phasing), where a cam phaser is used to adjust the timing of the
inlet valves only; CCP (Coupled Cam Phasing), where a cam phaser is
used to adjust the timing of both the inlet and exhaust valves equally;
and DCP (Dual Cam Phasing), where two cam phasers are used to control
the inlet and exhaust valve timing independently. Each of these three
implementations of VVT uses a cam phaser to adjust the camshaft angular
position relative to the crankshaft position, referred to as ``camshaft
phasing.'' This phase adjustment results in changes to the pumping work
required by the engine to accomplish the gas exchange process. The
majority of current cam phaser applications use hydraulically actuated
units, powered by engine oil pressure and managed by a solenoid that
controls the oil pressure supplied to the phaser. Electrically actuated
cam phasers are relatively new, but are now in volume production with
Toyota, which suggests that technical issues have been resolved.
---------------------------------------------------------------------------

\164\ Docket No. NHTSA-2008-0089-0202.1, at 4.
---------------------------------------------------------------------------

Honda commented that VVT is not applicable on existing engine
designs that do not already contain these technologies due to
durability, noise-vibration-harshness (NVH), thermal, packaging, and
other constraints that require engine redesign.
1. Intake Cam Phasing (ICP)
Valvetrains with ICP can modify the timing of the inlet valves by
phasing the intake camshaft while the exhaust valve timing remains
fixed. This requires the addition of a cam phaser on each bank of
intake valves on the engine. An in-line 4-cylinder engine has one bank
of intake valves, while V-configured engines have two banks of intake
valves.
In the NPRM, NHTSA and EPA estimated that ICP would cost $59 per
cam phaser or $59 for an in-line 4 cylinder engine and $119 for a V-
type, for an overall cost estimate of $59 to $119, based on the NAS,
NESCCAF, and EEA reports and confidential manufacturer data. NHTSA
received several updated cost estimates confidentially from
manufacturers for ICP costs in response to the NPRM that varied over a
wide range from $35 to $300, and additionally looked to the 2008 Martec
report for costing guidance. According to the 2008 Martec report,
content assumptions for ICP costing include the addition of a cam
phaser and oil control valves at $25 and $10 respectively, per bank,
which agreed with confidential manufacturer data received in response
to the NPRM. These figures were then adjusted to include an incremental
camshaft sensor per bank at $4, and an additional $2 increase to
account for an ECU upgrade as shown by confidential data. Using a
markup of 1.5 to yield a RPE value, the incremental cost for ICP in the
final rule is estimated to be $61 per bank, resulting in a $61 charge
for in-line engine configurations and $122 for V-engine configurations.
For fuel economy effectiveness values, NHTSA tentatively concluded
in the NPRM that the incremental gain in fuel consumption for ICP would
be 1 to 2 percent depending on engine configuration, in agreement with
the NESCCAF study. Confidential manufacturer data submitted in response
to the NPRM showed a larger effectiveness range of 1.0 to 3.4 percent,
although the majority of those estimates fell at the lower end of that
range. Based on the comments received, NHTSA retained the NPRM
estimates of 1 to 2 percent incremental improvement in fuel consumption
due to ICP.
ICP is applicable to all vehicle classes and can be applied at the
refresh cycle. For the final rule, NHTSA has combined the phase-in caps
for ICP, CCPS, CCPO and DCP and capped the joint penetration allowed at
15 percent in MY 2011 with time-based learning applied.
2. Coupled Cam Phasing (CCPS and CCPO)
Valvetrains with coupled (or coordinated) cam phasing can modify
the timing of both the inlet valves and the exhaust valves an equal
amount by phasing the camshaft of a single overhead cam (SOHC) engine
or an overhead valve (OHV) engine.\165\ For overhead cam engines, this
requires the addition of a cam phaser on each bank of the engine. Thus,
an in-line 4-cylinder engine has one cam phaser, while V-engines have
two cam phasers. For overhead valve (OHV) engines, which have only one
camshaft to actuate both inlet and exhaust valves, CCP is the only VVT
implementation option available.\166\
---------------------------------------------------------------------------

\165\ Although CCP appears only in the SOHC and OHV branches of
the decision tree, it is noted that a single phaser with a secondary
chain drive would allow CCP to be applied to DOHC engines. Since
this would potentially be adopted on a limited number of DOHC
engines NHTSA did not include it in that branch of the decision
tree.
\166\ It is also noted that coaxial camshaft developments would
allow other VVT options to be applied to OHV engines. However, since
they would potentially be adopted on a limited number of OHV engines
NHTSA did not include them in the decision tree.
---------------------------------------------------------------------------

In the NPRM, NHTSA explained that for an OHV engine, the same
phaser added for ICP would be used for CCP control, so the cost for CCP
should be identical to that for ICP. For an OHV, since only one phaser
would be required since only camshaft exists, NHTSA estimated the cost
for CCP at $59 regardless of engine configuration, using the logic
provided for ICP. For purposes of the final rule, the logic for ICP
also carries over to the cost estimates for CCP. Cost assumptions for
CCP are the same as ICP resulting in RPE-adjusted costs of $61 for in-
line SOHC or OHV engines and $122 for SOHC V-engine configurations,
incremental to an engine without VVT.
For fuel economy effectiveness, NHTSA estimated in the NPRM that
the incremental gain in fuel consumption for CCP is 1 to 3 percent
above that obtained by ICP, in agreement with the NESCCAF report and
confidential manufacturer data. Confidential manufacturer data
submitted in response to the NPRM also showed an effectiveness range of
1 to 3 percent for CCP, although Ford has publicly reported a 3.3
percent improvement for CCP when applied to its 5.4 liter 3-valve V8
engine (which has high EGR tolerance due to the valve-masking effect
with the 3-valve design).\167\ Most engines are not as EGR-tolerant and
so will not achieve as much effectiveness from CCP as the Ford engine.
For purposes of the final rule, NHTSA essentially carried over the NPRM
incremental effectiveness of applying the CCP technologies to be 1 to 3
percent. CCP can be applied to any class of vehicles at refresh. For
the final rule, NHTSA has combined the phase-in caps for ICP, CCPS,
CCPO and DCP and capped the joint penetration at 15 percent in MY 2011.
Since these technologies are mature and in high volume, time-based
learning factors are

[[Page 14275]]

applied. CCP can be applied to any class of vehicles.
---------------------------------------------------------------------------

\167\ Robert Stein, Tachih Chou, and Jeffrey Lyjak, ``The
Combustion System Of The Ford 5.4 L 3 Valve Engine,'' Global
Powertrain Congress 2003--Advanced Engine Design & Performance, Sep
2003, Volume 24. Available at http://www.gpc-icpem.org/pages/publications.html (last accessed Nov. 8, 2008).
---------------------------------------------------------------------------

3. Dual Cam Phasing (DCP)
The most flexible VVT design is dual (independent) cam phasing,
where the intake and exhaust valve opening and closing events are
controlled independently. This option allows the option of controlling
valve overlap, which can be used as an internal EGR strategy. At low
engine loads, DCP creates a reduction in pumping losses, resulting in
improved fuel consumption. Additionally, increased internal EGR results
in lower engine-out NOX emissions and improved fuel
consumption. This fuel economy improvement depends on the residual
tolerance of the combustion system, as noted in the CCP section above.
Additional improvements are observed at idle, where low valve overlap
can result in improved combustion stability, potentially reducing idle
fuel consumption.
In the NPRM, NHTSA estimated costs for DCP by building upon the
cost estimates for ICP, where an additional cam phaser is added to
control each bank of exhaust valves less the cost of the EGR valve
which can be deleted. This resulted in an NPRM cost range of $89 to
$209. For purposes of the final rule, cost assumptions for DCP, which
included inflation, were determined by essentially doubling the ICP
hardware, yielding an incremental cost of $61 per engine cylinder bank,
over ICP. This translates to a cost of $61 for in-line engines and $122
for V-engine configurations, incremental to ICP technology.
For fuel economy effectiveness, NHTSA estimated in the NPRM that
the incremental gain in fuel consumption for DCP is 1 to 3 percent, in
agreement with the NESCCAF report and confidential manufacturer data.
Confidential manufacturer data received in response to the NPRM showed
an effectiveness range of 0.5 to 3.4 percent for DCP. Publicly
available data from BMW \168\ and Ford \169\ show an effectiveness of 5
percent for DCP over engines without VVT, agreeing with the upper
bounds for ICP and DCP combined. For purposes of the final rule, NHTSA
concluded that the effectiveness for DCP should be at the upper end of
the CCP range due to the additional flexibility gained through
independent control of intake and exhaust valve timing, and therefore
estimated an incremental fuel consumption reduction of 2 to 3 percent
for DCP incremental to the 1 to 2 percent for ICP.
---------------------------------------------------------------------------

\168\ Meyer, BMW, ``Turbo-Charging BMW's Spray-Guided DI
Combustion System--Benefits and Challenges,'' Global Powertrain
Congress, September, 2005, vol. 33. Available at http://www.gpc-icpem.org/pages/publications.html (last accessed Nov. 8, 2008).
\169\ Ulrich Kramer and Patrick Phlips, ``Phasing Strategy For
An Engine With Twin Variable Cam Timing,'' SAE Technical Paper 2002-
01-1101, 2002. Available at http://www.sae.org/technical/papers/2002-01-1101. (last accessed Nov. 9, 2008),
---------------------------------------------------------------------------

There are no class-specific applications of this technology and DCP
can be applied at the refresh cycle. For the final rule, NHTSA has
combined the annual average phase-in caps for ICP, CCPS, CCPO and DCP
and capped the joint penetration at 15 percent in MY 2011. The DCP
technology is assumed to be produced at high volume, thus time-based
learning is applied.
(v) Discrete Variable Valve Lift (DVVLS, DVVLD, DVVLO)
DVVL systems allow the selection between two or three separate cam
profiles by means of a hydraulically actuated mechanical system. By
optimizing the cam profile for specific engine operating regions, the
pumping losses can be reduced by reducing the amount of throttling
required to produce the desired engine power output. This increases the
efficiency of the engine. DVVL is normally applied together with VVT
control. DVVL is also known as Cam Profile Switching (CPS). DVVL is a
mature technology with low technical risk.
In the NPRM, based on the NESCCAF report and confidential
manufacturer data, NHTSA estimated the incremental cost for DVVL at
$169 to $322 compared to VVT depending on engine size, which included
$25 for controls and associated oil supply needs. In response to the
NPRM, confidential manufacturer comments noted a cost range of $150 to
$600 for DVVL on OHC engines. Sierra Research has noted costs ranging
from $518 to $656 for DVVL including dual cam phasers on a mid-size car
and $634 to $802 on trucks.\170\ For purposes of the final rule, NHTSA
has changed the order of the technologies in the decision trees which
has changed how the DVVL costs are handled.
---------------------------------------------------------------------------

\170\ Docket No. NHTSA-2008-0089-0179.1, p 59 and Docket No.
NHTSA-2008-0089-0046, p. 52.
---------------------------------------------------------------------------

For the overhead cam engines, SOHC and DOHC, the costs were derived
by taking $30 per cylinder for lost motion devices, adding a $4
incremental cost for a camshaft position sensor upgrade and $10 for an
oil control valve on each engine cylinder bank, as indicated by the
2008 Martec report. This assumes that one lost motion device is used to
control either a single intake valve on an SOHC engine or a pair of
intake valves on a DOHC engine, as was done in the NPRM. NHTSA's
independent review concurred with data in the 2008 Martec report
because it contained the most complete published description of DVVL
costs and it agreed with confidential manufacturer data received in
response to the NPRM NHTSA adopted these cost estimates for the final
rule, such that incremental costs for DVVLS and DVVLD, including a 1.5
RPE markup, are $201 for an in-line 4-cylinder engine, $306 for V-6
engines, and $396 for V-8 engines. For overhead valve engines, OHV, the
costs for V6 and V8 engines do not include the lost motion devices and
control hardware since DVVLO follows cylinder deactivation on the OHV
decision tree path and employs similar lost motion devices. Rather, the
DVVLO cost is for active engine mounts on V6 and V8 OHV engines which
was based on $50 variable cost from Martec, adjusted to 2007 dollars
and marked up with a 1.5 RPE factor to $76. For in-line 4-cylinder
engines cylinder deactivation is not allowed so the cost for DVVLO is
the same as for DVVLS and DVVLD at $201.
For fuel economy effectiveness, in the NPRM NHTSA estimated that
DVVL could incrementally reduce fuel consumption by 0.5 to 3 percent
compared to VVT. Confidential manufacturer comments received in
response to the NPRM indicated a 2 percent effectiveness for DVVL,
while the Alliance commented that a two-step system with dual cam
phasing could reduce fuel consumption by 6.3 percent, with 1.3 percent
attributable to DVVL. Publicly-available estimates suggest an
improvement over the NEDC test cycle of 8 percent for DCP with 2 stage
inlet DVVL applied to a 1.6 liter DOHC 4 cylinder engine in a 1500 kg
vehicle.\171\ With the DCP system expected to deliver 5 percent
effectiveness, this suggests the DVVL system is giving approximately 3
percent. The comments received from manufacturers and publicly
available data are in alignment with independent review suggesting a
range of 1 to 3 percent for overhead cam engines with VVT. NHTSA has
therefore estimated an incremental reduction in fuel consumption for
DVVLS and DVVLD of 1 to 3 percent for purposes of the final rule. On
OHV engines, DVVLO is applied following both VVT and cylinder
deactivation, therefore the fuel consumption effectiveness has been

[[Page 14276]]

reduced from 1 to 3 percent for OHC engines to 0.5 to 2.6 percent.
---------------------------------------------------------------------------

\171\ Mark Sellnau and Eric Rask, ``Two-Step Variable Valve
Actuation For Fuel Economy, Emissions, and Performance, Delphi
Research Labs, SAE 2003-01-0029. Available at http://www.sae.org/technical/papers/2003-01-0029. (last accessed Nov. 9, 2008).
---------------------------------------------------------------------------

This technology may be applied to any class of vehicles with any
kind of engine at the redesign cycle. For the final rule, NHTSA has
combined the phase-in caps for DVVLS, DVVLD, DVVLO and CVVL and capped
the joint penetration allowed at 15 percent in MY 2011 with time-based
learning applied. Other technologies, such as continuously variable
valve lift (CVVL), described below, will be implemented in place of
DVVL in some applications where the fuel economy requirements dictate
further optimization of the engine's breathing characteristics to
improve efficiency.
(vi) Continuously Variable Valve Lift (CVVL)
In CVVL systems, maximum valve lift is varied by means of a
mechanical linkage, driven by an actuator controlled by the engine
control unit. The valve opening and phasing vary as the maximum lift is
changed; the relation depends on the geometry of the mechanical system.
BMW has the most production experience with CVVL systems and has sold
port-injected ``Valvetronic'' engines since 2001. CVVL allows the
airflow into the engine to be regulated by means of inlet valve opening
reduction, which improves engine efficiency by reducing pumping losses
from throttling the intake system further upstream as with a normally
throttled engine.
Variable valve lift gives a further reduction in pumping losses
compared to that which can be obtained with cam phase control only,
with CVVL providing greater effectiveness than DVVL, since it can be
fully optimized for all engine speeds and loads, and is not limited to
a two or three step compromise. There may also be a small reduction in
valvetrain friction when operating at low valve lift. This results in
improved low load fuel consumption for cam phase control with variable
valve lift as compared to cam phase control only. Most of the fuel
economy effectiveness is achieved with variable valve lift on the inlet
valves only.
It is generally more difficult to achieve good cylinder-to-cylinder
airflow balance at low load with a CVVL valve-throttled engine due to
the sensitivity of airflow to small differences in lift caused by
manufacturing tolerances. BMW has reported mixture quality issues with
CVVL and port fuel injection, requiring a compromise on pumping work
reduction to ensure good mixture quality. In addition, a small amount
of throttling is necessary with CVVL to maintain the vacuum required
for power brake assist, unless a separate vacuum pump is used. BMW
calibrations maintain a small amount of inlet manifold depression on
their ``Valvetronic'' engines to allow the brake servo to function,
which reduces the efficiency gain from the system somewhat. Tumble air
motion generated by the inlet port is not available in the cylinder at
low valve lift, which has an effect on combustion characteristics. The
high gas velocities at the valve seat generate high turbulence levels,
but most of this has decayed by the time of ignition. This phenomenon
could potentially lead to sub-optimal combustion characteristics, which
would reduce the fuel consumption effectiveness of the technology.
In the NPRM, NHTSA estimated the cost for CVVL of $254 to $508
compared to VVT, with cost estimates varying from $254 for a 4-cylinder
engine, $466 for a 6-cylinder engine, and $508 for an 8-cylinder
engine, based on confidential manufacturer data and the NESCCAF report,
with more weight given to the manufacturer data. As for DVVL, for
purposes of the final rule, NHTSA relied primarily on the 2008 Martec
report, because it contained the most complete published description of
CVVL costs and agreed with confidential manufacturer data received in
response to the NPRM. The system consists of 1 stepper motor per bank
to control an eccentric shaft and the costs as described by Martec
include dual cam phasing are $285 for an in-line 4-cylinder engine,
$450 for a V-6 engine, and $550 for a V-8 engine. Applying a 1.5 RPE
markup factor to these variable costs, and then deducting $122 for the
incremental cost of both ICP and DCP per bank, the incremental RPE cost
is $306 for a 4-cylinder engine, $432 for a 6-cylinder engine and $582
for an 8-cylinder engine.
For fuel economy effectiveness, in the NPRM NHTSA estimated that
CVVL could incrementally reduce fuel consumption by 1.5 to 4 percent
compared to VVT, based on confidential manufacturer data and the
NESCCAF report. Confidential manufacturer comments received in response
to the NPRM suggested a range of 3 to 7.4 percent incremental fuel
consumption savings. NHTSA also found several sources reporting a 5
percent additional fuel consumption effectiveness over the NEDC cycle
when applying CVVL to an engine with dual cam phasers.\172\ For
purposes of the final rule, NHTSA has estimated the reduction in fuel
consumption for CVVL at 1.5 to 3.5 percent over an engine with DCP.
This estimate is lower than the effectiveness reported by BMW and
allows the application of CVVL without the need for the high level of
manufacturing complexity inherent in BMW's ``Valvetronic'' engines.
---------------------------------------------------------------------------

\172\ See Johannes Liebl, Manfred Kluting, Jurgen Poggel, and
Stephen Missy, BMW, ``The New BMW 4-Cylinder Engine with Valvetronic
Part 2: Thermodynamics and Functional Features,'' MTZ Worldwide,
July/Aug. 2001, pp 26-29. See also Meyer, BMW, ``Turbo-Charging
BMW's Spray-Guided DI Combustion System--Benefits and Challenges,''
Global Powertrain Congress, Sept. 2005, vol. 33. Available at http://www.gpc-icpem.org/pages/publications.html (last accessed Nov. 8,
2008). See also Rainer Wurms, Philipp Lobbert, Stefan Dengler, Ralf
Budack, and Axel Eiser, Audi, ``How Much VVT Makes Sense?'' Haus der
Technik Conference on Variable Valve Control, Essen, Feb. 2007.
---------------------------------------------------------------------------

There are no class specific applications of this technology,
although it appears in only the DOHC portion of the decision tree. Due
to the changes required to implement DVVL on an engine the Volpe model
allows it to be applied at redesign model years only with time-based
learning applied. For the final rule, NHTSA has combined the phase-in
caps for DVVLS, DVVLD, DVVLO and CVVL and capped the joint penetration
allowed at 20 percent per year on average (15 percent in year one).
There is no technical reason this technology could not be applied to
all DOHC engines, but due to engineering resource limitations it is
unlikely that CVVL will be applied to all engines, and that other
technologies such as DVVL will be used in some instances.
(vii) Cylinder Deactivation (DEACS, DEACD, DEACO)
In conventional spark-ignited engines, combustion occurs in all
cylinders of the engine (i.e., the engine is ``firing on all
cylinders''), and throttling the airflow controls the engine output, or
load. This is an inefficient method of operating the engine at low
loads as pumping losses result from throttling. Cylinder deactivation
(DEAC) can improve engine efficiency by disabling or deactivating half
of the cylinders when the load is less than half of the engine's total
torque capability, allowing the active cylinders to operate at roughly
twice the load level, and thereby incur roughly half the pumping
losses.
Simplistically, cylinder deactivation control strategy relies on
setting maximum and minimum manifold absolute pressures (which are
directly proportional to load) within which it can deactivate the
cylinders. The engine operating range over which cylinder deactivation
may be enabled is restricted by other factors as well, with

[[Page 14277]]

noise, vibration, and harshness (NVH) being the primary concern; these
restrictions all reduce the fuel economy effectiveness achievable with
cylinder deactivation. In general, DEAC has very high sensitivity of
efficiency gain relative to vehicle application, according to comments
from Ford, Chrysler, the Alliance, and in confidential comments
submitted in response to the NPRM.
Manufacturers have stated that use of DEAC on 4-cylinder engines
would cause unacceptable NVH; therefore NHTSA has not applied cylinder
deactivation to 4-cylinder engines. In addition, to address NVH issues
for V6 and V8 engines, active engine mounts are included in the content
list. Noise quality from both intake and exhaust systems has been
problematic on some vehicle applications, and in some cases, has
resulted in active exhaust systems solutions with an ECU-controlled
valve.
The NPRM reported an incremental cost range for DEAC at $203 to
$229, citing manufacturer data as the most credible, with the bill of
materials including lost motion devices for each cylinder. The 2008
Martec report estimated the additional hardware necessary for cylinder
deactivation ranging between $50 for the addition of two active engine
mounts ($75 RPE using 1.5 RPE factor) where DVVL already exists. This
value has been adopted by NHTSA in the final rule so DEACS and DEACD
costs are $75. For OHV engines NHTSA estimates the costs for DEACO as
being $306 for V6 engines and $400 for V8 engines that are not already
equipped with DVVL using assumptions for lost motion devices plus
incremental costs for oil control valves and camshaft position sensors
as noted in the DVVL section.
For fuel economy effectiveness, in the NPRM NHTSA estimated that
cylinder deactivation could reduce fuel consumption by 4.5 to 6
percent. As noted, DEAC has very high sensitivity of efficiency gain
relative to vehicle application. Chrysler, for example, stated that the
effectiveness could range from 3 to 10 percent on the same engine
depending on the specific vehicle application.\173\ Confidential
manufacturer comments received in response to the NPRM reported a range
of 3 to 7.5 percent. For the final rule, the incremental fuel
consumption effectiveness varies depending on which branch of the
decision tree it is on: For DOHC engines which are already equipped
with DCP and DVVLD there is little benefit that can be achieved since
the pumping work has already been minimized and internal EGR rates are
maximized, so the effectiveness ranges from 0 to 0.5 percent for DEACD;
for SOHC engines which have CCP and DVVLS applied, NHTSA estimates a
2.5 to 3 percent effectiveness for DEACS; and for OHV engines, which do
not have VVT or VVL technologies, the effectiveness for DEACO ranges
from 3.9 to 5.5 percent.
---------------------------------------------------------------------------

\173\ Docket No. NHTSA-2008-0089-0215.1.
---------------------------------------------------------------------------

This technology may be applied only to V-6 and V-8 engines, as
discussed above, and so does not apply to vehicle classes with I-4
engines. DEAC can be applied during a redesign or refresh model year
with time-based learning. NHTSA proposed to raise the phase-in cap for
this technology to 20 percent per year in the NPRM. For the final rule,
NHTSA has combined the phase-in caps for DEACS, DEACD and DEACO and
capped the joint penetration allowed at 9 percent in MY 2011.
(viii) Conversion to Double Overhead Camshaft Engine With Dual Cam
Phasing (CDOHC)
This technology was named ``Multi-valve Overhead Camshaft Engine''
in the NPRM. Engines with overhead cams (OHC) and more than two valves
per cylinder achieve increased airflow at high engine speeds and
reductions of the valvetrain's moving mass and enable central
positioning of the spark plug. Such engines typically develop higher
power at high engine speeds. In the NPRM, the model was generally not
allowed to apply multivalve OHC technology to OHV engine, except where
continuous variable valve timing and lift (CVVL) is applied to OHV
engine. In that case, the model assumed conversion to a DOHC
valvetrain, because a DOHC valvetrain is a prerequisite for the
application of any advanced engine technology over and above CVVL.
Since applying CVVL to an OHV engine is the last improvement that could
be made, it was assumed that manufacturers would redesign that engine
as a DOHC and include CVVL as part of that redesign.
However, it appears likely that vehicles will still use overhead
valve (OHV) engine with pushrods and one intake and one exhaust valve
per cylinder into the next decade. For the final rule, NHTSA assumed
that conversion of an OHV engine to a DOHC engine would more likely be
accompanied by dual cam phasing (DCP) than by CVVL, since DCP
application rates are higher than CVVL rates.
For V8 engines, the incremental cost to redesign an OHV engine as a
DOHC with DCP was estimated as $746 which includes $415 for the engine
conversion to DOHC per the 2008 Martec report and a 1.5 RPE factor,
plus $122 for an incremental cam phasing system (reflecting the
doubling of cam shafts). For a V6 engine we estimated 75 percent of the
V8 engine cost to convert to DOHC plus the same incremental coupled cam
phasing cost to arrive at $590. For inline 4-cylinder engines, 50
percent of the V8 engine conversion costs were assumed and one
additional cam phasing system yielding an incremental cost including a
1.5 RPE factor of $373.
For fuel economy effectiveness, NHTSA estimated in the NPRM that
the incremental gain in fuel consumption for conversion of an OHV
engine with cylinder deactivation and CCP to a DOHC engine with CVVL at
1 to 4 percent, in agreement with the NESCCAF report and confidential
manufacturer data. The fuel consumption benefit for converting an OHV
engine to a DOHC engine with DCP is due largely to friction reduction
according to a confidential manufacturer comment. For the final rule
the upper bound stated in the NPRM was reduced because DCP will give
less improvement than CVVL compared to an engine that already has
cylinder deactivation and CCP applied. NHTSA estimates the incremental
fuel consumption effectiveness at 1 to 2.6 percent independent of the
number of engine cylinders.
There are no class-specific applications of this technology. In the
NPRM, NHTSA proposed raising the phase-in cap to 20 percent per year,
but has concluded for the final rule that a 9 percent phase-in cap for
MY 2011 is more consistent with manufacturers' comments. No comments
were received regarding phase-in rates of converting OHV engines to
DOHC. The conversion from OHV to DOHC engine architecture with DCP is a
major engine redesign that can be applied at redesign model years only
with time-based learning applied.
(ix) Stoichiometric Gasoline Direct Injection (SGDI)
In gasoline direct injection (GDI) engines, fuel is injected into
the cylinder rather than into the inlet manifold or inlet port. GDI
allows for the compression ratio of the engine to be increased by up to
1.5 units higher than a port-injected engine at the same fuel octane
level. As a result of the higher compression ratio, the thermodynamic
efficiency is improved, which is the primary reason for the fuel
economy effectiveness with stoichiometric DI systems. The compression
ratio increase comes about as a result of the in-cylinder air charge
cooling that occurs

[[Page 14278]]

as the fuel, which is sprayed directly into the combustion chamber,
evaporates.
Volumetric efficiency in naturally-aspirated GDI engines can also
be improved by up to 2 percent, due to charge cooling, which improves
the full load torque. The improved full load torque capability of GDI
engines can have a secondary effect on fuel economy by enabling engine
downsizing, thereby reducing fuel consumption.
Two operating strategies can be used in gasoline DI engines,
characterized by the mixture preparation strategy. One strategy is to
use homogenous charge where fuel is injected during the intake stroke
with a single injection. The aim is to produce a homogeneous air-fuel-
residual mixture by the time of ignition. In this mode, a
stoichiometric air/fuel ratio can be used and the exhaust
aftertreatment system can be a relatively low cost, conventional three-
way catalyst. Another strategy is to use stratified charge where fuel
is injected late in the compression stroke with single or multiple
injections. The aim here is to produce an overall lean, stratified
mixture, with a rich area in the region of the spark plug to enable
stable ignition. Multiple injections can be used per cycle to control
the degree of stratification. Use of lean mixtures significantly
improves efficiency by reducing pumping work, but requires a relatively
high cost lean NOX trap in the exhaust aftertreatment
system.
For purposes of this rulemaking, only homogeneous charge
stoichiometric DI systems were considered, due to the anticipated
unavailability of low sulfur gasoline during the time period
considered. This decision was supported by comments from Mercedes,
which sells lean burn DI engines in other world markets, stating that
lean burn DI engines cannot function in the absence of ultra-low sulfur
gasoline. Lean NOX trap technologies require ultra-low
sulfur gasoline to function at high conversion efficiency over the
entire life cycle of a vehicle.
Gasoline DI systems effectiveness from the increased efficiency of
the thermodynamic cycle. The fuel consumption effectiveness from DI
technology is therefore cumulative to technologies that target pumping
losses, such as the VVT and VVLT technologies. The Sierra Research
report stated that Sierra Research could not determine from the NPRM
decision trees if VVLT technologies were retained when SGDI was
applied. To clarify, as the model progresses through the decision
trees, technologies preceding SGDI are retained in the cumulative
effectiveness and cost.
In the NPRM, NHTSA estimated the incremental fuel consumption
effectiveness for naturally aspirated SGDI \174\ to be 1 to 2 percent.
The Alliance commented that it estimated 3 percent gains in fuel
efficiency, as well as a 7 percent improvement in torque, which can be
used to mildly downsize the engine and give up to a 5.8 percent
increase in efficiency. Other published literature reports a 3 percent
effectiveness for SGDI,\175\ and another source reports a 5 percent
improvement on the NEDC drive cycle.\176\ Confidential manufacturer
data submitted in response to the NPRM reported an efficiency
effectiveness range of 1 to 2 percent. For the final rule NHTSA has
estimated, following independent review of all the sources referenced
above, the incremental gain in fuel consumption for SGDI to be
approximately 2 to 3 percent.
---------------------------------------------------------------------------

\174\ SGDI was referred to as GDI or SIDI in the NPRM.
\175\ Paul Whitaker, Ricardo, Inc., ``Gasoline Engine
Performance and Emissions--Future Technologies and Optimization,''
ERC Symposium, Low Emission Combustion Technologies for Future IC
Engines, Madison, WI, June 8-9, 2005. Available at http://www.erc.wisc.edu/symposiums/2005_Symposium/June%208%20PM/Whitaker_Ricardo.pdf (last accessed Nov. 9, 2008).
\176\ Stefan Trampert, FEV Motorentechnik GmbH, ``Engine and
Transmission Development Trends--Rising Fuel Cost Pushes
Technology,'' Symposium on International Automotive Technology,
Pune, India, January 2007.
---------------------------------------------------------------------------

Content assumptions for cost estimating of SGDI include no major
changes to engine architecture compared to a port fuel injection
engine, although cylinder head casting changes are required to
incorporate the fuel injection system and the piston must change as
well to suit the revised combustion chamber geometry. The fuel
injection system utilizes an electrically-driven low pressure fuel pump
to feed a high pressure mechanical pump, supplying fuel at pressures up
to 200 Bar. A common fuel rail supplies the injectors, which produce a
highly atomized spray with a Sauter Mean Diameter (SMD) of 15-20
microns, which compares to approximately 50 microns for a port
injector.
In the NPRM, NHTSA estimated the following incremental cost ranges
for applying SGDI: $122 to $420 for an inline 4-cylinder engine, $204
to $525 for a V6 engine, and $228 to $525 for a V8 engine. The Alliance
commented that NHTSA had not accounted for the costs required to
address NVH concerns associated with the implementation of SGDI. For
purposes of the final rule, all costs have been based upon side mount
DI technology as these costs were determined in the 2008 Martec Report
to be lower than center mount DI systems. An applied RPE factor of 1.5
was used in all cases, and a NVH package was added to all engines in
response to Alliance comments, providing incremental costs that ranged
from $293 to $440 for an I4 engine, to $384 to $558 for a V6 engine and
$512 to $744 for a V8 engine.
Homogeneous, stoichiometric DI systems are regarded as mature
technology with minimal technical risk and are expected to be
increasingly incorporated into manufacturers' product lineups. Time-
based learning has been applied to this technology due to the fact that
over 1.5 million vehicles containing this technology are now produced
annually. Due to the changes to the cylinder head and combustion system
and the control system development required to adopt SGDI technology,
which are fairly extensive, SGDI can be applied only at redesign model
years. There are no limitations on applying SGDI to any vehicle class.
The phase-in cap for SGDI is applied at a 3 percent rate for MY 2011 in
order to account for the lead time required to incorporate SGDI
engines.
(x) Combustion Restart (CBRST)
Combustion restart allows ``start-stop'' functionality of DI
engines through the implementation of an upgraded starter with bi-
directional rotation to allow precise crankshaft positioning prior to
subsequent fuel injection and spark ignition, allowing engine restart.
This method of implementing engine stop/start functionality allows not
only the fuel savings from not idling the engine, but also reduces fuel
consumption as the engine speeds up to its operational speed. A Direct
Injection (DI) fuel system is required for implementation of this
technology.
NHTSA has determined, upon independent review, combustion restart
to be a high technical risk due to the following unresolved issues.
First, very high or very low ambient air temperatures may limit the
ability to start the engine in the described manner. Although the
starter motor can provide fail-safe starting capability in these
temperature limited areas, strategies must be developed to manage the
transitions. Additionally, a fail-safe start strategy that recognizes
failed attempts and responds quickly enough has yet to be demonstrated.
The risk of missed start events is currently relatively high, which is
unacceptable from a production implementation perspective. As a result,
availability of this technology was assessed as beyond the emerging
technology time frame for purposes of this MY 2011 rulemaking.

[[Page 14279]]

(xi) Turbocharging and Downsizing (TRBDS)
Forced induction in the form of turbocharging and supercharging has
been used on internal combustion engines for many years. Their
traditional role has been to provide enhanced performance for high-end
or sports car applications. However, turbocharging and downsizing can
also be used to improve fuel economy. There is a natural friction
reduction with a boosted downsized engine, because engine friction
torque is primarily a function of engine displacement. When comparing
FMEP (Friction Mean Effective Pressure--friction torque normalized by
displacement) there is very little difference between the full size
naturally-aspirated engine and the boosted downsized engine despite the
higher cylinder pressure associated with higher BMEP. Turbocharging and
downsizing can also reduce pumping losses (PMEP), because a
turbocharged downsized engine runs at higher BMEP (Brake Mean Effective
Pressure) levels, and therefore higher manifold pressures, than a
naturally aspirated engine. The upper limit of BMEP level that can be
expected from a naturally aspirated engine is approximately 13.5 Bar,
whereas a turbocharged engine can produce BMEP levels in excess of 20
Bar. Engines that are not downsized and boosted use a throttle to
regulate load, but this causes pumping losses as discussed previously.
Thus, by using a small displacement engine with a turbocharger, the
smaller engine works harder (higher cylinder load), which results in
lower pumping loss since the throttle must be further open to produce
the same road power output.
Due to the incremental nature of the decision tree, engines having
turbocharging and downsizing applied are assumed to have SGDI already
applied. In boosted engines, SGDI allows improved scavenging of the
cylinder, which reduces the internal exhaust gas residual level and the
charge temperature. This in turn allows a higher compression ratio to
be used for a given fuel octane rating and can therefore improve the
fuel consumption of boosted SGDI engines.
In most cases, a boosted downsized engine can replace a
conventional naturally aspirated engine and achieve equivalent or
greater (albeit at the expense of fuel economy) power and torque.
However, there are some challenges associated with acceptance of a down
sized boosted engine, including:
Achievement of ``seamless'' power delivery compared to the
naturally aspirated engine (no perceptible turbo lag);
A complication in emissions regulatory compliance, because
the addition of a turbocharger causes additional difficulty with
catalyst light off due to the thermal inertia of the turbo itself;
Potential issue with customer acceptance of smaller-
displacement engines, given a common perception that only larger-
displacement engines can be high-powered; and
Additional base engine cost and vehicle integration costs.
Manufacturers' structural changes to the base engine are generally
focused on increasing the structure's capacity to tolerate higher
cylinder pressures. NHTSA believes that it is reasonable to expect that
the maximum cylinder pressure would increase by 25 to 30 percent over
those typical of a naturally aspirated engine. Another consideration is
that higher pressures lead to higher thermal loads.
One potential disadvantage of downsized and boosted engines is
cost. Turbocharging systems can be expensive and are best combined with
direct injection and other engine technologies. The Alliance expressed
a related concern that the fuel economy effectiveness was based on the
use of premium grade fuel in direct injection turbocharged engines, and
argued that as the baseline vehicles were not fueled with premium
gasoline, this gave the direct injection turbocharged engines an
unrealistic advantage.\177\ However, CARB stated in its comments that
premium fuel is not necessary for use with turbocharged downsized
engines and that substantial effectiveness are still available with
regular fuel.\178\ In fact, most turbocharged direct injection engines
will have a compression ratio and calibration designed to give best
performance on premium fuel, although they are safe to operate on
regular fuel. On regular fuel, the knock sensor output is used to allow
the ECU to keep the engine safe by controlling boost and ignition
timing. Maximum torque is reduced on the lower octane fuel due to the
ECU intervention strategy, but at part load, where knock is not an
issue, the fuel economy will not be affected adversely relative to the
estimated effectiveness. Additionally, the driver retains the choice of
obtaining more performance by paying more for premium fuel and will
still obtain stated fuel consumption effectiveness.
---------------------------------------------------------------------------

\177\ Docket No. NHTSA-2008-0089-0179.1.
\178\ Docket No. NHTSA-2008-0089-0173.
---------------------------------------------------------------------------

Nevertheless, the case for using downsized boosted engines has
strengthened with the wider introduction of direct injection gasoline
engines. Downsized boosted engines with stoichiometric direct injection
present minimal technical risk, although there have been only limited
demonstrations of this technology achieving SULEV emission levels.
In the NPRM, NHTSA estimated that downsized and turbocharged
engines could incrementally reduce fuel consumption from 5 to 7.5
percent. CARB commented that Sierra Research in its presentation to the
NAS committee on January 24, 2008, suggested there is no carbon dioxide
reduction potential for turbocharging and downsizing, but argued that
this is not supported by other vehicle simulation efforts nor by
manufacturer plans to release systems such as the Ford EcoBoost.\179\
The Alliance and Sierra Research, in contrast, commented that
turbocharged and downsized engines do not improve fuel economy unless
they are also equipped with DI fuel systems and using premium
fuel.\180\ NHTSA believes that turbocharging and downsizing, when
combined with SGDI, offers benefits without the use of premium fuel as
noted above. Confidential manufacturer data suggests an incremental
range of fuel consumption reduction of 4.8 to 7.5 percent for
turbocharging and downsizing. Other publicly-available sources suggest
a fuel consumption benefit of 8 to 13 percent compared to current-
production naturally-aspirated engines without friction reduction or
other fuel economy technologies: A joint technical paper by Bosch and
Ricardo suggesting an EPA fuel economy gain of 8 to 10 percent for
downsizing from a 5.7 liter port injection V8 to a 3.6 liter V6 with
direct injection; \181\ a Renault report suggesting a 11.9 percent NEDC
fuel consumption gain for downsizing from a 1.4 liter port injection
in-line 4-cylinder engine to a 1.0 liter in-line 4-cylinder engine with
direct injection; \182\ and a Robert Bosch paper suggesting a 13
percent NEDC gain for downsizing to a turbocharged DI engine.\183\
These

[[Page 14280]]

reported fuel economy benefits show a wide range in large part due to
the degree of vehicle attribute matching (such as acceleration
performance) that was achieved.
---------------------------------------------------------------------------

\179\ Docket No. NHTSA-2008-0089-0173.4.
\180\ Docket No. NHTSA-2008-0089-0046, Docket No. NHTSA-2008-
0089-0179.1.
\181\ David Woldring and Tilo Landenfeld of Bosch, and Mark J.
Christie of Ricardo, ``DI Boost: Application of a High Performance
Gasoline Direct Injection Concept,'' SAE 2007-01-1410. Available at
http://www.sae.org/technical/papers/2007-01-1410 (last accessed Nov.
9, 2008).
\182\ Yves Boccadoro, Lo[iuml]c Kermanac'h, Laurent Siauve, and
Jean-Michel Vincent, Renault Powertrain Division, ``The New Renault
TCE 1.2L Turbocharged Gasoline Engine,'' 28th Vienna Motor
Symposium, April 2007.
\183\ Tobias Heiter, Matthias Philipp, Robert Bosch, ``Gasoline
Direct Injection: Is There a Simplified, Cost-Optimal System
Approach for an Attractive Future of Gasoline Engines?'' AVL Engine
& Environment Conference, September 2005.
---------------------------------------------------------------------------

For purposes of the final rule, NHTSA estimated a net fuel
consumption reduction of approximately 14 percent for a turbocharged
downsized DOHC engine with direct injection and DCP over a baseline
fixed-valve engine that does not incorporate friction reducing
technologies. This equates to an incremental fuel consumption reduction
of 2.1 to 5.2 percent for TRBDS, which is incremental to an engine with
SGDI and previously applied technologies (e.g., VVT and VVL) as defined
by the decision tree. This wide range is dependent upon the decision
tree path that is followed or the configuration of the engine prior to
conversion to TRBDS. The incremental fuel consumption benefit for TRBDS
is estimated to range from 2.1 to 2.2 percent for V6 and V8 engines and
from 4.5 to 5.2 percent for inline 4-cylinder engines. As explained,
the incremental improvement from TRBDS must be added to the previous
technology point on the decision tree. In the case of SOHC and OHV
engines, for example, moving to the TRBDS technology also assumes
implementation of DOHC engine architecture in addition to DCP and SGDI.
In the NPRM, NHTSA estimated that the cost for a boosted/downsized
engine system would be $690 for small cars, $810 for large trucks, and
$120 for all other vehicle classes, based on the NAS report, the EEA
report, and confidential manufacturer data, which assumed downsizing
allowed the removal to two cylinders in most cases, except for small
cars and large trucks. CARB questioned Martec's cost estimates for
turbocharging and downsizing, specifically the credit for downsizing a
V6 engine to an in-line 4 cylinder dropped from their estimate used in
the NESCCAF report of $700 to $310 and the use of more expensive
hardware than some manufacturers use. In response, NHTSA's independent
review of the cost to downsize a V6 DOHC engine to a I4 DOHC engine
closely aligned with the 2008 Martec credit of $310, while the report
for NESCCAF was not specific with regard to the assumptions used to
construct that estimate. Additionally, confidential manufacturer data
submitted in response to the NPRM provided a range for TRBDS with SGDI
of $600 to $1,400 variable cost or $900 to $2,100 RPE assuming a 1.5
markup factor. When comparing the confidential manufacturer cost range
and the incremental RPE cost estimates for the final rule, it is
important to realize the incremental cost for TRBDS does not include
SGDI since it is considered a separate technology.\184\
---------------------------------------------------------------------------

\184\ NHTSA also examined the Jetta TDI as an example of a
current vehicle model that comes in both diesel and gasoline-engine
form, but in attempting to do an apples-to-apples comparison with
the non-turbocharged/downsized version, the SE, found indications
that VW appears to be keeping the cost of the TDI down by removing
other content (e.g., the SE has a sunroof, which normally costs
around $1,000, while the TDI does not). Thus, NHTSA did not find
VW's price differential for the two versions of the Jetta to be
convincing evidence of the actual cost of turbocharging and
downsizing an engine.
---------------------------------------------------------------------------

Some of the costs included in turbocharging and downsizing come
from structural changes due to the higher cylinder pressures and
increased cylinder temperatures, which also drive additional cooling
requirements (e.g. water-cooled charge air cooler, circulation pump,
and thermostats) and require improved exhaust valve materials. High
austenitic stainless steel exhaust manifolds and upgraded main bearings
are some of the other hardware upgrades required. For purposes of the
final rule, NHTSA used cost data from the 2008 Martec report, but
constructed a bill of materials consistent with the incremental TRBDS
technology as shown in the decision trees and based on confidential
manufacturer data. For the vehicle subclasses which have a baseline
gasoline V8 engine, two turbochargers rated for 1050 [deg]C at $250
each were added, $270 was deducted for downsizing to a V6 from a V8
engine, $217 was added for engine upgrades to handle higher operating
pressures and temperatures at, and a water-cooled charge air cooler was
added at $280. The baseline SOHC engine was converted to a DOHC engine
with 4 valves per cylinder at a variable incremental cost of $92. The
total variable costs summed to $819 and a 1.5 RPE factor was applied to
arrive at $1,229 incremental cost to turbocharging and downsizing.
For the vehicle subclasses which have a baseline gasoline V6
engine, a twin-scroll turbocharger rated for 1050 [deg]C was added at a
cost of $350, $310 was deducted for downsizing to an I4 from a V6
engine, $160 was added for engine upgrades to handle higher operating
pressures and temperatures, and a water-cooled charge air cooler was
added at $259. The baseline SOHC engine was converted to a DOHC engine
with 4 valves per cylinder at a variable incremental cost of $87. The
total variable costs summed to $548 and a 1.5 RPE factor was applied to
arrive at $822 incremental cost to turbocharging and downsizing.
For the vehicle subclasses which have a baseline gasoline I4
engine, a twin-scroll turbocharger rated for 1050 [deg]C was added at a
cost of $350, $160 was added for engine upgrades to handle higher
operating pressures and temperatures, and a water-cooled charge air
cooler was added at $259. The baseline SOHC engine was converted to a
DOHC engine with 4 valves per cylinder at a variable incremental cost
of $46. The total variable costs summed to $815 and a 1.5 RPE factor
was applied to arrive at $1,223 incremental cost for turbocharging and
downsizing.
In summary, for the final rule NHTSA estimated TRBDS to have an
incremental RPE cost of $1,223 for vehicle classes with a baseline in-
line 4-cylinder engine downsized to a smaller I-4 engine which are:
Subcompact, Performance Subcompact, Compact and Midsize Car, and Small
Truck. For vehicle classes with a baseline V6 engine that was downsized
to an I4 engine the RPE cost is estimated at $822; these classes are
the Performance Compact, Performance Midsize and Large Car, Minivan and
Midsize Truck. The two vehicle classes with baseline V8 engines,
Performance Large Car and Large Truck, were downsized to V6
turbocharged engines at an incremental RPE cost of $1,229.
Time-based learning has been applied to TRBDS because submitted
product plan data indicated turbocharging and downsizing would already
be at high volume in 2011. Due to the fact that a turbocharged and
downsized engine is entirely different than the baseline engine it can
be applied only at redesign model years. The phase-in cap for TRBDS is
applied at a 9 percent rate for MY 2011 in order to account for the
lead time required to incorporate TRBDS engines.
(xii) Cooled Exhaust Gas Recirculation Boost (EGRB)
EGR Boost is a combustion concept that involves utilizing EGR as a
charge dilutant for controlling combustion temperatures. Fuel economy
is therefore increased by operating the engine at or near the
stoichiometric air/fuel ratio over the entire speed and load range and
using higher exhaust gas residual levels at part load conditions.
Further fuel economy increases can be achieved by increased compression
ratio enabled by reduced knock sensitivity, which enables higher
thermal efficiency from more advanced spark timing. Currently

[[Page 14281]]

available turbo, charge air cooler, and EGR cooler technologies are
sufficient to demonstrate the feasibility of this concept.
However, this remains a technology with a number of issues that
still need to be addressed and for which there is no production
experience. EGR system fouling characteristics could be potentially
worse than diesel EGR system fouling, due to the higher HC levels found
in gasoline exhaust. Turbocharger compressor contamination may also be
an issue for low pressure EGR systems. Additionally, transient controls
of boost pressure, EGR rate, cam phasers and intake charge temperature
to exploit the cooled EGR combustion concept fully will require
development beyond what has already been accomplished by the automotive
industry. These are all ``implementation readiness'' issues that must
be resolved prior to putting EGR Boost into volume production.
Because of these issues NHTSA did not consider EGR Boost in the
NPRM, and consequently had no tentative conclusions with regard to its
cost or fuel economy effectiveness. For purposes of the final rule,
NHTSA found no evidence from commenters or elsewhere that these
implementation readiness issues could be resolved prior to MY 2011.
Therefore, in the final rule, the phase-in cap for MY 2011 is zero.
(b) Diesel Engine Technologies
Diesel engines, which currently make up about 0.27 percent of
engines in the MY 2008 U.S. fleet, have several characteristics that
give them superior fuel efficiency compared to conventional gasoline,
spark-ignited engines. Pumping losses are much lower due to lack of (or
greatly reduced) throttling. The diesel combustion cycle operates at a
higher compression ratio, with a very lean air/fuel mixture, and
turbocharged light-duty diesels typically achieve much higher torque
levels at lower engine speeds than equivalent-displacement naturally-
aspirated gasoline engines. Additionally, diesel fuel has higher energy
content per gallon.\185\
---------------------------------------------------------------------------

\185\ Burning one gallon of diesel fuel produces about 11
percent more carbon dioxide than gasoline due to the higher density
and carbon to hydrogen ratio.
---------------------------------------------------------------------------

However, diesel engines, including those on the many diesel
vehicles sold in Europe, have emissions characteristics that present
challenges to meeting federal Tier 2 emissions standards. It is a
significant systems-engineering challenge to maintain the fuel
consumption advantage of the diesel engine while meeting U.S. emissions
regulations, since fuel consumption is negatively impacted by emissions
reduction strategies. Emission compliance strategies for diesel
vehicles sold in the U.S. are expected to include a combination of
combustion improvements and aftertreatment. These emission control
strategies are currently widely used in Europe, but will have to be
modified due to the fact that U.S. emission standards, especially for
NOX, are much tighter than corresponding European standards.
To achieve U.S. Tier 2 emissions limits, roughly 45 to 65 percent more
NOX reduction is required compared to the Euro VI standards.
Additionally, as discussed below, there may be a fuel consumption
penalty associated with diesel aftertreatment since extra fuel is
needed for the aftertreatment, subsequently this extra fuel is not used
in the combustion process of the engine that provides torque to propel
the vehicle.
Nevertheless, emissions control technologies do exist, and will
enable diesel engines to make considerable headway in the U.S. fleet in
coming years. Several key advances in diesel technology have made it
possible to reduce emissions coming from the engine prior to
aftertreatment. These technologies include improved fuel systems
(higher pressures and more responsive injectors), advanced controls and
sensors to optimize combustion and emissions performance, higher EGR
levels and EGR cooling to reduce NOX, lower compression
ratios, and advanced turbocharging systems.
The fuel systems on advanced diesel engines are anticipated to be
of a High-Pressure Common Rail (HPCR) type with piezoelectric injectors
that operate at pressures up to 1800 Bar or greater and provide fast
response to allow multiple injections per cycle. The air systems will
include a variable geometry turbocharger for 4-cylinder inline engines
with charge-air cooling and high-pressure and low-pressure EGR loops
with EGR coolers. For V-6 or V-8 engines the air systems will employ
series sequential turbo-charging with one variable geometry
turbocharger and one fixed geometry turbocharger.
As suggested above, the traditional 3-way catalyst aftertreatment
found on gasoline-powered vehicles is ineffective due to the lean-burn
combustion of a diesel. All diesels will require a diesel particulate
filter (DPF), a diesel oxidation catalyst (DOC), and a NOX
reduction strategy to comply with Tier 2 emissions standards. The most
common NOX reduction strategies include the use of lean
NOX traps (LNT) or selective catalytic reduction (SCR),
which are outlined below.
(i) Diesel Engine With Lean NOX Trap (LNT) Catalyst After-
Treatment
A lean NOX trap operates, in principle, by storing
NOX (NO and NO2) when the engine is running in
its normal (lean) state. When the control system determines (via
mathematical model or a NOX sensor) that the trap is
saturated with NOX, it switches the engine into a rich
operating mode or may in some cases inject fuel directly into the
exhaust stream to produce excess hydrocarbons that act as a reducing
agent to convert the stored NOX to N2 and water,
thereby ``regenerating'' the LNT and opening up more locations for
NOX to be stored. LNTs are sensitive to sulfur deposits that
can reduce catalytic performance, but periodically undergo a
desulfurization engine-operating mode to clean it of sulfur buildup.
The fuel consumption penalty associated with aftertreatment
systems, including both DPF and LNT, is taken into account in the
reported values. In the case of the DPF, extra fuel is needed to raise
the temperature of the DPF above approximately 550[deg]C to enable
active regeneration. A similar process is needed to regenerate the LNT,
but instead of being used to remove particulates and raise the
temperature, the excess fuel is used to provide a fuel-rich condition
at the LNT to convert the trapped NOX on the LNT to nitrogen
gas. The estimated fuel consumption penalty on the CAFE test cycle
associated with the LNT aftertreatment system is 5 percent on the EPA
city cycle and 3 percent on the highway cycle, as described in the
report to the EPA.\186\
---------------------------------------------------------------------------

\186\ Ricardo, ``A Study of Potential Effectiveness of Carbon
Dioxide Reducing Vehicle Technologies, Revised Final Report,'' at
62. Available at http://www.epa.gov/otaq/technology/420r08004a.pdf
(last accessed Oct. 4, 2008).
---------------------------------------------------------------------------

In order to maintain equivalent performance to comparable gasoline-
engine vehicles, an inline 4-cylinder (I-4) diesel engine with
displacement varying around 2 liters to meet vehicle performance
requirements was assumed for Subcompact, Performance Subcompact,
Compact, and Midsize Passenger Car and Small Truck vehicle subclasses,
and it was also assumed that these vehicles would utilize LNT
aftertreatment systems.
In the NPRM, NHTSA estimated that LNT-based diesels could
incrementally reduce fuel consumption by 8 to 15 percent at an
incremental RPE cost of $1,500 to $1,600 compared to a direct injected
turbocharged and downsized

[[Page 14282]]

spark-ignition engine, in agreement with confidential manufacturer
data. These costs were based on a ``bottom up'' cost analysis that was
performed with EPA, which then subtracted the costs of all previous
steps on the decision tree prior to diesel engines.
Comments submitted in response to the NPRM including both
manufacturers' confidential data and non-confidential data sources for
diesel engines was in the range of 16.7 percent to 26.7 \187\ percent
fuel consumption benefit over a baseline gasoline engine at a variable
cost of $2,000 to $11,200. Confidentially submitted diesel cost and
effectiveness estimates generally did not differentiate between car and
truck applications, engine size and aftertreatement systems leading to
large ranges for both cost and effectiveness estimates. Additionally,
most of the costs appeared to be stated as variable costs not RPE but
this was not always completely discernible.
---------------------------------------------------------------------------

\187\ The 26.7 percent fuel consumption reduction is a maximum
estimate cited in a June 2008 Sierra Research report (Docket No.
NHTSA-2008-089-0179.1) for a CAFE estimate in a midsize car, whereas
an April 2008 Sierra report (Docket No. NHTSA-2008-089-0046) cites a
maximum estimate of 22.4 percent for the same vehicle class; NHTSA
was unable to discern why the estimates differed.
---------------------------------------------------------------------------

For purposes of the final rule, NHTSA estimated the net fuel
consumption benefit for an I-4 diesel engine with LNT aftertreatment to
be approximately 20 to 26 percent improvement over a baseline gasoline
engine. This equates to a 5.3 to 7.7 percent improvement for DSLT,
which is incremental to a turbocharged downsized gasoline engine
(TRBDS) with EGRB, and a 15.0 to 15.3 percent incremental improvement
for DSLC, which is incremental to a gasoline engine with combustion
restart (CBRST). The 2008 Martec report was relied upon for cost
estimates and the diesel cost was adjusted by removing the downsizing
credit and applying a 1.5 RPE marked up factor to arrive at a cost of
$4007 compared to a baseline gasoline engine. This results in an
incremental RPE cost of $1,567 to $1,858 for DSLT and $2,963 to $3,254
for DSLC. NHTSA's independent review concurred with all the costs in
this bill-of-material-based cost analysis.
A large part of the explanation for the cost increase since the
NPRM is the dramatic increase in commodity costs for the aftertreatment
systems, namely the platinum group metals. The updated cost estimates
of Martec 2008 and others reflect the rise of global costs for raw
materials since Martec 2004 and other prior referenced cost estimates
were conducted. As described in Martec 2008, engine technologies
employing high temperature steels or catalysts with considerable
platinum group metals usage have experienced tremendous inflation of
raw material prices. These updated estimates account for current spot
prices of platinum and rhodium which have demonstrated cost inflation
amounting to between 300 and 750 percent of global prices.\188\
---------------------------------------------------------------------------

\188\ Martec, ``Variable Costs of Fuel Economy Technologies,''
June 1, 2008, at 13-20. Docket No. NHTSA-2008-0089-0169.1.
---------------------------------------------------------------------------

(ii) Diesel Engine With Selective Catalytic Reduction (SCR) After-
Treatment
An SCR aftertreatment system uses a reductant (typically, ammonia
derived from urea) that is continuously injected into the exhaust
stream ahead of the SCR catalyst. Ammonia combines with NOX
in the SCR catalyst to form N2 and water. The hardware
configuration for an SCR system is more complicated than that of an
LNT, due to the onboard urea storage and delivery system (which
requires a urea pump and injector into the exhaust stream). While a
rich engine-operating mode is not required for NOX
reduction, the urea is typically injected at a rate of 3 to 4 percent
of the fuel consumed. Manufacturers designing SCR systems intend to
align urea tank refills with standard maintenance practices such as oil
changes.
The fuel consumption penalty associated with the SCR aftertreatment
system is taken into account in the values reported here. Similar to
the LNT system, extra fuel is needed to warm up the SCR system to an
effective operating temperature. The estimated fuel consumption penalty
on the CAFE test cycle associated with the SCR aftertreatment system is
5 percent on the EPA city cycle and none on the highway cycle, as
described in the report to the EPA.\189\ A recent report, however,
suggests a fuel economy benefit associated with the use of a SCR
system, based on the supposition that the engine calibration is shifted
towards improved fuel consumption and more of the NOX
reduction is being handled by the SCR system.\190\ Nevertheless, since
this benefit is not yet proven for high-volume production, it has not
been applied for purposes of the final rule.
---------------------------------------------------------------------------

\189\ Ricardo, ``A Study of Potential Effectiveness of Carbon
Dioxide Reducing Vehicle Technologies, Revised Final Report,'' at
62. Available at http://www.epa.gov/otaq/technology/420r08004a.pdf
(last accessed Oct. 4, 2008).
\190\ Timothy V. Johnson, ``Diesel Emission Control in Review,''
Society of Automotive Engineers Technical Series, 2008-01-0069,
2008. Available at http://www.sae.org/technical/papers/2008-01-0069
(last accessed Nov. 9, 2008).
---------------------------------------------------------------------------

In order to maintain equivalent performance to comparable gasoline-
engine vehicles, a V-6 diesel engine, with displacement varying around
3 liters was assumed for Performance Compact, Performance Midsize,
Large Passenger Car, Minivan, and Midsize Truck. A V-8 diesel engine,
with displacement varying around 4.5 liters to meet vehicle performance
requirements, was assumed for Large Truck and Performance Large Car
vehicle classes. It was also assumed that these classes with V-6 and V-
8 diesel engines utilize SCR aftertreatment systems instead of LNT.
In the NPRM, NHTSA estimated incremental fuel consumption reduction
for diesel engines with an SCR system to range from 11 to 20 percent at
an incremental RPE cost of $2,051 to $2,411 compared to a direct
injected turbocharged and downsized spark-ignition engine. These costs
were based on a ``bottom up'' cost analysis that was performed with
EPA, which then subtracted the costs of all previous steps on the
decision tree prior to diesel engines.
As explained above for LNT, confidential manufacturer and non-
confidential comment data submitted in response to the NPRM for diesel
engines was in the range of 16.7 percent to 26.7 percent fuel
consumption benefit over a baseline gasoline engine at variable cost of
$2,000 to $11,200 with no detail about the aftertreatment, engine size
or application. Additionally, Ricardo's vehicle simulation work for EPA
found an incremental fuel economy benefit of 19 percent for a 4.8L
diesel in a Large Truck.\191\ However, when the baseline 4-speed
automatic transmission shift and torque converter lockup scheduling was
optimized for the diesel engine, an additional 5 percent fuel economy
benefit was obtained to yield an incremental benefit for a diesel of 24
percent. As noted in the report on page 84, however, this does not
represent an optimized result, as only the final packages complete with
all technologies were optimized. Nevertheless, this is a reasonable
estimate for diesel engine fuel economy benefit over a baseline
gasoline engine with coordinated cam phasing (CCP). This estimate did
not have the aftertreatment penalty, however, so applying the 5 percent

[[Page 14283]]

penalty associated with diesel oxidation catalyst, diesel particulate
filter, and SCR aftertreatment brings the fuel economy benefit for
diesel engine with aftertreatment down to 19 percent, which is equal to
a 16 percent fuel consumption benefit.
---------------------------------------------------------------------------

\191\ Ricardo, ``A Study of Potential Effectiveness of Carbon
Dioxide Reducing Vehicle Technologies, Revised Final Report,'' Table
7-9 shows incremental fuel economy and CO2 benfits for
Truck with technology package 11, p. 87. Available at http://www.epa.gov/otaq/technology/420r08004a.pdf (last accessed Oct. 4,
2008).
---------------------------------------------------------------------------

For purposes of the final rule, NHTSA estimated the net fuel
consumption benefit for a V-6 diesel engine with SCR aftertreatment to
be approximately 20 to 26 percent improvement over a baseline gasoline
engine. This equates to a 4.0 to 7.7 percent improvement for DSLT,
which is incremental to a turbocharged downsized gasoline engine
(TRBDS) with EGRB, and a 9.9 to 13.1 percent incremental improvement
for DSLC, which is incremental to a gasoline engine with combustion
restart (CBRST.) The 2008 Martec report was relied upon for cost
estimates and the diesel cost was adjusted by removing the downsizing
credit and applying a 1.5 RPE marked up factor to arrive at a cost of
$5,603 compared to a baseline gasoline engine. This results in an
incremental RPE cost of $3,110 to $3,495 for DSLT and $4,105 to $4,490
for DSLC. NHTSA's independent review concurred with all the costs in
this bill-of-material-based cost analysis for V-6 engines.
NHTSA estimated the net fuel consumption benefit for a V-8 diesel
engine with SCR aftertreatment to be approximately 19 to 25 percent
improvement over a baseline gasoline engine. This equates to a 4.0 to
6.5 percent improvement for DSLT, which is incremental to a
turbocharged downsized gasoline engine (TRBDS) with EGRB, and a 10.0 to
12.0 percent incremental improvement for DSLC, which is incremental to
CBRST. The 2008 Martec report was relied upon for cost estimates and
the diesel cost was adjusted by removing the downsizing credit and
applying a 1.5 RPE marked up factor to arrive at a cost of $7,002
compared to a baseline gasoline engine. This results in an incremental
RPE cost of $3,723 to $4,215 for DSLT and $5,125 to $5,617 for DSLC.
NHTSA's independent review concurred with all the costs in this bill-
of-material-based cost analysis for V-8 engines.
The diesel engine with SCR has an incremental cost that is
significantly higher for the final rule than the NPRM. NHTSA believes
the increase is explained by the improved accuracy of the final rule
analysis which relied on the updated cost estimates from the 2008
Martec Report as described previously \192\. In addition, comments from
the Alliance suggested that the incremental diesel cost for a midsize
car was $6,198 and $7,581 \193\ for a pickup truck.
---------------------------------------------------------------------------

\192\ Martec, ``Variable Costs of Fuel Economy Technologies,''
June 1, 2008, at 13-20. Docket No. NHTSA-2008-0089-0169.1.
\193\ These cost estimates are taken from the April 2008 Sierra
Research report (Docket No. NHTSA-2008-089-0046). A June 2008 Sierra
Research report (Docket No. NHTSA-2008-089-0179.1) contained lower
estimates of $5,947 and $7,271 for the same vehicles; NHTSA was
unable to discern the reason for the difference.
---------------------------------------------------------------------------

The economic breakeven point for diesel engine aftertreatment
options is based on public information\194\ and on recent discussions
that NHTSA and EPA have had with auto manufacturers and aftertreatment
device manufacturers. NHTSA explained in the NPRM that it had received
strong indications that LNT systems would probably be used on smaller
vehicles while the SCR systems would be used on larger vehicles and
trucks. The economic break-even point between LNT and SCR is dependent
on the quantity of catalyst used, the market price for the metals in
those catalysts, and the cost of the urea injection system. The NPRM
estimated that the breakeven point would occur around 3 liters engine
displacement, based on discussions with auto manufacturers and
aftertreatment device manufacturers. Thus, NHTSA tentatively concluded
that it would be cheaper to manufacture diesel engines smaller than 3
liters with an LNT system, and that conversely, it would be cheaper to
manufacturer diesel engines larger than 3.0 liters with a SCR system.
No comments were submitted to NHTSA regarding the breakeven point
between a LNT and SCR system. However, according to one source of
recently published data the breakeven point occurs between 2.0 to
2.5L.\195\ Considering that continuing developments are being made in
this area and the wide range of precious metal content required, NHTSA
believes that an economic breakeven point of 2 to 3 liters is
reasonable and that other factors will strongly influence which system
is chosen by any given vehicle manufacturer.
---------------------------------------------------------------------------

\194\ Timothy V. Johnson, ``Diesel Emission Control in Review,''
Diesel Engine-Efficiency and Emissions Research (DEER) Conference,
Detroit, MI, August 20-24, 2006. Available at http://www1.eere.energy.gov/vehiclesandfuels/pdfs/deer_2006/session2/2006_deer_johnson.pdf (last accessed Nov. 9, 2008). See also Tim
Johnson, ``Diesel Engine Emissions and Their Control,'' Platinum
Metals Review, 52, at 23-37 (2008). Available at http://www.platinummetalsreview.com/dynamic/article/view/52-1-23-37 (last
accessed Nov. 9, 2008)
\195\ Id.
---------------------------------------------------------------------------

Cummins commented that LNT systems should be considered for more
than just the compact and subcompact vehicles, and stated that a number
of large vehicles and trucks currently use LNT. Cummins argued that a
LNT after-treatment system can be a cost-effective technology on both
small and larger engines. For the final rule, NHTSA assumed the use of
a LNT after-treatment system for three additional vehicle subclasses
compared to the NPRM. However, following the rationale explained in the
preceding paragraph, the SCR type after-treatment system is assumed for
larger vehicle subclasses. As is the case with all technologies in the
analysis, technology application assumptions are based on the general
understanding of what a manufacturer could do in response to meeting
emissions compliance but other manufacturer specific factors will
dictate the actual technology applications.
In the NPRM, NHTSA assumed a 3 percent phase in rate per year for
diesel technologies. For the final rule, passenger cars, as defined by
the technology class, retained the 3 percent combined (for DSLT and
DSLC) phase-in cap for MY 2011. However, diesel technologies for truck
technology classes were allowed to be applied at a 4 percent combined
(for DSLT and DSLC) phase-in cap for MY 2011 to account for the higher
application rates observed in the submitted product plans and diesel's
favorable characteristics in truck applications. Volume-based learning
was assumed for the NPRM, however, confidential product plans indicated
that this technology would be in high-volume in the 2011 time frame,
thus time-based learning was assumed for the final rule. For the final
rule, diesel technologies can only be applied at redesign, which is
consistent with the NPRM.
(c) Transmission Technologies
NHTSA has also reconsidered the way it applies transmission
technologies in the Volpe model to obtain increased fuel savings. The
revised decision tree for transmission technologies reflects the fact
that baseline vehicles now include either 4- or 5-speed automatic
transmissions, given that many manufacturers are already employing 5-
speed automatic transmissions or are going directly to 6-speed
automatics.\196\ The decision tree in the final rule also combines
``aggressive shift logic'' and

[[Page 14284]]

``early torque converter lockup,'' although the NPRM considered them
separately, because NHTSA concluded upon further review that the two
technologies could be optimized simultaneously due to the fact that
adding both of them primarily required only minor modifications to the
transmission or calibration software. Cost and effectiveness numbers
have also been thoroughly reexamined, as have learning rates and phase-
in caps, based on comments received. The section below describes each
of the transmission technologies considered.
---------------------------------------------------------------------------

\196\ Confidential product plans indicate that future products
manufactured within the rulemaking period may not go from 4- or 5-
speed transmission, but will instead introduce 6- or 7-speed
automatic transmissions as replacements.
---------------------------------------------------------------------------

(i) Improved Transmission Controls and Externals (IATC)
During operation, an automatic transmission's controller manages
the operation of the transmission by scheduling the upshift or
downshift, and locking or allowing the torque converter to slip based
on a preprogrammed shift schedule. The shift schedule contains a number
of lookup table functions, which define the shift points and torque
converter lockup based on vehicle speed and throttle position, and
other parameters such as temperature. Aggressive shift logic (ASL) can
be employed in such a way as to maximize fuel efficiency by modifying
the shift schedule to upshift earlier and inhibit downshifts under some
conditions, which reduces engine pumping losses and engine friction as
noted in the gas engine section. Early torque converter lockup \197\ in
conjunction with ASL can further improve fuel economy by locking the
torque converter sooner, thus reducing inherent torque converter
slippage or losses. As discussed above, the NPRM separated these two
technologies, but they are combined for purposes of the final rule
since the calibration software can be optimized for both functions
simultaneously.
---------------------------------------------------------------------------

\197\ Although only modifications to the transmission
calibration software are considered as part of this technology, very
aggressive early torque converter lock up may require an adjustment
to damper stiffness and hysteresis inside the torque converter.
Internal transmission hardware changes associated with this
technology are addressed in 6/7/8-Speed Automatic Transmission with
Improved Internals section.
---------------------------------------------------------------------------

Calibrating the transmission shift schedule to improve fuel
consumption reduces the average engine speed and increases the average
engine load, which can lead to a perceptible increase in engine
harshness. The degree to which the engine harshness can be increased
before it becomes noticeable to the driver is strongly influenced by
characteristics of the vehicle, and although it is somewhat subjective,
it always places a limit on how much fuel consumption can be improved
by transmission control changes. The Alliance agreed in its comments
that ASL can be used effectively to reduce throttling losses, but at
the expense of noise-vibration-harshness (NVH) and drivability
concerns. The Alliance also commented that losses in the torque
converter typically make automatic transmissions less efficient than
manual transmissions, and suggested that efficiency can be improved by
mechanically ``locking up'' the torque converter earlier or replacing
the torque converter with a friction clutch of the type used on a
manual transmission. Simply replacing a torque converter with a
friction clutch, however, ignores the torque multiplication that torque
converters provide at vehicle launch.
In the NPRM, NHTSA estimated that aggressive shift logic could
incrementally reduce fuel consumption by 1 to 2 percent at an
incremental cost of $38 and early torque converter lockup could
incrementally reduce fuel consumption by 0.5 percent at a $30 cost for
the calibration effort. Confidential manufacturer comments suggested
that less aggressive shift logic must be employed on vehicles with low
acceleration reserve, but that a 1-3 percent improvement in fuel
economy was attainable on vehicles with adequate acceleration reserve.
For the final rule, NHTSA combined aggressive shift logic and early
torque converter lockup into the IATC technology with an effectiveness
estimate of 1.5 to 2.5 percent in agreement with most confidential
manufacturer estimates. As aggressive shift logic and early torque
converter lockup are both achievable with a similar calibration effort,
the incremental cost for improved automatic transmission controls used
the higher value of $38, converted this value to 2007 dollars, and
applied a 1.5 RPE markup factor to arrive at an incremental cost
estimate of $59 for the final rule.
The IATC technology is considered to be available at the start of
the 2011 model year, and as was the case in the NPRM, NHTSA considers
that it can be applied during a refresh model year since NVH concerns
must be addressed. The technology is applicable to all vehicle
subclasses and NHTSA determined IATC type technologies will be high
volume within the 2011 time frame so time-based learning is assumed,
with a phase-in cap for MY 2011 of 33 percent.
(ii) Automatic 6-, 7- and 8-Speed Transmissions (NAUTO)
Having more ``speeds'' on a transmission (i.e., having more gear
ratios on the transmission) gives three effects in terms of vehicle
performance and fuel economy. First, more gear ratios allow deeper 1st
and 2nd gear ratios for improved launch performance, or increased
acceleration. Second, a wider ratio spread also offers the ability to
reduce the steps between gear ratios, which allows the engine to
operate closer to optimum speed and load efficiency region. And third,
a reduction in gear ratio step size improves internal transmission
losses by reducing the sliding speeds across the clutches, thus
reducing the viscous drag loss generated between two surfaces rotating
at different speeds. Bearing spin losses are also reduced as the
differential speed across the two bearing surfaces is reduced. This
allows the engine to operate at a reduced load level to improve fuel
economy.
Although the additional gear ratios improve shift feel, they also
introduce more frequent shifting between gears, which can be perceived
by consumers as bothersome. Additionally, package space limitations
prevent 7- and 8-speed automatics from being applicable to front wheel
drive vehicles.
Comparison between NPRM and final rule cost and effectiveness
estimates are somewhat complicated by the revisions in the decision
trees and technology assumptions. In the NPRM, NHTSA estimated that 6-,
7- and 8-speed transmissions could incrementally reduce fuel
consumption by 0.5 to 2.5 percent at an incremental cost of $76 to
$187, relative to a 5-speed automatic transmission, a technology not
used in the final rule decision tree, and the incremental cost for a 4-
speed to a 5-speed automatic transmission (again no longer considered
in the final rule) was estimated to be $76 to $167.
In response to NHTSA's request for information, confidential
manufacturer data projected that 6-speed transmissions could
incrementally reduce fuel consumption by 0 to 5 percent from a baseline
4-speed automatic transmission, while an 8-speed transmission could
incrementally reduce fuel consumption by up to 6 percent from a
baseline 4-speed automatic transmission. The 2008 Martec report
estimated a cost of $323 (RPE adjusted) for converting a 4-speed to a
6-speed transmission and a cost of $638 (RPE adjusted) for converting a
4-speed to an 8-speed transmission. GM has publicly claimed a fuel
economy improvement of up to 4 percent for its

[[Page 14285]]

new 6-speed automatic transmissions.\198\ The 2008 EPA Staff Technical
Report found a 4.5 to 6.5 percent fuel consumption improvement for a 6-
speed over a 4-speed automatic transmission.\199\
---------------------------------------------------------------------------

\198\ General Motors, news release, ``From Hybrids to Six-
Speeds, Direct Injection And More, GM's 2008 Global Powertrain
Lineup Provides More Miles with Less Fuel'' (released Mar. 6, 2007).
Available at http://www.gm.com/experience/fuel_economy/news/2007/adv_engines/2008-powertrain-lineup-082707.jsp (last accessed Sept.
18, 2008).
\199\ Page 17, ``EPA Staff Technical Report: Cost and
Effectiveness Estimates of Technologies Used to Reduce Light-duty
Vehicle Carbon Dioxide Emissions'' Environmental Protection Agency,
EPA420-R-08-008, March 2008.
---------------------------------------------------------------------------

For the final rule, NHTSA estimated that the conversion to a 6-, 7-
and 8-speed transmission (NAUTO) from a 4 or 5-speed automatic
transmission with IATC would have an incremental fuel consumption
benefit of 1.4 percent to 3.4 percent, for all vehicle subclasses. The
2008 Martec report, which quoted high volume, fully learned costs, was
relied on to develop the final rule cost estimates. Subcompact,
Compact, Midsize, Large Car and Minivan subclasses, which are typically
considered normal performance passenger cars, are assumed to utilize a
6-speed automatic transmission only (as opposed to 7 or 8 speeds)
resulting in an incremental RPE cost of $323 from Martec 2008. For
Performance Subcompact, Performance Compact, Performance Midsize,
Performance Large car and Small, Midsize and Large truck, where
performance and or payload/towing may be a larger factor, NHTSA assumed
that 6-, 7- or 8-speed transmissions are applicable thus the
incremental RPE cost range of $323-$638 was established which used the
Martec 2008 six speed cost and 8-speed costs for the estimates.
This technology will be available from the start of the rulemaking
period. Confidential manufacturer data indicates the widespread use of
6-speed or greater automatic transmissions and introductions into the
fleet occur primarily at vehicle redesign cycles. This prompted NHTSA
to set the phase-in rate at 50 percent for MY 2011, but also to
consider that the technology can only be applied at a redesign cycle,
as opposed to the refresh cycle application of the NPRM. The technology
is determined to be at high volume in the 2011 timeframe, and since
these are mature and stable technologies, time-based learning factors
are applied.
(iii) Dual Clutch Transmissions/Automated Manual Transmissions (DCTAM)
An automated manual transmission (AMT) is similar in architecture
to a conventional manual transmission, but shifting and launch
functions are performed through hydraulic or electric actuation. There
are two basic types of AMTs, single-clutch and dual-clutch transmission
(DCT), both of which were considered in the NPRM. Upon further
consideration and in response to manufacturer comments to only include
dual-clutch AMTs, single-clutch AMTs are not applied in the analysis
for the final rule.
Single clutch transmissions exhibit a torque interruption when
changing gears because the clutch has to be disengaged. In a
conventional manual transmission vehicle, the driver has initiated the
gear change, and so expects to feel the resulting torque interruption.
With an AMT, in contrast, a control system initiates the shift, which
is unexpected and can be disconcerting to the driver. Comments from
Ford in response to the NPRM indicated that the acceptability of this
torque interruption among U.S. drivers is poor, although Ford also
commented that DCTs do not have the risk of customer acceptance that
AMTs do. BorgWarner, a DCT supplier, echoed these comments. DCTs do not
display the torque interrupt characteristic due to their use of two
clutch mechanisms which allow for uninterrupted power transmission. To
assist with launch of a DCT equipped vehicle, the first gear ratio can
be deepened to gain back some of the performance advantage an automatic
transmission possesses due to the torque converter's torque
multiplication factor.
There are two types of DCT systems, wet clutch and dry clutch,
which are used for different types of vehicles. Wet clutch DCTs offer a
higher torque capacity that comes from the use of a hydraulic system
that cools the clutches, but that are less efficient than the dry
clutch type due to the losses associated with hydraulic pumping.
Additionally, wet DCTs have a higher cost due to the additional
hydraulic hardware required. Wet clutch DCT systems have been available
in the U.S. market on imported products since 2005, and Chrysler has
publicly stated that it will have a DCT transmission in its 2010 model
year vehicle line-up.\200\
---------------------------------------------------------------------------

\200\ Chrysler blog, ``Dual-Clutch Transmissions Explained''
(released October 3, 2007) available at http://blog.chryslerllc.com/blog.do?p=entry&id=113, last accessed September 18, 2008.
---------------------------------------------------------------------------

Consistent with manufacturers' confidential comments and based on
its own analysis, NHTSA determined that dry clutch DCTs are applicable
to smaller front wheel drive cars, due to their lower vehicle weight
and torque production, and wet clutch DCTs are more applicable to
higher torque applications with higher power requirements. Therefore
lower cost, higher efficiency dry clutch DCTs are specified for the
Subcompact and Compact Car vehicle classes, while all other classes
required wet clutch DCTs.
In the NPRM, NHTSA estimated that the incremental cost for DCTs was
$141, independent of vehicle class, which was the midpoint of the
NESCCAF estimates and within the range provided confidential
manufacturer data. CARB commented that NHTSA had incorrectly cited the
cost of AMTs from the NESCCAF study in the NPRM, stating that AMTs had
been determined to be cost neutral (zero cost) relative to baseline
transmission, as opposed to a $0-$240 cost justification. Confidential
manufacturer data suggest additional DCT costs from $80 to $740, with
dry clutch DCT costs being approximately $100 less due to reduced
hydraulic system content. The 2008 Martec study also reported variable
costs for AMTs.
In the NPRM, NHTSA cited the NESCCAF study as projecting that AMTs
could incrementally reduce fuel consumption by 5 to 8 percent and
confidential manufacturer data projected that AMTs could incrementally
reduce fuel consumption by 2 to 5 percent. On the basis of these
estimates, NHTSA concluded in the NPRM that AMTs could incrementally
reduce fuel consumption by 4.5 to 7.5 percent. Confidential
manufacturer data received in response to the NPRM suggest a benefit of
2 to 12 percent for DCTs over a 6-speed planetary automatic, and one
confidential manufacturer estimates a benefit of 1 to 2 percent for a
dry clutch DCT over a wet clutch DCT. The 2008 EPA Staff Technical
Report also indicates a benefit of 9.5 to 14.5 percent for a DCT (wet
or dry was not specified) over a 4-speed planetary automatic
transmission.
For the final rule, NHTSA estimated a 5.5 to 9.5 percent
improvement in fuel consumption over a baseline 4/5-speed automatic
transmission for a wet clutch DCT, which was assumed for all vehicle
subclasses except Subcompact and Compact Car. This results in an
incremental effectiveness estimate of 2.7 to 4.1 percent over the NAUTO
technology. For Subcompact and Compact Cars, which were assumed to use
a dry clutch DCT, NHTSA estimated an 8 to 13 percent fuel consumption
improvement over a baseline 4/5-speed automatic transmission, which
equates

[[Page 14286]]

to a 5.5 to 7.5 percent incremental improvement over the NAUTO
technology.
The 2008 Martec report was utilized to develop the cost estimates
for the final rule; it estimated an RPE cost of $450 for a dry clutch
DCT, and $600 for a wet clutch DCT, both relative to a baseline 4/5-
speed. In the transmission decision tree for the final rule, this
yielded a dry clutch DCT incremental cost estimate of $68 for the
Subcompact and Compact Cars relative to the NAUTO technology. For
Midsize, Large Car and Minivan classes the wet clutch DCT incremental
cost over NAUTO is $218, which reflects the lower, 6-speed only cost of
the NAUTO technology applied to these vehicles. The average incremental
cost for wet DCT for the four Performance classes and the Small,
Midsize and Larger truck is $61, which is lower than the other vehicle
subclasses due to the higher cost NAUTO technology (up to 8-speeds)
that the DCTAM technology supersedes.
NHTSA relied upon confidential manufacturer product plans showing
DCT production will be readily available and at high volume by 2011.
Therefore volume-based learning is not applicable, and since this is a
mature and stable technology, time-based learning is applied. As
production facility conversion or construction may be required to
facilitate required capacity, NHTSA limited the production phase-in
caps in MY 2011 to 20 percent. As with other transmission technologies,
application was allowed at redesign only due to the vehicle changes
required to adapt a new type transmission.
(iv) Continuously Variable Transmission (CVT)
A continuously variable transmission (CVT) is unique in that it
does not use gears to provide ratios for operation. Most CVTs use
either a belt or chain on a system of two pulleys (the less common
toroidal CVTs replace belts and pulleys with discs and rollers) that
progressively vary the ratio, thus permitting an infinite number of
effective gear ratios between a maximum and minimum value, and often a
wider range of ratios than conventional automatic transmissions. This
enables even finer optimization of the transmission ratio under
different operating conditions and, therefore, some reduction of engine
pumping and friction losses. In theory, the CVT has the ability to be
the most fuel-efficient kind of transmission due to the infinite
ability to optimize the ratio and operate the engine at its most
efficient point. However, this effectiveness is reduced by the
significant internal losses from high-pressure, high-flow-rate
hydraulic pump, churning, friction loss, and bearing losses required to
generate the high forces needed for traction.\201\
---------------------------------------------------------------------------

\201\ ``Transmission and Driveline--Major contributors to FUEL
efficiency, safety, fun to drive and brand differentiation'', Car
Training Institute Symposium, May 6-7, 2008--Plenary Speech, Robert
Lee, Vice President, Mircea Gradu, Director Transmission and
Driveline, Chrysler LLC, USA. Available from the Car Training
Institute, for contact information see http://www.car-training-institute.com/cti_en/html/kontakt.html (last accessed Nov. 9,
2008).
---------------------------------------------------------------------------

Some U.S. car manufacturers have abandoned CVT applications because
they failed to deliver fuel economy improvements over automatic
transmissions. GM abandoned the use of CVT before 2006.\202\ Ford
offered a CVT in the Five Hundred and Freestyle from MYs 2005-2007 and
discontinued it thereafter. However, Chrysler offers CVTs in the Dodge
Caliber, the Jeep Compass, and the Jeep Patriot. Nissan was using CVTs
in many vehicles, but appears to be restricting the use of this
technology to passenger cars only.
---------------------------------------------------------------------------

\202\ See http://car-reviews.automobile.com/news/general-motors-to-kill-continually-variable-transmission/166/ (last accessed Oct.
23, 2008).
---------------------------------------------------------------------------

In the NPRM, NHTSA estimated a CVT effectiveness of approximately 6
percent over a 4-speed automatic, which was above the NESCCAF value but
in the range of NAS. For costs, NHTSA concluded in the NPRM that the
adjusted costs presented in the 2002 NESCCAF study represent the best
available estimates, and thus estimated that CVTs could incrementally
reduce fuel consumption by 3.5 percent when compared to a conventional
5-speed automatic transmission (which cost an incremental $76-$167), a
technology which is considered a baseline transmission option on the
final rule decision tree, at an incremental cost of $100 to $139. After
reviewing confidential manufacturer data and the Martec report, for the
final rule NHTSA is now estimating the incremental cost of CVTs to be
$300 for all vehicle subclasses, except for large performance cars,
midsize light trucks and large light trucks for which the technology is
incompatible.
Confidential manufacturer data in response to the NPRM suggested
that the incremental effectiveness estimate from CVTs may be 2 to 8
percent over 4-speed planetary transmissions in simulation (however one
commenter reported a zero percent improvement in dynamometer testing)
at a cost of $140 to $800. Considering the NPRM conclusion and
confidential data together with independent review, NHTSA has estimated
the fuel consumption effectiveness for CVTs at 2.2 to 4.5 percent over
a 4/5-speed automatic transmission, which translates into a 0.7 to 2.0
incremental effectiveness improvement over the IATC technology. NHTSA
estimated the CVT incremental cost to be $300 for the final rule,
noting that the NPRM costs were incremental to a 5-speed technology
that is no longer represented in the decision tree, hence the higher
final rule cost.\203\
---------------------------------------------------------------------------

\203\ Since the decision trees are configured differently, the
net cost to CVT in the NPRM included 5-speed automatic transmission
technology costs that are not applied in the final rule.
---------------------------------------------------------------------------

CVTs are currently available, but due to their limited torque-
carrying capability, they are not applied to Performance Large cars and
Midsize and Large trucks. There is limited production capability for
CVTs, so the phase-in cap for MY 2011 is limited to 5 percent to
account for new plants and tooling to be prepared. CVTs can be
introduced at product redesign intervals only based on confidential
manufacturer data and consistent with the NPRM approach (since it
requires vehicle attribute prove-out, test and certification prior to
introduction). Confidential manufacturer data indicates that CVTs will
be at high volumes by 2011, and this is a mature and stable technology,
therefore NHTSA applied time-based learning factors.
(v) 6-Speed Manual Transmissions (6MAN)
Manual transmissions are entirely dependent upon driver input to
change gear ratio: the driver selects when to perform the shift and
which gear ratio to select. This is the most efficient transfer of
energy of all transmission layouts, because it has the lowest internal
gear losses, with a minimal hydraulic system, and the driver provides
the energy to actuate the clutch. From a systems viewpoint, however,
vehicles with manual transmissions have the drawback that the driver
may not always select the optimum gear ratio for fuel economy.
Nonetheless, increasing the number of available ratios in a manual
transmission can improve fuel economy by allowing the driver to select
a ratio that optimizes engine operation more often. Typically, this is
achieved through adding overdrive ratios to reduce engine speed at
cruising velocities (which saves fuel through reduced pumping losses)
and pushing the torque required of the engine towards the optimum
level. However, if the gear ratio steps are not properly designed, this
may require the driver to

[[Page 14287]]

change gears more often in city driving resulting in customer
dissatisfaction. Additionally, if gear ratios are selected to achieve
improved launch performance instead of to improve fuel economy, then no
fuel saving effectiveness is realized.
NHTSA recognizes that while the manual transmission is very
efficient, its effect on fuel consumption relies heavily upon driver
input. In driving environments where little shifting is required, the
manual transmission is the most efficient because it has the lowest
internal losses of all transmissions. However, the manual transmission
may have lower fuel efficiency on a drive cycle when drivers shift at
non-optimum points.
In the NPRM, NHTSA estimated that a 6-speed manual transmission
could incrementally reduce fuel consumption by 0.5 percent when
compared to a 5-speed manual transmission, at an incremental cost of
$107. Confidential manufacturer data received in response to the NPRM
suggests that manual transmissions could incrementally reduce fuel
consumption by 0 to 1 percent over a base 5-speed manual transmission
at an incremental cost of $40 to $900. Most confidential comments
suggested that the incremental cost was within the lower quartile of
the full range, thus $225 (the lower quartile upper-bound) was
multiplied by the 1.5 RPE markup factor for a total of $338. Therefore,
the final rule states that the incremental fuel consumption
effectiveness for a 6-speed manual transmission over a 5-speed manual
transmission is 0.5 percent at a RPE cost of $338.
This technology is applicable to all vehicle classes considered and
can be introduced at product redesign intervals, consistent with the
NPRM and other final rule transmission technologies. Six-speed manuals
are already in production at stable and mature high volumes so time-
based learning is applied with a 33 percent phase-in rate for MY 2011.
(d) Hybrid and Electrification/Accessory Technologies
(i) Overview
A hybrid describes a vehicle that combines two or more sources of
energy, where one is a consumable energy source (like gasoline) and one
is rechargeable (during operation, or by another energy source).
Hybrids reduce fuel consumption through three major mechanisms: (1) By
turning off the engine when it is not needed, such as when the vehicle
is coasting or when stopped; (2) by recapturing lost braking energy and
storing it for later use; and by (3) optimizing the operation of the
internal combustion engine to operate at or near its most efficient
point more of the time. A fourth mechanism to reduce fuel consumption,
available only to plug-in hybrids, is by substituting the fuel energy
with energy from another source, such as the electric grid.
Engine start/stop is the most basic of hybrid functions, and as the
name suggests, the engine is shut off when the vehicle is not moving or
when it is coasting, and restarted when needed. This saves the fuel
that would normally be utilized to spin the engine when it is not
needed. Regenerative braking is another hybrid function which allows
some of the vehicle's kinetic energy to be recovered and later reused,
as opposed to being wasted as heat in the brakes. The reused energy
displaces some of the fuel that would normally be used to drive the
vehicle, and thus results in reduced fuel consumption. Operating the
engine at its most efficient operating region more of the time is made
possible by adding electric motor power to the engine's power so that
the engine has a degree of independence from the power required to
drive the vehicle. Fuel consumption is reduced by more efficient engine
operation, the degree of which depends heavily on the amount of power
the electric motor can provide. Hybrid vehicles with large electric
motors and battery packs can take this to an extreme and drive the
wheels with electric power only and the engine consuming no fuel. Plug-
in hybrid vehicles can substitute fuel energy with electrical energy,
further reducing the fuel consumption.\204\
---------------------------------------------------------------------------

\204\ Substituting fuel energy with electrical energy may not
actually save total overall energy used, when considering the
inefficiencies of creating the electricity at a power plant and
storing it in a battery pack, but it does enable use of other
primary energy sources, and reduces the vehicle's fuel consumption.
Plug-in hybrids are also receiving increasing attention because of
their ability to use ``clean energy'' from the electric grid, such
as that solar or wind, which can reduce the overall greenhouse gas
output.
---------------------------------------------------------------------------

Hybrid vehicles utilize some combination of the above mechanisms to
reduce fuel consumption. The effectiveness of a hybrid, and generally
the complexity and cost, depends on the utilization of the above
mechanisms and how aggressively they are pursued.
In addition to the purely hybrid technologies, which decrease the
proportion of propulsion energy coming from the fuel by increasing the
proportion of that energy coming from electricity, there are other
steps that can be taken to improve the efficiency of auxiliary
functions (e.g., power-assisted steering or air-conditioning) which
also reduce fuel consumption. These steps, together with the hybrid
technologies, are collectively referred to as ``vehicle
electrification'' because they generally use electricity instead of
engine power. Three ``electrification'' technologies are considered in
this analysis along with the hybrid technologies: Electrical power
steering (EPS), improved accessories (IACC), and high voltage or
improved efficiency alternator (HVIA).
(ii) Hybrid System Sizing and Cost Estimating Methodology
Estimates of cost and effectiveness for hybrid and related
electrical technologies have been adjusted from those described in the
NPRM to address commenters' concerns that NHTSA considered technologies
not likely to be adopted by automakers (e.g., 42V electrical systems)
or did not scale the costs for likely technologies across the range of
vehicle subclasses considered. To address these concerns, the portfolio
of vehicle electrification technologies has been refined based on
commenter data as described below in the individual hybrid technologies
sections. Ricardo and NHTSA have also developed a ``ground-up'' hybrid
technology cost estimating methodology and, where possible, validated
it to confidential manufacturer data. The hybrid technology cost method
accounts for variation in component sizing across both the hybrid type
and the vehicle platform. The method utilizes four pieces of data: (1)
Key component sizes for a midsize car by hybrid system type; (2)
normalized costs for each key component; (3) component scaling factors
that are applied to each vehicle subclass by hybrid system type; and
(4) vehicle characteristics for the subclasses which are used as the
basis for the scaling factors.
Component sizes were estimated for a midsize car using publicly
available vehicle specification data and commenter data for each type
of hybrid system as shown in Table IV-10.

[[Page 14288]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.034

In developing Table IV-10, NHTSA made several assumptions:
(1) Hybrid controls hardware varies with the level of functionality
offered by the hybrid technology. Assumed hybrid controls complexity
for a 12V micro hybrid (MHEV) was 25 percent of a strong hybrid
controls system and the complexity for an Integrated Starter Generator
(ISG) was 50 percent. These ratios were estimates based on the
directional need for increased functionality as system complexity
increases.
(2) In the time frame considered, Li-ion battery packs will have
limited market penetration, with a majority of hybrid vehicles using
NiMH batteries. One estimate from Anderman indicates that Li-ion market
penetration will achieve 35 percent by 2015.\205\ For the purposes of
this analysis, it was assumed that mild and strong hybrids will use
NiMH batteries and plug-in hybrids will use Li-ion batteries.
---------------------------------------------------------------------------

\205\ Anderman, Advanced Automotive Battery Conference, May
2008. Proceedings available for purchase at http://www.advancedautobat.com/Proceedings/index.html (last accessed
October 17, 2008).
---------------------------------------------------------------------------

(3) The plug-in hybrid battery pack was sized for a mid-sized car
by assuming: the vehicle has a 20 mile all electric range and consumes
an average of 300 W-hr per mile; the battery pack can be discharged
down to 50 percent depth of discharge; and the capacity of a new
battery pack is 20 percent greater than at end of life (i.e., range on
a new battery pack is 24 miles).
(4) All hybrid systems included a DC/DC converter which was sized
to accommodate vehicle electrical loads appropriate for increased
vehicle electrification in the time frame considered.
(5) High voltage wiring scaled with hybrid vehicle functionality
and could be represented as a fraction of strong hybrid wiring. These
ratios were estimates based on the directional need for increased
functionality as system complexity increases.
(6) All hybrid systems included a supplemental heater to provide
vehicle heating when the engine is stopped, however, only stronger
hybrids included electric air conditioning to enable engine stop/start
when vehicle air conditioning was requested by the operator.
In the hybrid technology cost methodology developed for cost-
scaling purposes, several strong hybrid systems replaced a conventional
transmission with a hybrid-specific transmission, resulting in a cost
offset for the removal of a portion of the clutches and gear sets
within the transmission. The transmission cost in Table IV-11 below
expresses hybrid transmission costs as a percentage of traditional
automatic transmission cost, as described in the 2008 Martec Report, at
$850. The method assumed that the mechanical aspect of a power-split
transmission with a reduced number of gear sets and clutches resulted
in a cost savings of 50 percent of a conventional transmission with
torque converter. For a 2-mode hybrid, the mechanical aspects of the
transmission are similar in complexity to a conventional transmission
with a torque converter, thus no mechanical cost savings was
appropriate. The plug-in hybrid assumed a highly simplified
transmission for electric motor drive, thus 25 percent of the base
vehicle transmission cost was applied.
Estimates for the cost basis of each key component are shown in
Table IV-11 below along with the sources of those estimates. The cost
basis estimates assume fully learned, high-volume (greater than 1.2
million units per annum) production. The costs shown are variable costs
that are not RPE adjusted.

[[Page 14289]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.035

Component scaling factors were determined based on vehicle
characteristics for each type of hybrid system as shown in Table IV-12
below.

[[Page 14290]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.036

NHTSA's CAFE database was used to define the average vehicle
characteristics for each vehicle subclass as shown in Table IV-13
below, and these attributes were used as the basis of the scaling
factors.
[GRAPHIC] [TIFF OMITTED] TR30MR09.037

Table IV-14 shows the costs for the different types of hybrid
systems on a midsize vehicle. The individual component costs were
scaled from the normalized costs shown in Table IV-11 according to the
component size shown in Table IV-10 and adjusted to a low volume cost
by backing out volume-

[[Page 14291]]

based learning reductions.\206\ These component costs were summed to
get the total low volume cost for each hybrid type, and a 1.5 RPE
adjustment was applied. The ISG technology replaces the MHEV technology
on the Electrification/Accessory technology decision tree, therefore
the MHEV technology costs must be subtracted to reflect true costs
($2,898-$707 = $2,191 in this example).
---------------------------------------------------------------------------

\206\ High volume costs are multiplied by a factor of 1.56,
which represents two cycles of 20 percent reverse learning, to
determine the appropriate low volume, or unlearned costs.
---------------------------------------------------------------------------

Wherever possible, the results of the hybrid technology cost method
were compared with values as previously described in the NPRM and the
results generally matched prior estimates. Additionally, the results
from the hybrid technology cost method were validated with public
literature and confidential manufactures test data as allowed. Elements
of the 2008 Martec report identified cost data and a detailed bill of
materials for several comparable hybrid technologies (Micro-hybrid
systems and Full Hybrid systems), and the hybrid technology cost model
agreed well with this data. The scalable bill of material based
methodology described above was determined to offer the best solution
for estimating component sizes and costs across a range of hybrid
systems and vehicle platforms and the validation of these cost outputs
with other data sources suggests that this approach is a reasonable
approach.
[GRAPHIC] [TIFF OMITTED] TR30MR09.038

(iii) Electrical Power Steering (EPS)
Electrical Power Steering (EPS) is advantageous over conventional
hydraulic power-assisted steering in that it only draws power when the
vehicle is being steered, which is typically a small percentage of the
time a vehicle is operating. In fact, on the EPA test cycle no steering
is done, so the CAFE fuel consumption effectiveness comes about by
eliminating the losses from driving the hydraulic steering pump at
engine speed. EPS systems use either an electric motor driving a
hydraulic pump (this is a subset of EPS systems known as electro-
hydraulic power steering) or an electric motor directly assisting in
turning the steering column. EPS is seen as an enabler for all vehicle
hybridization technologies, since it provides power steering when the
engine is off. This was a primary consideration in placing EPS at the
top of the Electrification/Accessory decision tree.
In the NPRM, NHTSA estimated the fuel consumption effectiveness for
EPS at 1.5 to 2 percent at an incremental cost of $118 to $197,
believing confidential manufacturer data most accurate. In response to
the NPRM Sierra Research suggested EPS and high efficiency alternators
combined is worth 1 to 1.8 percent on the CAFE test cycle,\207\ and
confidential manufacturer data indicated a 0.7 to 2.9 percent fuel
consumption reduction. The cost range from confidential manufacturer
data was $70 to $300. Sierra estimated EPS for cars at $82 and $150 for
trucks.\208\ A market study by Frost & Sullivan

[[Page 14292]]

indicated the cost of an EPS system at roughly $65 more than a
conventional hydraulic (HPS) system.\209\ Because there is a wide range
in the effectiveness for EPS depending on the vehicle size, NHTSA has
increased the range from the NPRM to incorporate the lower ranges
suggested by most manufacturers and estimates the fuel consumption
effectiveness for EPS at 1 to 2 percent for the purpose of the final
rule. The incremental costs are also estimated on range below the
Sierra value for cars but above the Frost & Sullivan estimate at a
piece cost range of $70 to $80 and included a 1.5 RPE uplift to $105 to
$120 for the final rule.
---------------------------------------------------------------------------

\207\ Docket No. NHTSA-2008-0089-0179.1, Attachment 2, at 53.
\208\ Docket No. NHTSA-2008-0089-0179.1, Attachment 2, at 59.
\209\ Cost for EPS quoted at 48 Euros, at $1.35 per Euro
exchange rate (Oct. 7, 2008) equates to $65, from Frost & Sullivan,
Feb. 9, 2006 ``Japanese Steering System Market Moves Into High
Gear,'' http://www.theautochannel.com/news/2006/02/09/210036.html
(last accessed Nov. 2, 2008).
---------------------------------------------------------------------------

EPS is currently in volume production in small to mid-sized
vehicles with a standard 12V electrical system; however, heavier
vehicles may require a higher voltage system, which adds cost and
complexity. The Chevy Tahoe Hybrid, for example, uses a higher voltage
EPS system. For purposes of the final rule, NHTSA has applied EPS to
all vehicle subclasses except for Large trucks.
In the NPRM, NHTSA assumed a 25 percent phase in rate of EPS
technologies. For the purposes of the final rule, EPS phase-in caps
were limited to 10 percent in MY 2011 to address confidential
manufacturer concerns over lead time. In the NPRM, NHTSA assumed a
volume-based learning effect for EPS. For the final rule, however,
NHTSA applied time-based learning for EPS since NHTSA's analysis
indicated that this technology would be in high-volume use at the
beginning of its first year of availability. NHTSA also assumed in the
NPRM that EPS could be applied during refresh model years, which was
consistent with information provided in confidential product plans,
therefore for the purpose of the final rule, NHTSA again applied EPS at
refresh timing.
(iv) Improved Accessories (IACC)
Improved accessories (IACC) was defined in the NPRM as improvements
in accessories such as the alternator, coolant and oil pumps that are
traditionally driven by the engine. Improving the efficiency or
outright electrification of these accessories would provide opportunity
to reduce the accessory loads on the engine. However, as the oil pump
provides lubrication to the engine's sliding surfaces such as bearings
pistons, and camshafts and oil flow is always required when the engine
is spinning, and it is only supplied when the engine is spinning, there
is no efficiency to be gained by electrifying the oil pump.\210\
---------------------------------------------------------------------------

\210\ Oil pump electrification comes with an additional
potential technical and financial risk (to warranty and consumer),
in that significant engine damage can occur should the system fail
to provide engine lubrication, even on a momentary basis.
---------------------------------------------------------------------------

Electrical air conditioning (EAC) could reduce fuel consumption by
allowing the engine to be shut off when it is not needed to drive the
vehicle. For this reason EAC is often used on hybrid vehicles. In
highway driving, however, there is little opportunity to shut the
engine off; furthermore, EAC is less efficient when the engine is
running because it requires mechanical energy from the engine to be
converted to electrical energy and then back again to mechanical. Since
air conditioning is not required on the EPA city or highway test
cycles, there is no CAFE fuel consumption effectiveness from EAC.
Therefore, EAC does not improve accessory efficiency apart from the
hybrid technologies. For the purposes of the final rule, IACC refers
strictly to improved engine cooling, since electrical lubrication and
air conditioning are not effective stand-alone fuel saving technologies
and improved alternator is considered as a separate technology given
its importance to vehicle electrification.
Improved engine cooling, or intelligent cooling, can save fuel
through two mechanisms: By reducing engine friction as the engine warms
up faster; and by operating an electric coolant pump at a lower speed
than the engine would (i.e., independent of engine speed). Intelligent
cooling can be applied to vehicles that do not typically carry heavy
payloads. Larger vehicles with towing capacity present a challenge for
electrical intelligent cooling systems, as these vehicles have high
cooling fan loads. Therefore, NHTSA did not apply IACC to the Large
Truck and SUV class.
In the NPRM, NHTSA estimated the fuel consumption effectiveness for
improved accessories at 1 to 2 percent at an incremental cost of $124
to $166 based on the 2002 NAS Report and confidential manufacturer
data. Confidential manufacturer data received in response to the NPRM
and Sierra Research both suggested a range for fuel consumption
effectiveness from 0.5 to 2 percent. A comment from MEMA suggested that
improved thermal control of the engine could produce between 4 and 8
percent fuel economy improvement; \211\ however, NHTSA's independent
review of intelligent cooling suggests this estimate is high and
concurs with the estimates from NAS. Independent review found the cost
for IACC at low volumes, assuming the base vehicle already has an
electric fan, to be $180 to $220. These costs were adjusted to account
for volume-based learning and then marked up to account for the 1.5 RPE
factor. For the purposes of the final rule, NHTSA retained the fuel
consumption effectiveness at 1 to 2 percent and estimated the
incremental costs to be $173 to $211.
---------------------------------------------------------------------------

\211\ Docket No. NHTSA-2008-0089-0193.1.
---------------------------------------------------------------------------

MEMA also suggested that NHTSA consider solar glass technology to
reduce cabin thermal loading; however, air conditioning technologies
were not considered as part of this technology.
In the NPRM, NHTSA proposed a 25 percent phase-in cap for Improved
Accessories. To address manufacturer concerns over lead time in the
early years, the IACC phase-in cap was limited to 10 percent for MY
2011 for the final rule. In the NPRM, NHTSA assumed for improved
accessories a volume-based learning curve. For the final rule, however,
NHTSA applied time-based learning for IACC since NHTSA's analysis
indicated that this technology would be in high-volume use at the
beginning of its first year of availability. NHTSA assumed in the NPRM
that improved accessories could be applied during any model year. For
the purpose of the final rule, NHTSA applied intelligent cooling at
refresh model years due to the significant changes required to the
vehicle cooling system that necessitate recertification testing.
(v) 12V Micro Hybrid (MHEV)
12V Micro-Hybrid (MHEV) systems are the most basic of hybrid
systems and offer mainly idle-stop capability. Their low cost and easy
adaptability to existing powertrains and platforms can make them
attractive for some applications. The conventional belt-driven
alternator is replaced with a belt-driven, enhanced power starter-
alternator and a redesigned front-end accessory drive system that
facilitates bi-directional torque application. Also, during idle-stop,
some functions such as power steering and automatic transmission
hydraulic pressure are lost with conventional arrangements; so electric
power steering and an auxiliary transmission pump are needed. These
components are similar to those that would be used in other hybrid
designs. Also included in this technology is the Smart Starter Motor.
This system is comprised of an enhanced starter motor, along with some
electronic control that

[[Page 14293]]

monitors the accelerator, brake, clutch positions, and the battery
voltage as well as low-noise gears to provide fast and quiet engine
starts. Despite its extended capabilities, the starter is compact and
thus relatively easy to integrate in the vehicle.
12V micro hybrid was added to the technology list to address
concerns from CARB and Delphi that the hybrid classifications used in
the NPRM did not adequately represent these technologies.\212\
---------------------------------------------------------------------------

\212\ Docket Nos. NHTSA-2008-0089-0173 and -0144.1,
respectively.
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The effectiveness estimates by NHTSA for this technology are based
on confidential manufacturer data and independent source data. For the
vehicles equipped with (baseline) inline 4, those with smaller
displacements, the effectiveness is between 1 and 2.9 percent, and for
those equipped with V-6 or V-8, the effectiveness is between 3.4 and 4
percent. The 1 to 2.9 percent incremental fuel consumption savings
applies to the Sub-Compact Car, Performance Sub-Compact Car, Compact
Car, Midsized Car, and Small Truck/SUV variants. The 3.4 to 4 percent
incremental fuel consumption applies to the remaining classes with the
exception of Large Truck/SUV where MHEV is not applied due to payload
and towing requirements for this class.
Confidential manufacturer comments submitted in response to the
NPRM indicated a $200 to $1000 cost for the MHEV. The 12V micro-hybrid
does not have a high voltage battery, and thus does not have a high-
voltage wire cost. The 12V micro-hybrid system for the midsize vehicle
has a 3kW electric motor. This agrees well with two commercially
available systems used on smaller engines.\213\ The value used for the
DC/DC converter represents the cost for a 12V power conditioning
circuit to allow uninterrupted power to the radio and a limited number
of other accessories when the engine starter is engaged. The sizing for
the rest of the components is shown in Table IV-9.
---------------------------------------------------------------------------

\213\ Citroen uses a 2kW system for a 1.4L diesel engine, and
Valeo has a 1.6kW system applicable for engines up to 2L in
displacement. The midsize vehicle class has an average engine size
of 2.9L, and thus a 3kW starter is appropriate.
---------------------------------------------------------------------------

The MHEV technology, which will be available from the 2011 model
year, is projected to be in high volume use at the beginning of its
first year of availability according to NHTSA's analysis, therefore
volume based learning reductions (two cycles at 20 percent) were
applied to ``learn'' the hybrid method costs and time based learning
factors were applied throughout the remaining years. For the final
rule, NHTSA established incremental costs ranging from $372 to $549
with the highest cost applying to the Performance Large Car class.
The 12V micro hybrid technology is applicable across all the
vehicle segments except for the Large Truck/SUV class. Although this
technology was not specifically stated in the NPRM, a phase-in cap of 3
percent for MY 2011 was assumed for hybrid technologies. For the final
rule, this figure was retained since it is generally supportable within
the industry as expressed at the SAE HEV Symposium in San Diego in Feb
2008.
The NPRM proposed that all of the hybrid technologies could be
introduced during the redesign model year only. This view is consistent
with manufacturer's views, therefore, for this rule making, NHTSA has
assumed that 12V micro hybrids can only be introduced at the redesign
model years.
(vi) High Voltage/Improved Alternator (HVIA)
In the NPRM, a 42V accessory technology was identified in the
decision tree for Other Technologies. Several confidential manufacturer
comments received by NHTSA related to 42V technology, and indicated
that the effectiveness of 42V system were not realized when electrical
conversion efficiencies were considered, and the cost of transitioning
the industry from a 12V to 42V system made the technology unreasonable
for deployment in the emerging technology time frame. As a result of
these comments, NHTSA revised the technology from 42V technology to
High Voltage/Improved Alternator (HVIA).
The ``High Voltage/Improved Efficiency Alternator'' technology
block represents technologies associated with increased alternator
efficiency. As most alternators in production vehicles today are
optimized for cost and the process for increasing the efficiency of an
alternator is well understood by the industry, this technology is
applicable to all vehicle subclasses except Midsize and Large Truck and
SUV where it is not considered applicable due to the high utility of
these classes.
The NPRM identified fuel economy effectiveness that were based on
42V accessory systems, and are not directly applicable for this current
technology definition. Confidential manufacturer data indicates that a
midsized car with an improved efficiency alternator provided 0.2 to 0.9
percent fuel consumption effectiveness over the CAFE drive cycles, and
a pickup truck provided 0.6 percent fuel consumption effectiveness over
the same cycles. As this technology can be applied over a range of
vehicles, NHTSA believes the fuel consumption effectiveness for larger
vehicles will be biased downward. For purposes of this final rule,
NHTSA estimates the fuel consumption effectiveness for High Voltage/
Improved Efficiency Alternator'' technology at 0.2 to 0.9 percent.
The NPRM identified several sources for high voltage/improved
efficiency alternators incremental costs, but focused this technology
on 42V systems, thus making some of these references not representative
of the current technology description. The NPRM ``Engine accessory
improvement'' technology discussion, however, did quote the NESCCAF
study that indicated a $56 cost for a high efficiency generator. An
independent confidential study estimated that the incremental cost
increase for a high efficiency generator at high volume was similar to
the NESCCAF quoted cost, thus NHTSA concludes that the NESCCAF study
cost of $56 is still a representative cost for this technology. At a
1.5 RPE value, this cost equates to $84.
As the definition of the technology has been revised from the NPRM,
phase-in rates identified in the NPRM are not applicable. NHTSA
believes the High voltage/Improved Efficiency Alternator technology
represents an adjustment to the alternator manufacturing industry
infrastructure, so for purposes of this final rule, phase-in caps for
this technology were estimated at 10 percent for MY 2011.
Also, as the definition of the technology has been revised from the
NPRM, learning curve assumptions from the NPRM are not applicable. The
high voltage/improved alternator technology costs were based on high
volume estimates, thus, for purposes of the final rule, NHTSA assumed
time-based learning (3 percent YOY) for High Voltage Systems/Improved
Alternator technology. For purposes of the final rule, NHTSA assumed
the technology can be introduced during refresh or redesign model
changes only.
(vii) Integrated Starter Generator (ISG)
The next hybrid technology that is considered is the Integrated
Starter Generator (ISG) technology. There are 2 types of integrated
starter generator hybrids that are considered: the belt mounted type
and the crank mounted type.
A Belt Mounted Integrated Starter Generator (BISG) system is
similar to a micro-hybrid system, except that here it is defined as a
system with a 110 to 144V battery pack which thus can

[[Page 14294]]

perform some regenerative braking, whereas the 12V micro-hybrid system
cannot. The larger electric machine and battery enables additional
hybrid functions of regenerative braking and a very limited degree of
operating the engine independently of vehicle load. While having a
larger electric machine and more battery capacity than a MHEV, this
system has a smaller electric machine than stronger hybrid systems
because of the limited torque capacity of the belt driven design.
BISG systems replace the conventional belt-driven alternator with a
belt-driven, enhanced power starter-alternator and a redesigned front-
end accessory drive system that facilitates bi-directional torque
application utilizing a common electric machine. Also, during idle-
stop, some functions such as power steering and automatic transmission
hydraulic pressure are lost with conventional arrangements; so electric
power steering and an auxiliary transmission pump need to be added.
These components are similar to those that would be used in other
hybrid designs.
A Crank Mounted Integrated Starter Generator (CISG) hybrid system,
also called an Integrated Motor Assist (IMA) system, utilizes a thin
axial electric motor (100-144V) bolted to the engine's crankshaft. The
electric machine acts as both a motor for helping to launch the vehicle
and a generator for recovering energy while slowing down. It also acts
as the starter for the engine and is a higher efficiency generator. An
example of this type of a system is found in the Honda Civic Hybrid.
For purposes of the final rule, NHTSA assumed the electric machine is
rigidly fixed to the engine crankshaft, thus making electric-only drive
not practical.\214\
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\214\ A clutch between the engine and the electric motor would
enable pure electric drive, but the Porsche Cayenne is the only
example of such a system that is planned in the rulemaking time
frame. Because of limited expected volumes of this type of system,
and in the interest of reducing complexity, that variant is not
included here.
---------------------------------------------------------------------------

The fuel consumption effectiveness of the ISG systems are greater
than those of micro-hybrids, because they are able to perform the
additional hybrid function of regenerative braking and able to utilize
the engine more efficiently because some transient power demands from
the driver can be separated from the engine operation. Their transient
performance can be better as well, because the larger electric machine
can provide torque boost. The ISG systems are more expensive than the
micro hybrids, but have lower cost than the strong hybrids described
below because the electrical component sizes (batteries, electric
machines, power electronics, etc.) are sized in between the micro-
hybrid and the strong hybrid components. The engineering effort
required to adapt conventional powertrains to these configurations is
also in between that required for micro-hybrid and strong hybrid
configurations. Packaging is a greater concern due to the fact that the
engine-motor-transmission assembly is physically longer, and the
battery pack, high voltage cabling and power electronics are larger.
The hybrid decision tree was modified to address several
manufacturer comments and comments from CARB and Delphi asking for more
appropriate separation of hybrid technology classifications (i.e., 12V
versus higher voltage Integrated Starter Generators, etc.). The
inclusion of the ISG technology in the final rule is in response to
these comments and those from subject matter experts.
The NPRM had proposed a fuel consumption savings of between 5 and
10 percent for ISG systems, and between 3.5 and 8.5 percent for the
Honda IMA system, both of which fall in the ISG category described
above. Confidential manufacturer comments submitted in response to the
NPRM indicated an incremental 3.8 to 7.4 percent fuel consumption
effectiveness and a $1,500 to $2,400 cost as compared to the baseline
vehicle.
The incremental fuel consumption savings for the Compact Car
variant for ISG over a 12V Micro-hybrid with start/stop was calculated
using published data and confidential manufacturer data, while
published Honda Civic Hybrid data was used to calculate the fuel
consumption gains due to the hybrid system. For the final rule, gains
for the other technologies also included on this vehicle were
subtracted out to give an incremental effectiveness of 5.7 to 6.5
percent for ISG. Data for these individual gains was taken from
confidential manufacturer data. The 5.7 to 6.5 percent incremental fuel
consumption savings was carried over from the Compact Car to all other
vehicle subclasses. A 2 percent incremental effectiveness was
subtracted from the Performance subclasses to allow for the improved
baseline performance
The NPRM proposed a cost of $1,636 to $2,274 for these systems. For
the final rule, NHTSA determined the cost for the ISG system using
system sizing data for different available ISG hybrids. The 2006 Honda
Civic has a Crank Mounted ISG and uses a 0.87 kW-hr battery pack. In
light of the potential growth of vehicle electrification, a 1 kW-hr
pack size was chosen for both the belt and crank mounted ISG systems.
The crank mounted ISG was sized as 11kW continuous (15kW peak). This is
an average of the 10kW system on the 2003 Honda Civic and the 12kW
system on the 2005 Honda Accord. The 2006 Civic has a 15kW system. The
belt mounted ISG has a slightly smaller electric machine (7.5kW
continuous and 10kW peak) due to power transmission limitations of the
belt.
For the final rule, the hybrid technology cost method projected
costs ranging from $2,475 to $3,290 for the Sub-Compact car class
through the Midsize Truck classes as compared to the conventional
baseline vehicle and the incremental costs of $1,713 to $2,457 were
calculated by backing out the prior hybrid technology costs. The ISG
technology is projected to be in low volume use at the beginning of the
rulemaking period therefore low volume costs are used and volume-based
learning factors are applied.
Integrated starter generator systems are applicable to all vehicle
subclasses except Large Truck. In the NPRM, a phase-in cap of 3 percent
was assumed for both the ``ISG with idle off'' and ``IMA''
technologies. For the final rule, NHTSA has retained the phase-in cap
of 3 percent for MY 2011. These values are generally supportable within
the industry as expressed at the SAE HEV Symposium in San Diego in
February 2008.
The NPRM proposed that all of the hybrid technologies could be
introduced during the redesign model year only. This view is consistent
with manufacturer's views as well, because all of the hybrid
technologies under consideration require redesign of the powertrain
(ranging from engine accessory drive to transmission redesign) and
vehicle redesign to package the hybrid components (from high voltage
cabling to the addition of large battery packs). Given this, for
purposes of the final rule, they can only be introduced in redesign
model years.
(viii) Power Split Hybrid
The Power Split hybrid (PSHEV) is described as a full or a strong
hybrid since it has the ability to move the vehicle on electric power
only. It replaces the vehicle's transmission with a single planetary
gear and a motor/generator. A second, more powerful motor/generator is
directly connected to the vehicle's final drive. The planetary gear
splits the engine's torque between the first motor/generator and the
final drive. The first motor/generator uses power from the engine to
either charge the battery or supply power to the wheels. The speed of
the first motor/

[[Page 14295]]

generator determines the relative speed of the engine to the wheels. In
this way, the planetary gear allows the engine to operate independently
of vehicle speed, much like a CVT. The Toyota Prius and the Ford Hybrid
Escape are two examples of power split hybrid vehicles.
In addition to providing the functions of idle engine stop and
subsequent restart, regenerative braking, this hybrid system allows for
pure EV operation. The two motor/generators are bigger and more
powerful than those in an ISG hybrid, allowing the engine to be run in
efficient operating zones more often. For these reasons, the power
split system provides very good fuel consumption in city driving.
During highway cycles, the hybrid functions of regenerative braking,
engine start/stop and optimal engine operation cannot be applied as
often as in city driving, and so the effectiveness in fuel consumption
are less. Additionally, it is less efficient at highway speeds due to
the fact that the first motor/generator must be spinning at a
relatively high speed and therefore incurs losses.
The battery pack for PSHEV is assumed to be 300V NiMH for the time
period considered in this rulemaking, as is used in current PSHEV
systems today. Their reliability is proven (having been in hybrids for
over 10 years) and their cost is lower than Li Ion, so it is likely
that the battery technology used in HEVs will continue to be NiMH for
the near future for hybrids that do not require high energy storage
capability like a plug-in hybrid does.
The Power Split hybrid also reduces the cost of the transmission,
replacing a conventional multi-speed unit with a single planetary gear.
The electric components are bigger than those in an ISG configuration
so the costs are correspondingly higher.
However, the Power Split system is not planned for use on full-size
trucks and SUVs due to its limited ability to efficiently provide the
torque needed by these vehicles. The drive torque is limited to the
first motor/generator's capacity to resist the torque of the engine. It
is anticipated that Large Trucks would use the 2-mode hybrid system.
In the NPRM, a phase-in rate of 3 percent was assumed for the power
split technology. Although this system has been engineered for some
vehicles by a couple of manufacturers, the required engineering
resources both at OEMs and Tier 1 suppliers are high and most
importantly, require long product development lead times. Thus NHTSA
believes it would be extremely difficult for manufacturers to implement
in levels greater than that of the submitted product plans for MY 2011.
For the final rule, NHTSA limited the volumes of power split hybrids to
zero percent in MY 2011. Power split hybrid cost and effectiveness
estimates will not be discussed here, given that the technology is not
applied in MY 2011 beyond product plan levels in NHTSA's analysis, and
NHTSA will consider them further in its future rulemaking actions.
The NPRM proposed that all of the hybrid technologies could be
introduced during the redesign model year only, consistent with
manufacturer's views. Given this, for this final rule NHTSA has
retained the redesign application timing.
(ix) 2-Mode Hybrid
The 2-mode hybrid (2MHEV) is another strong hybrid system that has
all-electric drive capability. The 2MHEV uses an adaptation of a
conventional stepped-ratio automatic transmission by replacing some of
the transmission clutches with two electric motors, which makes the
transmission act like a CVT. Like the Power Split hybrid, these motors
control the ratio of engine speed to vehicle speed. But unlike the
Power Split system, clutches allow the motors to be bypassed, which
improves both the transmission's torque capacity and efficiency for
improved fuel economy at highway speeds. This type of system is used in
the Chevy Tahoe Hybrid.
In addition to providing the hybrid functions of engine stop and
subsequent restart and regenerative braking, the 2MHEV allows for pure
EV operation. The two motor/generators are bigger and more powerful
than those in an ISG hybrid, allowing the engine to be run in efficient
operating zones more often. For these reasons, the 2-mode system also
provides very good fuel economy in city driving. The primary motor/
generator is comparable in size to that in the PSHEV system, but the
secondary motor/generator is larger. The 2-mode system cost is greater
than that for the power split system due to the additional transmission
complexity and secondary motor sizing.
The battery pack for 2MHEV is assumed to be 300V NiMH for the time
period considered in this rulemaking, as is used in current 2MHEV
systems today. Their reliability is proven (having been in hybrids for
over 10 years) and their cost is lower than Li Ion, so it is likely
that the batteries will continue to be NiMH for the near future for
hybrids that do not require high energy storage capability like a plug-
in hybrid does.
Given the relatively large size of the 2 mode powertrain, this
technology was assumed to be applicable to the Small through Large
Truck/SUV classes. In the NPRM, a phase-in rate of 3 percent was
assumed for 2 mode hybrids. The 2-modes have recently been introduced
in the marketplace on a few vehicle platforms. The engineering
resources that are needed both at the OEMs and Tier 1s to develop this
across many more platforms are considerable, as discussed above for
power split hybrids. For purposes of the final rule, the phase-in rate
has been set to zero percent in MY 2011. 2 mode hybrid cost and
effectiveness estimates will not be discussed here, given that the
technology is not applied in MY 2011 beyond product plan levels in
NHTSA's analysis, and NHTSA will consider them further in its future
rulemaking actions.
The NPRM proposed that all of the hybrid technologies could be
introduced during the redesign model year only, consistent with
manufacturer's views. Given this, for this final rule NHTSA has
retained the redesign application timing.
(x) Plug-In Hybrid
Plug-In Hybrid Electric Vehicles (PHEV) are very similar to other
strong hybrid electric vehicles, but with significant functional
differences. The key distinguishing feature is the ability to charge
the battery pack from an outside source of electricity (usually the
electric grid). A PHEV would have a larger battery pack with greater
energy capacity, and an ability to be discharged further (referred to
as ``depth of discharge'').\215\ No major manufacturer currently has a
PHEV in production, although both GM and Toyota have publicly announced
that they will launch plug-in hybrids in limited volumes by 2010.
---------------------------------------------------------------------------

\215\ NHTSA notes that the fuel consumption effectiveness of
PHEVs is heavily dependent on the all-electric range, and hence the
battery capacity. However, the fuel consumption effectiveness from a
PHEV is currently difficult to quantify objectively because there is
no standardized fuel economy test procedure yet for a PHEV.
---------------------------------------------------------------------------

PHEVs offer a significant opportunity to displace petroleum-derived
fuels with electricity from the electrical grid. The reduction in
petroleum use depends on the electric-drive range capability and the
vehicle usage (i.e., trip distance between recharging, ambient
temperature, etc.). PHEVs can have a wide variation in the All Electric
Range (AER) that they offer. Some PHEVs are of the ``blended'' type
where the engine is on during most of the vehicle operation, but the
proportion of electric energy that is used to propel the vehicle is
significantly higher than that used in a PSHEV or 2MHEV.

[[Page 14296]]

PHEVs were not projected to be in volume use in the NPRM, but due
to confidential manufacturer product plans, PHEVs do, in fact, appear
in limited volumes in the final rule analysis, and therefore low
volume, unlearned costs are assumed. However, the manufacturer-stated
production volumes of PHEVs are very low, so the phase-in cap for MY
2011 is zero--given the considerable engineering hurdles, the low
availability of Li-Ion batteries in the MY 2011 time frame and the
reasons discussed above for power split and 2 mode hybrids, NHTSA did
not believe that PHEVs could be applied to more MY 2011 vehicles beyond
what was indicated in the product plans. Additionally, plug-in hybrid
cost and effectiveness estimates will not be discussed here, given that
the technology is not applied in MY 2011 beyond product plan levels in
NHTSA's analysis, and NHTSA will consider them further in its future
rulemaking actions. The NPRM proposed that all of the hybrid
technologies could be introduced during the redesign model year only,
consistent with manufacturer's views. Given this, for this final rule
NHTSA has allowed application of PHEVs in redesign model years only.
(e) Vehicle Technologies
(i) Material Substitution (MS1, MS2, MS5)
The term ``material substitution'' encompasses a variety of
techniques with a variety of costs and lead times. These techniques may
include using lighter-weight and/or higher-strength materials,
redesigning components, and size matching of components. Lighter-weight
materials involve using lower-density materials in vehicle components,
such as replacing steel parts with aluminum or plastic. The use of
higher-strength materials involves the substitution of one material for
another that possesses higher strength and less weight. An example
would be using high strength alloy steel versus cold rolled steel.
Component redesign is an ongoing process to reduce costs and/or weight
of components, while improving performance and reliability. The
Aluminum Association commented that lightweight structures are a
significant enabler for the new powertrain technologies. Smaller and
less expensive powertrains are required and the combination of reduced
power and weight reduction positively reinforce and result in optimal
fuel economy performance. An example would be a subsystem replacing
multiple components and mounting hardware.
However, the cost of reducing weight is difficult to determine and
depends upon the methods used. For example, a change in design that
reduces weight on a new model may or may not save money. On the other
hand, material substitution can result in an increase in price per
application of the technology if more expensive materials are used. As
discussed further below in Section VIII, for purposes of this final
rule, NHTSA has considered only vehicles weighing greater than 5,000
lbs (curb weight) for weight reduction through materials substitution.
A typical BOM for Material Substitution would include primarily
substitution of high strength steels for heavier steels or other
structural, materials on a vehicle. This BOM was established for each
class but was not adjusted for each class due to the fact that the
vehicle technology of Material Substitution is already scaled by it
being based on percent of curb weight at or over 5,000 lbs.
In the NPRM, NHTSA estimated fuel economy effectiveness of a 2
percent incremental reduction in fuel consumption per each 3 percent
reduction in vehicle weight. Nissan commented that NHTSA's modeling of
material substitution application was overly optimistic, but did not
elaborate further. Confidential manufacturer comments in response to
the NPRM did not provide standardized effectiveness estimates, but
ranged from 3.3 to 3.9 percent mpg improvement for a 10 percent
reduction in mass, to 0.20 to 0.75 percent per 1 percent weight
reduction, to 1 percent reduction on the FTP city cycle per 100 lbs
reduced, with a maximum possible weight reduction of 5 percent.
Bearing in mind that NHTSA only assumes material substitution for
vehicles at or above 5,000 lbs curb weight and based on manufacturer
comments which together suggest an incremental improvement in fuel
consumption of approximately 0.60 percent to 0.9 percent per 3 percent
reduction in material weight, NHTSA has estimated an incremental
improvement in fuel consumption of 1 percent (corresponding to a 3
percent reduction in vehicle weight, or roughly 0.35 percent fuel
consumption per 1 percent reduction in vehicle weight). This estimate
is consistent with the majority of the manufacturer comments.
As for costs, in the NPRM NHTSA estimated incremental costs of
$0.75 to $1.25 per pound reduced through material substitution. The
costs for material substitution were not clearly commented on in the
confidential manufacturer responses. Confidential manufacturer
estimates ranged from $50 to $511 for 1 percent reduction, although in
most cases the cost estimates were not for the entire range of
substitution (1-5 percent) and did not provide any additional
clarification on how they specifically applied to the material
substitution technology. Consequently, for purposes of the final rule
NHTSA retained the existing NPRM cost estimates with adjustments to
2007 dollar levels resulting in an incremental $1 to $2 per pound of
substituted material, which applies to the MS1 and MS2 technology, and
$2 to $4 per pound for the MS5 technology. Costs for material
substitution are not adjusted by vehicle subclass, as the technology
costs are based on a percentage of the vehicle weight (per pound) and
limited to Medium and Large Truck/SUV Van subclasses above 5,000 lbs
curb weight.
The agency notes that comments from the Alliance and the Aluminum
Association associated engine downsizing with weight reduction/material
substitution and quoted effectiveness for this action as well. NHTSA
considers engine downsizing separately from typical material
substitution efforts, and consequently did not include those cost and
fuel economy effectiveness for this technology.
In the NPRM, NHTSA assumed a 17 percent phase-in rate for material
substitution. NHTSA received only one confidential manufacturer comment
regarding material substitution phase-in percentage, suggesting 17 to
30 percent, but the agency notes that it generally received comments
suggesting a non-linear phase-in rate for this technology, that would
start at a rate lower than the current NPRM value and increase over
time. In response to these comments, NHTSA revised the MY 2011 phase-in
percentage to 5 percent to account for lead time limitations.
For material substitution technologies, neither volume-based cost
reductions nor time-based cost reductions are applied. This technology
does not employ a particular list of components to employ credible cost
reduction.
In the NPRM, NHTSA assumed that material substitution (1 percent)
could be applied during a redesign model year only. For this final
rule, based on confidential manufacturer comments, NHTSA estimated that
material substitution (1 percent) could be applied during either a
refresh or a redesign model year, due to minimal design changes with
minimal component or vehicle-level testing required. However, NHTSA
retained the assumption that material substitution (2 percent and 5
percent) could be applied

[[Page 14297]]

during redesign model year only, as in the NPRM, because the agency
neither received comments to contradict this assumption nor found other
data to substantiate a change. The technology title was changed from
Material Substitution (3 percent) to Material Substitution (5 percent)
to more accurately represent the cumulative amount for the technology.
(ii) Low Drag Brakes (LDB)
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 rotating rotor. A typical BOM for Low Drag Brakes
would typically include changes in brake caliper speed by changing the
brake control system, springs, etc. on a vehicles brake system. This
BOM was established for each class and was not adjusted for each class
due to the fact that the vehicle technology BOM would not change by
class across vehicle classes. Confidential manufacturer comments in
response to the NPRM indicated that most passenger cars have already
adopted this technology, but that ladder frame trucks have not yet
adopted this technology. Consequently, in the final rule this
technology was assumed to be applicable only to the Large Performance
Passenger Car and Medium and Large Truck classes.
In the NPRM, NHTSA assumed an incremental improvement in fuel
consumption of 1 to 2 percent for low drag brakes. Confidential
manufacturer comments submitted in response to the NPRM indicated an
effective range of 0.5-1.0 percent for this technology and this range
was applied in the final rule. As for costs, NHTSA assumed in the NPRM
incremental costs of $85 to $90 for the addition of low drag brakes.
For the final rule, NHTSA took the average and adjusted it to 2007
dollars to establish an $89 final rule cost.
The NPRM assumed an annual average phase-in rate for low drag
brakes of 25 percent. For the final rule, the MY 2011 phase-in cap is
20 percent. No learning curve was applied in the NPRM, but for the
final rule, low drag brakes were considered a high volume, mature and
stable technology, and thus time-based learning was applied. Low drag
brakes are assumed in the final rule to be applicable at refresh cycle
only.
(iii) Low Rolling Resistance Tires (ROLL)
Tire rolling resistance is the frictional loss associated mainly
with the energy dissipated in the deformation of the tires under load--
and thus, influence fuel economy. Other tire design characteristics
(e.g., materials, construction, and tread design) influence durability,
traction control (both wet and dry grip), vehicle handling, and ride
comfort in addition to rolling resistance. A typical low rolling
resistance tires BOM would include: tire inflation pressure, material
change, and constructions with less hysteresis, geometry changes (e.g.,
reduced aspect ratios), reduction in sidewall and tread deflection,
potential spring and shock tuning. Low rolling resistance tires are
applicable to all classes of vehicles, except for ladder frame light
trucks and performance vehicles. NHTSA assumed that this technology
should not be applied to vehicles in the Large truck class due to the
increased traction and handling requirements for off-road and braking
performance at payload and towing limits which cannot be met with low
resistance tire designs. Likewise, this technology was not applied to
vehicles in the Performance Car classes due to increased traction
requirements for braking and handling which cannot be met with low roll
resistance tire designs. Confidential manufacturer comments received
regarding applicability of this technology to particular vehicle
classes confirmed NHTSA's assumption.
In the NPRM, NHTSA assumed an incremental reduction in fuel
consumption of 1 to 2 percent for application of low rolling resistance
tires. Confidential manufacturer comments varied widely and addressed
the conflicting objectives of increasing safety by increasing rolling
resistance for better tire traction, and improving fuel economy with
lower rolling resistance tires that provide reduced traction.
Confidential manufacturer comments suggested fuel consumption
effectiveness of negative impact to a positive 0.1 percent per year
over the next five years from 2008, while other confidential
manufacturer comments indicate that the percentage effectiveness of low
rolling resistance tires would increase each year, although it would
apply differently for performance classes. Confidential manufacturer
comments also indicated that some manufacturers have already applied
this technology and consequently would receive no further effectiveness
from this technology. The 2002 NAS Report indicated that an assumed 10
percent rolling resistance reduction would provide an increase in fuel
economy of 1 to 2 percent. NHTSA believes the NAS effectiveness is
still valid and used 1 to 2 percent incremental reduction in fuel
consumption for application of low rolling resistance tires in the
final rule.
NHTSA estimated the incremental cost of four low rolling resistance
tires to be $6 per vehicle in the NPRM, independent of vehicle class,
although not applicable to large trucks. NHTSA received few specific
comments on the costs of applying low rolling resistance tires however
confidential manufacturer comments that were received provided widely
ranging and higher costs. NHTSA increased the range from the NPRM cost
estimates to $6 to $9 per vehicle in the final rule.
In the NPRM, NHTSA assumed an annual phase-in rate of 25 percent
for low rolling resistance tires. Confidential manufacturer comments on
the phase-in rate for low rolling resistance tires varied, with some
suggesting that many vehicle classes already had high phase-in rates
planned or accomplished. As discussed above, the comments also
suggested a non-linear phase-in plan over the 5-year period.
Confidential manufacturer data was in the 25-30 percent range. Based on
confidential manufacturer comments received and NHTSA's analysis, the
final rule includes a phase-in cap for low rolling resistance tires
with a phase-in rate of 20 percent for MY 2011.
For low rolling resistant tire technology, neither volume-based
cost reductions nor time-based cost reductions are applied. This
technology is presumed to be significantly dependent on commodity raw
material prices and to be priced independent of particular design or
manufacturing savings.
In the NPRM, NHTSA assumed that low rolling resistance tires could
be applied during any model year. However, based on confidential
manufacturer comments NHTSA recognizes that there are some vehicle
attribute impacts which may result from application of low rolling
resistance tires, such as changes to vehicle dynamics and braking.
Vehicle validation testing for safety and vehicle attribute prove-out
is not usually planned for every model year, so NHTSA assumed that this
technology can be applied during a redesign or refresh model year for
purposes of the final rule.
(iv) Front or Secondary Axle Disconnect for Four-Wheel Drive Systems
(SAX)
To provide shift-on-the-fly capabilities, reduce wear and tear on
secondary axles, and improve performance and fuel economy, many part-
time four-wheel drive (4WD) systems use some type of axle disconnect.
Axle disconnects are

[[Page 14298]]

typically used on 4WD vehicles with two-wheel drive (2WD) operating
modes. When shifting from 2WD to 4WD ``on the fly'' (while moving), the
front axle disconnect couples the front driveshaft to the front
differential side gear only when the transfer case's synchronizing
mechanism has spun the front driveshaft, transfer case chain or gear
set and differential carrier up to the same speed as the rear
driveshaft. 4WD systems that have axle disconnect typically do not have
either manual- or automatic-locking hubs. For example, to isolate the
front wheels from the rest of the front driveline, front axle
disconnects use a sliding sleeve to connect or disconnect an axle shaft
from the front differential side gear. The effectiveness to fuel
efficiency is created by reducing inertial, chain, bearing and gear
losses (parasitic losses).
Full time 4WD or all-wheel-drive (AWD) systems used for on-road
performance and safety do not use axle disconnect systems due to the
need for instantaneous activation of torque to wheels, and the agency
is not aware of any manufacturer or suppliers who are developing a
system to allow secondary axle disconnect suitable for use on AWD
systems at this time. Secondary axle disconnect technology is primarily
found on solid axle 4WD systems and not on the transaxle and/or
independent axle systems typically found in AWD vehicles; thus, the
application of this technology to AWD systems has not been considered
for purposes of this rulemaking. The technology will be evaluated in
future rulemakings.
Vehicle technology BOM information was not adjusted by vehicle
classes due to the fact that the vehicle technology is limited to
transfer case and front axle design changes. Scaling of components
might be impacted but the components themselves will be the same. This
is consistent with NHTSA's assumptions in the NPRM, and is supported by
comments from confidential supplier and manufacturers. Secondary Axle
Disconnect BOM typically involves a transfer case which includes
electronic solenoid with clutch system to disconnect front drive and
using axle mounted vacuum or electric disconnect that still allows
driveshaft rotation without connection to wheel ends.
In the NPRM, NHTSA employed ``unibody'' and ``ladder frame'' terms
to differentiate application of this technology, and had suggested
``unibody'' AWD systems could apply this same technology. In actuality,
most 4WD vehicles are ``ladder frame'' technology and AWD are
``unibody'' designs (which for the reasons stated above will not be
considered for this technology). Ladder frame technology is typically
associated with greater payload, towing, and off-road capability,
whereas unibody designs are typically used in smaller, usually front-
wheel drive vehicles, and are typically not associated with higher
payload, towing, and off-road use. For the final rule, NHTSA removed
these vehicle design criteria since it is not a requirement to
incorporate axle disconnect technology, only a historical design point
and vehicle manufacturers should not be limited to a specific vehicle
or chassis configuration to apply this technology. Therefore, this
technology is applicable to 4WD vehicles in all vehicle classes
(independent of chassis or frame design).
In the NPRM, NHTSA estimated an incremental reduction in fuel
consumption of 1 to 1.5 percent for axle disconnect. Confidential
manufacturer comments suggested an incremental effectiveness of 1 to
1.5 percent. Supported by this confidential manufacturer data, NHTSA
maintained an incremental effectiveness of 1 to 1.5 percent for axle
disconnect for the final rule.
As for costs, the NPRM estimated the incremental cost for adding
axle disconnect technology at $114 for 4WD systems and the $676
estimate was for the AWD systems which are not applied in the final
rule. NHTSA received no specific comments on costs for this technology
and found no additional sources to support a change from this value for
the 4WD value of $114, so for purposes of the final rule, NHTSA revised
the $114 figure to 2007 dollars to establish a $117 final rule cost.
In the NPRM, NHTSA assumed a phase-in cap of 17 percent for
secondary axle disconnect for each model year covered by the
rulemaking. No specific comments were received regarding the phase-in
rate for this technology, but as discussed above, manufacturers
generally argued for a non-linear phase-in plan over the 5-year period
covered by the rulemaking. Based on general comments received and
NHTSA's analysis, the final rule includes a phase-in rate for secondary
axle disconnect of 17 percent in MY 2011.
In the NPRM, NHTSA assumed a volume-based learning curve factor of
20 percent for secondary axle disconnect. For the final rule, secondary
axle disconnect learning was established as time-based due to
confidential manufacturer data demonstrating that this is a mature
technology, such that additional volumes will provide no additional
advantage for incorporation by manufacturers.
In the NPRM, NHTSA assumed that secondary axle disconnect could be
applied to a vehicle either during refresh or redesign model years.
NHTSA received no comments and found no sources to disagree with this
assumption, and since testing to validate the functional requirements
and vehicle attribute prove-out testing is usually not planned for
every model year, NHTSA has retained this assumption for the final
rule.
(v) Aerodynamic Drag Reduction (AERO)
Several factors affect a vehicle's aerodynamic drag and the
resulting power required to move it through the air. While these values
change with air density and the square and cube of vehicle speed,
respectively, the overall drag effect is determined by the product of
its frontal area and drag coefficient. Reductions in these quantities
can therefore reduce fuel consumption. While frontal areas tend to be
relatively similar within a vehicle class (mostly due to market-
competitive size requirements), significant variations in drag
coefficient can be observed. Significant fleet aerodynamic drag
reductions may require incorporation into a manufacturer's new model
phase-in schedules depending on the mix of vehicle classes distributed
across the manufacturer's lineup. However, shorter-term aerodynamic
reductions, with less of a fuel economy effectiveness, may be achieved
through the use of revised exterior components (typically at a model
refresh in mid-cycle) and add-on devices that are in general
circulation today. The latter list would include revised front and rear
fascias, modified front air dams and rear valances, addition of rear
deck lips and underbody panels, and more efficient exterior mirrors.
Vehicle technology BOM information was not adjusted by vehicle
classes due to the fact that Aero Drag Reductions are already scaled
based on percent overall vehicle coefficient of drag CdA. Aero Drag
Reduction BOM could include (but would not be limited to) the following
components or subsystems: Underbody covers, front lower air dams,
overall front fascia changes, headlights, hood, fenders, grill,
windshield angle, A-Pillar angle, door seal gaps, roof (which would
both be high impact and very high cost), side view mirrors, door
handles (low impact), ride height, rear deck lip, wheels, wheel covers,
and optimizing the cooling flow path.
In the NPRM, NHTSA estimated an incremental aerodynamic drag
reduction of 20 percent for cars, and 10 percent for trucks.
Confidential

[[Page 14299]]

manufacturer comments received indicated that the 20 percent reduction
for cars in the NPRM may have been overly optimistic, as significant
changes in aero drag have already been applied to those vehicle
classes. However, confidential manufacturer comments agreed with the 10
percent aerodynamic drag reduction for trucks, since there are still
significant opportunities to improve aero drag in trucks designed for
truck-related utility. The Sierra Research study submitted by the
Alliance concluded that a 10 percent incremental aerodynamic drag
reduction for mid-size cars gives a 1.5 percent improvement in vehicle
fuel economy. Thus, for purposes of the final rule, NHTSA has estimated
that a fleet average of 10 percent total aerodynamic drag reduction is
attainable (with a caveat for ``high-performance'' vehicles described
below), which equates to incremental reductions in fuel consumption of
2 percent and 3 percent for cars and trucks, respectively. These
numbers are in agreement with publicly-available technical literature
\216\ and are supported by confidential manufacturer information.
Performance car classes are excluded from this technology improvement
because they have largely applied this technology already.
---------------------------------------------------------------------------

\216\ Sue Elliott-Sink, ``Improving Aerodynamics to Boost Fuel
Economy,'' May 2, 2006. Available at http://www.edmunds.com/advice/fueleconomy/articles/106954/article.html (last accessed Oct. 5,
2008).
---------------------------------------------------------------------------

As for costs, in the NPRM NHTSA assumed an incremental cost of $0
to $75 for aero drag reduction on both cars and trucks. After reviewing
the 2008 Martec Report, however, NHTSA concluded that a lower-bound
cost of $0 was not supportable. NHTSA replaced the lower-bound cost
with $40 (non-RPE) based on the assumptions that the underbody cover
and acoustic covers described in the Martec report approximates the
cost for one large underbody cover as might be required for minimal
aero drag reduction actions.\217\ The upper limit was determined by
updating the NPRM upper cost to 2007 dollars and applying an RPE uplift
thereby establishing the incremental cost, independent of vehicle
class, to range from $60 to $116 (RPE) for the final rule
---------------------------------------------------------------------------

\217\ 2008 Martec Report, at 25. NHTSA also assumed that the
cost of fuel pulsation dampening technology noted in the Martec
report grouped with the underbody cover and acoustic covers does not
significantly impact the $40 cost as fuel pulsation dampening
technology is very low in cost relative to the other actions.
Therefore NHTSA did not modify the $40 estimate.
---------------------------------------------------------------------------

In the NPRM, NHTSA assumed a 17 percent phase-in rate for aero drag
reduction for each model year covered by the rulemaking. No specific
comments were received regarding the phase-in rate for this technology,
but as discussed above, manufacturers generally argued for a non-linear
phase-in plan over a 5-year period. Based on comments received and
NHTSA's analysis, the final rule includes a phase-in rate for aero drag
reduction of 17 percent for MY 2011. Neither volume-based cost
reductions nor time-based cost reductions are applied. In the NPRM,
NHTSA assumed that aero drag reduction could be applied in either a
refresh or a redesign model year and that assumption has been retained
for the final rule.
(f) Technologies Considered But Not Included in the Final Rule Analysis
Although discussed and considered as potentially viable in the
NPRM, NHTSA has determined that three technologies will be unavailable
in the time frame considered. These technologies have been identified
as either pre-emerging or not technologically feasible. Pre-emerging
technologies are those that are still in the research phase at this
time, and which are not expected to be under development for production
vehicles for several years. In another case, the technology depends on
a fuel that is not readily available. Thus, for the reasons discussed
below, these technologies were not considered in NHTSA's analysis for
the final rule. The technologies are camless valve actuation (CVA),
lean burn gasoline direct injection (LBDI), homogeneous charge
compression ignition (HCCI), and electric assist turbocharging.
Although not applied in this rulemaking, NHTSA will continue to monitor
the industry and system suppliers for progress on these technologies,
and should they become available, consider them for use in any future
rulemaking activity.
(i) Camless Valve Actuation
Camless valve actuation relies on electromechanical actuators
instead of camshafts to open and close the cylinder valves. When
electromechanical actuators are used to replace cams and coupled with
sensors and microprocessor controls, valve timing and lift can be
optimized over all conditions. An engine valvetrain that operates
independently of any mechanical means provides the ultimate in
flexibility for intake and exhaust timing and lift optimization. With
it comes infinite valve overlap variability, the rapid response
required to change between operating modes (such as HCCI and GDI),
intake valve throttling, cylinder deactivation, and elimination of the
camshafts (reduced friction). This level of control can enable even
further incremental reductions in fuel consumption.
As noted in the NPRM, this technology has been under research for
many decades and although some progress is being made, NHTSA has found
no evidence to support that the technology can be successfully
implemented, costed, or have defined fuel consumption effectiveness at
this time.
(ii) Lean-Burn Gasoline Direct Injection Technology
One way to improve an engine's thermodynamic efficiency
dramatically is by operating at a lean air-fuel mixture (excess air).
Fuel system improvements, changes in combustion chamber design and
repositioning of the injectors have allowed for better air/fuel mixing
and combustion efficiency. There is currently a shift from wall-guided
injection to spray guided injection, which improves injection precision
and targeting towards the spark plug, increasing lean combustion
stability. Combined with advances in NOX after-treatment,
lean-burn GDI engines may eventually be a possibility in North America.
However, as noted in the NPRM, a key technical requirement for
lean-burn GDI engines to meet EPA's Tier 2 NOX emissions
levels is the availability of low-sulfur gasoline, which is projected
to be unavailable during the time frame considered. Therefore the
technology was not applied in the final rule
(iii) Homogeneous Charge Compression Ignition
Homogeneous charge compression ignition (HCCI), also referred to as
controlled auto ignition (CAI), is an alternate engine operating mode
that does not rely on a spark event to initiate combustion. The
principles are more closely aligned with a diesel combustion cycle, in
which the compressed charge exceeds a temperature and pressure
necessary for spontaneous ignition. The resulting burn is much shorter
in duration with higher thermal efficiency. Shorter combustion times
and higher EGR tolerance permit very high compression ratios (which
also increase thermodynamic efficiency), and additionally, pumping
losses are reduced because the engine can run unthrottled.
NHTSA noted in the NPRM that several manufacturers had made public
statements about the viability of incorporating HCCI into production
vehicles over the next 10 years. Upon

[[Page 14300]]

further review of confidential product plan information, and reviewing
comments received in response to the NPRM, NHTSA has determined the
technology will not be available within the time frame considered.
Consequently, the technology was not applied in the final rule.
(iv) Electric Assist Turbocharging
The Alliance commented that global development of electric assist
turbocharging has not demonstrated the fuel efficiency effectiveness of
a 12V EAT up to 2kW power levels since the 2004 NESCCAF study, and
stated that it saw remote probability of its application over the next
decade.\218\ While hybrid vehicles lower the incremental hardware
requirements for higher-voltage, higher-power EAT systems, NHTSA
believes that significant development work is required to demonstrate
effective systems and that implementation in significant volumes will
not occur in the time frame considered. Thus, this technology was not
included on the decision trees.
---------------------------------------------------------------------------

\218\ NHTSA-2008-0089-0169.1, at 41.
---------------------------------------------------------------------------

E. Cost and Effectiveness Tables

The tables representing the Volpe model input files for incremental
technology costs by vehicle subclass are presented below. The tables
have been divided into passenger cars, performance passenger cars, and
light trucks to make them easier to read.
BILLING CODE 4910-59-P

[[Page 14301]]

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[[Page 14302]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.040

[[Page 14303]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.041

The tables representing the Volpe model input files for incremental
technology effectiveness values by vehicle subclass are presented
below. The tables have been divided into passenger cars, performance
passenger cars, and light trucks to make them easier to read.

[[Page 14304]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.042

[[Page 14305]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.005

[[Page 14306]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.043

BILLING CODE 4910-59-C
The tables representing the Volpe model input files for approximate
net (accumulated) technology costs by vehicle subclass are presented
below. The tables have been divided into passenger cars, performance
passenger cars, and light trucks to make them easier to read.

[[Page 14307]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.044

The tables representing the Volpe model input files for approximate
net (accumulated) technology effectiveness values by vehicle subclass
are presented below. The tables have been divided into passenger cars,
performance passenger cars, and light trucks to make them easier to
read.

[[Page 14308]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.045

[GRAPHIC] [TIFF OMITTED] TR30MR09.046

V. Economic Assumptions Used in NHTSA's Analysis

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

NHTSA's analysis of alternative CAFE standards for model year 2011
passenger cars and light trucks relies on a range of market
information, estimates of the cost and effectiveness of technologies to
increase fuel economy, forecasts of critical economic variables, and
estimates of the values of important behavioral parameters. This
section describes the sources NHTSA has relied upon to obtain this
information, as well as how the agency developed the specific parameter
values used in the analysis. Like the product plan information it
obtains from vehicle manufacturers, these economic variables,
forecasts, and parameter values play important roles in determining the
level of CAFE standards, although some variables have larger impacts on
the final standards than others.
As discussed above, the Volpe model uses the estimates of the costs
and effectiveness of individual technologies to simulate the
improvements that manufacturers could elect to make to the fuel economy
of their individual vehicle models in order to comply with higher CAFE
standards at the lowest cost, and to estimate each manufacturer's total
costs for meeting new standards. To calculate the reductions in fuel
use over the lifetime of each car and light truck model from the
resulting increases in fuel economy, the model then combines those
increases with estimates of the fraction of cars and light trucks that
remain in service at different ages, the number of miles they are
driven at each age, and the size of the fuel economy rebound effect.
Forecasts of future fuel prices are then applied to these fuel savings
to estimate their economic value during each year the vehicles affected
by the higher CAFE standards are projected to remain in service. The
Volpe model also uses estimates of the fractions of fuel

[[Page 14309]]

savings that will reduce U.S. imports of crude petroleum and refined
fuel to estimate the reduction in economic externalities that result
from U.S. imports.
Using emission rates per mile driven by different types of vehicles
or per gallon of fuel consumed, together with estimates of emissions
that occur within the U.S. in the process of refining and distributing
fuel, the Volpe model calculates changes in emissions of regulated (or
criteria) air pollutants and carbon dioxide (CO2), the main
greenhouse gas emitted during fuel production and vehicle use. These
are combined with estimates of the economic damages to human health and
property caused by regulated air pollutants, and by projected future
changes in the global climate resulting from increases in
CO2 emissions, to estimate the benefits from the resulting
reductions in emissions. Finally, the model calculates benefits to
vehicle owners from having to refuel less frequently based on the
estimated values of vehicle occupants' time, the decline in vehicle
operating costs due to lower fuel consumption, and the increase in
mobility afforded by added rebound-effect driving.
As the following discussion makes clear, the costs and
effectiveness of fuel economy technologies, forecasts of future
gasoline prices, and the discount rate applied to future benefits have
the largest influence over the level of the standards. In contrast,
estimates of the value of economic externalities generated by U.S.
petroleum imports, the fuel economy rebound effect, the gap between
test and on-road fuel economy, and the economic values of reducing
emissions of greenhouse gases and regulated air pollutants each have
more modest effects on determining the final CAFE standards. NHTSA has
analyzed the sensitivity of the final standards and their resulting
benefits to plausible variation in the most important of these inputs,
both by varying their values individually and conducting a Monte Carlo-
type analysis of joint variation in their probably values. NHTSA
recognizes that there may be other reasonable assumptions that the
agency could have made. However, for purposes of the MY 2011
rulemaking, NHTSA continues to believe that the assumptions made are
the most appropriate based on the information available. The agency
will, however, review these assumptions in future rulemakings,
especially in light of comments received and accounting for changing
circumstances, both domestically and globally, and consider whether
other assumptions would be more reasonable under the circumstances at
that time.
For the reader's reference, Table V-1 below summarizes the values
of many of the variables NHTSA uses to estimate the costs, fuel
savings, and resulting economic benefits from increases in car and
light truck CAFE standards.
BILLING CODE 4910-59-P

[[Page 14310]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.047

BILLING CODE 4910-59-C

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

1. Determining Retail Price Equivalent
NHTSA explained in the NPRM that the technology cost estimates used
in the agency's 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 were fully
realized. However, NHTSA recognized that manufacturers may also incur
additional corporate overhead, marketing, or distribution and selling
expenses as a consequence of their efforts to improve the fuel economy
of individual vehicle models and their overall product lines.
---------------------------------------------------------------------------

\219\ Derived from NHTSA's $33 per metric ton estimate of the
global value of reducing CO2 emissions.
---------------------------------------------------------------------------

In order to account for these additional costs, NHTSA applied an
indirect cost multiplier in the NPRM of 1.5 to the estimate of the
vehicle manufacturers' direct costs for producing or acquiring each
fuel economy-improving technology. Historically, NHTSA used an almost
identical multiplier, 1.51, for the markup from variable costs or
direct manufacturing costs to consumer costs. The markup takes into
account fixed costs, burden, manufacturer's profit, and dealers'
profit. NHTSA's methodology for determining this markup was peer-
reviewed in 2006.\220\
---------------------------------------------------------------------------

\220\ See Docket No. NHTSA-2007-27453, Item 4.
---------------------------------------------------------------------------

NHTSA stated in the NPRM that the estimate of 1.5 was confirmed by
Argonne National Laboratory in a recent review of vehicle
manufacturers' indirect costs. The Argonne study was specifically
intended to improve the accuracy of future cost estimates for
production of vehicles that achieve high fuel economy by employing many
of the same advanced technologies considered in NHTSA's analysis.\221\
Thus, NHTSA stated in the NPRM that it believed that

[[Page 14311]]

applying a multiplier of 1.5 to direct manufacturing costs to reflect
manufacturers' increased indirect costs for deploying advanced fuel
economy technologies is appropriate for use in the analysis for this
rulemaking. NHTSA describes this multiplier in Section IV above as the
Retail Price Equivalent factor, or RPE factor.
---------------------------------------------------------------------------

\221\ Vyas, Anant, Dan Santini, and Roy Cuenca, Comparison of
Indirect Cost Multipliers for Vehicle Manufacturing, Center for
Transportation Research, Argonne National Laboratory, April 2000.
Available at http://www.transportation.anl.gov/pdfs/TA/57.pdf (last
accessed August 14, 2008).
---------------------------------------------------------------------------

Some commenters argued that NHTSA's mark-up factor of 1.5 was too
high. NESCAUM commented that NHTSA had relied on the 2004 NESCCAF study
as one source for its technology estimates, but appeared to have
incorrectly reported information from that study with regard to the
mark-up factor.\222\ NESCAUM stated that in the report, entitled
``Reducing Greenhouse Gas Emissions from Light-Duty Motor Vehicles,''
NESCCAF only used a 1.4 RPE, but ``NHTSA applies a 1.5 retail price
equivalent (RPE) factor to the manufacturer costs presented in Appendix
C of the NESCCAF report, and at other times uses a 1.4 RPE--and
presents both costs as NESCCAF costs.'' NESCAUM argued that ``The
reporting of costs using the 1.5 multiplier as NESCCAF costs is
incorrect and leads to uncertainty as to how the costs were
developed.'' \223\ NESCAUM stated that ``All reported costs and
benefits, attributed to NESCCAF by NHTSA, [should] be reviewed
carefully for errors and amended accordingly.'' CARB also stated that
there was ``inconsistency * * * in the treatment of NESCCAF costs,''
because NHTSA sometimes used a 1.5 markup and sometimes 1.4, and argued
that ``These errors in citing the NESCCAF report raise doubts about
whether RPE costs from other sources are cited accurately.''
---------------------------------------------------------------------------

\222\ NESCAUM stated that NESCCAF, or Northeast States Center
for a Clean Air Future, is an affiliate organization of NESCAUM.
\223\ NESCAUM gave a specific example with regard to the cost of
a turbocharger, as follows:
NHTSA states the NESCCAF turbocharger cost is $600. In this
case, NHTSA applied a 1.5 RPE factor to manufacturer costs presented
in Appendix C of the NESCCAF report to arrive at the $600 cost. This
is different from the cost that NESCCAF developed. Conversely, on
page 24369 of the Federal Register notice, NHTSA accurately states
the NESCCAF cylinder deactivation costs ranged from $161 to $210.
This cost accurately reflects manufacturer costs presented in
Appendix C of the NESCCAF report, multiplied by the 1.4 retail price
equivalent used by NESCCAF.
---------------------------------------------------------------------------

CARB further commented that NHTSA had inconsistently added costs
for the engineering effort required to add some technologies to
vehicles, when those costs should have been covered by the RPE markup.
CARB cited NHTSA's language in the NPRM that ``manufacturers' actual
costs for applying these technologies to specific vehicle models are
likely to include additional outlays for accompanying design or
engineering changes to each model, development and testing of prototype
versions, recalibrating engine operating parameters, and integrating
the technology with other attributes of the vehicle.'' (Emphasis added)
CARB argued that adding additional costs for engineering effort to any
technology amounted to double-counting. CARB also commented that
NHTSA's methodology for determining the indirect cost markup was
unsound, because ``the cost to incorporate a technology is the same
regardless of vehicle production,'' and because ``manufacturers are
moving toward global vehicle architectures in an effort to spread
development costs across the largest volume of vehicles possible, thus
reducing engineering costs.'' CARB argued that ``The engineering cost
methodology cited in the NPRM conflicts with this trend as well.''
Other commenters argued that NHTSA's mark-up factor of 1.5 was too
low. The Alliance commented that the RPE mark-up factor of 1.5 used by
NHTSA is ``far too low,'' and cited the Sierra Research report and a
study by Wynn V. Bussman, submitted as an attachment by the Alliance,
as concluding that ``the best estimate for RPE is more on the order of
2.0.'' The Alliance argued that NHTSA's citation of the Argonne study
as support for an RPE of 1.5 was incorrect and out of context, stating
that ``As both Bussman and Sierra noted, the Argonne National
Laboratory recommended use of 2.0 as the RPE factor.'' The Alliance
stated that the Argonne study had simply used a 1.5 RPE for outsourced
components, because ``Manufacturers that outsource components do not
bear warranty and other costs under typical contractual arrangements.''
The Alliance argued that ``A 1.5 RPE * * * is simply unrepresentative
for components that are developed in house by the original equipment
manufacturers (``OEMs'').'' The Alliance further argued that ``Use of a
1.5 RPE for all purposes also glosses over the fact that outsourced
components can nevertheless require significant integration
expenditures from manufacturers putting together and selling entire
vehicles.'' \224\ Chrysler concurred separately with the Alliance that
``NHTSA's use of an RPE of 1.5 does not adequately account for the full
cost of implementing new technologies,'' and stated that an RPE of 2.0
``is the appropriate factor to use for new technologies.''
---------------------------------------------------------------------------

\224\ The Alliance cited the Sierra Research report as stating
that ``* * * the 1.5 multiplier clearly does not apply to changes in
engines, transmissions, or bodies in cases where the vehicle
manufacturer designs and produces its own engines, transmissions,
and bodies.'' Sierra Research report at 61.
---------------------------------------------------------------------------

The Alliance also commented that Bussman had ``considered the
literature on RPE factors extensively,'' and ``concluded that studies
that advised RPEs of approximately 1.5 were filled with errors and that
when these errors were corrected, these studies also supported the
conclusion that the proper RPE is 2.0.'' The Alliance concluded by
arguing that the Sierra Research report had found that ``some recent
analyses of RPE are based on unrepresentative and unsustainable profit
levels by manufacturers,'' and that ``If realistic long-term profit
rates are used, then the RPE increases from 2.0 to a range of 2.09 to
2.15.''
NADA did not expressly agree or disagree with a mark-up factor of
1.5, but commented that since the NPRM states that the 1.5 multiplier
includes ``dealer profit'' among other related additional costs, NHTSA
``should review whether its estimates include all dealer costs-of-sales
when calculating `dealer profit' and the extent to which it has
properly accounted for the finance costs consumers typically pay when
purchasing new automobiles.''
Agency response: NHTSA notes that the analysis for this final rule
relies on entirely new cost estimates for fuel economy technologies
developed by the agency in response to comments and in coordination
with an international engineering consulting firm, Ricardo, Inc., based
on a bill of materials approach as described in Section IV of this
notice and not based on the 2004 NESCCAF study, so the issue of
apparent inconsistency in the RPE factor applied to those estimates
noted by NESCAUM and CARB is no longer relevant. The agency also notes
that both the production and application of fuel economy-improving
technologies include separate engineering cost components. Developing
these technologies and readying them for high-volume production entails
significant initial investments in product design and engineering,
while as the NPRM pointed out, applying individual technologies to
specific vehicle models can entail significant additional costs for
accompanying engineering changes to its existing drive train,
development and testing of prototype versions, recalibrating engine
operating parameters, and integrating the technology with other
attributes of the vehicle. While design and engineering costs for
developing fuel economy-improving technologies are included in the
production cost estimates for individual technologies,

[[Page 14312]]

additional engineering costs incurred by manufacturers in applying them
to specific vehicle models are included in NHTSA's estimate of the RPE
factor. Finally, the agency notes that its estimate of the RPE factor
includes high-volume production and application of fuel economy
technologies, because it assumes that initial design and engineering
costs to develop and begin production of these technologies will be
recovered over large production volumes. Thus, NHTSA believes that
CARB's concerns about potential double-counting of engineering costs
for developing and applying fuel economy technologies reflect a failure
to recognize that engineering costs arise in both their development and
application. The agency also believes that CARB's concern about whether
NHTSA's RPE factor assumes the spreading of initial design and
engineering costs for developing these technologies over insufficiently
high production volumes is unfounded.
In response to the concerns expressed by the Alliance and others
that NHTSA's RPE factor is too low, the agency notes that the RPE
factor of 2.0 reported in the Argonne and Sierra Research studies
includes various categories of production overhead costs (for product
development and engineering, depreciation and amortization of
production facilities, and warranty) that are included in NHTSA's
estimates of production costs for fuel economy technologies. When
applied to technology production costs defined to include these
components, the agency's RPE factor of 1.5 is thus consistent with full
recovery of these cost components. This conclusion is independent of
whether overhead costs for developing and producing fuel economy
technologies are initially borne by equipment suppliers or by vehicle
manufacturers themselves. Consequently, NHTSA has continued to employ
an RPE factor of 1.5 in its analysis for this final rule.
2. Potential Opportunity Costs of Improved Fuel Economy
In the NPRM, NHTSA discussed the issue of whether achieving the
fuel economy improvements required by alternative CAFE standards would
require manufacturers to compromise the performance, carrying capacity,
safety, or comfort of some vehicle models. If so, the resulting
reduction in the value of those models to potential buyers would
represent an additional cost of achieving the improvements in fuel
economy required by stricter CAFE standards. While exact dollar values
of these attributes to consumers are difficult to infer from vehicle
purchase prices, changing vehicle attributes can affect the utility
that vehicles provide to their owners, and thus their value to
potential buyers. This is not to suggest that buyers typically attach
low values to fuel economy; rather, it recognizes that buyers value
many different attributes, so that requiring manufacturers to make
tradeoffs among them may alter the overall value of certain vehicle
models to individual buyers.
NHTSA has approached this potential problem by developing tentative
cost estimates for fuel economy-improving technologies that include any
additional production costs necessary to maintain the product plan
levels of performance, comfort, capacity, and safety of the models on
which they are used. In doing so, NHTSA primarily followed the
precedent established by the 2002 NAS Report, although the NPRM updated
its assumptions as necessary for purposes of the current rulemaking.
The NAS Report estimated ``constant performance and utility'' costs for
fuel economy technologies, and NHTSA used those as the basis for its
further efforts to develop the initial technology costs employed in
analyzing manufacturers' costs for complying with alternative CAFE
standards.
NHTSA acknowledged the difficulty of estimating technology costs
that include costs for the accompanying changes in vehicle design that
are necessary to maintain performance, capacity, and utility. However,
as NHTSA stated in the NPRM, the agency believes that the tentative
cost estimates for fuel economy-improving technologies should be
generally sufficient to prevent significant reductions in consumer
welfare provided by vehicle models to which manufacturers apply those
technologies. Nonetheless, the NPRM sought comment on alternative ways
to address these issues.
NHTSA did not receive comments that explicitly addressed NHTSA's
question of whether there are better ways for the agency to estimate
technology costs that capture changes in vehicle design so that fuel
economy can be improved while maintaining performance, capacity, and
utility. Some comments, however, expressed concern that the proposed
CAFE standards, and more stringent CAFE standards generally, would
prevent manufacturers from maintaining intended levels of performance,
comfort, capacity, and/or safety of at least some of their vehicle
models.
For example, the American Farm Bureau Federation commented that the
proposed standards would result in ``more expensive trucks that lack
the power needed to perform the tasks required'' of them by farmers,
and that ``trucks laden with expensive untested technologies may prove
undependable and costly to repair.'' AFBF stated that farmers need
trucks that can haul and tow heavy loads and trailers, which requires
``heavy frames, strong engines, and adequate horsepower and torque.''
AFBF argued that the proposal would cause manufacturers either to
downsize and reduce power in their vehicles, or to sell fewer powerful
trucks and increase their cost, all of which would create hardship for
farmers who need such trucks for their livelihoods.
NADA similarly suggested in its comments that the proposed
standards could constrain the ability of light truck manufacturers to
meet ``market needs'' for towing and hauling capability, as well as
space and power. NADA also stated that manufacturers of small high-
performance (i.e., sports) cars might be forced by the stringency of
the proposed standards to exit the market or reduce product offerings.
BMW expressed concern that the proposed footprint-based standards
will ``provide a disincentive to install safety devices on vehicles,''
since ``In general, safety devices add mass,'' and ``additional mass
will lead to higher fuel consumption.'' Thus, BMW argued, all
manufacturers will think twice before adding safety equipment to a
vehicle, in order not to hurt their chances of meeting the CAFE
standards. Along those lines, BMW argued that its vehicles were ``high
feature-density vehicles,'' which it defined as ``those that include
extraordinary safety, comfort, and convenience features like
electronic/advanced stability, braking, suspension, steering, lighting,
and security controls.'' BMW stated that these vehicles ``have a high
mass per footprint density,'' and suggested that the proposed
footprint-based standards provide manufacturers with a disincentive to
continue offering this type of vehicle.
Agency response: The agency did not include a reduction in
performance as one of the countermeasures that the manufacturers could
take to meet the final rule for two main reasons. First, the agency
believes that manufacturers could meet the standards adopted in this
final rule at the estimated compliance costs without noticeably
affecting vehicle performance or utility. As noted previously, NHTSA's
cost estimates for individual fuel economy-improving technologies are
intended to include any additional production costs necessary to
maintain the performance,

[[Page 14313]]

comfort, capacity, and safety of the models on which they are used. The
agency has reviewed its cost estimates for individual fuel economy
technologies in detail, and is confident that they include sufficient
allowances to prevent significant reductions in these critical
attributes, and this in the utility that vehicle models to which
manufacturers apply those technologies will provide to potential
buyers.
Second, NHTSA believes that the commenters' concerns about
potential opportunity costs for reduced vehicle performance and utility
are largely unfounded. Manufacturers are technically capable of
producing vehicles with reduced performance, as evidenced by the fact
that most manufacturers offer otherwise-similar vehicle models that
feature a range of engine sizes, and thus different levels of power and
performance. Although some manufacturers offer versions of the same
vehicle model with a smaller engine in Europe than is sold in the
United States, their decisions not to market these vehicles
domestically demonstrates that they do not believe that they can
produce and sell such vehicles to U.S. buyers in sufficient quantities
to be profitable at this time. This is presumably because in order to
sell vehicles that do not meet U.S. buyers' preferences for power and
performance, manufacturers would be required to discount their prices
sufficiently to compensate for their lower levels of these attributes.
While it may be true that a manufacturer could produce lower-
performance versions of its vehicle models at reduced costs compared to
a higher-performance version of that same model, this does not make
performance reduction a zero or negative cost compliance option.
Manufacturers apparently estimate that the reduction in the values of
lower-performing versions to their potential buyers exceeds their
savings in manufacturing costs to produce them, since otherwise they
would already produce and offer lower-performance versions of their
existing models for sale. The net cost of reducing performance, which
is measured by the difference between the reduced value of lower-
performance models to buyers and manufacturers' cost savings for
producing them, represents a cost of employing performance reduction as
a compliance strategy.
Both manufacturers and NHTSA experience difficulty in determining
how much value consumers place on performance, as well as in
determining whether this value would remain stable over time. While
NHTSA recognizes that there may be specific situations where
performance reduction may be a cost-effective compliance strategy for
certain manufacturers, the agency believes that the net cost of
reducing performance must generally be comparable to or higher than
that of technological approaches to fuel economy improvement. Thus the
outcome of this rulemaking process is not significantly affected by
omission of performance reduction as an explicit compliance strategy.
In response to BMW's comment that footprint-based standards may
discourage manufacturers from offering safety and other features that
increase vehicle weight, NHTSA notes that increased vehicle weight due
to safety and other features will make it more difficult for
manufacturers to comply with any CAFE standard--whether attribute-based
or uniform--and not just with footprint-based standards. Further, NHTSA
believes that manufacturers will continue to include features whose
value to potential buyers exceeds manufacturers' costs for supplying
them. Those costs will include any outlays for additional fuel economy
technologies that are necessary to compensate for the fuel economy
penalties imposed by features that add weight, and thus enable
manufacturers to comply with higher CAFE standards. NHTSA notes,
however, that buyers generally appear to value such features highly, as
evidenced by the prices of car and light truck models on which they are
featured, as well as by prices that manufacturers generally charge when
they offer such features as options. Any increase in costs to achieve
CAFE compliance that BMW or other manufacturers might experience as a
result of providing these features likely should not, therefore, affect
significantly the extent to which they are included as standard
features or offered as optional features and purchased by vehicle
buyers.
3. The On-Road Fuel Economy `Gap'
NHTSA explained in the NPRM that actual fuel economy levels
achieved by passenger cars and light trucks in on-road driving fall
somewhat short of their levels measured under the laboratory-like test
conditions that EPA uses to establish its published fuel economy
ratings. In analyzing the fuel savings from alternative CAFE standards
for previous light truck rulemakings, NHTSA adjusted the actual fuel
economy performance of each light truck model downward by 15 percent
from its rated value to reflect the expected size of this on-road fuel
economy ``gap.''
However, in December 2006, EPA adopted changes to its regulations
on fuel economy labeling which were intended to bring vehicles' rated
fuel economy levels closer to their actual on-road fuel economy
levels.\225\ In its Final Rule, EPA estimated that actual on-road fuel
economy for light-duty vehicles averages 20 percent lower than
published fuel economy levels. For example, if the overall EPA fuel
economy rating of a light truck is 20 mpg, the on-road fuel economy
actually achieved by a typical driver of that vehicle is expected to be
16 mpg (20 mpg x 0.8). In the NPRM, NHTSA employed EPA's revised
estimate of this on-road fuel economy gap in its analysis of the fuel
savings resulting from the proposed and alternative CAFE standards.
---------------------------------------------------------------------------

\225\ 71 FR 77871 (Dec. 27, 2006).
---------------------------------------------------------------------------

NHTSA received no explicit comments regarding the on-road fuel
economy gap. CARB submitted a report by Greene et al. that addressed
in-use fuel economy, but was completed prior to EPA's changes to its
labeling regulations, and CARB did not indicate in its comments how
this report was relevant to the CAFE rulemaking.\226\ The report by
Sierra Research included by the Alliance did not comment specifically
on NHTSA's use of EPA's estimate of the on-road fuel economy gap, but
employed different ``adjustment factors'' ``to translate CAFE to
customer service fuel economy,'' using a factor of 0.85 to ``adjust[]
the `composite' CAFE value to what consumers are expected to achieve in
customer service when the `city' mpg is discounted by 10% and the
`highway' mpg is discounted by 22%.'' Sierra Research also used a 0.82
adjustment factor for hybrid vehicles. However, these estimates were
presented as part of Sierra's analysis with no explanation of how they
were derived, nor why they differed from EPA's estimate of 20 percent
(which was available at the time when Sierra developed its
report).\227\ Moreover, neither Sierra nor the Alliance suggested that
NHTSA use these numbers instead of EPA's for analyzing fuel savings.
---------------------------------------------------------------------------

\226\ David L. Greene et al., ``Analysis of In-Use Fuel Economy
Shortfall Based on Voluntarily Reported MPG Estimates,'' 2005.
Available at Docket No. NHTSA-2008-0089-0173.11.
\227\ Sierra Research report, at 96-97. Available at Docket No.
NHTSA-2008-0089-0179.1, Attachment 2.
---------------------------------------------------------------------------

Because no substantive comments were received on this issue, and
because no new information on the magnitude of the on-road fuel economy
gap has come to NHTSA's attention since the NPRM was published, NHTSA
has continued

[[Page 14314]]

to use the EPA estimate of a 20 percent on-road fuel economy gap for
purposes of this final rule.
4. Fuel Prices and the Value of Saving Fuel
NHTSA explained in the NPRM that projected future fuel prices are a
critical input into the economic analysis of alternative CAFE
standards, because they determine the value of fuel savings both to new
vehicle buyers and to society. NHTSA relied on the most recent fuel
price projections from the U.S. Energy Information Administration's
(EIA) Annual Energy Outlook (AEO) in analyzing the proposed standards.
Specifically, the agency used the AEO 2008 Early Release forecasts of
inflation-adjusted (constant-dollar) retail gasoline and diesel fuel
prices, which NHTSA stated represent the most up-to-date estimate of
the most likely course of future prices for petroleum products.\228\
Federal government agencies generally use EIA's projections in their
assessments of future energy-related policies.
---------------------------------------------------------------------------

\228\ U.S. Department of Energy, Energy Information
Administration, Annual Energy Outlook 2008, Early Release, Reference
Case Table 12. Available at http://www.eia.doe.gov/oiaf/aeo/pdf/aeotab_12.pdf (last accessed October 10, 2008). EIA released the
full AEO 2008 in June 2008, which NHTSA stated in the NPRM it would
use in the final rule. EIA explained upon releasing the full AEO
2008 that it had been updated from the Early Release to reflect
EIA's expectations of the effect of EISA, which was enacted after
the Early Release was made public. The full AEO 2008 is available at
http://www.eia.doe.gov/oiaf/aeo/pdf/0383(2008).pdf (last accessed
October 10, 2008).
---------------------------------------------------------------------------

The retail fuel price forecasts presented in AEO 2008 span the
period from 2008 through 2030. Measured in constant 2006 dollars, the
Reference Case forecast of retail gasoline prices during calendar year
2020 in the Early Release was $2.36 per gallon, rising gradually to
$2.51 by the year 2030 (these values include federal, state, and local
taxes). However, NHTSA explained in the NPRM that valuing fuel savings
over the 36-year maximum lifetime of light trucks assumed in this
analysis required fuel price forecasts that extended through 2050, the
last year during which a significant number of MY 2015 vehicles would
remain in service.\229\ To obtain fuel price forecasts for the years
2031 through 2050, NHTSA assumed that retail fuel prices would remain
constant (in 2006 dollars) from 2031 through 2050.
---------------------------------------------------------------------------

\229\ The agency defines the maximum lifetime of vehicles as the
highest age at which more than 2 percent of those originally
produced during a model year remain in service. For recent model
years, this age has typically been 25 years for passenger cars and
36 years for light trucks.
---------------------------------------------------------------------------

NHTSA stated that the value to buyers of passenger cars and light
trucks of fuel savings resulting from improved fuel economy is
determined by the retail price of fuel, which includes federal, state,
and any local taxes imposed on fuel sales. Total taxes on gasoline
averaged $0.47 per gallon during 2006, while those levied on diesel
averaged $0.53. These figures include federal taxes plus the sales-
weighted average of state fuel taxes. Because fuel taxes represent
transfers of resources from fuel buyers to government agencies,
however, rather than real resources that are consumed in the process of
supplying or using fuel, NHTSA explained that their value must be
deducted from retail fuel prices to determine the value of fuel savings
resulting from more stringent CAFE standards to the U.S. economy.
In estimating the economy-wide or ``social'' value of fuel savings
due to increasing CAFE levels, NHTSA assumed that current fuel taxes
would remain constant in real or inflation-adjusted terms over the
lifetimes of the vehicles being regulated. In effect, this assumed that
the average value per gallon of taxes on gasoline and diesel fuel
levied by all levels of government would rise at the rate of inflation
over that period. This value was deducted from each future year's
forecast of retail gasoline and diesel prices reported in the AEO 2008
Early Release to determine the social value of each gallon of fuel
saved during that year as a result of improved fuel economy.
Subtracting fuel taxes resulted in a projected value for saving
gasoline of $1.83 per gallon during 2020, rising to $2.02 per gallon by
the year 2030.
In conducting the preliminary uncertainty analysis of benefits and
costs from alternative CAFE standards, as required by OMB, NHTSA also
considered higher and lower forecasts of future fuel prices. The
results of the sensitivity runs were made available in the PRIA. EIA
includes a ``High Price Case'' and a ``Low Price Case'' in each annual
edition of its AEO, which reflect uncertainties regarding future
conditions in the world petroleum market and the U.S. fuel refining and
distribution system. However, EIA does not attach specific
probabilities to either its Reference Case forecast or these
alternative cases; instead, the High Price and Low Price cases are
intended to illustrate the range of uncertainty that exists.\230\
---------------------------------------------------------------------------

\230\ In AEO 2008, EIA explains the High Price Case as follows:
The high price case assumes that non-OPEC conventional oil
resources are less plentiful, and the overall costs of extraction
are higher, than assumed in the reference case. The high price case
also assumes that OPEC will choose to allow a decline in its market
share to 38 percent of total world liquids production.
EIA also explains the Low Price Case as follows:
The low price case assumes that non-OPEC conventional oil
resources are more plentiful, and the overall costs of extraction
are lower, than in the reference case, and that OPEC will choose to
increase its market share to 45 percent.
AEO 2008, at 51. As the reader can see, there is nothing
probabilistic about either the Low or High Price Case vis-[agrave]-
vis the Reference Case.
---------------------------------------------------------------------------

The AEO 2008 Early Release included only a Reference Case forecast
of fuel prices and did not include the High and Low Price Cases, so
NHTSA estimated high and low fuel prices corresponding to the AEO 2008
Reference Case forecast by assuming that high and low price forecasts
would bear the same relationship to the Reference Case forecast as the
High and Low Price cases in AEO 2007.\231\ These alternative scenarios
projected retail gasoline prices that range from a low of $1.94 per
gallon to a high of $3.26 per gallon during 2020, and from $2.03 to
$3.70 per gallon during 2030. In conjunction with NHTSA's assumption
that fuel taxes would remain constant in real or inflation-adjusted
terms over this period, these forecasts implied social values of fuel
savings ranging from $1.47 to $2.79 per gallon during 2020, and from
$1.56 to $3.23 per gallon in 2030.
---------------------------------------------------------------------------

\231\ EIA, Annual Energy Outlook 2007, High Price Case, Table
12, available at http://www.eia.doe.gov/oiaf/aeo/pdf/aeohptab_12.pdf (last accessed October 10, 2008); and Annual Energy Outlook
2007, Low Price Case, Table 12, available at http://www.eia.doe.gov/oiaf/aeo/pdf/aeolptab_12.pdf (last accessed October 10, 2008).
---------------------------------------------------------------------------

NHTSA explained that EIA is widely recognized as an impartial and
authoritative source of analysis and forecasts of U.S. energy
production, consumption, and prices. EIA has published annual forecasts
of energy prices and consumption levels for the U.S. economy since 1982
in its Annual Energy Outlooks. These forecasts have been widely relied
upon by federal agencies for use in regulatory analysis and for other
purposes. Since 1994, EIA's annual forecasts have been based upon that
agency's National Energy Modeling System (NEMS), which includes
detailed representation of supply pathways, sources of demand, and
their interaction to determine prices for different forms of energy.
From 1982 through 1993, EIA's forecasts of world oil prices--the
primary determinant of prices for gasoline, diesel, and other
transportation fuels derived from petroleum--consistently overestimated
actual prices during future years, often very significantly. Of the
total of 119 forecasts of future world oil prices for

[[Page 14315]]

the years 1985 through 2005 that EIA reported in its 1982-1993 editions
of the AEO, 109 overestimated the subsequent actual values for those
years, on average exceeding their corresponding actual values by 75
percent.
Since that time, however, EIA's forecasts of future world oil
prices show a more mixed record for accuracy. The 1994-2005 editions of
the AEO reported 91 separate forecasts of world oil prices for the
years 1995-2005, of which 33 subsequently proved too high, while the
remaining 58 underestimated actual prices. The average absolute (i.e.,
regardless of its direction) error of these forecasts has been 21
percent, but over- and underestimates have tended to offset one
another, so that on average EIA's more recent forecasts have
underestimated actual world oil prices by 7 percent. Although both its
overestimates and underestimates of future world oil prices for recent
years have often been large, the most recent editions of the AEO have
significantly underestimated petroleum prices during those years for
which actual prices are now available.
However, NHTSA explained that it did not regard EIA's recent
tendency to underestimate future prices for petroleum and refined
products or the high level of current fuel prices as adequate
justification to employ forecasts that differed from the Reference Case
forecast presented in the Revised Early Release. NHTSA stated that this
was particularly the case because this forecast was revised upward
significantly since the initial release of AEO 2008, which in turn
represented a major upward revision from EIA's fuel price forecast
reported in AEO 2007. NHTSA also noted that retail gasoline prices
across the U.S. had averaged $2.94 per gallon (expressed in 2005
dollars) for the first three months of 2008, slightly below EIA's
revised forecast that gasoline prices will average $2.98 per gallon
(also in 2005 dollars) throughout 2008.
NHTSA also considered that comparing different forecasts of world
oil prices showed that the Reference Case forecast in AEO 2007 was
actually the highest of all six publicly-available forecasts of world
oil prices over the 2010-2030 time period.\232\ NHTSA stated that
because world petroleum prices are the primary determinant of retail
prices for refined petroleum products such as transportation fuels,
this suggested that the Reference Case forecast of U.S. fuel prices
reported in AEO 2007 was likely to be the highest of those projected by
major forecasting services. Further, as indicated above, EIA's most
recent fuel price forecasts had been revised significantly upward from
those projected in AEO 2007.
---------------------------------------------------------------------------

\232\ See http://www.eia.doe.gov/oiaf/archive/aeo07/pdf/forecast.pdf, Table 19, at 106.
---------------------------------------------------------------------------

NHTSA received several thousand comments regarding its fuel price
assumptions, mostly from individuals stating that current pump prices
were much higher than EIA's Reference Case forecasts for future prices,
and arguing that NHTSA should use higher fuel price assumptions for
setting more stringent standards in the final rule. Summaries of the
comments are presented below, grouped according to the following
categories: (1) Fuel prices have the largest effect on CAFE stringency
of any of NHTSA's economic assumptions; (2) EIA's Reference Case is too
low compared to current gas prices; (3) current gas prices reflect a
fundamental change in market conditions that will affect future prices;
(4) why NHTSA is incorrect in its representation of the Reference Case
as the ``most likely course'' of future oil prices; (5) NHTSA's
sensitivity analysis in the PRIA indicates that higher fuel price
assumptions will lead to more stringent standards; (6) EIA's tendency
to underestimate in its fuel price forecasts; (7) EIA's recent changes
to its Short-Term Energy Outlook; (8) recent public statements on
NHTSA's fuel price assumptions; (9) comments in favor of or neutral
with regard to NHTSA's use of the Reference Case for its fuel price
assumptions; (10) what fuel price assumptions NHTSA should use in
setting the standards in the final rule; and (11) whether NHTSA should
hold public hearings regarding its fuel price assumptions.
(1) Fuel Prices Have the Largest Effect on CAFE Stringency of any of
NHTSA's Economic Assumptions
Several commenters addressed the impact that fuel price assumptions
have on NHTSA's analysis of the appropriate stringency of CAFE
standards. The Members of Congress\233\ stated that fuel prices have
the largest effect of ``all the factors that could be considered on how
high standards could be raised,'' and that therefore ``NHTSA's reliance
on these highly unrealistic projections have the effect of artificially
lowering the calculated `maximum feasible' fuel economy standards that
NHTSA is directed by law to promulgate.'' CFA commented that the
underestimation of fuel prices affected every part of NHTSA's analysis,
while CBD stated that ``The use of an inappropriate gasoline price
projection greatly skews the results,'' and argued that ``NHTSA has
failed to analyze a gas price that even approaches today's prices, even
in the sensitivity analysis.'' EDF argued that because
``Underestimating future gasoline prices would lead NHTSA to undervalue
the benefits to the U.S. and consumers from stronger fuel economy
standards and set inefficiently low standards,'' NHTSA should ``perform
extensive sensitivity analyses using higher gas price assumptions,
including but not limited to the EIA `high price' projections.''
---------------------------------------------------------------------------

\233\ Representative Markey authored this comment, which was
signed by himself and 44 other Members of Congress. In this section,
when the term ``Members of Congress'' is used, this is the comment
to which the agency refers. Besides the comments received from
several Representatives and Senators regarding the fuel prices
employed in NHTSA's analysis for the NPRM, Representative Markey and
Senator Cantwell additionally submitted bills in the House and
Senate to require NHTSA to use fuel prices at least as high as EIA's
High Price Case in setting CAFE standards. Representative Markey
introduced H.R. 6643 on July 29, 2008, and Senator Cantwell
introduced S. 3403 on July 31, 2008.
---------------------------------------------------------------------------

(2) EIA's Reference Case Is Too Low Compared to Current Gas Prices
Many commenters, including CBD, EDF, NRDC, Sierra Club et al., UCS,
CFA, the Attorneys General, NACAA, NESCAUM, the mayor of the City of
Key West, 45 Members of Congress, and several thousand individual
commenters, stated that NHTSA's fuel price assumptions based on EIA's
Reference Case were unreasonably low given current gasoline prices.
CBD, for example, commented that NHTSA's use of the Reference Case fuel
price estimates was ``impossible to justify'' given current fuel prices
and the fact that ``there is every indication that the price of oil
will continue to increase over the short term.'' UCS argued that
although NHTSA ``point[ed] to recent increased fuel prices in AEO 2008
to justify use of AEO Reference Case data,'' the Reference Case
projection ``still falls well below current gasoline prices.'' The
Attorneys General commented that EIA's Reference Case forecast
indicated future fuel prices much lower than current pump prices, and
argued that ``Unless NHTSA can provide publicly-available, mainstream
documentation supporting an almost fifty percent drop from current
prices, it must substantially re-calibrate those estimates.'' CFA and
the Attorneys General further argued that even EIA's High Price Case
was too low given current gasoline prices.
UCS also submitted nearly 7,000 form letters from individual
citizens, which generally stated that gas prices in their home areas
are currently significantly higher than NHTSA's fuel price assumptions
for the proposed standards.

[[Page 14316]]

The individual citizens commented that NHTSA should ``correct'' its
fuel price assumptions for the final rule, so as not to ``allow
automakers to shave three to four miles per gallon off of their CAFE
requirements,'' and so as to achieve ``a fleet average of approximately
40 miles per gallon by 2020,'' which the letters stated ``is both
feasible and cost effective using technology already available.''
Sierra Club submitted over 3,000 form letters from individual citizens
commenting similarly that NHTSA must use ``realistic'' fuel prices for
setting the standards in the final rule, given pump prices at that time
of approximately $4 per gallon.
(3) Current Gas Prices Reflect a Fundamental Change in Market
Conditions That Will Affect Future Prices
A number of commenters argued that changed oil market conditions
both make EIA's Reference Case out-of-date and will continue to impact
future fuel prices. Public Citizen stated that ``Gas prices have been
rising steadily since 2004,'' but that ``the price increases in the
last six to 12 months have been especially dramatic, rising by over a
third in the past six months, and by nearly 170 percent in five
years.'' NESCAUM commented that current fuel prices are due principally
to ``high global demand in a supply constricted market.'' NESCAUM
further argued that ``There is little expectation that the gap between
supply and demand will be narrowed in the foreseeable future,'' so
``the price of gasoline should remain * * * well above the mid-$2.00
range.'' CFA argued that ``geopolitical factors'' are responsible for
gasoline prices setting ``record after record,'' and stated that the
proposed standards ``do not reflect the fundamental reality of this
crisis'' because NHTSA's ``analysis [is not based] on a value of
gasoline savings that is consistent with the real world.'' ACEEE argued
that the ``adherence [to the Reference Case forecast] is not justified,
given recent changes in the oil market.'' However, ACEEE also argued
that the High Price Case does not ``necessarily capture fully current
understanding of how high fuel prices are likely to be in the coming
decades.''
CARB stated that NHTSA's use of EIA's Reference Case ``border[s] on
the absurd given recent fuel price hikes, [and] recent assessments that
the price hikes are structural.'' CARB cited and attached to its
comments an ``Economic Letter'' by the Federal Reserve Bank of Dallas
from May 2008, which stated that factors such as changes in global oil
supply and demand, the weakening of the dollar, and the fact that much
global oil production takes place in ``politically unstable regions * *
* suggest the days of relatively cheap oil are over and the global
economy faces a future of high energy prices.''
NRDC stated that other analysts such as Goldman Sachs and Citigroup
predict higher gasoline prices at least through 2011, due to lack of
``spare capacity'' in either OPEC or non-OPEC supply. NRDC also cited
EIA's June 25, 2008 International Energy Outlook (IEO), which has a
similar reference case to AEO 2008, and which NRDC quoted as stating
that given ``current market conditions, it appears that world oil
prices are on a path that more closely resembles the projection in the
high price case than in the reference case.'' \234\
---------------------------------------------------------------------------

\234\ Energy Information Administration (2008) International
Energy Outlook 2008: Complete Highlights. June 25.
---------------------------------------------------------------------------

(4) Why NHTSA Is Incorrect in Its Representation of the Reference Case
as the ``Most Likely Course'' of Future Oil Prices
UCS stated that NHTSA was incorrect to assume that EIA's Reference
Case ``represent[s] the EIA's most up-to-date estimate of the most
likely course of future prices for petroleum products,'' arguing that
EIA itself does not refer to the Reference Case projection as the
``most likely course,'' but states that the Reference Case merely
``assumes that current policies affecting the energy sector remain
unchanged throughout the projection period.''
(5) NHTSA's Sensitivity Analysis in the PRIA Indicates That Higher Fuel
Price Assumptions Will Lead to More Stringent Standards
A number of commenters, including NACAA, Public Citizen, UCS,
Sierra Club et al. and ACEEE, cited NHTSA's sensitivity analysis using
the EIA High Price case as evidence that, as the Members of Congress
stated, ``demonstrates that the technology is available to cost-
effectively achieve a much higher fleet wide fuel economy of nearly 35
mpg in 2015.'' CFA also stated that the High Price Case, which NHTSA
ran as a sensitivity analysis using approximately $3.40 per gallon in
2008 dollars for 2015, was a ``more realistic fuel price scenario, one
that is not terribly high.''
(6) EIA's Tendency to Underestimate in Its Fuel Price Forecasts
Several commenters, including UCS, CFA, NRDC, CARB, and the
Attorneys General argued that EIA estimates were unreliable because EIA
had underestimated in recent years. CARB cited NHTSA's statement on
page 24406 of the NPRM (73 FR 24406, May 2, 2008) noting ``EIA's own
recent tendency to underestimate,'' as CARB put it, as indication that
NHTSA's use of EIA's Reference Case ``border[s] on the absurd.'' CFA
argued that ``EIA's projections of gasoline prices have been
consistently low and NHTSA was not obligated to use those
projections.'' NRDC analyzed EIA's forecasting accuracy in greater
detail, concluding that ``The past five versions of the AEO have all
underestimated actual gasoline prices,'' in both the Reference and High
Case scenarios, and providing a table comparing EIA Reference and High
Case projections from one year prior to the actual average recorded
price in 2003-2008, which showed actual prices as consistently higher
than EIA projections.
(7) EIA's Recent Changes to Its Short-Term Energy Outlook
Several commenters stated that recent EIA upward revisions to its
Short-Term Energy Outlook fuel price forecasts indicate that the
longer-term Reference Case forecasts are also in need of upward
revision. CARB, for example, argued that recent EIA upward revisions to
its short-term fuel price forecasts provide further evidence that ``the
assumptions underlying the EIA long-term gasoline projections have
significantly changed since EIA last made those long-term
projections.'' CFA similarly argued that EIA needed to adjust its long-
term projections upward given recent increases in short-term
projections, and stated that extrapolating EIA's short-term projections
linearly results in a gasoline price in 2015 of $5.50 per gallon in
2008 dollars, which might not itself be reliable for purposes of
setting CAFE standards, but is high enough to indicate that ``EIA's
high price scenario seems much more appropriate as the basis for
NHTSA's economic analysis.'' NRDC and the Attorneys General made
similar arguments. The Attorneys General suggested that consequently,
NHTSA should attempt to ``obtain from EIA a truly current projection
for gasoline prices over the relevant period'' for use in the final
rule.
(8) Recent Public Statements on NHTSA's Fuel Price Assumptions
Several commenters, including the Members of Congress, Public
Citizen, UCS, NRDC, Sierra Club et al., and the Attorneys General cited
testimony by EIA Administrator Guy Caruso on June 11, 2008, before the
House Select Committee on Energy Independence and

[[Page 14317]]

Global Warming, as evidence that, as the Attorneys General argued,
``Even EIA agrees that NHTSA should have not used its reference case
for the analysis in this rulemaking, but instead should have used EIA's
high price case.'' Administrator Caruso testified, in response to a
question regarding whether NHTSA should use EIA's High Price Case
scenario to set CAFE standards, that ``We're on the higher price path
right now. If you were to ask me today what I would use, I would use
the higher price.'' \235\
---------------------------------------------------------------------------

\235\ UCS stated that this quote was taken from ``Global Warming
Hearing on the Future of Oil,'' June 11, 2008, which it stated was
available online at http://speaker.house.gov/blog.
---------------------------------------------------------------------------

The Members of Congress and Sierra Club et al., also cited then-DOT
Secretary Peters' May 17, 2008 statement that ``As we look toward the
finalization of the rule and look again what the average fuel costs are
then, I think we're going to make more progress on the miles per gallon
at a lower overall cost.'' \236\ The commenters argued that this
statement indicated an expectation that fuel prices used in the final
rule would be higher than those used in the NPRM.
---------------------------------------------------------------------------

\236\ Sierra Club cited David Shepardson, ``Gas prices may spur
revision of mpg plan,'' Detroit News Washington, Saturday, May 17,
2008, for this quote from Secretary Peters.
---------------------------------------------------------------------------

(9) Comments in Favor of or Neutral With Regard to NHTSA's Use of the
Reference Case for Its Fuel Price Assumptions
NADA was the only commenter arguing directly in favor of NHTSA
continuing ``to rely on the most recent reference case fuel price
projections of the U.S. Energy Information Administration's (EIA).''
NADA recognized that EIA has over- and under-estimated fuel prices in
the past, but argued that ``Despite the inherent volatility or
uncertainty of fuel prices, EIA and NHTSA would be remiss if they were
to arbitrarily abandon the best models and data available or to use
`high' or `low' price case projections that are inherently not
probabilistic.'' NADA further commented that ``the use of a high price
case to justify unduly costly CAFE standards could lead to decreased
new motor vehicle sales and a commensurate lower than projected rate of
fuel energy savings and greenhouse gas reduction benefits.''
The Alliance did not argue that NHTSA should use any particular
fuel price in its economic assumptions, but commented that NHTSA should
not conclude that ``recent increases in gasoline prices nationwide''
would justify more stringent CAFE standards. The Alliance cited the
Sierra Research and NERA reports, which it said performed sensitivity
analyses using all of EIA's price scenarios (Low, Reference, and High),
and ``did not find that use of the `high' case significantly altered
its conclusions about the feasibility of imposing much higher costs on
manufacturers.'' Given that Sierra and NERA both concluded that the
proposed standards were already too stringent, this result is hardly
surprising.
(10) What Fuel Price Assumptions NHTSA Should Use in Setting the
Standards in the Final Rule
Many commenters, including UCS, CARB, ACEEE, Sierra Club et al.,
the Attorneys General, and the Members of Congress stated that NHTSA
should set standards in the final rule using fuel price assumptions
equivalent to at least EIA's High Price Case. Wisconsin DNR suggested
that NHTSA use the ``high price fuel scenario'' in EIA's International
Energy Outlook (2008) for a ``suitable higher estimate from a
recognized federal agency.'' \237\
---------------------------------------------------------------------------

\237\ Wisconsin DNR cited the source of the ``high price fuel
scenario'' as ``DOE-EIA Report 0484 (2008),'' which is
EIA's International Energy Outlook (IEO) for 2008. NHTSA assumes
that the commenter intended to cite this source, and not AEO 2008.
However, EIA describes the forecasts of world oil prices--a primary
determinant of U.S. fuel prices--reported in IEO 2008 as ``* * *
consistent with those in the Annual Energy Outlook 2008,'' and cites
AEO2008 as the source for those oil price projections. See U.S.
Energy Information Administration, International Energy Outlook
2008, Chapter 2, ``Liquid Fuels,'' Figure 30 and accompanying text.
Available at http://www.eia.doe.gov/oiaf/ieo/liquid_fuels.html
(last accessed October 4, 2008).
---------------------------------------------------------------------------

Several commenters calling for ``at least'' the High Price Case
also suggested other preferred alternatives. CARB suggested that NHTSA
delay the final rule until ``recent volatility has stabilized and EIA
can provide its final 2008 estimates in February 2009.'' The Attorneys
General suggested NHTSA obtain ``relevant, up-to-date data directly''
from EIA ``specifically for the docket in this rulemaking,'' or ``wait
for EIA's public, final 2008 estimates, which are scheduled to be
released in December.'' ACEEE commented that NHTSA should ``Work with
EIA to produce an up-to-date fuel price projection for purposes of the
final rule. * * *'' Sierra Club et al., stated that NHTSA should also
``examine other fuel price estimates, such as the oil futures market
price predictions which project prices for a barrel of oil through
2016.''
Other commenters suggested that NHTSA develop estimates based on
current pump-price equivalents for its fuel price assumptions. Public
Citizen commented that NHTSA should ``base its final rulemaking on a
more realistic estimate of future fuel price based on the high estimate
and an at-the-pump price that pushes the standard in the direction of
real-world gas prices.'' NESCAUM urged NHTSA ``to reevaluate the effect
of a wider range of gasoline prices to the $4.00 per gallon level and
above,'' stating that it would raise standards. EDF stated that NHTSA
must set standards that ``reflect real world gas prices.'' CBD stated
that ``Today's gas price must form the starting point for the analysis,
and calculations must be performed that consider the overwhelmingly
likely scenario that gas prices will be significantly higher than the
projections used in the NPRM.'' NRDC stated that because both the
Reference and High Case scenarios are too low, ``NHTSA should develop a
plausible and realistic projection of future oil prices for use in
determining maximum feasible fuel economy levels.''
(11) Whether NHTSA Should Hold Public Hearings Regarding Its Fuel Price
Assumptions
Several commenters called for NHTSA to hold hearings regarding the
appropriate stringency of CAFE standards, specifically in light of fuel
prices. CFA, in requesting hearings, commented that EIA's Reference
Case resulted in fuel prices that are too low, and ``have consistently
been used [in recent CAFE rulemakings] to undercut the use of existing
technology to meet the statutory goals. CFA stated that ``The use of
more realistic fuel prices make more technology cost-justified and will
result in higher standards.'' Environment America, National Wildlife
Federation, NRDC, Pew Environment Group, Sierra Club, and UCS also
submitted a joint comment requesting public hearings and citing NHTSA's
fuel price assumptions. Like CFA, the commenters stated that using the
EIA Reference Case ``vastly undercuts the potential for higher fuel
economy'' and that ``If NHTSA used more realistic gas prices, we could
be on a path to achieving higher fuel economy that is both
technologically achievable and cost effective.''
Agency response: NHTSA has carefully considered available evidence,
recent trends in petroleum and fuel prices, and the comments it
received on the NPRM analysis. After doing so, NHTSA has decided to use
EIA's High Price Case forecast in its final rule analysis and to
determine the MY 2011 CAFE standards. As NHTSA recognized in the NPRM,
commenters are correct that projected future fuel prices have the

[[Page 14318]]

largest effect of all the economic assumptions that NHTSA employs in
determining benefits both to new vehicle buyers and to society, and
thus on CAFE stringency. This is why it is vital that NHTSA base its
fuel price assumptions on what it believes to be the most accurate
forecast available that covers the expected lifetimes of MY 2011
passenger cars and light trucks, which can extend up to 25-35 years
from the date they are produced. The long time horizon of NHTSA's
analysis also makes it critical that the agency not rely excessively on
current price levels as an indicator of the prices that are likely to
prevail over an extended future period. Instead, NHTSA relies largely
on EIA's professional expertise and extensive experience in developing
forecasts of future trends in energy prices, as do most other federal
agencies.
In addition, NHTSA notes that several manufacturers employed fuel
prices consistent with or exceeding the AEO 2008 High Price Case for
the time period covered by the rulemaking in their revised product plan
estimates of fuel economy and sales for individual models. If the
agency employs fuel price forecasts that differ from those used by
manufacturers, it may incorrectly attribute the fuel savings resulting
from increased market demand for fuel economy to higher CAFE standards,
or conversely, underestimate the fuel savings resulting from increased
standards by attributing too much of the increase in fuel economy to
higher market demand. Given manufacturers' assumptions about fuel
prices, the agency's estimates of fuel savings and economic benefits
resulting from the standards adopted in this final rule are
conservative, because they are likely to underestimate fuel savings
attributable to the increase in fuel economy above its market-
determined level that CAFE standards will require.
Although some commenters suggested that NHTSA develop its own fuel
price forecasts based on then-current pump prices, NHTSA does not
believe that it has the independent capability to provide a more
reliable prediction of future fuel prices, or that it would have the
credibility of EIA's forecasts. If NHTSA had assumed that that fuel
prices would remain at their mid-2008 peak levels throughout the
lifetimes of MY 2011 cars and light trucks, the agency would have
overvalued the benefits attributed to fuel savings, and thus likely
have established excessively stringent MY 2011 standards. While
petroleum prices were rising at the time the NPRM was published,
eventually reaching nearly $140 per barrel, since then global average
prices for crude oil have declined to levels as low as $35 per
barrel.\238\ The recent extreme volatility in petroleum and fuel prices
illustrates the danger in relying on current prices as an indicator of
their likely future levels, and gives NHTSA greater confidence in
relying on EIA's forecasts of future movements in fuel prices in
response to changes in demand and supply conditions in the marketplace.
---------------------------------------------------------------------------

\238\ Energy Information Administration, World Crude Oil Prices,
data for week ended 1/2/2009, available at http://tonto.eia.doe.gov/dnav/pet/pet_pri_wco_k_w.htm (last accessed February 12, 2009).
---------------------------------------------------------------------------

While NHTSA also agrees with the commenters that the sensitivity
analysis demonstrates that higher CAFE standards could be established
if higher fuel price assumptions were employed, the agency cannot
simply choose to employ higher fuel price assumptions because it wishes
to raise CAFE levels. Doing so would be inconsistent with the agency's
approach of using what it concludes is the most reliable estimate of
the benefits from conserving fuel when establishing fuel economy
standards. NHTSA recognizes that predicting future oil prices is
difficult, particularly during periods when world economic conditions
are as volatile as they are today. Nevertheless, NHTSA continues to
believe that EIA's fuel price forecasts as reported in its AEO
represent the most reliable estimates of future fuel prices, and thus
of the benefits from reducing fuel consumption through higher CAFE
standards. While NHTSA recognizes that other forecasts exist, the
agency believes the EIA forecasts are preferable for its purposes,
since they are the product of an impartial government agency with
considerable and long-standing expertise in this field. Any simple
extrapolation of current or recent retail fuel prices, which commenters
recognize have shown extreme volatility in recent months, is likely to
provide a considerably less reliable forecast of future prices than the
current AEO. Each time EIA issues a new AEO, it considers recent and
likely future developments in the world oil market, the effect of the
current geopolitical situation on oil supply and prices, and conditions
in the domestic fuel supply industry that affect pump prices.\239\
---------------------------------------------------------------------------

\239\ AEO 2008 states as follows with regard to factors which
EIA accounts for in developing the Reference Case:
As noted in AEO2007, energy markets are changing in response to
readily observable factors, which include, among others: Higher
energy prices; the growing influence of developing countries on
worldwide energy requirements; recently enacted legislation and
regulations in the United States; changing public perceptions on
issues related to emissions of air pollutants and greenhouse gases
and the use of alternative fuels; and the economic viability of
various energy technologies.
---------------------------------------------------------------------------

For example, the Overview section to AEO 2008 states that because
EISA was passed between the Early Release and the time of publication
for AEO 2008, EIA updated the Reference Case to reflect the impact it
expected EISA to have on fuel prices. EIA also updated its projections
for the AEO 2008 Reference Case ``to better reflect trends that are
expected to persist in the economy and in energy markets,'' including a
lower projection for U.S. economic growth (a key determinant of U.S.
energy demand), higher price projections for crude oil and refined
petroleum products, slower projected growth in energy demand, higher
forecasts of domestic oil production (particularly in the near term),
and slower projected growth in U.S. oil imports.\240\ Thus NHTSA is
confident that EIA is aware of and has accounted reasonably for current
political and economic conditions that are likely to affect future
trends in fuel supply, demand, and retail prices.
---------------------------------------------------------------------------

\240\ AEO 2008 Overview, at http://www.eia.doe.gov/oiaf/aeo/overview.html (last accessed October 10, 2008).
---------------------------------------------------------------------------

Although a majority of commenters asserted that EIA's Reference
Case forecast is likely to underestimate future fuel prices
significantly, and that NHTSA's reliance on the Reference Case resulted
in insufficiently stringent proposed CAFE standards, they did so in an
environment when retail fuel prices were at or above $4.00 per gallon.
Many commenters stated that at a minimum, NHTSA should use EIA's High
Price Case as the source for its fuel price forecasts, primarily
because those appeared to be more consistent with then-current fuel
prices. As one illustration, NRDC cited EIA's own International Energy
Outlook 2008, published the same month as the AEO 2008, which stated
that given ``* * * current market conditions, it appears that world oil
prices are on a path that more closely resembles the projection in the
high price case than in the reference case.'' \241\ Commenters also
cited EIA Administrator Caruso's June 2008 statement that ``We're on
the higher price path right now. If you were to ask me today what I
would use, I would use the higher price.'' NHTSA also notes that
several manufacturers in their confidential product plan submissions
indicated that they had based their product plans on gas price
estimates

[[Page 14319]]

that were either between EIA's Reference and High Price Cases, or above
even the High Price Case.
---------------------------------------------------------------------------

\241\ Energy Information Administration (2008) International
Energy Outlook 2008: Complete Highlights. June 25.
---------------------------------------------------------------------------

The AEO High Price Case is best understood in the context of its
relationship to the Reference Case. EIA described the Reference Case as
follows in AEO 2008:

The reference case represents EIA's current judgment regarding
exploration and development costs and accessibility of oil resources
in non-OPEC countries. It also assumes that OPEC producers will
choose to maintain their share of the market and will schedule
investments in incremental production capacity so that OPEC's
conventional oil production will represent about 40 percent of the
world's total liquids production.\242\
---------------------------------------------------------------------------

\242\ AEO 2008, at 199. Available at http://www.eia.doe.gov/oiaf/aeo/pdf/0383(2008).pdf (last accessed October 10, 2008).

---------------------------------------------------------------------------
In contrast, EIA describes its Low Price case in the following terms:

The low price case assumes that OPEC countries will increase
their conventional oil production to obtain approximately a 44-
percent share of total world liquids production, and that
conventional oil resources in non-OPEC countries will be more
accessible and/or less costly to produce (as a result of technology
advances, more attractive fiscal regimes, or both) than in the
reference case. With these assumptions, non-OPEC conventional oil
production is higher in the low price case than in the reference
case.\243\
---------------------------------------------------------------------------

\243\ Id.

---------------------------------------------------------------------------
Finally, EIA describes its High Price case as follows:

The high price case assumes that OPEC countries will continue to
hold their production at approximately the current rate, sacrificing
market share as global liquids production increases. It also assumes
that oil resources in non-OPEC countries will be less accessible
and/or more costly to produce than assumed in the reference
case.\244\
---------------------------------------------------------------------------

\244\ Id.

As these descriptions emphasize, EIA's Low and High Price Cases are
based on specific assumptions about the possible behavior of oil-
producing countries and future developments affecting global demand for
petroleum energy, and how these might differ from the behavior assumed
in constructing its Reference Case. However, this distinction does not
necessarily imply that EIA expects either its Low Price or High Price
Case forecast to be more accurate than its Reference Case forecast,
since EIA offers no assessment of which set of assumptions underlying
its Low Price, Reference, and High Price cases it believes is most
reliable.
EIA did recognize that world oil prices at the time the final
version of AEO 2008 were above even those forecast in its High Price
Case. However, it attributed this situation to short-term developments,
most or all of which were likely to prove transitory, as evidenced by
its statement in the Overview to AEO 2008:

As a result of recent strong economic growth worldwide,
transitory shortages of experienced personnel, equipment, and
construction materials in the oil industry, and political
instability in some major producing regions, oil prices currently
are above EIA's estimate of the long-run equilibrium price.\245\
---------------------------------------------------------------------------

\245\ Id., at 5.

This observation is consistent with EIA's statement in IEO 2008 that
current market conditions appeared to place world oil prices on a path
closer to the High Price Case than the Reference Case. While EIA
clearly expects prices to remain high in the near term, this does not
necessarily imply that it expects its High Price Case forecast to be
more reliable over the extended time horizon spanned by AEO 2008.
NHTSA has seriously considered the comments it received on the fuel
price forecasts used in the NPRM analysis, and paid close attention to
recent developments in the world oil market and in U.S. retail fuel
prices. The agency has also reviewed forecasts of world oil prices and
U.S. fuel prices available from sources other than EIA, as well as the
views expressed by petroleum market experts, professional publications,
and press reports.\246\ The agency notes that although both the views
of experts and projections of petroleum prices differ widely, the
emerging consensus appears to be that world petroleum and U.S. retail
fuel prices are likely to remain at levels that are more consistent
with those forecast in the AEO 2008 High Price Case than with the
Reference Case forecasts over the foreseeable future.\247\
---------------------------------------------------------------------------

\246\ These include EIA, Short-Term Energy Outlook, various
issues, available at http://www.eia.doe.gov/emeu/steo/pub/contents.html (last accessed November 13, 2008); International
Energy Agency, World Energy Outlook 2008, summary available at
http://www.iea.org/Textbase/npsum/WEO2008SUM.pdf (last accessed
November 13, 2008); AJM Petroleum Consultants, The AJM Price
Forecast, available at http://www.ajmpetroleumconsultants.com/index.php?page=price-forecast (last accessed Novemebr 13, 2008);
PetroStrategies, Inc, Survey of Oil Price Forecasts, available at
http://www.petrostrategies.org/Graphs/Oil_Price_Forecasts.htm
(last accessed November 13, 2008); International Monetary Fund,
World Economic Outlook, October 2008, Chapter 3: Is Inflation Back?
Commodity Prices and Inflation, available at http://www.imf.org/external/pubs/ft/weo/2008/02/pdf/c3.pdf (last accessed November 13,
2008); and Federal Reserve Bank of Dallas Economic Letter, Volume 3,
No. 5, May 2008, available at http://www.dallasfed.org/research/eclett/2008/el0805.html (last accessed November 13, 2008).
\247\ In the AEO High Price Case, prices for imported petroleum
are projected to average about $75 per barrel over the next 10
years, while U.S. retail gasoline prices are forecast to average
$2.90 per gallon over that same period; see AEO 2008, High Price
Case Table 12, available at http://www.eia.doe.gov/oiaf/aeo/excel/aeohptab_12.xls (last accessed October 19, 2008).
---------------------------------------------------------------------------

Over the period from 2011, when the standards adopted in this final
rule would take effect, and 2030, the outer time horizon of the AEO
2008 forecasts, retail gasoline prices in the AEO 2008 High Price case
are projected to rise steadily from $2.95 to $3.62 per gallon,
averaging $3.28 per gallon (all prices expressed in 2007 dollars). For
the years 2031 and beyond, the agency's analysis assumes that retail
fuel prices will remain at their forecast values for the year 2030, or
$3.62 per gallon. These prices are significantly higher than the AEO
2008 Revised Early Release Reference Case forecast used in the agency's
NPRM analysis, which averaged $2.34 per gallon (in 2006 dollars) over
that same period.\248\ After deducting state and federal fuel taxes,
this revised forecast results in an average value of $3.08 per gallon
of fuel saved over the lifetimes of 2011 passenger cars and light
trucks. Because of the uncertainty surrounding future gasoline prices,
the agency also conducted sensitivity analyses using EIA's Reference
and Low Price case forecasts of retail fuel prices.
---------------------------------------------------------------------------

\248\ The fuel price forecasts reported in EIA's AEO 2008
Revised Early Release and Final Release reflect the estimates
effects of various provisions of EISA--including the requirement to
achieve a combined CAFE level of 35 mpg by model year 2020--on the
demand for and supply of gasoline and other transportation fuels.
Thus the fuel price forecasts reported in these versions of AEO 2008
may already account for the reduction in fuel demand expected to
result from the CAFE standards adopted in this Final Rule, whereas
the agency's analysis of their effects would ideally use fuel price
forecasts that do not assume the adoption of higher CAFE standards
for model years 2011-20. However, the agency notes that the
difference between the Reference Case forecasts of retail gasoline
prices for 2011-30 between EIA's Early Release of AEO 2008, which
did not incorporate the effects of EISA, and its subsequent Revised
Early Release, which did reflect EISA, averaged only $0.0004 (i.e.,
less than one-half cent) per gallon over the period 2011-30. This
suggests that accounting for the effect of EISA would have had only
a minimal effect on the fuel price forecasts used in this analysis.
---------------------------------------------------------------------------

NHTSA is aware that EIA recently released a preliminary version of
its Annual Energy Outlook 2009, which appears to confirm then-EIA
Administrator Caruso's testimony before the House Select Committee in
June 2008 that the future path of gasoline prices likely more closely
resembles the AEO 2008 High Price Case than the 2008 Reference Case.
However, the agency has elected not to use this

[[Page 14320]]

newly-available forecast of fuel prices in this final rule, in part
because it did not have adequate time to replicate the entire analysis
reported in this rule using revised forecasts of fuel prices.\249\
Moreover, the forecast of gasoline prices from AEO 2009 Early Release
averages $3.45 over the period from 2009-30, only slightly higher than
the comparable figure for the AEO 2008 High Price forecast the agency
relied upon in preparing this analysis. Thus incorporating EIA's newest
forecast would be unlikely to have an effect on the fuel economy
standards adopted in this rule. The agency will continue to monitor
fuel price forecasts available from all sources and other forecasts,
and consider their implications for its choice among alternative price
scenarios developed by EIA.
---------------------------------------------------------------------------

\249\ U.S. Energy Information Administration, Annual Energy
Outlook 2009 Early Release, available at http://www.eia.doe.gov/oiaf/aeo/index.html (last accessed February 12, 2009).
---------------------------------------------------------------------------

5. Consumer Valuation of Fuel Economy and Payback Period
In the NPRM, NHTSA explained that in estimating the value of fuel
economy improvements that would result from alternative CAFE standards
to potential vehicle buyers, NHTSA assumed 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 behave as if they do not discount the value of these future fuel
savings. NHTSA chose the five-year figure because it represents the
current average term of consumer loans to finance the purchase of new
vehicles. NHTSA recognized that the period over which individual buyers
finance new vehicle purchases may not correspond to the time horizons
they apply in valuing fuel savings from higher fuel economy, but NHTSA
expressed its belief that five years represents a reasonable estimate
of the average period over which buyers who finance their purchases of
new vehicles receive--and thus are compelled to recognize--the monetary
value of future fuel savings resulting from higher fuel economy.
NHTSA explained that the value of fuel savings over the first five
years of a vehicle model's lifetime that would result under each
alternative fuel economy standard is calculated using the projections
of retail fuel prices described in the section above. The value of fuel
savings is then deducted from the technology costs incurred by the
vehicle's manufacturer to produce the improvement in that model's fuel
economy estimated for each alternative standard, to determine the
increase in the ``effective price'' to buyers of that vehicle model.
The Volpe model uses these estimates of effective costs for increasing
the fuel economy of each vehicle model to identify the order in which
manufacturers would be likely to select models for the application of
fuel economy-improving technologies in order to comply with stricter
standards. The average value of the resulting increase in effective
cost from each manufacturer's simulated compliance strategy is also
used to estimate the impact of alternative standards on manufacturers'
total sales for future model years.
However, NHTSA stated that it is important to recognize that the
agency estimates the aggregate value to the U.S. economy of fuel
savings resulting from alternative standards--or their ``social''
value--over the entire expected lifetimes of vehicles manufactured
under those standards, rather than over this shorter ``payback period''
that NHTSA assumes for vehicle buyers. This point is discussed in the
section below titled ``Vehicle survival and use assumptions.'' NHTSA
noted that as indicated previously, the maximum vehicle lifetimes used
to analyze the effects of alternative fuel economy standards are
estimated to be 25 years for passenger cars and 36 years for light
trucks.
NADA and Sierra Research agreed with the agency's assumption of a
5-year payback period for consumer valuation of fuel economy. NADA
commented that NHTSA's assumption of a 5 year payback period for
consumer valuation of fuel economy was reasonable. NADA argued that
``Even at high fuel prices, consumers who view fuel economy as an
important purchase criteria are hard pressed to make the case for
buying a more fuel efficient new vehicle if the up-front capital costs
associated with doing so cannot be recouped in short order.'' Thus,
NADA concluded, ``NHTSA should assume that most prospective purchasers
will not invest in fuel economy improvements that do not exhibit a
payback of five years or sooner.'' NADA also added that factors other
than the value of fuel savings should also be taken into account in
calculating the length of the payback period; specifically, it stated
that ``for purposes of calculating payback, real-world purchaser
finance costs, opportunity costs, and additional maintenance costs all
should be accounted for.''
The Sierra Research report submitted by the Alliance as Attachment
2 to its comments ``considered fuel cost savings over `payback' periods
of 5 and 20 years,'' but stated parenthetically that ``It is more
likely that average consumers would consider the savings during the
period of time they expect to own the vehicle, likely closer to the
five-year period.''
Other commenters disagreed with the agency's assumption of a 5-year
payback period for consumer valuation of fuel economy. Mr. Delucchi
stated simply that NHTSA ``should not do a `payback' analysis with a
zero discount rate and a 5-year payback period, because there is no
economic theory or consumer behavioral evidence to support this.''
However, he offered no additional suggestions as to what NHTSA should
use instead. Similarly, as part of its discussion on fuel price
estimates, the Sierra Club commented that NHTSA had ``arbitrarily
restricted'' the consumer payback period to 5 years, but offered no
further comments or explanation of this point.
CFA commented that ``the five year payback constraint plays a
critical role in ordering the technologies that are included in the
fleet to comply with various levels of the standard,'' and argued that
while NHTSA should perhaps not have included a payback period at all,
if it intended to do so, it should justify the 5-year payback period
better and consider a longer payback period. CFA commented that ``it is
not clear that one must assume a payback for any component of a vehicle
purchase. But if one does, the logical connection is between the period
of ownership and the payback, not the loan period.'' CFA further
commented that NHTSA failed to recognize the extent to which
``consumers and the market appreciate fuel economy,'' arguing that
``even if one looks at the ownership period, most alternative
investment opportunities available to consumers do not yield a five
year payback period; hybrids, many of which have payback periods of ten
years or more, are flying off auto dealer lots. Increasing the payback
period by one year raises the value of the fuel savings substantially,
by 20 percent.''
Ford commented that NHTSA should not have used the increase in the
``effective price'' to buyers to determine consumer valuation of fuel
economy, for two reasons. First, Ford argued that while NHTSA
``implicitly assumed that the technology costs incurred by the
manufactures can be fully passed on to buyers,'' this is not true ``in
the competitive environment of the U.S. automotive market.'' Second,
Ford

[[Page 14321]]

commented that the estimates of ``effective price'' depend on fuel
price assumptions, such that ``a higher gasoline price assumption will
lower the effective price estimates, holding everything else
constant.'' Ford cited the June 26, 2008 analysis by Sierra Research
that ``estimates that a consumer would not break even over a 20 year
period unless gas prices are sustained at $4.47 a gallon. Sierra also
concluded that by using a more conservative payback period of 5 years
the estimated breakeven gas price would have to be $6.59.''
Ford argued that NHTSA should instead use ``hedonic pricing
technique in estimating the consumer valuation of fuel economy,'' which
``determines the price of a vehicle by the characteristics of the car
such as towing, cargo volume, performance etc.'' Ford also argued that
NHTSA should not use ``effective price'' as a way of identifying in
which order manufacturers would apply technologies, because ``It is
quite unlikely that manufacturers are using this metric for selecting
models, since most manufacturers do not assume the technology costs can
be fully passed on to the buyers.''
Agency response: NHTSA notes that the payback period and the
effective cost calculation affect only the order in which manufacturers
are assumed to apply technologies in order to improve the fuel economy
of specific vehicles, and thus have no effect on the final CAFE
standards. Thus the assumptions about the length of the payback period
and discount rate that affect these calculations, while subject to some
uncertainty, are not a critical determinant of CAFE standards
themselves. Instead, their main role is to estimate the increase in the
value to potential buyers of the increases in fuel economy of specific
vehicle models, and to provide some indication of the extent to which
manufacturers are likely to be able to recoup their costs for complying
with higher CAFE standards through increases in those vehicles' sales
prices. The agency also reiterates that it estimates the social
benefits of fuel savings resulting from alternative standards over the
entire expected lifetimes of cars and light trucks subject to higher
CAFE standards, rather than over the payback period assumed for vehicle
buyers. Although many commenters mistakenly believe that the payback
period has an important effect on the stringency of the fuel economy
standards and therefore were suggesting different periods, no commenter
provided any data to support a different number of years for payback.
Thus NHTSA has continued to employ the same assumptions used in the
NPRM in developing the CAFE standards adopted in this final rule.
6. Vehicle Survival and Use Assumptions
NHTSA stated in the NPRM that its preliminary analysis of fuel
savings and related benefits from adopting alternative standards for MY
2011-2015 passenger cars and light trucks was based on estimates of the
resulting changes in fuel use over their entire lifetimes in the U.S.
vehicle fleet. NHTSA's first step in estimating lifetime fuel
consumption by vehicles produced during a model year is to calculate
the number of vehicles that are expected to remain in service during
each future year after they are produced and sold.\250\ This number is
calculated by multiplying the number of vehicles originally produced
during a model year by the proportion expected to remain in service at
the age they will have reached during each subsequent year, often
referred to as a ``survival rate.''
---------------------------------------------------------------------------

\250\ 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 (January 2006), at 8-11. Available at http://www-nrd.nhtsa.dot.gov/pdf/nrd-30/NCSA/Rpts/2006/809952.pdf (last
accessed August 21, 2008).
---------------------------------------------------------------------------

NHTSA explained that for the number of passenger cars and light
trucks that will be produced during future years, it relies on
projections reported by the EIA in its AEO Reference Case
forecast.\251\ For age-specific survival rates for cars and light
trucks, NHTSA uses updated values estimated from yearly registration
data for vehicles produced during recent model years, to ensure that
forecasts of the number of vehicles in use reflect recent increases in
the durability and expected life spans of cars and light trucks.\252\
These updated survival rates suggest that the typical expected
lifetimes of recent-model passenger cars and light trucks are 13.8 and
14.5 years, respectively.
---------------------------------------------------------------------------

\251\ U.S. Energy Information Administration, Annual Energy
Outlook 200, Reference Case Table 43. Available at (last accessed
October 4, 2008).
\252\ See Lu, supra note 250, at 8-11.
---------------------------------------------------------------------------

NHTSA's next step in estimating fuel use was to calculate the total
number of miles that the cars and light trucks produced in each model
year affected by the proposed CAFE standards will be driven during each
year of their lifetimes. To estimate total miles driven, the number of
cars and light trucks projected to remain in use during each future
year (calculated as described above) was multiplied by the average
number of miles that they are expected to be driven at the age they
will have reached in that year.
The agency initially estimated the average number of miles driven
annually by cars and light trucks of each age using data from the
Federal Highway Administration's 2001 National Household Transportation
Survey (NHTS).\253\ The agency then adjusted the NHTS estimates of
annual vehicle use to account for the effect of differences in fuel
cost per mile driven between the date the NHTS was conducted and the
future years when MY 2011 cars and light trucks would be in use. This
adjustment is intended to account for the ``rebound effect'' on vehicle
use caused by changes in fuel cost per mile (see Section V.B.8. below).
Fuel cost per mile driven is measured by the retail price of fuel per
gallon forecast for a future calendar year, divided by the estimated
on-road fuel economy in miles per gallon achieved by vehicles of each
model year that remain in service during that future year. The agency
made this adjustment by applying its estimate of the rebound effect to
the difference in fuel cost per mile driven between 2001, when the NHTS
was conducted, and the projected average fuel cost per mile over the
lifetimes of MY 2011 cars and light trucks.
---------------------------------------------------------------------------

\253\ For a description of the NHTS, see http://nhts.ornl.gov/quickStart.shtml (last accessed August 21, 2008).
---------------------------------------------------------------------------

Finally, NHTSA estimated fuel consumption during each calendar year
of model year 2011 vehicles' lifetimes by dividing the total number of
miles that that model year's surviving vehicles are driven by the fuel
economy that they are expected to achieve under each alternative CAFE
standard. Lifetime fuel consumption by MY 2011 cars or light trucks is
the sum of the fuel use by the vehicles produced during that model year
that are projected to remain in use during each year of their expected
lifetimes. In turn, the savings in lifetime fuel use by MY 2011 cars or
light trucks that would result from each alternative CAFE standard
would be the difference between its lifetime fuel use at the fuel
economy level they are projected to attain under the Baseline (No
Action) alternative, and their lifetime fuel use at the higher fuel
economy level they are

[[Page 14322]]

projected to achieve under that alternative standard.
As an illustration of this procedure, the revised estimates of new
vehicle sales used in the final rule analysis project that 6.85 million
light trucks will be produced during 2011, and NHTSA's updated survival
rates showed that slightly more than half of these--50.1 percent, or
3.43 million--are projected to remain in service during the year 2025,
when they will have reached an age of 14 years. At that age, the
estimates of vehicle use employed in this final rule analysis indicate
that light trucks achieving the fuel economy level required under the
Baseline alternative would be driven an average of 9,385 miles,
assuming that the AEO 2008 High fuel price forecast proves to be
correct. Thus surviving model year 2011 light trucks are projected to
be driven a total of 32.20 billion miles (= 3.43 million surviving
vehicles x 9,385 miles per vehicle) during 2025. Summing the results of
similar calculations for each year of their 36-year maximum lifetime,
the 6.85 million light trucks originally produced during MY 2011 would
be driven a total of 1,185 billion miles under the Baseline
alternative.
Under the Baseline alternative, MY 2011 light trucks are projected
to achieve a test fuel economy level of 23.0 mpg, which corresponds to
actual on-road fuel economy of 18.4 mpg (= mpg x 80 percent). Thus,
their lifetime fuel use under the Baseline alternative is projected to
be 64.4 billion gallons (1,185 billion miles divided by 18.4 miles per
gallon). Under the Optimized CAFE standard for MY 2011, light trucks
are projected to achieve a test fuel economy of 25.0 mpg, which
corresponds to an actual on-road mpg of 20.0. After adjusting their
average annual mileage to reflect the increase in usage that results
from the rebound effect of improved fuel economy, MY 2011 light trucks
are projected to be driven a total of 1,187 billion miles over their
expected lifetimes. Thus their lifetime fuel consumption under the
Optimized CAFE standard is projected to amount to 59.4 billion gallons
(1,187 billion miles divided by 20.0 miles per gallon), a reduction of
5.0 billion gallons from the 64.4 billion gallons they would consume
under the Baseline alternative.
NHTSA received no specific comments regarding the assumptions about
vehicle survival and use described in the NPRM. The exact figures for
annual vehicle use that are employed in the agency's analysis
supporting the final rule are updated to reflect differences in
estimated fuel economy levels under alternative CAFE standards, but are
otherwise unchanged from those used in the NPRM.
7. Growth in Total Vehicle Use
In the NPRM, NHTSA also explained its assumptions for potential
future growth in average annual vehicle use. By assuming that the
average number of miles driven by cars and light trucks at each age--
and thus their lifetime total mileage--will remain constant over the
future, NHTSA effectively assumes that future growth in total vehicle-
miles driven stems only from increases in the number of vehicles in
use, rather than from continuing increases in the average number of
miles that cars and light trucks are driven each year.\254\ Similarly,
because the survival rates used to estimate the number of cars and
light trucks remaining in service to various ages are assumed to remain
fixed for future model years, growth in the total number of cars and
light trucks in use is effectively assumed to result only from
increasing sales of new vehicles. In order to determine the validity of
these assumptions, the agency conducted a detailed analysis of the
causes of recent growth in total car and light truck use.
---------------------------------------------------------------------------

\254\ As described in the preceding section, increases in fuel
economy required by CAFE standards are assumed to increase lifetime
usage of cars and light trucks due to the fuel economy rebound
effect. Because a vehicle's fuel economy is determined when it is
produced, however, the resulting changes in its average annual use
at each age and its expected lifetime mileage are also determined
when it is produced. While the fuel economy rebound effect thus
contributes to differences in annual and lifetime vehicle use
between the Baseline alternative and Optimized CAFE standards, it is
not a source of continuing growth in average annual miles per
vehicle or in total annual VMT over the future.
---------------------------------------------------------------------------

From 1985 through 2005, the total number of miles driven (usually
referred to as vehicle-miles traveled, or VMT) by passenger cars
increased 35 percent, equivalent to a compound annual growth rate of
1.5 percent.\255\ During that time the total number of passenger cars
registered in the U.S. grew by about 0.3 percent annually, almost
exclusively as a result of increasing sales of new cars.\256\ Thus,
growth in the average number of miles that passenger cars are driven
each year accounted for the remaining 1.2 percent (= 1.5 percent--0.3
percent) annual growth in total passenger car use.\257\
---------------------------------------------------------------------------

\255\ Calculated from data reported in FHWA, Highway Statistics,
Summary to 1995, Table VM-201a, available at http://www.fhwa.dot.gov/ohim/summary95/vm201a.xlw (last accessed August 20,
2008), and Highway Statistics Publications, Annual Editions 1996-
2005, Table VM-1, available at http://www.fhwa.dot.gov/policy/ohpi/hss/hsspubs.cfm (last accessed October 4, 2008); follow links to
individual annual editions, select Section V: Roadway Extent
Characteristics, and Performance, scroll down to section entitled
``Traffic and Travel Data,'' and select link to Table VM-1.
\256\ An increase in the fraction of new passenger cars
remaining in service beyond age 10 accounted for approximately one-
tenth of total growth in the U.S. automobile fleet from 1985 to
2005, while the remaining 90 percent was accounted for by growth in
sales of new automobiles. The fraction of new automobiles remaining
in service to various ages was computed from R.L. Polk vehicle
registration data for 1997 through 2005 by the agency's Center for
Statistical Analysis.
\257\ Id.
---------------------------------------------------------------------------

The NPRM explained, however, that over this same period, total VMT
by light trucks increased much faster, growing at an annual rate of 5.1
percent. In contrast to the causes of growth in passenger car use,
nearly all growth in light truck use over these two decades was
attributable to rapid increases in the number of light trucks in use.
FHWA data show that growth in total miles driven by ``Two-axle, four-
tire trucks,'' a category that includes most or all light trucks
subject to CAFE standards, averaged 5.1 percent annually from 1985
through 2005. However, the number of miles that light trucks are driven
each year averaged 11,114 during 2005, almost unchanged from the
average figure of 11,016 miles during 1985.\258\ This means that
virtually all of the growth in total light truck VMT over this period
resulted from growth in the number of these vehicles in service, rather
than from growth in their average annual use. In turn, growth in the
size of the nation's light truck fleet has resulted almost exclusively
from rising production and sales of new light trucks, since the
fraction of new light trucks remaining in service to various ages has
remained stable or declined very slightly over the past two
decades.\259\
---------------------------------------------------------------------------

\258\ Id.
\259\ See the Lu study, supra note 250.
---------------------------------------------------------------------------

On the basis of this analysis, NHTSA tentatively concluded in the
NPRM that its projections of future growth in light truck VMT account
fully for the primary cause of its recent growth, which has been the
rapid increase in sales of new light trucks during recent model years.
However, the assumption that average annual use of passenger cars will
remain fixed over the future seemed to ignore an important source of
recent growth in their total use, the gradual increase in the average
number of miles they are driven. NHTSA explained that to the extent
that this factor continued to represent a significant source of growth
in future passenger car use, the agency's analysis would be likely to
underestimate the reductions in fuel use and related environmental
impacts resulting from more stringent CAFE

[[Page 14323]]

standards for passenger cars.\260\ NHTSA stated that it planned to
account explicitly for potential future growth in average annual use of
both cars and light trucks in the analysis for the final rule. NHTSA
received no specific comments to the NPRM about vehicle survival and
use.
---------------------------------------------------------------------------

\260\ NHTSA explained that assuming that average annual miles
driven per passenger car will continue to increase over the future
would increase the agency's estimates of total lifetime mileage for
MY 2011 passenger cars. Their estimated lifetime fuel use would also
increase under each alternative standard considered in the NPRM, but
in inverse relation to their fuel economy. Thus, NHTSA explained,
lifetime fuel use would increase by more under the No Increase
alternative than under any of the alternatives that would increase
passenger car CAFE standards, and by progressively less for the
alternatives that impose stricter standards. NHTSA stated that
taking account of this factor would thus increase the agency's
estimates of fuel savings for those alternatives, just as omitting
it would cause the agency's analysis to underestimate those fuel
savings.
---------------------------------------------------------------------------

In its analysis for this final rule, the agency has used estimates
of the annual number of miles driven by MY 2011 passenger cars and
light trucks at each age of their expected lifetimes that reflect the
previously-discussed adjustment for increased use due to the fuel
economy rebound effect. Similarly, these estimates also reflect the
effect on vehicle use of differences in fuel prices between the year
2001, when the National Household Travel Survey (NHTS), the agency's
original source for its estimates of annual vehicle use by age, was
conducted, and the AEO 2008 forecast of fuel prices for the period when
these vehicles will be in use. As discussed briefly in the preceding
section and in more detail in the following section, changes in fuel
prices are also assumed to cause a rebound effect in vehicle use,
because--like increases in fuel economy--variation in retail fuel
prices directly affects vehicles' fuel cost per mile driven. Because
future fuel prices are projected to be significantly higher than the
$1.80 (2007 dollars) average that prevailed at the time the NHTS was
conducted, this adjustment reduces projected average vehicle use during
future years, thus partly offsetting the effect of higher fuel economy.
Finally, the agency's estimates of vehicle use assume that the
average number of miles driven by passenger cars will continue to rise
by 1 percent annually, slightly below its 1.2 percent average annual
growth rate over the past two decades. This growth is assumed to be
independent of the changes in passenger car use that are projected to
result from increased fuel economy and higher fuel prices through the
rebound effect. Because average annual use of light trucks has not
increased significantly over the past two decades, no future change in
light truck use is assumed to occur independently of those attributable
to higher fuel prices and improved fuel economy through the rebound
effect.
NHTSA received no specific comments regarding the assumptions about
growth in total vehicle use presented in the NPRM. The assumptions
employed in the agency's analysis supporting the final rule remain
unchanged from those used in the NPRM.
8. Accounting for the Rebound Effect of Higher Fuel Economy
As discussed in the NPRM, the rebound effect refers to the tendency
of vehicle use to increase in response to higher fuel economy. The
rebound effect occurs because an increase in a vehicle's fuel economy
reduces its fuel cost for each mile driven (typically the largest
single component of the cost of operating a vehicle), and vehicle
owners take advantage of this reduced cost by driving more. Even with
higher fuel economy, this additional driving uses some fuel, so the
rebound effect reduces the fuel savings that would otherwise result
when fuel economy standards require manufacturers to increase fuel
economy. The rebound effect is usually expressed as the percentage by
which annual vehicle use increases when the cost of driving each mile
declines, due either to an increase in fuel economy or a reduction in
the retail price of fuel.
The rebound effect is an important parameter in NHTSA's evaluation
of alternative CAFE standards for future model years, because it
affects the actual fuel savings that are likely to result from adopting
stricter standards. The rebound effect can be measured by estimating
the elasticity of vehicle use with respect either to fuel economy
itself, or to fuel cost per mile driven.\261\ When expressed as a
positive percentage, either of these parameters gives the fraction of
fuel savings that would be expected to result from increased fuel
economy, but is offset by the added fuel use that occurs when vehicles
with higher fuel economy are driven more.
---------------------------------------------------------------------------

\261\ Fuel cost per mile is equal to the price of fuel in
dollars per gallon divided by fuel economy in miles per gallon, so
fuel cost per mile declines when a vehicle's fuel economy increases.
---------------------------------------------------------------------------

In the NPRM, NHTSA summarized existing research on the rebound
effect in order to explain its rationale for choosing the estimate of
15 percent it employed in analyzing alternative MY 2011-2015 fuel
economy standards; the following paragraphs repeat NHTSA's summary for
the reader's benefit.
Research on the magnitude of the rebound effect in light-duty
vehicle use dates to the early 1980s, and almost unanimously concludes
that a statistically-significant rebound effect occurs when vehicle
fuel efficiency improves.\262\ The most common approach to estimating
its magnitude has been to analyze household survey data on vehicle use,
fuel consumption, fuel prices (often obtained from external sources),
and other determinants of household travel demand to isolate the
response of vehicle use to higher fuel economy. Other studies have
relied on econometric analysis of annual U.S. data on vehicle use, fuel
economy, fuel prices, and other variables to identify the response of
total or average vehicle use to changes in fuel economy. Two recent
studies analyzed yearly variation in vehicle ownership and use, fuel
prices, and fuel economy among individual states over an extended time
period in order to measure the response of vehicle use to changing fuel
economy. Most studies measure the influence of fuel economy on vehicle
use indirectly through its effect on fuel cost per mile driven,
although a few attempt to measure the direct effect of fuel economy on
vehicle use.
---------------------------------------------------------------------------

\262\ Most studies estimate that the long-run rebound effect is
significantly larger than the immediate response to increased fuel
efficiency, since over a longer period drivers have more
opportunities to adjust their vehicle use to changes in fuel costs.
This long-run effect is more appropriate for evaluating the fuel
savings likely to result from stricter CAFE standards, since the
increases in fuel economy they require would reduce fuel costs over
the entire lifetimes of vehicles they affect. These lifetimes can
extend up to 25 years for passenger cars, and up to 36 years for
light trucks.
---------------------------------------------------------------------------

An important distinction among studies of the rebound effect is
whether they assume that the effect is constant, or varies over time in
response to prevailing fuel prices, fuel economy levels, personal
income, and household vehicle ownership. This distinction is important
because studies that allow the rebound effect to vary in response to
changes in these factors are likely to provide more reliable forecasts
of its future value.
In order to arrive at a preliminary estimate of the rebound effect
for use in assessing the fuel savings, emissions reductions, and other
impacts of the alternative standards, NHTSA reviewed 22 studies of the
rebound effect conducted from 1983 through 2007. NHTSA then conducted a
detailed analysis of the 66 separate estimates of the long-run rebound
effect reported in these studies, which is summarized in

[[Page 14324]]

Table V-2 below.\263\ As the table indicates, historical estimates of
the long-run rebound effect range from as low as 7 percent to as high
as 75 percent, with a mean of 23 percent. A higher rebound effect means
that more of the savings in fuel use expected to result from higher
fuel economy will be offset by additional driving, so that less fuel
savings will actually result.
---------------------------------------------------------------------------

\263\ Some studies did not separately present the overall
rebound effect, so NHTSA derived estimates of the overall rebound
effect when the studies reported more detailed results. For example,
when studies estimated different rebound effects for households
owning different numbers of vehicles, but did not report an overall
rebound effect, NHTSA computed a weighted average of the reported
values using the distribution of households among vehicle ownership
categories.
---------------------------------------------------------------------------

Limiting the sample of rebound effect estimates to the 50 estimates
reported in the 17 published studies yields the same range but a
slightly higher mean (24 percent), while focusing on the authors'
preferred estimates from published these studies narrows this range and
lowers its average slightly. In all three cases, the median estimate of
the rebound effect, which is less likely to be influenced by unusually
small and large estimates, is 22 percent. As Table V-2 indicates,
approximately two-thirds of all estimates reviewed, all published
estimates, and authors' preferred estimates fall in the range of 10 to
30 percent.
BILLING CODE 4910-59-P

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[GRAPHIC] [TIFF OMITTED] TR30MR09.048

BILLING CODE 4910-59-C
The type of data used and authors' assumptions about whether the
rebound effect varies over time have important effects on its estimated
magnitude, although the reasons for these patterns are difficult to
identify. As the table shows, the 34 estimates derived from analysis of
U.S. annual time-series data produce a median estimate of 14 percent
for the long-run rebound effect, while the median of the 23 estimates
based on household survey data is more than twice as large (31
percent). The 37 estimates from studies that assume a constant rebound
effect produce a median of 20 percent, while the 29 estimates from
studies allowing the rebound to vary have a slightly higher median
value (23 percent).
In selecting a value for the rebound effect to use in analyzing
alternative fuel economy standards for this rulemaking, NHTSA attached
greater significance to

[[Page 14326]]

studies that allow the rebound effect to vary in response to changes in
the factors that affect its magnitude. The agency's view is that
updating their estimates to reflect current economic conditions
provides a more reliable indication of its likely magnitude over the
lifetimes of vehicles that will be affected by those standards. As
Table V-2 reports, recalculating these 29 original estimates using 2006
values for retail fuel prices, average fuel economy, personal income,
and household vehicle ownership reduces their median estimate to 16
percent.\264\ Considering the empirical evidence on the rebound effect
as a whole, but according greater importance to the updated estimates
from studies allowing the rebound effect to vary, NHTSA selected a
rebound effect of 15 percent in the NPRM to evaluate the fuel savings
and other effects of the alternative fuel economy standards. However,
NHTSA stated that it did not believe that evidence of the rebound
effect's dependence on fuel prices or household income is sufficiently
convincing to justify allowing its future value to vary in response to
forecast changes in these variables. A range extending from 10 percent
to at least 20 percent, and perhaps as high as 25 percent, appeared to
NHTSA to be appropriate for the required analysis of the uncertainty
surrounding these estimates. While the agency selected 15 percent, it
also conducted analyses using rebound effects of 10 and 20 percent. The
results of these sensitivity analyses are shown in the FEIS at Section
3.4.4.2.
---------------------------------------------------------------------------

\264\ As an illustration, Small and Van Dender (2005) allow the
rebound effect to vary over time in response to changes in real per
capita income as well as in response to average fuel cost per mile
driven. While their estimate for the entire interval (1966-2001)
that they analyze is 22 percent, updating this estimate using 2007
values of these variables reduces the rebound effect to about 10
percent. Similarly, updating Greene's 1992 original estimate of a 15
percent rebound effect to reflect 2007 fuel prices and average fuel
economy reduces it to approximately 7 percent. See David L. Greene,
``Vehicle Use and Fuel Economy: How Big is the Rebound Effect?'' The
Energy Journal, 13:1 (1992), at 117-143.
In contrast, the distribution of households among vehicle
ownership categories in the data samples used by Hensher et al.
(1990) and Greene et al. (1999) are nearly identical to the most
recent estimates for the U.S., so updating their original estimates
to current U.S. conditions changes them very little. See David A.
Hensher, Frank W. Milthorpe, and Nariida C. Smith, ``The Demand for
Vehicle Use in the Urban Household Sector: Theory and Empirical
Evidence,'' Journal of Transport Economics and Policy, 24:2 (1990),
at 119-137; see also David L. Greene, James R. Kahn, and Robert C.
Gibson, ``Fuel Economy Rebound Effect for Household Vehicles,'' The
Energy Journal, 20:3 (1999), at 1-21.
---------------------------------------------------------------------------

The only commenter suggesting that NHTSA use a larger rebound
effect than 15 percent was the Alliance, which based its comments on
analyses it commissioned from Sierra Research and NERA Economic
Consulting, Inc. Sierra Research cited a 1999 paper by David Greene, et
al., at ORNL as evidence that the long-run rebound effect should be 20
percent,\265\ and stated further that NHTSA used a rebound effect of 20
percent in its April 2003 final rule setting fuel economy standards for
MY 2005-2007 light trucks. Sierra Research assumed a 17 percent rebound
effect in its analysis for the Alliance ``to be conservative.'' NERA's
report argued that NHTSA should use a rebound effect of 20 percent,
because 15 percent gave ``disproportionate weight'' to the Small and
Van Dender study, which NERA called ``a single study with empirical
limitations.'' NERA stated that its analysis ``corrected'' the Small
and Van Dender model, the primary correction apparently being to
``properly account for differences in the cost of living across
states,'' with respect to income and fuel prices. NERA consequently
used a 24 percent rebound effect for its report.
---------------------------------------------------------------------------

\265\ David L. Greene, et al., ``Fuel Economy Rebound Effect for
U.S. Household Vehicles,'' The Energy Journal, Vol. 20, No. 3, 1999.
---------------------------------------------------------------------------

Other commenters, including CARB, UCS, EDF, Public Citizen, CFA,
and Mark Delucchi, argued that NHTSA should use a lower rebound effect
than 15 percent, generally because Small and Van Dender's recent study
found a lower rebound effect. CARB, for example, commented that while
it is true that the consensus estimate of past studies is that the
rebound effect should be 15 percent, Small and Van Dender had found a
long-run rebound effect of 4.9 percent for the 1997-2001 period in
California due to higher incomes, and that it would decline even
further by 2020. Thus, CARB argued, NHTSA should accept ``two critical
findings'' of the Small and Van Dender study, specifically that (1) the
future value of the rebound effect would decline as household real
income increases; and that (2) as fuel prices increase, people spend a
larger share of their income on fuel purchases, thus becoming more
sensitive to fuel prices. CARB stated that NHTSA should use a rebound
effect of no higher than 10 percent, and conduct a sensitivity analysis
using a rebound effect of 5 percent.
UCS similarly commented that if NHTSA intends to ``attach greater
significance'' to the Small and Van Dender study, as NHTSA stated in
the NPRM, then it must accept Small and Van Dender's conclusion ``that
the rebound effect in the U.S. is small and has been getting smaller.''
Thus, UCS argued, NHTSA should employ a rebound effect of no greater
than 10 percent, and only if NHTSA used higher fuel prices in the final
rule. UCS implied, however, that NHTSA should apply no rebound effect
at all unless it used higher fuel prices in the final rule, citing a
2005 final report by Small and Van Dender to CARB as stating that ``* *
* [the authors] cannot prove that there is any rebound effect resulting
from stricter fuel efficiency regulations * * *.'' Mr. Delucchi also
commented that NHTSA should use a lower rebound effect because the
agency should ``give more weight to Small and Van Dender,'' although he
did not explain how the agency should give this additional weight. Mr.
Delucchi also stated that a recent study by Hughes et al. ``found a
very low short-run price elasticity of demand for gasoline.''
EDF and Public Citizen focused on other findings in the Small and
Van Dender study to argue for a lower rebound effect. EDF commented
that NHTSA should not have selected a 15 percent rebound effect based
on existing rebound effect literature, because when Small and Van
Dender reviewed the literature, the authors suggested ``that many prior
studies have overestimated the rebound effect because of some model
specification problems, such as not allowing for the fact that fuel
efficiency is endogenous, i.e., driving more efficient cars might
encourage more driving, but long commutes might encourage purchase of
more fuel efficient vehicles.'' EDF argued that because Small and Van
Dender's study did not have these biases, NHTSA should use a 10 percent
rebound effect, ``to be consistent with the latest findings and to
reflect current conditions of income, urbanization and fuel costs.''
EDF also suggested that the rebound effect may be zero, citing
Greene's 2005 testimony before the House of Representatives Science
Committee that ``the rebound effect could be reduced to negligible if
we `[take] into account the fact that increased fuel economy will
increase the price of vehicles together with the likelihood that
governments will respond to losses in highway revenues by raising motor
fuel taxes.' '' Public Citizen focused on Small and Van Dender's
finding that ``most empirical measurements of the rebound effect rely
heavily on variations in the fuel price,'' stating that this ``again
raises the question of whether NHTSA's assumptions about the rebound
effect are colored by the estimates of future fuel prices.''
CFA commented that NHTSA should use a rebound effect of no higher
than

[[Page 14327]]

5 percent, citing a recent analysis by the Congressional Budget Office
that rising real incomes have made consumers much less responsive to
short-run changes in gasoline prices. CFA thus argued that since
gasoline is more expensive now, NHTSA was incorrect to assume ``that
consumers irrationally burn up their fuel savings on increased driving,
rather than use it to buy other goods and services and applied this
`rebound' effect to analyses where it should not play a role.'' CFA
also argued that NHTSA should have identified and provided more
information about the conclusions in each of the studies it reviewed in
developing its number for the rebound effect.
Agency response: NHTSA has updated the 29 estimates from studies
that allowed the rebound effect to vary to reflect 2008 fuel prices,
fuel economy, vehicle ownership levels, and household income. The
resulting updated estimates are significantly higher than those
reported in the NPRM, primarily because of the large increase in fuel
prices since 2006 (the date to which the estimates reported in the NPRM
were updated). The updated 2008 estimates of the fuel economy rebound
effect range from 8 percent to 46 percent, with a median value of 19
percent. Using the average retail gasoline price forecast for 2011-30
from the AEO 2008 High Price case, the projected estimates of the
rebound effect for those years would range from 7 percent to 46
percent, with a median value of 19 percent.
NHTSA also notes that the forecast of fuel prices used to develop
its adopted CAFE standards for MY 2011 projects that retail gasoline
prices will continue to rise by somewhat more than 1 percent annually
over the lifetimes of vehicles affected by those standards. At the same
time, real household incomes are projected to grow by about 2 percent
annually over this same period. Given the relative sensitivity of the
Small and Van Dender rebound effect estimate to changes in fuel prices
and income, these forecasts suggest that future growth in fuel prices
is likely to offset a significant fraction of the projected decline in
the rebound effect that would result from income growth.
In response to the comment by EDF citing Greene's statement that
the rebound effect could be negligible over the foreseeable future,
NHTSA notes that increases in the purchase price or ownership cost of
vehicles may not significantly affect the marginal cost of additional
vehicle use, since the depreciation and financing components of vehicle
ownership costs vary only minimally with vehicle use. In addition, the
agency notes that Greene's assertion that governments are likely to
respond to losses in fuel tax revenues by raising fuel tax rates (thus
increasing retail fuel prices) is highly speculative, and there is
limited evidence that this has actually occurred in response to recent
declines in state fuel tax revenues.\266\
---------------------------------------------------------------------------

\266\ Federal Highway Administration data show that fuel tax
revenues declined in only 5 of the 50 states between 2000 and 2006,
and that none of these states raised gasoline taxes over that same
period; see FHWA, Highway Statistics 2006, Table MF-205, available
at http://www.fhwa.dot.gov/policy/ohim/hs06/pdf/mf205.pdf (last
accessed November 13, 2008), Table MF-1 available at http://www.fhwa.dot.gov/policy/ohim/hs06/xls/mf1.xls (last accessed
November 13, 2008), and Highway Statistics 2000, Table MF-1
available at http://www.fhwa.dot.gov/ohim/hs00/xls/mf1.xls (last
accessed November 13, 2008).
---------------------------------------------------------------------------

In light of these results, NHTSA has elected to continue to use a
15 percent rebound effect in its analysis of fuel savings and other
benefits from higher CAFE standards for this final rule. Recognizing
the uncertainty surrounding this estimate, the agency has analyzed the
sensitivity of its benefits estimates to a range of values for the
rebound effect from 10 percent to 20 percent. In its future CAFE
rulemaking activities, NHTSA will review all new available data and
consider whether and to what extent any assumptions regarding the
rebound effect merit revising based on that data.
9. Benefits From Increased Vehicle Use
The NPRM explained that NHTSA also values the additional benefits
that derive from increased vehicle use due to the rebound effect. This
additional mobility provides drivers and their passengers better access
to social and economic opportunities away from home, because they are
able to make longer or more frequent trips. The amount by which the
total benefits from this additional travel exceed its costs (for fuel
and other operating expenses) measures the net benefits that drivers
receive from the additional travel, usually referred to as increased
consumer surplus. NHTSA's analysis estimates the economic value of this
increased consumer surplus using the conventional approximation, which
is one half of the product of the decline in vehicle operating costs
per mile and the resulting increase in the annual number of miles
driven. The NPRM noted that the magnitude of these benefits represents
a small fraction of the total benefits from the alternative fuel
economy standards considered.
In its comment on the NPRM, NERA speculated that NHTSA ``may have
miscalculated the `consumer surplus' associated with the additional
driving due to the rebound effect.'' NERA stated that NHTSA

* * * describes its calculation in terms of the conventional
triangle under the demand curve but above the price paid. However,
it appears that instead NHTSA estimated the total area under the
demand curve for the extra VMT traveled. That is appropriate if
NHTSA's estimates of net savings in fuel expenditures include
additional expenditures on the additional fuel consumed as a result
of the rebound effect.

NHTSA notes in response to NERA's comment that its estimates of net
savings in fuel expenditures do reflect the costs for additional fuel
consumed as a result of increased rebound-effect driving. Thus the
agency has correctly calculated the increase in consumer surplus
associated with the additional driving due to the rebound effect. Since
it received no other comments on the estimates of benefits from
increased vehicle use presented in the NPRM, NHTSA has calculated these
benefits using the same procedure in its analysis supporting this final
rule.
10. Added Costs From Congestion, Crashes, and Noise
NHTSA also factors in the additional costs from increased traffic
congestion, motor vehicle accidents, and highway noise that result from
additional vehicle use associated with the rebound effect. Increased
vehicle use can contribute to traffic congestion and delays by
increasing traffic volumes on facilities that are already heavily
traveled, which may cost drivers more in terms of increased travel time
and operating expenses. Increased vehicle use can also increase the
external costs associated with traffic accidents; although drivers may
consider the costs they (and their passengers) might face from the
possibility of being involved in a traffic accident when they decide to
make additional trips, it is very unlikely that they account for the
potential ``external'' costs that any accident imposes on the occupants
of other vehicles or on pedestrians.
Finally, increased vehicle use can also contribute to traffic
noise, which causes inconvenience, irritation, and potentially even
discomfort to occupants of other vehicles, to pedestrians and other
bystanders, and to residents or occupants of surrounding property.
Since drivers are unlikely to consider the effect their vehicle's noise
has on others, noise represents another externality that NHTSA attempts
to account for. Any increase in these externality costs, however, is
dependent on the traffic conditions under which

[[Page 14328]]

additional rebound-effect driving takes place.
In the NPRM, NHTSA relied on estimates developed by the Federal
Highway Administration (FHWA) of the increased external costs of
congestion, accidents (property damage and injuries), and noise costs
caused by added driving due to the rebound effect.\267\ These estimates
are intended to measure the increases in costs due to these
externalities caused by automobiles and light trucks that are borne by
persons other than their drivers, or ``marginal'' external costs.
Updated to 2007 dollars, FHWA's ``Middle'' estimates for marginal
congestion, accident, and noise costs caused by automobile use amount
to 5.4 cents, 2.3 cents, and 0.1 cents per vehicle-mile (or 7.8 cents
per vehicle-mile in total), while costs for light trucks are 4.8 cents,
2.6 cents, and 0.1 cents per vehicle-mile (7.5 cents per vehicle-mile
in total).\268\ These costs are multiplied by the annual increases in
automobile and light truck use from the rebound effect to yield the
estimated increases in congestion, accident, and noise externality
costs during each future year.
---------------------------------------------------------------------------

\267\ These estimates were developed by FHWA for use in its 1997
Federal Highway Cost Allocation Study. See http://www.fhwa.dot.gov/policy/hcas/final/index.htm (last accessed October 5, 2008).
\268\ Id., at Tables V-22, V-23, and V-24 (last accessed October
5, 2008).
---------------------------------------------------------------------------

NHTSA received comments from the Alliance and from the Mercatus
Center on the increased costs from congestion, crashes, and noise due
to the rebound effect. The Alliance submitted an analysis by NERA
Economic Consulting that argued that NHTSA had underestimated the
increased costs from congestion, crashes, and noise. The NERA analysis
disagreed with NHTSA's method for updating the FHWA estimates, arguing
that it was unclear exactly how NHTSA had updated the FHWA values to
2006 dollars. The NERA analysis also argued that FHWA's estimate was
``based on a value of $12.38 per vehicle hour (in 1994 dollars),''
while NHTSA used a value of $24 per vehicle hour ``to value time
savings it estimates would result from fewer fill-ups as a result of
higher MPG and increased range for a tank of fuel.'' Thus, the NERA
analysis concluded that NHTSA had overvalued the time savings, which
NERA seemed to attribute to its belief that NHTSA does not value time
spent in traffic congestion ``at least as highly as time spent in
service stations while filling up.'' \269\ Thus, the NERA analysis
argued that congestion costs per mile would increase by about 68
percent if NHTSA had updated FHWA's estimates in a ``consistent''
manner with ``NHTSA's valuation of time savings for vehicle occupants
in another part of its analysis.''
---------------------------------------------------------------------------

\269\ NERA appears to suggest that time spent in service
stations while filling up includes the fact that ``stops at service
stations often serve multiple purposes, not just refueling.'' NERA
then appears to suggest that people feel similarly about time spent
in traffic congestion.
---------------------------------------------------------------------------

The NERA analysis also argued that the baseline 1997 congestion
values ``should be adjusted upward even more to reflect increasing
levels of congestion between then and now and the further increases
likely'' within the lifetimes of the vehicles, the basis for NHTSA's
cost analysis. The analysis stated that this was because ``With higher
baseline congestion, the marginal impact of additional VMT will
increase because congestion, like other queuing phenomena, increases at
an increasing rate as capacity utilization grows.''
NERA also argued more generally that increased costs from
congestion, crashes, and noise are proportional to the rebound effect,
which means that a higher rebound effect would result in higher
costs.\270\
---------------------------------------------------------------------------

\270\ NERA suggested using a rebound elasticity of -0.2 instead
of -0.15, which it claimed would increase the costs from congestion,
crashes, and noise by about one third.
---------------------------------------------------------------------------

The NERA analysis did not cover NHTSA's estimates of accident and
noise costs per mile, but cited the same RFF study referred to in the
NPRM to say that it ``estimated a value per mile roughly 20 percent
higher ($0.030 vs. $0.025) than NHTSA's.''
The Mercatus Center focused only on congestion costs, and commented
that NHTSA should consider ``The possibility that the cost of increased
congestion, a product of the `rebound effect,' does not take into
account likely increasing marginal costs as considered in NHTSA's
model.'' The commenter stated that NHTSA's estimates ``implicitly
assume[] a constant marginal cost of congestion across all possible
total quantities of vehicle miles driven for each vehicle category.''
However, it cited the FHWA study as stating that congestion cost
impacts are ``extremely sensitive'' to peak versus off-peak traffic
periods. Thus, the commenter argued, if the costs can vary within a day
(as during peak and off-peak periods), they must certainly vary across
years, if the total amount of traffic varies across years as well. In
essence, if VMT increases, total congestion and the marginal cost of
congestion must also increase, all other things held constant.
However, if all other things are not held constant, e.g., if new
roads are built to handle increasing traffic, the commenter argued that
``total congestion does not necessarily increase with increases in
total vehicle miles driven.'' The commenter argued that NHTSA should
include an estimate of the costs of building additional roads or
altering existing ones to mitigate congestion due to the rebound
effect. That estimate should include accounting for ``the increasing
difficulty of building a new road in an urbanized area,'' which the
commenter stated is ``probably one of the best examples of an activity
that has rapidly increasing marginal costs,'' as well as the
environmental costs of building new roads, i.e., costs due to sprawl.
The commenter asserted that ``It is incumbent upon NHTSA and the
Environmental Protection Agency to produce an inclusive estimate of the
costs of the rebound effect--one that either includes both increasing
marginal cost of congestion and the cost of the new roads that will
lead to increased congestion.''
The Mercatus Center also pointed out an apparent inconsistency in
the NPRM in the reporting of FHWA's estimates of passenger car versus
light truck costs for increased congestion, crashes, and noise.
For this final rule, NHTSA has corrected the inconsistency in the
NPRM's reporting of external costs from additional automobile and light
truck use noted by the Mercatus Center.
NHTSA notes that congestion cost associated with additional travel
may be particularly high if it occurs during peak travel periods and on
facilities that are already heavily utilized. However, the FHWA
estimates of increased congestion costs from added vehicle use assume
that the increase in travel is distributed over the hours of the day
and among specific routes in proportion to the existing temporal and
geographic distributions of total VMT. Thus while some of the
additional travel may impose significant costs for additional
congestion and delays, much of it is likely to occur at times and
locations where excess roadway capacity is available and congestion
costs imposed by added vehicle use are minimal.
NHTSA believes it is reasonable to assume that additional vehicle
use due to the fuel economy rebound effect will be distributed over the
day and among locations in much the same way as current travel is
distributed. As a consequence, the FHWA estimates of congestion costs
from increased vehicle use are likely to provide more accurate
estimates of the increased congestion

[[Page 14329]]

costs caused by added rebound-effect driving than are the estimates
submitted by commenters, which apply to peak travel periods and
locations that experience high traffic volumes. Thus in the analysis
supporting the final rule, NHTSA has continued to rely upon the FHWA
values to estimate the increase in congestion costs likely to result
from added rebound-effect driving.
11. Petroleum Consumption and Import Externalities
The NPRM also discussed the fact that 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; (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.\271\ 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. Any
reduction in their total value that results from improved passenger car
and light truck fuel economy represents an economic benefit of setting
more stringent CAFE standards, in addition to the value of fuel savings
and emissions reductions themselves.
---------------------------------------------------------------------------

\271\ 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, pp. 1167-1218.
---------------------------------------------------------------------------

NHTSA explained that increased U.S. oil imports can impose higher
costs on all purchasers of petroleum products, because the U.S. is a
sufficiently large purchaser of foreign oil supplies that changes in
U.S. demand can affect the world price. The effect of U.S. petroleum
imports on world oil prices is determined by the degree of OPEC
monopoly power over global oil supplies, and the degree of monopsony
power over world oil demand exerted by the U.S. The combination of
these two factors means that increases in domestic demand for petroleum
products that are met through higher oil imports can cause the price of
oil in the world market to rise, which imposes economic costs on all
other purchasers in the global petroleum market in excess of the higher
prices paid by U.S. consumers.\272\ Conversely, reducing U.S. oil
imports can lower the world petroleum price, and thus generate benefits
to other oil purchasers by reducing these ``monopsony costs.''
---------------------------------------------------------------------------

\272\ For example, if the U.S imports 10 million barrels of
petroleum per day at a world oil price of $20 per barrel, its total
daily import bill is $200 million. If increasing imports to 11
million barrels per day causes the world oil price to rise to $21
per barrel, the daily U.S. import bill rises to $231 million. The
resulting increase of $31 million per day is attributable to
increasing daily imports by only 1 million barrels. This means that
the incremental cost of importing each additional barrel is $31, or
$10 more than the newly-increased world price of $21 per barrel.
This additional $10 per barrel represents a cost imposed on all
other purchasers in the global petroleum market by U.S. buyers, in
excess of the price they pay to obtain those additional imports.
---------------------------------------------------------------------------

NHTSA stated that although the degree of current OPEC monopoly
power is subject to debate, the consensus appears to be that OPEC
remains able to exercise some degree of control over the response of
world oil supplies to variation in world oil price so that the world
oil market does not behave completely competitively.\273\ The extent of
U.S. monopsony power is determined by a complex set of factors,
including the relative importance of U.S. imports in the world oil
market, and the sensitivity of petroleum supply, and demand to its
world price among other participants in the international oil market.
Most evidence appears to suggest that variation in U.S. demand for
imported petroleum continues to exert some influence on world oil
prices, although this influence appears to be limited.\274\
---------------------------------------------------------------------------

\273\ For a summary of this issue, see Leiby, Paul N., Donald W.
Jones, T. Randall Curlee, and Russell Lee, Oil Imports: An
Assessment of Benefits and Costs, ORNL-6851, Oak Ridge National
Laboratory, November 1, 1997, at 17. Available at http://pzl1.ed.ornl.gov/ORNL6851.pdf (last accessed August 26, 2008).
\274\ Id., at 18-19.
---------------------------------------------------------------------------

The second component of external economic costs imposed by U.S.
petroleum imports that NHTSA considered arises partly because an
increase in oil prices triggered by a disruption in the supply of
imported oil reduces the level of output that the U.S. economy can
produce. The reduction in potential U.S. economic output depends on the
extent and duration of the increases in petroleum product prices that
result from a disruption in the supply of imported oil, as well as on
whether and how rapidly these prices return to pre-disruption levels.
Even if prices for imported oil return completely to their original
level, however, economic output will be at least temporarily reduced
from the level that would have been possible without a disruption in
oil supplies.
Because supply disruptions and resulting price increases tend to
occur suddenly rather than gradually, they can also impose costs on
businesses and households for adjusting their use of petroleum products
more rapidly than if the same price increase had occurred gradually
over time. These adjustments impose costs because they temporarily
reduce economic output even below the level that would ultimately be
reached once the U.S. economy completely adapted to higher petroleum
prices. The additional costs to businesses and households reflect their
inability to adjust prices, output levels, and their use of energy and
other resources quickly and smoothly in response to rapid changes in
prices for petroleum products.
Since future disruptions in foreign oil supplies are an uncertain
prospect, each of these disruption costs must be adjusted by the
probability that the supply of imported oil to the U.S. will actually
be disrupted. The ``expected value'' of these costs--the product of the
probability that an oil import disruption will occur and the costs of
reduced economic output and abrupt adjustment to sharply higher
petroleum prices--is the appropriate measure of their magnitude. Any
reduction in these expected disruption costs resulting from a measure
that lowers U.S. oil imports represents an additional economic benefit
beyond the direct value of savings from reduced purchases of petroleum
products.
While the vulnerability of the U.S. economy to oil price shocks is
widely thought to depend on total petroleum consumption rather than on
the level of oil imports, variation in imports is still likely to have
some effect on the magnitude of price increases resulting from a
disruption of import supply. In addition, changing the quantity of
petroleum imported into the U.S. may also affect the probability that
such a disruption will occur. If either the size of the likely price
increase or the probability that U.S. oil supplies will be disrupted is
affected by oil imports, the expected value of the costs from a

[[Page 14330]]

supply disruption will also depend on the level of imports.
NHTSA explained that businesses and households use a variety of
market mechanisms, including oil futures markets, energy conservation
measures, and technologies that permit rapid fuel switching to
``insure'' against higher petroleum prices and reduce their costs for
adjusting to sudden price increases. While the availability of these
market mechanisms has likely reduced the potential costs of disruptions
to the supply of imported oil, consumers of petroleum products are
unlikely to take account of costs they impose on others, so those costs
are probably not reflected in the price of imported oil. Thus, changes
in oil import levels probably continue to affect the expected cost to
the U.S. economy from potential oil supply disruptions, although this
component of oil import costs is likely to be significantly smaller
than estimated by studies conducted in the wake of the oil supply
disruptions during the 1970s.
The third component that NHTSA identified of the external economic
costs of importing oil into the U.S. includes government outlays for
maintaining a military presence to secure the supply of oil imports
from potentially unstable regions of the world and to protect against
their interruption. Some analysts also include outlays for maintaining
the U.S. Strategic Petroleum Reserve (SPR), which is intended to
cushion the U.S. economy against the consequences of disruption in the
supply of imported oil, as additional costs of protecting the U.S.
economy from oil supply disruptions.
NHTSA expressed its belief that while costs for U.S. military
security may vary over time in response to long-term changes in the
actual level of oil imports into the U.S., these costs are unlikely to
decline in response to any reduction in U.S. oil imports resulting from
raising future CAFE standards for passenger cars and light trucks. U.S.
military activities in regions that represent vital sources of oil
imports also serve a broader range of security and foreign policy
objectives than simply protecting oil supplies, and as a consequence
are unlikely to vary significantly in response to changes in the level
of oil imports prompted by higher standards.
Similarly, NHTSA stated that while the optimal size of the SPR from
the standpoint of its potential influence on domestic oil prices during
a supply disruption may be related to the level of U.S. oil consumption
and imports, its actual size has not appeared to vary in response to
recent changes in oil imports. Thus while the budgetary costs for
maintaining the SPR are similar to other external costs in that they
are not likely to be reflected in the market price for imported oil,
these costs do not appear to have varied in response to changes in oil
import levels.
In analyzing benefits from its recent actions to increase light
truck CAFE standards for model years 2005-2007 and 2008-2011, NHTSA
relied on a 1997 study by Oak Ridge National Laboratory (ORNL) to
estimate the value of reduced economic externalities from petroleum
consumption and imports.\275\ More recently, ORNL updated its estimates
of the value of these externalities, using the analytic framework
developed in its original 1997 study in conjunction with recent
estimates of the variables and parameters that determine their
value.\276\ These include world oil prices, current and anticipated
future levels of OPEC petroleum production, U.S. oil import levels, the
estimated responsiveness of oil supplies and demands to prices in
different regions of the world, and the likelihood of oil supply
disruptions. ORNL prepared its updated estimates of oil import
externalities for use by EPA in evaluating the benefits of reductions
in U.S. oil consumption and imports expected to result from its
Renewable Fuel Standard Rule of 2007 (RFS).\277\
---------------------------------------------------------------------------

\275\ Id.
\276\ Leiby, Paul N., ``Estimating the Energy Security Benefits
of Reduced U.S. Oil Imports: Final Report,'' Oak Ridge National
Laboratory, ORNL/TM-2007/028, Revised March 14, 2008. Available at
http://pzl1.ed.ornl.gov/energysecurity.html (click on link below
``Oil Imports Costs and Benefits'') (last accessed August 26, 2008).
\277\ 72 FR 23899 (May 1, 2007).
---------------------------------------------------------------------------

The updated ORNL study was subjected to a detailed peer review by
experts nominated by EPA, and its estimates of the value of oil import
externalities were subsequently revised to reflect their comments and
recommendations.\278\ Specifically, reviewers recommended that ORNL
increase its estimates of the sensitivity of oil supply by non-OPEC
producers and oil demand by nations other than the U.S. to changes in
the world oil price, as well as reduce its estimate of the sensitivity
of U.S. GDP to potential sudden increases in world oil prices.
---------------------------------------------------------------------------

\278\ Peer Review Report Summary: Estimating the Energy Security
Benefits of Reduced U.S. Oil Imports, ICF, Inc., September 2007.
---------------------------------------------------------------------------

After making the revisions recommended by peer reviewers, ORNL's
updated estimates of the monopsony cost associated with U.S. oil
imports ranged from $2.77 to $13.11 per barrel, with a most likely
estimate of $7.41 per barrel (in 2005 dollars). These estimates imply
that each gallon of fuel saved as a result of adopting higher CAFE
standards will reduce the monopsony costs of U.S. oil imports by $0.066
to $0.312, with the most likely value $0.176 per gallon saved. ORNL's
updated and revised estimates of the increase in the expected costs
associated with oil supply disruptions to the U.S. and the resulting
rapid increase in prices for petroleum products amount to $2.10 to
$7.40 per barrel, with a likely estimate of $4.59 per barrel (again in
2005 dollars). According to these estimates, each gallon of fuel saved
will reduce the expected cost disruption to the U.S. economy by $0.050
to $0.176 per gallon, with the most likely value $0.109 per gallon.
NHTSA stated that when updated to 2006 dollars, the updated and
revised ORNL estimates suggest that the combined reduction in monopsony
costs and expected costs to the U.S. economy from oil supply
disruptions resulting from lower fuel consumption total $0.120 to
$0.504 per gallon, with a most likely estimate of $0.295 per gallon.
This represents the additional economic benefit likely to result from
each gallon of fuel saved by higher CAFE standards, beyond the savings
in resource costs for producing and distributing each gallon of fuel
saved. NHTSA explained that it employed this most likely estimate in
its analysis of the benefits from fuel savings projected to result from
alternative CAFE standards for MYs 2011-2015. NHTSA also analyzed the
effect on these benefits estimates from variation in this value over
the range from $0.120 to $0.504 per gallon of fuel saved.
NHTSA's analysis of benefits from alternative CAFE standards for
the NPRM did not include cost savings from either reduced outlays for
U.S. military operations or maintaining a smaller SPR among the
external benefits of reducing gasoline consumption and petroleum
imports by means of tightening future standards. NHTSA stated that this
view concurs with both the original ORNL study of economic costs from
U.S. oil imports and its recent update, which conclude that savings in
government outlays for these purposes are unlikely to result from
reductions in consumption of petroleum products and oil imports on the
scale of those likely to result from reductions in consumption of
petroleum products and oil imports on the scale of those likely to
result from the alternative increases in CAFE standards considered for
MYs 2011-2015.
All commenters addressing the issue of military costs argued that
NHTSA should use a value higher than zero. Mr. Delucchi, CARB, and the
Attorneys General all cited Mr. Delucchi's 2008

[[Page 14331]]

peer-reviewed article in Energy Policy \279\ to argue that military
costs should be higher than zero. CARB commented that the study
``undermines the 15-year-old logic from a Congressional Research Study,
which NHTSA appears to adopt here (page 24411), which concluded we have
so many other security interests in the Middle East that sharply
reducing oil imports, therefore, would not affect our military expense
there.'' CARB argued that ``to the contrary, the Energy Policy study
authors conclude `spending on defense of the Persian Gulf is in fact
related to U.S. interests in the region, which are mainly, but not
entirely, oil interests.' '' CARB cited the study as stating that the
``best estimate of this relationship translates to $0.03-$0.15 per
gallon * * *'' The Attorneys General also cited the Energy Policy
article as assigning ``values to the military savings attributable to
decreased oil imports,'' and referenced the same per-gallon conclusion.
---------------------------------------------------------------------------

\279\ Mark A. Delucchi and James J. Murphy, ``U.S. military
expenditures to protect the use of Persian Gulf oil for motor
vehicles,'' 36 Energy Policy 2253 (2008). Available at Docket No.
NHTSA-2008-0089-0173.14.
---------------------------------------------------------------------------

The Attorneys General also argued that given that ``one of the
primary purposes of EISA is to achieve energy security,'' and given
that the ``impact of higher CAFE standards on energy security is not
zero,'' it was ``astounding'' that ``NHTSA assigned a value of zero to
the government outlay aspect of energy security (increased military
spending and purchases for the Strategic Petroleum Reserve).''
(Emphasis in original.) The Attorneys General compared NHTSA's decision
not to monetize military security costs in the NPRM to NHTSA's decision
not to monetize benefits from reducing CO2 emissions in the
April 2006 light truck CAFE rule, and argued that the Ninth Circuit's
decision in CBD supports their position that ``Uncertainty about a
benefit's value is not a valid reason to assign that value at zero.''
\280\ The Attorneys General also argued that just as increases in CAFE
standards cannot eliminate global warming, but are part of the overall
global warming solution, increases in CAFE standards similarly ``will
not'' in and of itself, eliminate these energy security costs,'' but
are ``a necessary piece of the puzzle in assessing all of the costs and
benefits of a CAFE standard.''
---------------------------------------------------------------------------

\280\ Citing CBD v. NHTSA, 508 F.3d 508, 533-35.
---------------------------------------------------------------------------

CFA cited the same Delucchi article to comment that ``A zero for
the military and strategic value of oil reduction is simply wrong.''
CFA argued that ``There is a substantial policy and academic literature
that believes oil has a military value,'' and that ``The fact the
statute had energy independence and security in its title should have
alerted NHTSA to the likelihood that Congress considers the military
and strategic value of oil important.'' CFA provided a fairly long
excerpt from the Delucchi article to argue that there may be large
unquantifiable costs beyond specific expenditures on the military with
regard to the ``entire relevant military or `security' cost of using
oil,'' including

reduced flexibility in the conduct of U.S. foreign policy, strains
on international relations due to the activities of the U.S.
military and even due to competition for oil, anti-American
sentiment due to the presence of the U.S. military in the Middle
East, political destabilization of the Middle East, and the
nonfinancial human-suffering cost of war and political instability
related to U.S. demand for oil.\281\
---------------------------------------------------------------------------

\281\ CFA comments at 48, citing Delucchi at 2262.
---------------------------------------------------------------------------

CFA concluded that ``NHTSA should have quantified what it could in
the framework of the model,'' and ``To the extent that there is a large
and significant unquantifiable value, it should have oriented its
considerations toward greater energy conservation.'' CFA suggested a
value of $0.30 for military costs, apparently on the basis of this
argument.
Public Citizen also commented that NHTSA's value for military
security costs should be higher than zero. Public Citizen stated that
NHTSA's rationale for assigning a zero value was similar to its logic
in assigning a value of zero to reducing CO2 emissions in
the 2006 light truck CAFE final rule, and argued that the Ninth Circuit
had ``rejected this justification in Center for Biological Diversity v.
NHTSA, finding that uncertainty about how to assign a value was not a
justification for setting the value at zero.'' NRDC and the Sierra Club
et al. also made this point in their comments.
NRDC stated that ``the undisputed fact that there are currently
military expenditures associated with the protection of access to oil
supplies implies that there must be a positive military cost associated
with each gallon of gasoline consumed.'' NRDC argued that ``Since it
can be assumed that the United States would expend little or no
military resources to secure access to a non-strategic commodity, there
must exist a positive benefit in moving the consumption to the point
where oil is no longer a strategic commodity.'' NRDC described this
value as ``the country's opportunity to decrease military expenditure
or respond more flexibly to supply threats, and must have a positive
magnitude.'' NRDC suggested several ``aggregate expenditure estimates
[produced] through rigorous, data-driven analysis'' for NHTSA to
consider, including the estimate of $0.03 to $0.17 from the Delucchi
article, a 2004 analysis for the National Commission on Energy Policy
estimating a ``peacetime per gallon'' cost of $0.23 to $0.28, \282\ and
estimates of $0.14 to $0.26 per gallon based on a 2005 study by the
International Center for Technology Assessment.\283\ NRDC stated,
however, that because ``current expenditures may pale in comparison to
the total future financial cost of military actions,'' ``this presents
a strong rationale for using per-gallon cost estimates near the upper
bound of the determined range.'' NRDC argued that ``The initial
[literature] review herein suggests that the per gallon marginal
benefit of reducing oil consumption may be as high as 28 cents per
gallon of gasoline.''
---------------------------------------------------------------------------

\282\ Jaffe, Amy Myers (2004). United States and the Middle
East: Policies and Dilemmas. Analysis commissioned by the National
Commission on Energy Policy.
\283\ International Center for Technology Assessment (2005).
``Gasoline Cost Externalities: Security and Protection Services.''
NRDC stated that it adjusted the estimates found in the study from
2005 values of 13 to 23 cents into 2008 values using http://data.bls.gov/cgi-bin/cpicalc.pl.
---------------------------------------------------------------------------

The Sierra Club et al. commented that NHTSA must ``provide an
accurate dollar value for'' ``the national security costs of oil,'' by
``considering the relevant research.'' Sierra Club argued that the
national security costs of oil are twofold, coming from both climate
change and oil dependence. Regarding the national security costs
expected from climate change, Sierra Club commented that a recent
``report from the National Intelligence Council * * * found that
climate change poses a serious national security threat to our
country,'' in the form of ``humanitarian disasters, economic migration,
and food and water shortages'' due to climate change contributing to
``political instability, disputes over resources, and mass migrations''
in many ``at-risk regions'' of the world, that will have economic
impacts in the United States. Regarding the national security costs of
oil dependence, Sierra Club cited the 2005 ICTA report mentioned by
NRDC as an example of the ``numerous studies * * * [that] document
these costs.''
Although UCS offered no discussion of military costs in its primary
comment document, it submitted as an attachment a report suggesting
that NHTSA use a value of $0.35 per gallon (in 2006 dollars) for
``improved oil security.'' The report cited ``A recent study from Oak
Ridge National

[[Page 14332]]

Laboratory [which] assesses these energy security benefits of reduced
oil consumption at $14.51 per barrel, or $0.35 per gallon.'' \284\ The
report stated that ``This is a conservative assessment, as it excludes
all military program costs, as well as the `difficult-to-quantify
foreign policy impact of oil import reliance.' (Leiby 2007)''
---------------------------------------------------------------------------

\284\ The report noted that it had updated this value from 2004
dollars to 2006 dollars.
---------------------------------------------------------------------------

NHTSA received no comments on the estimates of monopsony costs or
potential costs from oil supply disruptions. Thus it has continued to
employ the estimates of these costs reported in the updated ORNL study
in establishing final CAFE standards and evaluating their benefits. The
agency notes, however, that the monopsony cost varies directly with
world oil prices, and that the forecast of world oil prices used in
this analysis differs significantly from that assumed in the ORNL
study. Thus NHTSA has adjusted the updated ORNL estimate of the
monopsony cost to reflect the AEO 2008 High Price Case forecast of
world oil prices, which averages $88 per barrel (in 2007 dollars) over
the period from 2011-30. Expressed in 2007 dollars, NHTSA's revised
estimates of the reductions in monopsony costs and expected costs from
oil supply disruptions are $0.266 and $0.116 per gallon of fuel saved.
NHTSA disagrees with commenters who asserted that fuel savings
resulting from higher CAFE standards are likely to result directly in
reductions in U.S. military expenses to protect the supply of petroleum
imports, particularly from the Persian Gulf region. NHTSA agrees that
by reducing fuel consumption and U.S. petroleum imports from
politically unstable regions, higher CAFE standards might reduce the
military and political risks posed by U.S. military deployments in
these regions. However, the agency does not believe there is convincing
evidence at this time that reducing these risks would necessarily
reduce U.S. military activities or expenditures in the Persian Gulf or
elsewhere. None of the commenters presented any evidence that
reductions in U.S. military spending would occur in response to fuel
savings and reductions in U.S. petroleum imports, nor do any of the
references included in their comments provide such evidence.
In particular, NHTSA does not agree with Public Citizen's analogy
between energy security and ``global warming costs.'' Although the
economic valuation of climate-related benefits from reducing carbon
dioxide emissions is uncertain, there is nevertheless a direct causal
link between changes in U.S. oil consumption and changes in U.S. carbon
dioxide emissions. In contrast, no such causal linkage--either
scientific or empirical--exists between changes in U.S. oil consumption
or imports and changes in U.S. military expenditures in the Persian
Gulf, or elsewhere in the world. The agency notes that one particularly
comprehensive and authoritative treatment of the potential security
benefits from reducing U.S. energy consumption reaches exactly this
same conclusion.\285\
---------------------------------------------------------------------------

\285\ Douglas R. Bohi and Michael A. Toman, Economics of Energy
Security, Kluwer Academic Publishers, 1996.
---------------------------------------------------------------------------

Although one recent economic analysis cited widely by commenters
did estimate the value of U.S. military spending attributable to
securing oil imports from the Persian Gulf region, this study does not
estimate the extent to which U.S. military spending is likely to vary
in response to changes in U.S. imports of Persian Gulf oil. Nor does it
estimate the potential savings in U.S. military outlays that might
result from reductions in U.S. oil imports of the magnitude likely to
result from higher CAFE standards.\286\
---------------------------------------------------------------------------

\286\ See Mark A. Delucchi and James J. Murphy, U.S. Military
Expenditures to Protect the Use of Persian Gulf Oil Imports, 36
Energy Policy 2253 (2008) (assigning a cost of between $0.03 and
$0.15 per gallon). Available at Docket No. NHTSA-2008-0089-0173.14.
---------------------------------------------------------------------------

The study argues that its purpose is to develop ``the military cost
of highway transportation.'' The authors attempt to do this in four
steps:
Estimate the amount spent annually to defend all U.S.
interests in the Persian Gulf;
Deduct the cost of defending U.S. interests other than oil
in the Persian Gulf;
Deduct the cost of defending against the possibility of a
worldwide recession due to the effects of an oil price shock or supply
interruption originating in the Persian Gulf on other countries; and
Deduct the cost of defending the use of oil in sectors of
the U.S. economy other than highway transportation.
This analysis yields an estimate of the annual ``military cost of
oil use by motor vehicles'' in the United States ranging from $5.8
billion to $25.4 billion in 2004. The authors then divide these figures
by 2004 U.S. gasoline and diesel consumption by on-road motor vehicles
to arrive at an average ``military cost of highway transportation''
ranging from $0.03 to $0.15 per gallon of fuel.\287\
---------------------------------------------------------------------------

\287\ Id., at 2260.
---------------------------------------------------------------------------

However, the authors do not argue that U.S. military spending would
be reduced by this--or any other--amount as a consequence of
incremental reductions in domestic consumption of transportation fuels.
Instead, they describe their estimate in the following terms: ``The
bottom line of our analysis is that if all motor vehicles in the U.S.
(light-duty and heavy-duty) did not use oil, Congress might reduce
defense spending by $6-$25 billion annually in the long run. This
amounts to about $0.03-$0.15 per gallon ($0.01-$0.04 per liter) of all
gasoline and diesel motor fuel in 2004.'' (p. 2260; emphasis added.)
Thus the values they report are clearly intended as estimates of
the total and average per-gallon costs of U.S. military activities in
the Persian Gulf that might reasonably be related to petroleum
consumption by U.S. motor vehicles, and not as estimates of the extent
to which those costs might be reduced as a consequence of lower fuel
consumption by U.S. motor vehicles. Nothing in their analysis suggests
that this average value bears any necessary relationship to the savings
in military outlays that might results from modest reductions in U.S.
petroleum consumption or imports. Although the authors speculate that
the proportional reduction in these outlays might be larger than any
proportional reduction in U.S. petroleum imports from the Persian Gulf
region, they provide no support for this hypothesis.\288\
---------------------------------------------------------------------------

\288\ Id., at 2261-2262.
---------------------------------------------------------------------------

Nor does this study attempt to demonstrate any causal or empirical
linkage between domestic consumption of transportation fuels and the
level of U.S. military activities or spending in the Persian Gulf (or
elsewhere), as would be required to support any argument that military
outlays would actually be reduced in response to lower U.S. fuel
consumption and petroleum imports. As the authors clearly acknowledge,
achieving any reduction in U.S. military spending that might be
facilitated by lower U.S. oil imports would require specific actions by
Congress, and would not result automatically or necessarily. However
carefully their analysis of military spending might be done, defining
some fraction of U.S. military expenditures as being allocated to the
defense of oil interests in the Persian Gulf, and then dividing the
resulting figure by some quantity of petroleum use does not demonstrate
any causal linkage between changes in the numerator (military spending)
and incremental changes in the denominator (petroleum consumption) of
this calculation.

[[Page 14333]]

The analysis described above is irrelevant to NHTSA's analysis of
fuel economy standards, because NHTSA's cost-benefit analysis is
properly concerned with comparing two alternative states of the world:
(1) The world as we expect it to exist over the next few years, in the
absence of any new CAFE standards, compared with (2) an alternative
world that is identical in every respect except that new CAFE standards
are in place. NHTSA should, therefore, consider how U.S. defense
expenditures might vary between these two states of the world. The
relevant question for a cost-benefit analysis is: How much would U.S.
military expenditures change if U.S. passenger-car and light-truck fuel
consumption is several percent lower in the next decade than it
otherwise would have been?
Neither the Congress nor the Executive Branch has ever attempted to
calibrate U.S. military expenditures, force levels, or deployments to
any oil market variable, or to some calculation of the projected
economic consequences of hostilities in the Persian Gulf. Instead,
changes in U.S. force levels, deployments, and thus military spending
in that region have been largely governed by political events, emerging
threats, and other military and political considerations, rather than
by shifts in U.S. oil consumption or imports. NHTSA thus concludes that
the levels of U.S. military activity and expenditures are likely to
remain unaffected by even relatively large changes in light duty
vehicle fuel consumption.
Nevertheless, the agency conducted a sensitivity analysis of the
potential effect of assuming that some reduction in military spending
would result from fuel savings and reduced petroleum imports in order
to investigate its impacts on the standards and fuel savings. Assuming
that the preceding estimate of total U.S. military costs for securing
Persian Gulf oil supplies is correct, and that approximately half of
these expenses could be reduced in proportion to a reduction in U.S.
oil imports from the region, the estimated savings would range from
$0.02 to $0.08 (in 2007 dollars) for each gallon of fuel savings that
was reflected in lower U.S. imports of petroleum from the Persian Gulf.
If the Persian Gulf region is assumed to be the marginal source of
supply for U.S. imports of crude petroleum and refined products, then
each gallon of fuel saved might reduce U.S. military outlays by $0.05
per gallon, the midpoint of this range. NHTSA employs this estimate in
its sensitivity analysis.
While NHTSA believes that military expenditures appropriated by the
U.S. Congress are not directly related to changes in domestic petroleum
consumption, the agency recognizes that reductions in petroleum
consumption may provide other benefits that are more difficult to
quantify, by reducing some constraints on U.S. diplomatic and military
action. U.S. foreign policy decisions consider a wide range of U.S.
interests, including the maintenance of secure petroleum supplies.
Reduced consumption of petroleum might allow the U.S. to more
vigorously pursue other foreign policy interests, by reducing concerns
about the implications of pursuing these other interests for the
availability and continuity of petroleum imports.
The agency recognizes, however, that both the effect of reducing
U.S. petroleum imports on the flexibility of its foreign policy
initiatives and the economic value of such additional flexibility are
highly uncertain. Reducing petroleum consumption is likely to have
unpredictable effects on both military actions and diplomatic
initiatives, and even if the U.S. government planned and signaled its
foreign policy intentions under various levels of petroleum consumption
in advance, NHTSA is unaware of any accepted methods for establishing
the economic value of increased freedom in designing military or
diplomatic actions. And because the nation's foreign policy intentions
are not communicated in advance, the agency would need to develop a
procedure for anticipating how military and diplomatic actions would
respond to future changes in petroleum consumption. Nevertheless, in
its future rulemaking activities, NHTSA will investigate whether
practical methods for predicting and valuing in economic terms any
increased flexibility in U.S. foreign policy that is likely to result
from reduced petroleum imports exist or can be developed.
12. Air Pollutant Emissions
(a) Impacts on Criteria Pollutant Emissions
Criteria air pollutants are common pollutants that EPA regulates
under the Clean Air Act, by establishing permissible concentrations on
the basis of human health-related or science-based criteria.\289\ NHTSA
explained in the NPRM that while reductions in domestic fuel refining
and distribution that result from lower fuel consumption will reduce
U.S. emissions of criteria air pollutants, additional vehicle use
associated with the rebound effect from higher fuel economy will in
turn increase emissions of those pollutants. Thus, the net effect of
stricter CAFE standards on emissions of each criteria pollutant depends
on the relative magnitudes of its reduced emissions in fuel refining
and distribution, and increases in its emissions from vehicle use.
Because the relationship between emissions rates in fuel refining \290\
and in vehicle use \291\ is different for each criteria pollutant, the
net effect of fuel savings from the proposed standards on total
emissions of each pollutant is likely to differ. Criteria air
pollutants emitted by vehicles and during fuel production include
carbon monoxide (CO), hydrocarbon compounds (usually referred to as
``volatile organic compounds'' or VOCs), nitrogen oxides
(NOX), fine particulate matter (PM2.5) and sulfur
oxides (SOX).
---------------------------------------------------------------------------

\289\ Criteria pollutants regulated by EPA include ozone,
particulate matter, carbon monoxide, nitrogen oxides, sulfur
dioxide, and lead. For more information, see http://www.epa.gov/air/urbanair/ (last accessed October 5, 2008).
\290\ That is, emissions per gallon of fuel refined.
\291\ That is, emissions per mile driven.
---------------------------------------------------------------------------

For additional vehicle use due to the rebound effect, NHTSA
estimates the increase in emissions of these pollutants by multiplying
the increase in total miles driven by vehicles of each model year and
age by age-specific emission rates per vehicle-mile for each pollutant.
NHTSA developed these emission rates using EPA's MOBILE6.2 motor
vehicle emissions factor model.\292\ Emissions of these pollutants also
occur during crude oil extraction and transportation, fuel refining,
and fuel storage and distribution. The reduction in total emissions
from each of these sources thus depends on the extent to which fuel
savings result in lower imports of refined fuel, or in reduced domestic
fuel refining. To a lesser extent, they also depend on whether any
reduction in domestic gasoline refining is translated into reduced
imports of crude oil or reduced domestic extraction of petroleum.
---------------------------------------------------------------------------

\292\ U.S. EPA, MOBILE6 Vehicle Emission Modeling Software,
available at http://www.epa.gov/otaq/m6.htm#m60 (last accessed
October 5, 2008).
---------------------------------------------------------------------------

Based on an analysis of changes in U.S. gasoline imports and
domestic gasoline consumption forecast in AEO's 2008 Early Release,
NHTSA tentatively estimated in the NPRM that 50 percent of fuel savings
resulting from higher CAFE standards would result in reduced imports of
refined gasoline, while the remaining 50 percent would

[[Page 14334]]

reduce domestic fuel refining.\293\ The reduction in domestic refining
was assumed to leave its sources of crude petroleum unchanged from the
mix of 90 percent imports and 10 percent domestic production projected
by AEO.
---------------------------------------------------------------------------

\293\ Estimates of the response of gasoline imports and domestic
refining to fuel savings from stricter standards are variable and
highly uncertain, but NHTSA's preliminary analysis as of the time
the NPRM was published indicated that under any reasonable
assumption about these responses, the magnitude of the net change in
criteria pollutant emissions (accounting for both the rebound effect
and changes in refining emissions) is extremely low relative to
their current total.
---------------------------------------------------------------------------

For fuel refining and distribution, NHTSA proposed to estimate
criteria pollutant emission reductions using emission rates from
Argonne National Laboratories' Greenhouse Gases and Regulated Emissions
in Transportation (GREET) model.\294\ The GREET model provides separate
estimates of air pollutant emissions that occur in four phases of fuel
production and distribution: Crude oil extraction, crude oil
transportation and storage, fuel refining, and fuel distribution and
storage.\295\ NHTSA tentatively assumed, for purposes of the NPRM
analysis, that reductions in imports of refined fuel would reduce
criteria pollutant emissions during fuel storage and distribution only.
Reductions in domestic fuel refining using imported crude oil as a
feedstock were tentatively assumed to reduce emissions during crude oil
transportation and storage, as well as during gasoline refining,
distribution, and storage, because less of each of these activities
would be occurring. Similarly, reduced domestic fuel refining using
domestically produced crude oil was tentatively assumed to reduce
emissions during phases of gasoline production and distribution.\296\
---------------------------------------------------------------------------

\294\ Argonne National Laboratories, The Greenhouse Gas and
Regulated Emissions from Transportation (GREET) Model, Version 1.8.
Available at http://www.transportation.anl.gov/software/GREET/index.html (last accessed October 5, 2008).
\295\ Emissions that occur during vehicle refueling at service
stations (primarily evaporative emissions of VOCs) are already
accounted for in the ``tailpipe'' emission factors used to estimate
the emissions generated by increased car and light truck use. GREET
estimates emissions in each phase of gasoline production and
distribution in mass per unit of gasoline energy content; these
factors are then converted to mass per gallon of gasoline using the
average energy content of gasoline.
\296\ As NHTSA stated in the NPRM, in effect, this assumes that
the distances crude oil travels to U.S. refineries are approximately
the same whether the oil travels from domestic oilfields or import
terminals, and that the distances that gasoline travels from
refineries to retail stations are approximately the same as those
from import terminals to retail stations.
---------------------------------------------------------------------------

The net changes in emissions of each criteria pollutant were
calculated by adding the increases in their emissions that result from
increased vehicle use and the reductions that result from lower
domestic fuel refining and distribution. The net change in emissions of
each criteria pollutant was converted to an economic value using
estimates of the economic damage costs per ton emitted \297\ developed
by EPA and submitted to OMB for review. For certain criteria
pollutants, EPA estimates different per-ton costs for emissions from
vehicle use than for emissions of the same pollutant during fuel
production, reflecting differences in their typical geographic
distributions, contributions to ambient pollution levels, and resulting
population exposure.
---------------------------------------------------------------------------

\297\ These costs result primarily from damages to human health.
---------------------------------------------------------------------------

NHTSA received comments on this issue from the Alliance, NADA, the
Air Improvement Resources Committee of the Alamo Area Council of
Governments, and an individual, Mr. Mark Delucchi. Mr. Delucchi
commented that NHTSA should clarify what kinds of damages are included
in the per-ton damage cost estimates for criteria pollutants and
CO2. He suggested that if NHTSA's estimates are based on
EPA's damage estimates, then they do not include health damages,
visibility, crop damages, materials damages, and natural-ecosystem
damages. Mr. Delucchi argued that NHTSA should include estimates for
these additional categories of damage due to pollutants, and that the
agency ``can find peer-reviewed estimates of damages in most of these
categories on [his] faculty web page.''
The Air Improvement Resources Committee of the Alamo Area Council
of Governments (Texas) did not comment specifically on NHTSA's
estimates for criteria pollutants, but simply expressed its support for
the proposed standards due to the fact that they would ``create net
reductions in oxides of nitrogen over the lifetimes of Model Years
2011-2015 vehicles, and the San Antonio region is NOX
limited, meaning reducing NOX emissions in the region will
have a greater impact on ozone levels than would comparable volatile
organic compound (VOC) reductions.'' The AIRC stated that ``Although
the proposed rulemaking would create a net increase in VOCs, the
NOX increase is of greater benefit for ozone formation in
our region,'' and therefore the AIRC supported the proposed standards.
The Alliance commented more specifically on NHTSA's estimates for
criteria pollutants, arguing that NHTSA's estimates of reductions in
ozone precursors were overstated for two main reasons: First, because
``NHTSA did not properly take into account the new source review
standards [under the Clean Air Act], and otherwise assumed away federal
(and state) laws that would have the effect of requiring offsets from
the upstream refineries that NHTSA attempts to claim credit for;'' and
second, because ``there is no indication that NHTSA has * * *
considered the fleet turnover effect,'' ``meaning that the significant
costs NHTSA will add to the price of new vehicles will delay the
transition the market would naturally make to more fuel efficient and
cleaner vehicles.'' NADA also argued that the ``Criteria pollutant
reduction benefits associated with the proposed CAFE standards are
overstated as the negative impact of inhibited fleet turnover was not
accounted for.''
As support for its comment that NHTSA had overlooked federal and
state laws that would impact upstream criteria pollutant emissions, the
Alliance cited both the Sierra Research and the NERA Reports it
included as attachments to its comments. Sierra Research commented that
``Most upstream emissions associated with the use of gasoline * * * in
areas with air pollution problems'' are already subject to air
pollution control regulations, such that ``changes in fuel type or the
volume of fuel produced are governed by * * * offset requirements and
credit provisions.'' Sierra Research argued that the GREET model used
by NHTSA ignores the impacts of these regulations, by assuming that
reductions in gasoline consumption translate directly into reductions
in pollutant emissions. However, Sierra argued, in tightly regulated
areas of the country, the air pollution control system will be much
more complicated than that, such that any ``give'' in one part of the
pollution control system will simply be absorbed by another part, and
there will be no net reduction in emissions for that area. Sierra also
argued that the GREET model does not properly account for ``marketing''
(i.e., from gasoline station) emissions, which have been reduced in
recent years due to proliferating vapor recovery system regulations at
the state and local levels.
The NERA Report first argued that NHTSA had overestimated the
amount of criteria pollutant emissions that would be reduced. It echoed
Sierra Research's comment about New Source Review standards impacting
criteria pollutant emissions, but argued further that their analysis of
total emissions estimates for refineries in the National

[[Page 14335]]

Emission Inventory database for 2002 suggested that NHTSA had
substantially overestimated NOX and PM2.5
emissions, by ``more than two and three times * * *, respectively.''
NERA compared NEI database refinery emissions estimates for 2002 to
``estimates of refining emissions based on NHTSA's emission factors for
refineries and U.S. production of gasoline and diesel fuels in that
same year (EPA 2002),'' assuming that NHTSA's estimates should be
smaller, since ``refineries produce other products besides gasoline and
diesel fuel.'' However, NERA found that ``estimates based on NHTSA's
rates for only two refinery products (gasoline and diesel fuel) are
larger than the NEI estimates for all refinery operations.'' NERA thus
concluded that NHTSA had overestimated the benefits associated with
reducing criteria pollutant emissions, because it had overestimated the
amount of criteria pollutant emissions that would be reduced. NERA also
stated that to the extent that fuel consumption was reduced in the
long-run, refineries would be subject to more stringent emissions
standards anyway, or fuel imports would be reduced, which would have no
impact on U.S. emissions, although NERA did not attempt to quantify
those effects.
The NERA Report next argued that NHTSA had used ``ad hoc''
estimates of the value per ton of criteria pollutants based on
recommendations from EPA's OTAQ, which were unverifiable. NERA implied
that NHTSA should instead use ``values based on published EPA
estimates,'' which it found included in a 2006 report by OMB to
Congress. NERA stated that ``OMB's values are slightly higher than
NHTSA's for VOCs, but substantially lower for PM2.5 and
SOX.''
The NERA Report finally argued that ``increasing quality-adjusted
new vehicle prices will lead to an increase in the average age of the
vehicle fleet, [which] will increase emissions both because older
vehicles faced less stringent emission standards when sold and because
the effectiveness of controls (especially those for NOX)
declines as the vehicle ages.'' NERA did not, however, attempt to
quantify these emissions impacts. The Alliance in its comments
emphasized this point about the fleet turnover effect, stating that it
``shows that most criteria pollutant and air toxic levels will worsen
for decades in consequence of NHTSA's proposed standards, as consumers
delay purchasing new, more fuel-efficient vehicles in the current
marketplace prior to an expensive new government mandate.'' The
Alliance argued that EPCA and principles of administrative law require
NHTSA to consider this effect.\298\
---------------------------------------------------------------------------

\298\ NHTSA notes that the Alliance also included a Sierra
Research report previously submitted to EPA in connection with
California's waiver application regarding the fleet-turnover effect
with respect to California's proposed GHG emissions standards, as
Attachment 14 to the Alliance's comments. NHTSA has not summarized
the findings of that report in detail because it believes that the
purpose for which the Alliance submitted the report is already
captured by the NERA Report comments, and because the fleet-turnover
effect due to California's proposed standards would have no direct
impact on NHTSA's decision for the final rule.
---------------------------------------------------------------------------

Agency response: In response to Mr. Delucchi's comment, NHTSA is
confident that the damage cost estimates it used in the NPRM to value
reductions in criteria air pollutants and their chemical precursors
include the full range of human health impacts known to be associated
with exposure to each of these pollutants that current scientific and
economic knowledge allows to be quantified and valued in economic
terms. Differences between these damage costs and the estimates by OMB
cited by commenters reflect the fact that the estimates provided to
NHTSA by EPA apply specifically to emissions by motor vehicles, and
include separate costs for emissions from stationary sources such as
petroleum refineries where such differences are appropriate. The
estimates provided by EPA also reflect more up-to-date knowledge about
the human health impacts of exposure to criteria air pollutants and the
economic costs associated with those impacts than do the estimates
reported by OMB. Thus in the analysis it conducted for this final rule,
NHTSA has continued to use the damage cost estimates supplied by EPA to
determine the economic costs or benefits from changes in emissions of
criteria air pollutants that result from higher CAFE standards.
In response to comments provided by NERA on behalf of the Alliance,
NHTSA acknowledges that it may have overestimated reductions in
upstream emissions of some criteria air pollutants (particularly PM and
NOX) resulting from fuel savings in the analysis it
conducted for the NPRM. NHTSA has taken two steps to remedy this
possible overestimation. First, the agency used updated emission
factors supplied by EPA for vehicles used to transport crude petroleum
and refined fuel, including ocean tankers, railroad locomotives,
barges, and heavy-duty trucks, to recalculate the emissions factors for
each stage of fuel production and distribution in Argonne's GREET
model. These updated emission factors reflect the effects of recent and
pending EPA regulations on vehicle emissions and fuel composition, and
result in significant reductions in the upstream emission rates for
fuel production and distribution estimated using GREET. These lower
upstream emission rates reduce NHTSA's estimates of emissions during
fuel production and distribution under both Baseline and alternative
CAFE standards, and by doing so also lower the reductions in upstream
emissions projected to result from any increase in CAFE standards from
their Baseline levels.
In addition, NHTSA notes that the estimates of reductions in
upstream emissions it reported in the NPRM incorrectly included
reductions in ocean tanker emissions for transportation of crude
petroleum from overseas to ports or offshore oil terminals in the U.S.
Since most of these emissions probably occur outside of the U.S., they
should not be included in NHTSA's estimates of upstream emissions
reductions, since those are intended to represent changes in domestic
emissions of criteria air pollutants.\299\ NHTSA has revised its
analysis for this final rule to exclude reductions in ocean tanker
emissions.
---------------------------------------------------------------------------

\299\ Emissions from ocean tankers while in port areas, as well
as pipeline or truck emissions occurring during transportation of
crude petroleum from import terminals to U.S. refineries, do occur
within the U.S., and reductions in these emissions should be
included when estimating changes in domestic emissions. However, it
is not possible to separate these emissions from those that occur in
foreign ports or on the open oceans, so NHTSA's analysis does not
include reductions in them. As a consequence, the analysis may
underestimate reductions in upstream emissions occurring within the
U.S.
---------------------------------------------------------------------------

In response to comments by Sierra Research and NERA submitted by
the Alliance, NHTSA notes that there are currently two cap-and-trade
programs governing emissions of criteria pollutants by large stationary
sources. The Acid Rain Program seeks to limit NOX and
SO2 emissions, but applies only to electric generating
facilities.\300\ The NOX Budget Trading Program is also
primarily intended to reduce electric utility emissions, but does
include some other large industrial sources such as refineries;
however, as of 2003, refineries participating in the program accounted
for less than 5 percent of total NOX emissions by U.S.
refineries.\301\ In addition, some

[[Page 14336]]

refineries could be included among the sources of NOX
emissions that will be controlled under EPA's Clean Air Interstate
Rule, which is scheduled to take effect beginning in 2009. However,
refinery NOX emissions could only be affected in states that
specifically elect to include sources other than electric generating
facilities in their plans to comply with the rule, and EPA has
indicated that it expects states to achieve the emissions reductions
required by the Clean Air Interstate Rule primarily from the electric
power industry.\302\ Thus, the agency continues to assume that the
reduction in domestic gasoline refining estimated to result from the
adopted CAFE standard will be reflected in reduced refinery emissions
of criteria pollutants.
---------------------------------------------------------------------------

\300\ For a detailed description of the Acid Rain program, see
http://www.epa.gov/airmarkt/progsregs/arp/basic.html#princips (last
accessed October 6, 2008).
\301\ Estimated from EPA, NOX Budget Trading Program
(SIP Call) 2003 Progress Report, Appendix A, http://www.epa.gov/airmarkets/cmprpt/nox03/NBP2003AppendixA.xls, and National Air
Quality and Emissions Trends Report 2003, Table A-4, http://www.epa.gov/air/airtrends/aqtrnd03/pdfs/a4.pdf.
\302\ The Clean Air Interstate Rule also requires reductions in
SO2 emissions and establishes an emissions trading
program to achieve them, but only electric generating facilities are
included in the rule's SO2 emissions trading program; see
EPA, Clean Air Interstate Rule: Basic Information, http://www.epa.gov/cair/basic.html#timeline (last accessed October 6, 2008)
and http://www.epa.gov/cair/pdfs/cair_final_fact.pdf (last
accessed October 6, 2008). Although the rule was held to exceed the
scope of EPA's delegated authority under the CAA, North Carolina v.
EPA, 531 F.3d 896 (2008), the Court remanded the rule to EPA and so
it remains in force. Order of December 23, 2008 in No. 05-1244.
---------------------------------------------------------------------------

NHTSA also notes in response to comments by Sierra Research and
NERA submitted by the Alliance that emissions occurring during
refueling at retail stations are included in the emissions factors
estimated using EPA's MOBILE emission factor model, which also accounts
for expected future reductions in these emissions. Thus, NHTSA believes
that reductions in refueling emissions were correctly estimated in its
NPRM analysis, and has not revised its procedures for doing so.
Finally, in response to comments by the Alliance and NERA, NHTSA
acknowledges that the effect of higher prices for new vehicles on the
retention and use of older vehicles is potentially significant,
depending on the magnitude of expected price increases. As indicated in
the discussion of the appropriate discount rate to use in analyzing the
impacts of alternative CAFE standards (see Section V.B.14 below),
however, NHTSA believes that manufacturers are likely to experience
difficulty raising prices for new cars and light trucks sufficiently to
recover all their costs for complying with higher CAFE standards. Based
on a detailed econometric analysis of the effects of new vehicle prices
and other variables on retirement rates for used vehicles very similar
to the analysis conducted by NERA for the Alliance, NHTSA concludes
that price increases for MY 2011 cars and light trucks likely to result
from higher CAFE standards are unlikely to cause significant or lasting
changes in retirement rates for older vehicles. NHTSA also notes that
the vehicles whose retirement rates would be most affected by increases
in prices for MY 2011 passenger cars and light trucks are those that
will be 10-15 years of age at the time when 2011 vehicles are offered
for sale.\303\ These include cars and light trucks produced during
model years 2001 through 2005, and NHTSA's analysis of their emission
rates at those ages predicted using EPA's MOBILE6.2 motor vehicle
emission factor model suggests that they will not be dramatically
higher than emission rates for comparable new 2011 models. Thus the
effect on total motor vehicle emissions of criteria air pollutants
resulting from any reduction in new vehicle sales and accompanying
increase in use of older vehicles caused by increased prices for new
2011 cars and light trucks is likely to be modest.
---------------------------------------------------------------------------

\303\ This conclusion is based on unpublished econometric
analysis of the effects of new vehicle prices and other variables on
retirement rates for used vehicles conducted by the Volpe Center.
This analysis concluded that retirement rates for 10-15 year old
vehicles are most sensitive to changes in new vehicle prices.
---------------------------------------------------------------------------

In its future CAFE rulemaking activities, NHTSA will coordinate
with EPA to develop updated estimates for the economic benefits that
are likely to result from reducing motor vehicle emissions of criteria
air pollutants and the resulting atmospheric concentrations of these
pollutants. EPA maintains an on-going research program to document,
estimate, and value the reduction in threats to human health that occur
in response to declines in atmospheric pollutant levels and population
exposure to harmful concentrations of these pollutants. At the same
time, the agency will incorporate recent improvements in EPA's motor
vehicle emission factor models to increase the accuracy of its
estimates of changes in criteria pollutant emissions resulting from
increased fuel economy. Similarly, the agency will also support any
efforts by EPA to develop comparable estimates of the economic value of
reduced threats to human health that result from lower emissions of
hazardous air pollutants by motor vehicles, while continuing to improve
its methods for estimating reductions in emissions of these pollutants
that result from increased fuel efficiency.
(b) Reductions in CO2 Emissions
In the NPRM, NHTSA also discussed the fact that fuel savings from
stricter CAFE standards result in lower emissions of carbon dioxide
(CO2), the main greenhouse gas emitted as a result of
refining, distributing, and using transportation fuels. Lower fuel
consumption reduces CO2 emissions directly, because the
primary source of transportation-related CO2 emissions is
fuel combustion in internal combustion engines. NHTSA tentatively
estimated reductions in carbon dioxide emissions resulting from fuel
savings by assuming that the entire carbon content of gasoline, diesel,
and other fuels is converted to carbon dioxide during the combustion
process.\304\
---------------------------------------------------------------------------

\304\ NHTSA explained that this assumption results in a slight
overestimate of carbon dioxide emissions, since a small fraction of
the carbon content of gasoline is emitted in the forms of carbon
monoxide and unburned hydrocarbons. However, the magnitude of this
overestimate is likely to be extremely small. This approach is
consistent with the recommendation of the Intergovernmental Panel on
Climate Change for ``Tier 1'' national greenhouse gas emissions
inventories. Cf. Intergovernmental Panel on Climate Change, 2006
Guidelines for National Greenhouse Gas Inventories, Volume 2,
Energy, Chapter 3, ``Mobile Combustion,'' at 3.16. See http://www.ipcc-nggip.iges.or.jp/public/2006gl/pdf/2_Volume2/V2_3_Ch3_Mobile_Combustion.pdf (last accessed October 6, 2008).
---------------------------------------------------------------------------

Reduced fuel consumption also reduces carbon dioxide emissions that
result from the use of carbon-based energy sources during fuel
production and distribution.\305\ For purposes of the NPRM, NHTSA
estimated the reductions in CO2 emissions during each phase
of fuel production and distribution using CO2 emission rates
obtained from the GREET model discussed above, using the previous
assumptions about how fuel savings are reflected in reductions in each
phase. The total reduction in CO2 emissions from the
improvement in fuel economy under each alternative CAFE standard is the
sum of the reductions in emissions from reduced fuel use and from lower
fuel production and distribution.
---------------------------------------------------------------------------

\305\ NHTSA did not, for purposes of the NPRM, attempt to
estimate changes in upstream emissions of GHGs other than
CO2. This was because carbon dioxide from final
combustion itself accounts for nearly 97 percent of the total
CO2-equivalent emissions from petroleum production and
use, even with other GHGs that result from those activities
(principally methane and nitrous oxide) weighed by their higher
global warming potentials (GWPs) relative to CO2.
Calculated from EPA's Inventory of U.S. Greenhouse Gas Emissions and
Sinks 1990-2006, Tables 3-3, 3-39, and 3-41, EPA 430-R-08-05, April
15, 2008. Available at http://www.epa.gov/climatechange/emissions/downloads/08_CR.pdf (last accessed August 15, 2008).
---------------------------------------------------------------------------

NHTSA stated in the NPRM that it had not attempted to estimate
changes in emissions of other GHGs, in particular methane, nitrous
oxide, and

[[Page 14337]]

hydrofluorocarbons,\306\ and invited comment on the importance and
potential implications of doing so under NEPA.
---------------------------------------------------------------------------

\306\ This was because methane and nitrous oxide account for
less than 3 percent of the tailpipe GHG emissions from passenger
cars and light trucks, while CO2 emissions account for
the remaining 97 percent. Of the total (including non-tailpipe) GHG
emissions from passenger cars and light trucks, tailpipe
CO2 represents about 93.1 percent, tailpipe methane and
nitrous oxide represent about 2.4 percent, and hydrofluorocarbons
(from air conditioner leaks) represent about 4.5 percent. Calculated
from EPA's Inventory of U.S. Greenhouse Gas Emissions and Sinks
1990-2006, Table 215, EPA 430-R-08-05, April 15, 2008. Available at
http://www.epa.gov/climatechange/emissions/downloads/08_CR.pdf
(last accessed August 15, 2008).
---------------------------------------------------------------------------

NHTSA received two comments on this issue. The Alliance commented
that NHTSA's decision not to address other GHGs was within the agency's
discretion for two reasons. First, because as the Alliance stated that
NHTSA suggested in the NPRM, ``analyzing the emissions of GHGs other
than CO2 simply does not have a large effect on any analysis
of potential GHG benefits as connected to CAFE standard setting,''
which the Alliance argued CARB also implicitly agreed with by
denominating other GHGs in CO2-equivalents. The Alliance
stated that even though other GHGs have higher global warming
potentials than CO2, ``even factoring GWP into the analysis
still leaves the other GHGs with little significance to any
consideration of the benefits of more-stringent CAFE standards.'' The
Alliance further argued that the Ninth Circuit decision only concerned
NHTSA's valuation of CO2, so that NHTSA had no obligation
under case law to monetize the effects of other GHGs as long as it
evaluates them qualitatively.\307\
---------------------------------------------------------------------------

\307\ The Alliance cited Center for Auto Safety v. Peck, 751
F.2d 1336, 1367, 1368 (D.C. Cir. 1985) (Scalia, J.) (upholding
agency decision predicated upon weighing of non-monetized and
monetized benefits against monetized costs).
---------------------------------------------------------------------------

CBD, in contrast, agreed with NHTSA that other GHGs make up only a
small portion of the total GHGs emitted from automobiles. However, CBD
argued that these other GHG emissions ``* * * nonetheless represent
large amounts of greenhouse gases and must be included in both the
economic and environmental analyses.'' CBD gave the example that ``* *
* nitrous oxide emissions with greenhouse gas impacts equivalent to 29
million metric tons of CO2 are far from insignificant.''
NHTSA also notes that EPA's TSD on reducing GHG emissions, which was
submitted as an attachment to EDF's comments, considers GHGs generally
rather than focusing on CO2.
In response to the comment from CBD, NHTSA has prepared detailed
estimates of changes in emissions of certain non-CO2 GHGs,
including methane and nitrous oxide, that would result from alternative
CAFE standards for 2011-15 passenger cars and light trucks. These
estimates are reported in the Final Environmental Impact Statement
accompanying this rule.\308\ Because the estimated reductions in
emissions of these non-CO2 GHGs represent a small fraction
of reductions in CO2 emissions, however, and because they
are less reliable than the estimates of reductions in CO2
itself, NHTSA has not included the economic value of reductions in non-
CO2 GHGs in its estimates of economic benefits from higher
CAFE standards.\309\
---------------------------------------------------------------------------

\308\ The FEIS is available at Docket No. NHTSA-2008-0060-0605.
\309\ Expressed in CO2-equivalent terms using global
warming potentials estimated by IPCC, the reductions in methane and
nitrous oxide emissions represent only about 3% of the estimated
reduction in CO2 itself. NHTSA views its estimates of
non-CO2 GHGs as less reliable than those of
CO2 itself partly because the vehicle emission factors
for methane and nitrous oxide obtained from documentation for EPA's
MOVES motor vehicle emission factor model assume little or no change
over future model years or with vehicle age, in contrast to the
pronounced declines projected for emissions of criteria air
pollutants and CO2. Similarly, the emission factors for
non-CO2 GHGs during gasoline and diesel production and
distribution that are utilized in Argonne's GREET model are assumed
to be fixed over the period spanned by NHTSA's analysis, again in
contrast to those for criteria air pollutants and CO2.
---------------------------------------------------------------------------

(c) Economic Value of Reductions in CO2 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 CAFE
standards will thus reduce GHG emissions generated by fuel use, as well
as throughout the fuel supply cycle. Lowering these emissions is likely
to slow the projected pace and reduce the ultimate extent of future
changes in the global climate, thus reducing future economic damages
that changes in the global climate are otherwise expected to cause.
Further, by reducing the probability that climate changes with
potentially catastrophic economic or environmental impacts will occur,
lowering GHG emissions may also result in economic benefits that exceed
the resulting reduction in the expected future economic costs caused by
gradual changes in the earth's climatic systems.
Quantifying and monetizing benefits from reducing GHG emissions is
thus an important step in estimating the total economic benefits likely
to result from establishing higher CAFE standards. Since direct
estimates of the economic benefits from reducing GHG emissions are
generally not reported in published literature on the impacts of
climate change, these benefits are typically assumed to be the ``mirror
image'' of the estimated incremental costs resulting from an increase
in those emissions. That is, the benefits from reducing emissions are
usually measured by the savings in estimated economic damages that an
equivalent increase in emissions would otherwise have caused.
Researchers usually estimate the economic costs of increased GHG
emissions in several steps. The first is to project future changes in
the global climate and the resulting economic damages that are expected
to result under a baseline projection of net global GHG emissions.
These projections are usually developed using models that relate
concentrations of GHGs in the earth's atmosphere to changes in summary
measures of the global climate such as temperature and sea levels, and
in turn estimate the reductions in global economic output that are
expected to result from changes in climate. Since the effects of GHG
emissions on the global climate occur decades or even centuries later,
and there is considerable inertia in the earth's climate systems,
changes in the global climate and the resulting economic impacts must
be estimated over a comparably long future period.
Next, this same process is used to project future climate changes
and resulting economic damages under the assumption that GHG emissions
increase by some increment during a stated future year. The increase in
projected global economic damages resulting from the assumed increase
in future GHG emissions, which also occurs over a prolonged period
extending into the distant future, represents the added economic costs
resulting from the assumed increase in emissions. Discounted to its
current value as of the year when the increase in emissions are
expected to occur and expressed per unit of GHG emissions (usually per
ton of carbon emissions, with non-CO2 GHGs converted to
their equivalents in terms of carbon emissions), the resulting value
represents the global economic cost of increasing GHG emissions by one
unit--usually a metric ton of carbon--in a stated future year. This
value is often referred to in published research and debates over
climate policy as the Social Cost of Carbon (SCC), and applies

[[Page 14338]]

specifically to increased emissions during that year.
This process involves multiple sources of uncertainty, including
those in scientific knowledge about the effects of varying levels of
GHG emissions on the magnitude and timing of changes in the functioning
of regional and global climatic and ecological systems. In addition,
significant uncertainty surrounds the anticipated extent, geographic
distribution, and timing of the resulting impacts on the economies of
nations located in different regions of the globe. Because the climatic
and economic impacts of GHG emissions are projected to occur over the
distant future, uncertainty about the correct rate at which to discount
these future impacts also significantly affects the estimated economic
benefits of reducing GHG emissions.
Researchers have not yet been able to quantify many of the
potentially significant effects of GHG emissions and their continued
accumulation in the earth's atmosphere on the global climate. Nor have
they developed complete models to represent the anticipated impacts of
changes in the global climate on economic resources and the
productivity with which they are used to generate economic output. As a
consequence, the estimates of economic damages resulting from increased
GHG emissions that are generated using integrated models of climate and
economic activity exclude some potentially significant sources of costs
that are likely to result from increased emissions. As a result,
estimates of economic benefits derived from these models' estimates of
the likely future climate-related economic damages caused by increased
GHG emissions may underestimate the true economic value of reducing
emissions, although the extent to which they are likely to do so
remains unknown.
In the NPRM, NHTSA explained how it accounted for the economic
benefits of reducing CO2 emissions in this rulemaking, both
in developing the proposed CAFE standards and in assessing the economic
benefits of each alternative that was considered. The agency noted that
the Ninth Circuit found in CBD v. NHTSA that NHTSA had been arbitrary
and capricious in deciding not to monetize the benefit of reducing
CO2 emissions, stating that the agency had not substantiated
the conclusion in its April 2006 final rule that the appropriate course
was not to monetize (i.e., quantify the value of) carbon emissions
reduction at all. NHTSA's discussion in the NPRM of how it estimated
the economic value of reductions in CO2 emissions received a
great deal of attention from commenters, so for the reader's benefit,
it is largely reproduced below.
To that end, NHTSA reviewed published estimates of the ``social
cost of carbon'' (SCC) emissions. As noted above, the SCC refers to the
marginal cost of additional damages caused by the increase in expected
climate impacts resulting from the emission of each additional metric
ton of carbon, which is emitted in the form of CO2.\310\ It
is typically estimated as the net present value of the impact over some
extended time period (100 years or longer) of one additional ton of
carbon emitted into the atmosphere. Because atmospheric concentrations
of greenhouse gases are increasing over time, and the potential damages
from global climate are believed to increase with higher atmospheric
GHG concentrations, the economic damages resulting from an additional
ton of CO2 emissions are expected to increase over time.
Thus, estimates of the SCC are typically reported for a specific year,
and these estimates are generally larger for emissions in more distant
future years.
---------------------------------------------------------------------------

\310\ Carbon itself accounts for 12/44, or about 27 percent, of
the mass of carbon dioxide (12/44 is the ratio of the molecular
weight of carbon to that of carbon dioxide). Thus, each ton of
carbon emitted is associated with 44/12, or 3.67, tons of carbon
dioxide emissions. Estimates of the SCC are typically reported in
dollars per ton of carbon, and must be divided by 3.67 to determine
their equivalent value per ton of carbon dioxide emissions.
---------------------------------------------------------------------------

NHTSA found substantial variation among different authors'
estimates of the SCC, much of which can be traced to differences in
their underlying assumptions about several variables. These variables
include the sensitivity of global temperatures and other climate
attributes to increasing atmospheric concentrations of GHGs, discount
rates applied to future economic damages from climate change, whether
damages sustained by developing regions of the world should be weighted
more heavily than damages to developed nations, how long climate
changes persist once they occur, and the economic valuation of specific
climate impacts.\311\
---------------------------------------------------------------------------

\311\ For a discussion of these factors, see Yohe, G.W., R.D.
Lasco, Q.K. Ahmad, N.W. Arnell, S.J. Cohen, C. Hope, A.C. Janetos,
and R.T. Perez, ``Perspectives on climate change and
sustainability,'' 2007, in 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, L.P. Palutikof, P.J. van der Linden and
C.E. Hanson, eds., Cambridge University Press, 2007, at 821-824.
Available at http://www.ipcc.ch/ipccreports/ar4-wg2.htm (last
accessed March 23, 2009).
---------------------------------------------------------------------------

NHTSA explained that, taken as a whole, recent estimates of the SCC
may underestimate the true damage costs of carbon emissions because
they often exclude damages caused by extreme weather events or climate
response scenarios with low probabilities but potentially extreme
impacts, and may underestimate the climate impacts and damages that
could result from multiple stresses on the global climatic system. At
the same time, however, many studies do not consider potentially
beneficial impacts of climate change, and do not adequately account for
how future technological innovations, development patterns, and
adaptations could reduce potential impacts from climate change or the
economic damages they cause.
Given the uncertainty surrounding estimates of the SCC, NHTSA
suggested that the use of any single study may not be advisable, since
its estimate of the SCC will depend on many assumptions made by its
authors. NHTSA cited the Working Group II's contribution to the Fourth
Assessment Report of the United Nations Intergovernmental Panel on
Climate Change (IPCC) as noting that:

The large ranges of SCC are due in large part to differences in
assumptions regarding climate sensitivity, response lags, the
treatment of risk and equity, economic and non-economic impacts, the
inclusion of potentially catastrophic losses, and discount
rates.\312\
---------------------------------------------------------------------------

\312\ Climate Change 2007: Impacts, Adaptation and
Vulnerability, Contribution of Working Group II to the Fourth
Assessment Report of the Intergovernmental Panel on Climate Change,
at 17. Available at http://www.ipcc.ch/ipccreports/ar4-wg2.htm (last
accessed March 23, 2009).

Although the IPCC is considered authoritative on the topic of the
SCC, it did not recommend a single estimate. However, the IPCC did cite
the Tol (2005) study on four separate occasions as the only available
survey of the peer-reviewed literature that has itself been subjected
to peer review.\313\ Tol developed a probability function using the SCC
estimates of the peer-reviewed literature, which ranged from less than
zero to over $200 per metric ton of carbon. In an effort to resolve
some of the uncertainty in reported estimates of climate damage costs
from carbon emissions, Tol (2005) reviewed and summarized 103 estimates
of the SCC from 28 published studies. He concluded that when only peer-
reviewed studies published in recognized journals are considered, ``* *
* climate change impacts may be very uncertain but it is unlikely that
the marginal damage costs of carbon dioxide emissions exceed $50 per
[metric] ton carbon,'' \314\ which is about

[[Page 14339]]

$14 per metric ton of CO2. In the NPRM, NHTSA assumed that
the summary SCC estimates reported by Tol were denominated in U.S.
dollars of the year of his article's publication, 2005.
---------------------------------------------------------------------------

\313\ Id., at 17, 65, 813, and 822.
\314\ Tol, Richard S.J., ``The marginal damage costs of carbon
dioxide emissions: an assessment of the uncertainties,'' Energy
Policy 33 (2005), 2064-2074, at 2072.
---------------------------------------------------------------------------

NHTSA stated that because of the number of assumptions required by
each study, the wide range of uncertainty surrounding these
assumptions, and their critical influence on the resulting estimates of
climate damage costs, some studies have undoubtedly produced estimates
of the SCC that are unrealistically high, while others are likely to
have estimated values that are improbably low. Using a value for the
SCC that reflects the central tendency of estimates drawn from many
studies reduces the chances of relying on a single estimate that
subsequently proves to be biased.
It is important to note that the published estimates of the SCC
almost invariably include the value of worldwide damages from potential
climate impacts caused by carbon dioxide emissions, and are not
confined to damages likely to be suffered within the U.S. In contrast,
the other estimates of costs and benefits of raising fuel economy
standards included in this proposal include only the economic values of
impacts that occur within the U.S. For example, the economic value of
reducing criteria air pollutant emissions from overseas oil refineries
is not counted as a benefit resulting from this rule, because any
reduction in damages to health and property caused by overseas
emissions are unlikely to be experienced within the U.S.
In contrast, the reduced value of transfer payments from U.S. oil
purchasers to foreign oil suppliers that results when lower U.S. oil
demand reduces the world price of petroleum (the reduced ``monopsony
effect'') is counted as a benefit of reducing fuel use. \315\ The
agency states that if its analysis were conducted from a worldwide
rather than a U.S. perspective, however, the benefit from reducing air
pollution overseas would be included, while reduced payments from U.S.
oil consumers to foreign suppliers would not.
---------------------------------------------------------------------------

\315\ The reduction in payments from U.S. oil purchasers to
domestic petroleum producers is not included as a benefit, however,
since it represents a transfer that occurs entirely within the U.S.
economy.
---------------------------------------------------------------------------

In the NPRM, NHTSA tentatively concluded that in the interest of
analytical consistency, i.e., in order to be consistent with the
agency's use of exclusively domestic costs and benefits in prior CAFE
rulemakings, the appropriate value to be placed on climate damages
caused by carbon emissions should be the one that reflects the change
in damages to the U.S. alone. Accordingly, NHTSA noted that the value
for the benefits of reducing CO2 emissions might be
restricted to the fraction of those benefits that are likely to be
experienced within the U.S.
Although no estimates are currently available for the benefits to
the U.S. itself that are likely to result from reducing CO2
emissions, NHTSA explained that it expected that if such values were
developed, the agency would employ those, rather than global benefit
estimates, in its analysis. NHTSA also stated that it anticipated that
if such values were developed, they would be lower than comparable
global values, since the U.S. is likely to sustain only a fraction of
total global damages resulting from climate change.
In the meantime, NHTSA explained that it elected to use the mean
value of peer-reviewed estimated global value reported by Tol (2005),
which was $43 per metric ton of carbon, as an upper bound on the global
benefits resulting from reducing each metric ton of U.S.
emissions.\316\ This value corresponds to approximately $12 per metric
ton of CO2 when expressed in 2006 dollars. The Tol (2005)
study is cited repeatedly as an authoritative survey in various IPCC
reports, which are widely accepted as representing the general
consensus in the scientific community on climate change science.
---------------------------------------------------------------------------

\316\ $43 per ton of carbon emissions was reported by Tol (at
2070) as the mean of the ``best'' estimates reported in peer-
reviewed studies (at the time). It thus differs from the mean of all
estimates reported in the peer-reviewed studies surveyed by Tol. The
$43 per ton value was also attributed to Tol by IPCC Working Group
II (2007), at 822.
---------------------------------------------------------------------------

Since Tol's estimate includes the worldwide costs of potential
damages from carbon dioxide emissions, NHTSA elected to employ it as an
upper bound on the estimate value of the reduction in U.S. domestic
damage costs that is likely to result from lower CO2
emissions.\317\ NHTSA noted that Tol had a more recent (2007) and
inclusive survey published online with peer-review comments. NHTSA
stated that it had elected not to rely on this study, but that it would
consider doing so in its analysis for the final rule if the survey had
been published, and would also consider any other newly-published
evidence.
---------------------------------------------------------------------------

\317\ For purposes of comparison, NHTSA noted that in the
rulemaking to establish CAFE standards for MY 2008-11 light trucks,
NRDC recommended a value of $10-$25 per ton of CO2
emissions reduced by fuel savings, and both EDF and UCS recommended
a value of $50 per ton of carbon, which is equivalent to about $14
per ton of CO2 emissions.
---------------------------------------------------------------------------

NHTSA noted that the IPCC Working Group II Fourth Assessment Report
(2007, at 822) further suggests that the SCC is growing at an annual
rate of 2.4 percent, based on estimated increases in damages from
future emissions reported in published studies. NHTSA also elected to
apply this growth rate to Tol's original 2005 estimate. Thus, by 2011,
NHTSA estimated that the upper bound on the benefits of reducing
CO2 emissions will have reached about $14 per metric ton of
CO2, and will continue to increase by 2.4 percent annually
thereafter.
In setting a lower bound, the agency agreed with the IPCC Working
Group II report (2007) that ``significant warming across the globe and
the locations of significant observed changes in many systems
consistent with warming is very unlikely to be due solely to natural
variability of temperatures or natural variability of the systems.''
(p. 9) Although this finding suggests that the global value of economic
benefits from reducing carbon dioxide emissions is unlikely to be zero,
NHTSA stated that it does not necessarily rule out low or zero values
for the benefit to the U.S. itself from reducing emissions.
In some of the analysis it performed to develop the CAFE standards,
NHTSA employed a point estimate for the value of reducing
CO2 emissions. For this estimate, the agency used the
midpoint of the range from $0 to $14, or $7.00, per metric ton of
CO2 as the initial value for the year 2011, and assumed that
this value would grow at 2.4 percent annually thereafter. This estimate
was employed for the analyses conducted using the Volpe model to
support development of the proposed standards. The agency also
conducted sensitivity analyses of the benefits from reducing
CO2 emissions using both the upper ($14/metric ton) and
lower ($0/metric ton) bounds of this range.
NHTSA sought comment on its tentative conclusion for the value of
the SCC, the use of a domestic versus a global value for the economic
benefit of reducing CO2 emissions, the rate at which the
value of the SCC grows over time, the desirability of and procedures
for incorporating benefits from reducing emissions of GHGs other than
CO2, and any other aspects of developing a reliable SCC
value for purposes of establishing CAFE standards.
NHTSA received many comments on its assumptions in the NPRM about
the SCC. The comment summaries are presented below and grouped by
topic:
(1) NHTSA's proposal of a single value for the SCC;

[[Page 14340]]

(2) NHTSA's proposal of $7 as the value for the SCC;
(3) NHTSA's proposal of $0 as the lower bound estimate for the
domestic U.S. value for the SCC;
(4) NHTSA's proposal of $14 as the upper bound estimate for the
domestic U.S. value for the SCC;
(5) other values that NHTSA could have proposed for the SCC;
(6) NHTSA's use of a domestic versus a global value for the
economic benefit of reducing CO2 emissions;
(7) the rate at which the SCC grows over time;
(8) the discount rate that should be used for SCC estimates; and
(9) other issues raised by commenters.
(1) NHTSA's Proposal of a Single Value for the SCC
NHTSA received a comment on its proposal of a single value for the
SCC from Prof. Gary Yohe, an economist who has considered the SCC
extensively and whom NHTSA cited in the NPRM. Prof. Yohe commented that
the NPRM had stated that ``Using a value for the SCC that reflects the
central tendency of estimates drawn from many studies reduces the
chances of relying on a single estimate that subsequently proves to be
biased.'' \318\ Prof. Yohe argued that proposing a single value for the
SCC inherently creates bias, because ``Any value is based on
presumptions about pure rate of time preference, risk and/or inequity
aversion, and climate sensitivity.''
---------------------------------------------------------------------------

\318\ 73 FR 24414 (May 2, 2008).
---------------------------------------------------------------------------

(2) NHTSA's Proposal of $7 as the Value for the SCC
NHTSA received comments from 3 individuals, CARB, the Attorneys
General, 10 U.S. Senators, 10 environmental and consumer groups, and
the Alliance. Prof. Tol, whose 2005 paper provided the basis for
NHTSA's proposal of an SCC number, commented that contrary to NHTSA's
belief that the dollars used in Tol (2005) were 2005 dollars, they were
in fact 1995 dollars. Prof. Tol also commented that NHTSA should
``alert the reader'' that although Tol (2007) was only ``conditionally
accepted,'' as NHTSA had noted in the NPRM, the newer study ``finds
larger estimates than the 2005 paper.'' Sierra Club et al., in its
comments, also stated that Prof. Tol had commented on the NPRM, arguing
that using 1995 instead of 2005 dollars ``would make his 1995 value of
$14 closer to a 2005 value of $19.26.''
Several commenters disputed NHTSA's proposal of $7 as the midpoint
between $0 and $14. UCS argued that proposing $7 puts as much weight on
$0 as on $14, even though failing to assign a value was declared by the
Ninth Circuit to be arbitrary and capricious. CBD commented that
``NHTSA's methodology for the selection of an estimate of the value of
reducing greenhouse gas emissions is arbitrary and designed to minimize
the estimate.'' CBD argued that ``* * * simply splitting the difference
between two points is not a defensible methodology, particularly when
the low point of the range is not part of a valid range but simply an
arbitrary selection of zero as an endpoint.''
EDF also commented NHTSA's decision to propose $7 because it is the
midpoint between $0 and $14 also ``lacks a reasoned basis,'' for which
``NHTSA fails to provide any justification.''
The Sierra Club et al. commented that NHTSA is wrong to place
``equal weighting and probability'' on $0 and $14 and pick the median,
and that $7 is ``far below current carbon estimates,'' citing the 2006
Stern Review which found an SCC of ``on the order of'' $85/tonne
CO2. The Sierra Club argued that this shows how ``misguided
and unrealistic NHTSA's carbon pricing really is.''
The Attorneys General commented that NHTSA's decision to simply
halve Tol's estimate was ``not a reasoned judgment.''
Public Citizen argued that there is no justification for using the
midpoint, and that NHTSA should instead ``weight the credibility of
each estimate,'' by making ``apples to apples'' comparisons between the
studies by ``looking at studies based on their assumptions.'' Public
Citizen argued that this will help NHTSA avoid skewing the result of
averaging estimates from multiple studies. NRDC similarly argued that
proposing $7 as ``a simple average of its proposed upper and lower
bounds * * * assumes a normal distribution of damages, which is
decidedly not the distribution of social cost of carbon estimates.''
NRDC further argued that ``* * * most social cost of carbon estimates
are biased downwards, for the simple reason that almost all models
assume perfect substitutability between normal consumption goods and
environmental goods.'' NRDC cited 2007 research by Sterner and Persson
disaggregating ``goods'' into ``environmental goods'' and ``consumption
goods,'' which found that the price of an environmental good like
carbon reductions increased at a faster rate as damage progressed than
consumption goods would increase. Accordingly, NRDC argued, ``NHTSA's
social cost of carbon is much too low.''
Prof. Hanemann also commented that NHTSA did not justify its
decision to pick the midpoint (between $0 and $14) and then project it
to 2011, although he focused more particularly on NHTSA's not having
applied ``the escalation factor of a 2.4 percent increase in real terms
beginning in 2005.''
The Alliance commented that proposing $7 as the midpoint between $0
and $14 is incorrect. The Alliance argued that NHTSA must try harder to
estimate the purely domestic effects of CO2 emissions
reductions, and stated that NERA had found that the U.S. portion of
world gross product ``is a much better means of allocating the United
States' share of any benefits in reduced CO2 emissions''
than picking the midpoint of a range of global SCC estimates. NERA
assumed that the U.S. portion is 20 percent, which ``reduces NHTSA's
estimate of CO2 benefits with the `optimized standard' for
MY2015 from $869 million to $348 million.'' NERA also argued that this
was conservative, since the U.S., as a developed country, should be
better able to adapt to negative global warming consequences.
Several commenters also criticized Tol (2005) as being out of date.
Prof. Hanemann made this point, and commented that ``more recent
analyses show higher damage estimates.'' The Attorneys General
similarly commented that ``It seems likely that there are better
estimates'' than Tol's, ``Since [that] article is now three years old,
and it itself explains in detail the many deficiencies in the economic
literature at that time.'' The Attorneys General stated that ``NHTSA
should consult with EPA on this issue, and conduct a review of the
current scientific and economics literature.''
Several commenters simply argued that $7/ton is too low a value for
the SCC. CARB argued that ``NHTSA's assumed social cost of carbon in
the future is also unreasonably low, and if set at defensible levels
that also properly value cumulative impacts, could affect the
stringency of the standards.'' Carin Skoog, an individual, similarly
commented that ``The arbitrary decision to use $7/ton underestimates
the economic, social, and environmental consequences of the impacts of
global warming.'' ACEEE similarly commented that NHTSA's use of $7/ton
is both ``inconsistent with current estimates'' and ``fails to take
into account the potentially high probability of a catastrophic climate
change situation.'' The 10 U.S. Senators who commented stated that
NHTSA's value of $7 per ton

[[Page 14341]]

is ``underestimated,'' and ``likely to be found arbitrary and
capricious.''
(3) NHTSA's Proposal of $0 as the Lower Bound Estimate for the Domestic
U.S. Value for the SCC
No commenters supported NHTSA's use of $0/ton as the lower bound
estimate for the U.S. domestic SCC. Several commenters, including UCS,
EDF, and Prof. Hanemann cited the IPCC Fourth Assessment Report as
evidence that, as Prof. Hanemann stated, ``there is no credible
evidence of any significant net benefit to the U.S. from the climate
change scenarios developed for the Fourth IPCC Report.'' The U.S.
Senators who commented also stated that in citing the IPCC as not
precluding low or zero values to the U.S., NHTSA had ``fail[ed] to
recognize that IPCC was looking at global estimates which are not
disaggregated.''
Commenters also mentioned other reports as providing evidence that
there would be some net adverse impact on the U.S. from climate change,
and thus a lower bound value of $0 was untenable. Prof. Hanemann cited
the recent USCCSP report ``conclusively eliminates the notion that
climate change is likely to have no net adverse impact on the United
States.''
UCS argued that proposing $0 as the lower bound ``implies the
possibility that climate change won't have any negative consequences,''
which ``stands in stark contrast to recent government study findings on
U.S. climate change effects and findings from * * * the Academies of
Science for the G8+5.''
EDF commented that ``A recent review of economic studies on the
predicted impacts of climate change on different economic sectors in
the U.S. by the Center for Integrative Environmental Research at the
University of Maryland, `The US Economic Impacts of Climate Change and
the Costs of Inaction: A Review and Assessment,' also demonstrates the
range and scope of adverse impacts that climate change will have on
different sectors and regions of the U.S. economy.'' EDF stated that
``The study concluded that `Scientific evidence is mounting that
climate change will directly or indirectly affect all economic sectors
and regions of the country, though not all equally. Although there may
be temporary benefits from a changing climate, the costs of climate
change rapidly exceed benefits and place major strains on public sector
budgets, personal income and job security.' ''
Sierra Club et al. commented that ``several government reports
[that] have clearly stated that CO2 emissions do have a
significant impact on our economy.'' NHTSA's conclusion that ``it does
not necessarily rule out low or zero carbon values for the benefit to
the U.S. itself from reducing emissions'' is arbitrary given agency's
admission that ``the global value of economic benefits from reducing
carbon dioxide emissions is unlikely to be zero.''
NRDC cited a U.S. government report that ``documents that many of
the projected impacts have already begun,'' as well as the Stern Review
which ``estimated that impacts could result in a loss of 5-20 percent
of world GDP by 2100,'' and its own May 2008 report which ``found U.S.
damages from four impacts alone would cost 1.8 percent of GDP by
2100.''
Several commenters instead raised objections to studies that may
show a positive net benefit to the U.S. from climate change, such that
a domestic SCC value could be $0. CBD stated that NHTSA offered
``absolutely no evidence to support'' proposing $0 as the lower bound,
and argued that ``only one study surveyed in Tol (2005) included
central estimates below $0.00; and that was a non-peer-reviewed
article, also authored by Tol.'' CBD further argued that Tol (2005)
never found, nor included as a consideration in developing SCC
estimates, as NHTSA suggested in the NPRM, that any studies failed ``to
consider potentially beneficial impacts of climate change,'' or to
account adequately ``for how future development patterns and
adaptations could reduce potential impacts from climate change or the
economic damages they cause.''
Prof. Hanemann also argued that studies suggesting any possible
positive net benefit to U.S. from global warming ``have serious flaws
and cannot withstand serious scrutiny,'' and concluded that a value of
$0 per ton is ``wildly unrealistic'' ``even [for] a sensitivity
analysis.''
NRDC commented that ``NHTSA's lower bound seems to be based upon
the fact that some estimates exist that are zero and even negative.''
However, NRDC argued that ``These lower bound estimates are likely
based on outdated science.'' NRDC ``urge[d] NHTSA to do a rigorous re-
examination of Tol's work, eliminating outdated zero estimates and
adjusting for fat tailed upper distributions.''
Several commenters also focused on the CBD decision to argue that
NHTSA may not use $0 as the lower bound estimate, because as UCS
stated, ``the Ninth Circuit found a value of $0 to be arbitrary and
capricious.'' EDF also commented that NHTSA's decision to pick $0 as
the lower bound ``lacks a reasoned basis,'' given the Ninth Circuit
decision. Sierra Club et al. and the U.S. Senators similarly commented
that $0 as the lower bound is contrary to CBD. The comment by the U.S.
Senators stated that ``* * * we can only conclude that the purpose of
this `low bound' estimate is to cut the more accurate value in half in
an arbitrary manner. We recommend NHTSA remove or justify this low
bound estimate in its final CAFE regulation.''
(4) NHTSA's Proposal of $14 as the Upper Bound Estimate for the
Domestic U.S. Value for the SCC
No commenters supported NHTSA's proposal of $14/ton, based on Tol
(2005), as the upper bound estimate for the domestic U.S. value for the
SCC. ACEEE argued that ``NHTSA's decision to use Tol's estimate of $14
as the upper bound based on the argument that this value includes the
worldwide costs CO2 is flawed,'' although the commenter did
not explain why.
Some commenters argued that NHTSA should not have picked the median
from Tol (2005) as its upper bound estimate.
The U.S. Senators who commented stated that NHTSA is wrong to use
$14 as the upper bound because Tol's median is an average of multiple
estimates, and averages should be used as averages and not as maximums.
The Senators stated further that ``NHTSA selected the lower of Tol's
two estimates without explanation.'' The U.S. Senators also commented
that Tol (2007) updates the previous study and finds a median of over
$19/ton. NRDC also cited Tol (2007) as reflecting an increase in the
median from $14 to $20 dollars per ton of CO2.
Sierra Club et al. commented that $14 is an incorrect ``maximum,''
because the maximum that Tol ``states that the maximum carbon value is
in the range of $55-$95 per metric ton CO2.'' The commenter
further argued that if NHTSA could justify $0 as the lower bound,
``then it should not be able to rule out the high value of $95 per ton
CO2 in the study, and the average value would be much
higher.''
NRDC commented that NHTSA should not have used Tol's median value
of $14 as its upper bound for two reasons. First, a median value is not
properly reflective of climate change damage estimate distributions,
which are ``asymmetric'' with ``fat'' upper tails. And second, because
of the unique aspects of climate change damage estimates, such as
``nonlinearities, abrupt change, and thresholds,'' ``a full probability
density function should be estimated, using the full range of all [SCC]
estimates from the studies, not

[[Page 14342]]

simply a collection of their `best-guesses.' '' [Emphasis in original.]
NRDC argued that research has shown that ``When the same traditional
social cost of carbon analyses are rerun incorporating the potential
for nonlinear change, the resulting policy conclusions are changed
considerably to greater mitigation,'' and that ``Another recent study
has shown that incorporating the potential for low-probability, high-
damage events can increase the social cost of carbon by a factor of
20.''
NRDC also cited Prof. Weitzman to argue that the complications of
climate change damage estimates require any analysis to weigh more
heavily the ``low probability/high catastrophic risks,'' because these
will otherwise be insufficiently accounted for. In discussing the
uncertainties associated with climate change, NRDC cited Weitzman as
stating that

The result of this immense cascading of huge uncertainties is a
``reduced form'' of truly stupendous uncertainty about the
aggregate-utility impacts of catastrophic climate change, which
mathematically is represented by a very-spread-out very-fat-tailed
PDF [probability density function] of what might be called (present
discounted) ``welfare sensitivity'' * * * [T]he value of ``welfare
sensitivity'' is effectively bounded only by some very big number
representing something like the value of statistical civilization as
we know it or maybe even the value of statistical life on earth as
we know it.

Thus, NRDC argued, using an upper bound of $14 cannot possibly account
for the uncertainties and risk of climate change. Like Sierra Club et
al., NRDC further argued that ``* * * for consistency with the
rationale used for proposing the lower bound, NHTSA's upper bound
should be based upon some function of the highest estimates in the Tol
2005 study (the very highest was $1,666).''
Some commenters argued that NHTSA had overlooked particular aspects
of the Tol (2005) study, and thus arrived at $14 incorrectly.
CBD argued that NHTSA overlooked key aspects of the Tol (2005)
analysis in proposing $14 per ton, including the fact that Tol included
significantly higher estimates in his analysis. EDF similarly commented
that NHTSA had failed to ``discuss the significant gaps in the existing
research reviewed in [Tol (2005)] and focuse[d] on a specific estimate
of the SCC that is biased toward lower value estimates.'' EDF stated
that NHTSA's decision to use only peer-reviewed studies from Tol (2005)
introduced particular bias, because those studies ``systematically used
higher discount rates * * * which may have biased their results
downward'' compared to averaging all the studies together.
Some commenters argued that Tol (2005) was flawed to the point that
it could not provide a reliable basis for NHTSA to use its median
estimate as the upper bound.
CBD commented that ``the studies cited in the Tol (2005) survey
dated back as much as 18 years, to 1991, and 25 of the 28 studies cited
were published more than five years ago,'' so given that climate change
science is progressing very rapidly, these studies are probably
outdated.
EDF also argued that ``Most of the 28 studies surveyed by Tol'' are
outdated and ``consider only a limited number of potential impacts from
climate change,'' as Tol recognizes by cautioning that the estimates
analyzed ``may understate the true cost of climate change.'' EDF stated
that the IPCC's ``most recent compilation of SCC research'' agrees. EDF
also commented that Tol's meta-analysis ``compares studies with widely
different methodologies and assumptions,'' particularly discount rates,
which EDF stated NHTSA should have controlled for because it ``can have
a considerable impact on SCC estimates.''
NRDC criticized Tol (2005) extensively in its comments. NRDC stated
that Tol's estimate was based on studies which exclude (1) ``non-market
costs, such as damage to and loss of entire ecosystems and species;''
and (2) ``studies of national security costs caused by conflicts over
stressed resources and increased migration from heavily impacted
areas,'' which ``describe global warming as a `threat multiplier.' ''
NRDC recognized that Tol acknowledged that ``costs such as those
described above are poorly accounted for in current social cost of
carbon estimates,'' but insisted that NHTSA must nonetheless account
for them.
NRDC also argued that Tol's estimate is based on outdated studies,
because ``there are smaller natural sinks for carbon than Tol assumed,
higher emissions than he assumed, a higher temperature response to
emissions than he assumed, and faster changes in observed impacts than
he assumed.'' NRDC commented that recent events like Hurricane Katrina
are evidence that the U.S. cannot adapt to climate change-related
disasters as fast as previously thought. NRDC further commented that it
was unclear whether Tol's estimate ``included any valuation for lost
lives,'' suggesting that including this valuation could raise SCC
considerably, and arguing that EPA accounts for it in Clean Air Act
rulemakings.
(5) Other Values That NHTSA Could Have Chosen for the SCC
Many commenters suggested other SCC values that they thought NHTSA
should use instead of a value based on Tol (2005).
Several commenters mentioned SCC values produced by EPA. In March
2008, EPA produced an analysis for the Senate Committee on Environment
and Public Works for S. 2191, ``America's Climate Security Act,'' also
known as the Lieberman-Warner bill.\319\ Public Citizen commented that
NHTSA's upper bound estimate should be at least as high as EPA's
estimates for the Lieberman-Warner bill, which Public Citizen said
``are more recent than the Tol estimate cited in NHTSA's notice.''
Public Citizen commented that EPA ``estimated the value of
CO2 in 2015 between $22 and $40 per metric ton of
CO2, and cited two other analyses with higher estimates of
$48 and $50 per metric ton CO2.'' Sierra Club et al. also
commented that NHTSA must use a higher SCC value, and stated that
``EPA's recent analysis of America's Climate Security Act of 2007 noted
that the value of a ton of CO2 could be as high as $22-
$40.28.'' An individual, Carin Skoog, also commented that ``The US EPA
recently suggested the value of a ton of CO2 could be as
high as $22-35.'' ACEEE appeared to refer obliquely to the EPA
estimates, recommending that NHTSA use a higher CO2
estimate. ACEEE argued that ``legislative efforts to implement a carbon
regime in which the projected market cost of CO2 is expected
to lie between $20 and $30--significantly higher than the average
damage cost assumed by NHTSA--serves as evidence that the U.S. is now
beginning to contemplate the high risk of rising greenhouse gas
emissions.''
---------------------------------------------------------------------------

\319\ Available at http://www.epa.gov/climatechange/downloads/s2191_EPA_Analysis.pdf (last accessed March 23, 2009).
---------------------------------------------------------------------------

NRDC commented that NHTSA cited ``compliance cost estimates
provided by NRDC and others in the 2006 light truck rulemaking'' in
describing its proposal of the upper bound estimate. NRDC argued that
NHTSA should instead consider damage costs and not rely on compliance
cost estimates. NRDC stated that ``If NHTSA were to consider compliance
costs it must consider current analyses, such as EPA's analysis of S.
2191, which finds that CO2 allowances would cost 19 to 67
(2005) dollars per ton of CO2-equivalent in 2012 rising at 5
percent per year real (the range for EPA's Core Scenario is $19 to $35
in 2012, rising at 5 percent per year real).''

[[Page 14343]]

EPA also recently released a ``Technical Support Document on the
Benefits of Reducing GHG Emissions,'' \320\ (TSD) to accompany an
Advance Notice of Proposed Rulemaking (ANPRM) on regulating GHG
emissions under the Clean Air Act.\321\ EDF commented in its original
comments that ``The higher SCC estimates contained in EPA's draft ANPR,
and EPA's accompanying discussion of the remaining omissions and
weaknesses in state-of-the-art SCC research, further demonstrates that
NHTSA's estimates are underestimating the benefits of reducing carbon
dioxide emissions, and therefore setting CAFE standards below optimal
levels.'' After the TSD was released, EDF submitted it to NHTSA's NPRM
docket, and submitted late additional comments arguing that NHTSA must
``adjust its final rulemaking action in accordance with EPA's
assessment and findings,'' because ``EPA's assessment is far more
rigorous than NHTSA's proposal, and EPA's determinations are supported
by a considerable and well-reasoned volume of information.'' EDF stated
that EPA did its own meta-analysis ``building on'' Tol (2005) and
(2007), but including ``only recent peer reviewed studies that met a
range of quality criteria in its evaluation.'' EDF further stated that
EPA arrived at an estimate of $40/tCO2 (using a 3 percent
discount rate), or $60/tCO2 (using a 2 percent discount
rate). EDF commented that EPA concluded that estimates ``likely
underestimate costs of carbon dioxide emissions,'' because they do not
account for all the climate change impacts identified by the IPCC, like
``non-market damages, the effects of climate variability, risks of
potential extreme weather, socially contingent events [(such as violent
conflict)], and potential long-term catastrophic events.''
---------------------------------------------------------------------------

\320\ Available at Docket No. NHTSA-2008-0089-0456.2.
\321\ EPA's ANPRM was signed July 11, 2008, after NHTSA's NPRM
was published. See 73 FR 44353 (July 30, 2008).
---------------------------------------------------------------------------

The U.S. Senators who commented argued that NHTSA's use of $14/ton
based on Tol (2005) as the ``high bound'' estimate was incorrect
because EPA had been working since 2007 ``to develop more accurate,
`state-of-the-art' estimates of the benefits of reducing greenhouse gas
pollution.'' The Senators stated that ``Although EPA's estimates have
not been finalized, the Agency used $40 per ton as the value of
reducing carbon dioxide emissions.'' The Senators further stated that
``NHTSA's draft rule inexplicably makes no mention of EPA's extensive
research and analysis in this area.''
Other commenters argued that NHTSA should have used or considered
the value at which CO2 allowances are currently trading in
the EU regulatory system. UCS stated that using $14 as the upper end is
``unacceptably low,'' given that ``The European Climate Exchange, which
provides a futures market value for global warming pollution in
Europe's carbon constrained market, indicates 2011 contracts for carbon
dioxide at approximately $45 (U.S.) per metric ton--well above the
figure cited by NHTSA.'' UCS argued that ``This value represents a
predicted marginal abatement cost (the cost of avoiding global warming
pollution), and is likely a conservative estimate of the benefit of
reducing global warming since the cost of avoiding climate change is
lower than the cost of fixing the damage after it occurs.'' UCS further
argued that this number is also ``generally consistent with other
recent allowance price estimates, such as the EPA's assessment of GHG
allowance prices under Lieberman-Warner: $22-$40 in 2015 and $28-$51 in
2020 (EPA figures are in 2005 dollars per ton of CO2-
equivalent.)''
Sierra Club et al., Public Citizen, and CARB all also commented
that NHTSA's value for the SCC is too low, and that NHTSA should
instead use a CO2 damage value based on the market value in
the European Trading System, either the current value (which Public
Citizen stated was ``recently * * * around [euro]30 per allowance (one
metric ton CO2 equivalent),'' and CARB stated was
``currently trading around $42 per ton''), or some future value. Sierra
Club et al. argued that ``the futures market value for a metric ton of
CO2 in 2011 is already up to $45,'' while CARB went on to
argue that ``* * * Germany Deutsche Bank [is] forecasting EUA prices of
$60 for 2008 and EUA prices as high as $100 by 2020 [citation
removed].''
Other commenters suggested other SCC values different from any
discussed so far. For example, Prof. Hanemann argued that, based on his
own research, NHTSA use a value of ``about $25 per metric ton [of
CO2] in 2005$,'' and should apply a real growth rate of 2.4
percent per year to determine the value of reducing emissions in future
years. CARB, in contrast, commented that ``NHTSA should also consider
using substantially higher estimates.'' CARB stated that ``the
International Energy Agency (IEA) recently estimated that to limit
global CO2 emissions by the 50 percent GHG reduction that
the IPCC concluded is needed to keep global temperatures from rising
more than two degrees Celsius by 2050, CO2 offset prices
will need to rise to up to $200 per ton * * *.'' CARB further argued
that ``* * * even this higher market price for carbon may not
incorporate the true cost of all natural resources damages, an
externality.''
Mr. Montgomery commented that NHTSA should use an SCC value of $0,
because he argued that ``If a comprehensive cap on [CO2]
emissions is put in place, as many commentators and policymakers
predict, then the choice of policy instrument will have no effect on
the overall level of emissions,'' such that ``Tightening a CAFE
standard will only result in greater mitigation in emissions from
[motor vehicles] and less mitigation in parts of the economy where
decisions are made in response to carbon prices without specific
regulatory mandates.'' Thus, Mr. Montgomery concluded that ``the
damages from global warming will be the same no matter what the level
of the CAFE standard, so that the SCC used should be zero.''
Mr. Montgomery also commented that an SCC based on Tol's estimates
will be too high if the ``global policy objective toward greenhouse gas
emissions * * * is a lower concentration than that on which the Tol
estimates are based.'' Mr. Montgomery argued that ``Marginal damages
depend on the level of GHG concentrations at which they are measured,''
so that ``If the goal for global concentrations is set at a high level
(e.g., 750 ppm) then damages from an additional ton of CO2
(due to higher concentrations during the period of its residence in the
atmosphere) will be higher than if the goal is set at a low level (350
ppm) at which point most of the damaging consequences have been
eliminated.''
Ford redacted much of its discussion of the SCC based on
confidentiality concerns, but seemed to argue generally that reducing
CO2 emissions from motor vehicles is expensive compared to
reducing emissions in other sectors, and commented that ``All sectors
must contribute'' to reducing emissions. Ford ``recommended that NHTSA
consider using CO2 mitigation cost in their analysis in lieu
of emission damage cost.''
NADA commented that ``NHTSA should consider incorporating into its
analysis the $2.97 per metric ton recently paid by the U.S. House of
Representatives for carbon offsets.'' \322\
---------------------------------------------------------------------------

\322\ NADA cited the ``Statement of Daniel P. Beard, Chief
Administrative Officer, U.S. House of Representatives, Concerning
the Purchase of Carbon Offsets,'' which does not list the specific
price paid for the offsets described. Available at http://cao.house.gov/press/cao-20080205.shtml (last accessed March 23,
2009).

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[[Page 14344]]

The Alliance was the only commenter to suggest that NHTSA not
quantify the SCC at all. The Alliance argued that ``* * * given the
fact that no published studies of which we are aware address the SCC
apportionment issue, NHTSA would be well within its rights to decide
that SCC will be considered purely in a qualitative balancing fashion
and not quantified.'' The Alliance cited Transmission Access Policy
Study Group v. FERC, 225 F.3d 667, 736 (D.C. Cir. 2000) (``Given that
FERC's comparison of the frozen efficiency case to its base case
yielded little difference, the agency had no reason to conduct further
analysis. By rigorously examining the frozen efficiency case, even
though it believed the case to be unreasonable, FERC ensured that its
decision was `fully informed' and `well-considered.' '').
(6) NHTSA's Use of a Domestic Versus a Global Value for the Economic
Benefit of Reducing CO2 Emissions
NHTSA received a number of comments on its tentative decision to
employ a domestic value for the SCC instead of a global value. Several
commenters supported a domestic value, while other commenters supported
a global value.
The Alliance argued that NHTSA must consider only domestic impacts
both because of EPCA, which refers to ``the need of the United States
to conserve energy,'' and because of the ``extraterritoriality'' or
``Aramco canon,'' see EEOC v. Arabian American Oil Co., 499 U.S. 244,
260 (1991) (``It is a longstanding principle of American law `that
legislation of Congress, unless a contrary intent appears, is meant to
apply only within the territorial jurisdiction of the United States.')
(quoting Foley Bros. v. Filardo, 336 U.S. 281, 285 (1949)). The
Alliance further argued that because NHTSA must consider only domestic
impacts, it must ``develop some mechanism for scaling down the global
SCC estimates produced in the published literature,'' besides NHTSA's
proposal which just took the midpoint between $0 and $14 as the
domestic SCC value. The Alliance argued that it would be inappropriate
to use land mass to determine the domestic portion, since so much of
the land mass on the planet is uninhabited; and also argued that it
would be inappropriate to use population, since ``not all human beings
live in areas that are expected to be equally impacted by climate
change.'' As discussed above, the Alliance cited to the NERA Report
that it included with its comments as having found that an SCC value
based on the U.S. share of world gross product was more appropriate.
NADA similarly commented that ``NHTSA should account only for any
domestic impacts of reducing the social costs of motor vehicle
CO2, given that EPCA focuses on U.S. energy security and all
other costs and benefits evaluated with respect to the proposed CAFE
standards are domestic only.''
Mr. Delucchi agreed with NHTSA's discussion that ``consistency
requires'' that only U.S. domestic ``global warming damages'' be
considered if NHTSA also accounts for the monopsony effect in the
reduced value of transfer payments from U.S. oil purchasers to foreign
oil suppliers. Mr. Delucchi suggested that NHTSA use a procedure
described in his previous research to estimate the fraction of global
damages from climate change that would be borne within the U.S., and
apply this fraction to the estimated global SCC to determine the value
of U.S. domestic benefits from reducing emissions. This procedure
adjusts the fraction of global GDP accounted for by the U.S. by the
relative sensitivity of the U.S. to climate damages compared to the
remainder of the world, which Delucchi measures by the ratio of U.S.
dollar damages from climate change per dollar of U.S. GDP to global
economic damages from climate change per dollar of global GDP. Using
this method, he estimates that U.S. damages from climate change are
likely to represent 0-14 percent of total global damages, and thus that
the value to the U.S. of reducing carbon emissions is equal to that
same percentage of the estimated global value of the SCC.\323\
---------------------------------------------------------------------------

\323\ Mark A. Delucchi, Summary of the Non-Monetary
Externalities of Motor Vehicle Use, UCD--ITS-RR-96-3 (9) rev.1,
Institute of Transportation Studies, University of California,
Davis, originally published September 1998, revised October 2004.
Available at http://www.its.ucdavis.edu/publications/2004/UCD-ITS-RR-96-03(09)--rev1.pdf (last accessed March 23, 2009).
---------------------------------------------------------------------------

Mr. Montgomery argued that a domestic SCC value was appropriate,
commenting that ``U.S. policy should be based on marginal damages to
the U.S. from CO2 emissions in the U.S., as stated in
relevant OMB circulars on cost-benefit analysis and suggested in the
draft.'' Mr. Montgomery further stated that ``The consensus appears to
be that richer countries are less vulnerable than poorer, and that
temperature increases will be least in temperate regions like the
U.S.'' Thus, Mr. Montgomery argued that a conservative estimate of U.S.
damages would be a calculation ``based on the ration of U.S. GDP to
world GDP.''
Other commenters argued that NHTSA should use a global SCC value.
NRDC commented that because ``Carbon dioxide is a global pollutant, and
much of the damages other countries will experience are a result of
U.S. emissions,'' and because ``emissions in other countries will cause
damages in the U.S.,'' that ``It is fundamentally inconsistent with the
global circulation of these pollutants to arbitrarily limit assessment
of the benefits of reducing U.S. emissions to those accruing in our own
territory.'' NRDC also commented that national security studies show
that the global social costs of carbon will ``spill over'' to the U.S.
and other wealthy countries. EDF also commented that NHTSA should use a
global SCC number rather than a domestic one, because ``Climate change
is clearly a global issue,'' so EDF ``recommend[s] that benefits of
reducing CO2 concentrations should reflect benefits to
society as a whole.''
EDF and the U.S. Senators commented that use of a global SCC value
would be consistent with OMB guidance that international impacts of
regulations may be considered if appropriate. The Senators also
commented that the U.S. must consider the global climate change effects
of its regulations because it ratified the United Nations Framework
Convention on Climate Change in 1992. If every nation considers only
domestic effects of climate change, the Senators argued, emissions
reduction policies will fall ``far short of the socially optimized
level.''
CBD similarly commented that NHTSA should use a global value for
CO2, arguing that using $7 ``fails to incorporate the full
economic costs of global climate change, values that are difficult to
monetize, and costs to the world outside the boundaries of the United
States.'' CBD stated that ``In general, the estimate of the social
costs of climate change fails to incorporate the loss of biodiversity,
complex and large-scale ecosystem services, and the disproportionate
impacts of global climate change on the developing world.'' CBD also
stated that NHTSA's use of $0 as the lower bound estimate is
``[p]resumably * * * meant to imply that the United States might
benefit economically by letting other countries bear the costs of
unabated American greenhouse gas emissions. Setting aside the
tremendous ethical implications of such a position, NHTSA provides
absolutely no evidence to support the claim.''

[[Page 14345]]

In its late comments accompanying its submission of EPA's TSD, EDF
argued that EPA's TSD concluded that a global number is correct, for
several reasons. Because GHGs are global pollutants and affect
everyone, using ``domestic only'' estimates would ``omit potential
impacts on the United States (e.g., economic or national security
impacts) resulting from climate change impacts in other countries.''
Consequently, a global number must be used to avoid missing any
benefits and to maximize global net benefits (i.e., ``countries would
need to mitigate up to the point where their domestic marginal cost
equals the global marginal benefit.'' EDF stated that EPA's TSD cites
Nordhaus (2006), and says that ``Net present value estimates of global
marginal benefits internalize the global and intergenerational
externalities of reducing a unit of emissions and can therefore help
guide policies towards an efficient level of provision of the public
good.''
(7) The Rate at Which the SCC Grows Over Time
Several commenters cited the IPCC Fourth Assessment Report with
regard to the rate at which the SCC should increase over time. CBD
commented that as part of the Fourth Assessment Report, the IPCC ``* *
* states that `It is virtually certain that the real social cost of
carbon and other greenhouse gases will increase over time; it is very
likely that the rate of increase will be 2% to 4% per year.' '' The
U.S. Senators commented that the 2.4 percent per year increase that
NHTSA used in the NPRM is incorrect, because ``the IPCC report states
that `it is very likely that the rate of increase will be 2% to 4% per
year.' ''
EDF stated that IPCC's recommendation of a 2.4 percent growth rate
was meant to be used in combination with a low, intergenerational
discount rate. EDF further argued that after the Fourth Assessment
Report was released, one of the lead authors recommended using a growth
rate of 3 percent, but that ``The OMB equivalent guidance for the UK *
* * recommend using a 2 percent yearly increase.'' EDF thus concluded
that the 2.4 percent growth rate could be used, but only with a maximum
3 percent discount rate, and argued that a range of growth rates should
be run in the sensitivity analysis ``because of considerable
uncertainty.''
(8) The Discount Rate That Should Be Used for SCC Estimates
Commenters urged NHTSA to consider a low or even negative discount
rate in choosing an estimate for the SCC. CBD, for example, stated that
Stern found that `` `If consumption falls along a path, the discount
rate can be negative. If inequality rises over time, this would work to
reduce the discount rate, for the social welfare functions typically
used. If uncertainty rises as outcomes further into the future are
contemplated, this would work to reduce the discount rate, with the
welfare functions typically used.' '' CBD then argued that ``A negative
discount rate would dramatically increase the cost of climate change in
the cost-benefit analyses in the proposed rule.''
NRDC commented that NHTSA should use a discount rate of no more
than 3 percent for the entire rulemaking, and returned to this argument
in its SCC discussion, criticizing Tol's estimate for relying
``primarily upon estimates that did not use current accepted climate
change discounting procedures of a declining discount rate over time.''
In its initial comments, EDF stated that NHTSA should only consider
recent studies that use a 3 percent discount rate for estimating SCC.
In its late comments, EDF stated that EPA's TSD concluded that ``a low
discount rate is most appropriate for SCC estimation,'' for several
reasons. First, because OMB Circular A-4 allows agencies to use a lower
discount rate when there are inter-generational benefits associated
with a rulemaking. Second, because ``In this inter-generational
context, a three percent discount rate is consistent with observed
interest rates from long-term intra-generational investments (net of
risk premiums) as well as interest rates relevant for monetary
estimates of the impacts of climate change that are primarily
consumption effects.'' Third, because EPA had found that the scientific
literature supports the use of a discount rate of 3 percent or lower,
as being ``* * * more consistent with conditions associated with long-
run uncertainty in economic growth and interest rates,
intergenerational considerations, and the risk of high impact climate
damages (which could reduce or reverse economic growth).''
(9) Other Issues Raised by Commenters
The remaining issues raised by commenters with regard to NHTSA's
proposal regarding the value for the SCC were as follows:
Public Citizen commented that NHTSA should also have considered
``the costs of inaction on reducing greenhouse gas emissions and the
resultant consequences of global warming,'' including other
environmental and health consequences such as those analyzed in NHTSA's
DEIS. Public Citizen cited EPA's denial of California's waiver request
and ``a recent report from the University of Maryland'' as evidence of
some of these costs, and argued that NHTSA needed to estimate ``the
costs of inaction'' in making its final decision.
NRDC commented that emissions reductions may be ``greater than what
CAFE accomplishes,'' such that the U.S. would ``get * * * a larger
social cost of carbon benefits stream,'' if the U.S. actions in
``taking a lead in reducing emissions * * * [helps to] induce other
countries, especially China and India, to also reduce.'' NRDC also
argued that ``Carbon dioxide has a very slow decay rate in the
atmosphere, lasting hundreds of years into the future,'' which means
that ``the social costs of carbon extend well past the life time of the
vehicle.'' Thus, ``Any sensible benefits stream would extend them at
least several decades past the lifetime of a vehicle.''
In its original comments, EDF argued that NHTSA should have
considered using a risk-management framework in developing an SCC
estimate, because cost-benefit analysis ``cannot capture the range of
uncertainty and risk that characterizes climate change.'' EDF cited
Prof. Weitzman's work as highlighting ``that the expected damages of
climate change may be dominated by the existence of consequences which
have very low probability but very high damages (such as double-digit
increases in mean global temperature), or a `fat tail' in the
distribution of possible outcomes.'' In its late comments, EDF added
that EPA's TSD also suggested that a risk assessment framework may be
more appropriate than cost-benefit analysis ``in light of the ethical
implications of climate change and the difficulty in valuing
catastrophic risks to future generations.'' The TSD went on to say that
``Economics alone cannot answer the questions, policy, legal, ethical
considerations are relevant too, and many cannot be quantified. When
there is much uncertainty, economics recommends a risk management
framework for guiding policy.''
Agency response: In determining its responses to the public
comments on the value of reducing CO2 emissions, the agency
was mindful that the 9th Circuit remanded rulemaking to NHTSA ``for it
to include a monetized value for this benefit [the reduced risk of
global warming as a result of reducing CO2 emissions] in its
analysis of the proper CAFE standards.'' \324\ (Emphasis added.) NHTSA
understands this directive to require the agency to include within its
modeling, with at least some level of

[[Page 14346]]

specificity, actual values for the SCC. Further, as in the case of
other public comments, the agency is required by the Administrative
Procedure Act to respond to the relevant and significant public
comments, including those central to the agency's decision on standards
under EPCA, in a manner reflecting consideration of the relevant
factors.
---------------------------------------------------------------------------

\324\ CBD, 508 F.3d 508, 535.
---------------------------------------------------------------------------

As noted above, in the NPRM, we tentatively selected the mean value
($14) in Tol (2005) as a global value, and announced plans to attempt
to develop and possibly use a domestic value for the final rule. For
most of the analysis it performed to develop the proposed standards
using the Volpe CAFE model, NHTSA used a single estimate for a domestic
value of reducing CO2 emissions. The agency thus elected to
use the midpoint of the range from $0 to $14 (or $7.00) per metric ton
of CO2 as the initial value for the year 2011, and assumed
that this value would grow at 2.4 percent annually thereafter. This
estimate was employed for the analyses conducted using the Volpe CAFE
model to support development of the proposed standards. The agency also
conducted sensitivity analyses of the benefits from reducing
CO2 emissions using both the upper ($14 per metric ton,
since the domestic value could not exceed the global one) and lower ($0
per metric ton) bounds of this range.
After considering comments on the approach it employed in the NPRM
and more recent estimates of the SCC, NHTSA has decided to employ a
range of estimates for the value of reducing GHG emissions in the
analysis it performed to support this Final Rule for MY 2011 as
discussed in further detail below. To do so, the agency identified a
range of estimates from current peer-reviewed estimates of the value of
the SCC, and then tested the sensitivity of alternative CAFE standards
to this range of uncertainty while holding the other economic
parameters used in its analysis fixed at their estimated values. The
range of estimates, which the agency believes fairly represents the
uncertainty surrounding the value of the SCC, consists of a domestic
value ($2) at the lower end, a global value ($33) equal to the mean
value in Tol (2008) and a global value ($80) one standard deviation
above the mean value. NHTSA believes that, based on currently available
information and analysis, $2 is a reasonable domestic value and $33 is
a reasonable global value, but notes the uncertainty regarding both
values. The agency tested the sensitivity of alternative CAFE standards
to this range of uncertainty while holding the other economic
parameters used in its analysis fixed at their estimated values.
On the basis of this analysis, the agency has concluded that its
adopted standards for MY 2011 are not sensitive to the alternative
estimates of the value of reducing CO2 emissions, so
although it has selected global and domestic values for the SCC for use
in analyzing the effects of different SCC values on the standards in
this one-year rulemaking, NHTSA believes that is not necessary for
purposes of this rulemaking to make definitive, long term choices about
the most appropriate global or domestic value or to choose between
using a global versus domestic value. This approach is sufficient for
this rulemaking and will allow efforts to make more specific choices to
be deferred until additional scientific and economic evidence can be
accumulated, and the participation of other federal agencies in those
efforts can enable the development of a consistent estimate for use in
those agencies' respective regulatory and policy-making activities,
including the next CAFE rulemaking.
The agency is well aware that scientific and economic knowledge
about the contribution of GHG emissions to changes in the future global
climate and the potential resulting damages to the world economy
continues to evolve rapidly. Thus, any value placed in this rulemaking
on reducing CO2 emissions is subject to likely change. NHTSA
recognizes the importance of continuing to monitor current research on
the potential economic damages resulting from climate change, and of
periodically updating estimates of the value of reducing CO2
emissions to reflect continuing advances in scientific and economic
knowledge about the nature and extent of climate change and the threat
it poses to world economic development. NHTSA recognizes the interest
and expertise of other federal agencies, particularly EPA and DOE, in
the issue of valuing the reductions in climate damages that are likely
to result from those agencies' own efforts to reduce GHG emissions.
NHTSA will continue to work closely with those and other federal
agencies in the development and review of the economic values of
reducing GHG emissions that it plans to employ in its next CAFE
rulemaking.
Global Value of Reducing CO2 Emissions
To develop a range of estimates that accurately reflects the
uncertainty surrounding the value of reducing emissions, NHTSA relied
on Tol's (2008) expanded and updated survey of 211 estimates of the
global SCC, which was published after the agency completed the analysis
it conducted to develop its proposed CAFE standards.\325\ Tol's 2008
survey encompasses a larger number of estimates for the global value of
reducing carbon emissions than its previously-published counterpart,
Tol (2005), and continues to represent the only recent, publicly-
available compendium of peer-reviewed estimates of the SCC that has
itself been peer-reviewed and published. The wide range of estimates it
includes reflects their authors' varying assumptions about critical
parameters that affect the SCC, including the sensitivity of the global
climate system to increasing atmospheric concentrations of
CO2 and other GHGs, the extent of economic damages likely to
result from climate change, the rate at which to discount future
damages, the relative valuation of climate damages likely to be
sustained by nations with different income levels, and the degree of
collective aversion to the risk of extreme climate change and the
resulting potential for equally extreme economic damages. NHTSA
believes that Tol's updated survey provides a reliable and consistent
current basis for establishing a range of plausible values for reducing
CO2 emissions from fuel production and use.
---------------------------------------------------------------------------

\325\ Richard S.J. Tol (2008), The social cost of carbon:
Trends, outliers, and catastrophes, Economics--the Open-Access,
Open-Assessment E-Journal, 2 (25), 1-24.
---------------------------------------------------------------------------

Tol's updated survey includes 125 estimates of the SCC published in
peer-reviewed journals through the year 2006. Each of these represents
an independent estimate of the world-wide value of increased economic
damages from global climate change that would be likely to result from
a small increase in carbon emissions, and by implication, the global
value of the reduction in future economic damages from climate change
that would result from an incremental decline in GHG emissions. Tol
reports that the mean value of these estimates is $71 per ton of carbon
emissions, and that the standard deviation of this estimate--a measure
of how much a typical estimate differs from their average value--is $98
per ton; the fact that this latter measure is significantly larger than
the mean value indicates the broad range spanned by the estimates.
NHTSA staff confirmed in conversations with the author that these
values apply to carbon emissions occurring during the mid-1990s time
frame, and are expressed in

[[Page 14347]]

approximately 1995 dollars.\326\ The $71 mean value of the social cost
of increased carbon emissions reported by Tol corresponds to a global
value of $19 per metric ton of CO2 emissions reduced or
avoided when expressed in 1995 dollars, while the $98 standard
deviation for carbon emissions corresponds to $27 per ton of
CO2.\327\ Adjusted to reflect increases since the mid-1990s
in the marginal damage costs of emissions at now-higher atmospheric
concentrations of GHGs, and expressed in 2007 dollars, Tol's mean value
corresponds to a global damage cost of $33 per ton of CO2
emitted during the year 2007, with a standard deviation of nearly $47
per ton. Thus, the value that is one standard deviation above the $33
figure is $80 per ton of CO2.
---------------------------------------------------------------------------

\326\ Tol (2008), Table 1, p. 16.
\327\ As noted in an earlier footnote, carbon itself accounts
for 12/44, or about 27 percent, of the mass of carbon dioxide (12/44
is the ratio of the molecular weight of carbon to that of carbon
dioxide). Thus, each ton of carbon emitted is associated with 44/12,
or 3.67, tons of carbon dioxide emissions. Estimates of the SCC are
typically reported in dollars per ton of carbon, and must be divided
by 3.67 to determine their equivalent value per ton of carbon
dioxide emissions.
---------------------------------------------------------------------------

Many commenters noted that some recent estimates of the SCC are
significantly higher that those reported by Tol (2005), and suggested
that NHTSA employ these higher estimates of the SCC to determine the
value of reducing CO2 emissions. Specifically, commenters
highlighted the widely-cited Stern Review's estimate that the current
SCC is likely to be in excess of $300 per metric ton of carbon, or
approximately $80 per ton of CO2.\328\ Some commenters
argued that Stern's estimate should be given substantial weight in
determining the value of reducing CO2 emissions used to
develop the agency's final CAFE standards. Although Stern's estimate is
reported in Tol's 2008 survey, it is not included in the estimates that
form the basis for NHTSA's revised range of values, because Stern's
study has not yet been subjected to formal peer review.
---------------------------------------------------------------------------

\328\ Stern, N.H., S.Peters, V.Bakhshi, A.Bowen, C.Cameron,
S.Catovsky, D.Crane, S.Cruickshank, S.Dietz, N.Edmonson, S.-
L.Garbett, L.Hamid, G.Hoffman, D.Ingram, B.Jones, N.Patmore,
H.Radcliffe, R.Sathiyarajah, M.Stock, C.Taylor, T.Vernon, H.Wanjie,
and D.Zenghelis (2006), Stern Review: The Economics of Climate
Change Cambridge University Press, Cambridge, England.
---------------------------------------------------------------------------

NHTSA notes that the Stern Report's estimate of the SCC employs a
low value for the discount rate it applies to future economic damages
from climate change, and that this assumption is largely responsible
for its high estimate of the SCC. Hope and Newbury demonstrate that
substituting a more conventional discount rate would reduce Stern's
estimate of the benefits from reducing emissions to the range of $20-25
per ton of CO2, which is well within the range of other
estimates summarized in Tol's 2008 survey, and significantly below the
$33 equivalent of the mean of peer-reviewed estimates Tol reports.\329\
---------------------------------------------------------------------------

\329\ See Hope, Chris, and David Newbery, ``Calculating the
Social Cost of Carbon,'' unpublished paper, Cambridge University,
May 2006, p. 15.
---------------------------------------------------------------------------

Other commenters noted that EPA has recently developed preliminary
estimates of the value of reducing CO2 emissions, and
recommended that NHTSA employ these values in its analysis of
alternative CAFE standards. EPA's estimates are reported in that
agency's Technical Support Document on Benefits of Reducing GHG
Emissions (GHG Benefits TSD) accompanying its Advance Notice of
Proposed Rulemaking on motor vehicle CO2 emissions.\330\ In
that document, EPA derives estimates of the SCC using the subset of
estimates included in Tol's 2008 survey drawn from peer-reviewed
studies published after 1995 that do not employ so-called equity
weighting.\331\ Updated from their original mid-1990s values to reflect
increases in the marginal damage costs of emissions at growing
atmospheric concentrations of CO2 and expressed in 2006
dollars, EPA reports average values of $40 per ton of CO2
for studies using a 3 percent discount rate, and $68 per ton for
studies using a 2 percent discount rate.\332\ (The discount rates
employed in developing the 125 peer-reviewed estimates surveyed by Tol
ranged from 1 to 10 percent.\333\)
---------------------------------------------------------------------------

\330\ U.S. EPA, Technical Support Document on Benefits of
Reducing GHG Emissions, EPA-HQ-OAR-2008-318-0078.pdf, June 12, 2008.
\331\ Equity weighting assigns higher weights per dollar of
economic damage from climate change that are expected to be borne by
lower-income regions of the globe, in an attempt to make the welfare
changes corresponding to those damages more comparable to the
damages expected to be sustained by higher-income world regions.
\332\ These values are reported in EPA, Table 1. p. 12. Using
the original estimates included in Tol's 2008 survey, which were
supplied to NHTSA by the author, the agency calculates these values
at $38 per ton and $62 per ton for 3% and 2% discount rates,
slightly below the estimates reported by EPA. These differences may
be attributable to the two agencies' use of different measures of
inflation to update the original estimates from mid-1990s to 2007
price levels (NHTSA employs the Implicit Price Deflator for U.S.
GDP, generally considered to be an accurate index of economy-wide
price inflation).
\333\ Tol (2008), Table A1.
---------------------------------------------------------------------------

NHTSA recognizes that in a recent rulemaking, DOE used a range of
values from $0 to $20 (in 2007 dollars) per ton to estimate the
benefits of reductions in CO2 emissions resulting from new
energy conservation standards for commercial air conditioning
equipment.\334\ DOE derived the upper bound of this range from the mean
of published estimates of the SCC reported in the same earlier survey
by Tol (2005) that NHTSA relied upon for the value it used to analyze
the CAFE standards proposed in the NPRM, and the lower bound from the
assumption that reducing CO2 emissions would produce no
economic benefit. However, NHTSA believes that the estimates of the
mean and standard deviation derived from Tol's more recent (2008) and
comprehensive survey of published estimates of the SCC provides a more
up-to-date range of values for reductions in CO2 emissions
resulting from higher CAFE standards, primarily because Tol's 2008
survey includes a larger number of estimates of the SCC, as well as
more recently-published estimates.
---------------------------------------------------------------------------

\334\ Department of Energy, 10 CFR Part 431, Energy Conservation
Program for Commercial and Industrial Equipment: Packaged Terminal
Air Conditioner and Packaged Terminal Heat Pump Energy Conservation
Standards: Final Rule, Federal Register, October 7, 2008, pp. 58813-
58814.
---------------------------------------------------------------------------

The agency is aware that rapid advances in modeling climate change
and its potential economic damages have occurred over the past decade,
and that the choice of discount rates has an important influence on
estimates of the SCC. In its next CAFE rulemaking, NHTSA will be
working closely with EPA and other federal agencies to review the
arguments for more selective use of published estimates of the SCC
advocated by the EPA. However, based on the information gathered and
analysis performed by the agency through last fall, and in view of the
fact that this is a one model year rulemaking and the agency will
review matters in considerable detail for the post MY 2011 proposal to
be issued later this year, NHTSA is not now taking that step. Thus, for
the purposes of this final rule, NHTSA has elected to use all 125 SCC
estimates from peer-reviewed studies reported by Tol, instead of the
more limited subset of these estimates relied upon by EPA. Including
the full array of studies provides a reasonable basis for valuing
reductions in CO2 emissions. Specifically, NHTSA believes
that there is still value at this time in considering pre-1995 studies
and those that employ equity weighting (which account for 58 of the 125
peer-reviewed estimates included in Tol's survey), particularly
recognizing that those studies have been published in peer-reviewed
journals.\335\
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\335\ Again using the original estimates from Tol's 2008 survey
supplied by the author, NHTSA estimates that excluding the 18 pre-
1995 estimates from the 125 used to develop the $33 per ton mean
estimate would increase it to $36 per ton, while excluding the 40
estimates that employ equity weighting would reduce the mean
estimate to $23 per ton. Excluding both pre-1995 estimates and those
that employ equity weighting would eliminate a total of 58 of the
125 peer-reviewed estimates, and reduce their mean value to $20 per
ton.

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[[Page 14348]]

For the purpose of this rulemaking, NHTSA has also elected not to
base its estimates of the value of reducing CO2 emissions
solely on estimates that utilize a single discount rate. NHTSA
acknowledges that the varying discount rates employed by different
researchers are an important source of the significant differences in
their resulting estimates of the SCC. However, the agency believes that
the appropriate rate at which to discount economic damages occurring in
the distant future is an economic parameter whose correct value for the
purpose of analyzing future climate change and the resulting economic
damages is subject to significant uncertainty, analogous to that
surrounding other critical scientific and economic parameters in
climate analysis. In the agency's view, it is reasonable to consider
estimates based on different discount rates at the present time instead
of attempting to resolve this uncertainty in the time left to complete
this one-year rulemaking by limiting the sample of estimates to those
that employ the single discount rate it regards as most appropriate. In
its next CAFE rulemaking, NHTSA will work with EPA, DOE and other
federal agencies to consider anew the issue of whether to rely
exclusively on values of the SCC that are developed using discount
rates that are consistent with the rate the agency uses to discount the
value of reductions in future GHG emissions reductions to their present
values.\336\
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\336\ Climate economic studies report estimates of the SCC for
specific future years, often in the form of a value for some stated
base year and an estimate of the annual rate at which it will grow,
as total atmospheric concentrations of GHGs are assumed to increase.
These studies use some assumed rate to discount economic damages
that are projected to occur over a very long span of future years to
their present values as of the future year when emissions increases
are assumed to occur. These estimates of the SCC during specific
future years are used to value the reductions in GHG emissions that
would result each year over the lifetimes of vehicles affected by
CAFE standards; for example, higher CAFE standards for model year
2011 cars and light trucks would reduce GHG emissions each year from
2011 through approximately 2047, and the value of reducing those
emissions by one ton will rise each year over that span. The
estimated economic values of the reductions in GHG emissions during
each of those future years must in turn be discounted to their
present values as of today, so that they can be compared with the
present values of other benefits and with vehicle manufacturers'
costs for meeting higher CAFE standards. The rate used to perform
this latter discounting must be selected by NHTSA, and the choice of
its value is discussed in detail in Section V.B.14.
---------------------------------------------------------------------------

As some commenters pointed out, another approach NHTSA could rely
on to estimate the value of reducing GHG emissions would be to use
actual or projected prices for CO2 emission permits in
nations that have adopted or proposed GHG emission cap and trade
systems. In theory, permit prices would reflect the incremental costs
for achieving the last emissions reductions necessary to comply with
the overall emissions cap. If this cap were based on an estimate of the
level of global emissions required to prevent an unacceptable degree of
climate change, permit prices could provide an estimate of the benefits
of reducing GHG emissions to a level that forestalls unacceptable
climate change. A related approach would be to use estimates of the
cost of reducing emissions from specific sources other than passenger
cars or light trucks to estimate the value of reducing CO2
emissions via higher CAFE standards, under the reasoning that requiring
higher fuel economy for cars and light trucks would allow these costs
to be avoided or saved.
NHTSA considered the use of CO2 permit prices to measure
the benefits from reducing emissions via higher CAFE standards, but did
not select this approach primarily because of the current difficulty in
deciding what is considered an ``acceptable'' degree of climate change.
The answer to that question cannot be provided by environmental,
technological or economic analyses alone or even in combination;
answering that question also involves policy judgment. The agency also
notes that there would also be considerable scientific uncertainty in
determining the level of emissions reduction that would be necessary to
limit climate change to any degree that was deemed acceptable, even if
agreement on the latter could be achieved. Since permit prices would
depend on the level of emission reduction that is required, they are
likely to reflect this uncertainty. Additionally, as a general matter,
permit prices reflect avoided costs of emission reductions and there is
no direct or necessary relationship between avoided costs and benefits.
Finally, still other commenters urged the agency to take into
account the economic value of any reduction in the risk of catastrophic
climate events resulting from lower GHG emissions when estimating the
benefits from reducing emissions. Most of the estimates of the SCC that
are included in Tol's updated review treat the risks and potential
damages from catastrophic events using conventional probabilistic
methods to compute the ``expected'' value of a wide range of potential
changes in climate and associated economic damages. However, few
studies of the SCC attempt to include explicit premiums that measure
the population's aversion to accepting the risks of catastrophic
climate damages.\337\ Further, most published studies of climate
damages report insufficiently detailed results to allow the calculation
of appropriate risk premiums.
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\337\ Under the conventional assumption that successive
increases in consumption produce progressively smaller improvements
in economic welfare, the welfare level associated with the mean of a
range of possible consumption levels is higher than the mean of the
welfare levels associated with each possible level of consumption.
Moreover, the difference between these welfare levels increases as
the span of possible consumption levels is broadened, as would occur
if increased GHG emissions have the potential to cause drastic
climate changes and result in similarly drastic economic damages. In
this situation, the true economic costs of increased emissions
include not only the resulting increase in the probabilistic
expected value of climate-related economic damages, but also the
compensation that those suffering these damages would require in
order to willingly accept the increased risk of catastrophic
damages, even if that risk is extremely small. Conversely, the value
of reducing GHG emissions should include not only the resulting
reduction in the expected value of future climate-related economic
damages, but also the added amount people would be willing to pay
for the associated reduction in the risk that such catastrophic
damage might occur.
---------------------------------------------------------------------------

NHTSA acknowledges that including an appropriate premium to reflect
the value of reducing the risks of catastrophic climate events could
significantly increase its estimate of the value of reducing
CO2 emissions, but it has not attempted to do so at this
time.\338\ (For discussion of NHTSA's consideration of abrupt climate
change, see Sec. 3.4.3.2.4 of the FEIS.) However, the agency is aware
of recent research suggesting that including an appropriate risk
premium can significantly increase estimates of the SCC, and by
implication increase the estimated value of reducing CO2
emissions.\339\ In working with EPA, DOE and other federal agencies in
the development of revised estimates of the benefits from reducing
CO2 emissions that could be used in the next CAFE
rulemaking, NHTSA will carefully consider any new research that
explicitly estimates risk premiums, and evaluate their applicability to
the issue of estimating economic benefits from reductions in
CO2 emissions resulting from future CAFE standards. The
agency will also work with those agencies and departments in exploring
the possibility

[[Page 14349]]

of calculating an appropriate risk premium using results reported in
published studies of the SCC together with any necessary assumptions
about the underlying economic behavior, such as the response of welfare
to successive increases in consumption levels.
---------------------------------------------------------------------------

\338\ Tol estimates that including an appropriate risk premium
would increase the mean estimate of the SCC included in his more
recent survey by 15-27%; see Tol (2008), Table 2.
\339\ Hope, Chris, and David Newbery (2006), Calculating the
social cost of carbon, University of Cambridge, May 2, 2006.
---------------------------------------------------------------------------

Domestic Value of Reducing CO2 Emissions
The agency was able to develop a domestic value by using the mean
estimate of the global value of reduced economic damages from climate
change resulting from reducing CO2 emissions as a starting
point; estimating the fraction of the reduction in global damages that
is likely to be experienced within the U.S.; and applying this fraction
to the mean estimate of global benefits from reducing emissions to
obtain an estimate of the U.S. domestic benefits from lower GHG
emissions.
The agency constructed an estimate of the U.S. domestic benefits
from reducing CO2 emissions using estimates of U.S. domestic
and global benefits from reducing greenhouse gas emissions developed by
EPA and reported in that agency's Technical Support Document
accompanying its advance notice of proposed rulemaking on motor vehicle
CO2 emissions.\340\ Specifically, NHTSA calculated the ratio
of domestic to global values of reducing CO2 emissions
estimated by EPA using the Climate Framework for Uncertainty,
Negotiation, and Distribution (FUND) integrated assessment model.
---------------------------------------------------------------------------

\340\ U.S. EPA, Technical Support Document on Benefits of
Reducing GHG Emissions, June 12, 2008.
---------------------------------------------------------------------------

EPA's central estimates of domestic and global values for reducing
GHG emissions during 2007 using the FUND model using a 3 percent
discount rate were $1 and $17 per metric ton (in 2006$), which suggests
that benefits to the U.S. from reducing CO2 emissions are
likely to represent about 6 percent of their global total. The
comparable figures derived using a 2 percent discount rate are $4 and
$88 for 2007, suggesting that U.S. domestic benefits from reductions in
CO2 emissions would amount to less than 5 percent of their
global total. EPA's results also suggest that these fractions are
likely to remain roughly constant over future decades.\341\ Applying
the 5-6 percent figure to the $33 per metric ton mean estimate of the
global value of reducing CO2 emissions derived previously
yields an estimate of approximately $2 per metric ton for the domestic
benefit from reducing U.S. CO2 emissions in 2007.
---------------------------------------------------------------------------

\341\ These values are reported in EPA, Table 1. p. 12.
---------------------------------------------------------------------------

NHTSA also constructed a second estimate of the fraction of global
economic damages from climate change likely to be borne by the U.S.,
using the procedure described by Delucchi in his comments on the
NPRM.\342\ Delucchi noted that the fraction of global damages from
climate change borne within the U.S. can be estimated by adjusting the
U.S. share of world economic output, measured by the ratio of U.S. GDP
to gross world product, by the relative sensitivity of U.S. and world
economic output to damages resulting from climate change. Using data on
the U.S. share of world economic output (which ranges from 20-28
percent) and published estimates of the relative sensitivity of the
U.S. economy to climate damages compared to the world economy as a
whole, Delucchi estimated that the U.S. fraction of global economic
damages from climate change is likely to range from 0-14 percent.
Applying the midpoint of this range (7 percent) to the $33 per ton mean
estimate of the global value of reducing CO2 emissions also
yields an estimate of approximately $2 per metric ton for the domestic
benefit from reducing U.S. CO2 emissions in 2007.
---------------------------------------------------------------------------

\342\ Mark A. Delucchi, Summary of the Non-Monetary
Externalities of Motor Vehicle Use, UCD-ITS-RR-96-3 (9) rev. 1,
Institute of Transportation Studies, University of California,
Davis, originally published September 1998, revised October 2004,
pp. 49-51. Available at http://www.its.ucdavis.edu/publications/2004/UCD-ITS-RR-96-03(09)--rev1.pdf (last accessed March 23, 2009).
---------------------------------------------------------------------------

Choosing Between a Global Value and a Domestic Value, and Estimating
the Global Values
As the IPCC has noted, CO2 and other GHGs are chemically
stable, and thus remain in the atmosphere for periods of a decade to
centuries or even longer, becoming well-mixed throughout the earth's
atmosphere. As a consequence, emissions of these gases have extremely
long-term effects on the global climate. Further, emissions from any
particular geographic area (for example, the U.S.) are expected to
contribute to changes in the global climate that will affect many other
countries around the world. Similarly, emissions occurring in other
countries will contribute to changes in the earth's future climate that
are expected to affect the well-being of the U.S. The long-lived nature
of atmospheric GHGs means that emissions of these gases from any
location or source can affect the global climate over a prolonged
period, and can thus result in economic damages to many other nations
as well as over subsequent generations.
In view of the global effects of GHG emissions, reducing those
emissions to an economically efficient level, i.e., one that maximizes
the difference between the total benefits from limiting the extent of
climate change and the total costs of achieving the reduction in
emissions necessary to do so, would require each individual nation to
limit its own domestic emissions to the point where its domestic costs
for further reducing emissions within its borders equal the global
value of reduced economic damages that result from limiting climate
change. NHTSA believes that this argument has considerable merit from
the standpoint of economic theory.
If individual nations were instead to consider only the domestic
benefits they receive from limiting the pace or extent of climate
change, each nation would reduce emissions only to the point where its
costs for achieving further reductions equal the benefits to its
domestic economy from limiting the impacts of climate change. As a
result, the combined global reduction in emissions resulting from
individual nations' comparisons of their domestic benefits from
limiting climate change to their domestic costs for reducing emissions
might be inadequate to slow or limit climate change.
At the same time, however, the agency must also consider the
economic, environmental and other effects on the U.S. that a choice of
a global value in this rulemaking might have, given the current stage
of ongoing domestic legislative activity and negotiations regarding
effective international cooperation and coordination. NHTSA notes that
there might be risks to nations that unilaterally attempt to reduce
their emissions by adopting policies or regulations whose domestic
marginal costs equal the global marginal benefits from reducing the
threat of climate change. Such actions could induce economic activity
within their borders--particularly production by emissions-intensive
industries--to shift to nations that adopt less stringent regulations
or lower economic penalties on emissions within their respective
borders. Such a shift would cause emissions abroad to increase,
offsetting at least some of the benefits of domestic emissions
reductions.
The agency recognizes that the arguments for using global versus
domestic values of reducing GHG emissions are complex, and cannot be
resolved satisfactorily by the unilateral actions of any single federal
agency. Instead, resolution of whether to use a domestic or global
value for reducing

[[Page 14350]]

emissions, and developing reliable estimates of those values, as
relevant, will require active participation by all federal agencies
whose regulatory and policy-making activities will be affected by this
decision, as well as leadership from the Administration. In reaching
such a consensus, participants will need to assess not only the
economic arguments favoring global versus domestic values of reducing
emissions, but also the prospects for effective international
cooperation to reduce global GHG emissions, the likelihood that
leadership by the U.S. in seeking emissions reductions would spur
international efforts to reduce emissions, and the precedents
established by federal agencies that have previously evaluated benefits
from regulations that lower GHG emissions. They will also need to
consider arguments that U.S. citizens may attach some value to
reductions in the threat of climate impacts occurring in other regions
of the globe, and that reducing the impacts of climate change on other
nations may have important ``spillover'' benefits to the U.S. itself. A
position has not been adopted by the relevant entities.
In these circumstances, NHTSA decided to take a pragmatic approach
to estimating the value of reducing GHG emissions for the immediate and
limited purpose of this rulemaking. As noted above, we used the mean
value in Tol (2008). To develop a reasonable upper-bound estimate of
that value for purposes of this rule, the agency used a value one
standard deviation above the $33 mean value.\343\ As also noted above,
the standard deviation of peer-reviewed estimates from Tol's 2008
survey is $47 per ton when expressed in comparable terms, which yields
an upper-bound estimate of $80 per ton (equal to $33 plus $47) of
CO2 emissions avoided.\344\ Because the $80 per ton value is
higher than those corresponding to nearly 90% of the 125 peer-reviewed
estimates of the SCC included in the survey, the agency views it as a
reasonable upper bound on the likely global value of reducing
CO2 emissions.\345\ For the purposes of this rulemaking,
NHTSA believes that the range extending from the $2 per ton estimate of
the domestic value of reducing CO2 emissions to the $80 per
ton estimate of the global value is sufficiently broad to illustrate
the sensitivity of alternative MY 2011 CAFE standards and the resulting
fuel savings and emissions reductions to plausible differences in the
SCC.
---------------------------------------------------------------------------

\343\ A two-standard deviation range around the agency's $33 per
ton central estimate would extend from minus $59 to $126 per ton of
CO2 emissions. The agency notes that the lower end of
this range implies economic benefits of $59 for each additional ton
of CO2 emissions during 2007, while its upper end
significantly exceeds all but two of the 125 peer-reviewed estimates
included in Tol's 2008 survey.
\344\ A value one standard deviation below the $33 mean would be
-$14 per ton, which implies economic benefits of $14 for each
additional ton of emissions. Because of this implication, NHTSA
regards the $2 per ton estimate of the domestic value of reducing
emissions as a more plausible lower bound on the value of reducing
emissions than the $-14 per ton figure.
\345\ Tol reports that the 90% confidence limit of the
distribution of peer-reviewed values is $170 per ton, while adding
one standard deviation to his reported mean yields a value of $169;
see Tol (2008), Table 1.
---------------------------------------------------------------------------

Rate of Growth of SCC
The marginal cost per ton of additional CO2 emissions is
generally expected to rise over time, because the increased pace and
degree of climate change--and thus the resulting economic damages--
caused by additional emissions are both expected to rise in proportion
to the existing concentration of CO2 in the earth's
atmosphere. The IPCC Fourth Assessment Report variously reported that
the climate-related economic damages resulting from an additional ton
of carbon emissions are likely to grow at a rate of 2.4 percent
annually, and at a rate of 2-4 percent annually.\346\ Virtually all
commenters who addressed this issue indicated that the IPCC intended
the 2.4 percent growth rate it reported for the SCC in one passage to
instead read ``2-4 percent,'' and many urged NHTSA to apply a 3 percent
or higher growth rate to determine the future value of the SCC.
---------------------------------------------------------------------------

\346\ Yohe et al. (2007), p. 13 reports that ``* * * it is very
likely that the rate of increase [in the social cost of carbon] will
be 2% to 4% per year.'' However, p. 822 states that ``* * * the SCC
will increase over time; current knowledge suggests a 2.4% per year
rate of growth.''
---------------------------------------------------------------------------

NHTSA staff reviewed the underlying references from which the
disputed figure was derived, and those sources clearly report the
growth rate implied by their estimates of the future value of the SCC
for different future years as 2.4 percent, instead of the 2-4 percent
asserted by commenters.\347\ Although most studies that estimate
economic damages caused by increased GHG emissions in future years
produce an implied growth rate in the SCC, neither the rate itself nor
the information necessary to derive its implied value is commonly
reported. NHTSA has been unable to locate other published research that
reports the likely future rate of growth in damage costs from
CO2 emissions or the information required to derive it.
NHTSA understands that other researchers may be using alternative
growth rates. The agency may revise the estimated rate of growth it
uses in its future analyses based on emerging estimates in the
literature and on interagency coordination with the EPA, DOE and other
federal agencies.
---------------------------------------------------------------------------

\347\ Hope, C.W. (2006), The Marginal Impact of CO2
from PAGE2002: An Integrated Assessment Model Incorporating the
IPCC's Five Reasons for Concern, Integrated Assessment Journal, 6,
(1), 19-56; and Hope, Chris, and David Newbery (2006), Calculating
the social cost of carbon, University of Cambridge, May 2, 2006.
---------------------------------------------------------------------------

For the purposes of this rulemaking, NHTSA used the 2.4 percent
annual growth rate to calculate the future increases in its estimates
of both the domestic ($2/metric ton in 2007) and global ($33/metric ton
and $80/metric ton in 2007) values of reducing CO2
emissions. Over the lifetimes of cars and light trucks subject to the
CAFE standards it is establishing for model year 2011, these values
average nearly $4, $61, and $157 per ton of CO2 emissions,
approximately twice their estimated values during 2007. The agency is
unaware of the basis for EDF's assertion that the 2.4 percent growth
rate is to be used only in conjunction with an intergenerational
discount rate with a maximum of 3 percent. Although the agency's
analysis did follow EDF's suggestion in any case, NHTSA selected the
growth rate in the future value of reducing CO2 emissions
and the discount rate applied to these benefits for separate reasons,
as discussed in detail previously.
Insensitivity of MY 2011 Standards to Different Values of SCC
NHTSA examined the sensitivity of alternative CAFE standards for MY
2011 to the choice among three different estimates of the value of
reducing CO2 emissions from fuel production and use: (1) The
mean estimate of the global value of reducing emissions derived as
discussed previously from Tol's 2008 survey--$33 per ton; (2) a value
one standard deviation above this mean estimate--$80 per ton; and (3)
the estimate of the value of U.S. domestic benefits from lower
emissions derived as discussed above--$2 per ton.\348\
---------------------------------------------------------------------------

\348\ In all analyses that employ its estimated value of the
global benefits from reducing CO2 emissions, NHTSA
reduces the value of the savings in monopsony costs from lower U.S.
petroleum consumption and imports to zero. This is consistent with
the fact that when viewed from the same global perspective that
justifies the use of a global value for reducing emissions, these
monopsony payments represent a transfer of economic resources from
consumers of petroleum products to petroleum producers, rather than
an actual savings in economic resources, and thus do not constitute
a real economic benefit.
---------------------------------------------------------------------------

The agency tested the sensitivity of its ``optimized'' CAFE
standards for MY 2011 passenger cars and light trucks to

[[Page 14351]]

the choice among those three alternative values for reducing
CO2 emissions. The agency's analysis revealed that the
optimized CAFE standards for MY 2011 cars and light trucks were
unaffected by the choice among those values for reducing CO2
emissions from fuel production and use. The detailed results of this
analysis are reported in the agency's previously-released Final
Environmental Impact Statement for MY 2011-15 CAFE standards.
There are several reasons for the insensitivity of the MY 2011
standards to the different values of the SCC. First, not more than 15
percent of all models are being redesigned for MY 2011, thus limiting
the changes that can be made. Second, in any year, the value of
gasoline has a far greater effect on the potential level of the CAFE
standards than the SCC. Third, in the analyses that employ the $33 or
$80 per ton global values of the benefits from reducing CO2
emissions, NHTSA reduces the savings in monopsony costs from lower U.S.
petroleum consumption and imports to zero.\349\ This is done in order
to be consistent with the fact that monopsony payments are a transfer
rather than a real economic benefit when viewed from the same global
perspective. This reduction partly offsets the effect of the higher
CO2 value on the optimized CAFE standards and resulting
benefits. It does not do so completely, however, because the value of
reducing CO2 emissions continues to grow at the assumed 2.4
percent rate over the period spanned by the analysis, nearly doubling
over the lifetimes of MY 2011 vehicles.
---------------------------------------------------------------------------

\349\ As noted above earlier in the discussion of SCC, NHTSA
plans to review this practice in the next CAFE rulemaking.
---------------------------------------------------------------------------

Decision Regarding the Value of SCC
Given the insensitivity of the potential standards to the various
values of SCC used in the above analysis, NHTSA concludes that it is
unnecessary for the agency to select a single estimate of the value of
reducing CO2 emissions for inclusion in its analysis as part
of this rulemaking. For that reason and in view of the significance
that announcing the selection of either a domestic or global value in
this rulemaking might have in the context of ongoing legislative
activities and international negotiations, we are deferring the choice
between a domestic SCC and a global SCC and, for the appropriate
choice, the monetized value for the benefit of reduction, until the
next CAFE rulemaking. This will provide the time necessary for more
refined analysis and for the various affected federal agencies to work
together and identify a consistent value for use in their respective
regulatory and policy-making activities. NHTSA expects to participate
actively in the process of developing an appropriate range of estimates
for that value. By the time we issue a proposal this summer for MY 2012
and beyond, we anticipate those activities and efforts will have
progressed sufficiently to enable the federal agencies to make an
informed choice that we can use as a basis for that rulemaking. NHTSA
expects that the economic value of reducing CO2 emissions
will play an important role in developing and analyzing standards in
the next CAFE rulemaking which, unlike this rulemaking, we expect to be
a five-year rulemaking.
13. The Value of Increased Driving Range
NHTSA also considered the fact that improving vehicles' fuel
economy may increase their driving range before they require refueling.
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 provides some
additional benefits to drivers. Alternatively, if manufacturers respond
to improved fuel economy by reducing the size of fuel tanks to maintain
a constant driving range, the resulting savings in manufacturing costs
will presumably be reflected in lower vehicle sales prices.
NHTSA stated in the NPRM that no direct estimates of the value of
extended vehicle range are readily available, so NHTSA's analysis
calculates the reduction in the annual number of 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.\350\ The NPRM provided the following illustration of
how the value of extended refueling range is estimated: A typical small
light truck model has an average fuel tank size of approximately 20
gallons. Assuming that drivers typically refuel when their tanks are 20
percent full (i.e., 4 gallons in reserve), increasing this model's
actual on-road fuel economy from 24 to 25 mpg would extend its driving
range from 384 miles (16 gallons x 24 mpg = 384 miles) to 400 miles (16
gallons x 25 mpg = 400 miles). Assuming that the truck is driven 12,000
miles per year, this reduces the number of times it needs to be
refueled from 31.3 (12,000 miles per year / 384 miles per refueling) to
30.0 (12,000 miles per year / 400 miles per refueling), or by 1.3
refuelings per year.
---------------------------------------------------------------------------

\350\ See Department of Transportation, Guidance Memorandum,
``The Value of Saving Travel Time: Departmental Guidance for
Conducting Economic Evaluations,'' Apr. 9, 1997. Available at http://ostpxweb.dot.gov/policy/Data/VOT97guid.pdf (last accessed August
20, 2008); update available at http://ostpxweb.dot.gov/policy/Data/VOTrevision1_2-11-03.pdf (last accessed August 20, 2008).
---------------------------------------------------------------------------

Weighted by the nationwide mix of urban (about 2/3) and rural
(about 1/3) driving and average vehicle occupancy for all driving trips
(1.6 persons), the DOT-recommended value of travel time per vehicle-
hour is slightly below $24.00 (in 2006 dollars).\351\ Assuming that
locating a station and filling up requires ten minutes, the annual
value of time saved as a result of less frequent refueling amounts to
$5.20 (calculated as 1.3 refuelings/year x 10/60 hours/refueling x
$24.00/hour). This calculation is repeated for each future calendar
year that vehicles affected by the alternative CAFE standards evaluated
in this rule would remain in service. Like fuel savings and other
benefits, however, the total value of this benefit for vehicles
produced during a model year declines over their expected lifetime,
because a smaller number of those vehicles remain in service each year,
and those remaining in service are driven fewer miles.
---------------------------------------------------------------------------

\351\ The average hourly wage rate during 2006 was estimated to
be approximately $25.00 per hour. For urban travel, the DOT guidance
recommends that personal travel (which accounts for 94.4 percent of
urban automobile travel) be valued at 50 percent of the hourly wage
rate, while business travel (5.6 percent of urban auto travel)
should be valued at 100 percent of the hourly wage rate. For
intercity travel, personal travel (which represents 87 percent of
intercity automobile travel) is valued at 70 percent of the wage
rate, while business travel (the remaining 13 percent) is valued at
100 percent of the wage rate. The resulting average values of travel
time are $13.20 for urban travel and $18.48 for intercity travel.
Multiplying these by average vehicle occupancy (1.6) produces
estimates of $21.12 and $29.56 for the value of time per vehicle-
hour in urban and rural travel. Using the fractions of urban and
rural travel reported above, the weighted average of these values is
$23.91 per hour. Departmental Guidance for Valuation of Travel Time
in Economic Analysis, 1997. Available at http://ostpxweb.dot.gov/policy/Data/VOT97guid.pdf (last accessed Nov. 2, 2008).
---------------------------------------------------------------------------

NHTSA received comments only from the Alliance regarding the
benefits that drivers receive from increased driving range. The
Alliance stated that ``NHTSA incorrectly assumes that its new fuel
economy standards will improve vehicle range and thus reduce the number
of times a vehicle owner would have to refill the tank (creating
consumer benefits).'' The Alliance comments focused on two points:
first, that analysis by Sierra Research demonstrates ``the complete
absence of

[[Page 14352]]

any relationship between fuel economy and range in the light truck
fleet,'' and second, that manufacturers ``design fuel-storage capacity
to achieve the basic range requirements consumers demand,'' and will
reduce the space necessary for fuel tanks in order to devote it to
other uses (such as increasing cargo space) if fuel economy levels
rise. The Alliance argued that NHTSA's assumption that raising fuel
economy levels will improve vehicle range and thus result in more miles
driven (i.e., the rebound effect) are ``not supported by existing
data'' and contradicted by the Sierra Research analysis. For example,
Sierra Research found that the driving range for the Chevrolet Suburban
has decreased from 588 to 527 miles as its fuel economy has improved
from 1992 to 1999, because the gas tank capacity was decreased in the
new body from 42 gallons to 31 gallons.
Agency response: In response to the Alliance's comments, NHTSA
notes that the most likely explanation for the absence of a
relationship between fuel economy and refueling range is that
manufacturers adjust fuel tank size to achieve some target level of
refueling range. If by doing so, manufacturers are able to reduce the
space occupied by fuel tanks and devote it to increased passenger or
cargo carrying capacity, as the Alliance asserts, this presumably
reflects manufacturers' view that those attributes are more valuable to
vehicle owners than increased refueling range, or that the resulting
savings in vehicle production costs are more valuable to buyers than
extended refueling range. If manufacturers respond in either of these
ways, they apparently estimate that the resulting increase in the
vehicle's utility to potential buyers is more valuable than the
increase in refueling range that would result from holding tank size
fixed. Thus, NHTSA's estimate of the value of increased refueling range
is likely to underestimate the true benefits from the resulting changes
in vehicle attributes or prices. As a consequence, the agency has
chosen not to modify the procedure it uses to estimate the economic
value of this benefit.
14. Discounting Future Benefits and Costs
The discount rate applied to future benefits and costs of reduced
fuel consumption has a significant effect on the stringency of the
final standards. Discounting converts the economic values of benefits
and costs that are expected to occur in the future to their equivalent
values today (or present values), to account for the reduction in their
value when they are deferred until some later date rather than received
immediately. Discounting reflects the fact that most people view
economic outcomes that are not expected to occur until some future date
as less valuable than equivalent outcomes that occur sooner.
Discounting is particularly important to enable consistent comparison
of economic costs and benefits that are expected to occur in the future
to those occurring in the present, or when the future time profiles of
benefits and costs are not expected to be similar. The discount rate
expresses the percent decline in the value of future benefits or
costs--as viewed from today's perspective--for each year they are
deferred into the future.
In the NPRM, NHTSA proposed to use a rate of 7 percent per year to
discount the value of future fuel savings and other benefits when
analyzing the potential impacts of alternative CAFE standards. NHTSA
relied primarily on the 7 percent discount rate for two reasons. First,
OMB guidance states that 7 percent reflects the economy-wide
opportunity cost of capital, and that it ``is the appropriate discount
rate whenever the main effect of a regulation is to displace or alter
the use of capital in the private sector.'' \352\ NHTSA believes that
much of the cost of CAFE compliance to manufacturers is likely to come
at the expense of other investments the auto manufacturers might
otherwise make, for example, in research and development of new
technologies. Second, NHTSA's analysis in the NPRM determined that 7
percent is a reasonable estimate of the interest rate that vehicle
buyers who finance their purchases are currently willing to pay to
defer the added costs of purchasing vehicles with higher fuel
economy.\353\
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\352\ Office of Management and Budget, Circular A-4,
``Regulatory Analysis,'' September 17, 2003, at 33. Available at
http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf (last accessed
November 13, 2008).
\353\ See NPRM discussion at 73 FR 24415-16 (May 2, 2008).
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However, the agency also performed an analysis of benefits from
alternative increases in CAFE standards using a 3 percent discount
rate, and sought comment on whether the final rule standards should be
set using a 3 percent rate instead of a 7 percent rate. OMB guidance
also states that when a regulation primarily and directly affects
private consumption (e.g., through higher consumer prices for goods and
services), instead of primarily affecting the allocation of capital, a
lower discount rate may be more appropriate. OMB argues that the
consumption rate of time preference would be the most appropriate
discount rate in this situation, since it reflects the rate at which
consumers discount future consumption to determine its value at the
present time. One measure of the consumption rate of time preference is
the rate at which savers are willing to defer consumption into the
future when there is no risk that the borrower will fail to repay them,
and a readily available source of this measure is the real rate of
return on long-term government debt. After adjusting to remove the
effect of inflation, OMB reports that this rate has averaged about 3
percent over the past 30 years.
The NPRM analyzed and sought comment on both the 7 percent and 3
percent discount rates because in the context of CAFE standards for
motor vehicles, the appropriate discount rate depends on one's view of
how the costs of complying with more stringent standards are ultimately
distributed between vehicle manufacturers and consumers. Compared to
the proposed standards set with the 7 percent discount rate, NHTSA
determined that using a 3 percent discount rate would raise the
combined passenger car and light truck standards by about 2 mpg in MY
2015 (to 33.6 mpg from 31.6 mpg), and would reduce lifetime
CO2 emissions of the vehicles affected by the proposed
standards for MY 2011-15 by an additional 29 percent (to 672 mmt,
instead of 521 mmt). However, NHTSA estimated that complying with the
higher standards would cost an additional 89 percent more in technology
outlays over the five model years ($85 billion versus of $45 billion).
Commenters Calling for NHTSA To Use a Lower Discount Rate
Several commenters, including environmental and consumer groups,
state agencies and Attorneys General, and three individuals, called for
lower discount rates than 7 percent. The commenters' argument for lower
discount rates is essentially two-fold. First, commenters argued that
the proposed CAFE standards actually affect private consumption and not
capital investments, so consistency with OMB guidance requires NHTSA to
use a discount rate lower than 7 percent. Second, commenters argued
that because reducing CO2 emissions and thus the pace or
degree of climate change is an important component of the benefits from
higher CAFE standards, the fact that these benefits are likely to occur
in the distant future--and thus to be experienced by future
generations--requires NHTSA to apply a lower ``intergenerational''
discount rate. Commenters were unclear about

[[Page 14353]]

whether this lower discount rate should also be applied to the other
components of benefits resulting from higher CAFE standards, which are
expected to occur within 25-35 years.
UCS, EDF, NRDC, CARB, and the Attorneys General commented that
NHTSA should use a discount rate of 3 percent or less for setting the
CAFE standards. Some commenters, like UCS, based their comments on OMB
Circular A-4. UCS commented that although manufacturers will absorb
some of the costs of the standards by reallocating capital from other
potential uses, ``the amounts involved will be markedly smaller than
the benefits realized by private consumers,'' specifically, the
benefits due to reduced ``private consumption of vehicle fuels.'' Thus,
UCS argued, the standards ``primarily and directly affect private
consumption'' much more than the allocation of capital, so a discount
rate of 3 percent should be used. CARB similarly stated that the fuel
economy standards will affect private consumption over the long-term,
so OMB guidance indicates that 3 percent is a more appropriate discount
rate. EDF also drew on OMB guidance, but emphasized the increased costs
to consumers of more-expensive passenger cars and light trucks as
justification for using a 3 percent discount rate, rather than the
benefits from reduced fuel consumption. Comments from the Attorneys
General included both points in favor of a 3 percent discount rate
according to OMB guidance--that consumers would face higher vehicle
costs, but also gain benefits like reduced fuel consumption, a better
environment, and a more secure energy future.
Other comments made in favor of a 3 percent discount rate focused
on the ``intergenerational benefits'' of reducing climate change by
raising fuel economy standards. OMB Circular A-4 suggests that it may
be appropriate to use a lower discount rate than those used for intra-
generational analysis when comparing costs and benefits that are likely
to be experienced by different generations. Specifically, Circular A-4
notes that ``Special ethical considerations arise when comparing
benefits and costs across generations. Although most people demonstrate
time preference in their own consumption behavior, it may not be
appropriate for society to demonstrate a similar preference when
deciding between the well-being of current and future generations.''
(p. 35) On this basis, OMB advises that ``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.'' (p. 36)
EDF commented that ``The benefits from mitigating climate change
will occur over decades or even centuries; as a result, CAFE's
implications for carbon dioxide emissions should trigger EPA and OMB
guidelines for estimating costs or benefits that affect multiple
generations.'' EDF cited EPA's draft ANPRM on greenhouse gas regulation
under the Clean Air Act as stating that ``[w]hen there are important
benefits or costs that affect multiple generations of the population,
EPA and the Office of Management and Budget (OMB) allow for low but
positive discount rates (e.g. 0.5-3 percent noted by US EPA, 1-3
percent by OMB). Rates of three percent or lower are consistent with
long-run uncertainty in economic growth and interest rates,
considerations of issues associated with the transfer of wealth between
generations, and the risk of high impact climate damages.'' \354\ EDF
also stated that using a discount rate of 3 percent or lower ``is also
in full agreement with the guidance with the blue ribbon panel of
economists, including a Nobel laureate, who recommended that the rate
at which future benefits and costs should be discounted to present
values will generally not equal the rate of return on private
investment.'' \355\ Thus, EDF argued that NHTSA should use a 3 percent
discount rate, with a sensitivity analysis using 0.5 and 1 percent.
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\354\ EPA's ANPRM is available at 73 FR 44354 (July 30, 2008).
EDF also cited OMB Circular A-4 and EPA ``Guidelines for Preparing
Economic Analyses,'' EPA 240-R-00-003 (2000), available at http://yosemite.epa.gov/EE/epa/eed.nsf/pages/Guidelines.html (last accessed
August 6, 2008).
\355\ EDF cited Kenneth J. Arrow et al., Is there a Role for
Benefit-Cost Analysis in Environmental, Health, and Safety
Regulation?, 272 Science 173, 221-222 (April 12, 1996).
---------------------------------------------------------------------------

NRDC offered a similar comment, arguing that this is a multi-
generational rulemaking because it impacts climate change, and that
therefore an ``intergenerational discount rate'' must be used of not
more than 3 percent. NRDC argued that ``The discount rate is often the
single most important parameter in benefit cost analyses of
environmental regulations, due to the fact that high discount rates
disadvantage projects whose benefits accrue in the future but whose
costs are borne up front.'' NRDC's comment included four reasons why
the intergenerational discount rate must be 3 percent or less. First,
NRDC argued that a ``social'' discount rate must be used when there are
``social (i.e., non-private) costs and benefits.'' The CAFE standards
will reduce fuel consumption, which means that society will experience
the benefits of reduced global warming and other air pollution. Second,
NRDC stated that the proper rate is the ``net national welfare'' or
NNW, which represents ``the real rate of growth in the economy, which
takes GDP and subtracts from it depreciation of natural and man made
capital, pollution abatement expenses, and negative externalities, and
then adds to it the value of non-market goods, such as household
labor.'' NRDC asserted that this rate is likely to range from 0 to 1
percent. Third, NRDC argued that because CAFE standards are
``precautionary'' in nature and ``reduce the likelihood of potentially
catastrophic climate change or serious military security costs,''
society may be willing to pay more to avoid these extreme risks, such
that a negative social discount rate may be appropriate. And finally,
NRDC argued that ``the use of a declining discount rate is the newly
supported method for climate damages.'' For these reasons, NRDC argued
that NHTSA should use a discount rate no higher than 3 percent for
setting CAFE standards, and should conduct a sensitivity analysis using
lower rates.
An individual commenter, Mark Eads, also stated that the choices
made primarily involve long-term inter-generational environmental
benefits and costs rather than intra-generational benefits and costs.
Mr. Eads presented his summary and comparison of a number of scholarly
papers considering discount rate over the past several years, and
suggested that NHTSA apply a declining discount rate that begins at 2.6
percent in year one and declines to 0.6 percent in year 300.
UCS, EDF, NRDC, CARB, the Attorneys General, and Mr. Eads did not
address the issue of whether a lower intergenerational discount rate
should also be applied to the other components of benefits resulting
from higher CAFE standards, which are likely to be experienced by
current generations.
Other commenters urged NHTSA to use discount rates besides 7 or 3
percent. CBD commented that both 7 percent and 3 percent are too high,
arguing that they ``artificially reduce'' the value of future benefits
from improved fuel efficiency, and that using a lower discount rate
will result in higher standards. Although CBD did not specify what
discount rate would be preferable, other than to recommend a lower one,
CBD appeared to approve of Stern's use of a discount rate below 1
percent. CFA and NESCAUM, in contrast, both supported NHTSA's use

[[Page 14354]]

of a 5 percent discount rate. CFA argued that NHTSA should have
``picked the middle road'' between 3 percent and 7 percent, to avoid
``emphasizing the importance of economic factors and capital goods at
the expense of the need to conserve energy,'' and used 3 and 7 percent
for sensitivity analyses. NESCAUM argued that a 7 percent discount rate
``inappropriately devalues the technologies designed to achieve
increased fuel economy,'' and stated that EPA had used a 5 percent
discount rate in its 2000 rulemaking on Tier 2 emissions
standards.\356\
---------------------------------------------------------------------------

\356\ EPA calculated the value of a statistical life year for
the Tier 2 benefits analysis by amortizing the $5.9 million mean
value of a statistical life (VSL) estimate over the 35 years of life
expectancy associated with subjects in the labor market studies,
discounting it at 5 percent to get $360,000 per life-year saved in
1999 dollars. See 68 FR 6698, 6784, fn. 107 (Feb. 10, 2000).
---------------------------------------------------------------------------

Professor Michael Hanemann commented that NHTSA's decision to use a
discount rate of 7 percent was ``utterly unfounded in the climate
change context,'' and that NHTSA should use a discount rate of no
higher than 4 percent, although even 4 percent had been criticized in
recent articles on climate change economics. Thus, Prof. Hanemann
argued, NHTSA should use a discount rate of no higher than 4 percent,
and conduct sensitivity analyses with lower numbers, like 2 percent.
The Attorneys General commented that NHTSA should take account of
Professor Hanemann's suggestion of 4 percent as an example of ``the
discount rates that scholars and economists are using to evaluate the
costs and benefits related to global warming.''
Professor Gary Yohe commented that the appropriate discount rate
for benefits from public investments in an economy where returns to
private capital investment are taxed should be lower than the rate of
return on private capital, in order to reflect the fact that public
investment can increase returns to private investment by reducing
distortions caused by the corporate profits tax. Although they are not
specifically public investments, Prof. Yohe noted that investments that
reduce GHG emissions by improving vehicle fuel economy are likely to
increase returns to a broad range of private investments, including
investments in mechanisms that facilitate adaptation to climate change.
Although he did not recommend a specific discount rate, Prof. Yohe
clearly suggested that the appropriate rate should be below 7 percent.
He also noted that OMB's definition and 3 percent estimate of the
social rate of time preference did not correspond to the conventional
definition of that concept, which is a constant-utility rather than a
constant-consumption discount rate.
Commenters Calling for NHTSA To Use a 7 Percent or Higher Discount Rate
Other commenters, including manufacturers and dealers, as well as
one individual, called for NHTSA to use a discount rate of 7 percent or
higher. AIAM commented simply that it ``support[s] the discount rates
used by NHTSA as reasonable for analytical purposes.'' David Montgomery
of CRA International also commented that NHTSA's use of a 7 percent
discount rate was reasonable, arguing that ``the correct discount rate
to use [for CAFE purposes] is the marginal social return on investment,
which measures what society would have earned on other investment
foregone in order to make the investment in more costly motor vehicles
with higher fuel economy.'' Mr. Montgomery stated that ``The chosen 7%
real discount is a reasonable, and probably conservative, estimate of
the long run, real, pre-tax return on investment in the U.S.''
Ford commented that the discount rate ``should represent society's
opportunity cost of money, which should be close to a `risk-free' rate
such as that of the U.S. Treasury.'' However, Ford then argued that the
short-term costs to invest in technology are very high for domestic
manufacturers, and that manufacturers must ``borrow the necessary
capital for such investment.'' Thus, Ford stated, it did not support
the use of a 3 percent discount rate, although it did not recommend an
alternative discount rate.
NADA commented that NHTSA should use a discount rate of at least 7
percent or higher to estimate the future costs and benefits of the
proposed standards. NADA stated that ``financing rates on motor vehicle
loans are indicative of appropriate discount rates since they reflect
the real-world opportunity costs faced by consumers when buying
vehicles'' with higher fuel economy, but argued that NHTSA had not
``generated accurate historical loan rates, let alone justified
projections for what those rates will be in MY 2015.'' NADA further
stated that a too-low discount rate ``will result in overly costly CAFE
standards, decreased new motor vehicle sales, and lower than projected
fuel savings and greenhouse gas reduction benefits.''
The Alliance commented that NHTSA should use a discount rate closer
to 12 percent, although it urged NHTSA to rely on a ``nested logit''
model developed by NERA for ``modeling consumer behavior instead of the
ad hoc analysis NHTSA performs of private benefits without attempting
to explain whether there is a market failure.'' The Alliance argued
that OMB Circular A-4 allows the use of a higher discount rate than 7
percent in certain cases if appropriate, and that ``other prominent
studies relevant to this issue have settled on much higher interest
rates than seven percent,'' including the Congressional Budget Office,
which ``discounts consumers' fuel savings at a rate of 12 percent per
year,'' and Sierra Research's study submitted by the Alliance in
support of its comments, which used a rate of 12.4 percent. A discount
rate of 12 percent makes sense, the Alliance argued, because
``Consumers can be expected to discount the value of future fuel
savings at a rate at least as high as their cost of borrowing funds,''
so they ``would be unwilling to spend an extra dollar on fuel economy
improvements that would lower their fuel costs by ten cents per year
because the cost savings would be less than the annual interest on that
dollar.''
Responding to the Alliance's assertion that rates as high as 12
percent might be appropriate for discounting future benefits from fuel
savings, the Attorneys General noted in a supplemental comment that a
more recent study of vehicle buyer's tradeoffs between higher purchase
prices and savings in operating expenses than that relied upon by NERA
estimates that buyers discount future fuel savings using nominal rates
that average 9 percent. After adjusting it to remove the effect of
expected future inflation, the Attorneys General estimated that the
corresponding real discount rate was 5.4 percent, and urged NHTSA to
use this rate in its analysis of future benefits from fuel savings and
other consequences of higher CAFE standards.\357\
---------------------------------------------------------------------------

\357\ The agency has reviewed the study relied upon by the
Attorneys General in its comment recommending a 5.4 percent discount
rate, and notes that the estimates of vehicle buyers' implicit
discount rates it reports average 10.2 percent before adjusting for
inflation, rather than the 9 percent reported by the Attorneys
General. Adjusting this average rate to remove the effects of actual
inflation over the most recent decade produced a value of 7.5
percent, rather than the 5.4 percent reported in the recent comment
by the Attorneys General.
---------------------------------------------------------------------------

Agency response: In response to the extensive comments it received
to the NPRM and the DEIS on this issue, NHTSA has carefully reviewed
published research and OMB guidance on appropriate discount rates,
including discount rates that should be applied to benefits that are
expected to occur in the distant future and thus be experienced

[[Page 14355]]

mainly by future generations, and discount rates that buyers of new
vehicles apply to savings in fuel costs from higher fuel economy. For
purposes of this final rule, the agency has elected to apply separate
discount rates to the benefits resulting from reduced CO2
emissions, which are expected to reduce the rate or intensity of
climate change that will occur in the distant future, and the economic
value of fuel savings and other benefits resulting from lower fuel
consumption, which will be experienced over the limited lifetimes of
newly purchased vehicles. Specifically, NHTSA has decided to discount
future benefits from reducing CO2 emissions using a 3
percent rate, but to discount all other benefits resulting from higher
CAFE standards for MY 2011 cars and light trucks at 7 percent.
As some commenters pointed out, OMB guidance on discounting permits
the use of lower rates to discount benefits that are expected to occur
in the distant future, and will thus be experienced by future
generations.\358\ The main rationale for doing so is that although most
individuals demonstrate a strong preference for current consumption
over consumption they expect to occur later within their own lifetimes,
it may not be appropriate for society to exercise a similarly strong
preference for consumption by current generations over consumption
opportunities for future generations, particularly when it is
contemplating actions that affect the relative income levels of current
and future generations. In addition, while market interest rates
provide useful guidance about the rates that should be used to discount
future benefits that will be experienced by current generations, no
comparable market rates are available to guide the choice of rates for
discounting benefits that will be received by future generations.
---------------------------------------------------------------------------

\358\ White House Office of Management and Budget, Circular A-4,
September 17, 2003, pp. 35-36.
---------------------------------------------------------------------------

For this final rule, NHTSA has elected to use a rate of 3 percent
to discount the future economic benefits from reduced emissions of
CO2 that are projected to result from decreased fuel
production and consumption. These benefits, which include reductions in
the expected future economic damages caused by increased global
temperatures, a rise in sea levels, and other projected impacts of
climate change, are anticipated to extend over a period from
approximately fifty to two hundred or more years after the impact of
this rule on emissions by MY 2011 cars and light trucks occurs, and
will thus be experienced primarily by generations that are not now
living. As indicated previously, studies of the economic cost of GHG
emissions select a rate to discount economic damages from increased
emissions. These damages are typically projected to occur over an
extended time span beginning many years after the future date when
emissions increase, and the chosen rate is used to discount these
distant future damages to their present values as of the date when the
increased emissions that cause them were assumed to occur.
This procedure yields estimates of the damage costs from increased
GHG emissions during specific future years, which NHTSA uses to value
the reductions in emissions that would occur each year over the
lifetimes of vehicles affected by higher CAFE standards. For example,
higher CAFE standards for MY 2011 cars and light trucks would reduce
GHG emissions each year from 2011 through approximately 2047, and the
estimated value of avoiding each ton of emissions rises each year over
that span. In turn, the estimated economic values of the reductions in
GHG emissions during each of those future years must be discounted to
their present values as of today, so that they can be compared with the
present values of other benefits from higher CAFE standards, and with
vehicle manufacturers' costs for meeting higher CAFE standards.
The 3 percent rate is consistent with OMB guidance on appropriate
discount rates for benefits experienced by future generations, as well
as with those used to develop many of the estimates of the economic
costs of future climate change that form the basis for NHTSA's estimate
of economic value of reducing CO2 emissions.\359\ Of the 125
peer-reviewed estimates of the social cost of carbon included in Tol's
2008 survey, which provides the basis for NHTSA's estimated value of
reducing CO2 emissions, 83 used assumptions that imply
discount rates of 3 percent or higher.
---------------------------------------------------------------------------

\359\ Richard S.J. Tol, The social cost of carbon: trends,
outliers, and catastrophes, Economics Discussion Papers, July 23,
2008.
---------------------------------------------------------------------------

Moreover, the 3 percent rate is consistent with widely-used
estimates in economic analysis of climate change of the appropriate
rate of time preference for current versus distant future consumption,
expected future growth in real incomes, and the rate at which the
additional utility provided by increased consumption declines as income
increases.\360\ The Ramsey discounting rule is widely employed in
studies of potential economic damages from climate changes in the
distant future. The Ramsey rule states that -r = [delta] + [eta]g,
where r is the consumption discount rate, [delta] is the pure rate of
time preference (or the marginal rate of substitution between current
and future consumption under the assumption that they are initially
equal), g is the expected (percentage) rate of growth in future
consumption, and [eta] is the elasticity of the marginal utility of
consumption with respect to changes in the level of consumption itself.
Commonly used values of these parameters in climate studies are [delta]
= -1 percent per year, [eta] = -1, and g = 2 percent per year, which
yield a value for r of 3 percent per year.\361\
---------------------------------------------------------------------------

\360\ EPA notes that ``In this inter-generational context, a
three percent discount rate is consistent with observed interest
rates from long-term intra-generational investments (net of risk
premiums) as well as interest rates relevant for monetary estimates
of the impacts of climate change that are primarily consumption
effects.'' See U.S. EPA, Technical Support Document on Benefits of
Reducing GHG Emissions, June 12, 2008, p. 9.
\361\ See Tol (2008), p. 3.
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The remaining future benefits and costs anticipated to result from
higher fuel economy are projected to occur within the lifetimes of
vehicles affected by the CAFE standards for MY 2011, which extend up to
a maximum of 35 years from the dates those vehicles that are produced
and sold. Because the vehicles originally produced during this model
year will gradually be retired from service as they age, and those that
remain in service will be driven progressively less, most of these
benefits will occur over the period from 2011 through approximately
2025. Thus, a conventional or ``intra-generational'' discount rate is
appropriate to use in discounting these benefits and costs to their
present value when analyzing the economic impacts of establishing
higher CAFE standards.\362\
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\362\ NHTSA acknowledges that using different rates to discount
the distant and nearer-term future benefits from higher CAFE
standards presents a potential problem of time inconsistency, which
arises from the much greater uncertainty that surrounds long-term
future rates of growth in investment, economic output, and
consumption than is associated with near-term estimates of these
variables. However, the agency believes that this problem is less
serious than those that would result from using a single rate to
discount benefits that occur over the next 25-35 year sand those
that are likely to occur over a 100-200 year time frame.
---------------------------------------------------------------------------

The correct discount rate to apply to these nearer-term benefits
and costs depends partly on how costs to vehicle manufacturers for
improving fuel economy to comply with higher CAFE standards will
ultimately be distributed. If manufacturers are unable to recover their
costs for increasing fuel economy in the form of higher selling prices
for new vehicles, those outlays will

[[Page 14356]]

displace or alter other productive investments that manufacturers could
make, and the appropriate discount rate is their opportunity cost of
capital investment. In contrast, if manufacturers are able to raise
selling prices for new vehicles sufficiently to recover all their costs
for improving fuel economy, those costs will ultimately affect private
consumption decisions rather than capital investment opportunities.
Under this second assumption, economic theory and OMB guidance suggest
that a consumption discount rate, which reflects the time preferences
of consumers rather than those of lenders or investors, is appropriate
for discounting future benefits. Since the time preferences of savers
and investors are probably similar, financial intermediation would be
expected to equalize investment and consumption discount rates. In the
presence of corporate income taxation, however, consumption discount
rates are generally thought to be lower than the opportunity cost of
investment capital. Finally, if competitive conditions in the new
vehicle market manufacturers and potential buyers' valuation of higher
fuel economy permit manufacturers to recover only part of their costs
for meeting higher CAFE standards through higher prices for new
vehicles, a rate between an investment discount rate and the lower
consumption discount rate may be appropriate, with the exact rate
depending on the distribution of compliance costs between vehicle
manufacturers and buyers.
OMB estimates that the real before-tax rate of return on private
capital investment in the U.S. economy averages approximately 7 percent
per year, and generally recommends this figure for use as a real
discount rate in cases where the primary effect of a regulation is to
displace private capital investment.\363\ However, this figure
represents an economy-wide average estimate of the return on private
investment, which incorporates no risk premium other than that
associated with uncertainty about future growth in total economic
output. As a consequence, it may understate the opportunity cost of
capital for corporations facing firm- or market-specific risks on
future investment returns. In addition, domestic motor vehicle
manufacturers currently have little or no accumulated earnings
available to re-invest, and may be required to enter private capital
markets to finance the investments necessary to allow them to comply
with higher CAFE standards.
---------------------------------------------------------------------------

\363\ White House Office of Management and Budget, Circular A-4,
September 17, 2003, p. 33.
---------------------------------------------------------------------------

OMB guidance estimates that an appropriate current value for the
consumer rate of time preference--and thus the discount rate that
should be used if the costs of complying with a regulation are borne by
consumers--is approximately 3 percent. However, this estimate is
derived from rates of return demanded by consumers on highly liquid
investments, and is intended to apply to situations where there is
little or no risk that consumers will actually realize the future
benefits resulting from a proposed regulation. In the case of CAFE
standards, buyers face considerable uncertainty about future fuel
prices, and thus about the value of fuel savings resulting from higher
fuel economy. Uncertainty about their future levels of vehicle use and
the actual lifetimes of new vehicles also contribute to buyers'
uncertainty about the value of future fuel savings that is likely to
result from purchasing a vehicle with higher fuel economy. In addition,
buyers' initial investments in higher fuel economy are illiquid, and
the extent to which they will be able recover the remaining value of an
initial investment in a new vehicle that achieves higher fuel economy
in the used vehicle market is uncertain. Finally, unlike most of the
regulations that OMB Circular A-4 is intended to address, most (75-80
percent) of the benefits from higher CAFE standards accrue directly to
the parties they affect--vehicle buyers--rather than to society at
large. Taken together, these circumstances may make the use of a
riskless consumption discount rate, which is intended for use in
discounting the economy-wide effects of a proposed regulation on
consumption, inappropriate for discounting the future benefits that
result from requiring higher fuel economy.
Empirical studies of the discount rates that new vehicle buyers
reveal by trading off the higher purchase prices for more fuel-
efficient vehicles against future savings in fuel costs resulting from
higher fuel economy, which capture the effects of these uncertainties,
conclude that buyers apply real discount rates well above the 3 percent
rate recommended by OMB for riskless situations. Dreyfus and Viscusi
estimate that, when adjusted to reflect differences between the current
interest rate environment and rates at the time the data for their
study were drawn, U.S. buyers apply real discount rates in the range of
12 percent when weighing expected future fuel savings against higher
purchase prices.\364\ Verboven estimates that European buyers' nominal
discount rates for fuel savings resulting from buying more fuel-
efficient new vehicle models range from 5 to 13 percent, with an
average estimate of slightly above 10 percent. Verboven's estimate
corresponds to a real discount rate of approximately 7 percent when
adjusted to reflect current and recent U.S. inflation rates.\365\ These
studies may provide more reliable estimates of the appropriate
consumption rate for discounting benefits from higher fuel economy than
the 3 percent figure recommended in OMB guidance.
---------------------------------------------------------------------------

\364\ See Dreyfus, Mark K. and W. Kip Viscusi. 1995. ``Rates of
Time Preference and Consumer Valuations of Automobile Safety and
Fuel Efficiency.'' Journal of Law and Economics. 38: 79-98; and the
adjustment of discount rates reported in that source discussed in
NERA, ``Discount Rates for Private Costs,'' pp. 4-5, attachment to
Alliance of Automobile Manufacturers comment on NPRM, Docket Item
NHTSA-2008-0089-50.
\365\ See Verboven, Frank, ``Implicit Interest Rates in Consumer
Durables Purchasing Decisions--Evidence for Automobiles,'' p. 22,
attachment to California Department of Justice, comment on NPRM,
Docket Item NHTSA-2008-0089-0495.
---------------------------------------------------------------------------

Uncertainty about future developments in the international oil
market, the U.S. economy, and the U.S. market for new cars and light
trucks make it extremely difficult to anticipate the extent to which
vehicle manufacturers will be able to recover costs for complying with
higher CAFE standards in the form of higher selling prices for new
vehicles. If new vehicle buyers expect fuel prices to remain higher
than those used by NHTSA to establish CAFE standards for MY 2011, they
may be willing to pay the higher prices necessary for manufacturers to
recover their costs for complying with those standards.\366\ However,
potential buyers who expect future fuel prices to be lower than the
forecast NHTSA relies upon are likely to resist manufacturers' efforts
to raise new vehicle prices sufficiently to recover all of their CAFE
compliance costs, since those buyers' assessment of the value of higher
fuel economy will be lower than that reflected in the CAFE standards
NHTSA establishes.
---------------------------------------------------------------------------

\366\ Whether they will be willing to do so, however, depends
partly on how the combined value of the economic and environmental
externalities used to determine CAFE standards compares to current
fuel taxes. It also depends on whether new vehicle buyers take
account of the value of fuel savings resulting from higher fuel
economy over the entire expected lifetimes of the vehicles they
purchase, or over only some part of that lifetime (such as the
period they expect to own new vehicles).
---------------------------------------------------------------------------

From the manufacturer perspective, the current financial condition
of some car and light truck producers suggests

[[Page 14357]]

that they are likely to find it difficult to absorb the full cost of
complying with higher CAFE standards. Because CAFE standards apply to
all manufacturers, establishing higher standards may provide a ready
opportunity for all producers to raise car and light truck prices.
However, this opportunity may be restricted if producers that face very
low incremental costs for complying with higher CAFE standards because
of higher fuel economy levels in their planned model offerings compete
aggressively with others that face significant costs for increasing
fuel economy levels in their product plans to comply with higher CAFE
standards.
After considering the comments received and various arguments about
the ultimate incidence of manufacturers' costs for complying with
higher CAFE standards, NHTSA has concluded that the costs for complying
with higher MY 2011 CAFE standards are likely to be shared by
manufacturers and purchasers of new vehicles, but that the exact
distribution fraction of these costs between manufacturers and buyers
is extremely difficult to anticipate. Generally, NHTSA believes that
manufacturers are likely to be able to raise prices only to the extent
justified by potential buyers' assessments of the value of future fuel
savings that will result from higher fuel economy, but the agency
recognizes that buyers' valuations of fuel savings are inherently
uncertain, and undoubtedly vary widely among individual buyers. As a
consequence, price increases for new cars and light trucks are likely
to allow manufacturers to recoup some fraction of their costs for
complying with higher CAFE standards, while the remainder of those
costs are likely to displace other investment opportunities that would
otherwise be available to them.
Regardless of the ultimate incidence of costs for complying with
higher CAFE standards, however, both manufacturers' opportunity costs
for capital investment and empirical estimates of the discount rates
that buyers of new vehicles apply to future fuel savings suggest that a
rate in the range of 7 percent is an appropriate rate for discounting
the nearer-term benefits from increased fuel economy that will occur
over the lifetimes of MY 2011 cars and light trucks. Thus for purposes
of establishing the CAFE standards adopted in this final rule and
estimating their economic benefits, NHTSA has continued to employ a 7
percent rate to discount future benefits from higher CAFE standards
other than those resulting from reduced CO2 emissions. Recognizing the
uncertainty surrounding this assumption, NHTSA has also tested the
sensitivity of the level of the optimized CAFE standards and their
resulting economic benefits to the use of a 3 percent discount rate for
all categories of benefits.
NHTSA will consider whether to revise the discount rates used in
this analysis when it analyzes the consequences of future CAFE
standards. At that time, the agency will consider whether to apply a
lower discount rate than 3 percent to the benefits from reducing future
emissions of CO2 and other greenhouse gases, as well as
whether to use a rate different from 7 percent to discount the nearer-
term benefits from raising CAFE standards. In making these decisions,
the agency will consider guidance on discounting future benefits--
particularly those from reducing the threat of climate-related economic
damages--issued by OMB, EPA, and other government agencies, and will
also consider the discount rates used by other federal agencies in
similar regulatory proceedings. NHTSA will also consider recent
research on appropriate rates for discounting future benefits from
reducing the threat of climate-related economic damages, as well as on
the discount rates that buyers of new vehicles apply to the fuel
savings they obtain from purchasing models with higher fuel economy,
since such research is particularly relevant to its choice of discount
rates. Beyond these things, the agency will also review the discount
rate issue for future rulemakings in light of the changing economic
situation, in terms of manufacturers' capabilities and consumers'
preferences as fuel prices fluctuate and concern for the effects of
climate change increases.
15. Accounting for Uncertainty in Benefits and Costs
NHTSA explained in the NPRM that in analyzing the uncertainty
surrounding its estimates of benefits and costs from alternative CAFE
standards, NHTSA considered alternative estimates of those assumptions
and parameters likely to have the largest effect. NHTSA stated that
these include the projected costs of fuel economy-improving
technologies and their expected effectiveness in reducing vehicle fuel
consumption, forecasts of future fuel prices, the magnitude of the
rebound effect, the reduction in external economic costs resulting from
lower U.S. oil imports, the value to the U.S. economy of reducing
carbon dioxide emissions, and the discount rate applied to future
benefits and costs. The range for each of these variables employed in
the agency's uncertainty analysis is presented in the section of the
NPRM discussing each variable.
NHTSA explained that the uncertainty analysis was conducted by
assuming independent normal probability distributions for each of these
variables, using the low and high estimates for each variable as the
values below which 5 percent and 95 percent of observed values are
believed to fall. Each trial of the uncertainty analysis employed a set
of values randomly drawn from each of these probability distributions,
assuming that the value of each variable is independent of the others.
Benefits and costs of each alternative standard were estimated using
each combination of variables. A total of 1,000 trials were used to
establish the likely probability distributions of estimated benefits
and costs for each alternative standard.
NHTSA received only one comment on its methodology for accounting
for uncertainty in benefits and costs. The Alliance commented that the
results presented by NHTSA of its sensitivity analysis indicated
increasing levels of certainty in the ability of the proposed standards
to create net benefits--specifically, NHTSA concluded that there was at
least a 99.3 percent certainty that changes made to MY 2011 vehicles to
achieve the higher CAFE standards would produce a net benefit; at least
a 99.6 percent certainty for MY 2012 vehicles; and 100 percent
certainty for MY 2014-15 vehicles. The Alliance argued that
``Traditional discounting analysis indicates that the effects of policy
changes are more uncertain at points far into the future,'' and that
``NHTSA should recognize that its predictive abilities in the area of
automotive technology dim the farther it attempts to peer out into the
future.'' The Alliance commented that NHTSA should ``reevaluate its
statistical model in this light.''
Agency response: NHTSA agrees that uncertainty regarding both costs
and benefits from fuel enhancing technologies increases at points
farther into the future. The Alliance comment seems to suggest the
application of an increasingly wide spread of high and low value
parameters for technology costs and effectiveness rates for each
successive model year. However, recognizing this increasing uncertainty
could either increase or decrease the probability that increases in
CAFE standards will produce net benefits. The agency has no basis for
determining whether this increased uncertainty would be likely to
result in a higher probability of net benefits or a higher probability
of net costs. A variety of factors such as unforeseen technology

[[Page 14358]]

breakthroughs or fluctuations in energy and materials prices could
influence benefits and costs in the distant future, and we see little
merit in adding additional assumptions about conditions distant in time
without a reasonably solid basis for selecting such assumptions.
We could simply increase the range symmetrically by some arbitrary
factor, but, assuming the same normal distribution that is employed for
most of the variables in our uncertainty analysis, increasing the range
of both costs and benefits proportionally would be unlikely to
significantly impact the conclusions of the uncertainty analysis. Thus,
the agency would not increase this range of uncertainty by
progressively more for successive model years, were this a multi-year
rulemaking. As it is not, the issue of changing levels of uncertainty
over time is largely academic for purposes of this rulemaking.

VI. How NHTSA Sets the CAFE Standards

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

NHTSA explained in the NPRM that it had taken a fresh look for
purposes of this rulemaking at the question of which attribute or
attributes would be most appropriate for setting CAFE standards. NHTSA
preliminarily concluded that a footprint-based function would be the
most effective and efficient for both passenger car and light truck
standards. NHTSA explained that unlike a weight-based function, a
footprint-based function helps achieve greater fuel economy/emissions
reductions without having a potentially negative impact on safety and
is more difficult to modify than other attributes because it cannot be
easily altered outside the design cycle in order to move a vehicle to a
point at which it is subject to a lower fuel economy target. NHTSA also
discussed other attributes on which functions could be based, including
curb weight, engine displacement, interior volume, passenger capacity,
and towing or cargo-hauling capability, but tentatively rejected those
other attributes as being generally easier to game than footprint.
NHTSA nevertheless sought comment on whether the proposed standard
should be based on vehicle footprint alone, or whether other attributes
such as the ones described above should be considered. NHTSA requested
that if any commenters advocated one or more additional attributes,
that they supply a specific, objective measure for each attribute that
is accepted within the industry and that can be applied to the full
range of light-duty vehicles covered by this rulemaking. NHTSA noted
that in addition to being able to be objectively measured on all light-
duty vehicles, any attribute-based system needs to (1) minimize the
potential for gaming (artificial manipulation of the attribute(s) to
achieve a more favorable fuel economy target), (2) have an observable
relationship to fuel economy, and (3) avoid adverse safety consequences
and undue relative burden on full-line manufacturers.
The agency received many comments on its choice of attribute. The
Aluminum Association, Honda, IIHS, and UCS supported NHTSA's proposal
of attribute-based standards depending upon footprint alone. Honda
cited the use of footprint as a means of maintaining consumer choice
and maintaining an incentive to make use of lightweight materials. The
Aluminum Association indicated that footprint-based standards would
assure stability between model years. UCS claimed that footprint
compared favorably to other attributes. Honda, the Aluminum
Association, and IIHS all argued that footprint-based standards would
provide incentives well-aligned with highway safety objectives. Honda
commented that incentives provided by a footprint-based system are such
that footprint-based standards would be, from a public policy
perspective, preferable to weight-based standards, even though fuel
economy is more strongly related to weight.
On the other hand, some organizations questioned the agency's
proposal to continue basing light truck CAFE standards on footprint and
to adopt new footprint-based standards for passenger cars. Subaru (a
subsidiary of Fuji Heavy Industries) and BMW expressed concern that
footprint-based standards discourage the introduction of new ``small
vehicle concepts'' encouraged by weight-based standards under
development in Europe and Japan. Porsche suggested that rapid changes
in the light vehicle fleet call into question the use of footprint as
the basis for CAFE standards. Porsche also argued that footprint is not
an ideal attribute for passenger car standards because passenger cars
are less prone to rollover than light trucks and the steepness of the
curves NHTSA proposed for passenger cars would provide an incentive for
gaming. Ferrari also expressed concern regarding the potential to
increase footprint by mounting larger wheels, but did not compare this
risk to the risk of, for example, increasing vehicle weight under a
weight-based standard. Wenzel and Ross questioned the agency's judgment
regarding the safety benefits of discouraging manufacturers from
responding to CAFE standards by selling smaller vehicles. Cummins
argued that other attributes, in particular weight, would provide a
better engineering relationship to fuel economy, but acknowledged that
NHTSA proposed to rely on footprint as a means to best ``balance public
policy concerns.''
GM expressed general support for footprint-based standards, but
also proposed that the agency adopt a two-attribute system that would
adjust targets applicable to vehicles capable of towing heavy loads.
The Alliance, which also supported this concept, indicated that such
vehicles ``generally achieve about five percent lower fuel economy than
similar vehicles not designed for such duty cycles.'' Other commenters
supporting adjustments for ``tow-capable'' vehicles included Chrysler,
Cummins, Ford, NADA, RVIA, and several members of Congress. RVIA
suggested that without such an adjustment, RV owners will ``have no
choice but to attempt to pull travel trailers with undersize
vehicles,'' thereby compromising highway safety. Honda and Toyota both
opposed the concept based on concerns that such adjustments would
compromise progress toward EISA's requirement that NHTSA ensure the new
vehicle fleet reaches an average of at least 35 mpg by MY 2020.
Similarly, the Alliance, Chrysler, and NADA proposed that the
agency adjust targets for ``off-road capable'' vehicles including, but
not limited to vehicles with four-wheel drive. The Alliance and
Chrysler proposed downward adjustments of 10 percent and 1 mpg,
respectively, based on past performance of such vehicles. Toyota
expressed concern regarding the competitive effects of such an
adjustment.
In addition to these two-attribute proposals, the agency also
received a proposal from Porsche for a three-attribute concept under
which vehicle targets would depend on footprint, weight, and maximum
torque. Subaru and Volkswagen expressed support for this concept.
Porsche and Subaru argued that this three-attribute concept would
provide a better statistical relationship to fuel economy and would
help to reduce the steepness of the curves NHTSA proposed for passenger
cars. Volkswagen indicated that the concept would be less burdensome
for manufacturers with fleet mix ``challenged by'' a footprint-based
system. Ferrari also commented that, considering the characteristics
and fuel

[[Page 14359]]

economy of performance vehicles, the agency should adopt a two- or
three-attribute system that also incorporates curb weight, maximum
power, maximum torque, and/or engine displacement.
Conversely, some organizations expressed strong opposition
regarding standards that would rely on more than one attribute. UCS
questioned whether any dual-attribute approach could ``deliver the
benefits'' of a system based on footprint alone. Honda argued that
NHTSA should ``automatically reject'' the inclusion of any additional
attribute that could decrease overall fuel savings achieved by CAFE
standards. Similarly, as mentioned above, Toyota expressed concern that
inclusion of additional attributes could compromise progress toward
EISA's requirements.
Agency response: Having considered the comments submitted to the
agency on what attribute(s) should be included in attribute-based CAFE
standards for passenger cars and light trucks, NHTSA is promulgating MY
2011 standards that depend on vehicle footprint.
As discussed in Section VIII, in the agency's judgment, from the
standpoint of highway safety, it is important that the agency
promulgate CAFE standards that do not encourage manufacturers to
respond by selling vehicles that are in any way less safe. While the
agency's research also indicates that reductions in vehicle mass tend
to compromise highway safety, footprint-based standards provide an
incentive to use advanced lightweight materials and structures that
would be discouraged by weight-based standards.
Further, although NHTSA recognizes that weight is better correlated
with fuel economy than is footprint, the agency continues to believe
that there is less risk of ``gaming'' by increasing footprint under
footprint-based CAFE standards than by increasing vehicle mass under
weight-based CAFE standards. The agency also agrees with concerns
raised by some commenters that there would be greater potential for
gaming under multi-attribute CAFE standards, such as standards under
which targets would also depend on attributes such as weight, torque,
power, towing capability, and/or off-road capability. Standards that
incorporate such attributes in conjunction with footprint would not
only be significantly more complex, but by providing degrees of freedom
with respect to more easily-adjusted attributes, they would make it
less certain that the future fleet would actually achieve the average
fuel economy levels projected by the agency.
Although NHTSA recognizes that any change in the structure of the
CAFE standards changes the relative challenge posed by those standards
to each manufacturer, the agency notes that compliance with CAFE
standards is determined based on average performance, such that no
specific vehicle model need necessarily achieve its fuel economy
target. NHTSA disagrees, therefore, that RV owners will be forced to
use ``undersize'' vehicles as suggested by RVIA; rather, the agency
expects that manufacturers will continue to provide a range of vehicles
with capabilities sought by vehicle buyers.\367\
---------------------------------------------------------------------------

\367\ In any event, the agency doubts that RV owners would, as
asserted by RVIA, be likely to violate guidelines and laws
concerning towing capacity.
---------------------------------------------------------------------------

Furthermore, changes--discussed below--to NHTSA's procedure for
determining the shape and stringency of CAFE standards for MY 2011 more
fully incorporate the capabilities of high-performance vehicles, tow-
capable vehicles, and off-road-capable vehicles. In developing the CAFE
standards promulgated today, the agency has included all vehicles
produced by all manufacturers, including the high-performance vehicles
produced by companies such as Ferrari and Porsche. Also, as discussed
in Section IV, for purposes of analyzing potential fuel economy
improvements to specific vehicle models, the agency has developed
estimates specific to performance vehicles of the availability, cost,
and effectiveness of different fuel-saving technologies. The final
passenger car standards thus give appropriate weight to the
capabilities of these vehicles.
Also, as discussed below and in sections III and XI, the agency is
tightening its definition of ``nonpassenger automobile'' such that many
vehicles will be newly classified as passenger cars. Most of these
changes involve two-wheel drive vehicles with relatively modest towing
capacity, such that vehicles with off-road capabilities and/or more
substantial towing capacity comprise an even greater share of the
vehicles that will still be classified as light trucks. Therefore,
NHTSA has established final light truck CAFE standards that
appropriately account for the capabilities of such vehicles.

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

As discussed above, Congress also recently mandated that NHTSA set
attribute-based fuel economy standards ``and express each standard in
the form of a mathematical function.'' \368\ As proposed in the NPRM,
NHTSA is finalizing CAFE standards that use a continuous, constrained
logistic function for expressing the MY 2011 passenger car and light
truck standards, which takes the form of an S-curve, and is defined
according to the following formula:
---------------------------------------------------------------------------

\368\ 49 U.S.C. 32902(a)(3)(A).
[GRAPHIC] [TIFF OMITTED] TR30MR09.050

Here, TARGET is the fuel economy target (in mpg) applicable to
vehicles of a given footprint (FOOTPRINT, in square feet), b and a are
the function's lower and upper asymptotes (also in mpg), e is
approximately equal to 2.718,\369\ c is the footprint (in square feet)
at which the inverse of the fuel economy target falls halfway between
the inverses of the lower and upper asymptotes, and d is a parameter
(in square feet) that determines how gradually the fuel economy target
transitions from the upper toward the lower asymptote as the footprint
increases. Figure VI-1 below shows an example of a logistic target
function, where b = 20 mpg, a = 30 mpg, c = 40 square feet, and d = 5
square feet:
---------------------------------------------------------------------------

\369\ e is the irrational number for which the slope of the
function y = number ^x is equal to 1 when x is equal to
zero. The first 8 digits of e are 2.7182818.

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

[[Page 14360]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.051

NHTSA is not required to use a constrained logistic function and,
as discussed below, the agency may consider defining future CAFE
standards in terms of a different mathematical function.
Continuous function:
NHTSA explained in the NPRM that it examined the relative merits of
both step functions and continuous functions in its rulemaking for MY
2008-2011 light trucks, and described the agency's rationale for
choosing a continuous function for the CAFE program. A step function,
in the CAFE context, would separate the vehicle models along the
spectrum of attribute magnitudes into discrete groups, and each group
would be assigned a single fuel economy target, so that the average of
the groups would be the average fleet fuel economy. A continuous
function, in contrast, would assign each vehicle model (and indeed, any
potential vehicle model at any point along the spectrum) its own unique
fuel economy target, based on its particular attribute magnitude. Thus,
two vehicle models built by different manufacturers could have the same
fuel economy target, but only if they had identical magnitudes of the
relevant attribute. In other words, a continuous function is a
mathematical function that defines attribute-based targets across the
entire range of possible attribute values. These targets are then
applied through a harmonically-weighted formula to derive regulatory
obligations for fleet averages.
NHTSA decided against a step function for several reasons. First,
there would be a strong incentive for manufacturers to game the system
at the ``edges'' of the steps, by increasing the magnitude of a vehicle
model's attribute only slightly in order to receive the lower target of
the next step. A continuous function tends to reduce this incentive
because on an uninterrupted spectrum, the vehicle model's magnitude of
the attribute must be increased much more in order to gain a
significantly lower fuel economy target--i.e., the necessary change in
the vehicle model must be greater in order to receive the same level of
benefit. Second, the continuous function minimizes the incentive to
downsize a vehicle, since any downsizing would result in higher (or the
same, at the upper end of the curve) targets being applicable. And
finally, the continuous function provides manufacturers with greater
regulatory certainty, since under a step function, the boundaries of
categories (i.e., the size of the steps) could be redefined in future
rulemakings. Thus, NHTSA tentatively concluded that a continuous
function was the best choice for setting CAFE standards.

[[Page 14361]]

NHTSA received only three comments regarding its use of the
continuous function. Ferrari commented that it supports ``the choice to
use a continuous function instead of a step function, because for each
vehicle model is associated the corresponding fuel economy target,
regardless of whether the attribute is the footprint alone or another
one or a combination of two or more.''
Fuji/Subaru commented that ``In general, Subaru conceptually
supports the NHTSA proposal to carryover the attribute and continuous
logistic function structure from the prior 2008-2011 light truck fuel
economy rulemaking.''
IIHS commented that it ``strongly supports the extension of an
attribute-based system to cars and the agency's proposal to index fuel
economy to a continuous function.'' IIHS stated that a step function
gives manufacturers an incentive ``to redesign vehicles with minimally
larger footprints to achieve lower fuel economy targets or to downsize
vehicles to achieve weight reductions within footprint categories.''
This incentive exists, IIHS argued, because of the fact that ``By
minimally boosting the footprint of a vehicle near an upper boundary,
an automaker can gain a large benefit in meeting fuel economy
targets,'' and that ``By the same token, an automaker can significantly
decrease a vehicle's size and weight as long as the changes do not
place the vehicle below the lower boundary of its current step,'' which
IIHS argued presented significant safety concerns. IIHS further stated
that the continuous function presented an added benefit over a step
function insofar as ``car buyers would be more likely to notice design
changes incorporated to achieve a substantial CAFE benefit in a
continuous function system.''
Agency response: Notwithstanding concerns regarding the steepness
of an attribute-based function--concerns that are addressed below in
Section VI.E--these comments support the agency's decision to
promulgate a final rule that uses a continuous function to specify fuel
economy targets that depend on a vehicle attribute.
Constrained Logistic Function
NHTSA explained in the NPRM that there are a variety of
mathematical forms available to estimate the relationship between an
attribute and fuel economy that could be used as a continuous function,
including simple linear (straight-line) functions, quadratic (U-shaped)
functions, exponential (curves that continuously become steeper or
shallower) functions, and unconstrained logistic (S-shaped) functions.
NHTSA examined these alternative mathematical forms in the MY 2008-2011
light truck CAFE rulemaking,\370\ but concluded that none of those
functional forms as presented would be appropriate for the CAFE program
because they tended toward excessively high stringency levels at the
smaller end of the footprint range, excessively low stringency levels
at the larger end of the footprint range, or both. Too-high stringency
levels for smaller vehicles could potentially result in target values
beyond the technological capabilities of manufacturers, while too-low
levels for larger vehicles would reduce fuel savings below that of the
optimized fleet. NHTSA determined that a constrained logistic function,
shaped like an S-curve with plateaus at the top and bottom rather than
increasing/decreasing to infinity, provided a relatively good fit to
the data points without creating problems associated with some or all
of the other forms. The constrained logistic function also limited the
potential for the curve to be disproportionately influenced by outlier
vehicles.
---------------------------------------------------------------------------

\370\ See 71 FR 17600-17607 (Apr. 6, 2007) for a fuller
discussion of the agency's analysis in that rule.
---------------------------------------------------------------------------

NHTSA defined the constrained logistic functions for the CAFE
standards using four parameters. Two parameters, a and b, established
the function's upper and lower bounds (asymptotes), respectively. A
third parameter, c, specified the footprint at which the function was
halfway between the upper and lower bounds. The last parameter, d,
established the rate or ``steepness'' of the function's transition
between the upper (at low footprint) and lower (at high footprint)
boundaries. The resulting curve was an elongated reverse ``S'' shape,
with fuel economy targets decreasing as footprint increased. The
definitions of the constrained logistic functions and NHTSA's process
for fitting the curves is described in much more detail in Section VI.E
below.
NHTSA tentatively concluded in the NPRM that a constrained logistic
function was appropriate for setting CAFE standards for both passenger
cars and light trucks, but sought comment on whether another
mathematical function might result in improved standards consistent
with EPCA and EISA.
Although NHTSA received a number of comments requesting alternative
standards for certain manufacturers, which are discussed in Section
VI.D, only Ferrari commented specifically regarding the constrained
logistic function. Ferrari stated that it agreed with NHTSA ``about the
use of a constrained logistic function to avoid a too high standard for
smaller vehicles, and too low for larger vehicles, being the attribute
the footprint.'' Ferrari further stated that ``the almost flattened
tails of the curve (i.e., asymptotes) are helpful to avoid either
vehicle downsizing or over sizing which could produce negative effects
for safety and vehicle compatibility in case of accidents.''
Agency response: As a potential alternative to the constrained
logistic function, NHTSA did also present information regarding a
constrained linear function. As shown in the NPRM, a constrained linear
function has the potential to avoid creating a localized region (in
terms of vehicle footprint) over which the slope of the function is
relatively steep. However, NHTSA did not receive comments on this
option, and the agency remains concerned about possible unintended
consequences of the ``corners'' in such a function. Therefore, the
agency is promulgating standards for MY 2011 that, as proposed in the
NPRM, use a constrained logistic function to specify attribute-based
fuel economy targets. The agency still believes a linear function
constrained by upper (on a gpm basis) and possibly lower limits may
merit reconsideration in future CAFE rulemakings.

C. What other types of standards did commenters propose?

In the NPRM, NHTSA explained that it is obligated under 49 U.S.C.
32902(a)(3)(A), recently added by Congress, to set attribute-based fuel
economy standards for passenger cars and light trucks.\371\ NHTSA
stated that it welcomed Congress' affirmation through EISA of the value
of setting attribute-based fuel economy standards, because the agency
believes that an attribute-based structure is preferable to a single-
industry-wide average standard in the context of CAFE for several
reasons. First, attribute-based standards increase fuel savings and
reduce emissions when compared to an equivalent industry-wide standard
under which each manufacturer is subject to the same numerical

[[Page 14362]]

requirement. Under such a single industry-wide average standard, there
are always some manufacturers that are not required to make any
improvements for the given year because they already exceed the
standard. Under an attribute-based system, in contrast, every
manufacturer is more likely to be required to continue improving each
year. Because each manufacturer produces a different mix of vehicles,
attribute-based standards are individualized for each manufacturer's
different product mix. All manufacturers must ensure that they have
used available technologies to enhance the fuel economy levels of the
vehicles they sell. Therefore, fuel savings and CO2
emissions reductions will always be higher under an attribute-based
system than under a comparable industry-wide standard.
---------------------------------------------------------------------------

\371\ The statutory section states as follows:
(3) Authority of the Secretary.--The Secretary shall--
(A) prescribe by regulation separate average fuel economy
standards for passenger and non-passenger automobiles based on 1 or
more vehicle attributes related to fuel economy and express each
standard in the form of a mathematical function * * *.
---------------------------------------------------------------------------

Second, attribute-based standards eliminate the incentive for
manufacturers to respond to CAFE standards in ways harmful to
safety.\372\ Because each vehicle model has its own target (based on
the attribute chosen), attribute-based standards provide no incentive
to build smaller vehicles simply to meet a fleet-wide average, because
the smaller vehicles will be subject to more stringent fuel economy
targets.
---------------------------------------------------------------------------

\372\ The 2002 NAS Report described at length and quantified the
potential safety problem with average fuel economy standards that
specify a single numerical requirement for the entire industry. See
NAS Report at 5, finding 12.
---------------------------------------------------------------------------

Third, attribute-based standards provide a more equitable
regulatory framework for different vehicle manufacturers.\373\ A single
industry-wide average standard imposes disproportionate cost burdens
and compliance difficulties on the manufacturers that need to change
their product plans and no obligation on those manufacturers that have
no need to change their plans. Attribute-based standards spread the
regulatory cost burden for fuel economy more broadly across all of the
vehicle manufacturers within the industry.
---------------------------------------------------------------------------

\373\ Id. at 4-5, finding 10.
---------------------------------------------------------------------------

And fourth, attribute-based standards respect economic conditions
and consumer choice, instead of having the government mandate a certain
fleet mix. Manufacturers are required to invest in technologies that
improve the fuel economy of the vehicles they sell, regardless of size.
All commenters recognized that NHTSA must set attribute-based
standards per Congress' mandate in EISA, but several commenters, mostly
small and limited-line manufacturers, requested that NHTSA develop some
kind of alternative standard besides the attribute-based passenger car
and light truck standards proposed in the NPRM.\374\ These
manufacturers generally argued that the proposed passenger car
standards were set without regard to 15 percent of the passenger car
market and were disproportionately burdensome to them (NHTSA notes,
however, that full-line manufacturers argued to the contrary that the
proposed standards were disproportionately burdensome to them). Most
requested that the agency set an alternative standard that required
them to raise their CAFE levels by a certain set percentage each year,
rather than at the rate required by the proposed standards. Commenters
generally reasoned that these alternative standards would improve fuel
savings, because otherwise small and limited-line manufacturers will be
unable to meet the proposed standards and will just pay fines.
---------------------------------------------------------------------------

\374\ The Alliance comment on this issue simply stated that
``For some manufacturers, whose model proliferation may not
correlate well with footprint-based CAFE standards, the burden of
required fuel economy increases is particularly high,'' and
suggested that ``NHTSA should consider the appropriateness of
implementing an alternative fuel economy standard option'' for those
manufacturers, but left it to the individual manufacturers to
comment further.
---------------------------------------------------------------------------

Several manufacturers suggested alternative standards that increase
at set percentages each year. BMW suggested, and Mitsubishi supported,
an alternative passenger car standard allowing manufacturers for which
the ratio of the fleet standard to the manufacturer's average footprint
is higher than average to have the option of using a flat standard.
This flat standard would increase at 4.5 percent per year, which was
the same annualized increase as NHTSA's proposed passenger car
standards. BMW argued that the suggested approach would be consistent
with EISA because it would be derived from the attribute-based
standards.
Ferrari also suggested that small manufacturers (which it argued
should be re-defined as either producing less than 5,000 vehicles
annually for sale in the U.S. or selling less than 15,000 vehicles
annually in the U.S.) should be provided an option to improve their
fuel economy by a certain percentage each year. Ferrari did not suggest
a particular percentage by which standards should increase. At the very
least, Ferrari argued that small manufacturers should be given more
lead-time than full-line manufacturers for making CAFE improvements.
Volkswagen also commented that NHTSA should consider a percent
increase option for the manufacturers (like Volkswagen) with fleets
that ``exhibit an unbalanced correlation to the footprint attribute,''
a concept which Volkswagen suggested could be applied to both passenger
cars and light trucks. If NHTSA declined to adopt such a suggestion,
Volkswagen requested that manufacturers be allowed to comply with the
industry average target for each model year.
Ford also argued in favor of passenger car and light truck
standards that increase at a set percentage each year, specifically at
3.8 percent per year, which Ford estimated would achieve similar CAFE
levels by MY 2015. Ford's comment was based on its construction of the
EISA requirement that standards ``increase ratably'' between MY 2011
and MY 2020, and was discussed in the section above addressing other
comments made regarding that requirement.
Fuji/Subaru suggested that smaller-volume manufacturers should have
the option of either meeting the average on the proposed passenger car
curve for the fleet as a whole, or paying civil penalties based on the
target assigned through the proposed passenger car curve. These
alternative options would be available in the early years of the
rulemaking for manufacturers not able to meet rapidly-increasing
standards. Fuji/Subaru argued that smaller manufacturers could not
feasibly meet the proposed standards and that an alternative option
would be consistent with EISA, because the fleet average would be
derived from the attribute-based standards.
Similar to Fuji/Subaru, Porsche argued that smaller limited-line
manufacturers should be allowed the option to meet a fleet average
equivalent to the midpoint of the compliance curve for the overall
fleet in a given model year, ``rather than being forced to leave the
market, restrict product or pay exorbitant civil penalties.'' Porsche
argued that such a CAFE obligation would be ``challenging but
achievable,'' and given the rate of increase in passenger car CAFE
standards between 2007 and 2011, would be preferable to paying
``skyrocketing civil penalties.'' Porsche additionally argued that
EPCA/EISA prohibits NHTSA from excluding manufacturers in setting the
CAFE standards, because NHTSA must ``prescribe by regulation average
fuel economy standards for automobiles manufactured by a manufacturer
in that model year'' according to 49 U.S.C. Sec. 32902(a). Porsche
argued that NHTSA cannot set standards without reference to a
manufacturer's fleet, and then subject that manufacturer to

[[Page 14363]]

enforcement penalties under those standards.
Mercedes Benz also argued that ``manufacturers not included in the
analysis'' for passenger car standards, i.e., limited-line
manufacturers, should be allowed either to meet the average fuel
economy specified for the vehicle fleet, or ``to improve their fleet
fuel economy by a percentage equal to the percentage improvement NHTSA
estimates for the fleet as a whole.'' Mercedes Benz suggested that
NHTSA could require manufacturers to comply with the higher of the two
options. The commenter further argued that such an approach would be
legal under EPCA/EISA because it ``would be based on the attribute
based continuous function curve,'' and would be fairer because the
proposed attribute-based standards did not take into account what the
fleet as a whole could achieve in terms of fuel economy.
Agency response: NHTSA disagrees that it has the authority to set
such suggested standards for any manufacturers under EPCA and EISA for
purposes of this rulemaking. An average standard that is ``based on''
an attribute-based standard is not itself attribute-based, as required
by EISA. Many of the manufacturers arguing for an alternative standard
were concerned that the agency had excluded them from consideration in
developing the proposed standards. In response, the agency included all
manufacturers subject to the standards (excluding low-volume
manufacturers), to ensure that the curves reflected the capabilities of
the entire fleet, and not just the seven largest manufacturers. NHTSA
believes that this addresses many of the commenters' concerns.

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

In the NPRM, NHTSA proposed attribute-based passenger car and light
truck CAFE standards under which each vehicle model has a fuel economy
target that is based on the vehicle model's footprint, and the CAFE
levels required of each manufacturer's passenger car and light truck
fleets are determined by calculating the sales-weighted harmonic
averages of those targets. NHTSA proposed the following mathematical
function relating fuel economy targets to footprint:
[GRAPHIC] [TIFF OMITTED] TR30MR09.052

where
[GRAPHIC] [TIFF OMITTED] TR30MR09.053

and

T(x) = fuel economy target (mpg)
x = footprint (square feet)
A = highest mpg value of fuel economy target
B = lowest mpg value of fuel economy target
C = coefficient (in square feet) determining horizontal midpoint of
f(x)
D = coefficient (in square feet) determining width of transition
between A and B.

In the NPRM, NHTSA determined the curves relating footprint to fuel
economy for a given model year and vehicle type (passenger car or light
truck) for which the harmonic average of the functional values are the
manufacturers' fuel economy targets, using the following five-step
process. (In the discussion below, we shall refer to these ten curves--
one for each model year and vehicle type--as the ``fuel economy
curves.'')
In Step 1, NHTSA determined the ``manufacturer-optimized'' fuel
economies for each vehicle in the product plans, submitted to NHTSA
prior to the NPRM, of the seven largest manufacturers (Chrysler, Ford,
General Motors, Honda, Hyundai, Nissan, Toyota). The ``manufacturer-
optimized'' fuel economies were obtained by applying fuel economy
technologies to a given manufacturer's fleet of a given vehicle type
(cars or trucks) and model year, until the incremental benefits are
equal to the incremental costs. The resulting fuel economies were
``manufacturer-optimized'' in the sense that they maximize societal net
benefits at the level of the manufacturer, model year, and vehicle
type. This approach was used to push each manufacturer's fleet to a
point of equal effort. NHTSA restricted data to the seven largest
manufacturers because those manufacturers accounted for most of the
market and because a number of other manufacturers did not submit
product plan data and/or had histories of paying civil penalties rather
than complying with CAFE standards.
In Step 2, NHTSA determined initial values for parameters A and B
(values revised in steps 4 and 5, described below) for each vehicle
class (passenger car and light truck) and model year as follows. For
passenger cars (and light trucks, respectively) in a given model year,
NHTSA set the initial value of the parameter A to be the harmonic
average fuel economy among the vehicles of the given model year and
vehicle type (produced by the seven largest manufacturers) comprising
the lower third (respectively, eleventh) percentile of footprint
values. NHTSA set the initial value of B to be the harmonic average
fuel economy among the vehicles of the given model year and vehicle
type (produced by the seven largest manufacturers) comprising the upper
fourth (respectively, sixth) percentile of footprint values. NHTSA set
A and B in this manner, rather than fitting them, for example, through
regression, in order to ensure that the upper and lower fuel economy
values reflect the smallest and largest models in the fleet. NHTSA
chose the percentile values it used by examining the fuel economies of
the largest and smallest car and truck models, and determining its best
assessment of appropriate cohorts, acknowledging that there are no
canonical choices for the cohorts.
In Step 3, NHTSA determined initial values for parameters C and D
for each vehicle type and model year as follows. (Their values were
revised for MYs 2012-2014 in Step 5.) For a given model year and
vehicle type, NHTSA set the initial values of C and D to be the values
for which the average (equivalently, sum) of the absolute values of the
differences between the manufacturer-optimized fuel consumptions for
the given model year and vehicle type and the values obtained by
applying the function f(x) (defined above) to the corresponding vehicle
footprints is minimal, where the values of A and B

[[Page 14364]]

are taken from those determined in Step 2 and where e denotes the base
of the natural logarithm (which is approximately equal to 2.71828).
That is, NHTSA determined C and D by minimizing the average absolute
residual, commonly known as the MAD (Mean Absolute Deviation) approach,
of the corresponding constrained logistic curve. NHTSA fit the curve in
fuel consumption space rather than fuel economy space because the
manufacturer targets are in terms of the harmonic average fuel economy,
and so it is more important that the curve fit the fuel consumption
data well than that it fit the fuel economy data well. NHTSA also
explained in the NPRM that it chose to use MAD in this Step instead of
minimizing the sum of the square errors (``least squares,'' another
common approach in curve fitting) in order to lessen the influence of
outliers. NHTSA believed that it was more appropriate to use unweighted
data in fitting the curve rather than weighting the data by sales
because of large variations in model sales.
In Step 4, NHTSA determined for each model year and vehicle class
the integer value of t that maximized the societal net benefits
(considering the seven largest manufacturers) achieved by a fuel
economy standard under which fuel consumption targets were defined by
the function
[GRAPHIC] [TIFF OMITTED] TR30MR09.054

using the values of A and B determined in Step 2, and the values of C
and D determined in Step 3.\375\ NHTSA reset the values of 1/A and 1/B
to be 1/A + 0.0001t and 1/B + 0.0001t, respectively. (These were not
the final values of A and B for model years 2012-2014, which were
further adjusted in Step 5.) That is, NHTSA initially set the
stringency of the curves to maximize societal net benefits.
---------------------------------------------------------------------------

\375\ This procedure uniformly shifts the upward and downward
(depending on whether t is positive or negative), but on the same
gallon per mile basis corresponding to the harmonic averaging of
fuel economy values.
---------------------------------------------------------------------------

In Step 5, NHTSA adjusted the values of A, B, C, and D for
passenger cars and light trucks in MYs 2012-2014 as follows. NHTSA
replaced the values of A, B, C, D for passenger cars (respectively,
light trucks) in MYs 2012-2014 with the values obtained by making even
annual steps between the values obtained for MYs 2011 and 2015 under
Step 4. For A and B, these steps were made evenly on a gallon per mile
basis. For C and D, these steps were made evenly on a square foot
basis. Having done so, NHTSA then repeated Step 4 beginning with these
adjusted coefficients.
NHTSA explained in the NPRM that it performed Step 5 because the MY
2011 car curve crossed the MY 2012 car curve and the MY 2011 truck
curve crossed the MY 2012 truck curve. This is undesirable because it
implies that the fuel economy target for a MY 2012 car in a certain
range of footprint values is lower than that for a MY 2011 car of the
same size (and likewise with trucks). We note that no further curve
crossings occurred. That is, the passenger car (respectively, light
truck) curves for MYs 2011-2015 that resulted upon the completion of
Step 5 were mutually non-intersecting.
NHTSA thus set the fuel economy curve for a given model year and
vehicle type to be
[GRAPHIC] [TIFF OMITTED] TR30MR09.055

where A, B, C, and D assume the final values determined in Steps 1-5.
(Recall that the function f(x) above is in fuel consumption space, not
fuel economy space.) The values of A, B, C, and D in the NPRM for each
vehicle type and model year were as follows.
[GRAPHIC] [TIFF OMITTED] TR30MR09.056

NHTSA noted in the NPRM that a manufacturer's CAFE standard may
decrease in a given year, compared to the prior year, even though the
passenger car (respectively, light truck) fuel economy curves increase
in functional values with increasing model year. A manufacturer's
standard may decrease as a result of increasing the

[[Page 14365]]

footprints of the vehicles it produces in the later of the two years by
a sufficiently large amount. (In the NPRM, NHTSA referred to the
decrease in vehicle or manufacturer fuel economy targets from one year
to the next as ``backsliding.'') However, as explained in the NPRM,
NHTSA believes it is unlikely that any manufacturer would take such a
step in the final rule time frame, given what appears to be a growing
consumer preference for smaller, higher-fuel economy vehicles.
NHTSA noted in the NPRM that the curves obtained for passenger cars
might be undesirably steep near the inflection point, where small
changes in footprint can lead to not so small changes in target fuel
economy. NHTSA requested particular comment on this issue and a number
of other issues, including the determination of cohorts used to set
values for the asymptotes A and B, the manner in which C and D are
determined, the treatment of outliers, and curve crossing.
NHTSA received several comments concerning the manner in which it
fit the fuel economy curves.
Comments Regarding the Fact That the Car and Truck Curves Are Set
Independently
Three commenters (Honda, Wenzel and Ross, and Public Citizen)
stated it would or might be better if rather than setting the car and
truck curves independently, the car and truck fuel consumption data
were pooled and a single curve fit to the pooled data. Honda commented
that this would result in standards that treat cars and trucks more
equally and could fix the steepness problem with the car curve. Wenzel
and Ross argued that setting the same standards for passenger cars and
light trucks would lead to manufacturers producing relatively fewer
pickups and truck-based SUVs, compared to cars and crossover SUVs, and
this would result in fewer deaths and injuries resulting from crashes
of incompatibly-sized vehicles and greater fuel savings. Public Citizen
simply stated that NHTSA failed to set ``one continuous standard for
passenger cars and light trucks.''
Agency response: In the NPRM, NHTSA did examine the standards that
would result from pooling the data in this manner. However, NHTSA is
required by statute to set separate average fuel economy standards for
cars and trucks, and upon further reflection we believe this
requirement extends to how the agency develops the curves. Pooling data
for both fleets would mean applying to passenger cars a standard based,
in part, on the technological capabilities of light trucks, and vice
versa. NHTSA is promulgating final standards for MY 2011 that, as
proposed, base the curve applied to each fleet only on the capabilities
of vehicles that would be covered the curve.
Comments Concerning the Manufacturers Whose Data to Which the Curves
Were Fit
BMW, Mercedes, Mitsubishi, Porsche, Subaru, and the Alliance
commented that the fuel economy curves should be fit to data from all
manufacturers to which the fuel economy standards apply, and not just
to data from the seven largest manufacturers. Some commenters (BMW,
Mercedes, Mitsubishi, Porsche) argued that limiting to data from the
seven largest manufacturers results in disproportionate burdens to
other manufacturers subject to the standards. Mitsubishi stated that
all manufacturers need to be included in setting the standards in order
for the standards to comprehensively reflect the technological and
economic feasibility for the U.S. auto industry.
Agency response: Upon further consideration, NHTSA agrees with the
commenters and has revised its methodology to include all manufacturers
to which the MY 2011 standards apply: BMW, Chrysler, Daimler, Ferrari,
Ford, General Motors, Honda, Hyundai, Maserati, Mitsubishi, Nissan,
Porsche, Subaru, Suzuki, Tata, Toyota, Volkswagen. That is, NHTSA has
revised Step 1 above to include the vehicles of the given model year
and vehicle type for all 17 of these manufacturers.\376\
---------------------------------------------------------------------------

\376\ However, Ferrari and Maserati are not expected to
manufacturer light trucks for sale in the United States in MY 2011.
---------------------------------------------------------------------------

In developing the standards promulgated today, NHTSA included all
manufacturers both in the curve fitting process and in the process by
which the agency determined the final stringency of the standards. In
addition, NHTSA has used the manufacturers' updated product plan
submissions in Step 1 for the final rule, as opposed to the 2007
product plans used in the NPRM.
Comments Concerning the Steepness of the Car Curve
Several commenters (Chrysler, Honda, Nissan, Ferrari, Porsche,
Subaru, Toyota, Volkswagen, the Union of Concerned Scientists, AIAM,
ACEEE) expressed concern that the car curve was too steep and that this
could lead to manufacturers to artificially increase the footprint of
car models they produce near the point of inflection in order to reduce
their fuel economy targets. In addition, Volkswagen and AIAM commented
that the steepness of the car curve could pose inequitable burdens to
manufacturers. ACEEE stated that the steepness of the car curve could
lead to gaming of the classification of vehicles as passenger cars or
light trucks. Chrysler argued that the steepness problem could become
more serious in the face of changing consumer preferences.
Conversely, the Alliance expressed concern that flattening the
curves might unjustifiably lower the fuel economy targets for the
smallest vehicles and raise the targets for the largest vehicles.
ACEEE suggested that the steepness of the car curve is explained
largely by the fact that larger cars have more horsepower on average
than smaller cars, over and above what is needed for comparable
performance. ACEEE argued that excessive horsepower has adverse effects
on safety and that NHTSA should consider ways to discourage the
continued growth in horsepower in the U.S. car market.
Commenters suggested a number of potential solutions to flatten the
car curve. Honda suggested pooling the car and truck data when fitting
the curves. Nissan suggested increasing D by a factor between 0.6 and
0.9. Ferrari suggested employing additional attributes besides
footprint to set the curves. AIAM suggested using a variant of ``shadow
size'' instead of footprint, changing the methodology used to determine
the value of the parameter D, adding data from more companies, using
additional attributes, or adding an alternative compliance option.
ACEEE suggested revisiting the idea of normalizing car footprint to
reduce the steepness of the car curve. Toyota suggested determining the
value of the parameter D before determining the values of A and B.
Chrysler suggested reducing the value of A or increasing the value of
D.
Agency response: NHTSA is incorporating AIAM's suggestion to
include data from more manufacturers, as discussed in the section
``Comments concerning the manufacturers whose data to which the curves
were fit'' above. NHTSA reviewed the methods it presented in the NPRM
for flattening the curve and the commenters' response to these methods.
NHTSA has substantially revised its approach to mitigating the curve
steepness issue, and believes that this revised approach provides a
more rational solution than those presented either by NHTSA in the NPRM
or by commenters in response to the NPRM.

[[Page 14366]]

Specifically, for the final rule, NHTSA has revised Step 1 as
follows: First, rather than limiting this Step solely to the seven
largest manufacturers, NHTSA included all manufacturers. Second, rather
than identifying CAFE levels that maximized net societal benefits
attributable (separately) to each individual manufacturer, the agency
identified CAFE levels that cause each manufacturer to exhaust
available technologies. In doing so, the agency has focused this Step
on the engineering aspects of available technologies, essentially
setting aside economic considerations at this point.
The agency believes that using this technology exhaustion approach
and pooling product plan data from all model years better equalizes the
effort, or fuel saving potential, for each manufacturer's fleet and
provides a better estimation of the statistical relationship between
vehicle size and fuel economy.
As mentioned above, NHTSA's NPRM discussed a constrained linear
function as a possible alternative to the constrained logistic function
used in today's final rule. Although the agency has concluded that, for
this rulemaking, the risks of unintended consequences near the
``kinks'' in a constrained linear function outweigh that function's
lesser tendency toward steepness, the agency believes that this
function may warrant further consideration in future CAFE rulemakings.
Comments Concerning the Determination of the Asymptotes (A and B)
Chrysler, GM, Honda, and Toyota expressed a variety of concerns
about the manner in which the values of the parameters A and B were
determined.
GM commented that the values of A and B in the NPRM could
discourage the production of larger vehicles. In addition, GM argued
that the cohort used to determine the value of A for cars did not
contain sufficiently many domestic cars to provide a value for A that
reflects small cars as a whole (both foreign and domestic). GM
suggested increasing A by 10 percent and decreasing B by 5 percent.
Chrysler suggested reducing the value of A in a manner that
reflects lower consumer tolerance for fuel economy technologies on the
least expensive vehicles.
Honda and Toyota argued that A and B should not be set as the
average fuel economies of cohort sets of vehicles, but rather be
determined in a metric-optimizing way similar to the determination of C
and D. Both manufacturers suggested setting D first through some means,
followed by determining A, B, and C by optimizing a curve-fitting
metric. Toyota suggested this would help with the steepness problem for
cars. In addition, Toyota stated that the process used to select the
cohorts in the NPRM appeared to lack a clear technical or empirical
basis.
Agency response: NHTSA continues to believe that the values of A
and B should be set as the average values of cohorts, rather than to
optimize a curve-fitting metric. NHTSA believes that it is more
important that the largest and smallest target values for the fuel
economies of individual vehicle models reflect the smallest and largest
vehicles in the fleet, and do so in a manner that is relatively stable,
than that their values freely optimize a curve-fitting metric. The
analysis presented in NHTSA's 2006 final rule establishing standards
for MY 2008-2011 light trucks demonstrated that freely fitting all four
constants of the logistic curve produces unstable and potentially
extreme functional limits.\377\ As the agency explained in that notice,
such results can produce impossibly stringent standards for
manufacturers that only produce small vehicles, and/or unduly low
targets for large vehicles. These problems led the agency to conclude
then, as it concludes today, that the limits of the logistic curve must
be constrained, and that the constraints should be based on the
potential performance of identified cohorts of vehicles with the
smallest and largest footprints.
---------------------------------------------------------------------------

\377\ 71 FR 17600-06 (Apr. 6, 2006).
---------------------------------------------------------------------------

Given a cohort setting approach, NHTSA agrees with GM's comment to
enlarge the cohort used to determine the value of A for cars to include
more domestic small cars. NHTSA enlarged this cohort to comprise the
lower tenth percentile of footprints (based now on the data from the
seventeen manufacturers to which the standards apply). In addition,
upon reviewing the updated product plans from the seventeen
manufacturers, all of whose product plans we now use to determine
cohorts, NHTSA has slightly changed the percentiles used to determine
the remaining cohorts as follows: the percentile used to determine the
value of A for light trucks was changed to 10 from 11, while that used
to determine B for passenger cars (respectively, light trucks) was
changed from 4 (respectively, 6) to 9 (respectively, 6). Again, the
agency recognizes that there are no canonical choices for the
percentiles used to determine the cohorts. The cohorts NHTSA has set
for the final rule reflect the agency's best assessment of the
passenger car and light truck fleets. Also, because the agency is now
pooling data from five model years when fitting the fuel economy curves
for MY 2011, as described below in ``Comments concerning curve
crossing,'' these percentiles are applied to the pooled model year
data, rather than to each model year's dataset.
That is, for the final rule, NHTSA has revised Step 2 as follows.
For passenger cars (respectively, light trucks), NHTSA set the initial
value of the parameter A to be the harmonic average fuel economy among
the vehicles of the given vehicle type (produced by the seventeen
manufacturers used in Step 1) comprising the lower tenth (respectively,
tenth) percentile of footprint values. NHTSA set the initial value of B
to be the harmonic average fuel economy among the vehicles of the given
vehicle type (produced by the seventeen manufacturers) comprising the
upper ninth (respectively, sixth) percentile of footprint values. (As
with the NPRM, these harmonic averages constitute the initial values of
A and B, which will later be revised in Step 4.) Note that the revised
Step 2 fits only two values for A (one for cars and one for trucks),
and likewise two values for B, whereas the version of Step 2 applied in
the NPRM fitted 10 values for each (one for each vehicle type and model
year).

[[Page 14367]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.057

[GRAPHIC] [TIFF OMITTED] TR30MR09.058

[[Page 14368]]

Comments Concerning the Curve-Fitting Metric and Treatment of Outliers
Honda expressed concern about NHTSA's use of unweighted data (i.e.,
data not weighted by sales) in the curve-fitting metric, stating that
vehicle models that are similar to a number of other vehicle models
would have an undue influence on the curve under an unweighted curve-
fitting metric.
Subaru suggested that the initial curves should be fit to each
manufacturer separately and then the results pooled in some fashion.
Commenters expressed differing views regarding how outliers should
be treated. Public Citizen stated that removing outliers has the effect
of reducing the stringency of the standards, and so all outliers should
be included when fitting the curve. Conversely, Honda stated that
outliers should be eliminated, presumably because of a concern that
they have an undue influence on the standards.
Agency response: NHTSA further considered the potential to exclude
outliers from the curve fitting and/or stringency determination
processes. However, even considering all related comments, the agency
has been unable to arrive at a definition of ``outlier'' as it would
apply to these processes. Even after the maximal application of
technology (described above) to manufacturers' fleets, some vehicle
models have fuel economy values well below or well above those of other
vehicle models with similar footprint. However, these vehicles contain
information about the capability of some types of vehicles. Similarly,
some vehicles with considerable quantities of technology do not achieve
unusually high fuel economy values. Therefore, NHTSA finds that neither
performance- nor technology-based outliers can be definitively,
objectively identified. Furthermore, because NHTSA is using the
minimization of mean absolute deviation (MAD) for curve fitting in this
final rule, outliers have far less influence on the solution than they
would had the agency relied on conventional least-square regression.
NHTSA has also continued to use an unweighted curve-fitting metric,
rather than weighting the data by sales. Each vehicle model provides an
equal amount of information concerning the underlying relationship
between footprint and fuel economy. As explained in the NPRM, sales-
weighted regression would give some vehicle models vastly more emphasis
than other vehicle models. On the other hand, Honda expressed concern
that, under unweighted regression, vehicle models that have been
disaggregated into multiple virtually identical ``models.'' To address
this concern, the agency has attempted to identify such models (e.g.,
vehicle models that appear to differ only in trim level), and to
consolidate them into single entries. Even so, the potential
distortions by such disaggregation are far smaller than the potential
distortions associated with sales-weighted analysis.
In response to Subaru's suggestion, NHTSA believes that there is an
insufficient amount of data at the manufacturer level (particularly in
light of NHTSA's decision to use data from all manufacturers, including
a number of smaller manufacturers) to generate reliable curves at an
individual-manufacturer level.
As explained above, NHTSA has concluded, based on further analysis
and taking into account all related comments, that unweighted MAD
provides a better approach for setting the MY 2011 standards. However
we note that because we pool the model year data when fitting the curve
in the final rule, for reasons described in ``Comments concerning curve
crossing'' below, unweighted MAD will be applied to the pooled model
year data for a given vehicle class.
That is, for the final rule, NHTSA has revised Step 3 as follows:
NHTSA determined values for parameters C and D for each vehicle type as
follows. For a given vehicle type, NHTSA set the initial values of C
and D to be the values for which the average (equivalently, sum) of the
absolute values of the differences between the optimized fuel
consumption from Step 1 for the given vehicle type (all model years)
and the values obtained by applying the following function
[GRAPHIC] [TIFF OMITTED] TR30MR09.059

to the corresponding vehicle footprints is minimal, where the values of
A and B are taken from those determined in Step 2 and where e denotes
the base of the natural logarithm (which is approximately equal to
2.71828). That is, NHTSA determined C and D by minimizing the average
absolute residual of the pooled MY 2011-2015 data under the
corresponding constrained logistic curve. Note that the revised Step 3
fits only two values for C (one for cars and one for trucks), and
likewise two values for D, whereas the version of Step 3 applied in the
NPRM fitted 10 values for each (one for each vehicle type and model
year). We also note that because Step 5 has been eliminated in this
final rule, for reasons described in ``Comments concerning curve
crossing'' below, the values of C and D determined in Step 3 are the
final values of these parameters.
For passenger cars, this procedure yielded a curve with the
following coefficients: A = 37.82 mpg, B = 27.70 mpg, C = 51.41 square
feet, D = 1.91 square feet. This curve, shown below on a fuel
consumption (i.e., gpm) basis, produced an average absolute difference
of 18 percent.

[[Page 14369]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.060

Each data point in this graph represents a car model in the updated
(May 2008) product plans, and the fuel consumption values for these
data points reflect the ``technology exhaustion'' fuel consumption
(i.e., the lowest fuel consumption achievable using technologies known
about today). The curve in this graph is the constrained logistic curve
defined by the parameters determined in Step 3. Step 4 has not yet been
applied. Note that the corresponding chart in the NPRM (Figure V-7 in
the NPRM) presented five curves, instead of one, since Steps 2 and 3 in
the NPRM fit five car curves (one for each model year) instead of one.
The sole curve in the above chart reflects the underlying relationship
between the footprint of cars and the fuel economy achievable in them
using technologies we know of today.
For light trucks, the same procedure yielded a curve with the
following coefficients: A = 36.43 mpg, B = 26.43 mpg, C = 56.41 square
feet, and D = 4.28 square feet. This curve, shown below on a fuel
consumption (i.e., gpm) basis, produced an average absolute difference
of 14 percent.

[[Page 14370]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.061

Comments Concerning Curve-Crossing
NHTSA received comments on both sides of the curve-crossing issue.
While Nissan shared NHTSA's concern about curve crossing, Toyota
commented that curve crossing did not necessarily pose a problem
because it believed that manufacturers were not likely to reduce a
vehicle's fuel economy in a year in which its target fuel economy
declined from the previous year. Additionally, Toyota argued that
NHTSA's means of addressing curve crossing lacked an empirical basis
and clear objective factors.
Nissan and Toyota proposed different solutions to address the curve
crossing issue: Nissan suggested increasing D by a factor between 0.6
and 0.9. Although it did not feel that curve crossing was necessarily
problematic, Toyota presented an alternative methodology for addressing
the curve crossing issue by smoothing the rate of increase between
model years.
Agency response: NHTSA agrees with Nissan that curve crossing is
problematic, since it makes little sense for a vehicle's fuel economy
target to decrease from one model year to the next. However, NHTSA
disagrees with the solutions proposed to address curve crossing for the
following reasons. Nissan's suggestion to increase D by a factor
between 0.6 and 0.9 appears to have no rational basis for choosing such
a factor. Toyota's proposed alternative methodology, on the other hand,
is designed to produce standards that align with historic planning
cycles and allocation of engineering resources. While it is desirable
for the fuel economy standards to be consistent with historic planning
cycles and resource allocation, NHTSA believes that it is more
important that the standards are the maximum feasible, and artificially
``smoothing'' the rate of increase could not guarantee that standards
are the maximum feasible in each model year.
Given that NHTSA is now applying maximized fuel economies in Step
1, NHTSA has concluded that it is beneficial to include data from all
model years (for the given vehicle type) in fitting the curve, as the
underlying relationship between fuel economy and footprint should not
change from one year to the next. (However, the relationship can change
as new technologies develop to improve fuel economy.) That is, we now
determine A and B using pooled model year data in Step 2, and fit C and
D using pooled model year data in Step 3. As a consequence of
eliminating Step 5, the values of C and D for cars (and likewise
trucks) agree in each model year. (Step 4 remains unchanged in this
final rule.) The inclusion of data from all model years eliminates the
possibility of curve crossing, and so NHTSA is eliminating Step 5 in
this final rule.
With regard to Toyota's comment, the agency believes that the
revised approach to curve fitting significantly improves the
objectivity of the process for determining maximum feasible standards.
The parameter values in this final rule are as follows.
[GRAPHIC] [TIFF OMITTED] TR30MR09.062

[[Page 14371]]

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

In developing today's final CAFE standards, NHTSA has made
significant use of results produced by the CAFE Compliance and Effects
Model (commonly referred to as the Volpe model), which DOT's Volpe
National Transportation Systems Center developed specifically to
support NHTSA's CAFE rulemakings.
As discussed above, the agency uses the Volpe model to estimate the
extent to which manufacturers could attempt to comply with a given CAFE
standard by adding technology to fleets that the agency anticipates
they will produce in future model years. This exercise constitutes a
simulation of manufacturers' decisions regarding compliance with CAFE
standards.
The model also calculates the costs, effects, and benefits of
technologies it estimates could be added in response to a given CAFE
standard. It calculates costs by applying the cost estimation
techniques discussed above in Section IV and by accounting for the
number of affected vehicles. It accounts for effects such as changes in
vehicle travel, changes in fuel consumption, and changes in greenhouse
gas and criteria pollutant emissions. It does so by applying the fuel
consumption estimation techniques also discussed in Section IV, and the
vehicle survival and mileage accumulation forecasts, the rebound effect
estimate and the fuel properties and emission factors discussed in
discussed in Section V. Considering changes in travel demand and fuel
consumption, the model estimates the monetized value of accompanying
benefits to society, as discussed in Section V. The model calculates
both the current (i.e., undiscounted) and present (i.e., discounted)
value of these benefits.
The Volpe model has other capabilities that facilitate the
development of a CAFE standard. It can be used to fit a mathematical
function forming the basis for an attribute-based CAFE standard,
following the steps described below. It can also be used to evaluate
many (e.g., 200 per model year) potential levels of stringency
sequentially, and identify the stringency at which specific criteria
are met. For example, it can identify the stringency at which net
benefits to society are maximized, the stringency at which a specified
total cost is reached, or the stringency at which a given average
required fuel economy level is attained. The model can also be used to
perform uncertainty analysis (i.e., Monte Carlo simulation), in which
input estimates are varied randomly according to specified probability
distributions, such that the uncertainty of key measures (e.g., fuel
consumption, costs, benefits) can be evaluated.
Nothing in EPCA requires NHTSA to use the Volpe model. In
principle, NHTSA could perform all of these tasks through other means.
For example, in developing the MY 2011 standards promulgated today, the
agency did not use the Volpe model's curve fitting routines, because
they could not be modified in time to implement the changes discussed
below to this aspect of the agency's analysis. In general, though,
these model capabilities greatly increase the agency's ability to
rapidly, systematically, and reproducibly conduct key analyses relevant
to the formulation and evaluation of new CAFE standards.
NHTSA received comments from the Alliance and CARB encouraging
NHTSA to examine the usefulness of other models. Examples of other
models and analyses that NHTSA and Volpe Center staff have considered
for the final rule include DOE's NEMS, Oak Ridge National Laboratory's
(ORNL) Transitional Alternative Fuels and Vehicles (TAFV) model, Sierra
Research's VEHSIM model and the California Air Resources Board's (CARB)
analysis supporting California's adopted greenhouse gas emissions
standards for light vehicles.
DOE's NEMS represents the light-duty fleet in terms of five car
``manufacturers'' and four truck ``manufacturers,'' twelve vehicle
market classes (e.g., ``standard pickup''), and sixteen powertrain/fuel
combinations (e.g., methanol fuel-cell vehicle). Therefore, as
currently structured, NEMS is unable to estimate manufacturer-specific
implications of attribute-based CAFE standards. The analysis of
manufacturer-specific implications is useful in setting the standard,
because any given standard will have differential impacts on individual
manufacturers, depending on the composition of their vehicle fleets. In
order to balance national-level costs and benefits, assessment of
individual manufacturer's costs and compliance strategies is
appropriate.\378\
---------------------------------------------------------------------------

\378\ In principle, if all manufacturers freely traded fuel
economy credits among themselves, fleetwide estimates of compliance
costs and benefits would approximate the sum of individual
manufacturer costs and benefits. However, major manufacturers have
repeatedly indicated that they do not intend to trade credits, and
statutory language prohibits NHTSA from considering the benefits of
trading in setting standards.
---------------------------------------------------------------------------

TAFV accounts for many powertrain/fuel combinations, having been
originally designed to aid understanding of possible transitions to
alternative fueled vehicles, but it also represents the light duty
fleet as four aggregated (i.e., industry-wide) categories of vehicles:
Small cars, large cars, small light trucks, and large light trucks.
Thus, again, as currently structured, TAFV is unable to estimate
manufacturer-specific implications of attribute-based CAFE standards.
Sierra Research's vehicle simulation model, VEHSIM, which was
originally developed by General Motors, calculates the fuel economy for
a specified vehicle design over a specified driving cycle. Despite
theoretical advantages in terms of explicit representation of physical
phenomena underlying fuel consumption, VEHSIM has significant
shortcomings as a tool for model-by-model evaluation of the entire
future light vehicle fleet. Although submitted after the close of the
comment period specified in the NPRM, comments by several state
Attorneys General and other state and local official questioned the
need and merits of full vehicle simulation within the context of CAFE
analysis, stating that

Computer simulation models such as VEHSIM are not practical except
perhaps during vehicle development to determine the performance of
specific vehicle models where all vehicle engineering parameters are
known and can be accounted for in the inputs to the model. Such an
exercise is extremely data intensive, and extending it to the entire
fleet makes it subject to multiple errors unless the specific
parameters for each vehicle model are known and accounted for in the
model inputs.\379\
---------------------------------------------------------------------------

\379\ Attorneys General of the States of California, Arizona,
Connecticut, Illinois, Maryland, Massachusetts, New Jersey, New
Mexico, Oregon, and Vermont, the Executive Officer of the California
Air Resources Board, the Commissioner of the New Jersey Department
of Environmental Protection, the Secretary of the New Mexico
Environment Department, the Secretary of the Commonwealth of
Pennsylvania Department of Environmental Protection, and the
Corporation Counsel of the City of New York, Supplemental Comments
Regarding Alliance of Automobile Manufacturers Comments, Docket No.
NHTSA-2008-0089-0495, October 8, 2008, p. 3.

Nevertheless, the Volpe model could, in principle, be modified to
use VEHSIM or any other vehicle simulation tool to estimate fuel
consumption. However, in practice, NHTSA and Volpe Center staff are
skeptical that doing so will be either feasible or meaningful as long
as CAFE analysis continues to be informed by forecasts of the future
vehicle market--forecasts that, though detailed, will not foreseeably
contain the extensive information needed to perform full vehicle
simulation. The information required for full vehicle simulation is

[[Page 14372]]

not only exponentially greater than NHTSA currently requests of
manufacturers, but for future vehicles, the information may not yet
exist, as manufacturers may not have completed the design of future
vehicles. See Section IV.C.8 for a fuller discussion of full vehicle
simulation in the context of CAFE.
CARB's analysis of light vehicle GHG emissions standards uses two
levels of accounting. First, based on a report prepared for NESCCAF,
CARB represents the light-duty fleet in terms of five
``representative'' vehicles, each with engineering properties estimated
by CARB to meaningfully typify the engineering characteristics of a
given type of vehicle (e.g., small cars). NHTSA is concerned that such
a limited a number of such vehicles does not reasonably represent the
engineering properties of individual vehicle models that vary widely
both among manufacturers and within manufacturers' individual fleets.
This concern was reflected in comments by the Alliance. For each of
these five vehicles, NESCCAF's report contains the results of full
vehicle simulation given several pre-specified technology ``packages.''
Second, to evaluate manufacturer-specific regulatory costs, CARB
represents each manufacturer's fleet as two average test weights, one
for each of California's two proposed regulatory classes. Even for a
flat standard such as that considered by California, NHTSA is concerned
that this level of aggregation would hinder reasonable estimation of
compliance costs faced by individual manufacturers. Further, use of
CARB's methods would not enable NHTSA to estimate manufacturer-specific
implications of the attribute-based CAFE standards. Under an attribute-
based standard, the CAFE level required of a given manufacturer depends
on the specific mix of vehicles sold by that manufacturer, not the
average properties of that manufacturers' fleet. As noted above, it is
useful to estimate national level costs and benefits of a standard
applied at the level of individual manufacturer's fleets by assessing
individual manufacturer's costs and compliance strategies.
On the other hand, NHTSA recognizes that a more aggregated
representation of the fleet--such as CARB's five-vehicle approach--may
be the only way that full vehicle simulation could be integrated into
CAFE analysis. Although NHTSA has not yet been able to conduct an
analysis with the advantages of both detailed representation of
manufacturers' fleets and full integration of full vehicle simulation,
the agency cannot rule out the possibility of such an analysis in the
future.
Although the Volpe model has limitations, having considered other
tools and analytical approaches, NHTSA concludes that for this final
rule, the Volpe model is a sound and reliable tool for the development
and evaluation of potential CAFE standards. However, the agency will
continue to consider other methods for evaluating potential CAFE
standards in the future as well as to examine ways to improve the Volpe
model.
NHTSA notes that some commenters questioned the transparency of the
Volpe model, which Public Citizen and the Center for Biological
Diversity (CBD) referred to as a ``black box.'' In response to these
comments, the agency notes that model documentation, which is publicly
available in the rulemaking docket, explains how the model is
installed, how the model inputs (all of which, except for
manufacturers' confidential product plans, are available to the public)
and outputs are structured, and how the model is used. The model can be
used on any Windows-based personal computer with Microsoft Office 2003
and the Microsoft .NET framework installed (the latter available
without charge from Microsoft). The executable version of the model is
available upon request, and has been provided to manufacturers,
consulting firms, academic institutions, governmental and
nongovernmental organizations, research institutes, foreign government
officials, and a variety of other organizations. The current version of
the model was developed using Microsoft Development Environment 2003,
and every line of computer code (primarily in C.NET) has been
made available to individuals who have requested the code. With the
code, anyone is capable of running the model using market forecast data
that they obtain or estimate on their own. Given the comprehensive
disclosure of information about the Volpe model and the fact that many
entities and individuals have made use of it, the characterization of
the Volpe model as a ``black box'' is not accurate.
Although NHTSA currently uses the Volpe model as a tool to inform
its consideration of potential CAFE standards, contrary to the
assertions of some commenters, the Volpe model does not determine the
CAFE standards NHTSA proposes or promulgates as final regulations. The
results it produces are completely dependent on inputs selected by
NHTSA, based on the best available information and data available in
the agency's estimation at the time standards are set. In addition to
identifying the input assumptions underlying its decisions, NHTSA
provides the rationale and justification for selecting those inputs as
described in Sections III through V of this notice. NHTSA also
determines whether to use the model to estimate at what stringency net
benefits are maximized, or to estimate other stringency levels, such as
the point where total costs equal total benefits. NHTSA also determines
whether to use the model to evaluate the costs and effects of
stringencies that fall outside of the scope of maximum feasible. For
example, the standards for the ``Technology Exhaustion'' Alternative
examined by NHTSA and discussed later in this section, were estimated
outside the model, which was subsequently used to estimate
corresponding costs and effects.\380\ Finally, NHTSA is guided by the
statutory requirements of EPCA as amended by EISA in the ultimate
selection of a CAFE standard.
---------------------------------------------------------------------------

\380\ By definition, the ``maximum technology'' scenario far
exceeds the maximum feasible CAFE standard.
---------------------------------------------------------------------------

NHTSA does not agree with Public Citizen that the agency ``does not
establish what is technologically feasible and economically practicable
based on an independent assessment of the current vehicle fleet and the
available technology to improve the fleet, but rather accepts industry
inputs, which are run through the black box of the Volpe model and a
variety of `optimization' factors, which are tied to maximizing
industry-wide benefits.'' The manufacturers' plans are only the
starting point for the agency's determination of how much technology
can and should be required consistent with the statutory factors, and
the Volpe model is often tested using inputs developed without reliance
on manufacturers' product plans. NHTSA considers the results of
analyses conducted by the Volpe model and analyses conducted outside of
the Volpe model, including analysis of the impacts of carbon dioxide
and criteria pollutant emissions, analysis of technologies that may be
available in the long term and whether NHTSA could expedite their entry
into the market through these standards, and analysis of the extent to
which changes in vehicle prices and fuel economy might affect vehicle
production and sales. Using all of this information--not solely that
from the Volpe model--the agency considers the governing statutory
factors, along with environmental issues and other relevant societal
issues such as safety, and promulgates the maximum feasible

[[Page 14373]]

standards based on its best judgment on how to balance these factors.
This is why the agency considered seven regulatory alternatives,
only one of which maximizes net benefits based on the agency's
determinations and assumptions. The others assess alternative standards
that in many cases exceed the point at which net benefits are
maximized. These comprehensive analyses, which also included scenarios
with different economic input assumptions as presented in the FEIS and
FRIA, are intended to inform and contribute to the agency's
consideration of the ``need of the United States to conserve energy,''
as well as the other statutory factors. 49 U.S.C. 32902(f).
Additionally, the agency's analysis considers the need of the nation to
conserve energy by accounting for economic externalities of petroleum
consumption and monetizing the economic costs of incremental
CO2 emissions in the social cost of carbon. As mentioned
above, NHTSA will continue to consider other methods for determining
future CAFE standards in future rulemakings.

VII. Determining the Appropriate Level of the Standards

A. Analyzing the Preferred Alternative

As discussed above, EPCA requires the agency to determine what
level of CAFE stringency would be ``maximum feasible'' for each model
year by considering the four factors of technological feasibility,
economic practicability, the effect of other motor vehicle standards of
the Government on fuel economy, and the need of the United States to
conserve energy. NEPA directs that environmental considerations be
integrated into that process. To accomplish that purpose, NEPA requires
an agency to compare the potential environmental impacts of its
proposed action to those of a reasonable range of alternatives. NHTSA
compared and analyzed these impacts in the DEIS and the FEIS. The
proposed standards for passenger cars and light trucks were set at the
point where societal net benefits were maximized in the agency's
analysis. NHTSA referred to those standards as the ``Optimized''
Alternative in the NPRM, DEIS, and FEIS. In the DEIS and the FEIS, the
agency identified the Optimized Alternative (maximizing societal net
benefits) as NHTSA's Preferred Alternative. The agency carefully
considered and analyzed each of the individual economic assumptions to
determine which assumptions most accurately represent future economic
conditions. For a discussion of the economic assumptions relied on by
the agency in this final rule, see Section V above. The economic
assumptions used by the agency in this final rule correspond to the
``Mid-2 Scenario'' set of assumptions identified in the FEIS. See FEIS
Sec. 2.2. The Optimized Alternative utilizing the Mid-2 Scenario
economic assumptions, which were prompted in part by public comments,
is squarely within the spectrum of alternatives set forth in the DEIS
and the FEIS, and all relevant environmental impacts associated with
the Optimized Alternative have been presented in the DEIS and FEIS, and
considered by NHTSA.

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

NHTSA recognizes that alternative stringencies are possible,
depending on how the agency balances the four factors underlying the
selection of maximum feasible level of average fuel economy and the
attendant environmental concerns. To aid it in determining the maximum
feasible level, NHTSA chose six alternative regulatory actions. Each
alternative reflects a balancing of the four factors that differs from
the balancing on which the agency's Preferred Alternative is based. In
CBD v. NHTSA, the Ninth Circuit recognized that EPCA gives ``NHTSA
discretion to decide how to balance the statutory factors--as long as
NHTSA's balancing does not undermine the fundamental purpose of EPCA:
energy conservation.'' 538 F.3d 1172, 1195 (9th Cir. 2008). The Court
also raised the possibility that NHTSA's current balancing of the
statutory factors might be different from the agency's balancing in the
past, given the greater importance today of the need to conserve energy
and the more advanced understanding of climate change. Id. at 1197-98.
In the rulemaking for MY 2012 and beyond, NHTSA will carefully re-
evaluate the facts relevant to assessing the need to conserve energy,
including the latest developments in the understanding of climate
change and its effects, and will balance the factors accordingly.
CEQ regulations state that consideration of alternatives is the
``heart'' of an EIS. 40 CFR 1502.14. However, under CEQ regulations,
NHTSA is not required to include every conceivable ``alternative'' in
an EIS. Rather, an agency is to consider ``reasonable'' alternatives.
See id. CEQ guidance also instructs that ``[w]hen there are potentially
a very large number of alternatives, only a reasonable number of
examples, covering the full spectrum of alternatives, must be analyzed
and compared in the EIS.'' Forty Most Asked Questions Concerning CEQ's
National Environmental Policy Act Regulations, 46 FR 18026, 18027
(March 23, 1981).
Here, an infinite number of alternatives could theoretically have
been defined along a continuum of potential CAFE standards. Given the
infinite number of alternatives, and informed by CEQ regulations and
guidance, NHTSA's Environmental Impact Statement identifies and
analyzes six alternatives. Specifically, NHTSA evaluates the six
alternatives proposed in the NPRM as its reasonable range of
alternatives. The agency examined the six specific alternatives
described below to illustrate the effect of balancing the four factors
differently on the range of potential stringency levels, the
relationship of economic benefits to compliance costs, and the
resulting environmental impacts. These alternatives capture a full
spectrum of potential environmental impacts, ranging from vehicles
continuing to maintain their MY 2010 fuel economy to standards based on
the maximum technology expected to be available over the five-year
period proposed in the NPRM (i.e., MYs 2011-2015).
The six alternatives considered in this rulemaking, and analyzed in
NHTSA's the Environmental Impact Statement, are described as follows:
The ``no increase'' or ``baseline'' alternative assumes
that NHTSA would not issue a rule regarding CAFE standards, or
alternatively, that NHTSA would issue a rule continuing current
standards during the time frame of the final rule standards. Either
way, the ``baseline'' alternative thus assumes that average fuel
economy levels in the absence of CAFE standards beyond 2010 would equal
the higher of a manufacturer's product plans or the manufacturer's
required level of average fuel economy for MY 2010. The MY 2010 fuel
economy standards in mpg (27.5 mpg for cars and 23.3 mpg for light
trucks) represent the average fuel economy levels the agency believes
manufacturers would continue to achieve, assuming the agency does not
issue a rule.\381\ The baseline alternative provides a useful reference
point for measuring the impact of the new authorities granted to NHTSA
under EISA. The agency uses this baseline in both its NEPA and EPCA
analyses.
---------------------------------------------------------------------------

\381\ In the FEIS, NHTSA refers to this alternative as the ``No
Action'' alternative. CEQ regulations require agencies to consider a
no action alternative as part of their NEPA analysis. See 40 CFR
1502.2(e) and 1502.14(d).

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[[Page 14374]]

The ``25 percent below optimized'' alternative reflects
standards that are more stringent than the ``baseline'' alternative,
but less stringent than the ``optimized'' alternative. The required
average CAFE levels under this alternative are less stringent than
those under the optimized alternative by 25 percent of the difference
in required fuel economy between the optimized alternative and the
``total costs equal total benefits'' alternative. For purposes of
comparison, we note that the average fuel economy levels required by
this alternative fall below those under the optimized alternative by
the same absolute amount by which the levels under the ``25 percent
above optimized'' alternative exceed those under the optimized
alternative.
The ``25 percent above optimized'' alternative reflects
standards that exceed the required average fuel economy levels of the
optimized alternative by 25 percent of the difference between the
average fuel economy levels required by the optimized alternative and
those required by the total costs equal total benefits alternative.
The ``50 percent above optimized'' alternative reflects
standards that exceed the required average fuel economy levels of the
optimized alternative by 50 percent of the difference between the
average fuel economy levels required by the optimized alternative and
those required by the total costs equal total benefits alternative.
The ``total costs equal total benefits'' alternative
requires average fuel economy levels that result from increasing fuel
economy targets until the total cost of all applied technologies equals
the total benefits of all applied technologies. Adopting this
alternative would result in zero net benefits in the agency's analysis
because the benefits to society are completely offset by the
costs.\382\
---------------------------------------------------------------------------

\382\ This analysis produced stringencies at which benefits were
approximately, but not necessarily exactly, equal to costs. The
precision of this exercise is limited by several factors, including
(1) the discrete amounts by which NHTSA varied stringency levels
under consideration, (2) ``carrying over'' of technologies between
model years, and (3) rounding of fuel economy levels, CAFE levels,
and required CAFE levels.
---------------------------------------------------------------------------

The ``technology exhaustion'' alternative reflects
standards that are based on progressively increasing stringency in a
given model year until every manufacturer without a history of paying
civil penalties has exhausted all technologies estimated to be
available during that model year. Except for phase-in constraints, this
analysis was performed using the same technology-related estimates
(e.g., incremental costs, incremental fuel savings, availability,
applicability, and dependency on vehicle redesign and refresh cycles)
as used for the other alternatives. For the technology exhaustion
alternative, NHTSA removed phase-in constraints in order to develop an
estimate of the effects of fuel economy increases that might be
achieved if manufacturers could apply as much technology as
theoretically possible, while recognizing that some technologies
require major changes to vehicle architecture and can therefore be
applied only as part of a redesign or refresh. Thus, in each year,
NHTSA increased the stringency until the first manufacturer exhausted
available technologies; beyond this stringency, NHTSA estimated that
the manufacturer would be unable to comply (NHTSA is precluded from
considering manufacturers' ability to use CAFE credits in setting
standards) and would be forced to pay civil penalties. NHTSA then
increased the stringency until the next manufacturer was unable to
comply, and continued to increase the stringency of the standard until
every manufacturer was unable to apply enough technology to comply.

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

1. 35 in 2020
Section 102(a)(2) of EISA adds to 49 U.S.C. Sec. 32902(b) a
requirement that states as follows:

(A) AUTOMOBILE FUEL ECONOMY AVERAGE FOR MODEL YEARS 2011 THROUGH
2020--The Secretary shall prescribe a separate fuel economy standard
for passenger automobiles and a separate average fuel economy
standard for non-passenger automobiles for each model year beginning
with model year 2011 to achieve a combined fuel economy average for
model year 2020 of at least 35 miles per gallon for the total fleet
of passenger and non-passenger automobiles manufactured for sale in
the United States for that model year.

(Emphasis added.) As discussed, this requirement is one of several that
EISA mandated for CAFE standards between MY 2011 and MY 2020.
Subsection 32902(a) contains a general requirement, not limited to any
particular model year or period of model years, that the standards for
a model year must be the ``maximum feasible'' standards for that model
year. Subsections 32902(b)(2)(A) and (C) set forth three requirements
specific to MYs 2011-2020. The standards for those years must be
sufficiently high to result in a combined (passenger car and light
truck) fleet fuel economy of at least 35 mpg by MY 2020, they must
increase annually, and they must increase ratably. Each of these
general and specific requirements must be interpreted in light of the
other requirements.\383\
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\383\ We note that the requirement in subsection 32902(b)(2)(B)
specific to the MY 2021-2030 standards is markedly different from
the requirements in subsections 32902(b)(2)(A) and (C) specific to
the MY 2011-2020 standards. The single model year specific
requirement in subsection 32902(b)(2)(B) simply repeats the general
requirement in subsection 32902(a), i.e., that the standards must be
set at the maximum feasible level. In contrast, the model year-
specific requirements in subsections 32902(b)(2(A) and (C) do not
repeat the general requirement. Instead, they constitute separate
and additional requirements regarding the stringency of the MY 2011-
2020 standards.
---------------------------------------------------------------------------

In the NPRM, NHTSA explained that the 35 mpg figure is not a
standard and is not a requirement applicable to any individual
manufacturer or group of manufacturers. Instead, it is a requirement
applicable to the agency regarding the combined effect of the separate
standards for passenger cars and light trucks that NHTSA is to
establish for the years leading up to MY 2020 and most particularly for
MY 2020 itself. EISA does not specify precisely how compliance with
this requirement is to be ensured or how or when the CAFE of the
industry-wide combined fleet for MY 2020 is to be calculated for
purposes of determining compliance. As a practical matter, to ensure
that an industry-wide combined average fuel economy for passenger cars
and light trucks of at least 35 mpg is achieved, the standard for MY
2020 passenger cars would have to produce an industry-wide average for
passenger cars that is significantly above 35 mpg and the one for MY
2020 light trucks in an industry-wide average for light trucks that
might or might not be below 35 mpg. Similarly, the CAFE of some
manufacturers' combined fleet of MY 2020 passenger cars and light
trucks would be above 35 mpg, while the combined fleet of others might
or might not be below 35 mpg.
NHTSA received numerous comments regarding the 35 mpg-in-2020
requirement referring to the 35 mpg requirement as a floor and not a
ceiling and urging the agency to set standards that raise the industry-
wide combined average to 35 mpg sooner, as early as MY 2015.
On the other hand, many manufacturers commented that the proposed
standards were too aggressive in the first couple of years and even
overall for the full 5-year period. They argued that there was
insufficient lead time. Some manufacturers said NHTSA should revert to
setting standards based

[[Page 14375]]

on the capabilities of the least capable manufacturer.
NHTSA is well aware that the 35 mpg-in-2020 requirement is a floor
and not a ceiling. EISA specifically states that the industry-wide
combined average must be at least 35 mpg. However, the agency must also
issue standards at the maximum feasible level in each model year, as
discussed below. The agency has discretion as to how it makes that
determination, with due regard to the 35 mpg-in-2020 requirement, and
has done so based on the best available information and data and with
full awareness of the three obligations under EISA (maximum feasible
standards for each model year, annual ratable increases and a combined
fleet average of at least 35 mpg in 2020) and environmental concerns
under NEPA. The standards for MY 2010 are 27.5 mpg for passenger cars
and 23.5 mpg for light trucks. The final standards for MY 2011 are 30.2
mpg for passenger cars and 24.1 mpg for light trucks, which represents
a rise of 2.7 mpg and 0.6 mpg, respectively, over the standards for MY
2010. NHTSA is confident that the final MY 2011 standards represent
full compliance with these obligations and will continue to monitor
manufacturers' achieved average fuel economy levels and capabilities to
ensure that the minimum 35 mpg fleet requirement will be met as
expeditiously as possible.
2. Annual Ratable Increase
Section 102(a)(2) of EISA also adds to 49 U.S.C. Sec. 32902(b) a
requirement that states as follows:

(C) PROGRESS TOWARD STANDARD REQUIRED--In prescribing average fuel
economy standards under subparagraph (A), the Secretary shall
prescribe annual fuel economy standard increases that increase the
applicable average fuel economy standard ratably beginning with
model year 2011 and ending with model year 2020.

(Emphasis added.) Congress gave no indication in EISA itself as to what
it meant by the term ``ratably,'' but NHTSA notes that Representative
Markey inserted an extension of remarks into the Congressional Record
stating as follows:

In asking for ``ratable'' progress, the intent of Congress is to
seek relatively proportional increases in fuel economy standards
each year, such that no single year through 2020 should experience a
significantly higher increase than the previous year.\384\
---------------------------------------------------------------------------

\384\ 153 CONG. REC. H14253 (editor's note) and H14444 (daily
ed. Dec. 6, 2007) (statement of Rep. Markey).

In the NPRM, NHTSA stated that ``EPCA requires that the MY 2011-2019
CAFE standards for passenger cars and for light trucks must both
increase ratably to at least the levels necessary to meet [the] 35 mpg
requirement for MY 2020.'' \385\ NHTSA interpreted the ``increase
ratably'' requirement ``to mean that the standards must make steady
progress toward the levels necessary for the average fuel economy of
the combined industry wide fleet of all new passenger cars and light
trucks sold in the United States during MY 2020 to reach at least 35
mpg.'' \386\
---------------------------------------------------------------------------

\385\ 73 FR 24364 (May 2, 2008).
\386\ Id.
---------------------------------------------------------------------------

Several commenters argued that NHTSA had interpreted the ``increase
ratably'' requirement incorrectly, frequently linking this argument to
a criticism of the front-loading of the proposed standards as
inconsistent with the ``increase ratably'' requirement.
The Alliance commented that NHTSA had provided insufficient
explanation or analysis of its interpretation that ``ratable'' meant
``steady progress'' within the context of EISA. The Alliance speculated
that NHTSA may have based its interpretation on the title of the EISA
section adding the ``increase ratably'' requirement, ``Progress Toward
Standard Required,'' but argued that titles of sections should only be
used for interpretive clues if the text of the section is ambiguous,
and that NHTSA should undertake a full definitional analysis of
``ratably'' in order to determine its meaning in the context of EISA.
The Alliance commented that the two primary dictionary definitions
of ``ratable'' are ``capable of being rated, estimated, or appraised,''
and ``proportional.'' \387\ The Alliance argued that the meaning of
``proportionally'' made more sense in the context of EISA, without
providing any particular explanation of why it believed that that
definition made more sense, but citing NHTSA's use of the term
``diminishes ratably'' later in the NPRM with reference to the
proportional phase-out of the AMFA credit.\388\
---------------------------------------------------------------------------

\387\ Alliance comment at 45, Docket No. NHTSA-2008-0089-0179.1,
citing American Heritage Dictionary 1027 (2d college ed. 1991).
\388\ 73 FR 24456 (May 2, 2008).
---------------------------------------------------------------------------

The Alliance further argued that NHTSA appeared to be incorrect in
equating ``ratable increase'' with ``steady progress,'' since the term
``steady progress'' appeared in an earlier version of EPCA and there is
a presumption against equating different statutory words chosen by
Congress. However, the Alliance commented that if NHTSA is indeed
correct that ``ratable increase'' meant ``steady progress,'' then NHTSA
should consider how it interpreted ``steady progress'' in prior
rulemakings--that is, as requiring ``annual increases in average fuel
economy, but with none of the annual increments varying dramatically
from the other annual increases.'' \389\
---------------------------------------------------------------------------

\389\ Alliance comments at 48, citing 42 FR 33537 (June 30,
1977).
---------------------------------------------------------------------------

The Alliance concluded by arguing that whether ``ratably'' means
``steady progress'' or ``proportionally,'' ``it seems clear that
`ratably' is intended to impose some limitation on the variability in
the rate of increase of CAFE standards over time.'' \390\ The Alliance
stated that NHTSA should undertake a more complete analysis of the
``increase ratably'' requirement for the final rule, and address how
the ``front-loaded'' proposed standards ``square with EISA's
directive.'' \391\
---------------------------------------------------------------------------

\390\ Id. at 49.
\391\ Id.
---------------------------------------------------------------------------

GM supported the Alliance comments, and further urged NHTSA to
consider a more gradual, less ``front loaded'' increase in the CAFE
standards adopted in the final rule. GM argued that ``standards [should
be] more aligned with the ratable levels of increase noted in [EISA],
i.e., a progression that is more even, less aggressive than the
proposed aggressive and front loaded 4.5%/yr rate, and more in line
with the approximately 3%/yr rates needed to achieve the goal of
EISA.'' \392\
---------------------------------------------------------------------------

\392\ GM comments at 8 of 10, Docket No. NHTSA-2008-0089-0182.
---------------------------------------------------------------------------

Ford also supported the Alliance comments, and commented that the
dictionary definition of ``ratable'' must be ``proportional'' in the
context of EISA, because ``capable of being rated'' ``does not make
sense in the context of CAFE standard setting.'' \393\ Thus, Ford
argued, the ``current, front-loaded proposal does not appear to reflect
a series of `ratable' increases,'' if ``the rate of increase [should
be] roughly constant from year to year.'' \394\ Ford additionally
commented that NHTSA had provided no justification for how the proposed
standards reflected a ``ratable increase.'' Ford suggested that to
solve this problem of the proposed standards not being ``ratable,''
NHTSA should determine fuel economy targets for passenger cars and
light trucks for MY 2015, and then set footprint-based constrained
logistic function standards for MY 2011-2014 at approximately a 3.8
percent per year increase to reach the calculated MY 2015 levels. Ford
stated that the 3.8 percent per year

[[Page 14376]]

increase would be ``more equalized (`ratable').'' \395\
---------------------------------------------------------------------------

\393\ Ford comments at 11, fn 1, Docket No. NHTSA-2008-0089-
0202.1.
\394\ Id.
\395\ Id. at 11-12.
---------------------------------------------------------------------------

Toyota also combined its comments on the ``increase ratably''
requirement with criticism of the rate of increase in the stringency of
the proposed standards. Toyota argued that ``While the term `ratable'
was not defined in EISA, Toyota believes this language was intended to
recognize that large and/or inconsistent jumps in fuel economy targets
are difficult for manufacturers to plan for because of product cycles
and the lead time needed to incorporate technology throughout the fleet
consistent with these product cycles.'' \396\ Toyota further argued
that the 4.5 percent average rate of increase in the proposed standards
was far greater than the ``nominal 3.3% implied by the term `ratable'
in EISA.'' \397\ Toyota added, however, with reference to the rate of
increase in stringency of targets for smaller-footprint light trucks,
that nothing in EISA suggested that ``ratable'' applied to individual
footprint targets.\398\ Toyota urged NHTSA to ``reduce the disparity in
year-to-year fuel economy increases to be more `ratable.' ''
---------------------------------------------------------------------------

\396\ Toyota comments at 2 of 15, Docket No. NHTSA-2008-0089-
0212.
\397\ Id.
\398\ Id. at 8 of 15.
---------------------------------------------------------------------------

Other commenters on the ``increase ratably'' requirement included
the Washington Legal Foundation (WLF) and the American Council for an
Energy Efficient Economy (ACEEE). WLF stated that it agreed with the
Alliance comments that the ``front-loading approach is inconsistent
with EISA, which requires the yearly standards to be set `ratably' over
the ten-year period,'' although it did not explain further what it
thought the ``increase ratably'' requirement meant.\399\ ACEEE made no
attempt to define or interpret ``ratable,'' but commented that NHTSA
should ensure ``ratable'' progress toward an average of at least 35 mpg
in MY 2020 by including in the final rule ``an express provision
requiring NHTSA to periodically review progress toward the required
fuel economy level and revise the standards accordingly.'' \400\ This
provision would mandate ``mid-course corrections'' in the standards if
necessary.
---------------------------------------------------------------------------

\399\ WLF comments at 4, Docket No. NHTSA-2008-0089-0228.1.
\400\ ACEEE comments at 5, Docket No. NHTSA-2008-0089-0211.1.
---------------------------------------------------------------------------

NHTSA has further considered the ``increase ratably'' requirement
in light of the comments received, bearing in mind that the three basic
requirements of EISA for the MY 2011-2020 standards--35 mpg in 2020,
increase annually and ratably, and maximum feasible--must be
interpreted together so as to best achieve EPCA and EISA's overarching
goal of energy conservation. NHTSA does not believe that the 35 mpg-in-
2020 requirement implies any intent by Congress to limit ``ratable''
increases to a particular percentage as suggested by several
commenters. As discussed above, 35 mpg in 2020 is a floor, not a
ceiling, and increasing standards at the percentage rate required just
to meet the 35-in-2020 target would not necessarily be consistent with
the agency's assessment of what standards will be maximum feasible in
future model years.
NHTSA does agree with the commenters, however, that Congress' use
of the term ``ratably'' appears to be intended to impose some
limitation on the variability in the rate of increase of CAFE standards
over time. Given the other statutory requirements of EPCA and EISA,
NHTSA currently concludes that the best interpretation of the
``increase ratably'' requirement remains similar to the 1980s
requirement that CAFE standards increase annually, but with none of the
annual increments varying disproportionately from the other annual
increases. This interpretation is consistent with Representative
Markey's views expressed in his extension of remarks. From MY 1978 to
MY 1985, for example, passenger car standards increased anywhere from
0.5 to 2.0 mpg per year, a range of 1.5 mpg. The ratio of the smallest
to largest increase was 1 to 4.
While it is difficult in setting only one year of CAFE standards to
demonstrate that the increase is ``ratable,'' the final combined
standards for MY 2011 are 27.3 mpg, which represents a rise of 2 mpg
over the combined standards for MY 2010. This is consistent with both
historical increases in CAFE and with Congress' other requirements in
EISA. NHTSA believes, therefore, that the MY 2011 standards represent a
``ratable'' increase over the MY 2010 standards.
With regard to the comment by ACEEE that NHTSA should include an
express provision in the final rule that NHTSA must undertake ``mid-
course corrections'' to ensure ``ratable'' progress toward the 35 mpg
requirement in 2020, NHTSA does not believe that such an addition is
necessary. The agency is required to set standards at the maximum
feasible level for each model year, and has the authority under 49
U.S.C. Sec. 32902(g) to revise standards upward if necessary to
reflect a new determination of maximum feasible, as long as it does so
18 months before the beginning of the model year whose standards are in
question. NHTSA will carefully monitor manufacturers' achieved levels
of average fuel economy, as well as changes in their capabilities, and
set standards accordingly.
3. Maximum Feasibility and the Four Underlying EPCA Considerations
As explained above, EPCA requires the agency to set fuel economy
standards for each model year and for each fleet separately at the
``maximum feasible'' level for that model year and fleet. 49 U.S.C.
Sec. 32902(a). In determining the maximum feasible level of average
fuel economy, the agency considers four statutory factors as required
by 49 U.S.C. 32902(f): technological feasibility, economic
practicability, the effect of other motor vehicle standards of the
Government on fuel economy, and the need of the United States to
conserve energy, which includes environmental considerations, along
with additional relevant factors such as safety. In balancing these
considerations, we are also mindful of EPCA's overarching purpose of
energy conservation, as well as the requirements that standards must
increase ratably to at least the level at which the combined U.S. fleet
achieves 35 mpg in MY 2020. We are also mindful that environmental
concerns are important to making the correct decision in this
rulemaking. NHTSA's NEPA analysis for this rulemaking has informed the
agency's final action.
Section VI discussed how the agency fits the target curves and
analyzes different levels of CAFE stringency. This section sets forth
the agency's interpretation of the four EPCA statutory factors, and how
NHTSA has balanced the factors with NEPA considerations in deciding
what final standards would be the maximum feasible ones for MY 2011.
(a) Technological Feasibility
NHTSA defines ``technological feasibility'' as pertaining 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. NHTSA explained in the NPRM that whether a
technology may be feasibly applied in a given model year is not simply
a function of whether the technology will exist in some form in that
model year, but also whether the data sources reviewed by the agency
support a conclusion that the technology will be mature enough to be
commercially applied in that model year, whether it will conflict with
other

[[Page 14377]]

technologies being applied, etc. Many commenters stated that ``the
technology is available to make all cars go farther on a gallon of
gas--farther than NHTSA proposes.'' \401\ According to NHTSA's final
rule analysis, manufacturers overall will likely need to apply advanced
fuel-saving technologies at significantly higher levels in order to
meet the standards than NHTSA estimated in the NPRM,\402\ although we
note that manufacturers are free to meet the standards using whatever
technologies they choose.
---------------------------------------------------------------------------

\401\ See, e.g., Docket No. NHTSA-2008-0089-0192.1.
\402\ See Tables IX-3 and IX-4 below.
---------------------------------------------------------------------------

However, as NHTSA described in Chapter IV above, simply because a
technology exists does not make it feasible to apply it to all vehicles
during MY 2011. While NHTSA recognizes, for example, that hybrid
vehicles like the Toyota Prius are very popular currently with many
American consumers, and that diesel vehicles on the road in Europe
generally achieve higher fuel economy levels than otherwise-equivalent
gasoline-engine vehicles here, it would still not be technologically
feasible for NHTSA to set standards at the level that require all
vehicles sold in the U.S. to be either hybrids or diesels by MY 2011.
As discussed at much greater length in Chapter IV, component supply
issues, engineering resource issues, federal emissions regulation
issues (in the case of diesels), etc., together make such a level of
technology application infeasible in the time frame covered by the
rulemaking.
NHTSA also recognizes, however, that there are potentially levels
of technological feasibility between the level at which NHTSA has set
the standards and the hypothetical example given above of a completely
dieselized-hybridized MY 2011 fleet. Nevertheless, technological
feasibility is but one of four EPCA factors that the agency must
balance. While higher stringency levels might still be technologically
feasible, they might not be consistent with the demands of the other
factors, and in fact might be outweighed by those factors.
(b) Economic Practicability
As explained in the NPRM, NHTSA has historically assessed whether a
potential CAFE standard is economically practicable in terms of whether
the standard is one ``within the financial capability of the industry,
but not so stringent as to threaten substantial economic hardship for
the industry.'' See, e.g., Public Citizen v. NHTSA, 848 F.2d 256, 264
(DC Cir. 1988).
As has been widely reported in the public domain throughout this
rulemaking, and as shown in public comments, the national and global
economies are in crisis. Even before those recent developments, the
automobile manufacturers were already facing substantial difficulties.
Together, these problems have made NHTSA's economic practicability
analysis particularly important and challenging in this rulemaking.
Automobile sales have dropped significantly. U.S. motor vehicle
sales in 2008 were 18 percent below 2007 levels. January 2009 industry
sales were 37 percent lower than in January 2008.\403\ The sales of
every major manufacturer declined. Vehicle manufacturers have not been
able to raise prices to offset declining unit sales.\404\
---------------------------------------------------------------------------

\403\ Ward's Automotive, ``Ward's U.S. Light Vehicle Sales
Summary,'' December 2008. Available at: http://wardsauto.com/keydata/USSalesSummary0812.xls / (Last accessed February 6, 2008).
\404\ Commerce Department data indicates no apparent change in
nominal prices of new vehicle sales over the past few years.
---------------------------------------------------------------------------

The financial state of the major U.S. automotive manufacturers is
particularly difficult. General Motors' 2008 U.S. vehicle sales were
down 23 percent, and January 2009 sales were down 51 percent.\405\ GM
last earned an accounting profit in 2004, and has lost a cumulative $72
billion between 2005 and the third quarter of 2008.\406\ GM has a
negative net worth of $60 billion, and consumed more than $3.5 billion
in cash in the third quarter. GM is largely unable to borrow additional
funds in capital markets, and must rely on a dwindling pool of cash to
fund any further operating losses and capital investments.
---------------------------------------------------------------------------

\405\ General Motors Corp, monthly sales report for December
2008. Available at: http://www.gm.com/corporate/investor_information/sales_prod/hist_sales.jsp (last accessed February 6,
2009).
\406\ General Motors Corp. annual report for 2007, quarterly
earnings announcement for the third quarter of 2008. Available at
http://www.gm.com/corporate/investor_information/earnings/index.jsp
(last accessed November 12, 2008).
---------------------------------------------------------------------------

Ford Motor Company's 2008 sales declined 20 percent.\407\ The firm
has lost nearly $30 billion since 2006. The firm has a negative net
worth of $2 billion, and consumed some $5.5 billion in cash in the
fourth quarter of 2008.\408\ Ford is also largely unable to borrow
additional funds in capital markets, and must also rely on a dwindling
pool of cash to fund any further operating losses and capital
investments.
---------------------------------------------------------------------------

\407\ Ford Motor Company, Fourth quarter 2008 financial results.
Available at: http://www.ford.com/about-ford/investor-relations/company-reports/financial-results (last accessed February 6, 2009).
\408\ Ford Motor Company, Annual Report 2007, p. 121 and fourth
quarter 2008 earning release, Slide 26.
---------------------------------------------------------------------------

Chrysler is closely held, and consequently does not publish
financial statements. However, Chrysler's 2008 unit sales were 30
percent below last year's sales, and January 2009 sales were off 55
percent.\409\ In a report submitted to the Senate Banking Committee in
December 2008, Chrysler indicated that, if the Federal Government
provided $13 billion in financing, Chrysler expected to end 2009 with
some $6.7 billion in net cash.\410\ However, absent federal
intervention, it is not clear that Chrysler would be able to survive
2009 in one piece.
---------------------------------------------------------------------------

\409\ Ward's Automotive, op. cit.
\410\ Robert Nardelli, ``Chrysler's Plan for Short-Term and
Long-Term Viability,'' submitted to Senate Committee on Banking,
Housing, and Urban Affairs, December 2, 2008. Available at: http://banking.senate.gov/public/files/ChryslerUSSenateViabilityPlan.pdf
(last accessed February 6, 2009).
---------------------------------------------------------------------------

As the figures set forth above demonstrate, the automobile industry
is already experiencing substantial economic hardship, even in the
absence of new fuel economy standards. All three firms have announced a
steady stream of plant closings, layoffs, and employment of new
employees at reduced wages.
NHTSA believes these hardships have much to do with the condition
of the national economy and perhaps the price of gasoline, and little,
if anything, to do with the stringency of CAFE standards for the
current or recent model years. We believe that given the scale of the
recent decline in industry sales, and the restrictiveness of private
credit markets, that near-term developments will be compelled by the
industry's immediate financial situation, rather than by the long-term
financial consequences of this rulemaking.
Market forces are already requiring manufacturers to improve the
fuel economy of their vehicles, as shown both by changes in product
plans reported to NHTSA, and by automaker announcements in recent
weeks. The improvements in fleet fuel economy required by this rule are
consistent with the pressure induced by changing consumer preferences.
The various compliance flexibility mechanisms permitted by EISA,
including flexible and alternative fuel vehicles, banking, averaging,
and trading of fuel economy credits will also reduce compliance costs
to some degree. By statute, NHTSA is not permitted to consider the
benefits of flexibility

[[Page 14378]]

mechanisms in assessing the costs and benefits of the rule.
On the other hand, the agency is mindful that CAFE standards do
affect the relative competitiveness of different vehicle manufacturers,
and recognizes that standards more stringent than those promulgated
here could have a more detrimental effect.
However, the core of the problem for the agency is to determine
what new standards might be economically practicable within the MY 2011
time frame, given the state of both the domestic and the international
auto industries. The complexity of an economic practicability
determination has been materially increased by the decision of GM and
Chrysler to seek, and the U.S. Government to provide, substantial
financial assistance. Congress has appropriated $7.5 billion (to
support a maximum of $25 billion in loans under Section 136 of EISA to
support the development of advanced technology vehicles and components
in the United States.\411\ DOE reports that 75 requests for funding,
totaling some $38 billion have been received by the deadline date, of
which 23 requests were deemed ``substantially complete,'' and hence
eligible for further consideration among the initial tranche of
projects.
---------------------------------------------------------------------------

\411\ The authorizing language for this provision is in Section
136 of EISA. This language is amended and funds are appropriated in
the Emergency Economic Stabilization Act of 2008 (H.R. 1424, Pub. L.
110-343). See also the DOE Advanced Technology Vehicle Manufacturing
Loan Program Web site: http://www.atvmloan.energy.gov/ (last
accessed February 6, 2009).
---------------------------------------------------------------------------

The Treasury Department has also advanced substantial funding to
GM, Chrysler and GMAC under the Troubled Asset Relief Program (TARP).
(Ford elected not to accept public funding under the TARP). GM received
a loan of $13.4 billion, while Chrysler received $4 billion.\412\ GM
and Chrysler have also submitted restructuring plans to the Treasury
Department in February 2009 requesting additional Federal assistance to
``achieve and sustain long-term viability'' while ``comply[ing] with
applicable Federal fuel efficiency and emission requirements.'' Since
this rule had not been promulgated at the time the report was
submitted, GM and Chrysler were left with a degree of doubt about
exactly what CAFE standards would apply to MYs 2011 and thereafter.
---------------------------------------------------------------------------

\412\ U.S. Department of the Treasury, ``Indicative Summary of
Terms for Secured Term Loan Facility,'' December 19, 2008, for
Chrsyler and GM. Available at http://www.treasury.gov/press/releases/hp1333.htm (last accessed February 6, 2009).
---------------------------------------------------------------------------

Given the foregoing, therefore, the agency has decided that in this
exceptional situation, economic practicability must be determined based
on whether the expenditures needed to achieve compliance with the final
MY 2011 standards are ``within the financial capability of the
industry, but not so stringent as to threaten substantial economic
hardship for the industry,'' no matter who contributes the funds. This
is an operational definition of a standard set using cost-benefit
analysis. We have attempted to set the MY 2011 CAFE standards so that
they are both technologically and economically feasible while providing
the maximum national public social benefit. In principle, most vehicles
meeting the standard will provide social benefits to the public at
large and private benefits to automobile owners greater than their
extra cost.
One of the primary ways in which the agency seeks to ensure that
its standards are within the financial capability of the industry is to
attempt to ensure that manufacturers have sufficient lead time to
modify their manufacturing plans to comply with the final standards in
the model years covered by them. Employing appropriate assumptions
about lead time in our analysis helps to avoid applying technologies
before they are ready to be applied, or when their benefits are
insufficient to justify their costs. It also helps avoid basing
standards on the assumption that technologies could be applied more
rapidly than practically achievable by manufacturers. NHTSA considers
these matters in its analysis of issues including refresh and redesign
schedules, phase-in caps, and learning rates.
A number of manufacturers commented that the proposed standards
were too stringent in the early years and were therefore not
economically practicable. In reevaluating the range of fuel-saving
technologies expected to be available in MY 2011, the agency has
developed more realistic estimates of the set of technologies
available, the extent to which these technologies are most likely to be
applied either at a vehicle freshening or redesign, and the limits
(i.e., caps) that should be applied to the rates at which these
technologies can be phased in. NHTSA believes the resultant MY 2011
standards, which also reflect all other inputs to NHTSA analysis, are
not inappropriately ``front loaded,'' particularly given that they
cover only one model year.
NHTSA also considers the potential impact on employment. There are
three potential areas of employment that fuel economy standards could
affect employment. The first is the hiring of additional engineers by
automobile companies and their suppliers to do research and development
and testing on new technologies to determine their capabilities,
durability, platform introduction, etc. The second area is the impact
that new technologies would have on the production line. The third area
is the potential impact that sales gains or losses could have on
production employment.
Chapter VII of the FRIA contains estimates of employment impacts.
The calculations assume that compliance costs are passed onto consumers
in the form of higher prices. These higher vehicle prices (net of the
benefits of added fuel savings and added resale value) lead to reduced
demand for vehicles. Estimates of sales losses are made using the price
changes and the elasticity of demand for new vehicles (-1.0). Losses in
sales are translated into losses in jobs by dividing through by the
average number of vehicles produced per full time jobs in the
automotive industry (approximately 10.5 vehicles per job). In some rare
cases, the fuel savings benefits exceed the compliance costs leading a
reduction in price, and increase in sales, and an increase in
employment.
The estimated job losses in 2011 for the six alternatives appear in
Table VII-1 for the passenger car and light truck fleets. The first two
alternatives (25 Percent Below Optimized, Optimized) have roughly
similar losses in employment: 714 to 1,024 jobs lost in 2011. The next
most stringent alternative (25 Percent Above Optimized) results in job
losses that are triple the losses in the Optimized alternative. Job
losses from the next two alternatives (50 Percent Above Optimized and
TC = TB) are 4.5 times and 8 times higher than the Optimized
alternative, but are still not a large number (8,232 for TC= TB). The
Technology Exhaustion alternative would result in significant impacts
on employment (55,740).

[[Page 14379]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.063

(c) Effect of Other Motor Vehicle Standards of the Government on Fuel
Economy
This EPCA statutory factor constitutes an express recognition that
fuel economy standards should not be set without giving due
consideration to the effects of efforts to address other regulatory
concerns, such as motor vehicle safety and pollutant emissions. The
primary influence of many of these regulations is the addition of
weight to the vehicle, with the commensurate reduction in fuel economy.
Manufacturers incorporate this added weight in their product plans,
which have informed the market forecast the agency has used as a
starting point for analysis that the agency has conducted to set the
standards. Because the addition of weight to the vehicle is only
relevant if it occurs within the time frame of the regulations, i.e.,
during MY 2011, we consider the Federal Motor Vehicle Safety Standards
set by NHTSA and the Federal motor vehicle emissions standards set by
EPA which become effective during the time frame.
Federal Motor Vehicle Safety Standards
NHTSA has evaluated the impact of the Federal Motor Vehicle Safety
Standards (FMVSS) using MY 2010 vehicles as a baseline. NHTSA has
issued or proposed to issue a number of FMVSSs or amendments to FMVSSs
scheduled to become effective between the baseline year and MY 2011.
These have been analyzed for their potential impact on vehicle weight
for vehicles manufactured in these years--as noted above, the fuel
economy impact, if any, of these new requirements will take the form of
increased vehicle weight resulting from the design changes needed to
meet the new FMVSSs.
Weight Impacts of Required Safety Standards (Final Rules)
NHTSA has issued two final rules on safety standards that become
effective for passenger cars and light trucks for MY 2011. These have
been analyzed for their potential impact on passenger car and light
truck weights, using manufacturers' voluntary plans as a baseline.

1. FMVSS No. 126, Electronic Stability Control
2. FMVSS No. 214, Side Impact Oblique Pole Test
FMVSS No. 126, Electronic Stability Control
The phase-in schedule for vehicle manufacturers is as follows:
[GRAPHIC] [TIFF OMITTED] TR30MR09.064

The final rule requires 75 percent of all light vehicles to meet
the ESC requirement for MY 2010, 95 percent of all light vehicles to
meet the ESC requirements by MY 2011, and all light vehicles must meet
the requirements by MY 2012.
The agency's analysis of weight impacts found that ABS adds 10.7
lbs. and ESC adds 1.8 lbs. per vehicle for a total of 12.5 lbs. Based
on manufacturers' plans for voluntary installation of ESC, 85 percent
of passenger cars in MY 2010 would have ABS and 52 percent would have
ESC. Thus, the total incremental added weight over manufacturers' plans
in MY 2011 for passenger cars would be about 1.8 lbs. (0.10*10.7 +
0.43*1.8). Light trucks manufacturers' plans show that 99 percent of
all light trucks would have ABS and that 74 percent would have ESC by
MY 2010. Thus, for light trucks the incremental weight impacts of
adding ESC would be 0.4 lbs. (0.21*1.8) in MY 2011.
FMVSS No. 214, Oblique Pole Side Impact Test
The phase-in requirements for the side impact test are as follows:

[[Page 14380]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.065

A teardown study of 5 thorax air bags resulted in an average weight
increase per vehicle of 4.77 pounds (2.17 kg).\413\ A second study
\414\ performed teardowns of 5 window curtain systems. One of the
window curtain systems was very heavy (23.45 pounds). The other four
window curtain systems had an average weight increase per vehicle of
6.78 pounds (3.08 kg), a figure which is assumed to be average for all
vehicles in the future.
---------------------------------------------------------------------------

\413\ Khadilkar, et al. ``Teardown Cost Estimates of Automotive
Equipment Manufactured to Comply with Motor Vehicle Standard--FMVSS
214(D)--Side Impact Protection, Side Air Bag Features'', April 2003,
DOT HS 809 809.
\414\ Ludtke & Associates, ``Perform Cost and Weight Analysis,
Head Protection Air Bag Systems, FMVSS 201'', page 4-3 to 4-5, DOT
HS 809 842.
---------------------------------------------------------------------------

Based on manufacturers' plans to voluntarily provide window
curtains and torso bags, we estimate that 90 percent of passenger cars
and light trucks would have window curtains for MY 2010 and 72 percent
would have torso bags. A very similar percentage is estimated for MY
2011. Thus, the final rule requiring 20 percent compliance is not
likely to impact manufacturers' weights in MY 2011.
Weight Impacts of Proposed/Planned Safety Standards
Proposed FMVSS No. 216, Roof Crush
On August 23, 2005, NHTSA proposed amending the roof crush standard
to increase the roof crush standard from 1.5 times the vehicle weight
to 2.5 times the vehicle weight.\415\ The NPRM proposed to extend the
standard to vehicles with a GVWR of 10,000 pounds or less, thus
including many light trucks that had not been required to meet the
standard in the past. The proposed effective date was the first
September 1 occurring three years after publication of the final rule.
A Supplemental NPRM was published by the agency in January 2008, asking
for public comment on a number of issues that may affect the content of
the final rule, including possible variations in the proposed
requirements. In the PRIA, the average passenger car weight was
estimated to increase by 4.0 pounds and the average light truck weight
was estimated to increase by 6.1 pounds for a 2.5 strength to weight
ratio. Based on comments to the NPRM, the agency believes that this
weight estimate is likely to increase. However, the agency does not yet
have an estimate for the final rule. Regardless, the final rule will
not be effective for MY 2011 vehicles.
---------------------------------------------------------------------------

\415\ See 70 FR 53753, the PRIA is in Docket No. 22143, entry
2 ``Preliminary Regulatory Impact Analysis, FMVSS 216, Roof
Crush Resistance,'' August 2005.
---------------------------------------------------------------------------

Planned NHTSA Initiative on Ejection Mitigation
The agency is planning on issuing a proposal on ejection
mitigation. The likely result of the planned proposal is for window
curtain side air bags (likely to be used to meet the FMVSS No. 214
oblique pole test in all vehicles) to be larger and for a rollover
sensor to be installed. Preliminary agency estimates are that current
curtain bags need be widened by 28 percent to fully cover the window
opening area. According to a cost and weight analysis (DOT HS 809 842),
head air bags (loomed cloth) installed in a vehicle weigh 2.59 lbs and
the inflators weigh 4.73 lbs. Thus, the incremental weight would be
about 2 lbs. (2.59 lbs + 4.73 lbs) x 0.28 = 2 lbs. However, this
analysis is not complete at this time and will not be effective for MY
2011 vehicles.
Summary--Overview of Anticipated Weight Increases
The table below summarizes estimates made by NHTSA regarding the
weight added by the above discussed standards or likely rulemakings.
NHTSA estimates that weight additions required by final rules and
likely NHTSA regulations effective in MY 2011, compared to the MY 2010
fleet and manufacturers' plans, will increase passenger car weight by
at least 10.4 lbs. and light truck weight by at least 10.6 lbs.

[[Page 14381]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.066

Based on NHTSA's weight-versus-fuel-economy algorithms, a 3-4 pound
increase in weight equates to a loss of 0.01 mpg in fuel economy. Thus,
the agency's estimate of the safety/weight effects for cars is 0.006
mpg or less and for light trucks is 0.001 mpg or less for already-
issued or likely future safety standards.
Federal Motor Vehicle Emissions Standards
As discussed above, because the addition of weight to a vehicle is
only relevant to its ability to achieve the MY 2011 CAFE standards if
it occurs in that time frame, NHTSA only considers Federal motor
vehicle emissions standards that become effective during the time
frame.
In the NPRM, NHTSA explained that on December 27, 2007, EPA
published a final rule for fuel economy labeling that employs a new
vehicle-specific, 5-cycle approach to calculating fuel economy labels
which incorporates estimates of the fuel efficiency of each vehicle
during high speed, aggressive driving, air conditioning operation and
cold temperatures into each vehicle's fuel economy label.\416\ The rule
took effect starting with MY 2008, and will not impact CAFE standards
or test procedures, or add weight to a vehicle or directly impact a
manufacturer's ability to meet the CAFE standards. It will, however,
allow for the collection of appropriate fuel economy data to ensure
that existing test procedures better represent real-world conditions,
and provide consumers with a more accurate estimate of fuel economy
based on more comprehensive factors reflecting real-world driving use.
---------------------------------------------------------------------------

\416\ See 71 FR 77872 (Dec. 27, 2006).
---------------------------------------------------------------------------

CARB commented that the NPRM had not addressed certain federal and
California emissions regulations that NHTSA had analyzed in previous
rulemakings, and stated that ``NHTSA must analyze the potential effect
of these emissions regulations on its proposed standards.'' CARB
further stated that ``the NPRM must analyze the impact of California's
ZEV regulations through at least MY 2011,'' which the commenter stated
would ``require NHTSA to consider the impact of rapidly shifting
technologies that manufacturers will apply to meet a combination of
government mandates and market conditions, most notably the
electrification of vehicle drivetrains.'' \417\
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\417\ CARB comments at 10-11, Docket No. NHTSA-2008-0089-0173.
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In response, NHTSA reiterates that emissions standards that are
completely phased in before MY 2011 are already accounted for in the
agency's baseline for this rulemaking. EPA's ``Tier 2'' standards,
which apply to all vehicles currently subject to CAFE and are designed
to focus on reducing the emissions most responsible for the ozone and
particulate matter (PM) impact from these vehicles, are scheduled to be
completely phased in by 2009.\418\ EPA's onboard vapor recovery (ORVR)
system standards, which apply to all passenger cars and light trucks
below 8,500 pounds GVWR, were completely phased in by MY 2008.\419\
Thus, there is no additional effect of these emissions regulations on
MY 2011 vehicles for NHTSA to analyze, beyond what manufacturers have
already included in their product plans in order to comply with these
regulations, which NHTSA already accounts for.\420\
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\418\ See 65 FR 6698 (Feb. 10, 2000).
\419\ See 59 FR 16262 (Apr. 6, 1994).
\420\ Additionally, in calculating criteria pollutant emissions
factors for analyzing air quality impacts, MOBILE6.2 accounted for
EPA's emission control requirements for passenger cars and light
trucks, including exhaust (tailpipe) emissions, evaporative
emissions, and the Tier 2 program. See FEIS Sec. 3.3.2.
---------------------------------------------------------------------------

NHTSA agrees with CARB, however, that portions of the ZEV standards
come into effect during MY 2011, although compliance with these
standards is also already accounted for in manufacturers' product plans
and thus forms part of NHTSA's baseline analysis. The State of
California has established several emission requirements under section
209(b) of the Clean Air Act as part of its Low Emission Vehicle (LEV)
program. California initially promulgated these section 209(b)
standards in its LEV I standards, and has subsequently adopted more
stringent LEV II standards, also under section 209(b). The relevant LEV
II regulations have been completely phased in for passenger cars and
light trucks as of MY 2007.
The LEV II Program has requirements for ``zero emission vehicles''
(ZEVs) that apply to passenger cars and light trucks up to 3,750 pounds
loaded vehicle weight (LVW) beginning in MY 2005, while trucks between
3,750 and 8,500 pounds are phased in to the ZEV regulation from 2007-
2012. The ZEV requirements begin at 10 percent of vehicles sold by a
manufacturer in California in 2005, and ramp up to 16 percent for 2018
under different paths. California will allow the 16 percent requirement
to be met by greater numbers of ``partial ZEVs'' until 2018, which
include ultra-clean gasoline-engine vehicles and hybrids.
Compliance with the ZEV standards is most often achieved through
more sophisticated combustion management, frequently involving some of
the technologies considered by NHTSA in its analysis. The associated
improvements and refinement in engine controls generally improve fuel
efficiency and have a positive impact on fuel economy.\421\ However,
such gains may be diminished because the advanced technologies required
by the program can affect the impact of other fuel economy
improvements, primarily due to increased weight. The agency has
considered this potential impact in our evaluation of manufacturer
product plans, many of which voluntarily identified particular models
as ZEV or PZEV-compliant. This indicates to NHTSA that the
manufacturers have already included compliance with these

[[Page 14382]]

standards in their product plans, which in turn indicates that
compliance with these standards is already accounted for in the
agency's baseline.
---------------------------------------------------------------------------

\421\ NESCAUM, ``White Paper: Comparing the Emissions Reductions
of the LEV II Program to the Tier 2 Program,'' October, 2003.
---------------------------------------------------------------------------

CARB also commented that ``NHTSA will need to consider the impact
of California and other adopting states' motor vehicle GHG emission
standard when those standards receive a waiver of preemption under the
Clean Air Act; this may require reopening this rulemaking or starting a
new one.'' In response, NHTSA notes again that EPA denied California's
request for a waiver, and while NHTSA recognizes that EPA is seeking
comment anew on the waiver issue, the agency cannot prejudge how it
would respond to any EPA decision until EPA makes a decision. Thus,
NHTSA need not determine at this time that it should reopen the
rulemaking or begin a new one in the event that EPA decided to grant
the waiver.
(d) Need of the United States to Conserve Energy
Congress' requirement to set standards at the maximum feasible
level and inclusion of the need of the nation to conserve energy as a
factor to consider in setting CAFE standards ensures that standard
setting decisions are made with this purpose and all of the associated
benefits in mind. As discussed above, ``the need of the United States
to conserve energy'' is a broad concept encompassing ``the consumer
cost, national balance of payments, environmental, and foreign policy
implications of our need for large quantities of petroleum, especially
imported petroleum.'' \422\ Due to the breadth and scope of these
issues, NHTSA does not believe that the need of the United States to
conserve energy need be limited to consideration of purely domestic
effects. While the overarching goal of EPCA is energy conservation,
this energy savings factor (and related environmental concerns in
connection with climate change) must nonetheless be balanced with the
other EPCA factors. EPCA does not require or authorize the issuance of
standards that require the reducing of fuel consumption regardless of
cost. The benefits of the energy savings from overly high standards
would not outweigh countervailing severe economic costs. See, e.g.,
Public Citizen v. NHTSA, 248 F.2d 256, 265 (DC Cir. 1988).
Environmental implications principally include reductions in emissions
of criteria pollutants and carbon dioxide and the associated public
health and climate effects.
---------------------------------------------------------------------------

\422\ 42 FR 63184, 63188 (Dec. 15, 1977).
---------------------------------------------------------------------------

The need to reduce energy consumption is, from several different
standpoints, more crucial today than it was at the time of EPCA's
enactment in the late 1970s. U.S. energy consumption has been
outstripping U.S. energy production at an increasing rate. At the time
of this final rule, crude oil prices are currently around $40 per
barrel, having peaked at $134 in mid-July 2008, despite having averaged
about $13 per barrel as recently as 1998, and gasoline prices have
doubled in this period.\423\ Net petroleum imports now account for 60
percent of U.S. domestic petroleum consumption.\424\ World crude oil
production continues to be highly concentrated, exacerbating the risks
of supply disruptions and their negative effects on both the U.S. and
global economies. Figure VII-1 below shows the increase of crude oil
imports and the decline of U.S. oil production since 1920.
---------------------------------------------------------------------------

\423\ Energy Information Administration, Annual Energy Review
2006, Table 5.21, p. 171. Available at http://www.eia.doe.gov/emeu/aer/pdf/pages/sec5_51.pdf (last accessed Nov. 29, 2007).
\424\ Energy Information Administration, Annual Energy Review
2006, Table 5.1, p. 125. Available at http://www.eia.doe.gov/emeu/aer/pdf/pages/sec5_5.pdf (last accessed Nov. 29, 2007).

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

[[Page 14383]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.067

The need of the nation to reduce energy consumption would be
reflected in the buying decisions of vehicle purchasers, if:
Vehicle buyers behaved as if they had unbiased
expectations of their future driving patterns and fuel prices;
The public social, economic, security, and environmental
impacts of petroleum consumption were fully identified, quantified and
reflected in current and future gasoline prices; and
Vehicle buyers behaved as if they accounted for the impact
of fuel economy on their future driving costs in their purchasing
decisions.

Basic economic theory suggests that the price of vehicles should
reflect the value that the consumer places on the fuel economy
attribute of his or her vehicle. It is not clear that consumers have
the information or inclination to value the impact of fuel economy in
their vehicle purchasing decisions. Consumers generally have no direct
incentive to value benefits that are not included in the price of
fuel--for example, benefits such as energy security and limiting global
climate change. These are the market failures that EPCA requires NHTSA
to address as part of considering the need of the nation to conserve
energy.
In this rulemkaing, NHTSA quantifies the need of the nation to
conserve energy by calculating how much a vehicle buyer ought to value
fuel economy, based both on fuel prices and potentially estimable
externalities (including energy security, the benefits of mitigating a
ton of CO2 emissions, criteria pollutant emissions, noise,
safety, and others). NHTSA discusses the specific issues related to the
need of the United States to conserve energy in more detail below.
(i) Consumer Cost
The Bureau of Labor Statistics estimates that about 4.9 percent of
personal consumption expenditures in 2006 were accounted for by vehicle
fuel and oil.\425\ Given much higher gasoline prices since, the figure
will certainly be higher in 2007-2008. Historically, gasoline
consumption has been relatively insensitive to fluctuations in both
price and consumer income, in large part because consumers are largely
``locked in'' in the short run to particular travel patterns by their
choice of job, housing, schools, and lifestyle. People in most parts of
the country tend

[[Page 14384]]

to view gasoline consumption as a non-discretionary expense.
---------------------------------------------------------------------------

\425\ Bureau of Labor Statistics, 2006 Consumer Expenditure
Survey, http://www.bls.gov/cex/#tables (last accessed Oct. 23,
2008).
---------------------------------------------------------------------------

Other non-discretionary expenses such as housing (34 percent of
expenditures) and insurance/social security (11 percent), and health
expenditures (6 percent) are larger, but more predictable. The mirror
image of the relative stability in gasoline consumption is instability
in the amount of money available in household budgets for everything
else, and particularly for savings and discretionary expenses. When
gasoline's share in consumer expenditures rises, the public experiences
fiscal distress. This fiscal distress can, in some cases, have
macroeconomic consequences for the economy at large.
NHTSA incorporates the impacts of consumer cost into its analysis
through the use of fuel price projections in setting fuel economy
standards. It should be noted that fuel economy is not free for
consumers: consumers must ``pay'' for fuel economy through some
combination of higher vehicle prices or loss of valued vehicle
attributes. Vehicle purchases accounted for 7 percent of consumer
expenditures in 2006. NHTSA uses cost-benefit analysis to help ensure
that consumers do not lose more through higher vehicle costs than they
gain through lower fuel consumption.
(ii) National Balance of Payments
According to EIA, imports of crude oil and petroleum products
accounted for about 65 percent of U.S. petroleum consumption in
2007.\426\ Since U.S. crude oil and liquids production is only affected
by fluctuations in crude oil prices over a period of years, any changes
in petroleum consumption largely flow into changes in the quantity of
imports; and any changes in crude oil or wholesale products prices
directly flow into changes in the value of imports. Thus, any
improvement in light duty vehicle fuel economy will flow into a
corresponding reduction in merchandise imports, just as higher prices
flow into an increase in the value of imports.
---------------------------------------------------------------------------

\426\ Energy Information Administration, Petroleum Supply Annual
2007, http://tonto.eia.doe.gov/dnav/pet/pet_sum_snd_d_nus_mbbl_a_cur.htm (last accessed Oct. 23, 2008).
---------------------------------------------------------------------------

According to the Census, in 2007, the United States imported $293
billion in crude oil and petroleum products, accounting for 36 percent
of the dollar value of U.S. imports of goods.\427\ In the first eight
months of 2008, petroleum accounted for 49 percent of the dollar value
of U.S. merchandise imports. The United States gross domestic product
is about $14 trillion per year, so petroleum imports only account for
about 2 percent of GDP. Nonetheless, petroleum imports are large enough
to create a discernable fiscal drag, particularly since the usual
macroeconomic adjustment mechanisms, such as price or income
elasticity, or offsetting changes in currency valuation, are not very
effective in reducing petroleum imports. Hence, most of the burden for
any necessary macroeconomic adjustment will be borne by other sectors
of the economy, and unrelated imports. Conversely, however, measures
that reduce petroleum consumption, such as fuel economy standards, will
flow directly into the balance-of-payments account, and strengthen the
domestic economy to some degree.
---------------------------------------------------------------------------

\427\ U.S. Department of Commerce, Bureau of the Census, FT900,
U.S. International Trade in Goods and Services, August 2008. http://www.census.gov/foreign-trade/Press-Release/current_press_release/press.html (last accessed October 21, 2008).
---------------------------------------------------------------------------

(iii) Environmental Implications
The need to conserve energy is also more crucial today because of
growing greenhouse gas emissions from growing petroleum consumption by
the on-the-road fleet of motor vehicles, and growing concerns about the
climate effects of those emissions. Since 1999, the transportation
sector has led all U.S. end-use sectors in emissions of CO2.
Transportation sector CO2 emissions in 2006 were 407.5
million metric tons higher than in 1990, an increase that represents
46.4 percent of the growth in unadjusted energy related CO2
emissions from all sectors over the period. Petroleum consumption,
which is directly and substantially related to fuel economy, is the
largest source of CO2 emissions in the transportation
sector.\428\ Moreover, transportation sector emissions from gasoline
and diesel fuel combustion generally parallel total vehicle miles
traveled. The need of the nation to conserve energy encompasses all of
these issues, since CO2 emissions from passenger cars and
light trucks decrease as fuel economy improves and more energy is
conserved.\429\ Indeed, the only way to make the substantial necessary
reductions in CO2 tailpipe emissions is to improve fuel
economy.
---------------------------------------------------------------------------

\428\ However, increases in ethanol fuel consumption have
mitigated the growth in transportation-related emissions somewhat
(emissions from energy inputs to ethanol production plants are
counted in the industrial sector).
\429\ The above statistics are derived from Energy Information
Administration, ``Emissions of Greenhouse Gases Report,'' Report
DOE/EIA-0573 (2006), released November 28, 2007. Available
at http://www.eia.doe.gov/oiaf/1605/ggrpt/carbon.html (last accessed
Oct. 23, 2008).
---------------------------------------------------------------------------

These MY 2011 CAFE standards will reduce passenger car and light
truck fuel consumption and CO2 tailpipe emissions over the
next several decades, responding to the need of the nation to conserve
energy, as EPCA intended. More specifically, the final standards will
save over 9 billion gallons of fuel and avoid over 8 million metric
tons of CO2 tailpipe emissions over the lifetime of the
regulated vehicles.
NHTSA evaluated in great detail the potential environmental impacts
associated with such CO2 emissions reductions and other
environmental impacts of the proposed standards through the Final
Environmental Impact Statement prepared in conjunction with this
rulemaking.\430\ They take the form of unambiguous reductions in
emissions of CO2, and very small and uncertain changes in
emissions of urban air pollutants and toxic pollutants, with reductions
in emissions of most pollutants.
---------------------------------------------------------------------------

\430\ The Final Environmental Impact Statement (FEIS) is
available on NHTSA's Web site at http://www.nhtsa.gov, under ``Fuel
Economy.'' On October 17, 2008, EPA published a notice announcing
the availability of NHTSA's EIS for this rulemaking. 73 FR 61859.
---------------------------------------------------------------------------

(iv) Foreign Policy Considerations
Fuel economy standards have only an indirect and general impact on
U.S. foreign policy. U.S. foreign policy has been affected for decades
by rising U.S. and world dependency of crude oil as the basis for
modern transportation systems. In general, the United States and oil
exporting states have a powerful long-term mutual interest in a
smoothly functioning international oil market. However, other
governments sometimes behave erratically, and, on occasion, will pursue
short-term benefits at the expense of long-term advantage.
The political stability of major oil exporting states and
states controlling petroleum transportation routes is important to the
United States, because chaos could lead to an interruption of oil
production or shipments and worldwide increases in oil prices affecting
the U.S. and world economy. Physical shortages of petroleum would be
even more disruptive than high prices.
The United States may give additional consideration to the
political views of the governments of current or potential future oil
exporting states, because the United States would like to influence
these governments to invest in increased oil production capacity, to
produce more oil, to sell their oil at reasonable prices, and to
encourage other oil exporters to do the same.

[[Page 14385]]

The United States may, under some circumstances, be
prepared to overlook otherwise objectionable behavior by actual or
potential oil exporters.
The United States must take an interest in the military
security of major foreign oil production, refining, export, and
transportation facilities because damage to these facilities could
affect the U.S. and world economy, even if the affected facilities do
not produce or ship petroleum for the U.S. market.
To the extent that oil exporting states accumulate large
foreign currency reserves as a result of cumulative balance-of-payments
surpluses, the United States may have additional reasons for giving
such states additional consideration.
NHTSA considers oil price externalities that cover the benefits
associated with reduced risk of an oil price spike, possibly induced by
foreign political developments. However, other externalities in
connection with foreign policy considerations such as those set forth
above are exceedingly difficult to quantify, much less monetize as a
discrete economic value. No commenter set forth a methodology by which
NHTSA could reasonably quantify this particular set of externalities,
and NHTSA is unaware of literature which addresses quantifying these
considerations. Nevertheless, in considering the need of the nation to
conserve energy, NHTSA has taken foreign policy considerations into
account as a part of its qualitative analysis. For further discussion
of how NHTSA accounts for petroleum consumption and import
externalities in its analysis, see section V.B.11 above.
Accordingly, upon consideration of the entire record, and on the
basis of all public comments and applicable law, NHTSA has considered
the need of the nation to conserve energy.
4. Comparison of Alternatives
NHTSA's analyses of the levels of CAFE that would be required under
the alternatives considered by the agency and the associated costs are
described below and then summarized in Tables VII-2 through VII-6:
VII-2. Average Required CAFE Levels: Under an attribute-based CAFE
standard, the CAFE level required of each manufacturer depends on the
distribution of footprint values and projected sales of individual
models comprising the fleet of vehicles it produces. Table VII-2
contains a sales-weighted harmonic average of these requirements.
VII-3. Average CAFE Shortfall: If a manufacturer is not expected to
achieve the required CAFE level, either because of an expected economic
decision or because all opportunities to add technology are expected to
be exhausted, the manufacturer is expected to have a shortfall that
will result in civil penalties (unless sufficient CAFE credits are
available to offset the shortfall). Table VII-3 summarizes these
shortfalls (where they exist) at the industry-wide level.
VII-4. Total Benefits (versus Baseline): The societal benefits
resulting from each alternative are calculated relative to the baseline
CAFE standards. Section V discusses the components of these benefits.
Table VII-4 shows the discounted present value of benefits accrued over
the useful life of vehicles sold in MY 2011.
VII-5. Total Costs (versus Baseline): The total costs of each
alternative are measured by the estimated industry-wide increase in
technology outlays from those under baseline CAFE standards.
VII-6. Net Benefits (versus Baseline): Net benefits reflect the
amount by which total benefits exceed total costs. In Table VII-6,
negative values (in parentheses) indicate instances in which total
costs exceed total benefits.

[[Page 14386]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.068

NHTSA believes that some differences among specific alternatives
analyzed are worth noting here. As Tables VII-4 and VII-5 reveal, costs
increase more rapidly than do benefits as required CAFE levels
increase, particularly beyond the level at which total costs equal
total benefits. Increasing compliance costs reduce both new vehicle
sales and employment. Each of the alternatives that is more stringent
than the Optimized Alternative will reduce sales and employment from
the levels observed under the Optimized Alternative, as documented in
the FRIA in Chapter VII. Additionally, under the more stringent
alternatives, the agency predicts that increasing numbers of
manufacturers will run out of technology to apply, and potentially
resort to paying statutory penalties. The CAFE shortfalls shown in
Table VII-3 measure how widespread this outcome could become.
Underlying the differences in costs, benefits, and net benefits among
the alternatives are differences in the extent to which NHTSA has
estimated that fuel economy technologies would be applied in response
to the standards

[[Page 14387]]

corresponding to each of these alternatives.
---------------------------------------------------------------------------

\431\ Negative values mean that costs exceed benefits.
---------------------------------------------------------------------------

Along the continuum, each alternative represents a different way in
which NHTSA could conceivably balance the four EPCA factors and the
attendant environmental concerns. The alternatives that fall above the
Optimized Alternative (the +25, +50, TC = TB, and Technology Exhaustion
alternatives), if chosen, would represent an agency decision to put
progressively more emphasis on reducing energy consumption and
CO2 emissions, due to the need of the nation to conserve
energy, and less on the other factors, such as economic practicability
and the impacts of higher stringencies on the industry. The -25%
alternative, in contrast, would represent an agency decision to put
more emphasis on the economic situation of the industry and its ability
to apply advanced technologies in the relevant timeframe, while placing
less on the other factors, such as the need of the nation to conserve
energy.
5. Other Considerations Under EPCA
(a) Safety
NHTSA explains in Section VIII below that it has historically
considered safety in setting the CAFE standards. NHTSA refers the
reader to that discussion.
(b) AMFA Credits
49 U.S.C. Sec. 32902(h) expressly prohibits NHTSA from considering
the fuel economy of ``dedicated'' automobiles in setting CAFE
standards. Dedicated automobiles are those that operate only on an
alternative fuel, like all-electric or natural gas vehicles.\432\
Dedicated vehicles often achieve higher mile per gallon (or equivalent)
ratings than regular gasoline vehicles, so this prohibition prevents
NHTSA from raising CAFE standards by averaging these vehicles into our
determination of a manufacturer's maximum feasible fuel economy level.
---------------------------------------------------------------------------

\432\ 49 U.S.C. 32901(a)(7). ``All-electric'' would thus not
include a plug-in hybrid (PHEV), since that vehicle is also capable
of operating on gasoline.
---------------------------------------------------------------------------

Section 32902(h) also directs NHTSA to ignore the fuel economy
incentives for dual-fueled (e.g., E85-capable) automobiles in setting
CAFE standards. Sec. 32905(b) and (d) use special calculations for
determining the fuel economy of dual-fueled automobiles that give those
vehicles higher fuel economy ratings than otherwise-identical regular
automobiles. Through MY 2014, manufacturers may use this ``dual-fuel''
incentive to raise their average fuel economy up to 1.2 miles per
gallon higher than it would otherwise be. After MY 2014, Congress has
set a schedule by which the dual-fuel incentive diminishes partially
each year until it is extinguished after MY 2019.\433\ This issue is
discussed further in Section XII.C below.
---------------------------------------------------------------------------

\433\ 49 U.S.C. 32906(a). NHTSA notes that if there is any
possible misinterpretation of this table, the schedule laid out by
Congress in EISA controls.
---------------------------------------------------------------------------

Although manufacturers may use this additional credit for their
CAFE compliance, NHTSA may not consider it in setting standards. As
above, this prohibition prevents NHTSA from raising CAFE standards by
averaging these vehicles into our determination of a manufacturer's
maximum feasible fuel economy level.
No comments were received regarding the statutory prohibition on
NHTSA's consideration of these alternative-fuel vehicle incentives, but
the agency notes that given that the MY 2011 standards increase more
rapidly vis-[agrave]-vis the MY 2010 standards than any CAFE standards
since the inception of the CAFE program, we believe it likely that
manufacturers will use the incentive to a considerable degree.
(c) Flexibility Mechanisms: Credits, Fines
As discussed at length below in Chapter XII, EPCA and EISA also
allow manufacturers to use credits (either earned or purchased) and to
pay fines in order to meet CAFE standards. However, 49 U.S.C.
32902(h)(3) expressly states that NHTSA ``may not consider, when
prescribing a fuel economy standard, the trading, transferring, or
availability of credits under section 32903.'' Thus, NHTSA may not
raise CAFE standards because manufacturers have enough credits to meet
higher standards, nor may NHTSA lower standards because manufacturers
do not have enough credits to meet existing standards.
A number of commenters, including AIAM, Mercedes, Ferrari, NADA,
and ACEEE, suggested that the use of the credit trading system which
NHTSA proposed to develop under the new authority given by EISA would
not likely be very extensive, at least initially, due to competitive
concerns among manufacturers. Whether this prediction will be borne out
remains to be seen, but the agency notes that credit trading gives more
flexibility and could potentially lower compliance costs for
manufacturers, which should provide an incentive for manufacturers to
engage in trading.
As for fines, CFA commented that ``NHTSA allows the historical
desire of automakers to avoid paying fines to pull down the level of
the standard, by assuming that setting standards at a level that might
cause automakers to pay fines does no good.'' CFA suggested that fines
are ``not only punitive; they are motivational.''
NHTSA considers the levels of stringency at which different
manufacturers are estimated to run out of technology and begin paying
fines. NHTSA agrees that fines may be motivational, but believes that
CFA misunderstands how fines function in standard setting. All
manufacturers (except the few that have paid fines historically) are
assumed to be willing to pay any price, no matter how high, in order to
avoid paying fines. In the agency's analysis, as implemented using the
Volpe model, manufacturers cease adding technology to achieve
compliance only when there are no more technologies available to add.
This is not because NHTSA wishes to protect the manufacturers from
having to pay fines, but for the following two reasons: First, because
the point at which manufacturers run out of technology gives NHTSA a
strong indication of what would be economically practicable and
technologically feasible, and second, because if manufacturers are
paying fines instead of meeting the CAFE standards, the projected level
of fuel savings is not being achieved. NHTSA recognizes that fines are
motivational for manufacturers, particularly for the U.S. domestic
manufacturers, but continues to believe that setting standards above
the levels achievable through fuel saving technologies at reasonable
cost because we think that manufacturers might be motivated to avoid
paying fines would only result in higher standards, without resulting
in additional fuel savings.

D. Analysis of Environmental Consequences in Selecting the Final
Standards

The FEIS analyzes in detail the potential direct, indirect, and
cumulative impacts of the alternatives. NHTSA's Preferred Alternative,
the Optimized CAFE Standards, was one of the alternatives that was
explicitly evaluated in the FEIS.\434\ As discussed in Section XVI.B of
this Final Rule, the FEIS evaluates the aggregate environmental impacts
associated with each alternative for the entire five-year period (i.e.,
the environmental impacts that would result if MY 2011-2015 passenger
cars and light trucks met the

[[Page 14388]]

higher, proposed CAFE standards for those years). In this section we
also present selected consequences associated with each alternative's
CAFE standards for MY 2011 passenger cars and light trucks. These
consequences include the effects of alternative standards on fuel
consumption and associated emissions of greenhouse gases, as well as on
emissions of criteria and hazardous air pollutants. Environmental
impacts associated with the alternative CAFE standards for MY 2011
passenger cars and light trucks remain aggregated for MYs 2011-2015,
and are reported in the FEIS. See Chapter 3, Chapter 4 and Appendix B
of the FEIS. The aggregate impacts analyzed in the FEIS remain
relevant, since the MY 2011 impacts associated with the CAFE standards
fall within the spectrum of those aggregated impacts.
---------------------------------------------------------------------------

\434\ See generally FEIS, available at Docket No. NHTSA-2008-
0060-0605.
---------------------------------------------------------------------------

The Technology Exhaustion Alternative is the overall
Environmentally Preferable Alternative. Specifically, the Technology
Exhaustion Alternative is the Environmentally Preferable Alternative in
terms of the following reductions: Fuel use, CO2 emissions,
criteria air pollutant emissions, and their resulting health impacts,
and emissions of almost all mobile source air toxics (MSATs).
Because it would impose the highest car and light truck CAFE
standards for MY 2011 among the alternatives considered, the Technology
Exhaustion Alternative would result in the largest reductions in fuel
use and GHG emissions. As explained in Chapter 5 of the FEIS, the
reductions in fuel consumption resulting from higher fuel economy cause
emissions during fuel refining and distribution to decline. For most
pollutants, this decline is more than sufficient to offset the increase
in tailpipe emissions that results from increased driving due to the
rebound effect of higher fuel economy, leading to a net reduction in
total emissions from fuel production, distribution, and use. Because of
this effect, the Technology Exhaustion Alternative would also lead to
the largest reductions in emissions of criteria air pollutants and
their resulting health impacts, as well as the largest reductions in
emissions of almost all mobile source air toxics (MSATs).
NHTSA's environmental analysis indicates that emissions of the
MSATs acrolein would increase under some alternatives, with the largest
increases in emissions of these MSATs projected to occur under the
Technology Exhaustion Alternative. The analysis of acrolein emissions
presented in the FEIS, however, is incomplete, because emissions
factors for acrolein during fuel production and distribution are
unavailable, so that the agency is thus unable to estimate the net
change in total acrolein emissions likely to result under each
alternative. If the agency had been able to estimate reductions in
``upstream'' emissions of acrolein as part of its analysis, total
acrolein emissions under each alternative would increase by smaller
amounts than those amounts reported in the EIS, or even decline.
However, given that the agency is unable to estimate the net change in
total acrolein emissions, the agency is unable to conclude which
alternative is environmentally preferable with respect to acrolein
emissions.
Overall, however, the Technology Exhaustion alternative is the
agency's Environmentally Preferable Alternative. For additional
discussion regarding the alternatives considered by the agency in
reaching its decision, including the Environmentally Preferable
Alternative, see Section VII of this Final Rule. For a discussion of
the environmental impacts associated with each alternative, see Chapter
3, Chapter 4 and Appendix B of the FEIS.
The effects of the alternative's CAFE standards on the global
climate--including temperatures, precipitation, and sea-level--have
been the subject of particular public interest and comment. Reducing
the effects of fuel use and GHG emissions on the global climate can
translate into impacts on key resources, including freshwater
resources, terrestrial ecosystems, coastal ecosystems, land use, human
health, and environmental justice. Although some of the alternative's
CAFE standards considered for MY 2011 have the potential to
substantially reduce future GHG emissions from cars and light trucks,
none of them would reduce emissions sufficiently to reverse projected
future growth in total U.S. transportation-sector emissions, or to
avoid the projected effects of climate change caused by manmade
emissions.
As noted in the FEIS, even for those alternatives that would lead
to the largest reductions in GHG emissions, however, the magnitudes of
any changes in projected climate effects that could be forestalled are
likely to be on the order of one one-hundredth of a degree Celsius in
surface temperatures, a reduction of 0.02 percent to 0.03 percent in
the rate of precipitation increase, and 1 millimeter or less of sea-
level change. The potential impacts on key resources that might be
avoided if these changes in climate could be forestalled are too small
to meaningfully address quantitatively in terms of their impacts on
resources. Given the enormous global values of these resources, these
distinctions are nevertheless likely to be important, but they are
simply too small for current quantitative techniques to resolve.
Consequently, the discussion of resource impacts does not distinguish
among the CAFE alternatives, but rather provides a qualitative review
of the benefits of reducing GHG emissions and the magnitude of the
risks involved in climate change.
Table VII-9 compares fuel consumption by the entire U.S. passenger
car fleet during selected future years under alternative CAFE standards
for MY 2011.\435\ Each of these estimates assumes that the standard
established for MY 2011 would apply to all subsequent model years.\436\
As the table shows, total fuel consumption by passenger cars would
increase over the period from 2020-2060 under each alternative. Table
VII-9 also reports the reduction in fuel use under each alternative
from the level that would result if the MY 2010 CAFE standard for
passenger cars instead remained in effect indefinitely (the ``No
Action'' alternative). Fuel savings under each alternative increase in
CAFE standards would rise progressively over the period shown, as an
increasing fraction of passenger cars in use complied with the standard
established for MY 2011.
---------------------------------------------------------------------------

\435\ The estimates of fuel consumption and fuel savings
presented in Table VII-9 correspond to the ``Mid-2'' case described
in the Final EIS.
\436\ However, this assumption overstates impacts, because EISA
requires standards to increase each model year between MY 2011 and
MY 2020.
---------------------------------------------------------------------------

Table VII-10 reports estimated fuel consumption by the U.S. light
truck fleet during future years under alternative CAFE standards for MY
2011, as well as the reductions in fuel use that would result under
each alternative that would raise CAFE standards for MY 2011. As with
the previous table, the estimates of fuel use reported in Table VII-10
assume that the light truck CAFE standard established for MY 2011 would
apply to all subsequent model years, and these estimates show that
total fuel use by light trucks would increase over the foreseeable
future under each alternative. As with passenger cars, the reductions
in fuel consumption by the U.S. light trucks fleet under each
alternative increase in CAFE standards would rise progressively through
2060, as an increasing fraction of light trucks in use complied with
the standard established for MY 2011.

[[Page 14389]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.069

[GRAPHIC] [TIFF OMITTED] TR30MR09.070

Table VII-11 projects cumulative total emissions of CO2
by all U.S. passenger cars and light trucks over the period from 2010
through 2100 under each alternative for MY 2011 CAFE standards. As in
the preceding tables, these estimates assume that the CAFE standards
established for MY 2011 under each alternative would apply to

[[Page 14390]]

all subsequent model years, and include emissions occurring during fuel
production, distribution, and use. Table VII-11 also reports the
reductions in cumulative CO2 emissions from 2010-2100 under
each alternative that would increase passenger car and light truck CAFE
standards for MY 2011 (the ``Action'' alternatives); these reductions
are measured from the level of emissions that would occur if the MY
2010 car and light truck CAFE standards were extended to MY 2011 and
remained in effect throughout this period (the ``No Action''
alternative).
The reductions in cumulative CO2 emissions over an
extended period such as that shown in Table VII-11 (2010-2100) provide
a more meaningful comparison of the impacts of alternative CAFE
standards for MY 2011 on the potential for global climate change than
would the reductions in CO2 emissions for individual future
years. This is because CO2 remains in the earth's atmosphere
for a prolonged period once it has been emitted, and the likely
increase in future global temperatures is determined by the cumulative
atmospheric concentration of CO2 (and other GHGs). Thus the
most accurate measure of the impact of higher CAFE standards on the
potential for global climate change is the resulting reduction in
cumulative CO2 emissions by cars and light trucks over an
extended period, as vehicles meeting those higher standards are
gradually incorporated into the U.S. vehicle fleet.
[GRAPHIC] [TIFF OMITTED] TR30MR09.071

NHTSA's Final EIS presented a detailed analysis of the potential
effects of alternative car and light truck CAFE standards for MY 2011-
2015 on anticipated future changes in the global climate. This analysis
was based on estimates of the effects of alternative increases in CAFE
standards for those model years on fuel consumption and emissions of
greenhouse gases (GHG), analogous to those reported in Tables VII-9
through VII-11 for the MY 2011 CAFE standards. The agency projected the
extent to which these projected reductions in GHG emissions might lower
future atmospheric concentrations of GHGs, and utilized a global
climate modeling system to simulate the consequences of reduced GHG
concentrations for future increases in mean surface temperatures, the
projected future rise in sea levels, and regional precipitation
patterns. For additional discussion of the FEIS climate analysis, see
FEIS Sec. 3.4 and 4.4.
NHTSA analyzed the air quality impacts of alternative CAFE
standards for MY 2011 cars and light trucks by estimating the changes
in total emissions of criteria air pollutants and selected mobile
source air toxics (MSATs) from their Baseline levels that would occur
under each Action alternative. The agency's analysis considered
emissions of these pollutants during vehicle use (``tailpipe''
emissions), as well as emissions throughout the processes of producing
and distributing fuel (``upstream'' emissions).\437\ Because improving
fuel economy results in an increase in the number of miles passenger
cars and light trucks are driven (the ``rebound'' effect), tailpipe
emissions of each pollutant are projected to increase by progressively
larger amounts under alternatives that require higher fuel economy
levels. In contrast, higher CAFE standards reduce the volume of fuel
supplied, thus reducing emissions throughout the fuel production and
distribution process.
---------------------------------------------------------------------------

\437\ Emissions of volatile organic compounds (VOC) during
vehicle operation include evaporative emissions that occur when
vehicles are parked or stored, and while they are being refueled at
retail stations.
---------------------------------------------------------------------------

The net effect of each alternative is equal to the increase in
tailpipe emissions resulting from added rebound-effect driving, minus
the reduction in upstream emissions resulting from the lower volume of
fuel that must be supplied. Although the relative magnitude of these
two effects differs among individual pollutants, the reduction in
upstream emissions of most (but not all) pollutants outweighs the
increase in tailpipe emissions, leading to a net reduction in their
total emissions. Similarly, the net reduction in total emissions of
each pollutant is usually--although not always--larger for alternatives
that require higher fuel economy levels. For further explanation of the
air quality methodology, see FEIS Sec. 3.3.2.
Table VII-12 reports total emissions of criteria air pollutants
from passenger cars and light trucks during selected future years with
alternative CAFE standards for MY 2011.\438\ Total emissions of each
pollutant include those that occur during vehicle use, as well as from
fuel production and distribution. These emissions estimates assume that
each alternative CAFE standard for MY 2011 cars and light trucks would
remain in effect during subsequent model years, so that over time an
increasing fraction of all cars and light trucks in use will have met
those standards. As the table indicates, emissions of carbon monoxide
(CO), nitrogen oxides (NOx), and volatile organic compounds
(VOC) are projected to decline over the future as

[[Page 14391]]

improvements in emissions controls offset the effect of increasing
vehicle use, while emissions of fine particulates (PM2.5)
and sulfur oxides (SOx) are projected to increase.
---------------------------------------------------------------------------

\438\ Unlike GHGs, criteria and hazardous air pollutants are
relatively short-lived; thus their concentrations in the atmosphere
and the resulting impacts on human health depend primarily on
emissions during the immediate period being analyzed, rather than on
their cumulative emissions over an extended period.
[GRAPHIC] [TIFF OMITTED] TR30MR09.072

Table VII-13 shows that emissions of each criteria pollutant are
projected to decline from their levels under the No Action Alternative
by progressively larger amounts as CAFE standards for MY 2011 cars and
light trucks become more stringent. This occurs because the reductions
in emissions from fuel production and distribution grow in proportion
to the larger fuel savings that result from more stringent standards,
and more than offset the larger increases in tailpipe emissions from
additional driving that result from increased fuel economy. The table
also shows that the reductions in emissions are projected to grow over
the future under each alternative, as an increasing fraction of cars
and light trucks in service consists of those required to meet the
alternative CAFE standards considered for MY 2011.

[[Page 14392]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.073

Establishing higher CAFE standards for MY 2011 cars and light
trucks is also expected to affect emissions of some hazardous air
pollutants (also known as mobile source air toxics, or MSATs) that
occur during fuel production and use. NHTSA examined the effect of
alternative CAFE standards on emissions of the MSATs acetaldehyde,
acrolein, benzene, 1, 3-butadiene, diesel particulate matter (DPM), and
formaldehyde, which EPA and the Federal Highway Administration have
identified as a primary concern when assessing the environmental
impacts of motor vehicle use.
Table VII-14 reports total emissions of these air toxics by
passenger cars and light trucks during selected future years under
alternative CAFE standards for MY 2011. As in the agency's analysis of
criteria air pollutant emissions, these estimates include emissions
during vehicle use as well as from fuel production and distribution,
and also assume that each alternative CAFE standard for MY 2011 cars
and light trucks would remain in effect for subsequent model years. The
table indicates that emissions of acetaldehyde, acrolein, benzene, 1,3-
Butadiene, and formaldehyde are projected to decline significantly in
future years under each alternative, including the Baseline or No
Action alternative. This occurs because the rates at which these MSATs
are emitted during vehicle operation, fuel production, and fuel
distribution are projected to decline steadily throughout the future.
In contrast, future emissions of diesel particulate matter (DPM) are
projected to increase under each alternative standard, as manufacturers
increasingly rely on converting gasoline models to diesel power in
order to achieve higher fuel economy.

[[Page 14393]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.075

Table VII-15 reports the changes in emissions of each MSAT from
their levels under the Baseline or No Action alternative that are
projected to occur under alternative CAFE standards for MY 2011 cars
and light trucks. The table shows that in most future years future
emissions of acetaldehyde, benzene, 1,3-butadiene, and DPM would
decline from their Baseline levels under each alternative CAFE standard
considered for MY 2011. The reductions in emissions of these MSATs
would generally increase over the future, as an increasing fraction of
cars and light trucks in use met the MY 2011 CAFE standards. As with
criteria pollutants, the reductions in emissions of these MSATs are
expected to be larger under alternatives that would impose higher CAFE
standards, because the declines in emissions resulting from reduced
fuel production and distribution grow in proportion to the larger fuel
savings that result from more stringent standards, and more than offset
the larger increases in tailpipe emissions from additional driving that
result from increased fuel economy. In contrast, emissions of acrolein
and, under some alternatives, formaldehyde are projected to increase
slightly from their levels under the Baseline alternative, since the
increases in tailpipe emissions of these MSATs outweigh the reductions
in emissions

[[Page 14394]]

from fuel refining and distribution.\439\ For additional detail on this
analysis see FEIS Sec. 3.3.3; Chapter 5.
---------------------------------------------------------------------------

\439\ The projected increases in future emissions of acrolein
may result from the agency's inability to obtain ``upstream''
emission factors for this pollutant, which prevented it from
estimating the reduction in acrolein emissions resulting from lower
fuel production and distribution. It is possible that if the agency
had been able to do so, lower acrolein emissions during fuel
production and distribution would have more than offset the increase
in emissions from fuel use by cars and light trucks, causing total
acrolein emissions to decline.
[GRAPHIC] [TIFF OMITTED] TR30MR09.076

[[Page 14395]]

health effects of reductions in population exposure to criteria air
pollutants and MSATs that were projected to result from alternative
CAFE standards for MY 2011-15. That analysis suggested that significant
reductions in adverse health effects and economic damages caused by
exposure to these pollutants (primarily PM2.5, the largest
known contributor to adverse health effects) could result if higher
CAFE standards were adopted for those model years. (See Sec. 3.3.2.4.2
of the FEIS for a detailed description of NHTSA's approach for
developing the quantitative estimates of changes in health effects from
exposure to air pollution resulting from alternative CAFE standards for
MY 2011-15.)

E. Picking the Final Standards

1. Eliminating the Alternatives Facially Inconsistent With EPCA
(a) No-Action Alternative
Two of the alternatives analyzed by NHTSA are facially inconsistent
with EPCA. Regardless of how this alternative is defined, i.e., either
in terms of setting no standard or setting the MY 2011 standards at the
MY 2010 level, the ``no-action'' or ``baseline'' alternative violates
EPCA. Under the former definition, the no-action alternative violates,
among other EPCA provisions, subsections 32902(a) and (b)(1) and (2),
each of which requires the Secretary to establish CAFE standards for
each model year separately. Under the latter definition, the no-action
alternative violates subsection 32902(b)(2)(A) which requires the MY
2011-2020 standards to be set high enough to ensure that the industry-
wide fleet achieves a combined passenger car/light truck average fuel
economy of at least 35 mpg. It also violates the requirement in
subsection 32902(b)(2)(B) that the standards for MYs 2011-2020 increase
annually and ratably.
(b) Technology Exhaustion Alternative
Although the technology exhaustion alternative is the
environmentally preferable alternative for NEPA purposes, it does not
reflect any consideration of economic practicability or technological
feasibility. This omission violates subsections 32902(a) and (b), which
require setting standards at the maximum feasible level, and subsection
32902(f), which requires that ``(w)hen deciding maximum feasible
average fuel economy under this section, the Secretary of
Transportation shall consider technological feasibility, economic
practicability, the effect of other motor vehicle standards of the
Government on fuel economy, and the need of the United States to
conserve energy.'' (Emphasis added.)
2. Choosing Among the Remaining Alternatives
(a) Difficulty and importance of Achieving a Reasonable Balancing of
the Factors
Section 1(a) of E.O. 12866 provides that ``(i)n choosing among
alternative regulatory approaches, agencies should select those
approaches that maximize net benefits (including potential economic,
environmental, public health and safety, and other advantages;
distributive impacts; and equity), unless a statute requires another
regulatory approach.'' The Ninth Circuit ruled in CBD v. NHTSA, 538
F.3d 1172, 1197, that EPCA does not require another regulatory
approach.
We recognize that the Ninth Circuit coupled that ruling with the
following cautionary statement about basing decisions about the
stringency of CAFE standards on the principle of maximizing net
benefits:

(W)e reject only Petitioners' contention that EPCA prohibits
NHTSA's use of marginal cost-benefit analysis to set CAFE standards.
Whatever method it uses, NHTSA cannot set fuel economy standards
that are contrary to Congress's purpose in enacting the EPCA-energy
conservation. We must still review whether NHTSA's balancing of the
statutory factors is arbitrary and capricious. Additionally, the
persuasiveness of the analysis in Public Citizen and Center for Auto
Safety is limited by the fact that they were decided two decades
ago, when scientific knowledge of climate change and its causes were
not as advanced as they are today. * * * The need of the nation to
conserve energy is even more pressing today than it was at the time
of EPCA's enactment. * * *
What was a reasonable balancing of competing statutory
priorities twenty years ago may not be a reasonable balancing of
those priorities today. (footnotes omitted)

538 F.3d 1172, 1197-98.
As discussed below, achieving a reasonable balancing of the factors
is critical. While, as the Court suggested, there are risks associated
with setting standards that are too low, there are also considerable
risks associated with setting standards that are too high. Both types
of risks must be part of the balancing process.
We recognize that the on-road fleet of passenger cars and light
trucks is one of largest consumers of petroleum and emitters of
CO2 in the U.S. economy. We recognize too that global
CO2 emissions have been exceeding the highest of the IPCC
2007 scenarios. We appreciate that, among the remaining alternatives,
the total cost/total benefit alternative is the one that reduces those
emissions the most.
At the same time, we cannot fail to recognize and fully take into
account the very serious conditions of the automobile industry, the
national economy, and even the global economy. We understand that some
aid has been authorized and appropriated for the automobile industry
and that the possibility of other aid has been broached, but the extent
to which that aid will mitigate the industry's downward spiral is
uncertain. What is certain is that the mere fact substantial aid is
even being discussed is a reflection of the unusual and extremely
serious conditions we face.
(b) The Correct Balancing of the Factors for Setting the MY 2011
Standards Is To Maximize Societal Net Benefits
We have discussed above how NHTSA considered and balanced the four
statutory factors. This section discusses NHTSA's decision that the
final standards are the maximum feasible for MY 2011.
Congress left the determination of what levels of CAFE standards
are ``maximum feasible'' to NHTSA's discretion, requiring only that
NHTSA consider the four statutory factors. 49 U.S.C. 32902. NEPA
applies independently to require consideration of environmental factors
in the decision-making process. The EPCA factors are in tension and
tend to pull in opposite directions in terms of stringency, with
technological feasibility and especially the need of the nation to
conserve energy pointing toward higher standards and economic
practicability pointing toward lower ones. Accordingly, NHTSA has
historically considered the factors from the perspective of balancing
them, given EPCA's overarching purpose of energy conservation.\440\
Thus, NHTSA determines that standards are the maximum feasible if they
represent the proper balancing of the four statutory factors, based on
all the information before the agency and the entire record.
---------------------------------------------------------------------------

\440\ The Ninth Circuit in CBD agreed that NHTSA has discretion
to balance the factors in determining what level of stringency is
maximum feasible. CBD, 538 F.3d 1172, 1197 (9th Cir. 2008).
---------------------------------------------------------------------------

The ``need of the United States to conserve energy'' primarily
functions to encourage NHTSA to set standards ever higher. Many
commenters cast the need of the nation to conserve energy in terms of
the impact of CAFE standards on global warming, and urged NHTSA to give
this factor more weight than the others in its determination of the
maximum feasible standards, in order to

[[Page 14396]]

have the maximum possible beneficial impact. Many of these commenters
suggested that if NHTSA gave more weight to the need of the nation to
conserve energy, it would set standards at levels substantially higher,
for example, than those necessary to raise the industry-wide combined
average to 35 mpg by MY 2015, or at the level at which total costs
equal total benefits, and so forth.
NHTSA recognizes that seriousness of the global warming problem
facing the nation and the world today, and that CAFE is one of many
actions needed around the world to address that problem. NHTSA also
recognizes that the higher CAFE standards are, the less they add to
global warming and other environmental impacts (as demonstrated in our
FEIS), just as the higher CAFE standards are, the less oil the United
States must purchase from abroad, with the corresponding impacts on
consumer costs, national balance of payments, and foreign policy
objectives. The final standards for MY 2011 push CAFE higher and faster
than any set of standards since the earliest years of the program, and,
we believe, likely put the agency on track to meet EISA's MY 2020
requirement of an industry-wide combined average of at least 35 mpg
several years ahead of time.
However, NHTSA reiterates that it is required to consider and
balance the other three factors in addition to the need of the nation
to conserve energy in determining the maximum feasible level of the
standards. While considering the need of the nation to conserve energy
alone might counsel for setting the standards at the levels suggested
by proponents of higher standards, NHTSA does not believe that those
standards would be consistent with economic practicability or
technological feasibility.
Manufacturers commented that even standards set at the proposed
levels would be above the maximum feasible level because, in their
view, NHTSA had overestimated benefits and underestimated costs of the
fuel-saving technologies. Conversely, many other commenters argued that
the proposed standards were below the maximum feasible level because,
in their view, NHTSA had underestimated benefits and overestimated
costs of the technologies.
To respond to these commenters, and aid in resolving their
conflicting views and arguments, NHTSA re-examined all of its
technology assumptions, with the assistance of Ricardo, as described in
Chapter IV. This effort resulted in the agency's revising the
methodology underlying the development of many of its technology
assumptions in ways that the agency believes makes its final rule
analysis substantially more robust than its NPRM analysis. NHTSA is
confident that its revised analysis ensures that the standards adopted
in this final rule are technologically feasible. The effect of other
motor vehicle standards of the Government on fuel economy is
incorporated into the agency's analysis through the baseline and the
manufacturers' product plans.
Yet the question of economic practicability and what level of
stringency would cause manufacturers substantial economic hardship must
be considered not only in terms of technological feasibility, but also
in terms of the economic situation today and as it is anticipated to be
in the period leading up to and including MY 2011. The current economic
realities are markedly different from those at the time of the NPRM;
just several months later, the national and global economies are in
crisis and by all accounts in recession. As the economy contracts and
consumers reassess their personal spending priorities, manufacturers
are increasingly less able to pass the costs of fuel economy-improving
technologies on to consumers. As discussed above in the section on
economic practicability, manufacturers have only so much ability to
absorb those costs, especially given the financial difficulties of some
of the larger manufacturers.
NHTSA additionally notes that the agency has the authority under 49
U.S.C. Sec. 32902(c) to amend the standards for a model year to a
level that the Secretary decides is the maximum feasible average fuel
economy level for that model year. NHTSA has previously used this
authority to lower the MY 1986 passenger car standards because they
were deemed to be beyond maximum feasible. However, NHTSA believes that
the authority to lower CAFE standards in MYs 2011-2020 has been
constricted by the EISA requirements that standards increase annually
and ratably and result in a combined fleetwide average fuel economy of
at least 35 mpg in MY 2020. Thus, being unable to predict the economic
situation in MY 2011, NHTSA is particularly mindful of economic
practicability in establishing the current standards.
For this MY 2011 final rule, in balancing the EPCA factors against
one another and carefully considering the environmental impacts
associated with the various alternatives evaluated, NHTSA continues to
believe that the proper overall balance of all relevant consideration
is the point at which social net benefits are maximized, and results in
CAFE standards that are the maximum feasible for MY 2011. As mentioned
above, in identifying this point for this model year, NHTSA evaluated
more than 100 alternative stringency levels, and for each one,
calculated net benefits in a manner that explicitly accounted for the
need of the nation to conserve energy, and for the benefits of reducing
greenhouse gas emissions. EPCA's overarching purpose of energy
conservation is met by setting standards at the maximum feasible
level--EPCA does not require or even permit that standards be set
beyond the maximum feasible level in order to achieve more energy
conservation. NEPA's purpose is to integrate environmental
considerations into that decision-making process. Setting standards at
the point at which social net benefits are maximized in NHTSA's
analysis results in standards that still increase higher and faster
than any standards since the earliest years of the program, do not
require the addition of technologies that the agency does not believe
will pay for themselves, and result in measurable environmental
benefits. The standards thus fulfill NEPA's objectives and, under EPCA,
the need of the nation to conserve energy, while not imposing
substantial economic hardship on the industry, while taking into
account the feasibility of applying technologies appropriately and
consistent with manufacturers' natural cycles, and the other motor
vehicle standards of the government which manufacturers have to comply
with. NHTSA is exercising its discretion and informed judgment, based
upon the entire record and including the FEIS, as to the precise levels
of CAFE that are the maximum feasible for MY 2011 passenger cars and
light trucks, as mandated by 49 U.S.C. 32902. NHTSA emphasizes that it
will continue to evaluate alternative approaches for determining the
maximum feasible standards for future CAFE rulemakings, and is deciding
no more than that the approach taken for MY 2011 is reasonable under
the circumstances surrounding this rulemaking.

VIII. Safety

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

NHTSA has devoted substantial efforts over the years studying the
relationship between vehicle weight reductions and vehicle injuries and
deaths based upon a broad base of available empirical data. More
recently, NHTSA addressed these issues in a 1997 study, which was
reviewed by the National Academy in its 2002 report.

[[Page 14397]]

This 1997 study, led by Dr. Charles Kahane of NHTSA, ``stands alone as
a comprehensive, scientific analysis of the vehicle weight and safety
issue.'' \441\
---------------------------------------------------------------------------

\441\ Effectiveness and Impact of Corporate Average Fuel Economy
(CAFE) Standards (NRC, 2002), at 118.
---------------------------------------------------------------------------

Thereafter, in a 2003 study, again led by Dr. Kahane, NHTSA
analyzed historical fatality rates in crashes involving MY 1991-1999
vehicles, both passenger cars and light trucks. NHTSA's 2003 study
built upon and updated the earlier 1997 study analyzed by the National
Academy. Among other things, the 2003 study concluded that there is a
``crossover weight,'' a statistically derived weight above which
vehicle weight reductions have a net benefit, instead of a net harm, in
terms of reduced vehicle injuries and deaths to society. The 2003 study
found that this crossover point occurs somewhere in the range of 4,224
pounds to 6,121 pounds. The 2003 study concluded that the most likely
location of the crossover point is 5,085 pounds.
Based upon the findings of the 2003 study, in setting fuel economy
levels in this final rule, NHTSA did not assume that manufacturers
would reduce vehicle weight to improve fuel economy for vehicles of
5,000 pounds or less. NHTSA has taken this approach so that
manufacturers are not encouraged to downsize vehicles in a way that
would be likely to cause a significant number of deaths and injuries.
Conversely, NHTSA has considered reduced vehicle weight in its
standard-setting analysis for vehicles above 5,000 pounds, since the
data indicates no safety penalty is likely for reducing weight for such
vehicles. Nevertheless, the agency will continue to consider whether it
should set future CAFE standards in a manner that assumes manufacturers
may, without compromising highway safety, reduce the mass of vehicles
below 5,000 pounds.

B. Background

As the courts have recognized, ``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, 901 F.2d 107, 120
n. 11 (D.C. Cir. 1990) (``CEI I'') (citing 42 FR 33534, 33551 (June 30,
1977)). The courts have consistently upheld NHTSA's implementation of
EPCA in this manner. See, e.g., Competitive Enterprise Institute v.
NHTSA, 956 F.2d 321, 322 (D.C. Cir. 1992) (``CEI II'') (in determining
the maximum feasible fuel economy standard, ``NHTSA has always taken
passenger safety into account.'') (citing CEI I, 901 F.2d at 120 n.
11); Competitive Enterprise Institute v. NHTSA, 45 F.3d 481, 482-83
(D.C. Cir. 1995) (``CEI III'') (same); Center for Biological Diversity
v. NHTSA, 538 F.3d 1172, 1203-04 (9th Cir. 2008) (upholding NHTSA's
analysis of vehicle safety issues associated with weight in connection
with the MY 2008-11 light truck CAFE rule). As early as 1974, before
Congress even enacted EPCA, the Department of Transportation and EPA
warned Congress of potential adverse safety effects associated with
increasing fuel economy requirements for vehicles. See CEI I, 901 F.2d
at 120 n. 11 (citing 53 FR 39275, 39294 (1988), in turn citing a report
from the Department of Transportation and EPA, ``Potential for Motor
Vehicle Fuel Economy Improvements: Report to the Congress,'' (Oct. 24,
1974), which discussed ``the possible trade offs in the areas of
improved fuel economy, lower emissions, and increased occupant
safety,'' noting that ``a sustained or increased shift to small cars *
* * would likely lead to an increase in the rate of highway deaths and
serious injuries'').
The relationship of vehicle weight to safety has been a contentious
issue for many years. This contentiousness arises, at least in part,
from the difficulty of isolating vehicle weight from other confounding
factors (e.g., driver factors, such as age and gender, other vehicle
factors, such as engine size and wheelbase, and environmental factors,
such as rural/urban). In addition, several vehicle factors are closely
related, such as vehicle mass, wheelbase, track width, and structural
integrity. (Historically, as vehicles got longer and wider, they also
got heavier). The papers that were initially published addressing
vehicle size and safety did not attempt to fully address all of these
factors.
1. NHTSA's Early Studies
It was important for NHTSA to help move the debate forward with
more serious analyses. After all, NHTSA must understand the
relationship between vehicle factors and safety, both for establishing
our safety standards and for establishing our CAFE standards. In July
1991, NHTSA published a study of the effects of passenger car
downsizing during 1970-1982 titled Effect of Car Size on Fatality and
Injury Risk. In this report, NHTSA concluded that changes in the size
and weight composition of the new car fleet from 1970 to 1982 resulted
in increases of nearly 2,000 deaths and 20,000 serious injuries per
year over the number of deaths and serious injuries that would have
occurred absent this downsizing.
Parties reviewing NHTSA's 1991 report identified a number of areas
that could be improved. Suggestions included extending the analyses to
include light trucks and vans, examining finer gradations to
distinguish the relative impacts of weight reduction for the heavier
cars from the lighter cars, analyzing all crash modes, and doing more
to isolate the effects of vehicle mass from behavioral and
environmental variables.
NHTSA agreed that these suggestions would make the study more
useful as a tool for NHTSA decisions on safety and fuel economy
standards. Accordingly, NHTSA developed a more comprehensive analytic
model to encompass all light vehicles, and to allow a finer look at
safety impacts in different segments of the light vehicle population.
This study was NHTSA's first effort to estimate the effect of a 100-
pound weight reduction in each of the important crash modes, and to do
this separately for cars and light trucks. NHTSA recognized that the
findings, whatever they were, would likely be controversial, so the
agency chose to have the draft report peer-reviewed by the National
Academy of Sciences before publishing the document. The Academy
published its review on June 12, 1996.\442\ The report expressed
concerns about the methods used in the analyses and concluded, in part,
``the Committee finds itself unable to endorse the qualitative
conclusions in the reports about projected highway fatalities and
injuries because of large uncertainties associated with the results * *
*.'' These reservations were principally concerned with the question of
whether the NHTSA analyses had adequately controlled for confounding
factors, such as driver age, gender, and aggressiveness.
---------------------------------------------------------------------------

\442\ Transportation Research Board, Letter Report--Committee to
Review Federal Estimates of the Relationship of Vehicle Weight to
Fatality and Injury Risk, Accession Number 00723787. See http://onlinepubs.trb.org/onlinepubs/reports/letrept.html (last accessed
Nov. 11, 2008).
---------------------------------------------------------------------------

NHTSA responded at length to the committee report, and revised its
report to address the committee recommendations. The revised report was
published as a finished document in 1997,\443\ with a new Appendix F
titled ``Summary and Response to TRB's Recommendations on the Draft
Report.''
---------------------------------------------------------------------------

\443\ Kahane, C. J., 1997. Relationships Between Vehicle Size
and Fatality Risk in Model Year 1985-93 Passenger Cars and Light
Trucks, NHTSA Technical Report, DOT HS 808 570. Springfield, VA:
National Technical Information Services.

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

[[Page 14398]]

In this 1997 report, NHTSA concluded that, calibrated from 1985-93
cars and light trucks involved in crashes in calendar years 1989-1993,
there was little overall effect for a 100-pound weight reduction in
light trucks and vans, because increased fatalities of truck occupants
were offset by a reduction of fatalities in the vehicles that collided
with the lighter trucks, whereas a 100-pound reduction in cars was
associated with an increase of about 300 fatalities per year. Based on
this analysis and subsequent activities, the safety consequences of
weight reduction have been considered by NHTSA in deciding upon the
appropriate stringency of each of the new safety and fuel economy
requirements since that time.
NHTSA's 1997 report did not end the public discussion of this
issue. NHTSA followed its standard practice of publishing a notice
announcing the report and inviting public comment on the 1997
report.\444\ In addition to comments to NHTSA's docket, other papers
analyzing the relationship of vehicle weight and safety were published.
For instance, Dr. David L. Greene of the U.S. Department of Energy's
Oak Ridge National Laboratory published a report titled Why CAFE Worked
soon after NHTSA's 1997 report was released.\445\ In section 5.2 of
this report, Dr. Greene's introductory paragraph reads as follows:
---------------------------------------------------------------------------

\444\ See 62 FR 34491 (June 26, 1997).
\445\ Dr. Greene's report is available online at http://www.osti.gov/bridge/servlets/purl/625225-KPQDOu/webviewable/625225.pdf (last accessed October 28, 2008).

Vehicle weight significantly affects the safety of the vehicle's
occupants. Enough credible work has been done on this subject that
this assertion cannot be seriously questioned (citations omitted).
On the other hand, the nature of the trade-off between vehicle mass
and safety is often misunderstood, and the implications for fuel
economy regulations are generally misinterpreted. The relationship
between fuel economy, mass, and public safety is complex, yet it is
probably reasonable to conclude that reducing vehicle mass to
improve fuel economy will require some trade-off with safety. The
rational person will realize that individuals, manufacturers, and
governments are constantly making trade-offs between safety and
cost, safety and other vehicle attributes, safety and convenience,
etc. (citation omitted). An essential feature of a rational economic
consumer is the willingness to trade-off risk for money and, since
---------------------------------------------------------------------------
fuel economy saves money, to trade-off safety for fuel economy.

David L. Greene, 1997, Why CAFE Worked, ORNL/CP-94482, Oak Ridge
National Laboratory, Oak Ridge, Tennessee, at 22 (Emphases added).
It is noteworthy that Dr. Greene's published work explicitly
acknowledges the vehicle weight-safety trade-off documented by NHTSA's
studies of the real world crash data. As to Dr. Greene's concerns that
the trade-off will be misunderstood, NHTSA has been clear on this
point. NHTSA wants to ensure that the public, manufacturers, and
governments are aware of the empirical data that demonstrate that there
is a trade-off between vehicle mass and safety. Parties must understand
this trade-off exists and the size of the trade-off should be
quantified as accurately as possible, so it can be considered as part
of the decision on average fuel economy standards.
2. The 2002 National Academy of Sciences Study
The next significant event in the vehicle weight and safety
discussion began in October 2000, when the Department of
Transportation's Appropriations Act for fiscal year 2001 was signed
into law. That appropriations law included a provision directing DOT to
fund a National Academy of Sciences (NAS) study on the effectiveness
and impacts of CAFE standards. NAS released its final study in January
2002 (hereafter, the 2002 NAS Report).\446\
---------------------------------------------------------------------------

\446\ Effectiveness and Impact of Corporate Average Fuel Economy
(CAFE) Standards (NRC, 2002).
---------------------------------------------------------------------------

As part of a comprehensive look at the impacts of CAFE standards,
it was necessary for the 2002 NAS Report to address the safety impacts
of CAFE standards. In Chapter 2 of the study, NAS looked back at the
safety impacts of past CAFE standards. Among other observations, NAS
recognized that much of the increase in fuel economy between 1975 and
1988 was due to reductions in the size and weight of vehicles, which
led to increased safety risks.\447\ In fact, NAS noted that ``the
preponderance of evidence indicates that this downsizing of the vehicle
fleet resulted in a hidden safety cost, namely travel safety would have
improved even more had vehicles not been downsized.'' \448\
---------------------------------------------------------------------------

\447\ Id., at 24.
\448\ Id., at 69-70.
---------------------------------------------------------------------------

The committee then focused its analysis on the 1997 NHTSA analysis
led by Dr. Kahane. Since there are many published papers on this
subject in the literature, the question must be asked, ``Why did the
National Academy of Sciences choose the NHTSA analyses out of all the
published papers?'' The NAS committee clearly and unequivocally
answered this in its report, where it found that ``NHTSA's fatality
analyses are still the most complete available in that they accounted
for all crash types in which vehicles might be involved, for all
involved road users, and for changes in crash likelihood as well as
crashworthiness.'' \449\ The NAS committee went on to find that ``The
April 1997 NHTSA analyses allow the committee to reestimate the
approximate effect of downsizing the fleet between the mid-1970s and
1993.'' In other words, a committee of the National Academy of Sciences
found that NHTSA's analyses were the most thorough of all the published
papers, and that NHTSA's analyses were sufficiently persuasive and
rigorous to permit a reasonable estimate of the safety penalty
associated with downsizing the fleet. In the committee's words:
---------------------------------------------------------------------------

\449\ Id., at 27.

Thus, the majority of this committee believes that the evidence
is clear that past downweighting and downsizing of the light-duty
vehicle fleet, while resulting in significant fuel savings, has also
resulted in a safety penalty. In 1993, it would appear that the
safety penalty included between 1,300 and 2,600 motor vehicle crash
deaths that would not have occurred had vehicles been as large and
heavy as in 1976.\450\
---------------------------------------------------------------------------

\450\ Id., at 28.

While this look back is informative, the greater challenge is to use
this understanding of the past to guide future actions. Again the NAS
---------------------------------------------------------------------------
committee offered clear guidance in this regard. The NAS Report said:

In summary, the majority of the committee finds that the
downsizing and weight reduction that occurred in the late 1970s and
early 1980s most likely produced between 1,300 and 2,600 crash
fatalities and between 13,000 and 26,000 serious injuries in 1993.
The proportion of these casualties attributable to CAFE standards is
uncertain. It is not clear that significant weight reduction can be
achieved in the future without some downsizing, and similar
downsizing would be expected to produce similar results. Even if
weight reduction occurred without any downsizing, casualties would
be expected to increase. Thus, any increase in CAFE as currently
structured could produce additional road casualties, unless it is
specifically targeted at the largest, heaviest light trucks.
For fuel economy regulations not to have an adverse impact on
safety, they must be implemented using more fuel-efficient
technology. Current CAFE requirements are neutral with regard to
whether fuel economy is improved by increasing efficiency or by
decreasing vehicle weight. One way to reduce the adverse impact on
safety would be to establish fuel economy requirements as a function
of vehicle attributes, particularly vehicle weight (see Chapter 5).
* * *

[[Page 14399]]

If an increase in fuel economy is effected by a system that
encourages either downweighting or the production and sale of more
small cars, some additional traffic fatalities would be expected.
Without a thoughtful restructuring of the program, that would be the
trade-off that must be made if CAFE standards are increased by any
significant amount.\451\
---------------------------------------------------------------------------

\451\ Id., at 77.

This discussion by the NAS committee was an impetus for NHTSA to use
its existing statutory authority to reform its light truck CAFE
program. This involved moving away from the single flat standard for
light trucks, because those standards' neutrality with regard to
decreasing vehicle weight, in lieu of increasing efficiency to improve
fuel economy, means they necessarily have a potential safety trade-off.
In place of the single flat standard, NHTSA established an attribute-
based standard that is a function of the vehicle's footprint. Under
this attribute-based standard, the fuel economy target for a vehicle
increases as the vehicle is downsized. As long as vehicle manufacturers
have to expend the same levels of advanced technology for each
footprint size, there is no incentive to change the vehicle to get a
less-demanding fuel economy target. Thus, the necessary safety trade-
off under the single flat standard system does not arise under an
attribute-based system. That is not to suggest there are no safety
consequences if vehicle mass is reduced--there are, as documented by
NHTSA and explained by the National Academy of Sciences. However, the
standards are no longer structured to confer an advantage to a
manufacturer that makes downsizing trade-offs. This is a key feature of
the attribute-based fuel economy program NHTSA implemented for light
trucks.
Two of the 13 NAS committee members dissented on the safety
issues.\452\ The dissent acknowledges that, ``Despite these
limitations, Kahane's analysis is far and away the most comprehensive
and thorough analysis'' of the safety issue.\453\ The dissent's primary
disagreement with the other 11 committee members centers on the large
uncertainties associated with NHTSA's analyses. The dissent
acknowledges NHTSA's efforts in the study led by Dr. Kahane to quantify
the safety penalty, but concludes that the number of factors in real
world crashes is so large and the controls used by the analytical
models introduce so much uncertainty that it is not possible to
definitively make any statements about a safety penalty.\454\
---------------------------------------------------------------------------

\452\ One of the two dissenters was Dr. David Greene, the author
of the 1997 report Why CAFE Worked, discussed supra.
\453\ Effectiveness and Impact of Corporate Average Fuel Economy
(CAFE) Standards, at 118.
\454\ 2002 NAS Report, at Appendix A.
---------------------------------------------------------------------------

It should also be noted that the majority of the committee
responded to the dissent by saying:

However, the committee does not agree that these concerns should
prevent the use of NHTSA's careful analyses to provide some
understanding of the likely effects of future improvements in fuel
economy, if those improvements involve vehicle downsizing. The
committee notes that many of the points raised in the dissent (for
example, the dependence of the NHTSA results on specific estimates
of age, sex, aggressive driving and urban vs. rural location) have
been explicitly addressed in Kahane's response to the [NAS] review
and were reflected in the final 1997 report. The estimated
relationship between mass and safety were (sic) remarkably robust in
response to changes in the estimated effects of these parameters.
The committee also notes that the most recent NHTSA analyses yield
results that are consistent with the agency's own prior estimates of
the effect of vehicle downsizing (citations omitted) and with other
studies of the likely effects of weight and size changes in the
vehicle fleet (citation omitted). The consistency over time and
methodology provides further evidence of the robustness of the
adverse safety effects of vehicle size and weight reduction.\455\
---------------------------------------------------------------------------

\455\ Id., at 27-28.

In addition, the NAS Committee unanimously agreed that NHTSA should
undertake additional research on the subject of fuel economy and
safety, ``including (but not limited to) a replication, using current
field data, of its 1997 analysis of the relationship between vehicle
size and fatality risk.'' \456\ NHTSA concurred with this
recommendation, and thereafter, NHTSA undertook a replication of the
1997 study, using the additional field data that had become available:
NHTSA's 2003 study, led again by Dr. Kahane.
---------------------------------------------------------------------------

\456\ Id., at 6.
---------------------------------------------------------------------------

As Congress was developing the bill that ultimately became EISA,
Congress considered NHTSA's reformed light truck CAFE program
established under existing NHTSA authority in deciding what additional
CAFE authority NHTSA should be given and what constraints should be put
on that authority. Ultimately, EISA was enacted, which mandates that
NHTSA establish an attribute-based CAFE system for cars and light
trucks.
3. NHTSA's Updated 2003 Study
In October 2003, NHTSA published its updated study.\457\ NHTSA's
update again used regression models to calibrate crash fatality rates
per billion miles for model year 1991-1999 passenger cars, pickup
trucks, SUVs, and vans during calendar years 1995-2000. These rates
were calibrated separately by vehicle weight, vehicle type, driver age
and gender, urban/rural and other vehicle, driver, and environmental
factors. One major point of note is that, as the analyses get more
sophisticated and able to differentiate the safety trade-off among
different types of vehicles, each analysis NHTSA has ever conducted
continues to show that there is a safety trade-off for the existing
light vehicle fleet as vehicle mass is reduced.
---------------------------------------------------------------------------

\457\ Charles J. Kahane, ``Vehicle Weight, Fatality Risk, and
Crash Compatibility of Model Year 1991-99 Passenger Cars and Light
Trucks,'' DOT HS 809 662, October 2003. This report is available
online at http://www.nhtsa.dot.gov/cars/rules/regrev/evaluate/pdf/809662.pdf (last accessed Oct. 28, 2008).
---------------------------------------------------------------------------

After controlling for vehicle, driver and environmental factors,
the new study found that:
The association between vehicle weight and overall crash
fatality rates in the heavier 1991-1999 light trucks and vans was not
significant. Thus, there was no safety penalty for reducing weight in
these vehicles.
In the other three groups of 1991-1999 vehicles--the
lighter light trucks and vans, the heavier cars, and especially the
lighter cars--fatality rates increased as weights decreased.
[cir] Lighter light trucks and vans would have an increase of 234
fatalities per year per 100-pound weight reduction.
[cir] Heavier cars would have an increase of 216 fatalities per
year per 100-pound weight reduction.
[cir] Lighter cars would have an increase of 597 fatalities per
year per 100-pound weight reduction.
There is a crossover weight, above which crash fatality
rates increase for heavier light trucks and vans, because the added
harm for other road users from the additional weight exceeds any
benefits for the occupants of the vehicles. This occurs in the interval
of 4,224 pounds to 6,121 pounds, with the most likely single point
being 5,085 pounds. The fatality rate changes by less than 1 percent per 100-pound weight increase over this range.
The draft report was reviewed before publication by experts in
statistical analysis of crash data and related vehicle weight and
safety issues: Drs. James H. Hedlund, Adrian K. Lund, and Donald W.
Reinfurt. The review process is on record--the comments on the draft
are available in Docket NHTSA-2003-16318-0004. Consistent with NHTSA's
standard practice, NHTSA published its analysis and sought public
comment on it.\458\ NHTSA then docketed a response

[[Page 14400]]

to the public comments on November 9, 2004.\459\ There were three
principal criticisms of NHTSA's updated study, which are summarized
below together with NHTSA's response.
---------------------------------------------------------------------------

\458\ See 68 FR 66153 (Nov. 5, 2003).
\459\ Docket No. NHTSA-2003-16318-0016.
---------------------------------------------------------------------------

(1) The analyses only considered the relationship of vehicle mass
to fatality risk. It did not consider other attributes of vehicle size,
such as track width and wheelbase. Dynamic Research Inc. (DRI)
presented analyses that included all three of these variables, and its
analysis indicated that mass was harmful (i.e., reducing it would be
positive for safety) while track width and wheelbase were beneficial.
If true, this meant that weight reduction would benefit safety if track
width and wheelbase were maintained.
Agency response: The DRI results were strongly biased as a
consequence of including 2-door cars in the analysis. Two-door muscle
and sports cars stand apart from all other groups of cars by having a
short wheelbase relative to their weight. They also have by far the
highest fatality rates of all cars, for reasons mostly related to the
drivers. The regression analysis immediately identifies short wheelbase
with high weight as a disastrous combination. Being a regression, it
tells you that you can make any car safer, including 4-door cars, by
increasing wheelbase and/or reducing weight. This bias is amplified by
treating highly correlated size attributes as independent factors in
the model.
To clarify this latter concern, NHTSA's analyses are calibrating
the historical relationship of vehicle mass and fatality risk. In this
type of analysis, ``vehicle mass'' incorporates not only the effects of
vehicle mass per se, but also the effects of many other size attributes
that are historically and/or causally related to mass, such as
wheelbase, track width, and structural integrity. If historical
relationships between mass and these other size attributes continue,
future changes in mass will continue to be associated with similar
changes in fatality risk. If the historical relationships change, one
will be able to analyze the mass and size attributes independently, but
it will take some years to get such data.
However, as a check of DRI's suggestion that mass was not as
significant as track width and wheelbase, NHTSA ran both its 1997 and
2003 analyses of 4-door cars only with mass, track width, and wheelbase
as separate variables. When we did this, we saw that mass continued to
have a substantial effect, even independent of track width and
wheelbase in all crash modes except rollovers. In fact, only curb
weight had a consistent, significant effect in both the data sets used
in NHTSA's 1997 analyses and his 2003 analyses. This was publicly
reported over four years ago, in NHTSA's November 2004 response to the
comments on his 2003 analyses.
After considering the DRI submission, NHTSA made no change to the
findings in its 2003 report.
(2) Marc Ross, of the University of Michigan, and Tom Wenzel, of
Lawrence Berkeley National Laboratory, commented that vehicle
``quality'' has a much stronger relationship with fatality risk than
vehicle mass. They suggest that lighter cars have a higher fatality
risk on average because they are usually the least expensive cars and,
in many cases, the ``poorest quality'' cars. If true, weight reduction
is fairly harmless, as long as the lighter cars are of the same
``quality'' as the heavier cars they replace.
Agency response: In their analyses, Ross and Wenzel did not adjust
their rates for driver age and gender. Absent those adjustments, the
analysis mingles the effects of what sort of people buy and drive the
car with the intrinsic safety of the car, making its conclusions about
the intrinsic safety of the car suspect, at best. On average, and
considering all crash modes as well as both weight groups of cars,
controlling for price has little effect on the weight-safety
coefficients in NHTSA's analyses. As a final check, NHTSA ran an
analysis of head-on collisions of two 1991-99 cars, since this is a
pure measure of the vehicle's performance. The results were that the
more expensive vehicle's driver had a slightly higher fatality risk
than the less expensive vehicle's driver, although the difference was
not statistically significant. This indicates that the lower fatality
rates for more expensive cars in Ross and Wenzel's study are not due to
expensive cars' superior performance in crashes.
Accordingly, NHTSA the Ross and Wenzel comment did not warrant a
change in NHTSA's report.
(3) The Alliance of Automobile Manufacturers, DaimlerChrysler,
William E. Wecker Associates, and Environmental Defense all question
the accuracy and robustness of the report's calculation of a
``crossover weight,'' above which weight reductions have a net benefit,
instead of harm. NHTSA's report said that this crossover point occurs
somewhere in the range of 4,224 pounds to 6,121 pounds (this is the
``interval estimate''); with the most likely location of the crossover
point at 5,085 pounds (this is the ``point estimate''). Wecker
suggested that NHTSA's interval estimate of from 4,224 to 6,121 pounds
only takes sampling error into account. Wecker identified additional
factors that make this estimate not robust, and suggests that the
interval estimate should be wider. The Alliance and DaimlerChrysler
suggested that the crossover weight could be substantially greater than
5,085 pounds, in which case weight reductions for light trucks and vans
in the 5-6,000 pound range would have detrimental net effects on
safety. Conversely, Environmental Defense believes the crossover weight
is well below 5,085 pounds, in which case there would be opportunities
to reduce vehicle mass in many light trucks and vans without any safety
penalty.
Agency response: While NHTSA's report estimates the crossover
weight, the report expressly acknowledged the uncertainty about the
exact location of the crossover weight. That is why the report
highlighted the interval estimate, instead of the point estimate. It is
important to note that the net weight-safety relationship remains close
to zero for many hundreds of pounds above and below the point estimate
for the crossover weight. As shown on pages 163-166 of NHTSA's 2003
report, the crash fatality rate changes by less than 1
percent per 100-pound weight increase over a 1,200 pound range on
either side of the point estimate for the crossover weight. The data
and analysis in the report will not show a statistically significant
relationship, in either direction, between weight and safety for the
heavier light trucks and vans. That is the important information the
report puts in front of the decision maker--that the robust
relationship between weight and safety that exists for most vehicles
does not exist for the heavier light trucks and vans. With the
available data, one cannot develop a precise point estimate for this
crossover weight.
Thus, NHTSA determined that its report did not require changes in
response to these comments.
4. Summary of Studies Prior to This Rulemaking
Several important observations can be made based on the various
studies performed in the years preceding this rulemaking on the
relationship between safety and vehicle weight in the context of fuel
economy:
1. The question of the effect of weight on vehicle safety is a
complex question that poses serious analytic challenges. The issue has
been addressed in the literature for more than two decades.
2. NHTSA has been actively engaged in this discussion.
3. All of NHTSA's analyses have found that there is a strong
correlation

[[Page 14401]]

between vehicle mass and vehicle safety for cars and light trucks, up
to a certain weight range.
a. Given the historic fact that vehicles have been made primarily
of steel, there are a number of other parameters that are highly
correlated with vehicle mass. These factors include vehicle size (e.g.,
track width and wheelbase).
b. The precise weight point at which the safety penalty ends is
difficult to pinpoint, because the fatality rate curve is so flat at
that point. NHTSA can say with high confidence that the crossover point
is in the range of 4,224 to 6,121 pounds. There are safety penalties
for reductions of weight below this crossover weight. There is no
reduced societal safety for reducing weight on vehicles that weigh more
than this crossover point, because the reduced risk for other road
users would exceed any reduced benefits for the occupants of the heavy
vehicle.
4. The National Academy of Sciences has twice peer-reviewed NHTSA's
work in this area. The 2002 NAS Report found that there was a safety
penalty for reducing weight in all but the heaviest light trucks. The
study stated that ``the downsizing and weight reduction that occurred
in the late 1970s and early 1980s most likely produced between 1,300
and 2,600 crash fatalities in 1993.''
a. Neither the Academy nor NHTSA is suggesting that all of the
downsizing and weight reduction were a direct response to the CAFE
standards. It is difficult to objectively quantify what amount of
downsizing was a response to CAFE standards, and what was a response to
other real or perceived market forces. However, the Academy stated that
some of the downsizing was in response to CAFE standards.
b. NHTSA does not accord the safety dissent, which represented the
views of two of the 13 committee members, the same stature as the views
expressed in the body of the report, which represents the views of 11
of the 13 committee members.
5. In response to the National Academy's unanimous 2002
recommendation, NHTSA updated its previous work on weight and safety in
2003 to reflect the most recent data. This update found that the trends
were similar, and if anything the safety penalty was now higher for
reducing weight in small cars. This update also found that there is a
crossover weight, which occurs somewhere between 4,264 and 6,121
pounds, with a point estimate at 5,085 pounds, above which there is no
safety penalty for reducing vehicle weight. This is because the added
harm for other road users from the additional weight exceeds any
benefits for the occupants of the vehicles. NHTSA embodied this finding
in its CAFE rulemaking by restricting materials substitution in its
development of stringency levels to vehicles over 5,000 pounds.
6. NHTSA published its update and asked for public comments on the
updated document.
7. In response to the request for comments, NHTSA received two
recent studies to review. After reviewing these studies, NHTSA
concluded that both studies had inadvertently introduced significant
biases in their analyses. NHTSA made public its review of these studies
in November 2004.
a. One of these studies was a 2002 study by DRI that purported to
analyze mass, track width, and wheelbase as independent variables.
DRI's 2002 paper indicated that reducing mass would be beneficial,
while reducing track width and wheelbase would be harmful. If true,
this meant that weight reduction would benefit safety if track width
and wheelbase were maintained. As discussed above, NHTSA concluded that
the DRI results were strongly biased as a consequence of including 2-
door cars in the analysis and explained why this was so.\460\
---------------------------------------------------------------------------

\460\ As discussed below, DRI acknowledged this observation to
be accurate and submitted a new 2005 analysis that excludes 2-door
cars in response to NHTSA's suggestions.
---------------------------------------------------------------------------

b. The other of these studies was a 2002 analysis by Ross and
Wenzel that suggested that lighter cars have a higher fatality risk
because they are the least expensive and, in many cases, the poorest
quality cars. The implication of this analysis was that weight
reduction is fairly harmless, as long as the lighter cars are of the
same ``quality'' as the heavier cars they replace. NHTSA noted that the
Ross and Wenzel analyses did not adjust for driver age and gender.
Absent those adjustments, the analysis mingles the effects of what sort
of people buy and drive the car with the intrinsic safety of the car,
making its conclusions about the intrinsic safety of the car suspect,
at best.

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

With this background, NHTSA will now address the comments it
received on safety in response to its NPRM. First, however, it is
important to understand how NHTSA has embodied the accumulated
knowledge and expertise from the studies explained above in this final
rule. The rule is a performance standard that does not dictate the way
manufacturers satisfy the standard. It does not preclude manufacturers
from reducing the weight of future vehicles. Instead, in calculating
its stringency standards, NHTSA has not considered weight-reducing
materials substitution as a methodology for improving fuel economy of
vehicles of 5,000 pounds or less. NHTSA has done so based on available
data in order not to encourage downsizing of vehicles in a way that
would be likely to cause a significant number of deaths and injuries.
At the same time, for vehicles above 5,000 pounds, where the data
indicate no safety penalty is likely for reducing weight, NHTSA has
considered materials substitution in its standard-setting analysis. The
effect of this is to encourage weight reductions to improve fuel
economy where doing so is not likely to endanger lives. We believe this
careful drawing of a data-based line in our analysis is the best way to
serve both safety and fuel economy.
As an overview, many commenters questioned the continuing validity
of the 2002 NAS Report, the 2003 NHTSA study led by Dr. Kahane, or
both. NHTSA notes both these reports were based on considerable
empirical data and thoroughly peer-reviewed. More recent studies will
need to be of a very high quality for NHTSA to adopt them in lieu of
the the 2002 NAS Report and the 2003 NHTSA analyses.
1. Views of Other Government Agencies
After our proposed rule was published and after the comment period
had closed for the proposal, EPA published an Advance Notice of
Proposed Rulemaking (ANPRM) on regulating greenhouse gas emissions
under the Clean Air Act.\461\ The ANPRM was accompanied by a Vehicle
Technical Support Document--Mobile Source.\462\ The Technical Support
Document contains a discussion on pp. 15-17 of the safety issues. EPA
provided a brief summary of the issues involved and cited no new work
in that area.
---------------------------------------------------------------------------

\461\ 73 FR 44354 (July 30, 2008).
\462\ Docket No. EPA-HQ-OAR-2008-0318-0084.
---------------------------------------------------------------------------

Agency response: The work cited by EPA has already been addressed
by NHTSA within the discussion of the 2002 NAS study and within NHTSA's
responses to other comments to the NPRM docket regarding the Wenzel and
Ross study.
CARB also commented on the relationship between vehicle weight and
safety. CARB stated that the NHTSA study led by Dr. Kahane ``assumed
that weight and size are completely correlated,'' and argued that NHTSA
should have focused more closely on

[[Page 14402]]

the DRI reports and other recent studies, which it said concluded that
``safety is primarily a design issue, not a weight issue.'' CARB
included with its comments an ``expert report by David Greene,'' which
it said concluded after reviewing the existing research that ``there
has been no relationship between fuel economy and traffic fatalities
and that there should be none in the future.''
CARB also commented that it believed that NHTSA was inconsistent by
restricting materials substitution in its analysis to only vehicles
over 5,000 pounds, but also stating in the NPRM that footprint-based
standards would facilitate the use of lightweight materials that are
not yet cost-effective, which could eventually improve both safety and
fuel economy. CARB argued that ``NHTSA should expand the applicability
of weight reduction technologies to vehicles under 5,000 pounds,''
because weight reduction can be ``a viable technology if accompanied by
proper vehicle design to assure vehicle safety is not compromised.''
Agency response: The available empirical data are derived from
vehicles that are in use on the public roads, and weight and size are
highly correlated in those vehicles. Underlying this, larger vehicles
contain more steel and weigh more. NHTSA has not and is not now
claiming that weight and size are completely correlated. Thus, for any
given curb weight, there may not be some variations in the track widths
and wheelbases of vehicle make-models at that curb weight. However,
these variations are not random--they are nearly always correlated with
the vehicle's market class or design group.
NHTSA agrees that, conceptually, substitution of strong,
lightweight materials should be a less harmful way to downweight than
reducing the size of the vehicle. CARB has not supported its concept by
presenting information on how this would be achieved or the
consequences on the feasibility and practicability of doing so. There
is not yet sufficient empirical evidence to conclude that material
substitution is harmless, let alone beneficial to safety. NHTSA is
proceeding cautiously and erring on the side of the safety of the
public until there is more convincing evidence that requiring
investments by vehicle makers in greater fuel efficiency through use of
lightweight materials will not have the significant unintended
consequence of simultaneously reducing the safety protection afforded
to the American people, and attendant deaths as have occurred in the
past.
As for the DRI reports, NHTSA reviewed its 2002 report and publicly
responded in 2004 that the DRI results were strongly biased as a result
of including 2-door cars in the analysis. To DRI's credit, they
reviewed their report and agreed that this flaw needed to be corrected.
DRI submitted a new study which, they say, limited some of their
analyses to 4-door cars excluding police cars. DRI further claimed that
it could now mimic NHTSA's logistic regression approach for an analysis
of model year 1991-98 4-door cars in calendar year 1995-1999 crashes.
DRI claims that its new analysis still shows results directionally
similar to its earlier work--increased risk for lower track width and
wheelbase, reduced risk for lower mass--although DRI acknowledges that
the wheelbase and mass effects are no longer statistically significant
after removing the 2-door cars from the analysis.
NHTSA does not accept the updated DRI analysis because it contains
results that are inconsistent with results NHTSA has seen and, in light
of this, DRI has not justified its results. For example in MY 1991-
1998, the average car weighing x + 100 pounds had a track width that
was 0.34 inches larger and a wheelbase that was 1.01 inch longer. Thus,
we could say that a ``historical'' 100-pound weight reduction would
have been accompanied by a 0.34 inch track width reduction and a 1.01
inch wheelbase reduction. However, using a reasonable check, if one
dissociates weight, track width, and wheelbase and treats them as
independent parameters, DRI's logistic regression of model year 1991-
1998 4-door cars excluding police cars attributes the following
effects:
[GRAPHIC] [TIFF OMITTED] TR30MR09.077

Now if we apply NHTSA's logistic regression analyses to NHTSA's
database, exactly as described in the agency's response to comments on
its 2003 report, except for limiting the data to model years 1991-98,
instead of 1991-99, the results are not at all like DRI's. For NHTSA,
mass still has the largest effect, exceeding track width, and it moves
in the expected direction.
[GRAPHIC] [TIFF OMITTED] TR30MR09.078

[[Page 14403]]

NHTSA obtains its estimates by adding the results from 12
individual logistic regressions: six types of crashes multiplied by two
car-weight groups (less than 2,950 pounds; 2,950 pounds or more).\463\
DRI has apparently not followed the same procedures, based on the
widely differing results.
---------------------------------------------------------------------------

\463\ See, e.g., Kahane (2003), Table 2 on P. xi.
---------------------------------------------------------------------------

Based on the evidence before us now, NHTSA is not persuaded by the
DRI analysis. Even though NHTSA's analyses continue to attribute a much
larger effect for mass than for track width or wheelbase in small cars,
NHTSA has never said that mass alone is the single factor that
increases or decreases fatality risk. There may not be a single factor,
but rather it may be that mass and some of the other factors that are
historically correlated with mass, such as wheelbase and track width,
together are the factors. We can say that NHTSA's analyses do not
corroborate the 2005 DRI analysis, suggesting that mass can be reduced
without safety harm and perhaps with safety benefit.
We would note that comparatively, it would seem the least harmful
way to reduce mass would be from materials substitution, where one
replaces a heavy material with a lighter one that delivers the same
performance, or other designs that reduce mass while maintaining
wheelbase and track width. There is an absence of supporting data for
the thrust of the 2005 DRI analysis. We cannot analyze data on that
yet, because those changes have not happened to any substantial number
of vehicles. We do know that mass has historically been correlated with
wheelbase and track width, and that reductions in mass have also
reduced those other factors. Until there is a more credible analysis
than the 2005 DRI study that demonstrates that mass does not matter for
safety, NHTSA concludes it should be guided by the decades' worth of
studies suggesting that mass is the most important of the related
factors.
The report by Dr. David Greene that was submitted by CARB as part
of its comments is a document submitted by Dr. Greene when he was an
expert witness in a lawsuit.\464\ We note that Dr. Greene was one of
the two dissenters to the 2002 NAS report. Dr. Greene reiterates the
arguments in his dissent to the 2002 NAS Report; namely, mass alone
should not have any safety effect except in crashes where two vehicles
collide with each other (which undisputedly occurs, with fatal
results). In light of this view, all the empirical data showing higher
fatality rates for lighter vehicles in single-vehicle crashes and
elsewhere are due to something other than mass. Therefore, we conclude
mass may be reduced without harming safety. But, as explained above,
mass has been historically correlated with other factors, such as size
and structural integrity. Unless NHTSA can determine based on data what
the significant parameters are and demonstrate ways to reduce mass
without affecting the significant parameters, NHTSA cannot simply
ignore the empirical data showing higher fatality rates for lighter
vehicles.
---------------------------------------------------------------------------

\464\ This is the same Dr. Greene who concluded in his 1997
report, cited above, that ``it is probably reasonable to conclude
that reducing vehicle mass to improve vehicle economy will require
some trade-off with safety.''
---------------------------------------------------------------------------

Dr. Greene's expert report refers to the Ross and Wenzel and DRI
studies, which have been discussed at length above. Dr. Greene also
refers to a study titled ``The Effect of Fuel Economy on Automobile
Safety: A Reexamination.'' \465\ This report is a long-term (1966-2002)
time-series analysis of the annual number of crash fatalities in the
United States, the average fuel economy of the vehicles on the road
that year, and some other factors such as the price of fuel, the
national speed limit, population, and annual vehicle miles traveled.
The conclusion is that national fatalities did not increase, in fact
tended to decrease, from the early 1970s forward, while fuel economy
improved. Therefore, fuel economy has not had an adverse effect on
safety. Suffice it to say that this is an exceedingly ``macro'' level
to examine the relationships between fuel economy and fatality risk.
Long-term time-series analyses are unlikely to separate the effects of
downsizing for the other demographic, economic, and technological
trends that have had an impact on fatality rates over the period. For
instance, seat belt use has risen from 14 percent to 82 percent, many
life-saving safety features (e.g., front and side airbags) have been
added to vehicles, impaired driving is not as accepted, and so forth.
It is general knowledge that traffic fatalities are now lower than
1970, primarily as a result of the major safety advances just
mentioned. The reexamination ignores the effects of these variables and
leaps to the conclusion that fuel economy did not have an adverse
effect on safety--a conclusion that is at odds with the 2002 NAS study.
But the relevant question in the safety/fuel economy context is,
``Would fatalities have been even lower if cars had not been
downsized?'' To analyze that relationship accurately, it would be
necessary to compare the fatality risk of small and large vehicles, not
just the trend in total fatalities, over this long period.
---------------------------------------------------------------------------

\465\ Sanjana Ahmad and David L. Greene, 2005, ``Effect of Fuel
Economy on Automobile Safety: A Reexamination,'' Transportation
Research Record 1941, Transportation Research Board of the National
Academy of Sciences.
---------------------------------------------------------------------------

With respect to CARB's suggestion that NHTSA expand the
applicability of weight reduction technologies to vehicles under 5,000
pounds, because weight reduction can be accompanied by proper vehicle
design to assure vehicle safety is not compromised, the agency repeats
its general view that there may be possibilities in the use materials
substitution and other processes to reduce weight without reducing
vehicle safety. This should be explored. However, there are no data or
analyses that show this to be true today. NHTSA specifically does not
find either the 2002 or 2005 DRI analyses to be demonstrative, since
the former study was strongly biased by including 2-door cars and the
latter study says it mimicked NHTSA's database and NHTSA's analysis
method, but got results that are substantially different. Until NHTSA
can see thorough evidence using a significant and valid empirical data
set, which is yet to be presented, that weight reduction can be
accomplished without safety trade-offs, the agency will continue to set
its CAFE standards at levels that do not encourage weight reduction in
vehicles that weigh less than the safety crossover identified in
NHTSA's 2003 analyses. We recognize that given the lives at stake, this
reflects caution, but we believe it is also prudent.
We also note that the California CO2 emissions standards
for which California requested a waiver under the Clean Air Act sets up
a program that uses the same ``flat standards'' approach for its
standards that the 2002 NAS Report found gives rise to the safety
concerns identified in that report. The consequences of this structure
for the program have been identified by 2002 report: ``If an increase
in fuel economy is effected by a system that encourages either
downweighting or the production and sale of more small cars, some
additional traffic fatalities would be expected. Without a thoughtful
restructuring of the program, that would be the trade-off that must be
made if CAFE standards are increased by any significant amount.'' \466\
---------------------------------------------------------------------------

\466\ 2002 NAS Report at 77.
---------------------------------------------------------------------------

2. Comments From Other Parties
Several comments were received from parties other than government
agencies on the weight-safety issue. NRDC argued that NHTSA should not
have relied on

[[Page 14404]]

only on its 2003 study led by Dr. Kahane, because Wenzel and Ross had
commented to NHTSA's 2005 light truck CAFE NPRM that ``the relationship
between car weight and safety is tenuous at best,'' and because Dr.
Kahane himself stated that his study

``does not claim that mass per se is the specific factor that
increases or decreases fatality risk* * *'' ``In that sense, it is
irrelevant whether mass, wheelbase, track width or some other
attribute is the principal causal factor on fatality risk. If you
decrease mass, you will also tend to reduce wheelbase, track width
and other dimensions of size.''

NRDC stated that this may no longer be correct for future vehicle
designs, and argued that NHTSA had recognized as much in the NPRM by
stating that high-strength, light-weight materials may help
manufacturers reduce vehicle weight without reducing size or safety.
NRDC further argued that vehicle design, ``which could in fact be
enhanced with lightweight materials,'' is much more relevant to safety.
Thus, NRDC concluded that NHTSA should apply material substitution to
lighter vehicles in its analysis.
The comments received from Wenzel and Ross stand in direct
contradiction to the 2002 NAS Report, which said, ``Thus, the majority
of this committee believes that the evidence is clear that past
downweighting and downsizing of the light-duty vehicle fleet, while
resulting in significant fuel savings, has also resulted in a safety
penalty.'' The Wenzel and Ross comment was also based on their study,
discussed earlier, which NHTSA said in 2004 is flawed, since it did not
control for driver age and gender. Thus, the findings of Wenzel and
Ross are not helpful since they mingle the effects of what sort of
people buy and drive the car with the intrinsic safety of the car,
making its conclusions about the intrinsic safety of the car suspect,
at best.
NRDC is correct insofar as NHTSA has not claimed that mass alone is
the single factor that is entirely responsible for the safety factor,
and in the future there may be demonstrations that weight (the amount
has not been identified) can be removed without adversely affecting
safety. However, as we said in response to the same point from CARB,
when setting CAFE standards, NHTSA will continue to limit its
consideration of weight reduction to vehicles over 5,000 pounds until
there is convincing empirical evidence that there are no negative
safety consequences from removing weight from lighter vehicles.
Sierra Club et al. also commented that vehicle design is more
important than weight to vehicle safety. This is largely the same point
made by other commenters. The point is very general, and there are no
analyses that demonstrate this proposition is true. Sierra Club also
argued that NHTSA should not use its retrospective 2003 study to
analyze future standards, because of the design improvements and
because ``[s]ubstitution of light weight, high strength materials such
as low alloy steels and aluminum will decrease both primary and
secondary vehicle weight while maintaining vehicle size and increasing
crashworthiness.'' NHTSA believes that it would be irresponsible to set
standards by ignoring the available data, based on the hope that a
promising development will come to fruition. The available data
indicate that there is a safety penalty for weight reductions in
vehicles under a certain weight.
Sierra Club et al. also stated that ``The industry's long history
of consistent opposition to the CAFE law has relied on a flawed size/
safety argument,'' which it suggested also affected Congress' action in
establishing EISA. Sierra Club argued, however, that that argument was
disproven by the fact that manufacturers can obviously build vehicles
that ``demonstrate size, safety, and fuel economy performance'' such as
the Prius or the hybrid Escape. These vehicles tend to be cited for use
of hybrid propulsion systems. They often have heavy battery systems but
lighter engines. In any event, manufacturers continue to offer a full
range of vehicles, and they strive to deliver safety, fuel economy, and
value in all of their vehicles. However, the available data at the
level of the entire fleet demonstrate that, below a certain weight
range, there has been a safety penalty from downweighting vehicles. The
introduction of new vehicle models does nothing to change that
historical record and it is unknown how the new models will affect the
fleet wide fatality risk in future years.
Sierra Club additionally repeated the oft-stated assertion that
smaller cars continue to become safer as manufacturers ``apply side
airbags, design vehicles to better protect occupants, and utilize light
weight materials that enhance safety.'' It is of course true that, with
the advent of important safety features like side air bags and
Electronic Stability Control, combined with higher levels of seat belt
use, today's small vehicles should have a better safety record than
those produced a decade ago. However, that is not really the question
that is being considered in deciding on the safety penalty for weight
reduction--the question is whether today's small vehicles have a safety
penalty compared to today's vehicles that weigh 100 pounds more. Unless
there are some safety technologies that are offered only on small cars,
or that are more effective on small cars, the additional safety
technologies will not affect the relative safety performance between
vehicles with a 100-pound weight difference. It is proper to compare
vehicles of the same time period, not a light vehicle today with air
bags and a heavy vehicle of years ago without air bags. If offered
today, the heavy vehicle would have air bags and better safety
performance.
Sierra Club also argued that a study by the Center for Auto Safety
and UCS ``found that applying existing fuel-saving and safety
technology to a conventional Ford Explorer would result in a 71 percent
improvement in fuel economy and 2,900 fewer traffic fatalities if all
SUVs met equivalent safety standards,'' while ``At the same time, the
redesigned vehicle resulted in greater consumer savings and lower
global warming emissions as a result of the improved fuel economy.''
\467\ The document generated by the Center for Auto Safety and UCS does
not address the safety penalty as weight is reduced. This document
asserts that if several safety and fuel-savings technologies were used
on a 2001 Ford Explorer, it would achieve greater fuel economy and have
a better safety record. The safety and fuel savings benefits, along
with the costs, are extrapolated from different sources. The paper does
state that the redesign would reduce the test weight of the vehicle by
10 percent, to 4100 pounds (p. 10). However, the question of the safety
consequences of reducing the vehicle mass by 400 pounds is not answered
by any data, since the redesigned vehicle does not exist. As such, this
document is not persuasive.
---------------------------------------------------------------------------

\467\ Sierra Club et al. cited ``Building a Better SUV: A
Blueprint for Saving Lives, Money and Gasoline,'' by CAS and UCS.
This 2003 pamphlet is accessible online at http://www.ucsusa.org/assets/documents/clean_vehicles/building_a_better_suv_web.pdf
(last accessed October 28, 2008).
---------------------------------------------------------------------------

Sierra Club additionally cited studies on materials by the Aluminum
Association's Auto and Light Truck Group, Automotive Composites
Alliance, and World Autosteel as offering ``evidence that proper
application of weight saving materials from engine blocks to hoods and
beyond provide opportunities for broader consideration of weight
reduction.'' NHTSA understands that materials substitution is possible.
The question here is whether weight reduction through materials
substitution should be considered in establishing the CAFE standards.
As explained previously,

[[Page 14405]]

NHTSA is not considering weight reduction for vehicles below 5,000
pounds in this round of CAFE rulemaking, because there has been no
demonstration that there would not be an adverse safety effect from
doing so. In subsequent CAFE rulemakings, NHTSA will re-examine what
has been demonstrated and decide whether its previous position should
be adjusted. However, based on the data and analyses available now,
NHTSA has decided not to consider weight reduction for vehicles below
5,000 pounds in setting the standards. Sierra Club specifically
identified the Jaguar XJ as an ``[a]luminum intensive vehicle'' that
``demonstrate[s] that properly designed lighter weight vehicles can
excel at safety.'' This is a restatement of Sierra Club's prior comment
that the Toyota Prius and the hybrid Ford Escape show there is no
safety penalty, and NHTSA's response is the same as shown above. Sierra
Club concluded that ``Since vehicle safety is an important
consideration in and of itself, NHTSA should use its legal authority to
set tighter safety standards for the purpose of addressing important
public safety considerations.'' This is an argument put forward with
the best of intentions, but it is not germane to the safety penalty
issue. If all vehicles have new safety standard requirements, they
would all have a somewhat reduced absolute fatality risk. However, the
safety penalty arises relative to peer vehicles. Unless there is some
safety standard that is most effective for small vehicles and less
effective for larger vehicles, new safety standards will not affect the
relative safety risk between larger and smaller vehicles.
The Aluminum Association also commented that vehicle safety is more
tied to vehicle design (using aluminum) than to vehicle weight. The
Aluminum Association suggested that NHTSA's 2003 study is outdated, as
it ``was retrospective and looked at 1990-era vehicles,'' and not
predictive of the future. The Aluminum Association argued that vehicles
in the MY 2011-2015 time frame will be much safer, subject to
increasing numbers of safety standards and new safety initiatives for
rollover and compatibility, and subject also to attribute-based CAFE
standards, which the NPRM had suggested would improve vehicle safety.
The Aluminum Association argued that the vehicles evaluated in the 2003
NHTSA study were not subject to these factors, and thus concluded that
``the historical proposition that lighter vehicles must be smaller (and
potentially less safe) is no longer valid.'' To repeat, until there is
an analysis showing this to be true, NHTSA will not consider weight
reductions for vehicles below 5,000 pounds, since the data show that
there has been a safety penalty for those vehicles from weight
reduction in the past.

C. Comments on Other Issues Related to Safety

1. Vehicle Compatibility Design Issues
Other commenters addressed vehicle compatibility design
specifically, rather than design overall. Public Citizen, Sierra Club
et al., and the Aluminum Association commented that NHTSA should
consider vehicle safety and downweighting in terms of compatibility in
multi-vehicle crashes, rather than in terms of individual vehicle
weight. Public Citizen suggested that NHTSA's decision not to include
downweighting for lighter vehicles was ``inconsistent with its own
research on incompatibility,'' and stated that because Senator
Feinstein had attempted to include provisions in EISA requiring NHTSA
to undertake rulemakings to improve vehicle compatibility but had not
been successful, NHTSA should initiate such rulemaking on its own.
Agency response: Compatibility is a safety concern that NHTSA has
been investigating for some time now. Moreover, the commenters' point
that any compatibility benefits should be weighed against any
disbenefits associated with downweighting is logically correct.
However, NHTSA research on compatibility has shown that compatibility
is substantially influenced by factors other than mass, including
vehicle geometry, stiffness, and crush space. For example, full size
pick-up trucks are higher and stiffer than subcompact cars.
While we do not know the precise effect of these factors, it is
fair to say that simply downweighting heavier vehicles would not
effectively address the compatibility issue. Thus, there are no
currently available analyses that would allow NHTSA or anyone to
quantify the compatibility benefits simply from weight reduction. In
addition, NHTSA has taken action to address compatibility for existing
vehicles. Beginning September 1, 2010, new requirements for head
protection in side impact crashes will start being phased-in for all
light vehicles sold in the United States. This will require a first-in-
the-world pole test, and become the first side impact standard in the
world to require that performance be assessed with both a mid-sized
adult male and a small adult female. Even with the huge benefits of
Electronic Stability Control factored into the analysis, NHTSA
estimates this technology will save 1,029 lives each year once
implemented on the fleet.\468\ However, as explained above, these
absolute benefits do not change the higher relative safety risk lighter
vehicles have in collisions with heavier vehicles.
---------------------------------------------------------------------------

\468\ Final Regulatory Impact Analysis, FMVSS 214 Amending Side
Impact Dynamic Test Adding Oblique Pole Test, Docket No. NHTSA-2007-
29134-0004, Table V-A on p. V-2.
---------------------------------------------------------------------------

Sierra Club et al. commented that ``the disparity in the weights of
vehicles is much more important to occupant safety than the average
weight of all vehicles sharing the road.'' Sierra Club stated that the
disparity in vehicle weight among passenger cars has decreased since
1975, and that ``[o]verall the passenger fleet has homogenized toward a
3,500 pound vehicle.'' Sierra Club then argued that relative
upweighting with improvements in fuel economy among small cars have
provided a net safety gain in the vehicle fleet, which would be even
greater ``but for the super-sizing of pickups and SUVs in this time
frame.'' However, Sierra Club argued that ``[t]he days of the
supersized SUVs and pickups are over due to higher fuel prices,'' and
that ``[w]hen the next EPA Trends Report comes out, the light duty
truck fleet will have been homogenized to a safer, more fuel efficient
fleet as was the passenger car fleet earlier, eliminating the more
severe crashes.'' Sierra Club concluded that NHTSA should have
accounted for the safety benefits of this mix shift in its analysis.
These assertions were not supported by data or analyses. Moreover,
Sierra Club has not explained why a parent of a large family would buy
a subcompact instead of a minivan, or a contractor or tradesman would
not buy a full size pick-up truck or van.
The Aluminum Association cited the DRI analysis with regard to
vehicle compatibility, which it described as showing ``that vehicle
crash compatibility can be improved by providing increased crush space
and better energy management; and with the size-based approach, if
there was a 20% weight reduction across the vehicle size classes,
heavier vehicles would shed significantly more weight than smaller
vehicles, also improving fleet compatibility.'' As explained above, the
DRI analyses are not persuasive.

[[Page 14406]]

2. Whether Manufacturers Downweight in Response to Increased CAFE
Stringency
The Alliance, Subaru, Washington Legal Foundation, and the American
Iron and Steel Institute suggested that the stringency of the
standards, as measured by their rate of increase (particularly in the
earlier years covered by the rulemaking), could encourage manufacturers
to employ downweighting as a means of compliance, which could lead to
adverse safety consequences. Thus, even though NHTSA did not include
material substitution or downweighting for lighter vehicles in its
analysis, commenters indicated that downweighting was nonetheless a
likely response to the proposed standards.
The CAFE standards are now established as a continuous function
varying according to the size of the vehicle's footprint. To the extent
the vehicle manufacturers choose to downweight their vehicles by making
them smaller, they are faced with a higher CAFE target. To the extent
the function is not artificially constrained, it will require
approximately equal amounts of additional technology for each point on
the curve. For example, if an additional $200 worth of fuel savings
technology have to be added to a vehicle to meet its fuel economy
target, then downsizing it will still require at least $200 in
additional fuel savings technology. In the latter case, the
manufacturer would also have the cost of downsizing the model.
Accordingly, NHTSA is confident that the attribute-based system is
oriented not to bestow benefits for downsizing a vehicle model.
The CAFE program is a performance-based program. NHTSA does not
dictate the design of a particular passenger car or light truck. The
program is not intended to ensure that no vehicle maker ever downsizes
a vehicle. If a vehicle maker decides to downsize a model, it would be
because the manufacturer perceives that to be more effective, taking
all factors into account, than other strategies for increasing fuel
economy in that model.
We understand that this leaves open the possibility that
manufacturers could reduce the vehicle weight, but keep the vehicle
size constant. In theory, the way to do this would be through materials
substitution, where one replaces a heavy material with a lighter one.
NHTSA is intentionally not discouraging materials substitution, because
we agree that this approach is conceptually appealing as long as safety
is not compromised.
Public Citizen argued, in contrast, that downweighting of lighter
vehicles is not a common compliance strategy, and that manufacturers
had primarily responded to NHTSA's earliest CAFE standards in the 1980s
by applying technologies, with ``only 15 percent came from weight
reductions, and then weight was only removed from the heaviest
vehicles.'' NHTSA notes that the 1992 study cited by Public Citizen
concerning manufacturers' reactions to the early 1980s passenger car
standards is now 16 years old. Since that date, the 2002 NAS Report
concluded a decade later that some of the downsizing and downweighting
that occurred between the late 1970s and 1993 was due to CAFE standards
and that ``the evidence is clear that past downweighting and downsizing
of the light-duty vehicle fleet, while resulting in significant fuel
savings, has also resulted in a safety penalty. In 1993, it would
appear that the safety penalty included between 1,300 and 2,600 motor
vehicle crash deaths that would not have occurred had vehicles been as
large and heavy as in 1976.'' We find the NAS report more persuasive
than the 1992 study cited by Public Citizen.
Public Citizen went on to suggest that NHTSA was ``reinforc[ing]
the common myth that fuel economy standards reduce vehicle safety by
promoting downweighting.'' Again NHTSA notes the findings of the 2002
NAS report on the adverse safety impact of downsizing and that Public
Citizen provides no evidence to support its view that this is a
``myth.''
3. Whether Flat Standards Are More or Less Harmful to Safety Than
Footprint-Based Standards
The Alliance, the Aluminum Association, and the Washington Legal
Foundation agreed with the agency's assessment that a footprint-based
standard is safer than a flat standard. Public Citizen, in contrast,
suggested that under the flat standards of the 1980s, manufacturers
primarily responded by applying additional technologies, and only
reduced weight from the heaviest vehicles, which would suggest no
safety risk from downweighting due to flat standards.
Public Citizen's repeated citations of a 1992 study do not make it
more persuasive. A decade after that study, a NAS panel found that
manufacturers downweighted and downsized the fleet, partly in response
to the CAFE standards. This directly contradicts the 1992 study cited
by Public Citizen. As of this rulemaking, the National Academy of
Sciences has published a seminal report stating that there is a safety
concern with flat standards. The fact that two of the 13 members
dissented does not diminish the import of that. Informed by this
conclusion, EPCA, as amended by EISA, now prohibits NHTSA from
establishing flat CAFE standards, subject to required minimum standard
for domestic passenger cars. With the passage of this law, for the
purposes of this rule, the debate is resolved and Federal fuel economy
regulations will be attribute-based, not flat standards.
4. Whether NHTSA Should Set Identical Targets for Passenger Cars and
Light Trucks for Safety Reasons
Public Citizen suggested that the fact that fuel economy targets
may be different for identical-footprint cars and light trucks
encourages manufacturers to build a vehicle as a truck instead of as a
car, and argued that NHTSA should change the regulatory definitions of
passenger cars and light trucks to improve safety. Public Citizen also
argued that the attribute-based CAFE standards ``eliminate[] the
leveling effect of the corporate average (that is, balancing lighter
vehicles against heavier ones).''
Regardless of the merits of Public Citizen's comment, the law
specifies that NHTSA must establish separate standards for cars and
light trucks. The agency believes that this requirement also mandates
that the agency consider the capabilities of the car and light truck
fleets separately. The standards for the light truck fleet (and thus
the footprint/mpg targets for that fleet) tend to be lower than those
of the passenger car fleet because light trucks simply do not have the
capability to reach standards as high as the passenger car standards.
NHTSA does not believe it could establish identical separate standards,
because identical standards would not be ``maximum feasible'' for both
cars and light trucks. See 49 USC 32902(a), (b), and (f). NHTSA has
addressed the regulatory definitions for passenger cars and light
trucks in Section XI.
5. Whether NHTSA Should Have Considered the 2002 NAS Report Dissent in
Deciding Not To Apply Material Substitution for Vehicles Under 5,000
Pounds
CBD stated that NHTSA had ``misrepresented'' the findings of the
2002 NAS Report by stating only the conclusion of the majority and not
additionally stating the finding of two dissenting members ``that
weight reduction for vehicles greater than 4,000 lbs. curb weight would
result in a safety benefit, as was discussed in detail in the recent
Ninth Circuit opinion.'' Public

[[Page 14407]]

Citizen also referred to the NAS dissent in arguing that ``Kahane's
study oversimplifies the relationship between weight and safety,
obfuscates findings which show that reducing weight from only the
heaviest vehicles actually improves safety, and overlooks the
relationship between the difference in vehicle weight, rather than
simply the weight of the vehicle.'' Sierra Club et al. also referred to
the NAS dissent in stating that ``According to K.G. Duleep, who served
as a consultant to the NAS Committee, had the NAS incorporated
appropriate weight reductions into the ranges of possible fuel economy
improvements, in addition to the NAS report's mostly drive train
improvements, its total fuel economy recommendations would have been
20% higher.''
The reason NHTSA does not accord the same significance to the
dissent as to the majority is explained above. Essentially, when 11
members of a committee support a position and present it in the body of
the report, that is given more weight than the opinion of two
dissenting members that appears in an appendix to the report. NHTSA
believes that the information in the report is the information that is
put out with the full imprimatur of the National Academy committee.

IX. The Final Fuel Economy Standards for MY 2011

For both passenger cars and light trucks, the agency is determining
final CAFE standards estimated, as for the previously-promulgated
reformed MY 2008-2011 light truck standards, to maximize net benefits
to society. Before setting these final standards the agency also
considered under NEPA the environmental impacts of these standards, as
detailed in the FEIS.

A. Final Passenger Car Standard

We have determined that the final standard for MY 2011 passenger
cars result in a required fuel economy level that is technologically
feasible, economically practicable, and set by taking into account the
effect of other motor vehicle standards of the Government on fuel
economy, the need of the United States to conserve energy, and
additional environmental considerations under NEPA. Values for the
parameters defining the target function for this final standard for
cars are as follows:
[GRAPHIC] [TIFF OMITTED] TR30MR09.079

Where, per the adjusted continuous function formula above in Section
VI:

A = the maximum fuel economy target (in mpg)
B = the minimum fuel economy target (in mpg)
C = the footprint value (in square feet) at which the fuel economy
target is midway between a and b
D = the parameter (in square feet) defining the rate at which the
value of targets decline from the largest to smallest values

The resultant target function has the following shape:
[GRAPHIC] [TIFF OMITTED] TR30MR09.080

Based on the product plan information provided by manufacturers in
response to the May 2008 request for information and the incorporation
of publicly available supplemental data and information, NHTSA has
estimated the required average fuel economy levels under the final
standard for MY 2011 passenger cars as follows:

[[Page 14408]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.081

B. Final Light Truck Standard

NHTSA is also finalizing the light truck fuel economy standard for
MY 2011. In taking a fresh look at what truck standard should be
established for MY 2011, as required by EISA, NHTSA used the newer set
of assumptions that it had developed for the final standards. The
agency used the EIA High Price Case projections for available gasoline
prices, which are on average approximately $0.40 per gallon higher than
the projections used in the NPRM. Other differences in assumptions
include more current product plan information, an updated technology
list and updated costs and effectiveness estimates and penetration
rates for technologies, and updated values for externalities such as
carbon dioxide emission reductions.
The final standard is ``optimized'' for MY 2011 light trucks--the
process for establishing it is described at length above, but it may be
briefly described as maximizing net social benefits plus anti-
backsliding measures. We have determined that the final light truck
standard for MY 2011 represents the maximum feasible fuel economy level
for that approach. In reaching this conclusion, we have balanced the
express statutory factors and other relevant considerations, such as
safety and effects on employment, and have considered the NEPA analysis
and conclusions in the FEIS with regard to the chosen agency action.
The final standard is determined by a continuous function
specifying fuel economy targets applicable at different vehicle
footprint sizes, the equation for which is given above in Section VI.
Values for the parameters defining the final standard target function
for light trucks are as follows:
[GRAPHIC] [TIFF OMITTED] TR30MR09.082

Where:

The resultant target function has the following shape:

[[Page 14409]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.083

Based on the product plans provided by manufacturers in response to
the May 2008 request for information and the incorporation of publicly
available supplemental data and information, the agency has estimated
the required average fuel economy levels under the final optimized
standard for MY 2011 as follows:
[GRAPHIC] [TIFF OMITTED] TR30MR09.084

We note that a manufacturer's required fuel economy level for a
model year under the final standards would be based on its actual
production numbers in that model year. Therefore, its official required
fuel economy level would not be known until the end of that model year.
However, because the targets for each vehicle footprint would be
established in advance of the model year, a manufacturer should be able
to estimate its required level accurately.

C. Energy and Environmental Backstop

As discussed in the NPRM, EISA expressly requires each manufacturer
to meet a minimum fuel economy standard for domestically manufactured
passenger cars in addition to meeting

[[Page 14410]]

the standards set by NHTSA. 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. * * *'' \469\ The
agency must publish the projected minimum standards in the Federal
Register when the passenger car standards for the model year in
question are promulgated.
---------------------------------------------------------------------------

\469\ 49 U.S.C. 32902(b)(4).
---------------------------------------------------------------------------

NHTSA calculated 92 percent of the final projected passenger car
standards as the minimum standard, which for MY 2011 is 27.8. The final
calculated minimum standards will be updated to reflect any changes in
the projected passenger car standards.
In CBD v NHTSA, the Ninth Circuit agreed with the agency that EPCA,
as it was then written, did not explicitly require the adoption of a
backstop, i.e., a minimum CAFE standard that is fixed. A fixed minimum
standard is one that does not change in response to changes in a
manufacturer's vehicle mix.
The Court said, however, that the issue was not whether the
adoption was expressly required, but whether it was arbitrary and
capricious for the agency to decline to adopt a backstop. The Court
said that Congress was silent in EPCA on this issue. The Court
concluded that it was arbitrary and capricious for the agency to
decline to adopt a backstop because it did not, in the view of the
Court, address the statutory factors for determining the maximum
feasible level of average fuel economy. The Court remanded the matter
back to NHTSA to reconsider the issue under the appropriate standard.
NHTSA explained in the NPRM that it believes that it considered and
discussed the express statutory factors such as technological
feasibility and economic practicability and related factors such as
safety in deciding not to adopt a backstop. The agency stated that
further discussion is not warranted because Congress has spoken
directly on this issue since the Ninth Circuit's decision by enacting
EISA. Congress expressly mandated that CAFE standards for automobiles
be attribute-based and they must adjust in response to changes in
vehicle mix. NHTSA suggested that this mandate precludes the agency
from adopting a fixed minimum standard, except in the one case in which
Congress mandated a fixed and flat \470\ minimum standard for domestic
passenger cars--not in the cases of nondomestic passenger cars or light
trucks.
---------------------------------------------------------------------------

\470\ A flat standard is one that requires each manufacturer to
achieve the same numerical level of CAFE.
---------------------------------------------------------------------------

Given the requirement for attribute-based standards and the limited
express exception to that requirement, NHTSA tentatively concluded in
the NPRM that had Congress intended backstops to be established for
either of the other two compliance categories, it would have required
them. Absent explicit statutory language that provides the agency
authority to set flat standards, the agency suggested that the setting
of a supplementary minimum flat standard for the other two compliance
categories would be contrary to the requirement to set an attribute-
based standard under EISA.
The agency noted, however, that the curve of an attribute-based
standard has several features that limit backsliding, some of which
NHTSA added as it refined the Volpe model for the purpose of this
rulemaking, and some of which (such as the lower asymptote, which
serves as a backstop) are inherent in the logistic function. NHTSA
stated that it believed that these features help address the concern
that has been expressed regarding the possibility of vehicle upsizing
without compromising the benefits of reform. NHTSA also noted that the
35 mpg requirement in and of itself serves as a backstop, because the
agency must set the standards high enough to ensure that the average
fuel economy level of the combined car and light fleet is making steady
progress toward and achieves the statutory requirement of at least 35
mpg by 2020. NHTSA explained that if the agency finds that this
requirement might not be achieved, it will consider setting standards
for model years 2016 through 2020 early enough and in any event high
enough to ensure reaching the 35 mpg requirement.
The Attorneys General, Sierra Club et al., UCS, and ACEEE opposed
NHTSA's view not to adopt a backstop for imported passenger cars and
light trucks and argued that the agency must adopt backstop standards,
while AIAM and NADA supported the agency's decision. The Attorneys
General argued that because Congress had not changed the definition of
``maximum feasible fuel economy,'' NHTSA remained ``obligated'' by the
Ninth Circuit opinion to consider a backstop for those additional
fleets. The Attorneys General stated that the possibility that
attribute-based standards ``will cause a `race to the bottom' '' still
existed, and that the agency must therefore consider a backstop.
Sierra Club et al. also argued that NHTSA had misinterpreted
Congress' intent in EISA. Sierra Club stated that Congressman Markey's
extended remarks inserted into the Congressional Record were clear
evidence of Congress' intent with regard to the backstop. Sierra Club
also argued that a September 2007 letter from the United Auto Workers
to Speaker Nancy Pelosi and Majority Leader Harry Reid, which suggested
that the domestic minimum passenger car standard was intended to
protect jobs in the U.S., was evidence that ``the provision in EISA is
tied to employment, not oil conservation.'' Sierra Club concluded that
NHTSA is not precluded from adopting backstop standards for imported
passenger cars and light trucks, and is required to do so by the Ninth
Circuit opinion. Sierra Club additionally cited EPA's ANPRM, which it
stated indicates that EPA will pursue an ``environmental backstop.''
UCS agreed that the 35-in-2020 requirement is a kind of backstop,
and that the ratable-increase requirement between MY 2011 and 2020 is
an ``implied'' backstop, but nevertheless argued that NHTSA should
implement a regulated backstop for the other fleets. UCS commented that
``the same concerns of the Ninth Circuit court persist,'' because
``there is no mechanism to ensure the market does not undermine [the
proposed] standards.'' UCS stated that this could occur because ``if
maximum feasible fuel economy levels are found to exceed 35 mpg, the
legislated minimum will not ensure those levels (and, thus, maximum
feasible energy savings) are achieved.''
ACEEE commented that the lower asymptote is not an adequate
backstop, because the lower asymptote in 2015 resulted in ``a combined
value of 27.5 mpg, assuming a 48% sales share for cars,'' which ACEEE
said ``is scarcely higher than today's combined standard and certainly
does not constitute ratable progress toward achieving 35 mpg in 2020.''
ACEEE argued that the lower asymptotes could not guarantee that ``oil
savings from the CAFE program will not fall short of the savings
anticipated with the passage of the law.'' ACEEE stated that to ensure
ratable progress toward an average of at least 35 mpg in 2020 and to
mitigate ``the dangers of upsizing and otherwise gaming the
standards,'' NHTSA should commit to ``mid-course corrections'' between
MY 2011 and 2020 as necessary.
In contrast, AIAM supported NHTSA's decision not to adopt a

[[Page 14411]]

backstop for imported passenger cars and light trucks. AIAM argued that
a backstop for those fleets would ``defeat the purpose of the attribute
format by limiting the flexibility of manufacturers to respond to
shifts in market demand,'' and that the lower asymptote ``provides a
disincentive to upsizing of vehicles [in that footprint range], since
the standard would become increasingly difficult to meet.'' AIAM also
suggested that a backstop would not likely increase fuel savings since
consumers appear to be moving away from large cars and trucks.
While NADA agreed with NHTSA regarding the clarity of Congress'
decision not to adopt backstops, it also argued that NHTSA ``should not
attempt to artificially create backstops'' through the lower asymptotes
of the car and light truck curves. NADA stated that NHTSA should
instead ``let the curves end in conformance with the largest vehicle's
footprint.''
NHTSA respectfully disagrees with the characterization raised by
the Attorneys General and other commenters that it ``did not consider''
a backstop in the NPRM. As made clear by the NPRM and as discussed
above, the opposite is true. The agency also respectfully disagrees
with UCS' characterization of the Ninth Circuit CBD opinion as it
concerns the backstop issue. As discussed in the NPRM, Congress'
enactment of EISA addressed the backstop issue by clearly specifying a
flat minimum standard for domestic passenger cars, and by not clearly
specifying a flat minimum standard for imported passenger cars and
light trucks. Congress was aware of this issue from the 2006 light
truck final rule and the CBD decision, but expressly required a
backstop for only one fleet of vehicles.
NHTSA notes the very limited nature of EISA's legislative history
with regard to the backstop issue. No Senate, House, or conference
reports were created during the legislative process that culminated in
EISA. The floor statements during Congressional consideration of EISA
are also sparse. In any event, however, floor statements, regardless of
who made them, are entitled to less weight than conference reports
because, in the views of many courts, they do not represent statements
on the final terms of a bill agreed to by both houses. See, e.g., In re
Burns, 887 F.2d 1541 (11th Cir. 1989), in which the Court of Appeals
was called upon to interpret provisions of the Bankruptcy Act which
were arguably ambiguous. The Court noted that ``[w]hatever degree of
solicitude is due to legislative history materials in the usual cast,
`[s]trict adherence to the language and structure of the Act is
particularly appropriate where, as here, a statute is the result of a
series of carefully crafted compromises.' '' Id. at 1545 (citing
Community for Creative Non-Violence v. Reid, 490 U.S. 730, n. 14
(1989)). ``Accordingly, the best indicators of congressional intent in
this narrow instance are the language and structure of the Code itself,
not the accompanying statements of legislators that carry the potential
for reclaiming that which was yielded in the actual drafting
compromise.'' Id. See also In re Kelly, 841 F.2d 908, 913 n. 3 (9th
Cir. 1988) (``Stray comments by individual legislators, not otherwise
supported by statutory language or committee reports, cannot be
attributed to the full body that voted on the bill. The opposite
inference is far more likely.'')
Here, there are no floor statements to provide guidance on the
backstop issue. Rather, various members, including Representative
Markey, inserted material into the Congressional Record after floor
action. There is no indication that the material inserted into the
record was raised, debated, or otherwise before the full House or
Senate during floor consideration. Materials inserted by members after
congressional action are not indicative of congressional intent.
Instead, ``[t]he intent of Congress as a whole is more apparent from
the words of the statute itself than from a patchwork record of
statements inserted by individual legislators and proposals that may
never have been adopted by a committee, much less an entire legislative
body--a truth which gives rise to `the strong presumption that Congress
expresses its intent through the language it chooses.' '' Sigmon Coal
Co., Inc. v. Apfel, 226 F.3d 291, 304-05 (4th Cir 2000) (quoting INS v.
Cardoza-Fonseca, 480 U.S. 421, 432 n. 12 (1987)), aff'd sub. nom.,
Barnhart v. Sigmon Coal Co., Inc., 534 U.S. 438 (2002). The Supreme
Court in Sigmon similarly held that ``[f]loor statements from two
Senators cannot amend the clear and unambiguous language of a
statute.'' Guided by the Supreme Court's guidance on this issue, ``[w]e
see no reason to give greater weight to the views of two Senators than
to the collective votes of both Houses, which are memorialized in the
unambiguous statutory text.'' 534 U.S. at 457. ``We are not aware of
any case * * * in which we have given authoritative weight to a single
passage of legislative history that is in no way anchored in the text
of the statute.'' Shannon v. United States, 512 U.S. 573, 583 (1994).
The agency disagrees that there is any indication that the
September 2007 UAW letter to Speaker Pelosi and Majority Leader Reid,
relied upon by the Sierra Club, constitutes the legislative intent for
including the EISA backstop requirement for domestically-manufactured
passenger cars in addition to meeting the standards set by NHTSA, i.e.,
tied to employment concerns and not energy conservation. The UAW's
letter, by itself and without any supporting statement or information
in the legislative history, cannot reasonably be presumed to constitute
that the intent of the backstop was employment.
Thus, consistent with applicable case law, NHTSA must interpret the
words of EISA itself. NHTSA continues to believe that the 35 mpg
requirement of EISA is an inherent backstop, as UCS noted in its
comments. NHTSA also agrees with the ACEEE comment insofar as the
agency will continue to monitor manufacturer progress toward meeting
the required fuel economy stringencies. The agency must set the
standards high enough to ensure that the average fuel economy level of
the combined car and light truck fleet is increasing ratably toward and
achieves the statutory requirement of at least 35 mpg by 2020. If the
agency finds that this requirement might not be achieved, it will
consider setting standards for model years up to and including MY 2020
early enough and in any event high enough to ensure reaching the 35 mpg
requirement.
However, NHTSA disagrees with the AIAM comments that a backstop
standard would defeat the purpose of the attribute-based CAFE system by
limiting the flexibility of manufacturers to respond to shifts in
market demand. NHTSA also disagrees with NADA's comment that, beyond
Congress explicitly enacting a backstop for domestically-manufactured
passenger cars at 27.5 mpg or 92 percent of the industry-wide domestic
passenger car fleet in any given model year, whichever is higher, the
agency cannot impose additional anti-backsliding measures. EPCA
requires the agency to balance the four statutory factors when
determining maximum feasible CAFE standards, and the agency has
considered these factors--particularly the need of the nation to
conserve energy--in deciding whether to adopt additional measures that
operate as ``backstops.'' Thus, in balancing the four EPCA factors
under 49 U.S.C. Sec. 32902(f), the agency has adopted in these
standards additional measures which operate as ``backstops'' applicable
to all CAFE-regulated vehicles. First, as set forth in Section VI
above, the MY 2011 curves have features that limit backsliding, some of
which were added by NHTSA as the agency refined and

[[Page 14412]]

modified the Volpe model for purposes of this rulemaking. Second, the
lower asymptote, which serves as a backstop, is inherent in the
logistic function. While the agency respectfully disagrees with ACEEE's
comment regarding the sufficiency of the lower asymptote as a backstop,
as discussed above, it is not the only ``backstop'' embodied in this
rule.
In having considered carefully the comments to the NPRM, however,
NHTSA nonetheless accepts at least the possibility that Congress'
silence in EISA regarding backstops for imported passenger cars and
light trucks could be reasonably interpreted as permissive rather than
restrictive. For purposes of the MY 2011 standards, however, and upon
consideration of the entire record, NHTSA declines to adopt
``backstops'' beyond that set forth in this section. The ``race to the
bottom'' feared by commenters seems unlikely as a result of the MY 2011
standards, particularly given the lack of lead time available to
manufacturers to change their MY 2011 vehicles and the public's
apparently growing preference for smaller vehicles. Moreover, the
backstop and anti-backsliding mechanisms described above not only
address the ``race to the bottom'' concern, but are also consistent
with the attribute-based approach of Reformed CAFE. NHTSA continues to
believe that backstop standards for imported passenger cars and light
trucks are neither legally required nor necessary at this time to
ensure fuel savings. However, the agency will continue to monitor
manufacturers' product plans and CAFE compliance, and will revisit the
backstop issue in subsequent rulemakings if it becomes necessary to
ensure that expected fuel savings are ultimately realized.

D. Combined Fleet Performance

The combined industry wide average fuel economy (in mpg) levels for
both cars and light trucks, if each manufacturer just met its
obligations under the final ``optimized'' standards for MY 2011, would
be 27.3 mpg, or 325.5 grams CO2 per mile. This represents an
increase of approximately 7.9 percent over the previous model year's
standards.

E. Costs and Benefits of Final Standards

1. Benefits
NHTSA estimates that the final standard for MY 2011 passenger cars
would save approximately 0.5 billion gallons of fuel and prevent 4.3
million metric tons of tailpipe CO2 emissions over the
lifetime of the passenger cars sold during that model year, compared to
the fuel savings and emissions reductions that would occur if the
standards remained at the adjusted baseline (i.e., the higher of
manufacturer's plans and the manufacturer's required level of average
fuel economy for MY 2010).
NHTSA also estimates that the value of the total benefits of the
final standard for MY 2011 passenger cars would be $1.03 billion \471\
over the lifetime of the vehicles manufactured in that model year. This
estimate of societal benefits includes direct impacts from lower fuel
consumption as well as externalities, and also reflects offsetting
societal costs resulting from the rebound effect. Direct benefits to
consumers, including fuel savings, consumer surplus from additional
driving, and reduced refueling time, account for 88 percent ($1.0
billion) of the $1.1 billion in gross \472\ consumer benefits resulting
from increased passenger car CAFE. Petroleum market externalities
account for roughly 10 percent ($0.1 billion). Environmental
externalities, i.e., reduction of air pollutants, account for roughly 2
percent ($0.03 billion), about 31 percent ($0.01 billion) of which is
the result of greenhouse gas (primarily CO2) reduction.
Increased congestion, noise and accidents from increased driving will
offset approximately $0.1 billion of the $1.1 billion in consumer
benefits, leaving net consumer benefits of $1.0 billion.
---------------------------------------------------------------------------

\471\ The $1.0 billion estimate is based on a 7 percent discount
rate for valuing future impacts. NHTSA estimated stringencies that
would maximize net societal benefits using both 7 percent and 3
percent discount rates. For the reader's reference, total consumer
benefits for passenger car CAFE improvements total $2.6 billion
using a 3 percent discount rate.
\472\ Gross consumer benefits are benefits measured prior to
accounting for the negative impacts of the rebound effect. They
include fuel savings, consumer surplus from additional driving,
reduced refueling time, reduced petroleum market externalities,
reduced criteria pollutants, and reduced greenhouse gas production.
Negative impacts from the rebound effect include added congestion,
noise, and crash costs due to additional driving.
---------------------------------------------------------------------------

The following table sets out the relative dollar value of the
various benefits of this rulemaking on a per gallon saved basis and
averaging across the passenger car and light truck fleets:
---------------------------------------------------------------------------

\473\ Based on a value of $2.00 per ton of carbon dioxide. At a
value of $33.00 per ton of carbon dioxide, the benefit per gallon of
reducing in CO2 emissions would be $0.29; and at a value
of $80.00 per ton of carbon dioxide, the benefit per gallon would be
$0.71. However, to calculate the gross and net benefits per gallon
of fuel saved using global SCC values, one would need to remove
monopsony costs, which would make the value per gallon of
``Reduction in Oil Import Externalities'' equal to $0.11.

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

[[Page 14413]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.085

NHTSA further estimates that the final standard for light trucks
would save approximately 0.42 billion gallons of fuel and prevent 4.03
million metric tons of tailpipe CO2 emissions over the
lifetime of the light trucks sold during MY 2011, compared to the fuel
savings and emissions reductions that would occur if the standards
remained at the adjusted baseline.
For light trucks, NHTSA estimates that the value of the total
benefits of the final MY 2011 standard would be $0.92 billion \474\
over the lifetime of the light trucks sold in that year. This estimate
of societal benefits includes direct impacts from lower fuel
consumption as well as externalities and also reflects offsetting
societal costs resulting from the rebound effect. Direct benefits to
consumers, including fuel savings, consumer surplus from additional
driving, and reduced refueling time, account for 88 percent ($0.9
billion) of the $1.0 billion in gross consumer benefits resulting from
increased light truck CAFE. Petroleum market externalities account for
roughly 10 percent ($0.1 billion). Environmental externalities, i.e.,
reduction of air pollutants, account for roughly 2 percent ($0.02
billion), about 32 percent of which is the result of greenhouse gas
(primarily CO2) reduction ($0.01 billion). Increased
congestion, noise and accidents from increased driving will offset
roughly $0.07 billion of the $1.0 billion in consumer benefits, leaving
net consumer benefits of $0.9 billion.
---------------------------------------------------------------------------

\474\ The $0.9 billion estimate is based on a 7 percent discount
rate for valuing future impacts. NHTSA estimated stringencies that
would maximize net societal benefits using both 7 percent and 3
percent discount rates. For the reader's reference, total consumer
benefits for light truck CAFE improvements are $1.2 billion under a
3 percent discount rate.
---------------------------------------------------------------------------

2. Costs
The total costs for manufacturers just complying with the standard
for MY 2011 passenger cars would be approximately $0.5 billion,
compared to the costs they would incur if the standard remained at the
adjusted baseline. The resulting vehicle price increases to buyers of
MY 2011 passenger cars would be recovered or paid back \475\ in
additional fuel savings in an average of 4.4 years (average 2011 per
car price increase, excluding civil penalties owed by manufacturers
estimated to owe them, was $64), assuming fuel prices ranging from
$2.97 per gallon in 2016 to $3.62 per gallon in 2030.\476\
---------------------------------------------------------------------------

\475\ See Section V.B.5 above for discussion of payback period.
\476\ The fuel prices (shown here in 2006 dollars) used to
calculate the length of the payback period are those projected
(Annual Energy Outlook 2008, final release) by the Energy
Information Administration over the life of the MY 2011-2015 light
trucks, not current fuel prices.
---------------------------------------------------------------------------

The total costs for manufacturers just complying with the standard
for MY 2011 light trucks would be approximately $0.65 billion, compared
to the costs they would incur if the standard remained at the adjusted
baseline. The resulting vehicle price increases to buyers of MY 2011
light trucks would be paid back in additional fuel savings in an
average of 7.7 years (average 2011 per truck price increase, excluding
civil penalties owed by manufacturers estimated to owe them, is $126)
assuming fuel prices ranging from $2.97 to $3.62 per gallon.
[GRAPHIC] [TIFF OMITTED] TR30MR09.086

Comparison of estimated benefits to estimated costs

The table below compares the incremental benefits and costs for the
car and light truck CAFE standards, in millions of dollars.

[[Page 14414]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.087

The average annual per vehicle cost increases are shown in the FRIA.

F. Environmental Impacts of Final Standards

On October 17, 2008, the EPA published a Notice of Availability of
NHTSA's Final Environmental Impact Statement (FEIS), which, as required
by the National Environmental Policy Act (NEPA), 42 U.S.C. 4321 et
seq., analyzed the potential environmental impacts of alternative CAFE
standards being considered by the agency. 73 FR 61859. In response to
comments on the DEIS, the FEIS, among other things, analyzed how the
agency's alternatives were affected by variations in certain economic
assumptions. The agency carefully considered and analyzed each of the
individual economic assumptions to determine which assumptions most
accurately represent future economic conditions. For a discussion of
the economic assumptions relied on by the agency in this final rule,
see Section V.
The economic assumptions used by the agency in this final rule
correspond to the ``Mid-2'' Scenario set of assumption analyzed in the
FEIS. See FEIS Sec. 2.2. The Optimized Alternative utilizing the Mid-2
Scenario economic assumptions, which were prompted in part by public
comments, falls within the spectrum of alternatives set forth in the
DEIS and the FEIS, and all relevant environmental impacts associated
with the Optimized Alternative have been considered by NHTSA. The
environmental impacts calculated to result under the Optimized
Alternative utilizing the Mid-2 Scenario economic assumptions were
presented in Appendix B of the FEIS, and discussed in Chapters 3 and 4
of the FEIS. The tables that follow in this section were developed from
the tables provided in Appendix B of the FEIS.
As discussed in Section XVI of this Final Rule, the FEIS evaluates
the aggregate environmental impacts associated with each alternative
for a five-year period (i.e., the environmental impacts that would
result if MY 2011-2015 passenger cars and light trucks met the higher,
proposed CAFE standards for those years). However, the impacts
resulting from this Final Rule, covering MY 2011 alone, fall within the
spectrum of environmental impacts analyzed in the FEIS under the
Optimized Alternative, Mid-2 Scenario.
This section presents selected consequences that would be
associated with the final CAFE standards for MY 2011 passenger cars and
light trucks (i.e., the Optimized Alternative, Mid-2 Scenario CAFE
standards for MY 2011). These consequences include the effects of the
MY 2011 standards on fuel consumption and associated emissions of
greenhouse gases, as well as on emissions of criteria and hazardous air
pollutants. Environmental impacts associated with the final CAFE
standards for MY 2011 passenger cars and light trucks remain aggregated
for MYs 2011-2015, and are reported in the FEIS. See Chapter 3, Chapter
4 and Appendix B of the FEIS. The aggregate impacts analyzed in the
FEIS remain relevant, since the MY 2011 impacts associated with the
CAFE standards fall within the spectrum of those aggregated impacts.
Table IX.F-1 shows the estimated impact of the final CAFE standards
for MY 2011 on fuel consumption by passenger cars and light trucks
during selected years from 2020 to 2060. Because the estimates of fuel
consumption shown in the table assume that the CAFE standards
established for MY 2011 would apply to all subsequent model years
produced over this period, the proportion of the U.S. fleet consisting
of cars and light trucks that met the MY 2011 CAFE standards would
increase over the time period it spans. The table reports total fuel
consumption for passenger cars and light trucks, including both
gasoline and diesel, under the No Action Alternative (Baseline) and
under the final standards chosen by the agency (the Optimized
Alternative). The impact of the chosen standards on future fuel
consumption by cars and light trucks is measured by the reduction from
its level under the No Action or Baseline alternative that is projected
to occur with the final standard in effect.

[[Page 14415]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.088

A more informative measure of the impact of the final MY 2011 CAFE
standards than the reductions in fuel use during any specific future
year is their effect on cumulative fuel consumption by the U.S. car and
light truck fleet over an extended future period. This is because the
reduction in cumulative fuel consumption over the future that results
from higher CAFE standards determines their impact on total GHG
emissions, the accumulation of these gases in the earth's atmosphere,
and any resulting impact on the global climate. Table IX.F-2 projects
future fuel use by U.S. passenger cars and light trucks under the
Baseline or No Action alternative and the final CAFE standards for MY
2011, and shows the reductions in fuel use that will result from
adopting the MY 2011 standards. As with the estimates of fuel
consumption reported in the previous table, those shown in Table IX.F-2
assume that the MY 2011 CAFE standards would also apply to subsequent
model years. The fuel savings shown in the table grow not only as they
are estimated for progressively longer time spans, but also because an
increasing fraction of cars and light trucks in service during future
years consists of models that meet the higher CAFE standards adopted
beginning with MY 2011.
[GRAPHIC] [TIFF OMITTED] TR30MR09.089

[[Page 14416]]

NHTSA analyzed the air quality consequences of alternative CAFE
standards by estimating total emissions of each criteria air pollutant
and mobile source air toxic (MSAT) attributable to passenger cars and
light trucks under each alternative, and assessing the changes in
emissions of each pollutant from their Baseline levels that would occur
under alternative standards. Emissions of these pollutants include
those that occur while vehicles are being operated (``tailpipe''
emissions), as well as emissions that occur throughout the processes of
producing and distributing fuel (``upstream'' emissions).\477\ Because
improving fuel economy results in an increase in the number of miles
passenger cars and light trucks are driven (the ``rebound'' effect),
tailpipe emissions of each pollutant are projected to increase by
progressively larger amounts under alternatives that require higher
fuel economy levels. In contrast, each action alternative reduces the
volume of fuel that must be supplied, thus reducing emissions
throughout the fuel production and distribution process.
---------------------------------------------------------------------------

\477\ In the case of volatile organic compounds (VOC), emissions
from vehicle operation also include evaporative emissions that occur
when vehicles are parked or stored, and while they are being
refueled at retail stations. Emissions from vehicle operation are
estimated by multiplying the total number of miles that cars and
light trucks are driven annually by emissions factors for each
pollutant, measured in grams of pollutant emitted per mile traveled.
Emissions from fuel production and distribution are estimated by
multiplying the total volume of fuel consumed by cars and light
trucks by emissions per gallon during each phase of fuel supply,
including petroleum extraction and transportation, fuel refining,
storage, and distribution to retail outlets.
---------------------------------------------------------------------------

The net effect of each alternative is equal to the increase in
tailpipe emissions resulting from added rebound-effect driving, minus
the reduction in upstream emissions resulting from the lower volume of
fuel that must be supplied. Although the relative magnitude of these
two effects differs among individual pollutants, the reduction in
upstream emissions of most (but not all) pollutants outweighs the
increase in tailpipe emissions, leading to a net reduction in their
total emissions. Similarly, the net reduction in total emissions of
each pollutant is usually--although not always--larger for alternatives
that require higher fuel economy levels. For further explanation of the
air quality methodology, see FEIS Sec. 3.3.2.
Table IX.F-3 reports nationwide emissions of criteria air
pollutants from passenger cars and light trucks (including both
tailpipe and upstream emissions) under the Baseline alternative for
selected years, and compares these to emissions levels expected to
result from the final CAFE standards for MY 2011.\478\ As the table
shows, total emissions of each criteria pollutant are projected to
decline as a consequence of the final MY 2011 CAFE standards, as
reductions in upstream emissions due to the lower volume of fuel
production and distribution more than offset any increases in tailpipe
emissions resulting from additional driving.
---------------------------------------------------------------------------

\478\ Unlike GHGs, criteria and hazardous air pollutants are
relatively short-lived; thus their concentrations in the atmosphere
and the resulting impacts on human health depend primarily on
emissions during the immediate period being analyzed, rather than on
their cumulative emissions over an extended period.
[GRAPHIC] [TIFF OMITTED] TR30MR09.090

[[Page 14417]]

In addition to their effects on emissions of criteria air
pollutants, the final CAFE standards for MY 2011 are expected to affect
emissions of some hazardous air pollutants (also known as mobile source
air toxics, or MSATs) from fuel production and use. The MSATs included
in this analysis are acetaldehyde, acrolein, benzene, 1,3-butadiene,
diesel particulate matter (DPM), and formaldehyde, which EPA and the
Federal Highway Administration have identified as the MSATs of primary
concern for assessing the environmental impacts of motor vehicle use.
Table IX.F-4 reports total nationwide emissions of these air toxics
by passenger cars and light trucks during selected future years under
the Baseline or No Action alternative, as well as with the final MY
2011 CAFE standards in effect. As in the previous analyses of GHG and
criteria air pollutant emissions, these estimates assume that the MY
2011 CAFE standards for cars and light trucks would also apply to
subsequent model years. The table shows that emissions of acetaldehyde,
benzene, 1,3-butadiene, DPM, and formaldehyde during future years would
decline from their Baseline levels with the final CAFE standards for MY
2011 in effect. In contrast, emissions of acrolein are projected to
increase slightly during some future years from their levels under the
Baseline alternative with the final MY 2011 CAFE standards in
effect.\479\ For additional detail on this analysis see FEIS Sec.
3.3.3; Chapter 5.
---------------------------------------------------------------------------

\479\ The projected increases in future emissions of acrolein
may result from the agency's inability to obtain ``upstream''
emission factors for this pollutant, which prevented it from
estimating the reduction in acrolein emissions resulting from lower
fuel production and distribution. It is possible that if the agency
had been able to do so, lower acrolein emissions during fuel
production and distribution would have more than offset the increase
in emissions from fuel use by cars and light trucks, causing total
acrolein emissions to decline.
[GRAPHIC] [TIFF OMITTED] TR30MR09.091

[[Page 14418]]

The declines in future emissions of criteria air pollutants and
MSATs resulting from the final MY 2011 CAFE standards would be expected
to reduce the adverse health effects stemming from population exposure
to harmful accumulations of these pollutants. In the Final EIS, the
agency presented a detailed analysis of the air quality and health
effects of reductions in population exposure to criteria air pollutants
and MSATs projected to result from alternative CAFE standards for MY
2011-2015. That analysis suggested that significant reductions in
adverse health effects and economic damages caused by exposure to these
pollutants (primarily PM2.5, the largest known contributor
to adverse health effects) could result if higher CAFE standards were
adopted for model years 2011 through 2020. See Sec. 3.3.2.4.2 of the
FEIS for a description of NHTSA's approach to providing these
quantitative estimates of adverse health effects of conventional health
pollutants associated with the final CAFE standards.
NHTSA's Final EIS also presented a detailed analysis of the
potential effects of alternative car and light truck CAFE standards for
MY 2011-2015 on the global climate. This analysis first estimated the
effects of alternative increases in CAFE standards on fuel consumption
and resulting emissions of greenhouse gases (GHG) over an extended
future period beginning when those standards would take effect. Next,
the agency projected the extent to which these projected reductions in
GHG emissions might lower future atmospheric concentrations of GHGs.
Finally, the agency utilized a widely-recognized global climate
modeling system, known as MAGICC (Model for the Assessment of
Greenhouse-gas Induced Climate Change), to simulate the consequences of
reduced GHG concentrations for future increases in global mean surface
temperatures and the projected future rise in sea levels, and
approximated the likely consequences of these developments for regional
precipitation patterns. For additional discussion of the FEIS climate
analysis, see FEIS Sec. 3.4 and 4.4.
The agency's analysis demonstrated that small but potentially
important beneficial effects on the pace and extent of future climate
change were likely to result from the long-term reductions in GHG
emissions that would result from adopting higher CAFE standards for
model years 2011 through 2015, particularly if increases in CAFE
standards continued through model year 2020.

X. Other Fuel Economy Standards Required by EISA

In the NPRM, NHTSA explained that it is not promulgating standards
for commercial medium- and heavy-duty on-highway vehicles or work
trucks as part of this rule, because Congress was clear in EISA that
several steps were necessary before such a rulemaking could begin.
Section 103 of EISA added the following definitions to 49 U.S.C.
32901(a) for these vehicles:

``Commercial medium- and heavy-duty on-highway vehicle''
means an on-highway vehicle with a gross vehicle weight rating of
10,000 pounds or more; and
``Work truck'' means a vehicle that--
(A) is rated at between 8,500 and 10,000 pounds gross vehicle
weight; and
(B) is not a medium-duty passenger vehicle (as defined in 40 CFR
86.1803-01, as in effect on the date of EISA's enactment).

EISA added a new provision to 49 U.S.C. 32902 requiring DOT, in
consultation with DOE and EPA, to examine the fuel efficiency of these
vehicles and determine the appropriate test procedures and
methodologies for measuring the fuel efficiency of these vehicles, as
well as the appropriate metric for measuring and expressing their fuel
efficiency performance and the range of factors that affect their fuel
efficiency. This study would need to be performed within 1 year of the
publication of the NAS study required by section 108 of EISA.\480\
---------------------------------------------------------------------------

\480\ 49 U.S.C. 32902(k)(1). The NAS study is currently underway
as of the publication of this final rule.
---------------------------------------------------------------------------

Then, within two years of the completion of the study, DOT, in
consultation with DOE and EPA, would need to undertake rulemaking to

determine * * * how to implement a commercial medium- and heavy-duty
on-highway vehicle and work truck fuel efficiency improvement
program designed to achieve the maximum feasible improvement, and
shall adopt and implement appropriate test methods, measurement
metrics, fuel economy standards, and compliance and enforcement
protocols that are appropriate, cost-effective, and technologically
feasible for commercial medium- and heavy-duty on-highway vehicles
and work trucks.\481\
---------------------------------------------------------------------------

\481\ 49 U.S.C. 32902(k)(2).

EISA also requires a four-year lead time for fuel economy standards
promulgated under this section, and would allow separate standards to
be prescribed for different classes of vehicles.\482\
---------------------------------------------------------------------------

\482\ 49 U.S.C. 32902(k)(2) and (3).
---------------------------------------------------------------------------

NHTSA received relatively few comments on this issue, perhaps not
surprising since it is essentially concerned with a future rulemaking.
Two commenters disagreed with NHTSA's characterization of Section 102
of EISA ``mandating'' or ``requiring'' that NHTSA develop CAFE
standards for commercial medium- and heavy-duty on-highway vehicles and
work trucks. Both Cummins, Inc. and EMA commented that NHTSA should
change terminology used in footnotes 38 and 41 of the NPRM suggesting
that CAFE standards were ``mandated'' for these vehicles. Both
commenters argued that Congress did not necessarily have CAFE-type
standards in mind for these vehicles in Section 102, as evidenced by
the fact that Congress required a NAS study to be followed by another
study by DOT in consultation with EPA and DOE. The commenters stated
that Section 102 simply requires that NHTSA eventually implement a
``fuel efficiency improvement program'' with ``fuel economy
standards,'' but not necessarily CAFE standards. As Cummins argued,
because the ``truck sector has no broadly accepted metric for measuring
fuel efficiency,'' ``there could be major unintended consequences'' if
NHTSA implemented ``a CAFE-like system that regulates by a miles per
gallon metric,'' because such a system ``could improve fuel economy but
cause overall worse fuel efficiency by promoting multiple smaller
trucks to do the same work that one does today.'' Cummins and EMA
stated that NHTSA should therefore remove all terminology in the final
rule suggesting that NHTSA would apply the ``CAFE system'' to
commercial medium- and heavy-duty on-highway vehicles and work trucks.
Agency response: NHTSA disagrees with Cummins and EMA that CAFE
standards for commercial medium- and heavy-duty on-highway vehicles and
work trucks were not mandated by Section 102 of EISA. Congress was
clear in Section 102 that, following completion of the required NAS and
agency studies, NHTSA must engage in rulemaking to subject these
vehicles to average fuel economy standards under EPCA and EISA, as the
commenters recognized. Whether or not the precise contours of those
standards are the same as the attribute-based average fuel economy
standards established for passenger cars and light trucks, they will
still be average fuel economy standards for fleets of particular
vehicles. NHTSA sees no reason not to call these ``corporate average
fuel economy'' or ``CAFE'' standards, and does not believe that such
term connotes any pre-judgment on the part of the agency with respect
to the outcomes of the required studies or eventual regulations.
NHTSA also received comments from NACAA and the Wisconsin DNR
stating that CAFE standards should be applied

[[Page 14419]]

to all passenger cars and light trucks up to 10,000 pounds GVWR.
Wisconsin DNR argued that extending the standards to these vehicles
would ``capture the full range of non-commercial passenger vehicles.''
Agency response: NHTSA explained in the NPRM that all four-wheeled
motor vehicles with a gross vehicle weight rating of 10,000 pounds or
less will be subject to the CAFE standards beginning in MY 2011, with
the exception of commercial medium- and heavy-duty on-highway vehicles
and work trucks, as discussed above. This follows up on NHTSA's
statements in the 2006 final rule setting CAFE standards for MY 2008-
2011 light trucks, where the agency said that it would begin regulating
medium-duty passenger vehicles (MDPVs) under the light truck CAFE
standards in MY 2011. MDPVs have been included in the final rule
standards, although they make up a very small percentage (less than 1
percent) of light trucks in that model year.

XI. Vehicle Classification

Vehicle classification, for purposes of the CAFE program, refers to
whether NHTSA considers a vehicle to be a passenger automobile or light
truck, and thus subject to either the passenger automobile or the light
truck standards. NHTSA created regulatory definitions for passenger
automobiles and light trucks, found at 49 CFR part 523, to guide the
agency and manufacturers in determining which vehicles are which.
As NHTSA explained in the NPRM, the statutory language is clear
that some vehicles must be passenger automobiles (cars) and some must
be non-passenger automobiles (light trucks). Passenger automobiles were
defined in EPCA as ``any automobile (other than an automobile capable
of off-highway operation) which the Secretary [i.e., NHTSA] decides by
rule is manufactured primarily for use in the transportation of not
more than 10 individuals.'' EPCA Sec. 501(2), 89 Stat. 901.
Thus, under EPCA, there are two general groups of automobiles that
qualify as non-passenger automobiles or light trucks: (1) those defined
by NHTSA in its regulations as other than passenger automobiles due to
their having not been manufactured ``primarily'' for transporting up to
ten individuals; and (2) those expressly excluded from the passenger
category by statute due to their capability for off-highway operation,
regardless of whether they were manufactured primarily for passenger
transportation. NHTSA's classification rule directly tracks those two
broad groups of non-passenger automobiles in subsections (a) and (b),
respectively, of 49 CFR 523.5.
In the NPRM, NHTSA took a fresh look at the regulatory definitions
in light of its desire to ensure clarity in how vehicles are
classified, the passage of EISA, and the Ninth Circuit's decision in
CBD. NHTSA explained the origin of the current definitions of passenger
automobiles and light trucks by tracing them back through the history
of the CAFE program, and did not propose to change the definitions
themselves at that time, because the agency tentatively concluded that
doing so would not lead to increased fuel savings. The NPRM did,
however, propose to tighten the coverage of its regulatory definition
of ``light truck'' to ensure that, starting in MY 2011, 2WD versions of
SUVs are no longer classified as off-highway capable light trucks under
49 CFR 523.5(b), simply because the SUV also comes in a 4WD version.
This tightening of NHTSA's definitions will, as explained below, have
significant impacts on fuel savings and preventing increased emission
of carbon dioxide.

A. Summary of Comments

NHTSA received a number of comments on the vehicle classification
issue from a range of organizations. Many commenters (including the
Alliance, GM, Ford, and Toyota) supported the clarification in the NPRM
concerning how 2WD vehicles should be classified. These commenters
sought clarification that the change in how these 2WD vehicles are
classified would become effective in MY 2011 and not earlier. Others
(Nissan, NADA, and AIAM) questioned NHTSA's position on that issue,
arguing that 2WD vehicles should be classified in the same way as 4WD
versions of the same model. Some (Alliance, Ford, Toyota, and the
Sierra Club) noted that moving large numbers of 2WD vehicles from the
light truck category to the passenger category may have a significant
impact on the stringency of the curves, and that the NPRM curves did
not reflect this impact.
Several commenters (Public Citizen, Honda, UCS, CBD, and Sierra
Club) argued that the rule's classification definitions needed to be
revised. The commenters relied on several arguments: first, that the
current definitions did not comport with the Ninth Circuit's opinion in
CBD (which directed NHTSA either to ``revise its regulatory definitions
of passenger automobile and light trucks or provide a valid reason for
not doing so'') and do not reflect the fact that many light trucks are
used as passenger vehicles; second, that they were not ratified by
Congress in EISA; third, they do not ensure that some vehicles that
these commenters believe should be classified as passenger cars are in
fact classified as such; and fourth, that they allow manufacturers to
``game'' the definitions by making minor changes to vehicles to obtain
a light truck classification and thus, a lower fuel economy target. One
commenter (GM) urged NHTSA to define ``base form'' (a term used in a
1981 interpretation concerning the classification of 2WD vehicles) and
``model type,'' contending that these new definitions would help
clarify how certain vehicles should be classified. NHTSA responds to
these comments below.

B. Response to Comments

1. This Rule Substantially Tightens NHTSA's Vehicle Classification
Definitions
(a) Under Sec. 523.5(b), Only Vehicles That Actually Have 4WD Will Be
Classified as 4WD Vehicles
As proposed in the NPRM, NHTSA has tightened the coverage of its
regulatory definition of ``light truck'' to ensure that 2 wheel drive
(2WD) versions of an SUV are not classified as light trucks under 49
CFR Sec. 523.5(b) simply because the SUV also comes in a 4WD version.
In order to be properly classifiable as a light truck under Part 523, a
2WD SUV must either be over 6,000 lbs GVWR and meet 4 out of 5 ground
clearance characteristics to make it off-highway capable under Sec.
523.5(b), or meet one of the functional characteristics under Sec.
523.5(a) (e.g., greater cargo carrying capacity than passenger carrying
capacity). In other words, a 2WD vehicle of 6,000 lbs GVWR or less,
even if it has a sufficient number of clearance characteristics, cannot
be considered off-highway capable. This is based on the plain meaning
of Sec. 523.5(b) (which refers to a vehicle that ``has'' 4WD) and the
statute (49 U.S.C. 32901(a)(18)(b) speaks of a vehicle that ``is a 4-
wheel drive automobile''). No change in the regulatory definition is
needed. The clarification accomplishes NHTSA's purpose. This
clarification, which the vehicle manufacturers largely supported,
resulted in the re-classification of approximately 1.5 million 2WD SUVs
from light trucks to passenger cars in MY 2011. The result of this re-
classification is an increase of 0.3 mpg in the combined passenger car
and light truck standards for MY 2011.
As noted above, several commenters agreed with NHTSA's
clarification on the 2WD vehicles but asked for

[[Page 14420]]

assurance that it would be applied only to MY 2011 and later
production. The Alliance commented that it agreed that NHTSA's vehicle
classification ``regulations are consistent with congressional intent
as expressed by EPCA and EISA,'' and that it did ``not object to
NHTSA's interpretations and its proposed regulatory revisions to 49 CFR
Part 523, provided that these are effective with the 2011 model year.''
The Alliance argued that this would help avoid ``the need to reexamine
and re-issue standards for 2009 and 2010 model years,'' which the
Alliance stated had been ``developed based on a data set with 4x2
utilities included in the truck fleet.'' Ford agreed, arguing that
reclassifying 2WD SUVs for MYs 2008-2010 would ``make it more difficult
for many manufacturers to meet the light truck standards (as well as
the car standards) and would amount to an improper increase in the
stringency of the MY 2008-2010 standards.'' NHTSA hereby clarifies that
its intention is that its clarification on the treatment of 2WD
vehicles under Sec. 523.5(b) become effective with regard to MY 2011
vehicles. Applying that treatment earlier would require the agency to
change the standards for those model years, which the agency is
statutorily prevented from doing later than 18 months before the start
of the model year to which the amended standard applies, if the
standards would be more stringent.\483\
---------------------------------------------------------------------------

\483\ 49 U.S.C. 32902 (g)(2).
---------------------------------------------------------------------------

Some commenters noted that this clarification, although thoroughly
discussed in the NPRM, was not reflected in the stringency curves of
the proposed standard. NHTSA believes that its announced intention to
apply this clarification in the final rule was adequate notice to all
concerned that the stringency levels of the final rule would reflect
the concomitant movement of many 2WD vehicles from the light truck to
the passenger car fleet. Commenters who are manufacturers had every
opportunity to analyze how the change might affect their fleets and
comment accordingly. In the period since issuance of the NPRM, NHTSA
has had the opportunity to evaluate new manufacturer product plans in
order to analyze the full impact of the clarification on the standard.
As noted above, this change has resulted in an increase in the
standards and fuel savings for MY 2011. The final curves for passenger
cars and light trucks reflect this change.
Nissan disagreed with NHTSA's proposal to classify certain 2WD SUVs
as passenger cars, offering the following basic arguments: (1) That
NHTSA has always interpreted and set standards with 2WD SUVs as light
trucks, even in the MY 2008-2011 CAFE rule (as evidenced, for example,
by the CAFE reporting requirements that specify that a manufacturer
must indicate whether a light truck has 4WD--Nissan argued that that
presumed that some light trucks did not); (2) that NHTSA's 1981
interpretation states that vehicle classification is determined by the
base vehicle; (3) that classifying 2WD SUVs as light trucks because
they also come in 4WD is consistent with EPA emissions test procedures
which describe equipment as ``optional'' if a manufacturer expects less
than one-third of the models sold to be equipped with it;\484\ and (4)
that NHTSA must provide notice and comment before changing the
standards.
---------------------------------------------------------------------------

\484\ Thus, according to Nissan, if less than one-third of the
``variants'' of an SUV sold are 2WD, those 2WD variants are properly
classified along with the 4WD ``base'' vehicle.
---------------------------------------------------------------------------

With regard to Nissan's comment that NHTSA has always interpreted
and set standards with 2WD SUVs as light trucks, even in the MY 2008-
2011 CAFE rule, NHTSA has never stated that 2WD SUVs are necessarily
light trucks simply because they also come in 4WD, and in fact has
stated to the contrary. As early as 1980, in the final rule
promulgating light truck CAFE standards for MYs 1983-1985, NHTSA
responded to a comment from GM requesting a change to the regulatory
definitions to ensure that 2WD SUVs may be classified as light trucks
even if their GVWR fell below 6,000 pounds. NHTSA stated that, ``Under
the agency's current regulations in 49 CFR Part 523, such a change in
the vehicle's GVWR would result in their being classified as passenger
automobiles.'' Although NHTSA's technical analysis for the 1980 final
rule ``treat[ed] 4x2 utility vehicles * * * as light trucks, consistent
with the classification of current vehicles,'' NHTSA expressly
cautioned that ``this treatment should not be interpreted as a
statement by the agency that all future designs of 4x2 utility vehicles
* * * will continue to be classified as light trucks.'' \485\ NHTSA
also stated as much in a 1981 letter of interpretation, discussed in
greater detail below. Thus, in response to Nissan's comment, while
NHTSA has previously set standards with 2WD SUVs as light trucks, the
agency has long held that 2WD SUVs are not inherently light trucks, and
that the definitions could be tightened in the future. The fact that
the reporting requirements include ``4WD (yes/no)'' does not, as Nissan
suggests, indicate that 2WD SUVs may be light trucks under Sec.
523.5(b) if their GVWR is less than 6,000 pounds.
---------------------------------------------------------------------------

\485\ 45 FR 81593, 81599-60 (Dec. 11, 1980).
---------------------------------------------------------------------------

Nissan's comments focus on how it believes NHTSA has construed and
applied its definitions in the past. But Nissan does not make an
argument that NHTSA's reading of its own rules, as proposed in the
NPRM, is not a reasonable reading of those rules. In fact, NHTSA
believes that it is reasonable to read a rule (Sec. 523.5(b)(1)(i))
that refers to a vehicle that ``has 4-wheel drive'' as encompassing
only vehicles that have 4WD. The same is true with regard to the
statute (49 U.S.C. 32901(a)(18)(B)), which speaks of a vehicle that
``is a 4-wheel drive automobile.'' NHTSA merely intends to read the
rule and statute according to their plain meaning.
NHTSA also disagrees that the November 1981 letter of
interpretation indicates that vehicle classification is always
determined by the base vehicle. In that letter, NHTSA used the term
``base vehicle'' for classifying vehicles under Sec. 523.5(a), not
Sec. 523.5(b). NHTSA has never used the term ``base vehicle'' to
describe a vehicle as off-highway capable and thus properly
classifiable under Sec. 523.5(b). A vehicle either is or is not off-
highway capable--the fact that the vehicle may also come in 4WD does
not make the 2WD version off-highway capable.
With regard to Nissan's comment about EPA emissions test procedures
describing equipment as ``optional'' if a manufacturer expects less
than one-third of the models sold to be equipped with it, NHTSA has
examined EPA's regulations and remains unconvinced that 2WD would be
the kind of ``optional'' equipment covered. EPA regulations describe
``optional'' equipment as an ``item'' that could add weight or
influence emissions in the test. If anything was ``optional''
equipment, then, it would appear to be the presence of 4WD, which both
adds weight to a vehicle and causes it to emit more pollution, compared
to 2WD.\486\ NHTSA would of course defer to EPA's interpretation of its
own regulations, but does not find Nissan's argument convincing for
purposes of this rulemaking.
---------------------------------------------------------------------------

\486\ See, e.g., 40 CFR 86.1832-01.
---------------------------------------------------------------------------

And finally, with regard to Nissan's comment that the agency was
reclassifying 2WD SUVs without providing notice and comment, NHTSA
disagrees--these changes have been made with full notice, as provided
in the NPRM, and an opportunity for comment, and are appropriate and
timely revisions to NHTSA's application

[[Page 14421]]

of Part 523. In the NPRM, NHTSA specifically sought comment on the
proposed changes to the vehicle classification system and whether
further changes were appropriate.
AIAM also disagreed with NHTSA's proposal to classify certain 2WD
SUVs as passenger cars. AIAM stated that larger 2WD SUVs had originally
been classifiable as light trucks per the statutory off-highway
definition, but that over time ``smaller, more fuel efficient versions
of SUVs were offered in the U.S. market.'' AIAM thus suggested that
NHTSA should classify ``all SUVs in the same category and provide lead-
time for manufacturers before the new criteria take effect,'' as NHTSA
had done for minivans and the ``three row'' requirement in its 2006
rule on light truck standards. In response, the agency notes that a
vehicle's fuel economy capability has no bearing on its proper
classification as a passenger car or as a light truck. NHTSA believes
that the lead time between when the final rule standards are
promulgated and when the revised definitions take effect (MY 2011)
should be sufficient for manufacturers, particularly given the
increasing consumer preference for higher fuel economy vehicles and
NHTSA's announced intention to move in this direction in the NPRM.
In summary, NHTSA believes its clarification of how, starting with
MY 2011, it will apply Sec. 523.5(b) to 2WD vehicles of 6,000 lbs or
less GVWR constitutes a reasonable and significant tightening of its
definitions related to vehicle classification. As a result, in MY 2011,
approximately 1.5 million vehicles formerly classified as light trucks
will be classified as passenger automobiles, which will produce an
average increase of 0.3 mpg in the combined passenger car and light
truck standards in those years.
(b) The Final Rule Amends Sec. 523.5(a)(4) To Prevent Gaming That
Might Jeopardize Fuel Savings Created by NHTSA's Clarified Position on
2WD Vehicles
In explaining in the NPRM (73 FR 24459) that 2WD SUVs would no
longer be classifiable as light trucks simply because a version is also
available in 4WD, NHTSA noted that, alternatively, a 2WD automobile may
properly be classified as a light truck under Sec. 523.5(a)(4) if it
provides ``greater cargo-carrying than passenger-carrying volume.'' In
that context, NHTSA mentioned a 1981 letter of interpretation to
GM.\487\ The 1981 letter stated that ``two-wheel drive utility vehicles
which are truck derivatives and which, in base form, have greater
cargo-carrying volume than passenger-carrying volume should be
classified as light trucks for fuel economy purposes.'' NHTSA stated in
the NPRM that ``base form'' means ``the version of the vehicle sold as
`standard,' without optional equipment installed, and does not include
a version that would meet the cargo volume criterion only if `delete
options' were exercised to remove standard equipment.'' NHTSA gave the
example of a base vehicle that comes equipped with a standard second-
row seat, which the agency stated could not be classified as a light
truck simply on the basis that the purchaser has an option to delete
that second-row seat.\488\
---------------------------------------------------------------------------

\487\ See http://www.nhtsa.dot.gov/cars/rules/interps/gm/81/nht81-3.36.html (last accessed September 23, 2008) for the full text
of the letter of interpretation to GM.
\488\ 73 FR 24459, fn. 207 (May 2, 2008).
---------------------------------------------------------------------------

In its comments, GM urged NHTSA to incorporate the definition of
``base form'' into Part 523. However, it is possible that a literal
application of the 1981 letter's definition of ``base form'' could
result in gaming of the classification system. For example, with regard
to a particular vehicle, a manufacturer could describe as optional a
second-row seat that is in fact an item that the manufacturer expects
to install in nearly every vehicle of that model. In fact, even with
regard to a vehicle that has long come equipped with a second-row seat
as standard equipment, the manufacturer could suddenly describe that
seat as optional. Even if most, or even all, vehicles of that model
continued to be sold with second-row seats, the manufacturer's mere
description of the seat as optional could, if the manufacturer's
description of the vehicle's ``base form'' were the only consideration,
allow the manufacturer to argue that the vehicle is a light truck
because its base form has greater cargo-carrying than passenger-
carrying volume.
The vehicles described by GM in the 1981 correspondence have little
relation to the 2WD SUVs of today. To the best of the agency's
knowledge, most 2WD SUVs are routinely offered with a standard full
bench or pair of captain's chairs in the second row. Additionally, far
fewer 2WD SUVs manufactured today are based on a truck chassis. To
permit a manufacturer to continue to sell 2WD SUVs with second-row
seats and consider them light trucks merely because the manufacturer
has decided to list those seats as an option rather than as a standard
feature of the base vehicle would be to stand the November 1981
interpretation on its head. That interpretation was intended to prevent
gaming of the ``greater cargo-carrying volume'' category of light
trucks by limiting it to vehicles where carrying cargo was clearly the
primary function for which the vehicle was designed. We cannot permit
that interpretation to be used to produce the precisely opposite
result, i.e., to categorize 2WD vehicles that are primarily designed to
be sold with a second-row seat for passengers as light trucks merely
because the manufacturer suddenly labels the second-row seat as an
option.
Therefore, in response to comments and consistent with Congress'
intent in EISA, starting with MY 2011, 2WD SUVs (including crossovers
that are 2WD) may only be properly classified as light trucks under
Sec. 523.5(a)(4) if they are, like cargo vans, designed and sold
primarily to serve a cargo-carrying function. The final rule amends
that section to say: ``Provide, as sold to the first retail purchaser,
greater cargo-carrying than passenger-carrying volume, such as in a
cargo van; if a vehicle is sold with a second-row seat, its cargo-
carrying volume is determined with that seat installed, regardless of
whether the manufacturer has described that seat as optional.'' In
light of this clarifying rule text, there is no need at this time to
provide a definition for ``base form.'' The manufacturer must
categorize its vehicles based upon the vehicle attributes when it is
sold. If a cargo van is manufactured as such with no rear seating and
is sold in that configuration then it can be considered a light truck
under Sec. 523.5(a)(4). If the same vehicle is sold with rear seating,
it cannot be a truck under Sec. 523.5(a)(4). GM's HHR provides an
example of this concept. The HHR is available and sold in a ``panel''
version with no rear seating and a passenger version with rear seating.
The panel version if actually sold that way can be a light truck under
Sec. 523.5(a)(4); the passenger version, when sold with rear seating,
cannot be a truck under Sec. 523.5(a)(4) even if the manufacturer were
to label that seating as optional.
Thus, through interpretation and changes to the rule text, NHTSA
has significantly tightened the definitions governing which vehicles
may be classified as light trucks. 2WD SUVs of 6,000 lbs or less GVWR
may no longer be properly classified as light trucks under Sec.
523.5(b) simply because they also come in 4WD. Additionally, 2WD SUVs
may not be properly classified as light trucks simply because a
manufacturer asserts that their base form has no back seat and thus
would ``provide greater cargo-carrying than

[[Page 14422]]

passenger-carrying volume'' according to Sec. 523.5(a)(4).
2. Especially as Tightened by This Rule, NHTSA's Classification
Definitions Are More Difficult To Game Than Commenters Suggest
As described above, this final rule effectuates significant changes
in NHTSA's definitions and their interpretation that will substantially
reduce any opportunities to game those definitions. NHTSA disagrees
with the commenters' argument that the standards allow manufacturers to
``game'' the definitions by making minor changes to vehicles to obtain
a light truck classification and thus, a lower fuel economy target.
Several commenters, including Sierra Club et al., UCS, and Honda
commented that manufacturers are ``gaming'' the existing definitions by
making changes to passenger cars in order to classify them as light
trucks and obtain the benefit of lower fuel economy targets. UCS
suggested that the ``loophole'' is a function of both the statutory
requirement to set separate standards for passenger cars and light
trucks, which ``accommodat[es] an industry interest in having non-
passenger vehicles held to less stringent fuel economy standards than
passenger vehicles of the same attribute,'' and of NHTSA's ``equating
SUVs, minivans, crossovers and even some station wagons with non-
passenger vehicles.'' UCS argued that ``The association of these
categories has allowed automakers to tweak passenger vehicle
characteristics in order to have them classified as light trucks that
are held to lower fuel economy standards.'' The Sierra Club stated that
the current definitions are being abused, with manufacturers
classifying as light trucks ``obvious examples [of] many sedans and
station wagons, such as the Chrysler PT Cruiser, Dodge Magnum, and the
Subaru Outback sedan,'' as well as ``SUVs and minivans [which] are
advertised, sold, and used as passenger vehicles.'' Sierra Club argued
that the attribute-based system, under which manufacturers are subject
to standards based on their fleet mix, encourages further gaming, as
evidenced by the ``surge in `crossover' vehicles that are more car-like
and intended as passenger vehicles but are still classified as non-
passenger vehicles and can therefore meet a lower fuel economy than
cars.'' Honda stated that NHTSA should change the light truck
definitions because ``the current system is much too easy to game,
which creates competitive impacts and diverts limited engineering
resources to figuring out how to game the latest rules instead of
improving fuel economy,'' and ``in the long run, * * * will also
encourage shifting sales towards vehicles classified as light trucks
and cause increases in real world fuel consumption.''
In response to the above comments, NHTSA notes that separate
standards for passenger cars and light trucks are a statutory
requirement under EISA. NHTSA believes, as explained elsewhere in this
notice, that that requirement extends to setting the target curves for
the passenger car fleet based only on the passenger cars, and the
target curves for the light truck fleet based only on the light trucks.
NHTSA does not believe that it has the authority to combine the fleets
for the purposes of setting the standards.
Moreover, with regard to ``crossovers'' and commenters' examples of
``many sedans and station wagons'' being classified as light trucks,
the agency notes that as a result of the tightened implementation of
our vehicle definitions, many crossovers are in fact now properly
classified as passenger cars. To the extent that crossovers are not
classified as passenger cars, it is, we believe, only because they
either (1) have 4WD and meet 4 out of 5 ground clearance
characteristics; (2) are over 6,000 lbs GVWR and meet 4 out of 5 ground
clearance characteristics; or (3) have three rows of seats and the
capability to expand cargo-carrying volume through folding or removing
seats.
Of the specific examples of the PT Cruiser, the Dodge Magnum, and
the Subaru Outback sedan, NHTSA believes that manufacturers currently
classify these vehicles as light trucks either because they come in
four-wheel drive and have the required ground clearance, or because
their rear seats may be easily removed to create a flat, floor level
surface that increases cargo-carrying capacity. After MY 2011, vehicles
may only be classified as light trucks on the basis of permitting
expanded use of the vehicle for cargo-carrying purposes if they have
three rows of standard designated seating positions that fold flat or
are removable. As currently designed, the PT Cruiser and the Magnum do
not meet this requirement, so NHTSA would likely classify these
vehicles as passenger cars as well. If the Outback sedan does in fact
have 4WD (or AWD) and meet the required ground clearance
characteristics, NHTSA is required by EPCA and EISA to consider it a
light truck, regardless of its body shape.
Finally, NHTSA believes that minor changes are not sufficient, and
that fairly major changes would be necessary in order to reclassify a
passenger car as a light truck. To make a 2WD SUV a light truck, for
example, manufacturers would need either to add a third row of seats to
it (and otherwise meet the requirements for expanded cargo space)
convert it to 4WD, or raise its GVWR over 6,000 lbs and ensure that it
met 4 out of the 5 ground clearance characteristics. These changes are
not minor, and likely can be made only every few years at the time of
one of the periodic vehicle redesigns. Additionally, the minor benefit
to be gained in terms of a lower target must be balanced against
consumer demand. In a time of high gas prices and increasing consumer
interest in high fuel economy vehicles, it seems unlikely to NHTSA that
manufacturers would take the risk of turning passenger cars into light
trucks solely to obtain the slightly lower light truck target standard.
3. Additional Changes in NHTSA's Classification Definitions Would Not
Result in Greater Fuel Savings and Lower CO2 Emissions
We have explained above the recategorization of 2WD vehicles that
will result from NHTSA's tightening of its classification definitions.
NHTSA considered whether recategorization of additional vehicles
through further changes to its classification definitions would result
in additional fuel economy improvements and therefore lower emissions
of carbon dioxide. One of the concerns underlying the Ninth Circuit's
decision in CBD was the potential impact of vehicle categorization on
the ultimate fuel economy for light trucks. The commenters, too, were
concerned about this in general. NHTSA has considered this issue
carefully. In 2006, when NHTSA issued its MY 2008-2011 light truck fuel
economy rule, and in 2007, when the Ninth Circuit issued its initial
opinion in CBD concerning that 2006 light truck rule, EISA had not been
enacted. Under EPCA as it then existed, the passenger car standard was
a flat 27.5 mpg average requirement. Re-classifying light trucks (which
had a standard far below 27.5 mpg) as passenger cars, in the flat pre-
EISA world, intuitively would have resulted in their having to meet a
higher standard, or in the manufacturers' having to build more small,
lightweight vehicles in order to balance out former light trucks newly
subject to the higher passenger standard, and could have resulted in
more fuel savings. This assumption may no longer be correct, because
such a recategorization could now result in lower standards for
passenger automobiles.

[[Page 14423]]

In EISA, Congress made both the passenger car and light truck
standards attribute-based, which means that the fuel economy target
curves for each standard are a function of the fleet subject to that
standard. In developing the curves that determine fuel economy targets
for each vehicle footprint, NHTSA fits the curve based in part on the
sizes (footprint) and fuel economy levels (given the estimated effects
of adding fuel-saving technologies) of the vehicles in each regulatory
class. Consider, for example, a small SUV typically classified as a
light truck, and assume that the small SUV gets relatively good fuel
economy for a truck. Moving the small SUV out of the truck fleet may
reduce the overall average fuel economy level required of light trucks,
because the vehicles remaining in that regulatory class will be the
larger ones that have relatively lower fuel economy. Averaging their
capabilities will result in a lower target than if the small SUV in
question remained in the light truck fleet. Moving the SUV into the
passenger car fleet may either boost or lower the average fuel economy
level required of passenger cars, depending on how the size and
potential fuel economy of the given SUV compares to those of the
vehicles that were already classified as passenger cars.
NHTSA's analysis indicates that the direction and magnitude of the
net effects of vehicle re-classification depend on the composition of
the fleet and the specific nature of the change in classification. As
shown in Figure XI-1, assigning 2WD SUVs and those vehicles that do not
meet the third row requirement to the passenger car fleet would add to
the passenger car fleet a set of vehicles (labeled ``PC Formerly
Classified as LT'') with fuel economy levels that are generally (though
not universally) in the same range as those of passenger cars of
similar footprint. However, further reassigning to the passenger car
fleet minivans and vehicles that do meet the third row requirement, as
commenters appear to suggest, would add to the passenger car fleet a
set of vehicles (labeled ``LT Reassigned to PC under Alternative
Definition'') with fuel economy levels that are generally (though not
universally) lower than those of passenger cars of similar footprint.
Figure XI-2 shows how the composition of the light truck fleet is
affected by such shifts. Reassigning either the smaller or larger group
of vehicles to the passenger car fleet removes from the light truck
fleet vehicles that are generally (though not universally) smaller and
more efficient than the vehicles that remain in the light truck fleet.
In contrast, a number of commenters, including CBD, Sierra Club et
al., and UCS, did not address NHTSA's discussion and commented that
NHTSA should revise the definitions of passenger car and light truck in
accordance with the Ninth Circuit's opinion, generally for the purpose
of increasing fuel savings. Honda also commented that NHTSA should
revise its definitions to be consistent with that opinion. None of
those commenters specified precisely which vehicles should be
reclassified as passenger cars instead of light trucks.
[GRAPHIC] [TIFF OMITTED] TR30MR09.092

[[Page 14424]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.093

The following table shows how, for MY 2011, reclassifying 2WD SUVs
by virtue of NHTSA's tightened classification decisions changed average
required CAFE levels, and how additionally reclassifying minivans and
vehicles that do not meet the third row requirement would have changed
average required CAFE levels. The overall averages reflect changes in
the size of each fleet under each approach to vehicle classification,
again bearing in mind that ``Alternative Definition'' in the tables
refers to moving all light trucks that meet the 3-rows criterion of
Sec. 523.5(a)(5)(ii) into the passenger car fleet.
[GRAPHIC] [TIFF OMITTED] TR30MR09.094

Similarly, the next table shows how these changes in vehicle
classification affected the amount of fuel consumed over the useful
lives of vehicles in the MY 2011 fleet.
[GRAPHIC] [TIFF OMITTED] TR30MR09.095

[[Page 14425]]

As discussed above, in the context of the MY 2011 passenger car and
light truck standards, moving about 1.5 million 2WD SUVs from the light
truck to the passenger car fleet results in an average increase of 0.3
mpg in the combined passenger car and light truck standards for MY
2011. However, specific fleet differences are such that this change
leads to increases in lifetime fuel consumption and carbon dioxide
emissions of about 0.03 billion gallons and 0.06 million metric tons,
respectively, than under standards that would apply under the former
definitions.\489\ This is due to the fact that the reassignment of
vehicles changed the shapes of the passenger car and light truck target
curves, which caused different results for different manufacturers
depending on their fleet mixes. Although the overall combined average
required fuel economy increases by 0.3 mpg, the overall average
achieved fuel economy decreases very slightly (by about 0.009 mpg),
such that total fuel consumption and emissions are very slightly
higher, as noted. This occurs because for both Ford and General Motors,
the reassignment of vehicles causes the planned CAFE levels of these
manufacturers' light truck fleets to fall by 0.7 mpg (Ford) and 0.8 mpg
(General Motors), but causes the corresponding required CAFE to fall by
only 0.3 mpg, and causes the corresponding achieved CAFE levels to fall
by 1.2 mpg (Ford) and 0.8 mpg (General Motors).\490\
---------------------------------------------------------------------------

\489\ NHTSA's analysis of the effects of then-pending MY 2011-
2015 standards, documented in the October 2008 EIS, indicated that
the reclassification reflected in today's final rule would reduce
the total lifetime fuel consumption and carbon dioxide emissions (p.
10-229) of vehicles sold during this period.
\490\ We note that in both cases, NHTSA's analysis did not
identify a set of technologies that enabled these manufacturers to
attain the required light truck CAFE levels.
---------------------------------------------------------------------------

It is possible, as some industry commenters suggested, that
manufacturers will respond to the tightening of the definition by
ceasing to build 2WD versions of SUVs, which could reduce fuel savings.
However, NHTSA expects that manufacturer decisions will be driven in
much greater measure by consumer demand than by NHTSA's regulatory
definitions. In this era of high gasoline prices and increasing
consumer interest in high fuel economy vehicles, NHTSA believes that
there will still be demand for 2WD SUVs, whether they are classified
for CAFE purposes as passenger cars or as light trucks.\491\
---------------------------------------------------------------------------

\491\ Of course, the agency recognizes that if manufacturers do
cease to build and sell 2WD SUVs in response to this tightening of
the definition, fuel savings would likely decrease relative to
NHTSA's estimates in this final rule.
---------------------------------------------------------------------------

Nevertheless, going further and reclassifying other light trucks as
passenger cars, as some commenters would have NHTSA do, would change
the form and stringency of the curves for the maximum feasible
standards. It would reduce the overall average required CAFE level by
an average of 0.1 mpg MY 2011 and reduce lifetime fuel and carbon
dioxide savings by about 0.13 billion gallons and 0.64 million metric
tons, respectively.\492\ Accordingly, EPCA and EISA's overarching
purpose of energy conservation would not be better fulfilled by further
changing the vehicle classifications.
---------------------------------------------------------------------------

\492\ The October 2008 EIS also indicates that for the analysis
of the effects of then-pending MY 2011-2015 standards, the
reclassification of minivans and 2WD SUVs with 3 rows would reduce
overall average required CAFE levels by an average of 0.4 mpg during
MYs 2011-2015, raising total lifetime fuel consumption and carbon
dioxide emissions (p. 10-231) of vehicles sold during this period.
---------------------------------------------------------------------------

4. The Vehicle Classification Definitions Embodied in This Final Rule
Are Consistent With NHTSA's Statutory Authority and Respond to the
Ninth Circuit's Opinion
Some commenters (Public Citizen, Sierra Club, CBD) argued broadly
that the standards do not reflect the fact that many light trucks are
used as passenger vehicles, and that, therefore, more of them should be
classified as passenger cars. NHTSA discussed at length in the NPRM
that the fact that vehicles are used for personal transportation does
not make them passenger cars for purposes of CAFE. The commenters'
argument overlooks the statutory definition of passenger automobile.
Passenger automobiles were defined in EPCA as ``any automobile (other
than an automobile capable of off-highway operation) which the
Secretary [i.e., NHTSA] decides by rule is manufactured primarily for
use in the transportation of not more than 10 individuals.'' EPCA Sec.
501(2), 89 Stat. 901. The statute does not employ the word ``used.'' If
Congress had wanted all vehicles used to transport passengers to be
classified as passenger automobiles, it would have said ``used
primarily'' in EPCA, instead of ``manufactured primarily.'' The
definition of ``passenger automobile'' itself excludes two types of
passenger-carrying vehicles: (1) Vehicles capable of off-highway
operation regardless of whether they transport any number of
passengers, and (2) vehicles manufactured primarily to transport more
than 10 passengers. This indicates that Congress envisioned from the
start of the program that some vehicles would be used for passenger
transportation but, for fuel economy purposes, not be classified as
passenger automobiles. Congress also authorized NHTSA to define, by
rule, those vehicles ``manufactured primarily'' for carrying 10 or
fewer passengers, indicating that Congress also envisioned that other
passenger-carrying vehicles would be excluded from the definition if
manufactured primarily for another purpose.
NHTSA refers readers to the discussion in the NPRM at 73 FR 24458-
24461 (May 2, 2008) for additional information on this issue. See
further the discussion of EPCA's legislative history in the proposal
and final rule establishing NHTSA's vehicle definition regulation. 41
FR 55368, 55369-55371, December 20, 1976, and 42 FR 38362, 38365-38367,
July 28, 1977. That discussion, and not the incorrect and anomalous
description of it in a preliminary notice published by the agency in
late 2003 (68 FR 74908, 74926, December 29, 2003), represents the
agency's historical position.
NHTSA also explained in the NPRM that in EISA Congress specifically
addressed the vehicle classification issue. It redefined
``automobile,'' added a definition of ``commercial medium- and heavy-
duty on-highway vehicle,'' defined ``non-passenger automobile'' and
defined ``work truck.'' Significantly, it did not change other
definitions and its new definition of ``non-passenger automobile,''
which is most relevant in this context, in no way contradicted how
NHTSA has long construed that term. In enacting EISA, Congress
demonstrated its full awareness of how NHTSA classifies vehicles for
fuel economy purposes and chose not to alter those classifications.
That strongly suggests Congressional approval of the agency's 30-year
approach to vehicle classification.
Moreover, Congress has given clear direction that overall
objectives must be obtained regardless of vehicle classification. EISA
adds a significant requirement to EPCA--the combined car and light
truck fleet must achieve at least 35 mpg in the 2020 model year. Thus,
regardless of whether the entire fleet is classified as cars or light
trucks, or any proportion of each, the result must still be a fleet
performance of at least 35 mpg in 2020. This suggests that Congress did
not want to spend additional time on the subject of whether vehicles
are cars or light trucks. Instead, Congress focused on mandating fuel
economy performance, regardless of classifications.
A number of commenters, including Sierra Club, UCS, and Honda,
disagreed

[[Page 14426]]

with the idea that Congress had expressed approval of NHTSA's
classification system through its changes in EISA. The commenters
argued instead that Congress's failure to address NHTSA's definitions
for passenger car and light truck could just as well represent
Congress's agreement with the Ninth Circuit's opinion in CBD, which
found NHTSA's failure to revise its definitions or adequately explain
its decision not to revise them to be arbitrary and capricious. UCS
referred to Representative Edward Markey's (D-MA) extended comments on
the Senate amendments to H.R. 6, which he submitted to the
Congressional Record upon EISA's passage, and in which he stated that

Section 106 is intended to clarify that Title I does not impact
fuel economy standards or the standard-setting process for vehicles
manufactured before model year 2011. This section is not intended to
codify, or otherwise support or reject, any standards applying
before model year 2011, and is not intended to reverse, supersede,
overrule, or in any way limit the November 15, 2007 decision of the
U.S. Court of Appeals for the Ninth Circuit in Center for Biological
Diversity v. National Highway Traffic Safety Administration (No. 06-
71891).\493\
---------------------------------------------------------------------------

\493\ See, e.g., Representative Markey's insertions at 153 CONG.
REC. H14253 (editor's note) and H14444 (daily ed. Dec. 6, 2007)
(statement of Cong. Markey).

Sierra Club and UCS argued that Rep. Markey's extended remarks indicate
that Congress did not intend to nullify the decision of the Ninth
Circuit. Honda also argued that ``If [Congress] did not agree with the
court order, they would have addressed it in EISA.''
NHTSA has carefully considered the discussion of this issue in the
extension of remarks by Rep. Markey. No Senate, House, or conference
reports were created during the legislative process that culminated in
EISA. The floor statements during Congressional consideration of EISA
are also sparse. In any event, however, floor statements, regardless of
who made them, are entitled to less weight than conference reports
(even if they existed here) because they may not represent statements
on the final terms of a bill agreed to by both houses.\494\ Various
members, including Representative Markey, also inserted material into
the Congressional Record after floor debate. Materials inserted by
members after congressional action are not indicative of congressional
intent.\495\
---------------------------------------------------------------------------

\494\ See, e.g., In re Burns, 887 F.2d 1541 (11th Cir. 1989).
See also In re Kelly, 841 F.2d 908, 913 n. 3 (9th Cir. 1988)
(``Stray comments by individual legislators, not otherwise supported
by statutory language or committee reports, cannot be attributed to
the fully body that voted on the bill. The opposite inference is far
more likely.'')
\495\ See, e.g., Sigmon Coal Co., Inc. v. Apfel, 226 F.3d 291,
304-05 (4th Cir 2000) (quoting INS v. Cardoza-Fonseca, 480 U.S. 421,
432 n. 12 (1987)), aff'd sub. nom., Barnhart v. Sigmon Coal Co.,
Inc., 534 U.S. 438 (2002), and Shannon v. United States, 512 U.S.
573, 583 (1994).
---------------------------------------------------------------------------

Regardless of the weight that might be accorded to Rep. Markey's
remarks, Congress did not amend the definition of ``passenger
automobile'' or direct the agency to amend the definition of that term
in the agency's classification regulation, and Rep. Markey's remarks do
not contradict, much less address, these points.
Moreover, even if Congress' intent was not to disturb the Ninth
Circuit's decision with regard to vehicle classification, NHTSA's
action is responsive to the Court's concerns and consistent with the
Court's decision. The court said, ``Thus, we remand to NHTSA to revise
its regulatory definitions of passenger automobile and light truck or
provide a valid reason for not doing so.'' 538 F.3d at 1209. In
reaching its conclusion, the court stated that NHTSA had failed to
follow a NAS recommendation that NHTSA ``tighten'' its definition of
light truck, ``a step EPA has already taken for emissions standards
purposes.'' Id. The court did not indicate specifically how it thought
NHTSA should change its definitions or what would constitute a valid
reason for not doing so.
As explained at length above, NHTSA has, since the court's
decision, made significant changes in how it applies its light truck
definition and, in this final rule, in one aspect of the definition
itself. In order to be classified as off-highway capable, a vehicle
weighing 6,000 lbs GVWR or less must actually have 4WD. And, only
vehicles actually manufactured and sold without second-row seats will
be considered as having greater cargo-carrying volume than passenger-
carrying volume. The first change has resulted in moving approximately
1.5 million vehicles from the light truck category to the passenger
category in the years covered by this rule, which raises the MY 2011
combined standards by 0.3 mpg. The second change will help prevent any
gaming of the tightened definition based on a manufacturer's arbitrary
declaration of what constitutes a vehicle's ``base form.'' These
changes constitute a very significant tightening of NHTSA's vehicle
classification standards, which is what the court indicated was
necessary. Moreover, the agency has also explained above in great
detail why further changes to its definitions would not improve, and
would in fact weaken, the fuel economy standards and accompanying fuel
savings.
With regard to the argument that EPA's definitions are ``tighter''
than NHTSA's, NHTSA notes that this is not an apt comparison for
several reasons. First, the NAS Report and the Ninth Circuit are
referring to EPA's Tier 2 criteria pollutant emissions requirements for
mobile sources.\496\ These requirements are different from the CAFE
requirements. The effect of having more light trucks on the roads (and
thus wanting to limit their classification as light trucks) is greater
for criteria pollutant emissions purposes than for CAFE purposes.
---------------------------------------------------------------------------

\496\ NAS Report at 88; CBD, 538 F.3d at 1209.
---------------------------------------------------------------------------

Second, EPA continues to use the same definitions as NHTSA does for
CAFE purposes.\497\ Even though EPA has changed its definitions for
Tier 2 purposes, the effect of those changes was to move only four
vehicle models--the Chrysler PT Cruiser, the Chevrolet HHR, the Honda
Element, and the Dodge Magnum--whose combined production is currently
less than 250,000 per year (less than 20 percent of the number of
vehicles reclassified as a result of our tightening the implementation
of our vehicle definitions). As discussed above, none of these vehicles
currently come in 4WD or meet the 3-row fold-flat requirement, so as
currently designed, starting in MY 2012, NHTSA would likely classify
these vehicles as passenger cars as well.
---------------------------------------------------------------------------

\497\ See 40 CFR Part 600.002-93.
---------------------------------------------------------------------------

And third, after MY 2009, EPA will have no distinction between
passenger cars and light trucks for Tier 2 purposes--all vehicles will
be subject to the same standard. In summary, EPA's action has little
relevance to vehicle classification for CAFE purposes. This is proved
by the fact that EPA ultimately intends to do away with the distinction
between passenger car requirements and light truck requirements in Tier
2, an option that EPCA would not permit NHTSA to implement for CAFE.
Accordingly, NHTSA believes that the vehicle classification
standards and clarification of those standards embodied in this final
rule are consistent with Congress's directives in EPCA and EISA, and
respond to the Ninth Circuit's decision with regard to vehicle
classification.

XII. Flexibility Mechanisms and Enforcement

This section addresses comments received on the enforcement aspects
of the flexibility mechanisms provided by EPCA and EISA for
manufacturers in

[[Page 14427]]

complying with the CAFE standards. These mechanisms include payment of
civil penalties or fines; trade, transfer, and application of credits
earned for over-compliance; and the manufacturing incentive for dual-
fueled automobiles. Section VII.C.5 above addresses comments received
with respect to how these flexibility mechanisms interact with the
standard-setting process. Additionally, although this section does not
repeat NHTSA's overview in the NPRM of the CAFE enforcement program,
because no comments were received on it, NHTSA refers interested
readers to the discussion in that document at 73 FR 24461 (May 2,
2008).

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

In the NPRM, NHTSA explained that the civil penalty for failing to
comply with a CAFE standard, as adjusted for inflation by law,\498\ 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. NHTSA has collected $772.9 million in total penalties
as of January 16, 2009.
---------------------------------------------------------------------------

\498\ Federal Civil Penalties Inflation Adjustment Act of 1990,
28 U.S.C. 2461 note, as amended by the Debt Collection Improvement
Act of 1996, Pub. L. 104-134, 110 Stat. 1320, Sec. 31001(s).
---------------------------------------------------------------------------

NHTSA also explained that EPCA authorizes increasing the civil
penalty up to $10, exclusive of inflationary adjustments, if NHTSA
decides that the increase in the penalty--
(i) Will result in, or substantially further, substantial energy
conservation for automobiles in model years in which the increased
penalty may be imposed; and
(ii) Will not have a substantial deleterious impact on the economy
of the United States, a State, or a region of a State.\499\
---------------------------------------------------------------------------

\499\ 49 U.S.C. 32912(c).
---------------------------------------------------------------------------

NHTSA explained that it did not intend to change the penalty in
this rulemaking, but sought comment on whether it should initiate a
proceeding to consider raising the civil penalty, since it recognized
that paying penalties could be a less expensive way for manufacturers
to comply with CAFE standards than by applying technology or by buying
credits from other manufacturers.
GM, Ferrari, Porsche, Volkswagen, Mercedes, and NADA commented that
NHTSA should not raise fines and should not initiate rulemaking to
consider doing so, because doing so would not substantially improve
energy conservation. All manufacturers who commented on this issue took
exception with what they considered to be NHTSA's characterization in
the NPRM that manufacturers were choosing to pay penalties as a
strategic decision instead of adding fuel saving technology to their
vehicles. Ferrari, Porsche, Volkswagen, and Mercedes generally argued
that because of the nature of their products, increasing fines would
not improve their vehicles' fuel economy performance, due to the
demands of the market for luxury performance vehicles. Volkswagen and
Mercedes both stated that they had already employed many if not all of
the technologies considered by NHTSA in the NPRM, and that higher
penalties thus would be no incentive for them to apply more technology.
Porsche and Mercedes argued that raising penalties would only serve to
punish ``niche manufacturers'' offering a limited line of vehicles.
Mercedes also argued that NHTSA had suggested in the NPRM that an
increase in civil penalties would be ameliorated by the new regulation
permitting credit trading, because Mercedes anticipated that the credit
trading market would not likely be very robust.
NADA commented that it is ``premature'' to initiate proceedings to
raise the civil penalties, because ``While historically a few
manufacturers have found paying civil penalties to be substantially
less expensive than installing fuel saving technologies, no evidence
exists to suggest that vehicle manufacturers that have never paid a
fine will choose to do so rather than attempt to comply with the 2011-
2015 standards.'' NADA argued that NHTSA should only initiate
rulemaking to increase penalties when it ``can show that vehicle
manufacturers are electing to pay fines as an alternative to investing
in fuel saving technologies.''
In contrast, UCS and ACEEE commented that NHTSA should raise fines
in order to compel manufacturers to add more fuel economy-improving
technologies to their vehicles. UCS commented that because the NPRM
indicated that ``a significant number of manufacturers will opt for
civil penalties over compliance with fuel economy requirements,'' thus,
``Increasing the civil penalty would ensure the benefits are actually
realized.'' UCS stated that the penalty has been $5 since EPCA was
enacted in 1975, and argued that ``inflation has devalued that
penalty'' over time, such that ``A fine of equivalent value today would
need to be more than $20 per 0.1 mpg.'' \500\ UCS argued that NHTSA
should ``use existing authority to increase the CAFE noncompliance
civil penalty from $5 to $10 per 0.1 mpg,'' in order to increase its
effectiveness in light of the ``escalating economic and environmental
importance of energy conservation.''
---------------------------------------------------------------------------

\500\ UCS cited http://data.bls.gov/cgi-bin/cpicalc.pl, stating
``Comparison between 1975 and 2008.''
---------------------------------------------------------------------------

ACEEE also commented that NHTSA should consider raising the
penalty. Although ACEEE recognized that historically ``the incentive to
meet CAFE has been for some manufacturers far greater than the avoided
cost of CAFE fines, because those companies, or their shareholders,
attach great importance to complying with all applicable laws,'' it
argued that ``DaimlerChrysler's payment of substantial fines for MY
2006 may signal increased willingness on the part of manufacturers to
fall short of CAFE standards, even if this means incurring fines.''
Thus, since even NHTSA recognized that paying penalties may be less
expensive than applying technologies to meet CAFE standards, ACEEE
concluded that NHTSA should consider raising the penalty.
Agency response: NHTSA will take these comments into consideration
in deciding whether to initiate rulemaking to raise the civil penalty
for CAFE non-compliance. However, NHTSA wishes to respond to three
points raised by commenters at this time. First, as discussed in the
NPRM, the CAFE penalty was raised to $5.50 by application of an act of
Congress, effective in model year 1998, to account for inflation, and
prior to that was $5 since 1975 as stated by UCS. Second, in contrast
to Mercedes' comments, NHTSA never suggested in the NPRM that it would
consider raising penalties because of the additional compliance
flexibility allowed by the credit transfer and trading programs. NHTSA
may only raise penalties if doing so would ``result in, or
substantially further, substantial energy conservation,'' as
established by statute. With regard to the manufacturers who argued
that their fleet mix forces them to pay penalties, NHTSA would like to
clarify that under the attribute-based Reformed CAFE system, each
manufacturer has its own required fuel economy level based on its
particular mix of vehicles. NHTSA will continue to review the statutory
criteria (i.e., whether increased penalties would substantially further
energy conservation and the likely economic effects of higher
penalties) in deciding whether to initiate rulemaking to raise

[[Page 14428]]

the civil penalty for CAFE non-compliance.

B. CAFE Credits

As discussed in the NPRM, the ability to earn and apply credits has
existed since EPCA's original enactment,\501\ but the potential for
trading credits, i.e., selling credits to other manufacturers or buying
credits from them, was first raised in the 2002 NAS Report. NAS found
that
---------------------------------------------------------------------------

\501\ The credit provision (currently codified at 49 U.S.C.
32903) was originally section 508 of EPCA's Public Law version.

Changing the current CAFE system to one featuring tradable fuel
economy credits and a ``cap'' on the price of these credits appears
to be particularly attractive. It would provide incentives for all
manufacturers, including those that exceed the fuel economy targets,
to continually increase fuel economy, while allowing manufacturers
flexibility to meet consumer preferences.\502\
---------------------------------------------------------------------------

\502\ NAS Report, Finding 11, at 113.

However, as also discussed in the NPRM, Congress did not grant NHTSA
authority to implement credit trading and transfer programs \503\ until
the passage of EISA in December 2007. Section 104 of EISA not only gave
NHTSA authority to implement credit trading and transfer programs, but
also extended the carry-forward period for credits from 3 to 5 years.
---------------------------------------------------------------------------

\503\ ``Trading'' refers to movement of credits between the
earning manufacturer and another entity. ``Transfer'' refers to
application of a manufacturer's credits to one of its fleets other
than the fleet in which the credits were earned.
---------------------------------------------------------------------------

In the NPRM, NHTSA proposed a new Part 536 setting up these two
credit programs, and sought comment generally on (1) whether the agency
had correctly interpreted Congress' intent; (2) whether there were any
ways to improve the proposed credit trading and transferring systems
consistent with EISA and Congress' intent that the agency might have
overlooked; and (3) whether any of the aspects of the programs proposed
by the agency were either inconsistent with EISA and Congress' intent
or the rest of the CAFE regulations, or were otherwise unworkable.
NHTSA received a number of comments on the proposed Part 536, which
the agency has divided by issue below.
Comments Regarding Credits Generally
Who may be credit holders?
NHTSA stated in the NPRM that although only manufacturers may earn
credits and apply them toward compliance, NHTSA would allow credits to
be purchased or traded by both manufacturers and non-manufacturers in
order to facilitate greater flexibility in the credit market.
NHTSA received comments regarding this proposed decision from AIAM,
NADA, and the Wisconsin DNR, all of which were in favor of the
decision, and generally stated that the additional flexibility in the
credit market would facilitate and improve the market for credits. NADA
cautioned that it did not believe the market would be particularly
robust due to competitive concerns, but did suggest that the market
would be enhanced by allowing non-manufacturers to purchase and sell
credits.
Agency response: Comments favored the decision to allow non-
manufacturers to be credit holders, and because NHTSA continues to
believe that this broad definition of ``credit holders'' best serves
the purposes of the credit trading program, this definition will be
maintained in the final rule.
When a manufacturer has a shortfall, should NHTSA automatically apply
oldest credits first or transfer credits to make up that shortfall?
In the proposed Sec. 536.5, NHTSA proposed to manage some aspects
of credit use by manufacturers automatically. For example, NHTSA would
debit credits automatically from a manufacturer if the manufacturer
fell below the standard in a compliance category, beginning with the
oldest credits held by the manufacturer in that compliance category,
transferring the oldest available credits in other categories if
necessary, and notifying the manufacturer of its need to purchase
additional credits, develop a carry-back plan, or pay fines if there
were still insufficient credits to achieve compliance.\504\ NHTSA was
silent in the preamble with respect to its rationale for this proposal.
---------------------------------------------------------------------------

\504\ Proposed Sec. 536.5(d), at 73 FR 24485 (May 2, 2008).
---------------------------------------------------------------------------

The Alliance, AIAM, Toyota, and Ford commented on NHTSA's proposal
to use a manufacturer's oldest credits first and to transfer credits
automatically if the manufacturer did not have sufficient credits in
the original compliance category to make up the shortfall. The
commenters generally argued that NHTSA was unduly restricting
manufacturers' flexibility to manage credits at their own discretion,
and that such a proposal was inconsistent with EISA.
The Alliance argued that the ``automatic transfer is inconsistent
with the history of NHTSA's administration of the CAFE program and
EISA,'' stating that ``Congress intended for the manufacturer to manage
its own credits'' as ``acknowledged in the NPRM.'' The Alliance
suggested that NHTSA's explanation in the NPRM that manufacturers
should instruct NHTSA which credits to transfer when it wanted to
transfer credits indicated that the agency recognized manufacturers'
right to control credit transfers. The Alliance argued that ``A
manufacturer facing a shortfall in a given fleet should retain the
flexibility to manage that shortfall as it sees fit, including filing a
carryback plan, acquiring traded credits or by a combination of various
actions.''
AIAM agreed that NHTSA's approach of debiting oldest credits first
``should be followed in most cases,'' but commented that in cases where
``a manufacturer prefers to use available credits from some other
compliance category or time period first, NHTSA should, upon request by
the manufacturer, provide the manufacturer that flexibility.'' AIAM
suggested that manufacturers might ``wish to preserve credits in a
particular category and year to enhance trading opportunities or to
comply with inter-category credit transfer limitations.'' AIAM also
stated that ``nothing in [EISA] * * * mandates that manufacturers must
use available credits in any particular order.''
Toyota also commented that EISA did not specify a particular order
in which credits should be applied, and argued that NHTSA should
maximize flexibility in manufacturers' use of credits and allow
manufacturers to make their own decisions unless they made decisions
inconsistent with the law or unless there was ``some clear reason'' to
restrict flexibility.
Ford argued that NHTSA's proposal to transfer credits automatically
to make up manufacturer shortfalls was ``inconsistent with EISA,''
because the statutory language with regard to the credit transfer
program was permissive, stating that the Secretary of Transportation
shall establish a regulation to ``allow'' manufacturers to transfer
credits and apply them to different compliance categories in order to
achieve compliance. Ford suggested that the automatic transfer of
credits by NHTSA would interfere with manufacturers' flexibility to
decide how to manage a shortfall. For example, Ford argued, a
manufacturer may prefer to submit a carry-back plan rather than to
transfer surplus credit to another category, and EISA did not give
NHTSA the discretion to interfere in the manufacturer's decision in
that regard.
Agency response: NHTSA did not intend to allocate credits without
allowing the manufacturer an opportunity to comment. NHTSA agrees

[[Page 14429]]

with the commenters that manufacturers must ultimately be responsible
for how their shortfalls are addressed, and has revised the regulatory
text accordingly.
EPCA originally stated, with regard to conventional carry-forward/
carry-back credits, that application of credits was to occur
automatically (``shall apply'') if a manufacturer was short of the
average fuel economy required and had credits available. The
application of those credits offset any penalty to be paid by the
manufacturer. 49 U.S.C. 32903(d). EISA did not change that provision.
However, EISA did introduce the two new credit programs for transfers
and trades.
In the past, NHTSA developed carry-forward plans for manufacturers
automatically if carry-forward credits existed, and submitted the plan
to the manufacturer so that it could comment on the proposed allocation
plan. Only if no carry-forward credits were available would NHTSA ask
the manufacturer to submit a carry-back plan or to pay a fine.
Upon further review the agency has decided that Congress clearly
intended to give the manufacturer an opportunity to comment before any
application of credits occurs. See 49 U.S.C. 32903(d). Accordingly, we
have revised the text so that instead of NHTSA allocating credits
automatically, a manufacturer with credits available will be required
to submit a credit allocation plan to offset its confirmed shortfall.
NHTSA will require manufacturers to submit a plan whenever NHTSA is
informed by EPA that a manufacturer has not met the CAFE standards in a
particular compliance category. An enforcement action will be initiated
each time the agency receives notification from EPA that a standard has
not been met. An enforcement letter will be sent to the responsible
manufacturer identifying available credits and requesting that a credit
allocation plan be submitted or penalty be paid. NHTSA will review and
accept plans as received and allocate credits accordingly.
Should credits be denominated in mpg or in gallons for purposes of
transfers and trades?
49 U.S.C. 32903(c) indicates that Congress intended credits to be
denominated in tenths of a mpg, but 49 U.S.C. 32903(f) states that
total oil savings must be preserved when trading credits. Because there
is no similar caution that total oil savings must be preserved when
transferring credits, NHTSA proposed in the NPRM to denominate credits
in mpg rather than in gallons, but the agency also sought comment on
whether transferred credits should be denominated in gallons to ensure
that no transfers resulted in any loss of fuel savings. When using the
terms ``denominating credits in gallons,'' the agency meant that
credits be adjusted to preserve total oil savings as specified for
credit trades in Sec. 32903(f). Section Sec. 32903(c) defines credits
as the number of tenths of a mile per gallon the average fuel economy
of a fleet exceeds the standard times the number of vehicles in that
manufacturer's fleet. Therefore, credits should always be denominated
in miles per gallon. In the comments below, those who argue that
credits should be denominated in mpg are opposing any adjustment to
credit transfers to prevent losses in fuel savings.
The Alliance, AIAM, NADA, and Toyota commented that NHTSA should
denominate credits in mpg. The commenters generally argued that because
Sec. 32903(c) indicates that credits are to be denominated in tenths
of mpg, and because Congress did not specify in EISA that oil savings
must be preserved in credit transfers, the agency should not attempt to
read anything into the statute that is not plainly there. AIAM also
stated that, ``Using different units for transferred credits and other
credits, as mentioned by the agency, would create unnecessary confusion
and could create accounting problems.'' Toyota argued that ``Since
Congress specified the application of an adjustment factor for traded
credits but did not specify such a requirement for transferred credits,
the clear intent of Congress is that it intended transferred credits to
be calculated in the same manner as carryforward/carryback credits.''
Honda and EDF commented that NHTSA should denominate credits in
gallons rather than in mpg. Honda stated that ``trading MPG will erode
the total fuel/GHG reductions, which is not appropriate,'' and argued
that EISA did not prohibit trading credits in gallons instead of mpg,
because it simply addresses the maximum increase that manufacturers may
obtain from transferred credits, not the maximum decrease.
EDF commented that denominating credits in gallons instead of mpg
``would be a more straightforward and simple way for the Agency to
ensure that total oil savings are preserved in trading, banking and
borrowing of CAFE credits,'' and would also ``maximize the
environmental integrity of the program.'' EDF stated that NHTSA had
correctly identified the risk that ``increasing fuel economy by one mpg
at a higher fuel economy level results in less oil savings (and
therefore less reductions in GHGs) than increasing fuel economy by one
mpg at a lower fuel economy level.'' EDF argued that in order to
promote the need of the nation to conserve energy, ``Expressing CAFE
credits in gallons of fuel saved, rather than in mpg, would be a
natural, and less confusing, way to present the oil saving benefits
from exceeding the standard (or the `oil-saving-deficit' as a result of
non-compliance).''
Agency response: From the discussion above, it is clear that
credits must be denominated in mpg per Sec. 32903(c)(1). The question
is whether all credits, traded and transferred, should be adjusted to
preserve fuel oil savings. As discussed, Sec. 32903(c) states that
credits are earned in tenths of a mile per gallon; Sec. 32903(d) and
(e) refer to applying credits on a mile per gallon basis, Sec.
32903(f) states that total oil savings must be preserved only when
credits are traded. There is no other clear expression of congressional
intent in the text of the statute suggesting that NHTSA would have
authority to adjust transferred credits, even in the interest of
preserving oil savings. However, the goal of the CAFE program is energy
conservation; ultimately the U.S. would reap a greater benefit from
ensuring that fuel oil savings are preserved for both trades and
transfers. Furthermore, accounting for traded credits differently than
for transferred credits does add unnecessary burden on program
enforcement. Thus, NHTSA will adjust credits both when they are traded
and when they are transferred so that no loss in fuel savings occurs.
Comments Regarding Carry-Forward/Carry-Back Credits
When should EISA's extension of the carry-forward period from 3 to 5
years take effect?
When Congress changed the carry-forward period from 3 to 5 years in
EISA, it did not clearly specify to which credits that change was to
apply. EISA's effective date was December 20, 2007, and NHTSA has
historically defined the model year as beginning on October 1 of the
previous calendar year (thus, the agency would define MY 2008 as
beginning on October 1, 2007).\505\ In the NPRM, NHTSA concluded that
because EISA was enacted in the middle of MY 2008, the best
interpretation of when the extension of the carry-forward period should
take effect was to apply it only

[[Page 14430]]

to vehicles manufactured in or after MY 2009. Interpreting the change
as applying to all subsequent MY 2008 vehicles would have required the
agency to find some way to prorate the change in credit lifespan, which
the agency concluded would present considerable administrative
difficulty, especially given that credits are denominated by year of
origin and not month and year of origin. Thus, the agency added
regulatory text stating that credits earned in MY 2008 or before had a
3-year carry-forward lifespan, and credits earned in MY 2009 or later
had a 5-year carry-forward lifespan.
---------------------------------------------------------------------------

\505\ See Letter of Interpretation to William Shapiro of Volvo
Cars, Jan. 13, 2000, available at http://isearch.nhtsa.gov/files/18644KWII.ogms.html (last accessed Sept. 18, 2008), and Letter of
Interpretation to William F. Canever of Ford Motor Company, Oct. 22,
1990, available at http://isearch.nhtsa.gov/files/2741y.html (last
accessed Sept. 18, 2008).
---------------------------------------------------------------------------

AIAM, Toyota, Chrysler, and NADA commented on this issue, and all
argued that Congress intended the 5-year carry-forward provision to be
effective concurrent with EISA's effective date. AIAM stated that it
believed that any credits earned and not expired as of the effective
date of EISA, including MY 2005-2007 credits, must be available for use
in any of the five following model years. AIAM argued that if Congress
had intended the 5-year carry-forward period to begin in MY 2009, it
would have included such a limitation, as it included the provision
disallowing transfers of credits earned before MY 2011. AIAM thus
concluded that to maximize flexibility in use of credits,
``enhancements to the credit system mandated by Congress must be made
effective immediately, except where Congress has specified otherwise.''
Toyota also commented that because Congress included an express
start date for credit transfers, it must have intended that the 5-year
carry-forward provision be effective on EISA's effective date. Toyota
argued that Congress did address which credits could be used for 5-year
carry-forward plans by stating in 49 U.S.C. Sec. 32903(a) that when a
manufacturer earns credits under this section, those ``credits may be
applied to--
(1) Any of the 3 consecutive model years immediately before the
model year for which the credits are earned; and
(2) to the extent not used by paragraph (1) of this subsection, any
of the 5 consecutive model years immediately after the model year for
which the credits are earned. (Toyota's emphasis)
Toyota argued that Congress thus ``clearly identifies the credits
that are available for the 5-year carry-forward provision as being
those that are not applied to the 3-year carry-back provision,'' and
that Congress put no other limitation on when the 5-year carry-forward
credits may be used. Toyota concluded that because the intent of
Congress is clear in the statutory language, the agency has no room for
interpretation under Chevron.
NADA also commented that ``Credit system changes set out in EISA
should take effect immediately, except as otherwise specified.'' NADA
argued that even though the transfer provisions ``may not take effect
until MY 2011, any existing and future earned credits should
immediately be available for the new five year carry-forward period and
for trading.''
Chrysler also commented that because Congress had chosen to put
specific effective dates in some credit provisions but not in the
carry-forward provision, the 5-year carry-forward provision must be
applicable to MY 2008 credits. Chrysler argued that NHTSA's arguments
regarding the difficulty of prorating MY 2008 credits were unavailing,
because NHTSA could simply apply the 5-year carry-forward provision to
all credits earned in MY 2008 and after. Chrysler further argued that
NHTSA has ``not felt it necessary to pro-rate credits (or penalties)
when transfers of ownership take place, instead assigning the full
year's credits (or penalties) to a single manufacturer, as agreed to
among the parties involved.'' Chrysler also stated that ``when carry-
forward/carry-back credits were extended from 1 to 3 years as a result
of the Automobile Fuel Efficiency Act of 1980 * * * NHTSA did not see
any need to pro-rate credits. Instead, the agency's final rule [ ] had
an immediate effective date.'' Chrysler suggested that if the agency is
determined to prorate the MY 2008 credits, ``it can simply divide the
number of days after enactment but before October 1, 2009 (which is 285
days) by 365 and then multiply the credits earned in MY 2008 by the
resultant (0.781).''
Agency response: NHTSA has decided to revise the implementation of
the 5 year carry-forward allowance by changing the effective date from
MY 2009 to MY 2008. As discussed, because EISA was enacted in the
middle of MY 2008, NHTSA concluded in the NPRM that the best
interpretation of this change in lifespan was to apply it only to
vehicles manufactured in or after MY 2009, because the alternative of
finding some way to prorate the change in lifespan presented
considerable administrative difficulties.
However, 49 U.S.C. 32903(b)(2) specifies that credits are available
to a manufacturer at the end of the model year in which earned. Due to
the fact that the MY 2008 credits were not finalized when EISA became
effective, the agency agrees that it is reasonable to begin the 5-year
carry-forward provision in MY 2008. The agency does not believe that
this provision should be applied to all unexpired credits (MYs 2005-
2007) as suggested by AIAM, but only to those credits that are actually
earned in MY 2008 or after.
Can carry-forward/carry-back credits not acquired by trade or transfer
be used to meet the minimum domestic passenger car standard?
Through EISA, Congress clearly intended to limit the use of traded
or transferred credits by manufacturers in order to achieve compliance
with the minimum domestic passenger car standards specified in Section
102(b)(4). See Section 104(a)(4), codified (in relevant part) at 49
U.S.C. Sec. 32903(f)(2) and (g)(4), respectively. In NHTSA's proposed
regulatory text, the agency included these prohibitions, and also
stated as follows:

If a manufacturer's average fuel economy level for domestically
manufactured passenger cars is lower than both the attribute-based
standard and the minimum standard, then the difference between the
attribute-based standard and the minimum standard may be relieved by
the use of credits, but the difference between the minimum standard
and the manufacturer's actual fuel economy level may not be relieved
by credits and will be subject to penalties.\506\
---------------------------------------------------------------------------

\506\ 73 FR 24487 (May 2, 2008); proposed section 49 CFR
536.9(d).

NHTSA did not explain its reasoning in the NPRM for this provision,
which prompted comments from a number of companies, including the
Alliance, Chrysler, Ford, GM, and Toyota.
The commenters stated that the proposed Sec. 536.9(d) improperly
prevents manufacturers from employing carry-back and carry-forward
credits to meet the minimum domestic passenger car standard. The
commenters argued that Congress only explicitly prohibited the use of
traded and transferred credits to meet the minimum domestic passenger
car standard, but did not explicitly prohibit the use of originating
manufacturer carry-forward/-back credits, and that therefore NHTSA
should not assume that Congress intended more than it expressly stated.
The commenters further stated that NHTSA was unduly and unnecessarily
restricting manufacturers' flexibility in using credits to meet the
standards, when the purpose of the carry-forward/carry-back allowances
was to maximize flexibility.
Chrysler further argued that although ``NHTSA may have assumed that
the use of the word minimum [in EISA Sec. 102(b)(4)] might imply that
the actual

[[Page 14431]]

level of the standard each year may be attained to ensure compliance,''
this would be inconsistent with NHTSA's own regulations that allow the
use of credits to meet average fuel economy standards for cars and
light trucks that NHTSA refers to as ``minimum'' levels.\507\ Chrysler
suggested that the minimum domestic passenger car standard was simply a
``new category'' of standards, and that ``allowing the use of carry-
forward/carry-back credits does not spoil the statutory scheme nor does
it result in reduced fleet fuel economy, since credits for exceeding
the minimum standard must ultimately be earned.''
---------------------------------------------------------------------------

\507\ Chrysler cited 49 CFR 531.2 and 533.2.
---------------------------------------------------------------------------

Ford also further argued that because the compliance provision of
EPCA, 49 U.S.C. 32911(b), includes all fuel economy standards under
Sec. 32902, and states that ``Compliance is determined after
considering credits available to the manufacturer under section 32903
of this title,'' that credits may be used to meet the minimum domestic
passenger car standard just as they may be used to meet the passenger
car and light truck standards.
Agency response: NHTSA agrees with the commenters that Congress did
not clearly establish in EISA that carry-forward and carry-back credits
may not be used to comply with the minimum domestic passenger car
standard, unlike traded and transferred credits which clearly may not
be used, per Sec. 32903(f)(2) and (g)(4). As Ford argued in its
comments, 49 U.S.C. 32903(a), which provides for the carry-forward and
carry-back periods, expressly states that credits may be earned for
exceeding ``an applicable average fuel economy standard under
subsections (a) through (d) of section 32902.'' Congress included the
minimum domestic passenger car standard requirement in Sec.
32902(b)(4), which may suggest that Congress both intended for
manufacturers to be able to earn credits for exceeding it, and to be
able to use carry-forward and carry-back credits to achieve compliance
with it. NHTSA has some concern that if the purpose of the minimum
domestic passenger car standard required by Congress is to ensure a
certain minimum level of fuel savings, that Congress may not have
intended that credits be used to meet it, but NHTSA accepts that the
language of the statute does not clearly indicate such a lack of
intent.
A manufacturer's actual CAFE value may be above or below both or
only one of its corresponding attribute-based or minimum standards.
Also, a manufacturer's attribute-based standard may be above or below
its corresponding minimum standard. For each situation it must be clear
how credits can be earned and allocated. 49 U.S.C. Sec. 32903(a)
states that credits are earned when a manufacturer ``exceeds an
applicable average fuel economy standard under subsections (a) through
(d) of section 32902,'' which appears to include the minimum domestic
passenger car standard under 32902(b)(4). To determine a credit excess
or shortfall, a manufacturer's actual CAFE value is compared against
either the attribute-based standard value or the minimum standard
value, whichever is larger. Also, if a manufacturer's actual CAFE value
is less than the minimum standard, only conventional carry-forward and
carry-back credits earned by the originating manufacturer can be used
to offset the shortfall between the actual CAFE value and the minimum
standard.
Whether Pre-MY 2011 Passenger Car Credits May Be Carried Forward for 5
Years
AIAM requested that ``NHTSA confirm that pre-2011 passenger auto
credits, which are compiled separately for domestic and import fleets
of a manufacturer, may be carried forward into 2011 and later years
(subject to the 5 year limitation).''
Agency response: As NHTSA explained above, the agency has decided
to apply the 5-year carry-forward provision to all credits earned in MY
2008 and after. Thus, credits earned in MYs 2008, 2009, and 2010 would
be available to manufacturers through MY 2013, 2014, and 2015,
respectively. However, credits earned before MY 2008 remain subject to
the 3-year carry-forward lifespan, which means that a credit earned in
MY 2007 would expire at the end of the MY 2010 model year, and not be
available for MY 2011 or later.
Whether There is a Cut-Off Date for Consideration and use of Carry-Back
Credits
AIAM also requested that NHTSA confirm that the proposed Sec.
536.7(e) ``is not intended to establish an arbitrary cut-off date for
consideration of carry-back credits.'' The proposed Sec. 536.7(e)
states that carry-back credits ``from any source'' may not be used for
compliance more than three years after the non-compliance. AIAM argued
that because ``Precise final CAFE values are not established by the end
of a model year,'' and because ``Final determination of CAFE may be
delayed for a significant period of time, due to the need for EPA to
verify the data and to report to NHTSA,'' that therefore
``Manufacturers should be permitted to develop a compliance approach
based on credits, even if the final accounting takes place more than 3
years after the noncompliance.'' AIAM concluded that ``A manufacturer
should not be prohibited from carrying back credits for the three model
year period based on administrative delays in establishing final CAFE
calculations.''
Agency response: NHTSA did not intend for the proposed Sec.
536.7(e) to suggest that the agency meant to change the 3-year carry-
back provision. As specified in Sec. 536.7(a), credits earned in any
model year may be used in carry-back plans approved by NHTSA, pursuant
to 49 U.S.C. Sec. 32903(b), for up to three model years prior to the
years in which the credits were earned. As further specified in Sec.
536.7(c), NHTSA will determine ultimate compliance with the approved
carry-back plan upon receipt of the final verified CAFE model year
figures received from EPA. NHTSA recognizes that because manufacturers
have 90 days after the end of the model year to submit final CAFE fleet
numbers to EPA, and because it may take up to several months after that
before EPA can validate the final data and report back to the
manufacturer and NHTSA, it is possible that the literal 3-year period
may be exceeded. NHTSA will revise the regulatory text to clarify that
there is no expiration or cut-off date associated with this process or
with available carry-back credits.
Comments Regarding Credit Trading Issues
When should the credit trading program begin?
In the NPRM, NHTSA proposed to begin the credit trading program
with credits earned in MY 2011 or later. AIAM commented that because
EISA established a 2011 effective date for credit transfers, but added
no specific effective date for credit trades, Congress must have
intended ``to not limit the trading system.'' Thus, AIAM supported an
immediate effective date for trading of all credits in existence as of
December 20, 2007.
Agency response: NHTSA disagrees with AIAM that it must allow all
credits in existence as of December 20, 2007 to be immediately
tradable. Although Congress mandated in EISA that NHTSA establish a
credit transfer program, it gave the agency discretion to establish a
credit trading program. Part of the agency's discretion in establishing
a credit trading program lies in deciding when it should begin. While
NHTSA supports flexibility in manufacturer use

[[Page 14432]]

of credits, NHTSA believes that it is logical for credit trading to
begin in MY 2011, at the same time as the new standards take effect,
and be limited to credits earned in or after MY 2011. Allowing credit
trading to include credits earned prior to MY 2011 could provide a
windfall of credits for manufacturers currently exceeding, for example,
the 27.5 mpg passenger car standard, which NHTSA believes would be
inconsistent with Congress' intent in allowing the agency to develop a
credit trading program. Additionally, for ease of implementation and
management of the credit trading and transferring programs, the agency
continues to believe that both programs should commence for credits
earned after 2010, as Congress has stipulated for transferred credits.

How should NHTSA calculate the adjustment factor to preserve total oil
savings?

Congress stated in EISA that any credit trading program established
must be set up ``such that the total oil savings associated with
manufacturers that exceed the prescribed standards are preserved when
trading credits to manufacturers that fail to achieve the prescribed
standards.'' EISA Sec. 104, to be codified at 49 U.S.C. Sec.
32903(f)(1). NHTSA explained in the NPRM that EISA requires total oil
savings to be preserved because one credit is not necessarily equal to
another, as Congress realized. For example, the fuel savings lost if
the average fuel economy of a manufacturer falls one-tenth of a mpg
below the level of a relatively low standard are greater than the
average fuel savings gained by raising the average fuel economy of a
manufacturer one-tenth of a mpg above the level of a relatively high
CAFE standard.
In order to ensure that total oil savings are preserved in credit
trades, NHTSA proposed to subject traded credits to an adjustment
factor. NHTSA explained that the effect of applying the adjustment
factor would be to increase the value of credits that were earned for
exceeding a relatively low CAFE standard and are intended to be applied
to a compliance category with a relatively high CAFE standard, and to
decrease the value of credits that were earned for exceeding a
relatively high CAFE standard and are intended to be applied to a
compliance category with a relatively low CAFE standard. NHTSA proposed
to multiply the value of each credit (with a nominal value of 0.1 mpg
per vehicle) by an adjustment factor calculated by the following
formula:
[GRAPHIC] [TIFF OMITTED] TR30MR09.096

Where A = adjustment factor applied to traded credits by multiplying
mpg for a particular credit;
VMTe = lifetime vehicle miles traveled for the compliance
category in which the credit was earned (152,000 miles for domestic
and imported passenger cars; 179,000 miles for light trucks);
VMTu = lifetime vehicle miles traveled for the compliance
category in which the credit is used for compliance (152,000 miles
for domestic and imported passenger cars; 179,000 miles for light
trucks);
MPGe = fuel economy standard for the originating
manufacturer, compliance category, and model year in which the
credit was earned;
MPGu = fuel economy standard for the manufacturer,
compliance category, and model year in which the credit will be
used.

NHTSA further explained it was proposing to use the fuel economy
standard in the formula rather than the actual fuel economy or some
average of the two, primarily because we believe it will be more
predictable for credit holders and traders. However, we sought comment
on those two alternatives, since they may be more precise in their
ability to account for fuel savings.
Several commenters addressed NHTSA's proposal to use the fuel
economy standard rather than the actual fuel economy in the adjustment
factor formula. AIAM ``agree[d] that [NHTSA's] approach is sensible and
facilitates record keeping,'' and argued that ``The proposed approach
would encourage credit trading by valuing credits at a higher level,
thereby providing an additional incentive for manufacturers to exceed
the standards by substantial margins.''
Cummins, Inc., commented instead that the adjustment factor formula
should include ``actual fuel economy'' achieved by the manufacturer
instead of ``target fuel economy,'' because doing so ``would ensure
that total fuel savings are preserved.'' Cummins further commented that
NHTSA should apply the adjustment factor to both trades and transfers,
which would ``ensure that we are meeting the EISA's objective of
reducing the United States' dependence on oil.
Wisconsin DNR commented that using either actual fuel economy or an
average of actual and formula-based fuel economy in calculating the
adjustment factor would be preferable to NHTSA's proposed approach of
using the fuel economy standard. Wisconsin DNR argued that ``The
proposed approach inflates the actual fuel economy achieved and reduces
the net benefit in terms of fuel savings and pollution reductions.''
ACEEE, in contrast, commented that the adjustment factor formula
``does not ensure oil savings,'' and that the use of any formula is
inappropriate, because ``The increase in fuel economy in one compliance
category needed to offset the additional fuel consumption associated
with a shortfall in fuel economy in another compliance category can be
expressed precisely, in closed form, and this should be required by the
rule.'' ACEEE argued that the formula's use of a ``linear approximation
to a non-linear function'' makes it inherently imprecise, and that that
imprecision may result in errors that are ``far from negligible.''
ACEEE presented the following example:

If * * * one manufacturer exceeds a 22 mpg standard by 2 mpg and
wishes to trade credits to a manufacturer falling short of a 34 mpg
target (in a compliance category with the same lifetime vehicle
miles traveled), the proposed adjustment factor would allow the
second manufacturer to use those credits to comply at 29.2 mpg. The
result would be that the extra fuel consumed by the second
manufacturer's vehicles exceeds the fuel saved by the first
manufacturer's vehicles by 21 percent.

ACEEE argued that this result was unacceptable and ``inconsistent
with the requirements of EISA.''
Honda and Toyota both commented on the ``lifetime vehicle miles
traveled'' estimates used as constants in the adjustment factor
formula. Honda expressed concern ``about the use of different lifetime
mileage for cars versus

[[Page 14433]]

light trucks,'' due to the rise in fuel prices changing driving
behavior, and stated that ``the separate lifetime mileage for cars and
light trucks based upon historical data may be inappropriate when
applied to current and future markets.''
Toyota commented that ``NHTSA may need to adjust those mileage
accumulation rates to reflect alignment with the types of vehicles that
NHTSA expects to be classified as cars and trucks in the future,''
suggesting that, as an example, ``moving some portion of 2WD SUVs to
the car compliance category would tend to raise the average car
lifetime mileage accumulation and lower the average truck lifetime
mileage accumulation.'' Toyota argued that ``To the extent possible,
NHTSA should ensure that the VMT rates in the adjustment equation
reflect the vehicles in each category.''
Agency response: The agency has re-evaluated the adjustment factor
proposed in the NPRM based upon the comments received. Various formulas
for the adjustment factor could be derived in an attempt to ensure
total fuel oil savings are preserved, which are dependent on
assumptions made relating to fuel prices, rebound affects and vehicle
miles traveled (VMT). The relationship between fuel (gallons) saved or
lost as fuel economy (mpg) increases or decreases is non-linear. The
effect of applying an adjustment factor would be to increase the value
of credits that were earned for exceeding a relatively low CAFE
standard and to decrease the value of credits that were earned for
exceeding a relatively high CAFE standard. Furthermore, the fuel
savings lost if the average fuel economy of a manufacturer falls one-
tenth of a mpg below the level of a given standard are greater than the
fuel savings gained by raising the average fuel economy of a
manufacturer one-tenth of a mpg above the level of the same or higher
CAFE standard.
The NPRM formula set the adjustment factor at the ratio of the
inverse of the earner's (seller) and the user's (buyer) CAFE target
standard values, modified for the total vehicle miles traveled (VMT) by
compliance category. For example, if one manufacturer had an attribute-
weighted target standard of 21 mpg, and another manufacturer had an
attribute-weighted target standard of 25 mpg, and the VMT was constant,
then the adjustment factor was approximately 1.19 (the ratio of the
inverse of the two target standard values, 25/21 = 1.19). This
adjustment factor is accurate as long as the actual fuel economy values
of the earner and user are close to their respective CAFE target
standard values. However, ACEEE commented correctly that if the actual
fuel economy values for the seller and/or buyer are several mpg
different from their respective target standard values, using only the
CAFE standard in the adjustment factor formula could produce an
adjustment factor that provides the buyer with more fuel savings than
the seller actually saved.
NHTSA believes that this issue can be resolved with a revised
adjustment factor formula that sets the adjustment factor at the ratio
of the average fuel savings per mpg achieved by the originating
manufacturer and average fuel savings needed per mpg required by the
user (which, in the case of credit transfers, would be the same
manufacturer). This approach ensures that fuel oil savings are
preserved by applying an adjustment to each credit based upon each
credit's ``fuel oil value.'' As an example, in a trade situation there
is a seller (earner) who has excess credits to sell and a buyer (user)
who has a credit deficit. Consider a seller and a buyer with the
following situations, as described in the table below:
[GRAPHIC] [TIFF OMITTED] TR30MR09.097

Assume that the buyer wants to purchase only enough seller credits
to offset half of its 400,000 credit shortfall. The buyer needs to
purchase 9,437,000 (18,874,000/2) gallons worth of credits from the
seller. If each seller credit is worth 16.2357 gallons as calculated
above then the number of seller credits that must be purchased by the
buyer is

(9,437,000 gal)/(16.2357 gal/credit) = 581,250 credits
Thus, the buyer must purchase 581,250 credits of the seller's 7,000,000
available credits.

[[Page 14434]]

To depict this relationship as an adjustment factor A = (buyer gal/
credit)/(seller gal/credit)
A = 47.1850/16.2357 = 2.9062 (rounded to four decimal places)
The buyer has to multiply the credit shortfall it wants to offset
by the adjustment factor to determine the number of seller credits that
must be obtained from the seller as follows:
(200,000 credit shortfall) x (A) = 581,240 seller credits required
(rounded to the nearest integer)
The following adjustment factor equation is derived from the above
example:
[GRAPHIC] [TIFF OMITTED] TR30MR09.098

Where:
A = Adjustment Factor applied to traded or transferred credits to
ensure fuel oil savings is preserved (rounded to four decimal
places);
VMTe = Lifetime vehicle miles traveled for the compliance category
in which the credit was earned: 150,992 miles for domestically
manufactured and imported passenger cars, 172,552 miles for light
trucks;
VMTu = Lifetime vehicle miles traveled for the compliance category
in which the credit is used for compliance: 150,992 miles for
domestically manufactured and imported passenger cars, 175,552 miles
for light trucks;
MPGse = Fuel economy target standard for the originating
manufacturer, compliance category, and model year in which the
credit was earned;
MPGae = Actual fuel economy value for the originating manufacturer,
compliance category, and model year in which the credit was earned.
MPGsu = Fuel economy target standard for the user, compliance
category, and model year in which the credit is used for compliance;
MPGau = Actual fuel economy value for the user manufacturer,
compliance category, and model year in which the credit is used for
compliance.

The revised adjustment factor thus includes both actual fuel
economy value and the fuel economy targets to which the buyer and
seller are subject, and helps to ensure that total fuel savings are
preserved in trades. Additionally, as discussed above, given that the
overarching purpose of the CAFE program is energy conservation, the
nation would ultimately gain greater energy benefits by ensuring that
total fuel savings are preserved in both credit trades and credit
transfers. Thus, NHTSA has decided to adjust credits both when they are
traded and when they are transferred so that no loss of fuel savings
occurs. The same adjustment factor will be calculated and applied to
transferred credits as was explained above for traded credits.
Additionally, as noted above, Honda and Toyota commented that the
agency should evaluate and possibly revise the values of the passenger
car and light truck total vehicle miles traveled (VMT) values used in
the adjustment factor equation.
Agency response: The agency agrees with the commenters that the VMT
values should be revised. VMT is an important value used in the
adjustment equation because it defines a vehicle's total lifetime miles
traveled. The agency has moved approximately 1.5 million MY 2011 2WD
sport utility vehicles from the light truck fleet into the passenger
car fleet. Also, the agency has moved to a higher fuel price forecast,
which by way of the rebound effect lowers the VMT each year in every
vehicle compliance category. For modeling purposes, four classes of VMT
are used: passenger car, pickup, van and SUV. Table X-1 below shows the
survival rates for passenger cars and light trucks (one survival rate
applies to all three truck classes) and the average annual miles driven
for each vehicle class.
In general, light trucks are driven more miles per year and survive
more years than passenger cars. Among the light truck vehicle classes,
SUVs are driven the most miles, while vans are driven the least.
Changes in the analysis from the NPRM to the final rule include moving
over 1.5 million SUVs from MY 2011 that were classified as light trucks
in the NPRM to the passenger car classification in the final rule. This
means that the car VMT described in the NPRM must be adjusted to
include these reclassified vehicles. The light truck fleet VMT must
also be adjusted because the light truck fleet now has less SUVs.
Considering EISA's revisions to EPCA's credit carry-forward and carry-
back provisions which allow credits to be used over a longer time
frame, with greater potential variation in VMT factors for a given
credit, NHTSA has concluded that VMT factors for use in credit
calculations should reflect model years beyond MY 2011. Compared to
developing VMT factors specific to MY 2011, NHTSA believes this
approach will better ensure preservation of fuel savings over time.
Over the five model years addressed by the NPRM, the passenger car
fleet now contains 47.04 million vehicles. There are 39.86 million
vehicles that were classified as passenger cars in the NPRM (84.7
percent), plus 7.18 million SUVs (15.3 percent) that are reclassified
as passenger cars in the final rule. The truck fleet over the five
model years contains 35.77 million vehicles--41.4 percent are pickups,
43.9 percent are SUVs, and 14.7 percent are vans. This reflects a
reduction in SUVs in the truck fleet from the NPRM to the final rule.
In each fleet, the adjusted VMT in each year is the sum of the
vehicle classes weighted by survival rate and market share. Adjusted
car VMT equals the car VMT times the car survival rate times the car
market share (84.7 percent), plus the SUV VMT times the SUV survival
rate times the proportion of SUVs in the car fleet (15.3 percent).

Adjusted Car VMTt = Car VMTt * Car
Survivalt * 0.847 + SUV VMTt * SUV
Survivalt * 0.153, where t denotes model year

Adjusted truck VMT equals the pickup truck VMT times the pickup truck
survival rate times the pickup truck market share (41.4 percent), plus
the SUV VMT times the SUV survival rate times the proportion of SUVs in
the truck fleet (43.9 percent), plus the van VMT times the van survival
rate times the proportion of vans in the truck fleet (14.7 percent).

Adjusted Truck VMTt = Pickup VMTt * Pickup
Survivalt * 0.414 + SUV VMTt * SUV
Survivalt * 0.439 + Van VMTt * Van
Survivalt * 0.147, where t denotes model year

Total VMT is the sum over 36 years for the adjusted car and truck VMT.
For passenger cars, the adjusted VMT is 150,922 miles. For light
trucks, the adjusted VMT is 172,552 miles. NHTSA expects to reevaluate
trends in vehicle survival and mileage accumulation in the future, and
to adjust these VMT factors accordingly in future CAFE rulemakings.

[[Page 14435]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.099

Comments Regarding Credit Transfer Issues
Whether NHTSA Should Prevent Credits Received by Trade From Being
Transferred in Quantities Beyond the Transfer Cap
In the NPRM, NHTSA proposed to allow manufacturers to transfer
credits that they had obtained by trade from one compliance category to
another, but not to allow credits obtained by trade and subsequently
transferred to be used to exceed the statutory cap on increases in a
manufacturer's fuel economy attributable to transferred credits under
49 U.S.C. 32903(g)(3).
AIAM and Volkswagen commented that NHTSA should not limit the
benefit of cross-compliance category trades via the cap on transfers.
AIAM argued that a trade from, for example, Manufacturer A's passenger
car fleet to Manufacturer B's light truck fleet should be considered a
direct trade, rather than a trade followed by a transfer as NHTSA
indicated in the NPRM. AIAM stated that ``The agency's limitation is
inconsistent with the express language of Congress in applying the
maximum credit limit only to credit transfers.'' VW argued that
unlimited trading should be allowed because the adjustment factor is in
place to preserve total oil savings.
Agency response: NHTSA disagrees with the commenters that the
example given by AIAM would be a direct trade rather than a trade
followed by a transfer. Allowing traded credits to be used in the
manner suggested by AIAM would circumvent the limit requirements set up
by Congress for credit transfers. EISA provided NHTSA with the
authority to develop a credit trading program along with the mandated
credit transferring program. As part of the trading program, the agency
decided not to specify limits on trades within the same compliance
category. Further, the agency is clarifying the definition of ``trade''
in the regulatory text to make plain its intent that trades occur
between manufacturers within the same compliance category only. Still,
the agency believes that the limits that apply to transfers should
apply to all transfers, including the transfer of credits earned by an
originating manufacturer between its compliance categories and
transfers of credits acquired by trade.
Further, NHTSA believes that VW is mistaken that the adjustment
factor means that trading may be unlimited. The traded credit
adjustment factor and the limits applied to transferred credits are two
separate requirements. The adjustment factor is applied to ensure

[[Page 14436]]

that credit values are standardized across different manufacturers,
which ultimately preserves total oil savings. The credit transfer
limits, in contrast, ensure that only a specified amount of a
manufacturer's noncompliant fuel economy value can be offset by
transferred credits. A traded credit that is subsequently transferred
for compliance is adjusted to ensure total oil saving is preserved and
is subject to the transfer limitations of Section 536.5(d)(3).

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

NHTSA explained in the NPRM that EPCA encourages manufacturers to
build alternative-fueled and dual-fueled vehicles by using a special,
statutorily-specified calculation procedure for determining the fuel
economy of these vehicles. The fuel economy calculation is based on the
assumption that the vehicle operates on the alternative fuel a
significant portion of the time. This approach gives such vehicles a
much-higher fuel economy level compared to similar gasoline-fueled
vehicles, and lets those vehicles be factored into a manufacturer's
general fleet fuel economy calculation, but only to the extent that the
overall fleet fuel economy rises 1.2 mpg per compliance category in a
model year.
Congress extended the incentive in EISA for dual-fueled automobiles
through MY 2019, but provided for its phase out between MYs 2015 and
2019.\508\ The maximum fuel economy increase which may be attributed to
the incentive is thus as follows:
---------------------------------------------------------------------------

\508\ 49 U.S.C. 32906(a). NHTSA notes that the incentive for
dedicated alternative-fuel automobiles, automobiles that run
exclusively on an alternative fuel, at 49 U.S.C. Sec. 32905(a), was
not phased-out by EISA.
[GRAPHIC] [TIFF OMITTED] TR30MR09.100

NHTSA further explained in the NPRM that 49 CFR Part 538 implements
the statutory alternative-fueled and dual-fueled automobile
manufacturing incentive, and that NHTSA was not proposing to amend Part
538 in this rulemaking to reflect the changes in EISA, but that the
agency would undertake this task in a future rulemaking.
NHTSA received two comments on this issue. Cummins, Inc. stated
that it ``supports the continuation of the flex-fuel credit,'' because
``The use of alternative fuels such as biodiesel can reduce the
dependence on foreign oil and produce domestic economic benefits for
local producers of these fuels.''
The Alliance commented that despite NHTSA's statement in the NPRM
that it would not be including changes to Part 538 in this rulemaking,
it would ``not be difficult to implement'' changes in this rulemaking,
and would not require supplemental notice and comment. The Alliance
offered proposed text amending 49 CFR Sec. 538.9, and argued that the
proposal was simply a ``ministerial implementation of 49 U.S.C. Sec.
32906(a),'' as ``Existing Section 538.9 of the Title 49 Code of Federal
Regulations is clearly a ministerial application of EPCA.''
Agency response: NHTSA agrees with the Alliance that amending 49
CFR Sec. 538.9 would be simply a ministerial implementation of 49
U.S.C. Sec. 32906(a), but reiterates that it will undertake this task
in a near-future rulemaking. Meanwhile, to the extent that 49 U.S.C.
32906(a) differs from 49 CFR 538.9, the statute supersedes the
regulation, and regulated parties may rely on the text of the statute.
NHTSA appreciates the comment from Cummins, but notes that the decision
to extend the manufacturing incentive was that of Congress and not of
the agency.

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

The reformed CAFE program requires manufacturers to use vehicle
wheelbase and track width data to establish target standards for each
of its compliance categories. Manufacturers are required to provide
these data to the agency in the pre-model year reports as specified in
49 CFR part 537, ``Automotive Fuel Economy Reports.'' As part of its
assigned CAFE responsibilities, NHTSA's Office of Vehicle Safety
Compliance (OVSC) is establishing a program to validate the wheelbase
and track width data for selected vehicle configurations (models). As
mentioned in the NPRM, the OVSC has developed a draft test procedure
for measuring production vehicle wheelbase and track width dimensions.
This test procedure was made available on NHTSA's website.\509\ It will
be used by NHTSA and will not be a requirement that manufacturers must
follow. Accordingly, NHTSA is not required to provide notice and an
opportunity to comment on its procedure. Nevertheless, the agency
sought comments in the NPRM on the draft test procedure. In response,
the Alliance and SEA, Ltd., submitted comments that are categorized
into three subject areas, including test procedure execution, measured
value tolerances, and administrative or editorial issues. All of the
comments were considered. An updated revision to the procedure will be
posted on the NHTSA web site concurrent with the final rule. Following
is a brief discussion of the key issues in each of these three areas.
---------------------------------------------------------------------------

\509\ Available at http://www.nhtsa.gov/staticfiles/DOT/NHTSA/Vehicle%20Safety/Test%20Procedures/Associated%20Files/TP%20537-00%20Draft.pdf (last accessed Oct. 1, 2008).
---------------------------------------------------------------------------

A. Test Procedure Execution

The Alliance commented that the base tires and test weight should
be confirmed prior to executing the test. Vehicle track width is
determined with a vehicle equipped with the base tire. The test
procedure already included identification of the base tire

[[Page 14437]]

information. However, in response to the Alliance's comment, we are
modifying 49 CFR Part 537 to include a requirement for manufacturers to
provide base tire information in their pre-model year CAFE reports. As
for confirming the vehicle weight, it is NHTSA's intent to conduct
testing at the vehicle's unloaded vehicle weight. The test procedure
has been revised to specify this loading condition. Additionally, NHTSA
does not currently have a definition for ``base tire.'' Recent
discussions with manufacturers have indicated to the agency that there
is some confusion with regard to what the term means. Since different
tire sizes may affect vehicle track width, and thus affect footprint, a
precise definition for ``base tire'' is necessary to prevent gaming. A
definition has been added to 49 CFR 523.2.
The Alliance further stated that the actual measurement point for
the track width is under the tire at the geometric center of the tire
tread patch when in contact with the ground (tire to ground interface).
NHTSA's draft procedure, which called for measuring the track width at
the front center of the front tires and at the rear center of the rear
tires at ground level, provided a means for measuring the approximate
front and rear track widths. The differences between the two
measurement techniques are unknown but would be impacted by camber and
toe angles. NHTSA has evaluated other approaches that may be more
accurate for measuring the vehicle track width. The Alliance suggested
a possible technique of rolling the vehicle over an impressionable
material and measuring the perpendicular distance between the
corresponding axle tire patch tread centers. A second technique for
determining the track width from the geometric center of the tire tread
patch was provided in the comments from SEA, Ltd. SEA, Ltd. has been
conducting track width and wheelbase measurements for NHTSA's NCAP
rollover static stability factor (SSF) program for the past seven
years. The NCAP procedure involves measuring the inside and outside,
front and rear width dimensions between the tires on each axle and then
averaging those measured dimensions to calculate an accurate front and
rear axle track width. Averaging the measurements mitigate the
potential for measurement errors caused by a vehicle's toe and camber
angles. NHTSA has decided to follow the approach used by the NCAP and
has revised the test procedure accordingly.
The Alliance also commented on the procedure used to verify that
the front tires are pointed in the forward direction during testing.
NHTSA agrees that placement of tires, including steering angle and
suspension adjustments can have an impact on measured results. During
testing the front tires will be placed in a ``straight ahead position''
parallel to the longitudinal axis of the vehicle, although the agency
does not believe that it is necessary to specify particular tolerances.
The test procedure has been modified to include an additional step of
rolling the vehicle in a straight line forward and backwards once
positioned on the test surface to ensure any steering and suspension
loading and imbalances caused from steering the vehicle onto the test
surface are removed. Furthermore, NHTSA is confident that by adopting
the NCAP test technique the placement of the front tires is no longer a
critical issue affecting the track width measurements.

B. Measured Value Tolerances

The Alliance questioned what tolerances the agency will allow
between manufacturer-provided wheelbase, track width and footprint
data, and the corresponding agency-measured and -calculated wheelbase,
track width and footprint data. The Alliance argued that just being off
by \1/8\-inch for the wheelbase and \1/8\-inch for the track width can
result in a 0.2 square foot difference in footprint.
NHTSA understands that both test instrumentation accuracy and the
inherent measurement variations between design dimensions and physical
measurements must be considered when determining an acceptable
tolerance between manufacturer-reported data and NHTSA-measured data.
In the short term, the agency plans to collect physical data by
measuring wheelbase and track width dimensions of production vehicles
in the field. Also, the agency is in the process of asking each
manufacturer for data relating to known tolerances between design and
production measurements and analyzing the tolerances from the vehicles
measured by the NCAP program. The agency plans to collect and analyze
these data along with the field data to understand better the
tolerances that can be expected. NHTSA plans to revise its test
procedure accordingly to address the issue raised.
The Alliance also expressed concern with the accuracy of the hand
level and tape measure proposed to be used in the draft test procedure,
and argued that more accurate means exist and should be employed in
order to eliminate any sources that would cause discrepancies between
design data and field measurements. The agency agrees with the Alliance
and has identified more accurate instrumentation that is now referenced
in the test procedure and will be used for measuring wheelbase and
track width dimensions. Further research is ongoing to identify
instrumentation that can be easily adapted to this kind of application.
The agency is open to any further suggestions that the Alliance or
anyone else has for identifying other inexpensive and portable tools
and instrumentation that can be used with a high level of accuracy and
repeatability for making field measurements. When instrumentation
changes are made the NHTSA test procedure will reflect them
accordingly.
The Alliance also commented that wheelbase and track width
measurement procedures round the measurements to a finer level than is
repeatable. The Alliance appeared to be referencing the statements in
the test procedure which allow for recording the track width and
wheelbase measurements to the nearest \1/8\-inch and then rounding to
the nearest \1/10\-inch. Measuring the wheelbase and track width in
inches and rounding to the nearest \1/10\-inch is required by the
definition of footprint as specified in 49 CFR Part 523. The test
procedure has been revised to remove references to recording the
measurements to the nearest \1/8\'' and now incorporates making the
measurement to a more precise value of millimeters that correlates to
the measuring instruments the agency has decided to use. However, the
test procedure will retain requirements for rounding wheelbase and
track width measurements to the nearest \1/10\-inch after converting
from metric units to English units.

C. Administrative and Editorial Issues

The Alliance suggested that the test procedure reference SAE J1100
(W101). ``L101 Wheelbase'' and ``W101-1, 2 Tread Width Front & Rear
Tires'' are the applicable SAE items equivalent to the agency's
definitions of wheelbase and track width in Part 523. The Alliance
argued that the use of these dimensions is a standard practice for the
industry and should be incorporated in NHTSA's test procedure.
In response to the Alliance's comment, the agency notes that the
definitions for wheelbase in SAE J1100 and 49 CFR part 523 are the
same. Both SAE J1100 and 49 CFR 523.2 define ``wheelbase'' as the
longitudinal distance between front and rear wheel centerlines.
However, differences exist in SAE J1100 and the Part 523

[[Page 14438]]

definitions for track width. SAE J1100 defines ``track width'' as the
lateral distance between the centerlines of the tires at ground,
whereas Part 523 specifies the lateral distance between the centerlines
of the base tires at ground, including the camber angle. Base tire size
and camber angle impact the track width dimension. Vehicle
manufacturers must report wheelbase and track width dimensions per the
part 523 definitions in MY 2008 and later pre-model year CAFE reports
required by 49 CFR part 537. However, plan view and profile view
figures depicting the vehicle wheelbase and track width measurements,
similar to what is provided in SAE J1100, will be added to the NHTSA
test procedure for clarification.
The Alliance also commented that manufacturers already attest in
the pre-MY report that they follow 49 CFR part 537 for things like
analytically-derived fuel economy, and argued that this official
certification should extend to the wheelbase, track width and footprint
data provided. The Alliance appears to suggest that the agency should
accept the data submitted by the vehicle manufacturers without
implementing any type of validation enforcement program. The primary
mission of NHTSA's enforcement is to ensure and verify that
manufacturers conform to appropriate Federal regulations and comply
with required Federal motor vehicle safety standards. Verification of
the key data used to calculate the manufacturer's fuel economy
standards required by 49 CFR parts 531 and 533 is essential to meeting
this mission.
The Alliance also questioned the use of the term ``Apparent
Noncompliance'' in the test procedure and requested clarification
regarding what would constitute a failure. In response, the OVSC test
data collected will be used to validate wheelbase and track width data
submitted by each manufacturer required by 49 CFR Part 537. Collected
data may identify possible discrepancies between manufacturer-submitted
data and production vehicle measurements. Footprint calculations
derived from the wheelbase and track width measurements are critical
for determining compliance with CAFE standards. Any noted discrepancies
will have to be discussed with the respective vehicle manufacturer and
resolved prior to the manufacturer submittal of final data to the
Environmental Protection Agency. If the vehicle manufacturer's data are
found to be in error, it could be classified as a non-conformance to
the CAFE pre-model year reporting requirements of 49 CFR part 537. This
would not qualify as a non-compliance to a safety standard. The test
procedure text will be updated to reflect this distinction. However, a
non-conformance to the CAFE footprint requirements could result in a
re-determination of applicable fuel economy target standards for each
respective vehicle model and compliance category.
Finally, the Alliance argued that the procedure should measure
dimensions using metric units of measure and a conversion to English
should follow at the end only to generate English equivalents for
secondary reporting. The Alliance stated that ``The manufacturers that
comprise the Alliance of Automobile Manufacturers, are citizens of the
world and it makes our great country look arrogant when we continue to
author Technical Procedures based on English units.'' It is the
agency's common practice in development of test procedures to follow
the unit of measure format used in the corresponding regulation or
standard. The agency has worked for several years to issue revised and
new regulations and standards employing the metric system of measures.
However, to date, not all of the agency regulations and standards have
been converted. 49 CFR Part 523 specifies wheelbase and track width
dimensions to be measured in inches and rounded to the nearest tenth of
an inch. In this case, we have decided to accept the Alliance's
recommendation and have revised the test procedure to measure
dimensions in metric units and then convert to English-equivalent
units.

XIV. Sensitivity and Monte Carlo Analysis

NHTSA is establishing fuel economy standards, based on the Volpe
model analysis, that maximize net societal benefits--that is, where the
estimated benefits to society exceed the estimated cost of the rule by
the highest amount. This analysis is based, among other things, on many
underlying estimates, all of which entail uncertainty. Future fuel
prices, the cost and effectiveness of available technologies, the
damage cost of carbon dioxide emissions, the economic externalities of
petroleum consumption, and other factors cannot be predicted with
certainty.
Recognizing these uncertainties, NHTSA has used the Volpe model to
conduct both sensitivity analyses, by changing one factor at a time,
and a probabilistic uncertainty analysis (a Monte Carlo analysis that
allows simultaneous variation in these factors) to examine how key
measures (e.g., mpg levels of the standard, total costs and total
benefits) vary in response to changes in these factors.
However, NHTSA has not conducted a probabilistic uncertainty
analysis to evaluate how optimized stringency levels respond to such
changes in these factors. The Volpe model currently does not have the
capability to integrate Monte Carlo simulation with stringency
optimization.
The agency has performed several sensitivity analyses to examine
important assumptions. The analyses include:
(1) The value of reducing CO2 emissions. We examined $2
per metric ton as a domestic value, $33 per metric ton as a global
value and $80 per metric ton as a global value, with the main analysis
using a value of $2 per metric ton as a domestic value. These values
can be translated into dollars per gallon by multiplying by 0.0089
metric tons per gallon \510\, as shown below:
---------------------------------------------------------------------------

\510\ The molecular weight of Carbon (C) is 12, and the
molecular weight of Oxygen (O) is 16, thus the molecular weight of
CO2 is 44. One ton of C = 44/12 tons CO2 =
3.67 tons CO2. 1 gallon of gas weighs 2,819 grams, of
that 2,433 grams are carbon. $1.00 CO2 = $3.67 C and
$3.67/ton * ton/1000kg * kg/1000g * 2433g/gallon = (3.67 * 2433)/
1000 * 1000 = $0.0089/gallon
---------------------------------------------------------------------------

$2 per ton CO2 = $2*0.0089 = $0.0178 per gallon
$33.00 per ton CO2 = $33*0.0089 = $0.2937 per gallon
$80.00 per ton CO2 = $80*0.0089 = $0.712 per gallon
(2) The value of monopsony costs. For domestic values of
CO2, the main analysis uses $0.266 per gallon for monopsony
costs. At the low end of the range for domestic values, the sensitivity
analysis uses a value of $0.210. For global values of CO2, a
$0 value of monopsony cost is appropriate. As discussed previously in
Section V, this is consistent with the fact that monopsony payments are
a transfer rather than a real economic benefit when viewed from the
same global perspective, and thus have a net value of zero.
(3) The price of gasoline. The main analysis uses the AEO 2008 High
Price case forecast for the price of gasoline (see Table VIII-3). In
this sensitivity analysis we also examine the AEO 2008 Reference Case
forecast of the price of gasoline.
(4) Military security. For one of the scenarios, we assumed a $0.05
reduction in military security costs for each gallon of fuel saved. The
derivation of this estimate is discussed in detail in Section V.
Sensitivity analyses were performed on only the optimized (7%)
alternative. In the PRIA, we examined the sensitivity

[[Page 14439]]

of the price of gasoline (low, reference, and high case), values of
reducing CO2 emissions ($0 to $14 per ton), combined
externalities ($0.120 and $0.504 per gallon), and the rebound effect
(10 to 20 percent). Only the price of gasoline had a significant impact
on the results.
The results of the sensitivity analyses indicate that the much
wider values of CO2 examined have almost no impact on the
achieved mpg levels for passenger cars and a small impact on the levels
for light trucks. This occurs because the effect of the higher global
values for reducing CO2 emissions is partly offset by the
accompanying reduction of the benefit from savings in monopsony costs
from its domestic value of $0.266 per gallon to its global value of
$0.000. However, the extent to which eliminating the monopsony benefit
offsets the higher values of reducing CO2 emissions is
limited by the fact that these values continue to grow at the assumed
2.4 percent rate over the period spanned by the analysis, while the
monopsony benefit remains fixed.
The lower fuel prices forecast in the AEO 2008 Reference Case have
no discernible difference in the projected achievable levels for
passenger cars but result in a lower projected achievable level (by 0.3
mpg) for light trucks in MY 2011. Assuming a savings in military
security costs of $0.05 per gallon has no significant impact on the
level of the standards.
OMB Circular A-4 requires formal probabilistic uncertainty analysis
of complex rules where there are large, multiple uncertainties whose
analysis raises technical challenges or where effects cascade and where
the impacts of the rule exceed $1 billion. The agency identified and
quantified the major uncertainties in the preliminary regulatory impact
analysis and estimated the probability distribution of how those
uncertainties affect the benefits, costs, and net benefits of the
alternatives considered in a Monte Carlo analysis. The results of that
analysis, summarized for the combined passenger car and light truck
fleet across both the 7 percent (typically the lower range) and 3
percent (typically upper range) discount rates\511\ are as follows:
---------------------------------------------------------------------------

\511\ In a few cases the upper range results were obtained from
the 7% rate and the lower range results were obtained from the 3%
rate. While this may seem counterintuitive, it results from the
random selection process that is inherent in the Monte Carlo
technique.
---------------------------------------------------------------------------

Fuel Savings: The analysis indicates that MY 2011 vehicles (both
passenger cars and light trucks) will experience between 732 million
and 1,114 million gallons of fuel savings over their useful lifespan.
Total Costs: The analysis indicates that vehicle manufacturers will
invest between $760 million and $2,235 million to improve the fuel
economy of MY 2011 passenger cars and light trucks.
Societal Benefits: The analysis indicates that changes to MY 2011
passenger cars and light trucks to meet the proposed CAFE standards
will produce overall societal benefits valued between $1,003 million
and $2,229 million.
Net Benefits: The uncertainty analysis indicates that the net
impact of the higher CAFE requirements for MY 2011 passenger cars and
light trucks will range from a net loss of $913 million to a net
benefit of $1,224 million. There is at least an 80 percent certainty
(the lower of the passenger car and light truck certainty levels) that
changes made to MY 2011 vehicles to achieve the higher CAFE standards
will produce a net benefit.

XV. NHTSA's Record of Decision

On January 7, 2009, the Department of Transportation announced that
the Bush Administration decided not to finalize its rulemaking on CAFE,
stating that ``recent financial difficulties of the automobile industry
will require the next administration to conduct a thorough review of
matters affecting the industry, including how to effectively implement
the Energy Independence and Security Act of 2007 (EISA).'' Statement
from the U.S. Department of Transportation, available at http://www.dot.gov/affairs/dot0109.htm (last accessed Feb. 9, 2009).
On January 26, 2009, President Obama issued a memorandum to the
Secretary of Transportation and the Administrator of NHTSA, directing
NHTSA ``to publish in the Federal Register by March 30, 2009, a final
rule prescribing increased fuel economy for model year 2011.'' See 74
FR 4907. President Obama also requested that ``before promulgating a
final rule concerning model years after model year 2011, [the agency]
consider the appropriate legal factors under EISA, the comments filed
in response to the [NPRM], the relevant technological and scientific
considerations, and to the extent feasible, the forthcoming report by
the National Academy of Sciences mandated under section 107 of EISA. *
* *'' Id. President Obama also requested that NHTSA ``consider whether
any provisions regarding preemption are consistent with the EISA, the
Supreme Court's decision in Massachusetts v. EPA and other relevant
provisions of law and the policies underlying them.'' See id.
In accordance with President Obama's directive, this Final Rule
promulgates the fuel economy standards for MY 2011 only. The agency is
deferring further action at this time in order to evaluate the
appropriate course of action concerning fuel economy standards for
model years after MY 2011. This Final Rule constitutes the Record of
Decision (ROD) for NHTSA's MY 2011 CAFE standards, pursuant to the
National Environmental Policy Act (NEPA) and the Council on
Environmental Quality's (CEQ) implementing regulations.\512\ See 40 CFR
Sec. 1505.2.
---------------------------------------------------------------------------

\512\ NEPA is codified at 42 U.S.C. 4321-47. CEQ NEPA
implementing regulations are codified at 40 Code of Federal
Regulations (CFR) Parts 1500-08.
---------------------------------------------------------------------------

As required by CEQ regulations, this Final Rule and ROD sets forth
the following: (1) The agency's decision; (2) alternatives considered
by NHTSA in reaching its decision, including the environmentally
preferable alternative; (3) the factors balanced by NHTSA in making its
decision, including considerations of national policy; (4) how these
factors and considerations entered into its decision; and (5) the
agency's preferences among alternatives based on relevant factors,
including economic and technical considerations and agency statutory
missions. This Final Rule also addresses mitigation as required by CEQ
regulations and applicable laws.
The Agency's Decision
After carefully reviewing and analyzing all of the information in
the public record including technical support documents, the FEIS,
public and agency comments submitted on the Draft Environmental Impact
Statement (DEIS), public and agency comments submitted on the FEIS, and
public and agency comments submitted on the NPRM, NHTSA's decision is
to proceed with the Optimized Alternative, Mid-2 Scenario for MY 2011
(NHTSA's Decision).\513\ Specifically, the agency's decision is to
implement the following CAFE standards for MY 2011: 30.2 mpg for
passenger cars and 24.1 mpg for light trucks. In the DEIS and the FEIS,
the agency identified the Optimized Alternative (maximizing societal
net benefits) as NHTSA's Preferred Alternative. For a discussion of the
agency's selection of the Optimized

[[Page 14440]]

Alternative, see Section VII(E)(2)(b) of this Final Rule.
---------------------------------------------------------------------------

\513\ NHTSA's Decision to proceed with the Optimized Alternative
using economic assumptions that are reflected in the Mid-2 Scenario,
which were prompted in part by public comments, is within the
spectrum of alternatives set forth in the DEIS and the FEIS, and the
environmental impacts of this decision are within the spectrum of
impacts analyzed in the DEIS and the FEIS.
---------------------------------------------------------------------------

Alternatives Considered by NHTSA in Reaching its Decision, Including
the Environmentally Preferable Alternative
When preparing an EIS, NEPA requires an agency to compare the
potential environmental impacts of its proposed action and a reasonable
range of alternatives. NHTSA identified alternative stringencies that
represent the full spectrum of potential environmental impacts and
safety considerations. Specifically, the DEIS and FEIS analyzed the
impacts of the following six ``action'' alternatives: 25 Percent Below
Optimized, Optimized, 25 Percent Above Optimized, 50 Percent Above
Optimized, Total Costs Equal Total Benefits, and Technology Exhaustion.
The DEIS and FEIS also analyzed the impacts that would be expected if
NHTSA imposed no new requirements (the No Action Alternative). In
accordance with CEQ regulations, the agency selected a Preferred
Alternative in the DEIS and FEIS (the Optimized Alternative).
In response to public comments, the FEIS expanded the analysis to
determine how the proposed alternatives are affected by variations in
the economic assumptions input into the computer model NHTSA uses to
calculate the costs and benefits of various potential CAFE standards
(the Volpe model). Specifically, the agency calculated and analyzed mpg
standards and environmental impacts associated with each alternative
under four model input scenarios: Reference Case, High Scenario, Mid-1
Scenario, and Mid-2 Scenario. See FEIS Sec. 2.2.2. With this expanded
analysis, the FEIS presented the agency with a broad, comprehensive
spectrum of the alternatives, varied economic inputs, and potential
environmental impacts.
The agency compared the potential environmental impacts of
alternative mpg levels, analyzing direct, indirect, and cumulative
impacts. For a discussion of the environmental impacts associated with
each of the alternatives, including the Optimized Alternative using the
Mid-2 Scenario, see Chapter 3, Chapter 4 and Appendix B to the FEIS.
The agency considered and analyzed each of the individual economic
assumptions to determine which assumptions most accurately represent
future economic conditions. For a discussion of the analysis supporting
the selection of the economic assumptions relied on by the agency in
this Final Rule, see Section V. The economic assumptions used by the
agency in this Final Rule are reflected in the Mid-2 Scenario set of
assumptions analyzed in the FEIS. See FEIS Sec. 2.2.
The Technology Exhaustion Alternative is the overall
Environmentally Preferable Alternative. Specifically, the Technology
Exhaustion Alternative is the Environmentally Preferable Alternative in
terms of the following reductions: Fuel use, CO2 emissions,
criteria air pollutant emissions, and their resulting health impacts,
and emissions of almost all mobile source air toxics (MSATs).
Because it would impose the highest car and light truck CAFE
standards for MY 2011 among the alternatives considered, the Technology
Exhaustion Alternative would result in the largest reductions in fuel
use and GHG emissions. As explained in Chapter 5 of the FEIS, the
reductions in fuel consumption resulting from higher fuel economy cause
emissions during fuel refining and distribution to decline. For most
pollutants, this decline is more than sufficient to offset the increase
in tailpipe emissions that results from increased driving due to the
rebound effect of higher fuel economy, leading to a net reduction in
total emissions from fuel production, distribution, and use. Because of
this effect, the Technology Exhaustion Alternative would also lead to
the largest reductions in emissions of criteria air pollutants and
their resulting health impacts, as well as the largest reductions in
emissions of almost all mobile source air toxics (MSATs).
NHTSA's environmental analysis indicates that emissions of the
MSATs acrolein would increase under some alternatives, with the largest
increases in emissions of these MSATs projected to occur under the
Technology Exhaustion Alternative. The analysis of acrolein emissions
presented in the FEIS, however, is incomplete, because emissions
factors for acrolein during fuel production and distribution are
unavailable, so that the agency is thus unable to estimate the net
change in total acrolein emissions likely to result under each
alternative. If the agency had been able to estimate reductions in
``upstream'' emissions of acrolein as part of its analysis, total
acrolein emissions under each alternative would increase by smaller
amounts than those amounts reported in the EIS, or even decline.
However, given that the agency is unable to estimate the net change in
total acrolein emissions, the agency is unable to conclude which
alternative is environmentally preferable with respect to acrolein
emissions.
Overall, however, the Technology Exhaustion alternative is the
agency's Environmentally Preferable Alternative. For additional
discussion regarding the alternatives considered by the agency in
reaching its decision, including the Environmentally Preferable
Alternative, see Section VII of this Final Rule. For a discussion of
the environmental impacts associated with each alternative, see Chapter
3, Chapter 4 and Appendix B of the FEIS.
Factors Balanced By NHTSA In Making Its Decision, Including
Considerations Of National Policy
Section VII of this Final Rule discusses the factors balanced by
NHTSA in making its decision. Notably, 49 U.S.C. 32902(b)(2)(A) and (C)
set forth the following three requirements specific to MYs 2011-2020:
(1) The standards must be sufficiently high to result in a combined
(passenger car and light truck) fleet fuel economy of at least 35 mpg
by MY 2020; (2) the standards must increase annually; and (3) the
standards must increase ratably.
EPCA also requires the agency to determine what level of CAFE
stringency would be ``maximum feasible'' for each model year by
considering the four competing factors of technological feasibility,
economic practicability, the effect of other motor vehicle standards of
the Government on fuel economy, and the need of the United States to
conserve energy, which includes environmental considerations, along
with additional relevant factors such as safety.
``The need of the United States to conserve energy'' is a broad
concept encompassing ``the consumer cost, national balance of payments,
environmental, and foreign policy implications of our need for large
quantities of petroleum, especially imported petroleum.''\514\ NHTSA
has historically considered safety in setting the CAFE standards. For
an explanation of the agency's historical consideration of safety in
setting the CAFE standards, see Section VIII.
---------------------------------------------------------------------------

\514\ 42 FR 63184, 63188 (Dec. 15, 1977).
---------------------------------------------------------------------------

Finally, NEPA directs that environmental considerations are a
factor integrated into the agency's decisionmaking process. To
accomplish that purpose, NEPA requires an agency to compare the
potential environmental impacts of its proposed action to those of a
reasonable range of alternatives.
For further discussion of the factors balanced by NHTSA in making
its decision, including considerations of national policy, see Section
VII of this Final Rule.

[[Page 14441]]

How the Factors and Considerations Balanced by NHTSA Entered Into its
Decision
The agency recognizes that the CAFE program is designed to raise
fuel economy standards for both passenger cars and light trucks. The
agency also recognizes that the enactment of EISA represents a major
step forward in, among other things, reducing oil consumption and
reducing CO2 emissions in order to combat global climate
change. While the agency's balancing of the need of the nation factor
ensures consideration of climate change issues, the NEPA analysis also
promotes consideration of the environmental factor by NHTSA when making
its decision. The agency further recognizes that under EPCA, it is
required to set fuel economy standards for each model year and for each
fleet separately at the ``maximum feasible'' level for that model year
and fleet by balancing the factors identified above. 49 U.S.C.
32902(a). In doing so, while considering the need of the nation to
conserve energy alone might counsel for setting the standards at the
levels suggested by proponents of higher standards, NHTSA does not
believe that such an action would be consistent with, among other
things, economic practicability, which it is required to consider under
EPCA.
As has been widely reported in public throughout this rulemaking,
and as shown in public comments, the national and global economies are
in crisis. Even before the recent economic developments, the automobile
manufacturers were already facing substantial difficulties. Further, at
this time, NHTSA cannot know the full scope, depth or duration of the
crisis unfolding in the national and world economies. These problems
have made NHTSA's economic practicability analysis particularly
important and challenging in this rulemaking.
NHTSA's Decision attempts to balance the factors by setting the
CAFE standards so that they are both technologically and economically
feasible, especially in light of the current economic climate, while
providing the maximum national public social benefit.
For further discussion of how the factors and considerations
balanced by the agency entered into NHTSA's Decision, see Sections VII
and IX.F of this Final Rule.
The Agency's Preferences Among Alternatives Based on Relevant Factors,
Including Economic and Technical Considerations and Agency Statutory
Missions
With regard to MY 2011, the No Action Alternative and Technology
Exhaustion Alternative, while useful for illustrative purposes, is
facially inconsistent with the requirements of EPCA, and thus was not
selected as the agency's decision. The No Action Alternative violates
EPCA because it (1) does not fulfill the requirement that the Secretary
establish CAFE standards for each model year separately; (2) does not
fulfill the requirement that MY 2011-2020 standards are to be set high
enough to ensure that the industry-wide fleet achieves a combined
passenger car/light truck average fuel economy of at least 35 mpg; and
(3) does not fulfill the requirement that the standards for MYs 2011-
2020 increase annually and ratably. Although the Technology Exhaustion
Alternative is the environmentally preferable alternative for NEPA
purposes, it does not reflect any consideration of economic
practicability, and thus is facially inconsistent with the requirements
of EPCA.
Considering the remaining alternatives available for MY 2011, the
agency chose the Optimized Alternative because maximizing benefits
helps ensure that manufacturers are not forced to apply technologies
that will not pay for themselves. NEPA's purpose is to integrate
environmental considerations into the decision-making process. For MY
2011, setting standards at the point at which social net benefits are
maximized in NHTSA's analysis results in standards that still increase
higher and faster than any standards since the earliest years of the
program, do not require the addition of technologies that the agency
does not believe will pay for themselves, and result in measurable
environmental benefits. The standards for MY 2011 thus fulfill EPCA's
objectives regarding the need of the nation to conserve energy, while
not imposing substantial economic hardship on the industry, while
taking into account the feasibility of applying technologies
appropriately and consistent with manufacturers' natural cycles, and
the other motor vehicle standards of the government with which
manufacturers have to comply.
In short, in balancing the EPCA factors against one another and
carefully considering the environmental impacts associated with the
various alternatives evaluated, NHTSA continues to believe that the
proper overall balance of all relevant consideration is the point at
which social net benefits are maximized, and results in CAFE standards
that are the maximum feasible for MY 2011.
For further discussion of the agency's preferences among
alternatives based on relevant factors, including economic and
technical considerations, see Sections VII.E and IX.F of this Final
Rule.
Mitigation
NHTSA's Decision results in a decrease in CO2 emissions
and associated climate change effects, a reduction in total criteria
air pollutant emissions and toxic air pollutant emissions, and a
decrease in energy consumption as compared to the No Action
Alternative. In addition, the Optimized Alternative will reduce adverse
health outcomes and health costs related to motor vehicle air
pollution. The Optimized Alternative will generally have beneficial
environmental impacts and health effects.
Under NEPA, an EIS is required to contain `` `a reasonably complete
discussion of possible mitigation measures.' '' Northern Alaska
Environmental Center v. Kempthorne, 457 F.3d 969, 979 (9th Cir. 2006)
(citing Robertson v. Methow Valley Citizens Council, 490 U.S. 332, 352
(1989)). Essentially, ``[t]he mitigation must `` `be discussed in
sufficient detail to ensure that environmental consequences have been
fairly evaluated.' '' Id. (citing City of Carmel-By-The-Sea v. U.S.
Dept. of Transp., 123 F.3d 1142, 1154 (9th Cir. 1997)). NEPA, however,
``does not require an agency to formulate and adopt a complete
mitigation plan.'' \515\ An agency is not required to mitigate adverse
consequences of an environmental action; it is only required to analyze
them.\516\ Indeed, `` `it would be inconsistent with NEPA's reliance on
procedural mechanisms--as opposed to substantive, result-based
standards--to demand the presence of a fully developed plan that will
mitigate environmental harm before an agency

[[Page 14442]]

can act.' '' Id. (citing Robertson, 490 U.S. at 333).
---------------------------------------------------------------------------

\515\ Id. (citing Robertson, 490 U.S. at 352 (noting that NEPA
does not contain a substantive requirement that a complete
mitigation plan be actually formulated and adopted)). See also
Valley Community Preservation Com'n v. Mineta, 231 F. Supp. 2d 23,
41 (D.D.C. 2002) (noting that NEPA does not require that a complete
mitigation plan be formulated and incorporated into an EIS).
\516\ See Robertson, 490 U.S. at 333 (holding, inter alia, that
``NEPA does not impose a substantive duty on agencies to mitigate
adverse environmental effects or to include in each EIS a fully
developed mitigation plan''). See also Valley Community Preservation
Com'n, 231 F. Supp. 2d 23.
---------------------------------------------------------------------------

Chapter 5 of the FEIS explains that Federal transportation funds
administered by the Federal Highway Administration (FHWA) might be
available to assist in funding projects to reduce any increases in
MSATs.
NHTSA acknowledges that the absolute level of GHG emissions will
continue to rise over current levels. This was explained in the FEIS.
See Figure 3.4-4 and Table 3.4-1 of the FEIS. The increase in emissions
from factors such as an increase in vehicle miles traveled (VMT) is
beyond NHTSA's jurisdiction to control under EPCA, as amended by EISA.
Essentially, NHTSA does not have the statutory authority to reduce the
total amount of GHGs emitted by all vehicles driven, because NHTSA,
under its statutory authority conferred by EPCA, cannot control how
many miles citizens elect to drive. See FEIS Sec. Sec. 10.1-10.2. In
view of this statutory directive, it is not reasonable for NHTSA to
explore mitigation strategies related to the quantity of vehicle miles
traveled by the public.
Based on the agency's current understanding of global climate
change, certain effects are likely to occur due to the increasing
global GHG emissions entering the atmosphere. The Optimized Alternative
will not prevent these effects. Instead, the Optimized Alternative may
diminish the effects of climate change by contributing to global GHG
reductions from currently anticipated trends. As such, the Optimized
Alternative will generally have beneficial environmental impacts and
health effects.

XVI. Regulatory Notices and Analyses

The following discussion of relevant regulatory notices and
analyses considers both the final rule and the FEIS together.

A. Executive Order 12866 and DOT Regulatory Policies and Procedures

Executive Order 12866, ``Regulatory Planning and Review'' (58 FR
51735, Oct. 4, 1993), provides for making determinations whether a
regulatory action is ``significant'' and therefore subject to OMB
review and to the requirements of the Executive Order. The Order
defines a ``significant regulatory action'' as one that is likely to
result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local or Tribal governments or communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlements, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
This rulemaking is economically significant. Accordingly, OMB
reviewed it under Executive Order 12866. The rule is significant within
the meaning of the Department of Transportation's Regulatory Policies
and Procedures.
The benefits and costs of this final rule are described above.
Because the rule is economically significant under both the Department
of Transportation's procedures and OMB guidelines, the agency has
prepared a Final Regulatory Impact Analysis (FRIA) and placed it in the
docket and on the agency's Web site. Further, pursuant to OMB Circular
A-4, we have prepared a formal probabilistic uncertainty analysis for
this proposal. The circular requires such an analysis for complex rules
where there are large, multiple uncertainties whose analysis raises
technical challenges or where effects cascade and where the impacts of
the rule exceed $1 billion. This rule meets these criteria on all
counts.

B. National Environmental Policy Act

Under NEPA, a Federal agency must prepare an Environmental Impact
Statement (EIS) on proposed actions that could significantly impact the
quality of the human environment. The requirement is designed to serve
three major functions: (1) To provide the decisionmaker(s) with a
detailed description of the potential environmental impacts of a
proposed action prior to its adoption, (2) to rigorously explore and
evaluate all reasonable alternatives, and (3) to inform the public of,
and allow comment on, such efforts.
NHTSA prepared a draft EIS (DEIS), solicited and analyzed public
comments thereon, including both a public hearing and written comments,
and prepared a final EIS (FEIS), which responds to public comments and
incorporates the information relevant to the effects of each of the
alternatives considered in the EIS. Specifically, in March 2008, NHTSA
issued a Notice of Intent (NOI) to prepare an EIS for the MY 2011-2015
CAFE standards. 73 FR 16615; see 40 CFR 1501.7. In April 2008, NHTSA
issued a supplemental NOI. 73 FR 22913. On June 26, 2008, NHTSA
submitted the DEIS to the Environmental Protection Agency (EPA). On
July 2, 2008, NHTSA published a Federal Register Notice of Availability
of its DEIS. See 73 FR 37922. NHTSA's Notice of Availability also made
public the date and location of a public hearing, and invited the
public to participate at the hearing on August 4, 2008, in Washington,
DC. See id. On July 3, 2008, the EPA issued its Notice of Availability
of the DEIS, triggering the 45-day public comment period. See 73 FR
38204. See also 40 CFR 1506.10. In accordance with CEQ regulations, the
public was invited to submit written comments on the DEIS until August
18, 2008. See 40 CFR 1503, et seq.
NHTSA mailed approximately 200 copies of the DEIS to interested
parties, including federal, state, and local officials and agencies;
elected officials, environmental and public interest groups; Native
American tribes; and other interested individuals, as listed in Chapter
9 of the DEIS. NHTSA held a public hearing on the DEIS at the National
Transportation Safety Board Conference Center in Washington, DC, on
August 4, 2008.
NHTSA received 66 written comments from interested stakeholders,
including the EPA, the Centers for Disease Control (CDC), state and
local agencies, elected officials, automobile trade associations,
organizations, and individuals. In addition, NHTSA received one
petition with 10,540 signatures. During the public comment hearing in
Washington, DC, 44 individuals provided oral statements. The transcript
from the public hearing and written comments submitted to NHTSA are
part of the administrative record, and are available on the Federal
Docket, which can be found on the Web at http://www.regulations.gov,
Reference Docket No. NHTSA-2008-0060. Written comments and the public
hearing transcript can also be viewed in their entirety in Appendix D
of the FEIS.
NHTSA reviewed and analyzed all written and oral comments received
during the public comment period in the preparation of the FEIS. NHTSA
revised the FEIS in response to comments on the DEIS.\517\ For a more
detailed discussion of NHTSA's scoping and comment periods, please see
Section 1.3 and Chapter 10 of the FEIS.
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\517\ The agency also changed the FEIS as a result of updated
information that became available after issuance of the DEIS.
---------------------------------------------------------------------------

On October 10, 2008, NHTSA submitted the FEIS to the EPA. On
October 17, 2008, the EPA published a

[[Page 14443]]

Notice of Availability of the FEIS in the Federal Register. See 73 FR
61859.
This Final Rule constitutes the Record of Decision (ROD) for
NHTSA's MY 2011 CAFE standards, pursuant to the National Environmental
Policy Act (NEPA) and Council on Environmental Quality's (CEQ)
implementing regulations.\518\ See 40 CFR Sec. 1505.2. For additional
information regarding NHTSA's compliance with 40 CFR Sec. 1505.2, see
Section XV of this Final Rule.
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\518\ NEPA is codified at 42 U.S.C. 4321-47. CEQ NEPA
implementing regulations are codified at 40 Code of Federal
Regulations (CFR) Parts 1500-08.
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The MY 2011 CAFE standards adopted in this Final Rule have been
informed by analyses contained in the Final Environmental Impact
Statement, Corporate Average Fuel Economy Standards, Passenger Cars and
Light Trucks, Model Years 2011--2015, Docket No. NHTSA-2008-0060-0605
(FEIS).\519\ For purposes of this rulemaking, the agency referred to an
extensive compilation of technical and policy documents available in
the dockets for the NPRM and Final Rule and for the EIS. The EIS docket
and the rulemaking docket are available on the Federal Docket, which
can be found on the Web at http://www.regulations.gov, Reference Docket
Nos.: NHTSA-2008-0060 (EIS) and NHTSA-2008-0089 (Rulemaking).
---------------------------------------------------------------------------

\519\ The Notice of Availability of the FEIS was published in
the Federal Register by the EPA on October 17, 2008.
---------------------------------------------------------------------------

The NPRM proposed fuel economy standards for MYs 2011-2015.
Consistent with that proposal, the agency designed the FEIS to evaluate
the aggregate environmental impacts associated with each alternative
for the entire five-year period (i.e., the environmental impacts that
would likely result if MY 2011--2015 passenger cars and light trucks
met the higher, proposed CAFE standards for those years). The aggregate
environmental impacts provided in the FEIS remain relevant, since the
MY 2011 impacts associated with the CAFE standards fall within the
spectrum of those aggregated impacts. See Chapter 3, Chapter 4 and
Appendix B of the FEIS. Sections VII.D and IX.F of this Final Rule
present the following consequences associated with each alternative,
including NHTSA's Decision, for MY 2011 passenger cars and light
trucks: fuel consumption and associated emissions of greenhouse gases,
as well as on emissions of criteria and hazardous air pollutants.
Given the unusual circumstances surrounding this rulemaking (i.e.,
the Bush Administration's decision to postpone issuing CAFE standards
and the Obama Administration's decision to sever the rulemaking so that
it addresses only MY 2011), which are a matter of public record, one
issue presented is whether the existing EIS remained sufficient,
without change, to adequately inform the agency. Under CEQ Regulations,
an agency shall prepare a supplemental EIS if ``(i) The agency makes
substantial changes in the proposed action that are relevant to
environmental concerns; or (ii) There are significant new circumstances
or information relevant to environmental concerns and bearing on the
proposed action or its impacts.'' 40 CFR Sec. 1502.9(c).
Reviewing courts apply the ``arbitrary and capricious'' standard of
the Administrative Procedure Act when evaluating whether an agency
decision not to prepare a supplemental EIS was proper under NEPA. See
Marsh v. Oregon Natural Resources Council, et al., 490 U.S. 360, 375-76
(1989) (noting that an agency should apply a ``rule of reason'' when
deciding whether to prepare a supplemental EIS). A supplemental EIS is
required if ``there remains a major federal action to occur and if the
new information is sufficient to show that the remaining action will
affec[t] the quality of the human environment in a significant manner
or to a significant extent not already considered * * *.'' Marsh, 490
U.S. at 374 (citations omitted) (quotations omitted). See also
Operation of the Missouri River System Litigation v. U.S. Army Corps of
Engineers, et al., 516 F.3d 688 (8th Cir. 2008) (holding that a
supplemental EIS is not required if the relevant environmental impacts
were already considered by the agency).
Courts have upheld agencies' decisions not to supplement where the
relevant environmental impacts of the proposed change have been fully
considered. Thus, courts have interpreted the ``substantial change''
provision of the CEQ regulations to require agencies to issue a
supplement if the changes will impact the environment ``in a
significant manner * * * not already considered by the federal
agency.'' Ark. Wildlife Fed'n v. U.S. Army Corps of Engineers, 431 F.3d
1096, 1102 (8th Cir. 2005) (quoting Airport Impact Relief, Inc. v.
Wykle, 192 F.3d 197, 204 (1st Cir. 1999)). That is, a change is
considered ``substantial'' under the regulations only where ``it
presents a `seriously different picture of the environmental impact' ''
than that previously considered. Id. (quoting South Trenton Residents
Against 29 v. Fed. Highway Admin., 176 F.3d 658, 663 (3d Cir. 1999)).
In addition to asking whether the agency has fully considered the
environmental impact of the proposed change, courts have also asked
whether the change is `` `qualitatively within the spectrum of
alternatives that were discussed' in a prior FEIS.'' In re Operation of
the Missouri River System Litigation, 516 F.3d at 693 (quoting Dubois
v. U.S. Dep't of Agric., 102 F.3d 1273, 1292 (1st Cir. 1996)). This
language first appeared in a 1981 CEQ guidance document, commonly
referred to as the CEQ ``Forty Questions.'' See Forty Most Asked
Questions Concerning CEQ's National Environmental Policy Act
Regulations, 46 FR 18026, 18035 (1981).
Under applicable law, NHTSA has decided that a supplemental NEPA
analysis for MY 2011 fuel economy standards is not required. Here,
NHTSA analyzed alternatives in the FEIS for five model years so that
the agency could capture a full spectrum of potential environmental
impacts, ranging from vehicles continuing to maintain their MY 2010
fuel economy to standards based on the maximum technology expected to
be available over a five-year period. NHTSA's FEIS presented the agency
and the public with a comprehensive analysis of this spectrum of
environmental impacts. In regard to NHTSA's Decision, the environmental
impacts fall within the spectrum of environmental impacts analyzed
under the Optimized Mid-2 Scenario \520\ in the FEIS, which the agency
developed after consideration of public comments.
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\520\ The Mid-2 Scenario is summarized in Section V of this
Final Rule. See also FEIS Chapter 3, Chapter 4 and Appendix B.
---------------------------------------------------------------------------

In light of the President's January 26, 2009 Memorandum directing
NHTSA to issue a final rule for MY 2011 only, and consistent with
NEPA's rule of reason and applicable case law, the relevant
environmental impacts for MY 2011 have been fully considered within the
broader FEIS prepared for MYs 2011-2015, and the President's directive
to issue a final rule for a single model year does not present a
seriously different picture of the environmental impacts that NHTSA
analyzed, both incrementally and cumulatively, in its broader FEIS. In
fact, the impacts analyzed in the FEIS are more comprehensive than any
NEPA analysis that NHTSA could prepare in the short time between the
President's January 26, 2009 Memorandum and today's final rule.\521\ In
short, the FEIS served to

[[Page 14444]]

inform the agency and support today's decision, and no rule of reason
could require the preparation of a supplemental environmental analysis
for a single model year of fuel economy standards already contained
within a comprehensive analysis for five model years. For a discussion
of NHTSA's Decision, see Section VII of this Final Rule.
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\521\ If, on account of the unforeseen current events, NHTSA
were to attempt to isolate the environmental impacts of its Decision
on its own, the agency would fail to issue MY 2011 standards by
March 30, 2009. As a result, the agency would fail to fulfill its
EPCA statutory mandate of issuing fuel economy standards ratably
beginning with MY 2011 and President Obama's directive of issuing MY
2011 standards by March 30, 2009. NHTSA's failure to issue standards
would also enable automobile manufacturers to establish any standard
they deemed appropriate, or no standard whatsoever.
---------------------------------------------------------------------------

Based on the foregoing, the agency concludes that the environmental
analysis and public involvement process complies with both the letter
and spirit of NEPA implementing regulations issued by CEQ, DOT Order
5610.1C, and NHTSA regulations.\522\
---------------------------------------------------------------------------

\522\ NEPA is codified at 42 U.S.C. 4321-4347. CEQ's NEPA
implementing regulations are codified at 40 CFR Pts. 1500-1508, and
NHTSA's NEPA implementing regulations are codified at 49 CFR part
520.
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1. Clean Air Act (CAA)
The CAA (42 U.S.C. 7401) is the primary Federal legislation that
addresses air quality. Under the authority of the CAA and subsequent
amendments, the EPA has established National Ambient Air Quality
Standards (NAAQS) for six criteria pollutants, which are relatively
commonplace pollutants that can accumulate in the atmosphere as a
result of normal levels of human activity. The EPA is required to
review the NAAQS every five years and to change the levels of the
standards if warranted by new scientific information.
The air quality of a geographic region is usually assessed by
comparing the levels of criteria air pollutants found in the atmosphere
to the levels established by the NAAQS. Concentrations of criteria
pollutants within the air mass of a region are measured in parts of a
pollutant per million parts of air (ppm) or in micrograms of a
pollutant per cubic meter ([mu]g/m3) of air present in repeated air
samples taken at designated monitoring locations. These ambient
concentrations of each criteria pollutant are compared to the
permissible levels specified by the NAAQS in order to assess whether
the region's air quality is potentially unhealthful.
When the measured concentrations of a criteria pollutant within a
geographic region are below those permitted by the NAAQS, the region is
designated by the EPA as an attainment area for that pollutant, while
regions where concentrations of criteria pollutants exceed Federal
standards are called nonattainment areas (NAAs). Former NAAs that have
attained the NAAQS are designated as maintenance areas. Each NAA is
required to develop and implement a State Implementation Plan (SIP),
which documents how the region will reach attainment levels within time
periods specified in the CAA. In maintenance areas, the SIP documents
how the State intends to maintain compliance with the NAAQS. When EPA
changes a NAAQS, States must revise their SIPs to address how they will
attain the new standard.
Section 176(c) of the CAA prohibits Federal agencies from taking
actions in nonattainment or maintenance areas that do not ``conform''
to the State Implementation Plan (SIP). The purpose of this conformity
requirement is to ensure that Federal activities do not interfere with
meeting the emissions targets in the SIPs, do not cause or contribute
to new violations of the NAAQS, and do not impede the ability to attain
or maintain the NAAQS. The EPA has issued two sets of regulations to
implement CAA Section 176(c):
The Transportation Conformity Rules (40 CFR 51 Subpart T),
which apply to transportation plans, programs, and projects funded
under title 23 United States Code (U.S.C.) or the Federal Transit Act.
Highway and transit infrastructure projects funded by FHWA or the
Federal Transit Administration (FTA) usually are subject to
transportation conformity.
The General Conformity Rules (40 CFR part 51 Subpart W)
apply to all other Federal actions not covered under transportation
conformity. The General Conformity Rules established emissions
thresholds, or de minimis levels, for use in evaluating the conformity
of a project. If the net emission increases due to the project are less
than these thresholds, then the project is presumed to conform and no
further conformity evaluation is required. If the emission increases
exceed any of these thresholds, then a conformity determination is
required. The conformity determination may entail air quality modeling
studies, consultation with EPA and State air quality agencies, and
commitments to revise the SIP or to implement measures to mitigate air
quality impacts.
The CAFE standards and associated program activities are not funded
under title 23 U.S.C. or the Federal Transit Act. Further, CAFE
standards are established by NHTSA and are not an action undertaken by
FHWA or FTA. Accordingly, the CAFE standards are not subject to
transportation conformity.
The General Conformity Rules contain several exemptions applicable
to ``Federal actions,'' which the conformity regulations define as:
``any activity engaged in by a department, agency, or instrumentality
of the Federal Government, or any activity that a department, agency or
instrumentality of the Federal Government supports in any way, provides
financial assistance for, licenses, permits, or approves, other than
activities [subject to transportation conformity].'' 40 CFR 51.852.
``Rulemaking and policy development and issuance'' are exempted at 40
CFR 51.853(c)(2)(iii). Since NHTSA's CAFE standards involve a
rulemaking process, its action is exempt from general conformity. Also,
emissions for which a Federal agency does not have a ``continuing
program responsibility'' are not considered ``indirect emissions''
subject to general conformity under 40 CFR 51.852. ``Emissions that a
Federal agency has a continuing program responsibility for means
emissions that are specifically caused by an agency carrying out its
authorities, and does not include emissions that occur due to
subsequent activities, unless such activities are required by the
Federal agency.'' 40 CFR 51.852. Emissions that occur as a result of
the final CAFE standards are not caused by NHTSA carrying out its
statutory authorities and clearly occur due to subsequent activities,
including vehicle manufacturers' production of passenger car and light
truck fleets and consumer purchases and driving behavior. Thus, changes
in any emissions that result from NHTSA's final CAFE standards are not
those for which the agency has a ``continuing program responsibility''
and NHTSA is confident that a general conformity determination is not
required. NHTSA is evaluating the potential impacts of air emissions
under NEPA.
2. National Historic Preservation Act (NHPA)
The NHPA (16 U.S.C. 470) sets forth government policy and
procedures regarding ``historic properties''--that is, districts,
sites, buildings, structures, and objects included in or eligible for
the National Register of Historic Places (NRHP). See also 36 CFR part
800. Section 106 of the NHPA requires federal agencies to ``take into
account'' the effects of their actions on historic properties. The
agency concludes that the NHPA is not applicable to NHTSA's Decision,
because it does not directly involve historic properties. The agency
has, however, conducted a qualitative

[[Page 14445]]

review of the related direct, indirect, and cumulative impacts,
positive or negative, of the alternatives on potentially affected
resources, including historic and cultural resources. See Section 3.5.7
of the FEIS.
3. Executive Order 12898 (Environmental Justice)
Under Executive Order 12898, Federal agencies are required to
identify and address any disproportionately high and adverse human
health or environmental effects of its programs, policies, and
activities on minority populations and low-income populations. NHTSA
complied with this order by identifying and addressing the potential
effects of the alternatives on minority and low-income populations in
Section 3.5.9. In Section 4.6 of the FEIS, the agency set forth a
qualitative analysis of the cumulative effects of the alternatives on
these populations. Given the foregoing, the agency concludes that it
complied with Executive Order 12898.
4. Fish and Wildlife Conservation Act (FWCA)
The FWCA (16 U.S.C. 2900) provides financial and technical
assistance to States for the development, revision, and implementation
of conservation plans and programs for nongame fish and wildlife. In
addition, the Act encourages all Federal agencies and departments to
utilize their authority to conserve and to promote conservation of
nongame fish and wildlife and their habitats. The agency concludes that
the FWCA is not applicable to NHTSA's Decision, because it does not
directly involve fish and wildlife.
5. Coastal Zone Management Act (CZMA)
The Coastal Zone Management Act (16 U.S.C. 1450) provides for the
preservation, protection, development, and (where possible) restoration
and enhancement of the nation's coastal zone resources. Under the
statute, States are provided with funds and technical assistance in
developing coastal zone management programs. Each participating State
must submit its program to the Secretary of Commerce for approval. Once
the program has been approved, any activity of a Federal agency, either
within or outside of the coastal zone, that affects any land or water
use or natural resource of the coastal zone must be carried out in a
manner that is consistent, to the maximum extent practicable, with the
enforceable policies of the State's program.
The agency concludes that the CZMA is not applicable to NHTSA's
Decision, because it does not involve an activity within, or outside
of, the nation's coastal zones. The agency has, however, conducted a
qualitative review of the related direct, indirect, and cumulative
impacts, positive or negative, of the alternatives on potentially
affected resources, including coastal zones. See Section 4.5.5 of the
FEIS.
6. Endangered Species Act (ESA)
The ESA (16 U.S.C. 1531) provides for the protection of species
that are at risk of extinction throughout all or a significant portion
of their range, and for the protection of ecosystems on which they
depend. Under Section 7 of the ESA, all Federal agencies are required
to undertake programs for the conservation of endangered and threatened
species.
Federal agencies are responsible for determining whether their
proposed action requires consultation with Fish and Wildlife Service or
National Marine Fisheries Service under Section 7 of the ESA. To make
this determination, an agency examines the direct and indirect effects
of its proposed action to see if the action ``may affect'' a listed
species. For indirect effects, the impact to the species must be later
in time, must be caused by the proposed action, and must be reasonably
certain to occur.
As stated in the FEIS, the action alternatives, including NHTSA's
Decision, show a reduction in emissions of CO2,
NOX, PM2.5, SOX, VOC, DPM, benzene,
and 1,3-butadiene compared to the No Action Alternative. The FEIS also
quantified the resulting decreases in sea-level rise, changes in
precipitation, and temperature decreases for each of the alternatives
from decreasing CO2 emissions. NHTSA then qualitatively
discussed the impacts to ecosystems, ocean acidification, natural
resources, wildlife, and many other factors. Because it is beyond the
ability of current modeling and the level of uncertainty is very high,
it was not possible to quantitatively calculate the effects of the
CO2 reduction on specific localized ecosystems. See United
States Department of Interior, Fish and Wildlife Service, Memorandum,
``Expectations for Consultations on Actions that would Emit Greenhouse
Gases,'' dated May 14, 2008. NHTSA discussed the issue with the U.S.
Fish and Wildlife Service to ensure proper compliance. Without
sufficient data to establish the required causal connection (to the
level of reasonable certainty) between the proposed rulemaking, GHG
emissions, and the subsequent impacts to listed species or critical
habitat, Section 7 consultation is not required.
For additional discussion regarding NHTSA's compliance with Section
7 of the ESA, please see Section 10.3.6.1, Section 3.5.2.2, and Section
4.7.2.1 of the FEIS.
7. Floodplain Management (Executive Order 11988 & DOT Order 5650.2)
These Orders require Federal agencies to avoid the long- and short-
term adverse impacts associated with the occupancy and modification of
floodplains, and to restore and preserve the natural and beneficial
values served by floodplains. Executive Order 11988 also directs
agencies to minimize the impact of floods on human safety, health and
welfare, and to restore and preserve the natural and beneficial values
served by floodplains through evaluating the potential effects of any
actions the agency may take in a floodplain and ensuring that its
program planning and budget requests reflect consideration of flood
hazards and floodplain management. DOT Order 5650.2 sets forth DOT
policies and procedures for implementing Executive Order 11988. The DOT
Order requires that the agency determine if a proposed action is within
the limits of a base floodplain, meaning it is encroaching on the
floodplain, and whether this encroachment is significant. If
significant, the agency is required to conduct further analysis of the
proposed action and any practicable alternatives. If a practicable
alternative avoids floodplain encroachment, then the agency is required
to implement it.
In this rulemaking, the agency is not occupying, modifying and/or
encroaching on floodplains. The agency, therefore, concludes that the
Orders are not applicable to NHTSA's Decision. The agency has, however,
conducted a review of the alternatives on potentially affected
resources, including floodplains. See Chapters 3 and 4 of the FEIS.
8. Preservation of the Nation's Wetlands (Executive Order 11990 & DOT
Order 5660.1a)
These Orders require Federal agencies to avoid, to the extent
possible, undertaking or providing assistance for new construction
located in wetlands unless the agency head finds that there is no
practicable alternative to such construction and that the proposed
action includes all practicable measures to minimize harms to wetlands
that may result from such use. Executive Order 11990 also directs
agencies to take action to minimize the destruction, loss or
degradation of wetlands in ``conducting Federal activities and programs
affecting land use, including

[[Page 14446]]

but not limited to water and related land resources planning,
regulating, and licensing activities.'' DOT Order 5660.1a sets forth
DOT policy for interpreting Executive Order 11990 and requires that
transportation projects ``located in or having an impact on wetlands''
should be conducted to assure protection of the Nation's wetlands. If a
project does have a significant impact on wetlands, an EIS must be
prepared.
The agency is not undertaking or providing assistance for new
construction located in wetlands. The agency, therefore, concludes that
these Orders do not apply to NHTSA's Decision. The agency has, however,
conducted a review of the alternatives on potentially affected
resources, including wetlands. See Chapters 3 and 4 of the FEIS.
9. Migratory Bird Treaty Act (MBTA), Bald and Golden Eagle Protection
Act (BGEPA), Executive Order 13186.
The MBTA provides for the protection of migratory birds that are
native to the United States by making it illegal for anyone to pursue,
hunt, take, attempt to take, kill, capture, collect, possess, buy,
sell, trade, ship, import, or export any migratory bird covered under
the statute. The statute prohibits both intentional and unintentional
acts. Therefore, the statute is violated if an agency acts in a manner
that harms a migratory bird, whether it was intended or not. See, e.g.,
United States v. FMC Corp., 572 F.2d 902 (2nd Cir. 1978).
The BGEPA (16 U.S.C. 668) prohibits any form of possession or
taking of both bald and golden eagles. Under the BGEPA, violators are
subject to criminal and civil sanctions as well as an enhanced penalty
provision for subsequent offenses.
Executive Order 13186, ``Responsibilities of Federal Agencies to
Protect Migratory Birds,'' helps to further the purposes of the MBTA by
requiring a Federal agency to develop a Memorandum of Understanding
(MOU) with the Fish and Wildlife Service when it is taking an action
that has (or is likely to have) a measurable negative impact on
migratory bird populations.
The agency concludes that the MBTA, BGEPA, and Executive Order
13186 do not apply to NHTSA's Decision, because there is no disturbance
and/or take involved in NHTSA's Decision.
10. Department of Transportation Act (Section 4(f))
Section 4(f) of the Department of Transportation Act of 1966 (49
U.S.C. 303), as amended by Public Law Sec. 109-59, is designed to
preserve publicly owned parklands, waterfowl and wildlife refuges, and
significant historic sites. Specifically, Section 4(f) of the
Department of Transportation Act provides that DOT agencies cannot
approve a transportation program or project that requires the use of
any publicly owned land from a significant public park, recreation
area, or wildlife and waterfowl refuge, or any land from a significant
historic site, unless a determination is made that:
There is no feasible and prudent alternative to the use of
land, and
The program or project includes all possible planning to
minimize harm to the property resulting from use, or
A transportation use of Section 4(f) property results in a
de minimis impact.
The agency concludes that the Section 4(f) is not applicable to
NHTSA's Decision because this rulemaking does not require the use of
any publicly owned land. For a more detailed discussion, please see
Section 3.5.6 of the FEIS.

C. Regulatory Flexibility Act

Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 et seq.,
as amended by the Small Business Regulatory Enforcement Fairness Act
(SBREFA) of 1996), whenever an agency is required to publish a notice
of rulemaking for any proposed or final rule, it must prepare and make
available for public comment a regulatory flexibility analysis that
describes the effect of the rule on small entities (i.e., small
businesses, small organizations, and small governmental jurisdictions).
The Small Business Administration's regulations at 13 CFR part 121
define a small business, in part, as a business entity ``which operates
primarily within the United States.'' 13 CFR 121.105(a). No regulatory
flexibility analysis is required if the head of an agency certifies the
rule will not have a significant economic impact on a substantial
number of small entities.
I certify that the final rule will not have a significant economic
impact on a substantial number of small entities. The following is
NHTSA's statement providing the factual basis for the certification (5
U.S.C. 605(b)).
The final rule directly affects seventeen large single stage motor
vehicle manufacturers.\523\ The final rule also affects four small
domestic single stage motor vehicle manufacturers.\524\ According to
the Small Business Administration's small business size standards (see
13 CFR 121.201), a single stage automobile or light truck manufacturer
(NAICS code 336111, Automobile Manufacturing; 336112, Light Truck and
Utility Vehicle Manufacturing) must have 1,000 or fewer employees to
qualify as a small business. All four of the vehicle manufacturers have
less than 1,000 employees and make less than 1,000 vehicles per year.
The rulemaking would not have a significant economic impact on the
small vehicle manufacturers because under Part 525, passenger car
manufacturer making less than 10,000 vehicles per year can petition
NHTSA to have alternative standards set for those manufacturers. These
manufacturers currently do not meet the 27.5 mpg standard and must
already petition the agency for relief. If the standard is raised, it
has no meaningful impact on these manufacturers, and they still must go
through the same process and petition for relief. Given that there
already is a mechanism for handling small businesses, which is the
purpose of the Regulatory Flexibility Act, a regulatory flexibility
analysis was not prepared.
---------------------------------------------------------------------------

\523\ BMW, Mercedes, Chrysler, Ferrari, Ford, Subaru, General
Motors, Honda, Hyundai, Lotus, Maserati, Mitsubishi, Nissan,
Porsche, Suzuki, Toyota, and Volkswagen.
\524\ The Regulatory Flexibility Act only requires analysis of
small domestic manufacturers. There are four passenger car
manufacturers we know of and no light truck manufacturers: Avanti,
Panoz, Saleen, and Shelby.
---------------------------------------------------------------------------

NHTSA received comments on its discussion of the Regulatory
Flexibility Act from Ferrari and NADA. Ferrari argued that the proposed
standards did impact small manufacturers because they must pay fines in
lieu of compliance and alternative standards are not available for
manufacturers producing over 10,000 vehicles per year. Ferrari further
argued that these fines would be particularly onerous if NHTSA raised
the fine amount. In response, NHTSA notes that it has not yet initiated
rulemaking to consider raising the penalties for CAFE non-compliance,
and that the regulations are clear that manufacturers producing more
than 10,000 vehicles per year are not small manufacturers, while
manufacturers producing less may petition the agency. While the
decision whether to grant the petition is within the agency's
discretion, NHTSA has no interest in merely forcing manufacturers to
pay fines. If an alternative standard is appropriate, NHTSA will set
one.
NADA commented that NHTSA should have undertaken a full regulatory
flexibility analysis in order to evaluate the impact of the standards
on U.S. car and truck dealers, arguing that many of these are small
businesses as defined by the Small Business Administration. NHTSA
disagrees that these entities are directly impacted by the CAFE
standards, as they are not a regulated entity under CAFE. As stated

[[Page 14447]]

above, a regulatory flexibility analysis is not necessary for this
rulemaking.

D. Executive Order 13132 (Federalism)

Executive Order 13132 requires NHTSA to develop an accountable
process to ensure ``meaningful and timely input by State and local
officials in the development of regulatory policies that have
federalism implications.'' The Order defines the term ``Policies that
have federalism implications'' to include regulations that have
``substantial direct effects on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government.'' Under
the Order, NHTSA may not issue a regulation that has federalism
implications, that imposes substantial direct compliance costs, and
that is not required by statute, unless the Federal government provides
the funds necessary to pay the direct compliance costs incurred by
State and local governments, or NHTSA consults with State and local
officials early in the process of developing the proposed regulation.
As noted above, the President has requested that NHTSA consider
whether any provisions regarding preemption are consistent with EISA,
the Supreme Court's decision in Massachusetts v. EPA and other relevant
provisions of law and the policies underlying them. To provide time for
further careful consideration of these issues, NHTSA has decided not to
include any preemption provisions in the regulatory text at this time
and will examine those issues in the context of the rulemaking for MY
2012 and later years.

E. Executive Order 12988 (Civil Justice Reform)

Pursuant to Executive Order 12988, ``Civil Justice Reform,'' \525\
NHTSA has considered whether this rulemaking would have any retroactive
effect. This final rule does not have any retroactive effect.
---------------------------------------------------------------------------

\525\ 61 FR 4729 (Feb. 7, 1996).
---------------------------------------------------------------------------

F. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires Federal agencies to prepare a written assessment of the costs,
benefits, and other effects of a proposed or final rule that includes a
Federal mandate likely to result in the expenditure by State, local, or
tribal governments, in the aggregate, or by the private sector, of more
than $100 million in any one year (adjusted for inflation with base
year of 1995). Adjusting this amount by the implicit gross domestic
product price deflator for 2006 results in $126 million (116.043/92.106
= 1.26). Before promulgating a rule for which a written statement is
needed, section 205 of UMRA generally requires NHTSA to identify and
consider a reasonable number of regulatory alternatives and adopt the
least costly, most cost-effective, or least burdensome alternative that
achieves the objectives of the rule. The provisions of section 205 do
not apply when they are inconsistent with applicable law. Moreover,
section 205 allows NHTSA to adopt an alternative other than the least
costly, most cost-effective, or least burdensome alternative if the
agency publishes with the final rule an explanation why that
alternative was not adopted.
This final rule will not result in the expenditure by State, local,
or tribal governments, in the aggregate, of more than $126 million
annually, but it will result in the expenditure of that magnitude by
vehicle manufacturers and/or their suppliers. In promulgating this
final rule, NHTSA considered a variety of alternative average fuel
economy standards lower and higher than those promulgated. NHTSA is
statutorily required to set standards at the maximum feasible level
achievable by manufacturers and has concluded that the final fuel
economy standards are the maximum feasible standards for the MY 2011
passenger car and light truck fleets in light of the statutory
considerations.

G. Paperwork Reduction Act

Under the procedures established by the Paperwork Reduction Act of
1995, a person is not required to respond to a collection of
information by a Federal agency unless the collection displays a valid
OMB control number. The final rule amends the reporting requirements
under 49 CFR part 537, Automotive Fuel Economy Reports. In addition to
the vehicle model information collected under the approved data
collection (OMB control number 2127-0019) in part 537, passenger car
manufacturers will also be required to provide data on vehicle
footprint. Manufacturers and other persons wishing to trade fuel
economy credits would be required to provide an instruction to NHTSA on
the credits to be traded. For these changes, NHTSA is submitting to OMB
a request for approval of the following collection of information.
In compliance with the PRA, this notice announces that the
Information Collection Request (ICR) abstracted below has been
forwarded to OMB for review and comment. The ICR describes the nature
of the information collections and their expected burden. This is a
request for an amendment of an existing collection.
Agency: National Highway Traffic Safety Administration (NHTSA).
Title: 49 CFR part 537, Automotive Fuel Economy (F.E.) Reports.
Type of Request: Amend existing collection.
OMB Clearance Number: 2127-0019.
Form Number: This collection of information will not use any
standard forms.
Requested Expiration Date of Approval: Three years from the date of
approval.

Summary of the Collection of Information

So that NHTSA can determine a manufacturer's required fuel economy
level, NHTSA would require manufacturers to provide data on vehicle
(including passenger car and light truck) footprint. This information
collection would be included as part of the existing fuel economy
reporting requirements. NHTSA would also require that manufacturers and
other persons wishing to trade fuel economy credits provide an
instruction to NHTSA on the credits to be traded.

Description of the Need for the Information and Use of the Information

NHTSA needs the footprint information to determine a manufacturer's
required fuel economy level and its compliance with that level. NHTSA
needs the credit trading instruction to ensure that its records of a
manufacturer's available credits are accurate in order to determine
whether a manufacturer has sufficient credits available to offset any
non-compliance with the CAFE requirements in a given year.

Description of the Likely Respondents (Including Estimated Number, and
Proposed Frequency of Response to the Collection of Information)

NHTSA estimates that 20 manufacturers would submit the required
information. The frequency of reporting would not change from that
currently authorized under collection number 2127-0019.

Estimate of the Total Annual Reporting and Recordkeeping Burden
Resulting From the Collection of Information

For footprint, NHTSA estimates that each passenger car manufacturer
would incur an additional 10 burden hours per year. This estimate is
based on the fact that data collection would involve only computer
tabulation. Thus, each

[[Page 14448]]

passenger car manufacturer would incur an additional burden of 10 hours
or a total on industry of an additional 200 hours a year (assuming
there are 20 manufacturers). At an assumed rate of $21.23 an hour, the
annual, estimated cost of collecting and preparing the additional
passenger car footprint information is $4,246.
For credit trading, NHTSA estimates that each instruction would
incur an additional burden hour per year. This estimate is based on the
fact that the data required is already available and thus the only
burden is the actual preparation of the instruction. NHTSA estimates
that the maximum instructions it would receive each year is 20. While
non-manufacturers may also participate in credit trading, NHTSA does
not believe that every manufacturer would need to, or be able to,
participate in credit trading every year. NHTSA does not, at this time,
have a way of estimating how many non-manufacturers may participate in
credit trading. Therefore NHTSA believes that the total number of
manufacturers is a reasonable estimate, for a total annual additional
burden of 20 hours a year. At an assumed rate of $21.23 an hour, the
annual estimated cost of collecting and preparing the credit trading
instruction is $425.
NHTSA estimates that the recordkeeping burden resulting from the
collection of information would be 0 hours because the information
would be retained on each manufacturer's existing computer systems for
each manufacturer's internal administrative purposes. There would be no
capital or start-up costs as a result of this collection. Manufacturers
can collect and tabulate the information by using existing equipment.
Thus, there would be no additional costs to respondents or record
keepers.
Comments are invited on:
Whether the collection of information is necessary for the
proper performance of the functions of the Department, including
whether the information will have practical utility.
Whether the Department's estimate for the burden of the
information collection is accurate.
Ways to minimize the burden of the collection of
information on respondents, including the use of automated collection
techniques or other forms of information technology.
A comment to OMB is most effective if OMB receives it within 30
days of publication. Send comments to the Office of Information and
Regulatory Affairs, Office of Management and Budget, 725 17th Street,
NW., Washington, DC 20503, Attn: NHTSA Desk Officer. PRA comments are
due within 30 days following publication of this document in the
Federal Register.
The agency recognizes that the amendment to the existing collection
of information contained in today's final rule may be subject to
revision in response to public comments and the OMB review. For further
information please contact Peter Feather, Division Chief, Fuel Economy
Division, Office of International Policy, Fuel Economy, and Consumer
Programs, National Highway Traffic Safety Administration, 1200 New
Jersey Avenue, SE., Washington, DC 20590. You may also contact him by
phone at (202) 366-0846 or by fax at (202) 493-2290.

H. Regulation Identifier Number (RIN)

The Department of Transportation assigns a regulation identifier
number (RIN) to each regulatory action listed in the Unified Agenda of
Federal Regulations. The Regulatory Information Service Center
publishes the Unified Agenda in April and October of each year. You may
use the RIN contained in the heading at the beginning of this document
to find this action in the Unified Agenda.

J. Executive Order 13045

Executive Order 13045\526\ applies to any rule that: (1) is
determined to be economically significant as defined under E.O. 12866,
and (2) concerns an environmental, health or safety risk that NHTSA has
reason to believe may have a disproportionate effect on children. If
the regulatory action meets both criteria, we must evaluate the
environmental health or safety effects of the final rule on children,
and explain why the final regulation is preferable to other potentially
effective and reasonably feasible alternatives considered by us.
---------------------------------------------------------------------------

\526\ 62 FR 19885 (Apr. 23, 1997).
---------------------------------------------------------------------------

This final rule does not pose such a risk for children. The primary
effects of this final rule are to conserve energy and to reduce
tailpipe emissions of CO2, the primary greenhouse gas, by
setting fuel economy standards for motor vehicles.

K. National Technology Transfer and Advancement Act

Section 12(d) of the National Technology Transfer and Advancement
Act (NTTAA) requires NHTSA to evaluate and use existing voluntary
consensus standards in its regulatory activities unless doing so would
be inconsistent with applicable law (e.g., the statutory provisions
regarding NHTSA's vehicle safety authority) or otherwise impractical.
Voluntary consensus standards are technical standards developed or
adopted by voluntary consensus standards bodies. Technical standards
are defined by the NTTAA as ``performance-based or design-specific
technical specification and related management systems practices.''
They pertain to ``products and processes, such as size, strength, or
technical performance of a product, process or material.''
Examples of organizations generally regarded as voluntary consensus
standards bodies include the American Society for Testing and Materials
(ASTM), the Society of Automotive Engineers (SAE), and the American
National Standards Institute (ANSI). If NHTSA does not use available
and potentially applicable voluntary consensus standards, we are
required by the Act to provide Congress, through OMB, an explanation of
the reasons for not using such standards.
The final rule categorizes passenger cars according to vehicle
footprint (average track width X wheelbase). For purposes of this
calculation, NHTSA will base these measurements on those developed by
the automotive industry. Determination of wheelbase would be consistent
with L101-wheelbase, defined in SAE J1100 MAY95, Motor vehicle
dimensions. NHTSA's final rule uses a modified version of the SAE
definitions for track width (W101-tread-front and W102-tread-rear as
defined in SAE J1100 MAY95). The definition of track width reduces a
manufacturer's ability to adjust a vehicle's track width through minor
alterations.

L. Executive Order 13211

Executive Order 13211\527\ applies to any rule that: (1) Is
determined to be economically significant as defined under E.O. 12866,
and is likely to have a significant adverse effect on the supply,
distribution, or use of energy; or (2) that is designated by the
Administrator of the Office of Information and Regulatory Affairs as a
significant energy action. If the regulatory action meets either
criterion, we must evaluate the adverse energy effects of the final
rule and explain why the final regulation is preferable to other
potentially effective and reasonably feasible alternatives considered
by us.
---------------------------------------------------------------------------

\527\ 66 FR 28355 (May 18, 2001).
---------------------------------------------------------------------------

The final rule seeks to establish passenger car and light truck
fuel economy standards that will reduce the consumption of petroleum
and will not have any adverse energy effects. Accordingly, this final
rulemaking

[[Page 14449]]

action is not designated as a significant energy action.

M. Department of Energy Review

In accordance with 49 U.S.C. 32902(j)(2), NHTSA submitted this
final rule to the Department of Energy for review.

N. Privacy Act

Anyone is able to search the electronic form of all comments
received into any of our dockets by the name of the individual
submitting the comment (or signing the comment, if submitted on behalf
of an organization, business, labor union, etc.). You may review DOT's
complete Privacy Act statement in the Federal Register published on
April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit
http://www.dot.gov/privacy.html.

XVII. Regulatory Text

List of Subjects in 49 CFR Parts 523, 531, 533, 534, 535, 536, and
537

Fuel economy, Reporting and recordkeeping requirements.

0
For the reasons discussed in the preamble, under the authority of 49
U.S.C. 32901, 32902, 32903, and 32907, and delegation of authority at
49 CFR 1.50, NHTSA amends 49 CFR Chapter V as follows:

PART 523--VEHICLE CLASSIFICATION

0
1. Revise the authority citation for part 523 to read as follows:

Authority: 49 U.S.C. 32901, delegation of authority at 49 CFR
1.50.

0
2. Amend Sec. 523.2 by adding, in alphabetical order, definitions of
``Base tire,'' ``Light truck,'' and ``Work truck,'' and revising the
definition of ``footprint'' to read as follows:

Sec. 523.2 Definitions.

* * * * *
Base tire means the tire specified as standard equipment by a
manufacturer on each vehicle configuration of a model type.
* * * * *
Footprint is defined as the product of track width (measured in
inches, calculated as the average of front and rear track widths, and
rounded to the nearest tenth of an inch) times wheelbase (measured in
inches and rounded to the nearest tenth of an inch), divided by 144 and
then rounded to the nearest tenth of a square foot. For purposes of
this definition, track width is the lateral distance between the
centerlines of the base tires at ground, including the camber angle.
For purposes of this definition, wheelbase is the longitudinal distance
between front and rear wheel centerlines.
* * * * *
Light truck means a non-passenger automobile as defined in Sec.
523.5.
* * * * *
Work truck means a vehicle that is rated at more than 8,500 and
less than or equal to 10,000 pounds gross vehicle weight, and is not a
medium-duty passenger vehicle as defined in 40 CFR 86.1803-01 effective
as of December 20, 2007.
* * * * *

0
3. Amend Sec. 523.3 by revising paragraph (a) to read as follows:

Sec. 523.3 Automobile.

(a) An automobile is any 4-wheeled vehicle that is propelled by
fuel, or by alternative fuel, manufactured primarily for use on public
streets, roads, and highways and rated at less than 10,000 pounds gross
vehicle weight, except:
(1) A vehicle operated only on a rail line;
(2) A vehicle manufactured in different stages by 2 or more
manufacturers, if no intermediate or final-stage manufacturer of that
vehicle manufactures more than 10,000 multi-stage vehicles per year; or
(3) A work truck.
* * * * *

0
4. Revise Sec. 523.5 to read as follows:

Sec. 523.5 Non-passenger automobile.

A non-passenger automobile means an automobile that is not a
passenger automobile or a work truck and includes vehicles described in
paragraphs (a) and (b) of this section:
(a) An automobile designed to perform at least one of the following
functions:
(1) Transport more than 10 persons;
(2) Provide temporary living quarters;
(3) Transport property on an open bed;
(4) Provide, as sold to the first retail purchaser, greater cargo-
carrying than passenger-carrying volume, such as in a cargo van; if a
vehicle is sold with a second-row seat, its cargo-carrying volume is
determined with that seat installed, regardless of whether the
manufacturer has described that seat as optional; or
(5) Permit expanded use of the automobile for cargo-carrying
purposes or other nonpassenger-carrying purposes through:
(i) For non-passenger automobiles manufactured prior to model year
2012, the removal of seats by means installed for that purpose by the
automobile's manufacturer or with simple tools, such as screwdrivers
and wrenches, so as to create a flat, floor level, surface extending
from the forwardmost point of installation of those seats to the rear
of the automobile's interior; or
(ii) For non-passenger automobiles manufactured in model year 2008
and beyond, for vehicles equipped with at least 3 rows of designated
seating positions as standard equipment, permit expanded use of the
automobile for cargo-carrying purposes or other nonpassenger-carrying
purposes through the removal or stowing of foldable or pivoting seats
so as to create a flat, leveled cargo surface extending from the
forwardmost point of installation of those seats to the rear of the
automobile's interior.
(b) An automobile capable of off-highway operation, as indicated by
the fact that it:
(1)(i) Has 4-wheel drive; or
(ii) Is rated at more than 6,000 pounds gross vehicle weight; and
(2) Has at least four of the following characteristics calculated
when the automobile is at curb weight, on a level surface, with the
front wheels parallel to the automobile's longitudinal centerline, and
the tires inflated to the manufacturer's recommended pressure--
(i) Approach angle of not less than 28 degrees.
(ii) Breakover angle of not less than 14 degrees.
(iii) Departure angle of not less than 20 degrees.
(iv) Running clearance of not less than 20 centimeters.
(v) Front and rear axle clearances of not less than 18 centimeters
each.

(Sec. 9, Pub. L. 89-670, 80 Stat. 981 (49 U.S.C. 1657); sec.
301, Pub. L. 94-163, 89 Stat. 901 (15 U.S.C. 2002); delegation of
authority at 41 FR 25015, June 22, 1976.)

PART 531--PASSENGER AUTOMOBILE AVERAGE FUEL ECONOMY STANDARDS

0
5. The authority citation for part 531 continues to read as follows:

Authority: 49 U.S.C. 32902; delegation of authority at 49 CFR
1.50.

0
6. Amend Sec. 531.5 by revising paragraph (a), redesignating paragraph
(b) as paragraph (d), and adding new paragraphs (b) and (c) to read as
follows:

Sec. 531.5 Fuel economy standards.

(a) Except as provided in paragraph (d) of this section, each
manufacturer of passenger automobiles shall comply with the average
fuel economy standards in Table I, expressed in miles per gallon, in
the model year specified as applicable:

[[Page 14450]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.101

(b) For model year 2011, a manufacturer's passenger automobile
fleet shall comply with the fuel economy level calculated for that
model year according to Figure 1 and the appropriate values in Table
II.

Figure 1:
[GRAPHIC] [TIFF OMITTED] TR30MR09.102

Where:

N is the total number (sum) of passenger automobiles produced by a
manufacturer,
Ni is the number (sum) of the ith model passenger
automobile produced by the manufacturer, and
Ti is fuel economy target of the ith model passenger
automobile, which is determined according to the following formula,
rounded to the nearest hundredth:
[GRAPHIC] [TIFF OMITTED] TR30MR09.103

Where:

Parameters a, b, c, and d are defined in Table II;
e = 2.718; and
x = footprint (in square feet, rounded to the nearest tenth) of
the vehicle model

[[Page 14451]]

[GRAPHIC] [TIFF OMITTED] TR30MR09.104

(c) In addition to the requirement of paragraph (b) of this
section, each manufacturer shall also meet the minimum standard for
domestically manufactured passenger automobiles expressed in Table III:
[GRAPHIC] [TIFF OMITTED] TR30MR09.105

* * * * *

PART 533--LIGHT TRUCK FUEL ECONOMY STANDARDS

7. The authority citation for part 533 continues to read as
follows:

Authority: 49 U.S.C. 32902; delegation of authority at 49 CFR
1.50.
8. Amend Sec. 533.5 by revising Table V of paragraph (a) and
paragraph (h) to read as follows:

Sec. 533.5 Requirements.

(a) * * *
[GRAPHIC] [TIFF OMITTED] TR30MR09.106

[[Page 14452]]

* * * * *
(h) For model year 2011, a manufacturer's light truck fleet shall
comply with the fuel economy level calculated for that model year
according to Figure 1 and the appropriate values in Table V.

PART 534--RIGHTS AND RESPONSIBILITIES OF MANUFACTURERS IN THE
CONTEXT OF CHANGES IN CORPORATE RELATIONSHIPS

0
9. The authority citation for part 534 continues to read as follows:

Authority: 49 U.S.C. 32901; delegation of authority at 49 CFR
1.50.

0
10. Amend Sec. 534.4 by revising paragraphs (c) and (d) to read as
follows:

PART 534--RIGHTS AND RESPONSIBILITIES OF MANUFACTURERS IN THE
CONTEXT OF CHANGES IN CORPORATE RELATIONSHIPS

9. The authority citation for part 534 continues to read as
follows:

Authority: 49 U.S.C. 32901; delegation of authority at 49 CFR
1.50.
10. Amend Sec. 534.4 by revising paragraphs (c) and (d) to read as
follows:

Sec. 534.4 Successors and predecessors.

* * * * *
(c) Credits earned by a predecessor before or during model year
2007 may be used by a successor, subject to the availability of credits
and the general three-year restriction on carrying credits forward and
the general three-year restriction on carrying credits backward.
Credits earned by a predecessor after model year 2007 may be used by a
successor, subject to the availability of credits and the general five-
year restriction on carrying credits forward and the general three-year
restriction on carrying credits backward.
(d) Credits earned by a successor before or during model year 2007
may be used to offset a predecessor's shortfall, subject to the
availability of credits and the general three-year restriction on
carrying credits forward and the general three-year restriction on
carrying credits backward. Credits earned by a successor after model
year 2007 may be used to offset a predecessor's shortfall, subject to
the availability of credits and the general five-year restriction on
carrying credits forward and the general three-year restriction on
carrying credits backward.

0
11. Amend Sec. 534.5 by revising paragraphs (c) and (d) to read as
follows:

Sec. 534.5 Manufacturers within control relationships.

* * * * *
(c) Credits of a manufacturer within a control relationship may be
used by the group of manufacturers within the control relationship to
offset shortfalls, subject to the agreement of the other manufacturers,
the availability of the credits, and the general three-year restriction
on carrying credits forward or backward prior to or during model year
2007, or the general five-year restriction on carrying credits forward
and the general three-year restriction on carrying credits backward
after model year 2007.
(d) If a manufacturer within a group of manufacturers is sold or
otherwise spun off so that it is no longer within that control
relationship, the manufacturer may use credits that were earned by the
group of manufacturers within the control relationship while the
manufacturer was within that relationship, subject to the agreement of
the other manufacturers, the availability of the credits, and the
general three-year restriction on carrying credits forward or backward
prior to or during model year 2007, or the general five-year
restriction on carrying credits forward and the general three-year
restriction on carrying credits backward after model year 2007.

PART 535--[REMOVED]

0
12. Remove Part 535.

0
13. Part 536 is added to read as follows:

PART 536--TRANSFER AND TRADING OF FUEL ECONOMY CREDITS

Sec.
536.1 Scope.
536.2 Application.
536.3 Definitions.
536.4 Credits.
536.5 Trading infrastructure.
536.6 Treatment of credits earned prior to model year 2011.
536.7 Treatment of carryback credits.
536.8 Conditions for trading of credits.
536.9 Use of credits with regard to the domestically manufactured
passenger automobile minimum standard.
536.10 Treatment of dual-fuel and alternative fuel vehicles--
consistency with 49 CFR Part 538.

Authority: Sec. 104, Pub. L. 110-140 (49 U.S.C. 32903);
delegation of authority at 49 CFR 1.50.

Sec. 536.1 Scope.

This part establishes regulations governing the use and application
of CAFE credits up to three model years before and five model years
after the model year in which the credit was earned. It also specifies
requirements for manufacturers wishing to transfer fuel economy credits
between their fleets and for manufacturers and other persons wishing to
trade fuel economy credits to achieve compliance with prescribed fuel
economy standards.

Sec. 536.2 Application.

This part applies to all credits earned (and transferable and
tradable) for exceeding applicable average fuel economy standards in a
given model year for domestically manufactured passenger cars, imported
passenger cars, and light trucks.

Sec. 536.3 Definitions.

(a) Statutory terms. All terms defined in 49 U.S.C. Sec. 32901(a)
are used pursuant to their statutory meaning.
(b) Other terms.
Above standard fuel economy means, with respect to a compliance
category, that the automobiles manufactured by a manufacturer in that
compliance category in a particular model year have greater average
fuel economy (calculated in a manner that reflects the incentives for
alternative fuel automobiles per 49 U.S.C. 32905) than that
manufacturer's fuel economy standard for that compliance category and
model year.
Adjustment factor means a factor used to adjust the value of a
traded or transferred credit for compliance purposes to ensure that the
compliance value of the credit when used reflects the total volume of
oil saved when the credit was earned.
Below standard fuel economy means, with respect to a compliance
category, that the automobiles manufactured by a manufacturer in that
compliance category in a particular model year have lower average fuel
economy (calculated in a manner that reflects the incentives for
alternative fuel automobiles per 49 U.S.C. 32905) than that
manufacturer's fuel economy standard for that compliance category and
model year.
Compliance means a manufacturer achieves compliance in a particular
compliance category when
(1) The average fuel economy of the vehicles in that category
exceed or meet the fuel economy standard for that category, or
(2) The average fuel economy of the vehicles in that category do
not meet the fuel economy standard for that category, but the
manufacturer proffers a sufficient number of valid credits, adjusted
for total oil savings, to cover the gap between the average fuel
economy of the vehicles in that category and the required average fuel
economy.
A manufacturer achieves compliance for its fleet if the above
conditions (1)

[[Page 14453]]

or (2) are simultaneously met for all compliance categories.
Compliance category means any of three categories of automobiles
subject to Federal fuel economy regulations. The three compliance
categories recognized by 49 U.S.C. 32903(g)(6) are domestically
manufactured passenger automobiles, imported passenger automobiles, and
non-passenger automobiles (``light trucks'').
Credit holder (or holder) means a legal person that has valid
possession of credits, either because they are a manufacturer who has
earned credits by exceeding an applicable fuel economy standard, or
because they are a designated recipient who has received credits from
another holder. Credit holders need not be manufacturers, although all
manufacturers may be credit holders.
Credits (or fuel economy credits) means an earned or purchased
allowance recognizing that the average fuel economy of a particular
manufacturer's vehicles within a particular compliance category and
model year exceeds that manufacturer's fuel economy standard for that
compliance category and model year. One credit is equal to \1/10\ of a
mile per gallon above the fuel economy standard per one vehicle within
a compliance category. Credits are denominated according to model year
in which they are earned (vintage), originating manufacturer, and
compliance category.
Expiry date means the model year after which fuel economy credits
may no longer be used to achieve compliance with fuel economy
regulations. Expiry Dates are calculated in terms of model years: for
example, if a manufacturer earns credits for model year 2011, these
credits may be used for compliance in model years 2008-2016.
Fleet means all automobiles that are manufactured by a manufacturer
in a particular model year and are subject to fuel economy standards
under 49 CFR parts 531 and 533. For the purposes of this regulation, a
manufacturer's fleet means all domestically manufactured and imported
passenger automobiles and non-passenger automobiles (``light trucks'').
``Work trucks'' and medium and heavy trucks are not included in this
definition for purposes of this regulation.
Light truck means the same as ``non-passenger automobile,'' as that
term is defined in 49 U.S.C. 32901(a)(17), and as ``light truck,'' as
that term is defined at 49 CFR 523.5.
Originating manufacturer means the manufacturer that originally
earned a particular credit. Each credit earned will be identified with
the name of the originating manufacturer.
Trade means the receipt by NHTSA of an instruction from a credit
holder to place one of its credits in the account of another credit
holder. A credit that has been traded can be identified because the
originating manufacturer will be a different party than the current
credit holder. Traded credits are moved from one credit holder to the
recipient credit holder within the same compliance category for which
the credits were originally earned. If a credit has been traded to
another credit holder and is subsequently traded back to the
originating manufacturer, it will be deemed not to have been traded for
compliance purposes.
Transfer means the application by a manufacturer of credits earned
by that manufacturer in one compliance category or credits acquired by
trade (and originally earned by another manufacturer in that category)
to achieve compliance with fuel economy standards with respect to a
different compliance category. For example, a manufacturer may purchase
light truck credits from another manufacturer, and transfer them to
achieve compliance in the manufacturer's domestically manufactured
passenger car fleet.
Vintage means, with respect to a credit, the model year in which
the credit was earned.

Sec. 536.4 Credits.

(a) Type and vintage. All credits are identified and distinguished
in the accounts by originating manufacturer, compliance category, and
model year of origin (vintage).
(b) Application of credits. All credits earned and applied are
calculated, per 49 U.S.C. 32903(c), in tenths of a mile per gallon by
which the average fuel economy of vehicles in a particular compliance
category manufactured by a manufacturer in the model year in which the
credits are earned exceeds the applicable average fuel economy
standard, multiplied by the number of vehicles sold in that compliance
category. However, credits that have been traded between credit holders
or transferred between compliance categories are valued for compliance
purposes using the adjustment factor specified in paragraph (c) of this
section, pursuant to the ``total oil savings'' requirement of 49 U.S.C.
32903(f)(1).
(c) Adjustment factor. When traded or transferred and used, fuel
economy credits are adjusted to ensure fuel oil savings is preserved.
For traded credits, the user (or buyer) of credits must multiply the
calculated adjustment factor by the number of its shortfall credits it
plans to offset in order to determine the number of equivalent credits
to acquire from the earner (or seller). For transferred credits, the
user of credits must multiply the calculated adjustment factor by the
number of its shortfall credits it plans to offset in order to
determine the number of equivalent credits to transfer from the
compliance category holding the available credits. The adjustment
factor is calculated by the following formula:
[GRAPHIC] [TIFF OMITTED] TR30MR09.107

Where A = Adjustment Factor applied to traded or transferred
credits;
VMTe = Lifetime vehicle miles traveled for the compliance category
in which the credit was earned: 150,922 miles for domestically
manufactured and imported passenger cars, 172,552 miles for light
trucks;
VMTu = Lifetime vehicle miles traveled for the compliance category
in which the credit is used for compliance: 150,922 miles for
domestically manufactured and imported passenger cars, 172,552 miles
for light trucks;
MPGse = Required fuel economy standard for the originating (earning)
manufacturer, compliance category, and model year in which the
credit was earned;
MPGae = Actual fuel economy for the originating manufacturer,
compliance category, and model year in which the credit was earned;
MPGsu = Required fuel economy standard for the user (buying)
manufacturer, compliance category, and model year in which the
credit is used for compliance;
MPGau = Actual fuel economy for the user manufacturer, compliance
category, and model year in which the credit is used for compliance.

Sec. 536.5 Trading Infrastructure.

(a) Accounts. NHTSA maintains ``accounts'' for each credit holder.
The account consists of a balance of credits

[[Page 14454]]

in each compliance category and vintage held by the holder.
(b) Who may hold credits. Every manufacturer subject to fuel
economy standards under 49 CFR parts 531 or 533 is automatically an
account holder. If the manufacturer earns credits pursuant to this
regulation, or receives credits from another party, so that the
manufacturer's account has a non-zero balance, then the manufacturer is
also a credit holder. Any party designated as a recipient of credits by
a current credit holder will receive an account from NHTSA and become a
credit holder, subject to the following conditions:
(1) A designated recipient must provide name, address, contacting
information, and a valid taxpayer identification number or social
security number;
(2) NHTSA does not grant a request to open a new account by any
party other than a party designated as a recipient of credits by a
credit holder;
(3) NHTSA maintains accounts with zero balances for a period of
time, but reserves the right to close accounts that have had zero
balances for more than one year.
(c) Automatic debits and credits of accounts.
(1) Upon receipt of a verified instruction to trade credits from an
existing credit holder, NHTSA verifies the presence of sufficient
credits in the account of the trader, then debits the account of the
trader and credits the account of the recipient with credits of the
vintage, origin, and compliance category designated. Traded credits
identified by a specific compliance category are deposited into the
recipient's account in that same compliance category. If the recipient
is not a current account holder, NHTSA establishes the account subject
to the conditions described in Sec. 536.5(b), and adds the credits to
the newly-opened account.
(2) NHTSA automatically deletes unused credits from holders'
accounts as they reach their expiry date.
(d) Compliance. (1) NHTSA assesses compliance with fuel economy
standards each year, utilizing the certified and reported CAFE data
provided by the Environmental Protection Agency for enforcement of the
CAFE program pursuant to 49 U.S.C. 32904(e). Credit values are
calculated based on the CAFE data from the EPA. If a particular
compliance category within a manufacturer's fleet has above standard
fuel economy, NHTSA adds credits to the manufacturer's account for that
compliance category and vintage in the appropriate amount by which the
manufacturer has exceeded the applicable standard.
(2) If a manufacturer's vehicles in a particular compliance
category have below standard fuel economy, NHTSA will provide written
notification to the manufacturer that it has failed to meet a
particular fleet target standard. The manufacturer will be required to
confirm the shortfall and must either: submit a plan indicating how it
will allocate existing credits or earn, transfer and/or acquire
credits; or pay the appropriate civil penalty. The manufacturer must
submit a plan or payment within 60 days of receiving agency
notification.
(3) Credits used to offset shortfalls are subject to the three and
five year limitations as described in Sec. 536.6.
(4) Transferred credits are subject to the limitations specified by
49 U.S.C. 32903(g)(3) and this regulation.
(5) The value, when used for compliance, of any credits received
via trade or transfer is adjusted, using the adjustment factor
described in Sec. 536.4(c), pursuant to 49 U.S.C. 32903(f)(1).
(6) Credit allocation plans received from a manufacturer will be
reviewed and approved by NHTSA. NHTSA will approve a credit allocation
plan unless it finds that the proposed credits are unavailable or that
it is unlikely that the plan will result in the manufacturer earning
sufficient credits to offset the subject credit shortfall. If a plan is
approved, NHTSA will revise the respective manufacturer's credit
account accordingly. If a plan is rejected, NHTSA will notify the
respective manufacturer and request a revised plan or payment of the
appropriate fine.
(e) Reporting. (1) NHTSA periodically publishes the names and
credit holdings of all credit holders. NHTSA does not publish
individual transactions, nor respond to individual requests for updated
balances from any party other than the account holder.
(2) NHTSA issues an annual credit status letter to each party that
is a credit holder at that time. The letter to a credit holder includes
a credit accounting record that identifies the credit status of the
credit holder including any activity (earned, expired, transferred,
traded, carry-forward and carry-back credit transactions/allocations)
that took place during the identified activity period.

Sec. 536.6 Treatment of credits earned prior to model year 2011.

(a) Credits earned in a compliance category before model year 2008
may be applied by the manufacturer that earned them to carryback plans
for that compliance category approved up to three model years prior to
the year in which the credits were earned, or may be applied to
compliance in that compliance category for up to three model years
after the year in which the credits were earned.
(b) Credits earned in a compliance category during and after model
year 2008 may be applied by the manufacturer that earned them to
carryback plans for that compliance category approved up to three years
prior to the year in which the credits were earned, or may be held or
applied for up to five model years after the year in which the credits
were earned.
(c) Credits earned in a compliance category prior to model year
2011 may not be transferred or traded.

Sec. 536.7 Treatment of carryback credits.

(a) Carryback credits earned in a compliance category in any model
year may be used in carryback plans approved by NHTSA, pursuant to 49
U.S.C. 32903(b), for up to three model years prior to the year in which
the credit was earned.
(b) For purposes of this regulation, NHTSA will treat the use of
future credits for compliance, as through a carryback plan, as a
deferral of penalties for non-compliance with an applicable fuel
economy standard.
(c) If NHTSA receives and approves a manufacturer's carryback plan
to earn future credits within the following three model years in order
to comply with current regulatory obligations, NHTSA will defer levying
fines for non-compliance until the date(s) when the manufacturer's
approved plan indicates that credits will be earned or acquired to
achieve compliance, and upon receiving confirmed CAFE data from EPA. If
the manufacturer fails to acquire or earn sufficient credits by the
plan dates, NHTSA will initiate compliance proceedings.
(d) In the event that NHTSA fails to receive or approve a plan for
a non-compliant manufacturer, NHTSA will levy fines pursuant to
statute. If within three years, the non-compliant manufacturer earns or
acquires additional credits to reduce or eliminate the non-compliance,
NHTSA will reduce any fines owed, or repay fines to the extent that
credits received reduce the non-compliance.
(e) No credits from any source (earned, transferred and/or traded)
will be accepted in lieu of compliance if those credits are not
identified as originating within one of the three model years after the
model year of the confirmed shortfall.

[[Page 14455]]

Sec. 536.8 Conditions for trading of credits.

(a) Trading of credits. If a credit holder wishes to trade credits
to another party, the current credit holder and the receiving party
must jointly issue an instruction to NHTSA, identifying the quantity,
vintage, compliance category, and originator of the credits to be
traded. If the recipient is not a current account holder, the recipient
must provide sufficient information for NHTSA to establish an account
for the recipient. Once an account has been established or identified
for the recipient, NHTSA completes the trade by debiting the
transferor's account and crediting the recipient's account. NHTSA will
track the quantity, vintage, compliance category, and originator of all
credits held or traded by all account-holders.
(b) Trading between and within compliance categories. For credits
earned in model year 2011 or thereafter, and used to satisfy compliance
obligations for model year 2011 or thereafter:
(1) Manufacturers may use credits originally earned by another
manufacturer in a particular compliance category to satisfy compliance
obligations within the same compliance category.
(2) Once a manufacturer acquires by trade credits originally earned
by another manufacturer in a particular compliance category, the
manufacturer may transfer the credits to satisfy its compliance
obligations in a different compliance category, but only to the extent
that the CAFE increase attributable to the transferred credits does not
exceed the limits in 49 U.S.C. 32903(g)(3). For any compliance
category, the sum of a manufacturer's transferred credits earned by
that manufacturer and transferred credits obtained by that manufacturer
through trade must not exceed that limit.
(c) Changes in corporate ownership and control. Manufacturers must
inform NHTSA of corporate relationship changes to ensure that credit
accounts are identified correctly and credits are assigned and
allocated properly.
(1) In general, if two manufacturers merge in any way, they must
inform NHTSA how they plan to merge their credit accounts. NHTSA will
subsequently assess corporate fuel economy and compliance status of the
merged fleet instead of the original separate fleets.
(2) If a manufacturer divides or divests itself of a portion of its
automobile manufacturing business, it must inform NHTSA how it plans to
divide the manufacturer's credit holdings into two or more accounts.
NHTSA will subsequently distribute holdings as directed by the
manufacturer, subject to provision for reasonably anticipated
compliance obligations.
(3) If a manufacturer is a successor to another manufacturer's
business, it must inform NHTSA how it plans to allocate credits and
resolve liabilities per 49 CFR Part 534, Rights and Responsibilities of
Manufacturers in the Context of Corporate Relationships.
(d) No short or forward sales. NHTSA will not honor any
instructions to trade or transfer more credits than are currently held
in any account. NHTSA will not honor instructions to trade or transfer
credits from any future vintage (i.e., credits not yet earned). NHTSA
will not participate in or facilitate contingent trades.
(e) Cancellation of credits. A credit holder may instruct NHTSA to
cancel its currently held credits, specifying the originating
manufacturer, vintage, and compliance category of the credits to be
cancelled. These credits will be permanently null and void; NHTSA will
remove the specific credits from the credit holder's account, and will
not reissue them to any other party.
(f) Errors or fraud in earning credits. If NHTSA determines that a
manufacturer has been credited, through error or fraud, with earning
credits, NHTSA will cancel those credits if possible. If the
manufacturer credited with having earned those credits has already
traded them when the error or fraud is discovered, NHTSA will hold the
receiving manufacturer responsible for returning the same or equivalent
credits to NHTSA for cancellation.
(g) Error or fraud in trading. In general, all trades are final and
irrevocable once executed, and may only be reversed by a new, mutually-
agreed transaction. If NHTSA executes an erroneous instruction to trade
credits from one holder to another through error or fraud, NHTSA will
reverse the transaction if possible. If those credits have been traded
away, the recipient holder is responsible for obtaining the same or
equivalent credits for return to the previous holder.

Sec. 536.9 Use of credits with regard to the domestically
manufactured passenger automobile minimum standard.

(a) Each manufacturer is responsible for compliance with both the
minimum standard and the attribute-based standard.
(b) In any particular model year, the domestically manufactured
passenger automobile compliance category credit excess or shortfall is
determined by comparing the actual CAFE value against either the
required standard value or the minimum standard value, whichever is
larger.
(c) Transferred or traded credits may not be used, pursuant to 49
U.S.C. 32903(g)(4) and (f)(2), to meet the domestically manufactured
passenger automobile minimum standard specified in 49 U.S.C.
32902(b)(4).
(d) If a manufacturer's average fuel economy level for domestically
manufactured passenger automobiles is lower than the attribute-based
standard, but higher than the minimum standard, then the manufacturer
may achieve compliance with the attribute-based standard by applying
credits.
(e) If a manufacturer's average fuel economy level for domestically
manufactured passenger automobiles is lower than the minimum standard,
then the difference between the minimum standard and the manufacturer's
actual fuel economy level may only be relieved by the use of credits
earned by that manufacturer within the domestic passenger car
compliance category which have not been transferred or traded. If the
manufacturer does not have available earned credits to offset a credit
shortage below the minimum standard then the manufacturer can submit a
carry-back plan that indicates sufficient future credits will be earned
in its domestic passenger car compliance category or will be subject to
penalties.

Sec. 536.10 Treatment of dual-fuel and alternative fuel vehicles--
consistency with 49 CFR Part 538.

(a) Statutory alternative fuel and dual-fuel vehicle fuel economy
calculations are treated as a change in the underlying fuel economy of
the vehicle for purposes of this regulation, not as a credit that may
be transferred or traded. Improvements in alternative fuel or dual fuel
vehicle fuel economy as calculated pursuant to 49 U.S.C. 32905 and
limited by 49 U.S.C. 32906 are therefore attributable only to the
particular compliance category and model year to which the alternative
or dual-fuel vehicle belongs.
(b) If a manufacturer's calculated fuel economy for a particular
compliance category, including any required calculations for
alternative fuel and dual fuel vehicles, is higher or lower than the
applicable fuel economy standard, manufacturers will earn credits or
must apply credits or pay fines equal to the difference between the
calculated fuel economy level in that compliance category and the
applicable standard. Credits earned are the same as any other credits,
and may be held, transferred, or traded by the manufacturer subject to

[[Page 14456]]

the limitations of the statute and this regulation.
(c) If a manufacturer builds enough alternative fuel or dual fuel
vehicles to improve the calculated fuel economy in a particular
compliance category by more than the limits set forth in 49 U.S.C.
32906(a), the improvement in fuel economy for compliance purposes is
restricted to the statutory limit. Manufacturers may not earn credits
nor reduce the application of credits or fines for calculated
improvements in fuel economy based on alternative or dual fuel vehicles
beyond the statutory limit.

PART 537--AUTOMOTIVE FUEL ECONOMY REPORTS

0
14. Revise the authority citation for part 537 to read as follows:

Authority: 49 U.S.C. 32907, delegation of authority at 49 CFR
1.50.

0
15. Amend Sec. 537.7 by revising paragraphs (b), (c)(4)(xvi)(A), and
(c)(4)(xvi)(B) to read as follows:

Sec. 537.7 Pre-model year and mid-model year reports.

* * * * *
(b) Projected average and required fuel economy. (1) State the
projected average fuel economy for the manufacturer's automobiles
determined in accordance with Sec. 537.9 and based upon the fuel
economy values and projected sales figures provided under paragraph
(c)(2) of this section.
(2) State the projected final average fuel economy that the
manufacturer anticipates having if changes implemented during the model
year will cause that average to be different from the average fuel
economy projected under paragraph (b)(1) of this section.
(3) State the projected required fuel economy for the
manufacturer's passenger automobiles and light trucks determined in
accordance with 49 CFR 531.5(c) and 49 CFR 533.5(h) and based upon the
projected sales figures provided under paragraph (c)(2) of this
section.
(4) State the projected final required fuel economy that the
manufacturer anticipates having if changes implemented during the model
year will cause the targets to be different from the target fuel
economy projected under paragraph (b)(3) of this section.
(5) State whether the manufacturer believes that the projections it
provides under paragraphs (b)(2) and (b)(4) of this section, or if it
does not provide an average or target under those paragraphs, the
projections it provides under paragraphs (b)(1) and (b)(3) of this
section, sufficiently represent the manufacturer's average and target
fuel economy for the current model year for purposes of the Act. In the
case of a manufacturer that believes that the projections are not
sufficiently representative for those purposes, state the specific
nature of any reason for the insufficiency and the specific additional
testing or derivation of fuel economy values by analytical methods
believed by the manufacturer necessary to eliminate the insufficiency
and any plans of the manufacturer to undertake that testing or
derivation voluntarily and submit the resulting data to the
Environmental Protection Agency under 40 CFR 600.509.
(c) * * *
(4) * * *
(xvi)(A) In the case of passenger automobiles:
(1) Interior volume index, determined in accordance with subpart D
of 40 CFR part 600,
(2) Body style,
(3) Beginning model year 2010, base tire as defined in 49 CFR
523.2,
(4) Beginning model year 2010, track width as defined in 49 CFR
523.2,
(5) Beginning model year 2010, wheelbase as defined in 49 CFR
523.2, and
(6) Beginning model year 2010, footprint as defined in 49 CFR
523.2.
(B) In the case of light trucks:
(1) Passenger-carrying volume,
(2) Cargo-carrying volume,
(3) Beginning model year 2008, base tire as defined in 49 CFR
523.2,
(4) Beginning model year 2008, track width as defined in 49 CFR
523.2,
(5) Beginning model year 2008, wheelbase as defined in 49 CFR
523.2, and
(6) Beginning model year 2008, footprint as defined in 49 CFR
523.2.

Issued: March 23, 2009.
Ronald L. Medford,
Acting Deputy Administrator.
[FR Doc. E9-6839 Filed 3-27-09; 8:45 am]
BILLING CODE 4910-59-P