even for the more developed technologies, phasing in more stringent
standards over a longer timeframe may help manufacturers to ensure
better reliability of the technology and to develop packages to work in
a wide range of applications. Moving more quickly, however, as in
Alternative 4, would lead to earlier and greater cumulative fuel
savings and greenhouse gas reductions.
---------------------------------------------------------------------------

    \49\ ``Prototype'' as it is used here refers to technologies
that have a potentially production-feasible design that is expected
to meet all performance, functional, reliability, safety,
manufacturing, cost and other requirements and objectives that is
being tested in laboratories and on highways under a full range of
operating conditions, but is not yet available in production
vehicles already for sale in the market.
---------------------------------------------------------------------------

    As discussed later, the agencies are also proposing new standards
in MYs 2018 (trailers only), 2021, and 2024 to ensure manufacturers
make steady progress toward the 2027 standards, thereby achieving
steady and feasible reductions in GHG emissions and fuel consumption in
the years leading up to the MY 2027 standards. Moving more quickly,
however, as in Alternative 4, would lead to earlier and greater
cumulative fuel and greenhouse gas savings.
    Providing additional lead time can often enable manufacturers to
resolve technological challenges or to find lower cost means of meeting
new regulatory standards, effectively making them more feasible in
either case. See generally NRDC v. EPA, 655 F. 2d 318, 329 (D.C. Cir.
1981). On the other hand, manufacturers and/or operators may incur
additional costs if regulations require them to make changes to their
products with less lead time than manufacturers would normally have
when bringing a new technology to the market or expanding the
application of existing technologies. After developing a new
technology, manufacturers typically conduct extensive field tests to
ensure its durability and reliability in actual use. Standards that
accelerate technology deployment can lead to manufacturers incurring
additional costs to accelerate this development work, or can lead to
manufacturers beginning production before such testing can be
completed. Some industry stakeholders have informed EPA that when
manufacturers introduced new emission control technologies (primarily
diesel particulate filters) in response to the 2007 heavy-duty engine
standards

they did not perform sufficient product development validation, which
led to additional costs for operators when the technologies required
repairs or other resulted in other operational issues in use. Thus, the
issues of costs, lead time, and reliability are intertwined for the
agencies' determination of whether standards are reasonable.
    Another important consideration is the possibility of disrupting
the market, such as might happen if we were to adopt standards that
manufacturers respond to by applying a new technology too suddenly.
Several of the heavy-duty vehicle manufacturers, fleets, and commercial
truck dealerships informed the agencies that for fleet purchases that
are planned more than a year in advance, expectations of reduced
reliability, increased operating costs, reduced residual value, or of
large increases in purchase prices can lead the fleets to pull-ahead by
several months planned future vehicle purchases by pre-buying vehicles
without the newer technology. In the context of the Class 8 tractor
market, where a relatively small number of large fleets typically
purchase very large volumes of tractors, such actions by a small number
of firms can result in large swings in sales volumes. Such market
impacts would be followed by some period of reduced purchases that can
lead to temporary layoffs at the factories producing the engines and
vehicles, as well as at supplier factories, and disruptions at
dealerships. Such market impacts also can reduce the overall
environmental and fuel consumption benefits of the standards by
delaying the rate at which the fleet turns over. See International
Harvester v. EPA, 478 F. 2d 615, 634 (D.C. Cir. 1973). A number of
industry stakeholders have informed EPA that the 2007 EPA heavy-duty
engine criteria pollutant standard resulted in this pull-ahead
phenomenon for the Class 8 tractor market. The agencies understand the
potential impact that a pull-ahead can have on American manufacturing
and labor, dealerships, truck purchasers, and on the program's
environmental and fuel savings goals, and have taken steps in the
design of the proposed program to avoid such disruption. These steps
include the following:

 Providing considerable lead time, including two to three
additional years for the preferred alternative compared to Alternative
4
 The standards will result in significantly lower operating
costs for vehicle owners (unlike the 2007 standard, which increased
operating costs)
 Phasing in the standards
 Structuring the program so the industry will have a
significant range of technology choices to be considered for
compliance, rather than the one or two new technologies the OEMs
pursued in 2007
 Allowing manufacturers to use emissions averaging, banking and
trading to phase in the technology even further

    We request comment on the sufficiency of the proposed Phase 2
structure, lead time, and stringency to avoid market disruptions. We
note an important difference, however, between standards for criteria
pollutants, with generally no attendant fuel savings, and the fuel
consumption/GHG emission standards proposed today, which provide
immediate and direct financial benefits to vehicle purchasers, who will
begin saving money on fuel costs as soon as they begin operating the
vehicles. It would seem logical, therefore, that vehicle purchasers
(and manufacturers) would weigh those significant fuel savings against
the potential for increased costs that could result from applying fuel-
saving technologies sooner than they might otherwise choose in the
absence of the standards.
    As discussed in the Phase 1 final rule, NHTSA has certain statutory
considerations to take into account when determining feasibility of the
preferred alternative.\50\ The Energy Independence and Security Act
(EISA) states that NHTSA (in consultation with EPA and the Secretary of
Energy) shall develop a commercial medium- and heavy-duty fuel
efficiency program designed ``to achieve the maximum feasible
improvement.'' \51\ Although there is no definition of maximum feasible
standards in EISA, NHTSA is directed to consider three factors when
determining what the maximum feasible standards are. Those factors are,
appropriateness, cost-effectiveness, and technological feasibility,\52\
which modify ``feasible'' beyond its plain meaning.
---------------------------------------------------------------------------

    \50\ 75 FR 57198.
    \51\ 49 U.S.C. 32902(k).
    \52\ Id.
---------------------------------------------------------------------------

    NHTSA has the broad discretion to weigh and balance the
aforementioned factors in order to accomplish EISA's mandate of
determining maximum feasible standards. The fact that the factors may
often be at odds gives NHTSA significant discretion to decide what
weight to give each of the competing factors, policies and concerns and
then determine how to balance them--as long as NHTSA's balancing does
not undermine the fundamental purpose of the EISA: Energy conservation,
and as long as that balancing reasonably accommodates ``conflicting
policies that were committed to the agency's care by the statute.''
\53\
---------------------------------------------------------------------------

    \53\ Center for Biological Diversity v. National Highway Traffic
Safety Admin., 538 F.3d 1172, 1195 (9th Cir. 2008).
---------------------------------------------------------------------------

    EPA also has significant discretion in assessing, weighing, and
balancing the relevant statutory criteria. Section 202(a)(2) of the
Clean Air Act requires that the standards ``take effect after such
period as the Administrator finds necessary to permit the development
and application of the requisite technology, giving appropriate
consideration to the cost of compliance within such period.'' This
language affords EPA considerable discretion in how to weight the
critical statutory factors of emission reductions, cost, and lead time
(76 FR 57129-57130). Section 202(a) also allows (although it does not
compel) EPA to adopt technology-forcing standards. Id. at 57130.
    Giving due consideration to the agencies' respective statutory
criteria discussed above, the agencies are proposing these technology-
forcing standards for MY 2027. The agencies nevertheless recognize that
there is some uncertainty in projecting costs and effectiveness,
especially for those technologies not yet widely available, but believe
that the thresholds proposed for consideration account for realistic
projections of technological development discussed throughout this
notice and in the draft RIA. The agencies are requesting comment on the
alternatives described in Section X below. These alternatives range
from Alternative 1 (which is a no-action alternative that serves as the
baseline for our cost and benefit analyses) to Alternative 5 (which
includes the most stringent of the alternative standards analyzed by
the agencies). The assessment of these different alternatives considers
the importance of allowing manufacturers sufficient flexibility and
discretion while achieving meaningful fuel consumption and GHG
emissions reductions across vehicle types. The agencies look forward to
receiving comments on questions of feasibility and long-term
projections of costs and effectiveness.
    As discussed throughout this document, the agencies believe
Alternative 4 has potential to be the maximum feasible alternative,
however, based on the evidence currently before us, the agencies have
outstanding questions regarding relative risks and

benefits of that option in the timeframe envisioned. We are seeking
comment on these relative risks and benefits. Alternative 3 is
generally designed to achieve the vehicle levels of fuel consumption
and GHG reduction that Alternative 4 would achieve, but with two to
three years of additional lead-time--i.e., the Alternative 3 standards
would end up in the same place as the Alternative 4 standards, but two
to three years later, meaning that manufacturers could, in theory,
apply new technology at a more gradual pace and with greater
flexibility as discussed above. However, Alternative 4 would lead to
earlier and greater cumulative fuel savings and greenhouse gas
reductions.
    In the sections that follow, the agencies have closely examined the
potential feasibility of Alternative 4 for each subcategory. The
agencies may consider establishing final fuel efficiency and GHG
standards in whole or in part in the Alternative 4 timeframe if we deem
them to be maximum feasible and reasonable for NHTSA and EPA,
respectively. The agencies seek comment on the feasibility of
Alternative 4, whether for some or for all segments, including
empirical data on its appropriateness, cost-effectiveness, and
technological feasibility. The agencies also note the possibility of
adoption in MY 2024 of a standard reflecting deployment of some, rather
than all, of the technologies on which Alternative 4 is predicated. It
is also possible that the agencies could adopt some or all of the
proposal (Alternative 3) earlier than MY 2027, but later than MY 2024,
based especially on lead time considerations. Any such choices would
involve a considered weighing of the issues of feasibility of projected
technology penetration rates, associated costs, and necessary lead
time, and would consider the information on available technologies,
their level of performance and costs set out in the administrative
record to this proposal.
    Sections II through VI of this notice explain the consideration
that the agencies took into account in considering options and
proposing a preferred alternative based on balancing of the statutory
factors under 42 U.S.C. 7521(a)(1) and (2), and under 49 U.S.C.
32902(k).
(1) Carryover From Phase 1 Program and Proposed Compliance Changes
    Phase 2 will carry over many of the compliance approaches developed
for Phase 1, with certain changes as described below. Readers are
referred to the proposed regulatory text for much more detail. Note
that some of these provisions are being carried over with revisions or
additions (such as those needed to address trailers).
(a) Certification
    EPA and NHTSA are proposing to apply the same general certification
procedures for Phase 2 as are currently being used for certifying to
the Phase 1 standards. The agencies, however, are proposing changes to
the simulation tool used for the vocational vehicle, tractor and
trailer standards that would allow the simulation tool to more
specifically reflect improvements to transmissions and drivetrains.\54\
Rather than the model using default values for transmissions and
drivetrains, manufacturers would enter measured or tested values as
inputs reflecting performance of their actual transmission and
drivetrain technologies.
---------------------------------------------------------------------------

    \54\ As described in Section IV, although the proposed trailer
standards were developed using the simulation tool, the agencies are
proposing a compliance structure that does not require trailer
manufacturers to actually use the compliance tool.
---------------------------------------------------------------------------

    The agencies apply essentially the same process for certifying
tractors and vocational vehicles, and propose largely to apply it to
trailers as well. The Phase 1 certification process for engines used in
tractors and vocational vehicles was based on EPA's process for showing
compliance with the heavy-duty engine criteria pollutant standards, and
the agencies propose to continue it for Phase 2. Finally, we also
propose to continue certifying HD pickups and vans using the Phase 1
vehicle certification process, which is very similar to the light-duty
vehicle certification process.
    EPA and NHTSA are also proposing to clarify provisions related to
confirming a manufacturer's test data during certification (i.e.,
confirmatory testing) and verifying a manufacturer's vehicles are being
produced to perform as described in the application for certification
(i.e., selective enforcement audits or SEAs). The EPA confirmatory
testing provisions for engines and vehicles are in 40 CFR 1036.235 and
1037.235. The SEA provisions are in 40 CFR 1036.301 and 1037.301. The
NHTSA provisions are in 49 CFR 535.9(a). Note that these clarifications
would also apply for Phase 1 engines and vehicles. The agencies welcome
suggestions for alternative approaches that would offer the same degree
of compliance assurance for GHGs and fuel consumption as these programs
offer with respect to EPA's criteria pollutants.
(b) Averaging, Banking and Trading (ABT)
    The Phase 1 ABT provisions were patterned on established EPA ABT
programs that have proven to work well. In Phase 1, the agencies
determined this flexibility would provide an opportunity for
manufacturers to make necessary technological improvements and reduce
the overall cost of the program without compromising overall
environmental and fuel economy objectives. We propose to generally
continue this Phase 1 approach with few revisions for vehicles
regulated in Phase 1. As described in Section IV, we are proposing a
more limited averaging program for trailers. The agencies see the ABT
program as playing an important role in making the proposed technology-
advancing standards feasible, by helping to address many issues of
technological challenges in the context of lead time and costs. It
provides manufacturers flexibilities that assist the efficient
development and implementation of new technologies and therefore enable
new technologies to be implemented at a more aggressive pace than
without ABT.
    ABT programs are more than just add-on provisions included to help
reduce costs, and can be, as in EPA's Title II programs generally, an
integral part of the standard setting itself. A well-designed ABT
program can also provide important environmental and energy security
benefits by increasing the speed at which new technologies can be
implemented (which means that more benefits accrue over time than with
later-commencing standards) and at the same time increase flexibility
for, and reduce costs to, the regulated industry and ultimately
consumers. Without ABT provisions (and other related flexibilities),
standards would typically have to be numerically less stringent since
the numerical standard would have to be adjusted to accommodate issues
of feasibility and available lead time. See 75 FR 25412-25413. By
offering ABT credits and additional flexibilities the agencies can
offer progressively more stringent standards that help meet our fuel
consumption reduction and GHG emission goals at a faster and more cost-
effective pace.\55\
---------------------------------------------------------------------------

    \55\ See NRDC v. Thomas, 805 F. 2d 410, 425 (D.C. Cir. 1986)
(upholding averaging as a reasonable and permissible means of
implementing a statutory provision requiring technology-forcing
standards).
---------------------------------------------------------------------------

(i) Carryover of Phase 1 Credits and Credit Life
    The agencies propose to continue the five-year credit life
provisions from Phase 1, and are not proposing any

additional restriction on the use of banked Phase 1 credits in Phase 2.
In other words, Phase 1 credits in MY2019 could be used in Phase 1 or
in Phase 2 in MYs 2021-2024. Although, as we have already noted, the
numerical values of proposed Phase 2 standards are not directly
comparable in an absolute sense to the existing Phase 1 standards (in
other words, a given vehicle would have a different g/ton-mile emission
rate when evaluated using Phase 1 GEM than it would when evaluated
using Phase 2 GEM), we believe that the Phase 1 and Phase 2 credits are
largely equivalent. Because the standards and emission levels are
included in a relative sense (as a difference), it is not necessary for
the Phase 1 and Phase 2 standards to be directly equivalent in an
absolute sense in order for the credits to be equivalent.
    This is best understood by examining the way in which credits are
calculated. For example, the credit equations in 40 CFR 1037.705 and 49
CFR 535.7 calculate credits as the product of the difference between
the standard and the vehicle's emission level (g/ton-mile or gallon/
1,000 ton-mile), the regulatory payload (tons), production volume, and
regulatory useful life (miles). Phase 2 would not change payloads,
production volumes, or useful lives for tractors, medium and heavy
heavy-duty engines, or medium and heavy heavy-duty vocational vehicles.
However, EPA is proposing to change the regulatory useful lives of HD
pickups and vans, light heavy-duty vocational vehicles, spark-ignited
engines, and light heavy-duty compression-ignition engines. Because
useful life is a factor in determining the value of a credit, the
agencies are proposing interim adjustment factors to ensure banked
credits maintain their value in the transition from Phase 1 to Phase 2.
    For Phase 1, EPA aligned the useful life for GHG emissions with the
useful life already in place for criteria pollutants. After the Phase 1
rules were finalized, EPA updated the useful life for criteria
pollutants as part of the Tier 3 rulemaking.\56\ The new useful life
implemented for Tier 3 is 150,000 miles or 15 years, whichever occurs
first. This is the same useful life proposed in Phase 2 for HD pickups
and vans, light heavy-duty vocational vehicles, spark-ignited engines,
and light heavy-duty compression-ignition engines.\57\ The numerical
value of the adjustment factor for each of these regulatory categories
depends on the Phase 1 useful life. These are described in detail below
in this preamble in Sections II, V, and VI. Without these adjustment
factors the proposed changes in useful life would effectively result in
a discount of banked credits that are carried forward from Phase 1 to
Phase 2, which is not the intent of the changes in the useful life.
With the relatively flat deterioration generally associated with
CO2, EPA does not believe the proposed changes in useful
life would significantly affect the feasibility of the proposed Phase 2
standards. EPA requests comments on the proposed changes to useful
life. We note that the primary purpose of allowing manufacturers to
bank credits is to provide flexibility in managing transitions to new
standards. The five-year credit life is substantial, and would allow
credits generated in either Phase 1 or early in Phase 2 to be used for
the intended purpose. The agencies believe longer credit life is not
necessary to accomplish this transition. Restrictions on credit life
serve to reduce the likelihood that any manufacturer would be able to
use banked credits to disrupt the heavy-duty vehicle market in any
given year by effectively limiting the amount of credits that can be
held. Without this limit, one manufacturer that saved enough credits
over many years could achieve a significant cost advantage by using all
the credits in a single year. The agencies believe, subject to
consideration of public comment, that allowing a five year credit life
for all credits, and as a consequence allowing use of Phase 1 credits
in Phase 2, creates appropriate flexibility and appropriately
facilitates a smooth transition to each new level of standards.
---------------------------------------------------------------------------

    \56\ 79 FR 23492, April 28, 2014 and 40 CFR 86.1805-17.
    \57\ NHTSA's useful life is based on mileage and years of
duration.
---------------------------------------------------------------------------

    Although we are not proposing any additional restrictions on the
use of Phase 1 credits, we are requesting comment on this issue. Early
indications suggest that positive market reception to the Phase 1
technologies could lead to manufacturers accumulating credit surpluses
that could be quite large at the beginning of the proposed Phase 2
program. This appears especially likely for tractors. The agencies are
specifically requesting comment on the likelihood of this happening,
and whether any regulatory changes would be appropriate in response.
For example, should the agencies limit the amount of credits that could
be carried over from Phase1 or limit them to the first year or two of
the Phase 2 program? Also, if we determine that large surpluses are
likely, how should that factor into our decision on the feasibility of
more stringent standards in MY 2021?
(ii) Averaging Sets
    EPA has historically restricted averaging to some extent for its HD
emission standards to avoid creating unfair competitive advantages or
environmental risks due to credits being inconsistent. Under Phase 1,
averaging, banking and trading can only occur within and between
specified ``averaging sets'' (with the exception of credits generated
through use of specified advanced technologies). We propose to continue
this regime in Phase 2, to retain the existing vehicle and engine
averaging sets, and create new trailer averaging sets. We also propose
to continue the averaging set restrictions from Phase 1 in Phase 2.
These averaging sets for vehicles are:

 Complete pickups and vans
 Other light heavy-duty vehicles (Classes 2b-5)
 Medium heavy-duty vehicles (Class 6-7)
 Heavy heavy-duty vehicles (Class 8)
 Long dry van trailers
 Short dry van trailers
 Long refrigerated trailers
 Short refrigerated trailers

    We also propose not to allow trading between engines and chassis,
even within the same vehicle class. Such trading would essentially
result in double counting of emission credits, because the same engine
technology would likely generate credits relative to both standards. We
similarly would limit trading among engine categories to trades within
the designated averaging sets:

 Spark-ignition engines
 Compression-ignition light heavy-duty engines
 Compression-ignition medium heavy-duty engines
 Compression-ignition heavy heavy-duty engines

    The agencies continue to believe that restricting trading to within
the same eight classes would provide adequate opportunities for
manufacturers to make necessary technological improvements and to
reduce the overall cost of the program without compromising overall
environmental and fuel efficiency objectives, and is therefore
appropriate and reasonable under EPA's authority and maximum feasible
under NHTSA's authority, respectively. We do not expect emissions from
engines and vehicles--when restricted by weight class--to be
dissimilar. We therefore expect that the lifetime vehicle performance
and emissions levels will be very similar across these defined

categories, and the estimated credit calculations will fairly ensure
the expected fuel consumption and GHG emission reductions.
    We continue to believe, subject to consideration of public comment,
that the Phase 1 averaging sets create the most flexibility that is
appropriate without creating an unfair advantage for manufacturers with
erratically integrated portfolios, including engines and vehicles. See
76 FR 57240. The agencies committed in Phase 1 to seek public comment
after credit trading begins with manufacturers certifying in 2014 on
whether broader credit trading is more appropriate in developing the
next phase of HD regulations (76 FR 57128, September 15, 2011). The
2014 model year end of year reports will become available to the
agencies in mid-2015. Therefore, the agencies will provide information
at that point. We welcome comment on averaging set restrictions. The
agencies propose to continue this carry forward provision for phase 2
for the same reasons.
(iii) Credit Deficits
    The Phase 1 regulations allow manufacturers to carry-forward
deficits for up to three years without penalty. This is an important
flexibility because the program is designed to address the diversity of
the heavy-duty industry by allowing manufacturers to sell a mix of
engines or vehicles that have very different emission levels and fuel
efficiencies. Under this construct, manufacturers can offset sales of
engines or vehicles not meeting the standards by selling others (within
the same averaging set) that are much better than required. However, in
any given year it is possible that the actual sales mix will not
balance out and the manufacturer may be short of credits for that model
year. The three year provision allows for this possibility and creates
additional compliance flexibility to accommodate it.
(iv) Advanced Technology Credits
    At this time, the agencies believe it is no longer appropriate to
provide extra credit for the technologies identified as advanced
technologies for Phase 1, although we are requesting comment on this
issue. The Phase 1 advanced technology credits were adopted to promote
the implementation of advanced technologies, such as hybrid
powertrains, Rankine cycle engines, all-electric vehicles, and fuel
cell vehicles (see 40 CFR 1037.150(i)). As the agencies stated in the
Phase 1 final rule, the Phase 1 standards were not premised on the use
of advanced technologies but we expected these advanced technologies to
be an important part of the Phase 2 rulemaking (76 FR 57133, September
15, 2011). The proposed Phase 2 heavy-duty engine and vehicles
standards are premised on the use of some advanced technologies, making
them equivalent to other fuel-saving technologies in this context. We
believe the Phase 2 standards themselves would provide sufficient
incentive to develop them.
    We request comment on this issue, especially with respect to
electric vehicle, plug-in hybrid, and fuel cell technologies. Although
the proposed standards are premised on some use of Rankine cycle
engines and hybrid powertrains, none of the proposed standards are
based on projected utilization of the use of the other advanced
technologies. (Note that the most stringent alternative is based on
some use of these technologies). Commenters are encouraged to consider
the recently adopted light-duty program, which includes temporary
incentives for these technologies.
(c) Innovative Technology and Off-Cycle Credits
    The agencies propose to largely continue the Phase 1 innovative
technology program but to redesignate it as an off-cycle program for
Phase 2. In other words, beginning in MY 2021 technologies that are not
fully accounted for in the GEM simulation tool, or by compliance
dynamometer testing would be considered ``off-cycle'', including those
technologies that may no longer be considered innovative technologies.
However, we are not proposing to apply this flexibility to trailers
(which were not part of Phase 1) in order to simplify the program for
trailer manufacturers.
    The agencies propose to maintain that, in order for a manufacturer
to receive credits for Phase 2, the off-cycle technology would still
need to meet the requirement that it was not in common use prior to MY
2010. Although, we have not identified specific off-cycle technologies
at this time that should be excluded, we believe it may be prudent to
continue this requirement to avoid the potential for manufacturers to
receive windfall credits for technologies that they were already using
before MY 2010. Nevertheless, the agencies seek comment on whether off-
cycle technologies in the Phase 2 program should be limited in this
way. In particular, the agencies are concerned that because the
proposed Phase 2 program would be implemented MY 2021 and may extend
beyond 2027, the agencies and manufacturers may have difficulty in the
future determining whether an off-cycle technology was in common use
prior to MY 2010. Moreover, because we have not identified a single
off-cycle technology that should be excluded by this provision at this
time, we are concerned that this approach may create an unnecessary
hindrance to the off-cycle program.
    Manufacturers would be able to carry over an innovative technology
credits from Phase 1 into Phase 2, subject to the same restrictions as
other credits. Manufacturers would also be able to carry over the
improvement factor (not the credit value) of a technology, if certain
criteria were met. The agencies would require documentation for all
off-cycle requests similar to those required by EPA for its light-duty
GHG program.
    Additionally, NHTSA would not grant any off-cycle credits for crash
avoidance technologies. NHTSA would also require manufacturers to
consider the safety of off-cycle technologies and would request a
safety assessment from the manufacturer for all off-cycle technologies.
    The agencies seek comment on these proposed changes, as well as the
possibility of adopting aspects of the light-duty off-cycle program.
(d) Alternative Fuels
    The agencies are proposing to largely continue the Phase 1 approach
for engines and vehicles fueled by fuels other than gasoline and
diesel.\58\ Phase 1 engine emission standards applied uniquely for
gasoline-fueled and diesel-fueled engines. The regulations in 40 CFR
part 86 implement these distinctions for alternative fuels by dividing
engines into Otto-cycle and Diesel-cycle technologies based on the
combustion cycle of the engine. The agencies are, however, proposing a
small change that is described in Section II. Under the proposed
change, we would require manufacturers to divide their natural gas
engines into primary intended service classes, like the current
requirement for compression-ignition engines. Any alternative fuel-
engine qualifying as a medium heavy-duty engine or a heavy heavy-duty
engine would be subject to all the emission standards and other
requirements that apply to compression-ignition engines. Note that this
small change in approach would also apply with respect to EPA's
criteria pollutant program.
---------------------------------------------------------------------------

    \58\ See Section I. F. (1) (a) for a summary of certain specific
changes we are proposing or considering for natural gas-fueled
engines and vehicles.
---------------------------------------------------------------------------

    We are also proposing that the Phase 2 standards apply exclusively
at the

vehicle tailpipe. That is, compliance is based on vehicle fuel
consumption and GHG emission reductions, and does not reflect any so-
called lifecycle emission properties. The agencies have explained why
it is reasonable that the heavy duty standards be fuel neutral in this
manner. See 76 FR 57123; see also 77 FR 51705 (August 24, 2012) and 77
FR 51500 (August 27, 2012). In particular, EPA notes that there is a
separate, statutorily-mandated program under the Clean Air Act which
encourages use of renewable fuels in transportation fuels, including
renewable fuel used in heavy-duty diesel engines. This program
considers lifecycle greenhouse gas emissions compared to petroleum
fuel. NHTSA notes that the fuel efficiency standards are necessarily
tailpipe-based, and that a lifecycle approach would likely render it
impossible to harmonize the fuel efficiency and GHG emission standards,
to the great detriment of our goal of achieving a coordinated program.
77 FR 51500-51501; see also 77 FR 51705 (similar finding by EPA); see
also section I.F. (1) (a) below.
    One consequence of the tailpipe-based approach is that the agencies
are proposing to treat vehicles powered by electricity the same as in
Phase 1. In Phase 1, EPA treated all electric vehicles as having zero
emissions of CO2, CH4, and N2O (see 40
CFR 1037.150(f)). Similarly, NHTSA adopted regulations in Phase 1 that
set the fuel consumption standards based on the fuel consumed by the
vehicle. The agencies also did not require emission testing for
electric vehicles in Phase 1. The agencies considered the potential
unintended consequence of not accounting for upstream emissions from
the charging of heavy-duty electric vehicles. In our reassessment for
Phase 2, we have not found any all-electric heavy-duty vehicles that
have certified by 2014. As we look to the future, we project very
limited adoption of all-electric vehicles into the market. Therefore,
we believe that this provision is still appropriate. Unlike the 2017-
2025 light-duty rule, which included a cap whereby upstream emissions
would be counted after a certain volume of sales (see 77 FR 62816-
62822), we believe there is no need to propose a cap for heavy-duty
vehicles because of the small likelihood of significant production of
EV technologies in the Phase 2 timeframe. We welcome comments on this
approach.\59\ Note that we also request comment on upstream emissions
for natural gas in Section XI.
---------------------------------------------------------------------------

    \59\ See also Section I. C. (1) (b)(iv) above (soliciting
comment on need for advanced technology incentive credits for heavy
duty EVs).
---------------------------------------------------------------------------

(e) Phase 1 Interim Provisions
    EPA adopted several flexibilities for the Phase 1 program (40 CFR
1036.150 and 1037.150) as interim provisions. Because the existing
regulations do not have an end date for Phase 1, most of these
provisions did not have an explicit end date. NHTSA adopted similar
provisions. With few exceptions, the agencies are proposing not to
apply these provisions to Phase 2. These will generally remain in
effect for the Phase 1 program. In particular, the agencies note that
we do not propose to continue the blanket exemption for small
manufacturers. Instead, the agencies propose to adopt narrower and more
targeted relief.
(f) In-Use Standards
    Section 202(a)(1) of the CAA specifies that EPA is to adopt
emissions standards that are applicable for the useful life of the
vehicle and for the engine. EPA finalized in-use standards for the
Phase 1 program whereas NHTSA adopted an approach which does not
include these standards. For the Phase 2 program, EPA will carry-over
its in-use provisions and NHTSA proposes to adopt EPA's useful life
requirements for its vehicle and engine fuel consumption standards to
ensure manufacturers consider in the design process the need for fuel
efficiency standards to apply for the same duration and mileage as EPA
standards. If EPA determines a manufacturer fails to meet its in-use
standards, civil penalties may be assessed. NHTSA seeks comment on the
appropriateness of seeking civil penalties for failure to comply with
its fuel efficiency standards in these instances. NHTSA would limit
such penalties to situations in which it determined that the vehicle or
engine manufacturer failed to comply with the standards.
(2) Proposed Phase 2 Standards
    This section briefly summarizes the proposed Phase 2 standards for
each category and identifies the technologies that the agencies project
would be needed to meet the standards. Given the large number of
different regulatory categories and model years for which separate
standards are being proposed, the actual numerical standards are not
listed. Readers are referred to Sections II through IV for the tables
of proposed standards.
(a) Summary of the Proposed Engine Standards
    The agencies are proposing to continue the basic Phase 1 structure
for the Phase 2 engine standards. There would be separate standards and
test cycles for tractor engines, vocational diesel engines, and
vocational gasoline engines. However, as described in Section II, we
are proposing a revised test cycle for tractor engines to better
reflect actual in-use operation.
    For diesel engines, the agencies are proposing standards for MY
2027 requiring reduction in CO2 emissions and fuel
consumption of 4.2 percent better than the 2017 baseline.\60\ We are
also proposing standards for MY 2021 and MY 2024, requiring reductions
in CO2 emissions and fuel consumption of 1.5 to 3.7 percent
better than the 2017 baseline. The agencies project that these
reductions would be feasible based on technological changes that would
improve combustion and reduce energy losses. For most of these
improvements, the agencies project manufacturers will begin applying
them to about 50 percent of their heavy-duty engines by 2021, and
ultimately apply them to about 90 percent of their heavy-duty engines
by 2024. However, for some of these improvements we project more
limited application rates. In particular, we project a more limited use
of waste exhaust heat recovery systems in 2027, projecting that about
10 percent of tractor engines will have turbo-compounding systems, and
an additional 15 percent of tractor engines would employ Rankine-cycle
waste heat recovery. We do not project that turbo-compounding or
Rankine-cycle waste heat recovery technology will be utilized in
vocational engines. Although we see great potential for waste heat
recovery systems to achieve significant fuel savings and CO2
emission reductions, we are not projecting that the technology could be
available for more wide-spread use in this time frame.
---------------------------------------------------------------------------

    \60\ Phase 1 standards for diesel engines will be fully phased-
in by MY 2017.
---------------------------------------------------------------------------

    For gasoline vocational engines, we are not proposing new more
stringent engine standards. Gasoline engines used in vocational
vehicles are generally the same engines as are used in the complete HD
pickups and vans in the Class 2b and 3 weight categories. Given the
relatively small sales volumes for gasoline-fueled vocational vehicles,
manufacturers typically cannot afford to invest significantly in
developing separate technology for these vocational vehicle engines.
Thus, we project that vocational gasoline engines would

include the same technology as would be used to meet the pickup and van
chassis standards, and this would result in some real world reductions
in CO2 emissions and fuel consumption. Although it is
difficult at this time to project how much improvement would be
observed during certification testing, it seems likely that these
improvements would reduce measured CO2 emissions and fuel
consumption by about one percent. Therefore, we are requesting comment
on finalizing a Phase 2 standard of 621 g/hp-hr for gasoline engines
(i.e., one percent more stringent than the 2016 Phase 1 standard of 627
g/hp-hr) in MY 2027. We note that the proposed MY 2027 vehicle
standards for gasoline-fueled vocational vehicles are predicated in
part on the use of advanced friction reduction technology with
effectiveness over the GEM cycles of about one percent. We also request
comment on whether not proposing more stringent standards for gasoline
engines would create an incentive for purchasers who would have
otherwise chosen a diesel vehicle to instead choose a gasoline vehicle.

     Table I-2--Summary of Phase 1 and Proposed Phase 2 Requirements for Engines in Combination Tractors and
                                               Vocational Vehicles
----------------------------------------------------------------------------------------------------------------
                                                                 Alternative 3-2027     Alternative 4-2024 (also
                                        Phase 1 program          (proposed standard)      under consideration)
----------------------------------------------------------------------------------------------------------------
Covered in this category.........  Engines installed in tractors and vocational chassis.
----------------------------------------------------------------------------------------------------------------
Share of HDV fuel consumption and  Combination tractors and vocational vehicles account for approximately 85
 GHG emissions.                     percent of fuel use and GHG emissions in the medium and heavy duty truck
                                    sector.
----------------------------------------------------------------------------------------------------------------
Per vehicle fuel consumption and   5%-9% improvement over MY    4% improvement over MY 2017 for diesel engines.
 CO2 improvement.                   2010 baseline, depending    Note that improvements are captured in complete
                                    vehicle application.       vehicle tractor and vocational vehicle standards,
                                    Improvements are in           so that engine improvements and the vehicle
                                    addition to improvements       improvement shown below are not additive.
                                    from tractor and
                                    vocational vehicle
                                    standards.
----------------------------------------------------------------------------------------------------------------
Form of the standard.............  EPA: CO2 grams/horsepower-hour and NHTSA: Gallons of fuel/horsepower-hour.
----------------------------------------------------------------------------------------------------------------
Example technology options         Combustion, air handling,   Further technology improvements and increased use
 available to help manufacturers    friction and emissions        of all Phase 1 technologies, plus waste heat
 meet standards.                    after-treatment            recovery systems for tractor engines (e.g., turbo-
                                    technology improvements.              compound and Rankine-cycle).
----------------------------------------------------------------------------------------------------------------
Flexibilities....................  ABT program which allows   Same as Phase 1, except no advanced technology
                                    emissions and fuel         incentives.
                                    consumption credits to    Adjustment factor of 1.36 proposed for credits
                                    be averaged, banked, or    carried forward from Phase 1 to Phase 2 for SI
                                    traded (five year credit   and LHD CI engines due to proposed change in
                                    life). Manufacturers       useful life.
                                    allowed to carry-forward
                                    credit deficits for up
                                    to three model years.
                                    Interim incentives for
                                    advanced technologies,
                                    recognition of
                                    innovative (off-cycle)
                                    technologies not
                                    accounted for by the HD
                                    Phase 1 test procedures,
                                    and credits for
                                    certifying early.
----------------------------------------------------------------------------------------------------------------

(b) Summary of the Proposed Tractor Standards
    As explained in Section III, the agencies are proposing to largely
continue the Phase 1 tractor program but to propose new standards. The
tractor standards proposed for MY 2027 would achieve up to 24 percent
lower CO2 emissions and fuel consumption than a 2017 model
year Phase 1 tractor. The agencies project that the proposed 2027
tractor standards could be met through improvements in the:
     Engine \61\ (including some use of waste heat recovery
systems)
---------------------------------------------------------------------------

    \61\ Although the agencies are proposing separate engine
standards and separate engine certification, engine improvements
would also be reflected in the vehicle certification process. Thus,
it is appropriate to also consider engine improvements in the
context of the vehicle standards.
---------------------------------------------------------------------------

     Transmission
     Driveline
     Aerodynamic design
     Tire rolling resistance
     Idle performance
     Other accessories of the tractor.
    The agencies' evaluation shows that some of these technologies are
available today, but have very low adoption rates on current vehicles,
while others will require some lead time for development. The agencies
are proposing to enhance the GEM vehicle simulation tool to recognize
these technologies, as described in Section II.C.
    We have also determined that there is sufficient lead time to
introduce many of these tractor and engine technologies into the fleet
at a reasonable cost starting in the 2021 model year. The proposed 2021
model year standards for combination tractors and engines would achieve
up to 13 percent lower CO2 emissions and fuel consumption
than a 2017 model year Phase 1 tractor, and the 2024 model year
standards would achieve up to 20 percent lower CO2 emissions
and fuel consumption.

  Table I-3--Summary of Phase 1 and Proposed Phase 2 Requirements for Class 7 and Class 8 Combination Tractors
----------------------------------------------------------------------------------------------------------------
                                                                                Alternative 4--2024
                                        Phase 1 program          Alternative 3--2027           (also under
                                                                 (proposed standard)         consideration)
----------------------------------------------------------------------------------------------------------------
Covered in this category.........          Tractors that are designed to pull trailers and move freight.
----------------------------------------------------------------------------------------------------------------
Share of HDV fuel consumption and   Combination tractors and their engines account for approximately two thirds
 GHG emissions.                       of fuel use and GHG emissions in the medium and heavy duty truck sector.
----------------------------------------------------------------------------------------------------------------
Per vehicle fuel consumption and   10%-23% improvement over       18%-24% improvement over MY 2017 standards.
 CO2 improvement.                   MY 2010 baseline,
                                    depending on tractor
                                    category. Improvements
                                    are in addition to
                                    improvements from engine
                                    standards.
----------------------------------------------------------------------------------------------------------------
Form of the standard.............   EPA: CO2 grams/ton payload mile and NHTSA: Gallons of fuel/1,000 ton payload
                                                                        mile.
----------------------------------------------------------------------------------------------------------------
Example technology options         Aerodynamic drag            Further technology improvements and increased use
 available to help manufacturers    improvements; low               of all Phase 1 technologies, plus engine
 meet standards.                    rolling resistance                improvements, improved and automated
                                    tires; high strength       transmissions and axles, powertrain optimization,
                                    steel and aluminum           tire inflation systems, and predictive cruise
                                    weight reduction;                 control (depending on tractor type).
                                    extended idle reduction;
                                    and speed limiters.
----------------------------------------------------------------------------------------------------------------
Flexibilities....................  ABT program which allows      Same as Phase 1, except no extra credits for
                                    emissions and fuel           advanced technologies or early certification.
                                    consumption credits to
                                    be averaged, banked, or
                                    traded (five year credit
                                    life). Manufacturers
                                    allowed to carry-forward
                                    credit deficits for up
                                    to three model years.
                                    Interim incentives for
                                    advanced technologies,
                                    recognition of
                                    innovative (off-cycle)
                                    technologies not
                                    accounted for by the HD
                                    Phase 1 test procedures,
                                    and credits for
                                    certifying early.
----------------------------------------------------------------------------------------------------------------

(c) Summary of the Proposed Trailer Standards
    This proposed rule is a set of GHG emission and fuel consumption
standards for manufacturers of new trailers that are used in
combination with tractors that would significantly reduce
CO2 and fuel consumption from combination tractor-trailers
nationwide over a period of several years. As described in Section IV,
there are numerous aerodynamic and tire technologies available to
manufacturers to accomplish these proposed standards. For the most
part, these technologies have already been introduced into the market
to some extent through EPA's voluntary SmartWay program. However,
adoption is still somewhat limited.
    The agencies are proposing incremental levels of Phase 2 standards
that would apply beginning in MY 2018 and be fully phased-in by 2027.
These standards are predicated on use of aerodynamic and tire
improvements, with trailer OEMs making incrementally greater
improvements in MYs 2021 and 2024 as standard stringency increases in
each of those model years. EPA's GHG emission standards would be
mandatory beginning in MY 2018, while NHTSA's fuel consumption
standards would be voluntary beginning in MY 2018, and be mandatory
beginning in MY 2021.
    As described in Section XV.D and Chapter 12 of the draft RIA, the
agencies are proposing special provisions to minimize the impacts on
small trailer manufacturers. These provisions have been informed by and
are largely consistent with recommendations coming from the SBAR Panel
that EPA conducted pursuant to Section 609(b) of the Regulatory
Flexibility Act (RFA). Broadly, these provisions provide additional
lead time for small manufacturers, as well as simplified testing and
compliance requirements. The agencies are also requesting comment on
whether there is a need for additional provisions to address small
business issues.

                        Table I-4--Summary of Proposed Phase 2 Requirements for Trailers
----------------------------------------------------------------------------------------------------------------
                                                                                Alternative 4--2024
                                        Phase 1 program          Alternative 3--2027           (also under
                                                                 (proposed standard)         consideration)
----------------------------------------------------------------------------------------------------------------
Covered in this category.........     Trailers hauled by low, mid, and high roof day and sleeper cab tractors,
                                        except those qualified as logging, mining, stationary or heavy-haul.
----------------------------------------------------------------------------------------------------------------
Share of HDV fuel consumption and    Trailers are modeled together with combination tractors and their engines.
 GHG emissions.                        Together, they account for approximately two thirds of fuel use and GHG
                                                emissions in the medium and heavy duty truck sector.
----------------------------------------------------------------------------------------------------------------
Per vehicle fuel consumption and   N/A......................      Between 3% and 8% improvement over MY 2017
 CO2 improvement.                                                   baseline, depending on the trailer type.
----------------------------------------------------------------------------------------------------------------

Form of the standard.............  N/A......................  EPA: CO2 grams/ton payload mile and NHTSA: Gallons/
                                                                            1,000 ton payload mile.
----------------------------------------------------------------------------------------------------------------
Example technology options         N/A......................     Low rolling resistance tires, automatic tire
 available to help manufacturers                                  inflation systems, weight reduction for most
 meet standards.                                                trailers, aerodynamic improvements such as side
                                                                  and rear fairings, gap closing devices, and
                                                                 undercarriage treatment for box-type trailers
                                                                       (e.g., dry and refrigerated vans).
----------------------------------------------------------------------------------------------------------------
Flexibilities....................  N/A......................      One year delay in implementation for small
                                                                 businesses, trailer manufacturers may use pre-
                                                                  approved devices to avoid testing, averaging
                                                               program for manufacturers of dry and refrigerated
                                                                                box trailers.
----------------------------------------------------------------------------------------------------------------

(d) Summary of the Proposed Vocational Vehicle Standards
    As explained in Section V, the agencies are proposing to revise the
Phase 1 vocational vehicle program and to propose new standards. These
proposed standards also reflect further sub-categorization from Phase
1, with separate proposed standards based on mode of operation: Urban,
regional, and multi-purpose. The agencies are also proposing
alternative standards for emergency vehicles.
    The agencies project that the proposed vocational vehicle standards
could be met through improvements in the engine, transmission,
driveline, lower rolling resistance tires, workday idle reduction
technologies, and weight reduction, plus some application of hybrid
technology. These are described in Section V of this preamble and in
Chapter 2.9 of the draft RIA. These MY 2027 standards would achieve up
to 16 percent lower CO2 emissions and fuel consumption than
MY 2017 Phase 1 standards. The agencies are also proposing revisions to
the compliance regime for vocational vehicles. These include: The
addition of an idle cycle that would be weighted along with the other
drive cycles; and revisions to the vehicle simulation tool to reflect
specific improvements to the engine, transmission, and driveline.
    Similar to the tractor program, we have determined that there is
sufficient lead time to introduce many of these new technologies into
the fleet starting in MY 2021. Therefore, we are proposing new
standards for MY 2021 and 2024. Based on our analysis, the MY 2021
standards for vocational vehicles would achieve up to 7 percent lower
CO2 emissions and fuel consumption than a MY 2017 Phase 1
vehicle, on average, and the MY 2024 standards would achieve up to 11
percent lower CO2 emissions and fuel consumption.
    In Phase 1, EPA adopted air conditioning (A/C) refrigerant leakage
standards for tractors, as well as for heavy-duty pickups and vans, but
not for vocational vehicles. For Phase 2, EPA believes that it would be
feasible to apply similar A/C refrigerant leakage standards for
vocational vehicles, beginning with the 2021 model year. The process
for certifying that low leakage components are used would follow the
system currently in place for comparable systems in tractors.

         Table I-5--Summary of Phase 1 and Proposed Phase 2 Requirements for Vocational Vehicle Chassis
----------------------------------------------------------------------------------------------------------------
                                                                                Alternative 4--2024
                                        Phase 1 program          Alternative 3--2027           (also under
                                                                 (proposed standard)         consideration)
----------------------------------------------------------------------------------------------------------------
Covered in this category.........  Class 2b-8 chassis that are intended for vocational services such as delivery
                                     vehicles, emergency vehicles, dump truck, tow trucks, cement mixer, refuse
                                            trucks, etc., except those qualified as off-highway vehicles.
----------------------------------------------------------------------------------------------------------------
                                     Because of sector diversity, vocational vehicle chassis are segmented into
                                       Light, Medium and Heavy Duty vehicle categories and for Phase 2 each of
                                      these segments are further subdivided using three duty cycles: Regional,
                                                              Multi-purpose, and Urban.
----------------------------------------------------------------------------------------------------------------
Share of HDV fuel consumption and   Vocational vehicles account for approximately 20 percent of fuel use and GHG
 GHG emissions.                            emissions in the medium and heavy duty truck sector categories.
----------------------------------------------------------------------------------------------------------------
Per vehicle fuel consumption and   2% improvement over MY        Up to 16% improvement over MY 2017 standards.
 CO2 improvement.                   2010 baseline.
                                   Improvements are in
                                    addition to improvements
                                    from engine standards.
----------------------------------------------------------------------------------------------------------------
Form of the standard.............   EPA: CO2 grams/ton payload mile and NHTSA: Gallons of fuel/1,000 ton payload
                                                                        mile.
----------------------------------------------------------------------------------------------------------------
Example technology options         Low rolling resistance      Further technology improvements and increased use
 available to help manufacturers    tires.                      of Phase 1 technologies, plus improved engines,
 meet standards.                                               transmissions and axles, powertrain optimization,
                                                                  weight reduction, hybrids, and workday idle
                                                                               reduction systems.
----------------------------------------------------------------------------------------------------------------

Flexibilities....................  ABT program which allows     Same as Phase 1, except no advanced technology
                                    emissions and fuel                            incentives.
                                    consumption credits to
                                    be averaged, banked, or
                                    traded (five year credit
                                    life). Manufacturers
                                    allowed to carry-forward
                                    credit deficits for up
                                    to three model years.
                                    Interim incentives for
                                    advanced technologies,
                                    recognition of
                                    innovative (off-cycle)
                                    technologies not
                                    accounted for by the HD
                                    Phase 1 test procedures,
                                    and credits for
                                    certifying early.
                                   .........................     Chassis intended for emergency vehicles have
                                                                proposed Phase 2 standards based only on Phase 1
                                                               technologies, and may continue to certify using a
                                                                 simplified Phase 1-style GEM tool. Adjustment
                                                                  factor of 1.36 proposed for credits carried
                                                                forward from Phase 1 to Phase 2 due to proposed
                                                                             change in useful life.
----------------------------------------------------------------------------------------------------------------

(e) Summary of the Proposed Heavy-Duty Pickup and Van Standards
    The agencies are proposing to adopt new Phase 2 GHG emission and
fuel consumption standards for heavy-duty pickups and vans that would
be applied in largely the same manner as the Phase 1 standards. These
standards are based on the extensive use of most known and proven
technologies, and could result in some use of strong hybrid powertrain
technology. These proposed standards would commence in MY 2021.
Overall, the proposed standards are 16 percent more stringent by 2027.

             Table I-6--Summary of Phase 1 and Proposed Phase 2 Requirements for HD Pickups and Vans
----------------------------------------------------------------------------------------------------------------
                                                                                Alternative 4--2025
                                        Phase 1 program          Alternative 3--2027           (also under
                                                                 (proposed standard)         consideration)
----------------------------------------------------------------------------------------------------------------
Covered in this category.........   Class 2b and 3 complete pickup trucks and vans, including all work vans and
                                    15-passenger vans but excluding 12-passenger vans which are subject to light-
                                                                   duty standards.
----------------------------------------------------------------------------------------------------------------
Share of HDV fuel consumption and      HD pickups and vans account for approximately 15% of fuel use and GHG
 GHG emissions.                                 emissions in the medium and heavy duty truck sector.
----------------------------------------------------------------------------------------------------------------
Per vehicle fuel consumption and   15% improvement over MY       16% improvement over MY 2018-2020 standards.
 CO2 improvement.                   2010 baseline for diesel
                                    vehicles, and 10%
                                    improvement for gasoline
                                    vehicles.
----------------------------------------------------------------------------------------------------------------
Form of the standard.............    Phase 1 standards are based upon a ``work factor'' attribute that combines
                                     truck payload and towing capabilities, with an added adjustment for 4-wheel
                                       drive vehicles. There are separate target curves for diesel-powered and
                                    gasoline-powered vehicles. As proposed, the Phase 2 standards would be based
                                                                on the same approach.
----------------------------------------------------------------------------------------------------------------
Example technology options         Engine improvements,        Further technology improvements and increased use
 available to help manufacturers    transmission                 of all Phase 1 technologies, plus engine stop-
 meet standards.                    improvements,                start, and powertrain hybridization (mild and
                                    aerodynamic drag                                strong).
                                    improvements, low
                                    rolling resistance
                                    tires, weight reduction,
                                    and improved accessories.
----------------------------------------------------------------------------------------------------------------

Flexibilities....................  Two optional phase-in         Proposed to be same as Phase 1, with phase-in
                                    schedules; ABT program        schedule based on year-over-year increase in
                                    which allows emissions       stringency. Adjustment factor of 1.25 proposed
                                    and fuel consumption       for credits carried forward from Phase 1 to Phase
                                    credits to be averaged,    2 due to proposed change in useful life. Proposed
                                    banked, or traded (five      cessation of advanced technology incentives in
                                    year credit life).            2021 and continuation of off-cycle credits.
                                    Manufacturers allowed to
                                    carry-forward credit
                                    deficits for up to three
                                    model years. Interim
                                    incentives for advanced
                                    technologies,
                                    recognition of
                                    innovative (off-cycle)
                                    technologies not
                                    accounted for by the HD
                                    Phase 1 test procedures,
                                    and credits for
                                    certifying early.
----------------------------------------------------------------------------------------------------------------

(f) Summary of the Proposed Final Numeric Standards by Regulatory
Subcategory
    Table I-7 lists the proposed final (i.e., MY 2027) numeric
standards by regulatory subcategory for tractors, trailers, vocational
vehicles and engines. Note that these are the same final numeric
standards for Alternative 4, but for Alternative 4 these would be
implemented in MY 2024 instead of MY 2027.

                 Table I-7--Proposed Final (MY 2027) Numeric Standards by Regulatory Subcategory
----------------------------------------------------------------------------------------------------------------
                                                                CO2 grams per  ton-mile  Fuel consumption gallon
                                                                 (for engines CO2 grams  per 1,000 ton-mile (for
                    Regulatory subcategory                       per brake horsepower-   engines gallons per 100
                                                                         hour)            brake horsepower-hour)
----------------------------------------------------------------------------------------------------------------
Tractors:.....................................................
    Class 7 Low Roof Day Cab..................................                       87                   8.5462
    Class 7 Mid Roof Day Cab..................................                       96                   9.4303
    Class 7 High Roof Day Cab.................................                       96                   9.4303
    Class 8 Low Roof Day Cab..................................                       70                   6.8762
    Class 8 Mid Roof Day Cab..................................                       76                   7.4656
    Class 8 High Roof Day Cab.................................                       76                   7.4656
    Class 8 Low Roof Sleeper Cab..............................                       62                   6.0904
    Class 8 Mid Roof Sleeper Cab..............................                       69                   6.7780
    Class 8 High Roof Sleeper Cab.............................                       67                   6.5815
Trailers:
    Long Dry Box Trailer......................................                       77                   7.5639
    Short Dry Box Trailer.....................................                      140                  13.7525
    Long Refrigerated Box Trailer.............................                       80                   7.8585
    Short Refrigerated Box Trailer............................                      144                  14.1454
Vocational Diesel:
    LHD Urban.................................................                      272                  26.7191
    LHD Multi-Purpose.........................................                      280                  27.5049
    LHD Regional..............................................                      292                  28.6837
    MHD Urban.................................................                      172                  16.8959
    MHD Multi-Purpose.........................................                      174                  17.0923
    MHD Regional..............................................                      170                  16.6994
    HHD Urban.................................................                      182                  17.8782
    HHD Multi-Purpose.........................................                      183                  17.9764
    HHD Regional..............................................                      174                  17.0923
Vocational Gasoline:
    LHD Urban.................................................                      299                  33.6446
    LHD Multi-Purpose.........................................                      308                  34.6574
    LHD Regional..............................................                      321                  36.1202
    MHD Urban.................................................                      189                  21.2670
    MHD Multi-Purpose.........................................                      191                  21.4921
    MHD Regional..............................................                      187                  21.0420
    HHD Urban.................................................                      196                  22.0547
    HHD Multi-Purpose.........................................                      198                  22.2797
    HHD Regional..............................................                      188                  21.1545
Diesel Engines:
    LHD Vocational............................................                      553                   5.4322
    MHD Vocational............................................                      553                   5.4322
    HHD Vocational............................................                      533                   5.2358
    MHD Tractor...............................................                      466                   4.5776

    HHD Tractor...............................................                      441                   4.3320
----------------------------------------------------------------------------------------------------------------

    Similar to Phase 1 the agencies are proposing for Phase 2 a set of
continuous equation-based standards for HD pickups and vans. Please
refer to Section 6, subsection B.1, for a description of these
standards, including associated tables and figures.

D. Summary of the Costs and Benefits of the Proposed Rule

    This section summarizes the projected costs and benefits of the
proposed NHTSA fuel consumption and EPA GHG emission standards, along
with those of Alternative 4. These projections helped to inform the
agencies' choices among the alternatives considered, along with other
relevant factors, and NHTSA's Draft Environmental Impact Statement
(DEIS). See Sections VII through IX and the Draft RIA for additional
details about these projections.
    For this rule, the agencies conducted coordinated and complementary
analyses using two analytical methods for the heavy-duty pickup and van
segment by employing both DOT's CAFE model and EPA's MOVES model. The
agencies used EPA's MOVES model to estimate fuel consumption and
emissions impacts for tractor-trailers (including the engine that
powers the tractor), and vocational vehicles (including the engine that
powers the vehicle). Additional calculations were performed to
determine corresponding monetized program costs and benefits. For
heavy-duty pickups and vans, the agencies performed complementary
analyses, which we refer to as ``Method A'' and ``Method B.'' In Method
A, the CAFE model was used to project a pathway the industry could use
to comply with each regulatory alternative and the estimated effects on
fuel consumption, emissions, benefits and costs. In Method B, the CAFE
model was used to project a pathway the industry could use to comply
with each regulatory alternative, along with resultant impacts on per
vehicle costs, and the MOVES model was used to calculate corresponding
changes in total fuel consumption and annual emissions. Additional
calculations were performed to determine corresponding monetized
program costs and benefits. NHTSA considered Method A as its central
analysis and Method B as a supplemental analysis. EPA considered the
results of both methods. The agencies concluded that both methods led
the agencies to the same conclusions and the same selection of the
proposed standards. See Section VII for additional discussion of these
two methods.
(1) Reference Case Against Which Costs and Benefits Are Calculated
    The No Action Alternative for today's analysis, alternatively
referred to as the ``baseline'' or ``reference case,'' assumes that the
agencies would not issue new rules regarding MD/HD fuel efficiency and
GHG emissions. This is the baseline against which costs and benefits
for the proposed standards are calculated. The reference case assumes
that model year 2018 standards would be extended indefinitely and
without change.
    The agencies recognize that if the proposed rule is not adopted,
manufacturers will continue to introduce new heavy-duty vehicles in a
competitive market that responds to a range of factors. Thus
manufacturers might have continued to improve technologies to reduce
heavy-duty vehicle fuel consumption. Thus, as described in Section VII,
both agencies fully analyzed the proposed standards and the regulatory
alternatives against two reference cases. The first case uses a
baseline that projects very little improvement in new vehicles in the
absence of new Phase 2 standards, and the second uses a more dynamic
baseline that projects more significant improvements in vehicle fuel
efficiency. NHTSA considered its primary analysis to be based on the
more dynamic baseline, where certain cost-effective technologies are
assumed to be applied by manufacturers to improve fuel efficiency
beyond the Phase 1 requirements in the absence of new Phase 2
standards. EPA considered both reference cases. The results for all of
the regulatory alternatives relative to both reference cases, derived
via the same methodologies discussed in this section, are presented in
Section X of the preamble.
    The agencies chose to analyze these two different baselines because
the agencies recognize that there are a number of factors that create
uncertainty in projecting a baseline against which to compare the
future effects of the proposed action and the remaining alternatives.
The composition of the future fleet--such as the relative position of
individual manufacturers and the mix of products they each offer--
cannot be predicted with certainty at this time. Additionally, the
heavy-duty vehicle market is diverse, as is the range of vehicle
purchasers. Heavy-duty vehicle manufacturers have reported that their
customers' purchasing decisions are influenced by their customers' own
determinations of minimum total cost of ownership, which can be unique
to a particular customer's circumstances. For example, some customers
(e.g., less-than-truckload or package delivery operators) operate their
vehicles within a limited geographic region and typically own their own
vehicle maintenance and repair centers within that region. These
operators tend to own their vehicles for long time periods, and
sometimes for the entire service life of the vehicle. Their total cost
of ownership is influenced by their ability to better control their own
maintenance costs, and thus they can afford to consider fuel efficiency
technologies that have longer payback periods, outside of the vehicle
manufacturer's warranty period. Other customers (e.g. truckload or
long-haul operators) tend to operate cross-country, and thus must
depend upon truck dealer service centers for repair and maintenance.
Some of these customers tend to own their vehicles for about four to
seven years, so that they typically do not have to pay for repair and
maintenance costs outside of either the manufacturer's warranty period
or some other extended warranty period. Many of these customers tend to
require seeing evidence of fuel efficiency technology payback periods
on the order of 18 to 24 months before seriously considering evaluating
a new technology for potential adoption within their fleet (NAS 2010,
Roeth et al. 2013, Klemick et al. 2014). Purchasers of HD pickups and
vans wanting better fuel efficiency tend to demand that fuel
consumption improvements pay back within approximately one to three
years, but some HD pickup and van owners accrue

relatively few vehicle miles traveled per year, such that they may be
less likely to adopt new fuel efficiency technologies, while other
owners who use their vehicle(s) with greater intensity may be even more
willing to pay for fuel efficiency improvements. Regardless of the type
of customer, their determination of minimum total cost of ownership
involves the customer balancing their own unique circumstances with a
heavy-duty vehicle's initial purchase price, availability of credit and
lease options, expectations of vehicle reliability, resale value and
fuel efficiency technology payback periods. The degree of the incentive
to adopt additional fuel efficiency technologies also depends on
customer expectations of future fuel prices, which directly impacts
customer payback periods. Purchasing decisions are not based
exclusively on payback period, but also include the considerations
discussed above and in Section X.A.1. For the baseline analysis, the
agencies use payback period as a proxy for all of these considerations,
and therefore the payback period for the baseline analysis is shorter
than the payback period industry uses as a threshold for the further
consideration of a technology. The agencies request comment on which
alternative baseline scenarios would be most appropriate for analysis
in the final rule. Specifically, the agencies request empirical
evidence to support whether the agencies should use for the final rule
the central cases used in this proposal, alternative sensitivity cases
such as those mentioned below, or some other scenarios. See Section
X.A.1of this Preamble and Chapter 11 of the draft RIA for a more
detailed discussion of baselines.
    As part of a sensitivity analysis, additional baseline scenarios
were also evaluated for HD pickups and vans, including baseline payback
periods of 12, 18 and 24 months. See Section VI of this Preamble and
Chapter 10 of the draft RIA for a detailed discussion of these
additional scenarios.
(2) Costs and Benefits Projected for the Standards Being Proposed and
Alternative 4
    The tables below summarize the benefits and costs for the program
in two ways: First, from the perspective of a program designed to
improve the Nation's energy security and to conserve energy by
improving fuel efficiency and then from the perspective of a program
designed to reduce GHG emissions. The individual categories of benefits
and costs presented in the tables below are defined more fully and
presented in more detail in Chapter 8 of the draft RIA.
    Table I-8 shows benefits and costs for the proposed standards and
Alternative 4 from the perspective of a program designed to improve the
Nation's energy security and conserve energy by improving fuel
efficiency. From this viewpoint, technology costs occur when the
vehicle is purchased. Fuel savings are counted as benefits that occur
over the lifetimes of the vehicles produced during the model years
subject to the Phase 2 standards as they consume less fuel.

  Table I-8--Lifetime Fuel Savings, GHG Reductions, Benefits, Costs and Net Benefits for Model Years 2018-2029
                                        Vehicles Using Analysis Method A
                                           [Billions of 2012$] \a\ \b\
----------------------------------------------------------------------------------------------------------------
                                                                        Alternative
                                         -----------------------------------------------------------------------
                Category                              3 Preferred                              4
                                         -----------------------------------------------------------------------
                                          7% Discount rate  3% Discount rate  7% Discount rate  3% Discount rate
----------------------------------------------------------------------------------------------------------------
Fuel Reductions (Billion Gallons).......               72.2-76.7
                                                       81.9-86.7
GHG reductions (MMT CO2 eq).............               974-1,034
                                                      1,102-1,166
                                         -----------------------------------------------------------------------
Vehicle Program: Technology and Indirect         25.0-25.4         16.8-17.1         32.9-34.3         22.5-23.5
 Costs, Normal Profit on Additional
 Investments............................
Additional Routine Maintenance..........           1.0-1.1           0.6-0.6           1.0-1.1           0.6-0.7
Congestion, Accidents, and Noise from              4.5-4.7           2.6-2.8           4.7-4.9           2.7-2.8
 Increased Vehicle Use..................
                                         -----------------------------------------------------------------------
    Total Costs.........................         30.5-31.1         20.0-20.5         38.7-40.8         25.8-27.0
Fuel Savings (valued at pre-tax prices).       165.1-175.1         89.2-94.2       187.4-198.3       102.0-107.5
Savings from Less Frequent Refueling....           2.9-3.1           1.5-1.6           3.4-3.6           1.8-2.0
Economic Benefits from Additional                14.7-15.1           8.2-8.4         15.0-15.4           8.4-8.6
 Vehicle Use............................
Reduced Climate Damages from GHG                 32.9-34.9         32.9-34.9         37.3-39.4         37.3-39.4
 Emissions \c\..........................
Reduced Health Damages from Non-GHG              37.2-38.8           20-20.7         40.9-42.5         22.1-22.8
 Emissions..............................
Increased U.S. Energy Security..........           8.1-8.9           4.3-4.7          9.3-10.2           5.0-5.5
                                         -----------------------------------------------------------------------
    Total Benefits......................           261-276           156-165           293-309           177-186
                                         -----------------------------------------------------------------------
        Net Benefits....................           231-245           136-144           255-269           151-159
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ For an explanation of analytical Methods A and B, please see Section I.D; for an explanation of the less
  dynamic baseline, 1a, and more dynamic baseline, 1b, please see Section X.A.1.
\b\ Range reflects two reference case assumptions 1a and 1b.
\c\ Benefits and net benefits use the 3 percent global average SCC value applied only to CO2 emissions; GHG
  reductions include CO2, CH4, N2O and HFC reductions, and include benefits to other nations as well as the U.S.
  See Draft RIA Chapter 8.5 and Preamble Section IX.G for further discussion.

    Table I-9 shows benefits and cost from the perspective of reducing
GHG.

  Table I-9--Lifetime Fuel Savings, GHG Reductions, Benefits, Costs and Net Benefits for Model Years 2018-2029
                                        Vehicles Using Analysis Method B
                                           [Billions of 2012$] \a\ \b\
----------------------------------------------------------------------------------------------------------------
                                                                  Alternative
                              ----------------------------------------------------------------------------------
           Category                           3 Preferred                                   4
                              ----------------------------------------------------------------------------------
                                 7% Discount rate     3% Discount rate     7% Discount rate    3% Discount rate
----------------------------------------------------------------------------------------------------------------
Fuel Reductions (Billion                     70.2 to 75.8
 Gallons).
                                             79.7 to 85.4
GHG reductions (MMT CO2eq)...                960 to 1,040
                                            1,090 to 1,160
                              ----------------------------------------------------------------------------------
Vehicle Program (e.g.,         -$24.6 to -$25.1     -$16.3 to -$16.6     -$33.1 to -$33.5     -$22.2 to -$22.5
 technology and indirect
 costs, normal profit on
 additional investments).
Additional Routine             -$1.1 to -$1.1       -$0.6 to -$0.6       -$1.1 to -$1.1       -$0.6 to -$0.6
 Maintenance.
Fuel Savings (valued at pre-   $159 to $171         $84.2 to $90.1       $181 to $193         $96.5 to $103
 tax prices).
Energy Security..............  $8.5 to $9.3         $4.4 to $4.8         $9.8 to $10.6        $5.2 to $5.6
Congestion, Accidents, and     -$4.2 to -$4.3       -$2.4 to -$2.4       -$4.2 to -$4.3       -$2.4 to -$2.4
 Noise from Increased Vehicle
 Use.
Savings from Less Frequent     $2.8 to $3.1         $1.4 to $1.6         $3.3 to $3.6         $1.7 to $1.9
 Refueling.
Economic Benefits from         $14.8 to $14.9       $8.2 to $8.2         $14.7 to $14.8       $8.1 to $8.1
 Additional Vehicle Use.
Benefits from Reduced Non-GHG  $37.4 to $39.7       $17.7 to $18.8       $41.2 to $43.5       $19.7 to $20.7
 Emissions \c\.
                              ----------------------------------------------------------------------------------
Reduced Climate Damages from                $31.6 to $34.0
 GHG Emissions \d\.
                                            $35.9 to $38.3
                              ----------------------------------------------------------------------------------
    Net Benefits.............  $224 to $242         $128 to $138         $248 to $265         $142 to $152
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ For an explanation of analytical Methods A and B, please see Section I.D; for an explanation of the less
  dynamic baseline, 1a, and more dynamic baseline, 1b, please see Section X.A.1.
\b\ Range reflects two baseline assumptions 1a and 1b.
\c\ Range reflects both the two baseline assumptions 1a and 1b using the mid-point of the low and high $/ton
  estimates for calculating benefits.
\d\ Benefits and net benefits use the 3 percent average SCCO2 value applied only to CO2 emissions; GHG
  reductions include CO2, CH4 and N2O reductions.

    Table I-10 breaks down by vehicle category the benefits and costs
for the proposed standards and Alternative 4 using the Method A
analytical approach. For additional detail on per-vehicle break-downs
of costs and benefits, please see Chapter 10.

  Table I-10--Per Vehicle Category Lifetime Fuel Savings, GHG Reductions, Benefits, Costs and Net Benefits for
     Model Years 2018-2029 Vehicles Using Analysis Method A (Billions of 2012$), Relative to Baseline 1b \a\
----------------------------------------------------------------------------------------------------------------
                                                                        Alternative
                                         -----------------------------------------------------------------------
    Key costs and benefits by vehicle                 3 Preferred                              4
                category                 -----------------------------------------------------------------------
                                          7% Discount rate  3% Discount rate  7% Discount rate  3% Discount rate
----------------------------------------------------------------------------------------------------------------
Tractors, Including Engines, and
 Trailers:..............................
    Fuel Reductions (Billion Gallons)...                 56.1
                                                         61.6
    GHG Reductions (MMT CO2 eq).........                 731.1
                                                         803.1
                                         -----------------------------------------------------------------------
        Total Costs.....................              15.2              10.0              17.7              11.9
        Total Benefits..................             177.8             105.4             194.2             115.7
        Net Benefits....................             162.6              95.4             176.5             103.9
Vocational Vehicles, Including Engines:
                                         -----------------------------------------------------------------------
    Fuel Reductions (Billion Gallons)...                  8.3
                                                         10.9
    GHG Reductions (MMT CO2 eq).........                 107.0
                                                         139.8
                                         -----------------------------------------------------------------------
        Total Costs.....................               9.5               6.1              12.8               8.4
        Total Benefits..................              27.7              16.0              35.0              20.6
        Net Benefits....................              18.1               9.9              22.1              12.1
HD Pickups and Vans:
                                         -----------------------------------------------------------------------
    Fuel Reductions (Billion Gallons)...                  7.8
                                                          9.3
    GHG Reductions (MMT CO2 eq).........                 94.1
                                                         112.8
                                         -----------------------------------------------------------------------
        Total Costs.....................               5.5               3.7               7.8               5.3

        Total Benefits..................              23.5              14.1              28.3              17.1
        Net Benefits....................              18.0              10.5              20.4              11.9
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ For an explanation of analytical Methods A and B, please see Section I.D; for an explanation of the less
  dynamic baseline, 1a, and more dynamic baseline, 1b, please see Section X.A.1.

                              Table I-11--Per Vehicle Costs Relative to Baseline 1a
----------------------------------------------------------------------------------------------------------------
                                               3 Proposed standards                              4
                                 -------------------------------------------------------------------------------
                                      MY 2021         MY 2024         MY 2027         MY 2021         MY 2024
----------------------------------------------------------------------------------------------------------------
Per Vehicle Cost ($) \a\
    Tractors....................          $6,710          $9,940         $11,700         $10,200         $12,400
    Trailers....................             900           1,010           1,170           1,080           1,230
    Vocational Vehicles.........           1,150           1,770           3,380           1,990           3,590
    Pickups/Vans................             520             950           1,340           1,050           1,730
----------------------------------------------------------------------------------------------------------------
Note:
\a\ Per vehicle costs include new engine and vehicle technology only; costs associated with increased insurance,
  taxes and maintenance are included in the payback period values.

    An important metric to vehicle purchasers is the payback period
that can be expected on any new purchase. In other words, there is
greater willingness to pay for new technology if that new technology
``pays back'' within an acceptable period of time. The agencies make no
effort to define the acceptable period of time, but seek to estimate
the payback period for others to make the decision themselves. The
payback period is the point at which reduced fuel expenditures outpace
increased vehicle costs, including increased maintenance, insurance
premiums and taxes. The payback periods for vehicles meeting the
standards considered for the final year of implementation (MY2024 for
alternative 4 and MY2027 for the proposed standards) are shown in Table
I-12, and are similar for both Method A and Method B.

   Table I-12--Payback Periods for MY2027 Vehicles Under the Proposed
    Standards and for MY2024 Vehicles Under Alternative 4 Relative to
                               Baseline 1a
        [Payback occurs in the year shown; using 7% discounting]
------------------------------------------------------------------------
                                             Proposed
                                             standards     Alternative 4
------------------------------------------------------------------------
Tractors/Trailers.......................             2nd             2nd
Vocational Vehicles.....................             6th             6th
Pickups/Vans............................             3rd             4th
------------------------------------------------------------------------

(3) Cost Effectiveness
    These proposed regulations implement Section 32902(k) of EISA and
Section 202(a)(1) and (2) of the Clean Air Act. Through the 2007 EISA,
Congress directed NHTSA to create a medium- and heavy-duty vehicle fuel
efficiency program designed to achieve the maximum feasible improvement
by considering appropriateness, cost-effectiveness, and technological
feasibility to determine maximum feasible standards.\62\ The Clean Air
Act requires that any air pollutant emission standards for heavy-duty
vehicles and engines take into account the costs of any requisite
technology and the lead time necessary to implement such technology.
Both agencies considered overall costs, overall benefits and cost
effectiveness in developing the Phase 1 standards. Although there are
different ways to evaluate cost effectiveness, the essence is to
consider some measure of costs relative to some measure of impacts.
---------------------------------------------------------------------------

    \62\ This EISA requirement applies to regulation of medium- and
heavy-duty vehicles. For many years, and as reaffirmed by Congress
in 2007, ``economic practicability'' has been among the factors EPCA
requires NHTSA to consider when setting light-duty fuel economy
standards at the (required) maximum feasible levels. NHTSA
interprets ``economic practicability'' as a factor involving
considerations broader than those likely to be involved in ``cost
effectiveness''.
---------------------------------------------------------------------------

    Considering that Congress enacted EPCA and EISA to, among other
things, address the need to conserve energy, the agencies have
evaluated the proposed standards in terms of costs per gallon of fuel
conserved. As described in the draft RIA, the agencies also evaluated
the

proposed standards using the same approaches employed in HD Phase 1.
Together, the agencies have considered the following three ratios of
cost effectiveness:
    1. Total costs per gallon of fuel conserved.
    2. Technology costs per ton of GHG emissions reduced.
    3. Technology costs minus fuel savings per ton of GHG emissions
reduced.
    By all three of these measures, the proposed standards would be
highly cost effective.
    As discussed below, the agencies estimate that over the lifetime of
heavy-duty vehicles produced for sale in the U.S. during model years
2018-2029, the proposed standards would cost about $30 billion and
conserve about 75 billion gallons of fuel, such that the first measure
of cost effectiveness would be about 40 cents per gallon. Relative to
fuel prices underlying the agencies' analysis, the agencies have
concluded that today's proposed standards would be cost effective.
    With respect to the second measure, which is useful for comparisons
to other GHG rules, the proposed standards would have overall $/ton
costs similar to the HD Phase 1 rule. As Chapter 7 of the draft RIA
shows, technology costs by themselves would amount to less than $50 per
metric ton of GHG (CO2 eq) for the entire HD Phase 2
program. This compares well to both the HD Phase 1 rule, which was
estimated to cost about $30 per metric ton of GHG (without fuel
savings), and to the agencies' estimates of the social cost of carbon.
Thus, even without accounting for fuel savings, the proposed standards
would be cost-effective.
    The third measure deducts fuel savings from technology costs, which
also is useful for comparisons to other GHG rules. On this basis, net
costs per ton of GHG emissions reduced would be negative under the
proposed standards. This means that the value of the fuel savings would
be greater than the technology costs, and there would be a net cost
saving for vehicle owners. In other words, the technologies would pay
for themselves (indeed, more than pay for themselves) in fuel savings.
    In addition, while the net economic benefits (i.e., total benefits
minus total costs) of the proposed standards is not a traditional
measure of their cost-effectiveness, the agencies have concluded that
the total costs of the proposed standards are justified in part by
their significant economic benefits. As discussed in the previous
subsection and in Section IX, this rule would provide benefits beyond
the fuel conserved and GHG emissions avoided. The rule's net benefits
is a measure that quantifies each of its various benefits in economic
terms, including the economic value of the fuel it saves and the
climate-related damages it avoids, and compares their sum to the rule's
estimated costs. The agencies estimate that the proposed standards
would result in net economic benefits exceeding $100 billion, making
this a highly beneficial rule.
    Our current analysis of Alternative 4 also shows that, if
technologically feasible, it would have similar cost-effectiveness but
with greater net benefits (see Chapter 11 of the draft RIA). For
example, the agencies estimate costs under Alternative 4 could be about
$40 billion and about 85 billion gallons of fuel could be conserved,
such that the first measure of cost effectiveness would be about 47
cents per gallon. However, the agencies considered all of the relevant
factors, not just relative cost-effectiveness, when selecting the
proposed standards from among the alternatives considered. Relative
cost-effectiveness was not a limiting factor for the agencies in
selecting the proposed standards. It is also worth noting that the
proposed standards and the Alternative 4 standards appear very cost
effective, regardless of which reference case is used for the baseline,
such that all of the analyses reinforced the agencies' findings.

E. EPA and NHTSA Statutory Authorities

    This section briefly summarizes the respective statutory authority
for EPA and NHTSA to promulgate the Phase 1 and proposed Phase 2
programs. For additional details of the agencies' authority, see
Section XV of this notice as well as the Phase 1 rule.\63\
---------------------------------------------------------------------------

    \63\ 76 FR 57106--57129, September 15, 2011.
---------------------------------------------------------------------------

(1) EPA Authority
    Statutory authority for the vehicle controls in this proposal is
found in CAA section 202(a)(1) and (2) (which requires EPA to establish
standards for emissions of pollutants from new motor vehicles and
engines which emissions cause or contribute to air pollution which may
reasonably be anticipated to endanger public health or welfare), and in
CAA sections 202(d), 203-209, 216, and 301 (42 U.S.C. 7521 (a)(1) and
(2), 7521(d), 7522-7543, 7550, and 7601).
    Title II of the CAA provides for comprehensive regulation of mobile
sources, authorizing EPA to regulate emissions of air pollutants from
all mobile source categories. When acting under Title II of the CAA,
EPA considers such issues as technology effectiveness, its cost (both
per vehicle, per manufacturer, and per consumer), the lead time
necessary to implement the technology, and based on this the
feasibility and practicability of potential standards; the impacts of
potential standards on emissions reductions of both GHGs and non-GHG
emissions; the impacts of standards on oil conservation and energy
security; the impacts of standards on fuel savings by customers; the
impacts of standards on the truck industry; other energy impacts; as
well as other relevant factors such as impacts on safety.
    This proposed action implements a specific provision from Title II,
Section 202(a). Section 202(a)(1) of the CAA states that ``the
Administrator shall by regulation prescribe (and from time to time
revise) . . . standards applicable to the emission of any air pollutant
from any class or classes of new motor vehicles . . ., which in his
judgment cause, or contribute to, air pollution which may reasonably be
anticipated to endanger public health or welfare.'' With EPA's December
2009 final findings that certain greenhouse gases may reasonably be
anticipated to endanger public health and welfare and that emissions of
GHGs from Section 202(a) sources cause or contribute to that
endangerment, Section 202(a) requires EPA to issue standards applicable
to emissions of those pollutants from new motor vehicles. See Coalition
for Responsible Regulation v. EPA, 684 F. 3d at 116-125, 126-27 cert.
granted by, in part Util. Air Regulatory Group v. EPA, 134 S. Ct. 418,
187 L. Ed. 2d 278, 2013 U.S. LEXIS 7380 (U.S., 2013), affirmed in part
and reversed in part on unrelated grounds by Util. Air Regulatory Group
v. EPA, 134 S. Ct. 2427, 189 L. Ed. 2d 372, 2014 U.S. LEXIS 4377 (U.S.,
2014) (upholding EPA's endangerment and cause and contribute findings,
and further affirming EPA's conclusion that it is legally compelled to
issue standards under Section 202 (a) to address emission of the
pollutant which endangers after making the endangerment and cause of
contribute findings); see also id. at 127-29 (upholding EPA's light-
duty GHG emission standards for MYs 2012-2016 in their entirety).
    Other aspects of EPA's legal authority, including it authority
under Section 202(a), its testing authority under Section 203 of the
Act, and its enforcement authorities under Section 207 of the Act are
discussed fully in the Phase 1 rule, and need not be repeated here. See
76 FR 57129-57130.

    The proposed rule includes GHG emission and fuel efficiency
standards applicable to trailers--an essential part of the tractor-
trailer motor vehicle. Class 7/8 heavy-duty vehicles are composed of
three major components:--The engine, the cab-chassis (i.e. the
tractor), and the trailer. The fact that the vehicle consists of two
detachable parts does not mean that either of the parts is not a motor
vehicle. The trailer's sole purpose is to serve as the cargo-hauling
part of the vehicle. Without the tractor, the trailer cannot transport
property. The tractor is likewise incomplete without the trailer. The
motor vehicle needs both parts, plus the engine, to accomplish its
intended use. Connected together, a tractor and trailer constitute ``a
self-propelled vehicle designed for transporting . . . property on a
street or highway,'' and thus meet the definition of ``motor vehicle''
under Section 216(2) of the CAA. Thus, as EPA has previously explained,
we interpret our authority to regulate motor vehicles to include
authority to regulate such trailers. See 79 FR 46259 (August 7,
2014).\64\
---------------------------------------------------------------------------

    \64\ Indeed, an argument that a trailer is not a motor vehicle
because, considered (artificially) as a separate piece of equipment
it is not self-propelled, applies equally to the cab-chassis--the
tractor. No entity has suggested that tractors are not motor
vehicles; nor is such an argument plausible.
---------------------------------------------------------------------------

    This analysis is consistent with definitions in the Federal
regulations issued under the CAA at 40 CFR 86.1803-01, where a heavy-
duty vehicle ``that has the primary load carrying device or container
attached'' is referred to as a ``[c]omplete heavy-duty vehicle,'' while
a heavy-duty vehicle or truck ``which does not have the primary load
carrying device or container attached'' is referred to as an
``[i]ncomplete heavy- duty vehicle'' or ``[i]ncomplete truck.'' The
trailers that would be covered by this proposal are properly considered
``the primary load carrying device or container'' for the heavy-duty
vehicles to which they become attached for use. Therefore, under these
definitions, such trailers are implicitly part of a ``complete heavy-
duty vehicle,'' and thus part of a ``motor vehicle.''
65 66 67
---------------------------------------------------------------------------

    \65\ We note further, however, that certain hauled items, for
example a boat, would not be considered to be a trailer under the
proposal. See proposed section 1037.801, proposing to define
``trailer' as being ``designed for cargo and for being drawn by a
tractor.''
    \66\ This concept is likewise reflected in the definition of
``tractor'' in the parallel Department of Transportation
regulations: ``a truck designed primarily for drawing other motor
vehicles and not so constructed as to carry a load other than a part
of the weight of the vehicle and the load so drawn.'' See 49 CFR
571.3.
    \67\ EPA's proposed definition of ``vehicle'' in 40 CFR 1037.801
makes clear that an incomplete trailer becomes a vehicle (and thus
subject to the prohibition against introduction into commerce
without a certificate) when it has a frame with axles attached.
Complete trailers are also vehicles.
---------------------------------------------------------------------------

    The argument that trailers do not themselves emit pollutants and so
are not subject to emission standards is also unfounded. First, the
argument lacks a factual predicate. Trailers indisputably contribute to
the motor vehicle's CO2 emissions by increasing engine load,
and these emissions can be reduced through various means such as
trailer aerodynamic and tire rolling resistance improvements. See
Section IV below. The argument also lacks a legal predicate. Section
202(a)(1) authorizes standards applicable to emissions of air
pollutants ``from'' either the motor vehicle or the engine. There is no
requirement that pollutants be emitted from a specified part of the
motor vehicle or engine. And indeed, the argument proves too much,
since tractors and vocational vehicle chassis likewise contribute to
emissions (including contributing by the same mechanisms that trailers
do) but do not themselves directly emit pollutants. The fact that
Section 202(a)(1) applies explicitly to both motor vehicles and engines
likewise indicates that EPA has unquestionable authority to interpret
pollutant emission caused by the vehicle component to be ``from'' the
motor vehicle and so within its regulatory authority under Section
202(a)(1).\68\
---------------------------------------------------------------------------

    \68\ This argument applies equally to emissions of criteria
pollutants, whose rate of emission is likewise affected by vehicle
characteristics. It is for this reason that EPA's implementing rules
for criteria pollutants from heavy duty vehicles and engines specify
a test weight for certification testing, since that weight
influences the amount of pollution emission.
---------------------------------------------------------------------------

(2) NHTSA Authority
    The Energy Policy and Conservation Act (EPCA) of 1975 mandates a
regulatory program for motor vehicle fuel economy to meet the various
facets of the need to conserve energy. In December 2007, Congress
enacted the Energy Independence and Security Act (EISA), amending EPCA
to require, among other things, the creation of a medium- and heavy-
duty fuel efficiency program for the first time.
    Statutory authority for the fuel consumption standards in this
proposed rule is found in EISA section 103, 49 U.S.C. 32902(k). This
section authorizes a fuel efficiency improvement program, designed to
achieve the maximum feasible improvement to be created for commercial
medium- and heavy-duty on-highway vehicles and work trucks, to include
appropriate test methods, measurement metrics, standards, and
compliance and enforcement protocols that are appropriate, cost-
effective and technologically feasible.
    NHTSA has responsibility for fuel economy and consumption
standards, and assures compliance with EISA through rulemaking,
including standard-setting; technical reviews, audits and studies;
investigations; and enforcement of implementing regulations including
penalty actions. This proposed rule would continue to fulfill the
requirements of Section 103 of EISA, which instructs NHTSA to create a
fuel efficiency improvement program for ``commercial medium- and heavy-
duty on-highway vehicles and work trucks'' by rulemaking, which is to
include standards, test methods, measurement metrics, and enforcement
protocols. See 49 U.S.C. 32902(k)(2).
    Congress directed that the standards, test methods, measurement
metrics, and compliance and enforcement protocols be ``appropriate,
cost-effective, and technologically feasible'' for the vehicles to be
regulated, while achieving the ``maximum feasible improvement'' in fuel
efficiency. NHTSA has broad discretion to balance the statutory factors
in Section 103 in developing fuel consumption standards to achieve the
maximum feasible improvement.
    As discussed in the Phase 1 final rule notice, NHTSA has determined
that the five year statutory limit on average fuel economy standards
that applies to passengers and light trucks is not applicable to the HD
vehicle and engine standards. As a result, the Phase 1 HD engine and
vehicle standards remain in effect indefinitely at their 2018 or 2019
MY levels until amended by a future rulemaking action. As was
contemplated in that notice, NHTSA is currently engaging in this Phase
2 rulemaking action. Therefore, the Phase 1 standards would not remain
in effect at their 2018 or 2019 MY levels indefinitely; they would
remain in effect until the MY Phase 2 standards apply. In accordance
with Section 103 of EISA, NHTSA will ensure that not less than four
full MYs of regulatory lead-time and three full MYs of regulatory
stability are provided for in the Phase 2 standards.
(a) Authority To Regulate Trailers
    As contemplated in the Phase 1 proposed and final rules, the
agencies are proposing standards for trailers in this rulemaking.
Because Phase 1 did not include standards for trailers, NHTSA did not
discuss its authority for regulating them in the proposed or final
rules; that authority is described here.

    EISA directs NHTSA to ``determine in a rulemaking proceeding 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. . . .'' EISA defines a commercial medium-
and heavy-duty on-highway vehicle to mean ``an on-highway vehicle with
a GVWR of 10,000 lbs or more.'' A ``work truck'' is defined as a
vehicle between 8,500 and 10,000 lbs GVWR that is not an MDPV. These
definitions do not explicitly exclude trailers, in contrast to MDPVs.
Because Congress did not act to exclude trailers when defining GVWRs,
despite demonstrating the ability to exclude MDPVs, it is reasonable to
interpret the provision to include them.
    Both commercial medium- and heavy-duty on-highway vehicles and work
trucks, though, must be vehicles in order to be regulated under this
program. Although EISA does not define the term ``vehicle,'' NHTSA's
authority to regulate motor vehicles under its organic statute, the
Motor Vehicle Safety Act (``Safety Act''), does. The Safety Act defines
a motor vehicle as ``a vehicle driven or drawn by mechanical power and
manufactured primarily for use on public streets, roads, and highways.
. . .'' NHTSA clearly has authority to regulate trailers under this Act
as vehicles that are drawn and has exercised that authority numerous
times. Given the absence of any apparent contrary intent on the part of
Congress in EISA, NHTSA believes it is reasonable to interpret the term
``vehicle'' as used in the EISA definitions to have a similar meaning
that includes trailers.
    Furthermore, the general definition of a vehicle is something used
to transport goods or persons from one location to another. A tractor-
trailer is designed for the purpose of transporting goods. Therefore it
is reasonable to consider all of its parts--the engine, the cab-
chassis, and the trailer--as parts of a whole. As such they are all
parts of a vehicle, and are captured within the definition of vehicle.
As EPA describes above, the tractor and trailer are both incomplete
without the other. Neither can fulfill the function of the vehicle
without the other. For this reason, and the other reasons stated above,
NHTSA interprets its authority to regulate commercial medium- and
heavy-duty on-highway vehicles, including tractor-trailers, as
encompassing both tractors and trailers.
(b) Authority To Regulate Recreational Vehicles
    NHTSA did not regulate recreational vehicles as part of the Phase 1
medium- and heavy-duty fuel consumption standards, although EPA did
regulate them as vocational vehicles for GHG emissions.\69\ In the
Phase 1 proposed rule, NHTSA interpreted ``commercial medium- and heavy
duty'' to mean that recreational vehicles, such as motor homes, were
not to be included within the program because recreational vehicles are
not commercial. Oshkosh Corporation submitted a comment on the agency's
interpretation stating that it did not match the statutory definition
of ``commercial medium- and heavy-duty on-highway vehicle,'' which
defines the phrase by GVWR and on-highway use. In the Phase 1 final
rule NHTSA agreed with Oshkosh Corporation that the agency had
effectively read words into the statutory definition. However, because
recreational vehicles were not proposed in the Phase 1 proposed rule,
they were not within the scope of the rulemaking and were excluded from
NHTSA's standards.\70\ NHTSA expressed that it would address
recreational vehicles in its next rulemaking.
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    \69\ EPA did not give special consideration to recreational
vehicles because the CAA applies to heavy-duty motor vehicle
generally.
    \70\ Motor homes are still subject to EPA's Phase 1
CO2 standards for vocational vehicles.
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    NHTSA is proposing that recreational vehicles be included in the
Phase 2 fuel consumption standards. As discussed above, EISA prescribes
that NHTSA shall set average fuel economy standards for work trucks and
commercial medium-duty or heavy-duty on-highway vehicles. ``Work
truck'' means a vehicle that is rated between 8,500 and 10,000 lbs GVWR
and is not an MDPV. ``Commercial medium- and heavy-duty on-road highway
vehicle'' means an on-highway vehicle with a gross vehicle weight
rating of 10,000 lbs or more.\71\ Based on the definitions in EISA,
recreational vehicles would be regulated as class 2b-8 vocational
vehicles. Excluding recreational vehicles from the NHTSA standards in
Phase 2 could create illogical results, including treating similar
vehicles differently. Moreover, including recreational vehicles under
NHTSA regulations furthers the agencies' goal of one national program,
as EPA regulations already cover recreational vehicles.
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    \71\ 49 U.S.C. 32901(a)(7).
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    NHTSA is proposing that recreational vehicles be included in the
Phase 2 fuel consumption standards and that early compliance be allowed
for manufacturers who want to certify during the Phase 1 period.\72\
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    \72\ NHTSA did not allow early compliance for one RV
manufacturer in MY 2014 that is currently complying EPA's GHG
standards.
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F. Other Issues

    In addition to the standards being proposed, this notice discusses
several other issues related to those standards. It also proposes some
regulatory provisions related to the Phase 1 program, as well as
amendments related to other EPA and NHTSA regulations. These other
issues are summarized briefly here and discussed in greater detail in
later sections.
(1) Issues Related to Phase 2
(a) Natural Gas Engines and Vehicles
    This combined rulemaking by EPA and NHTSA is designed to regulate
two separate characteristics of heavy duty vehicles: GHGs and fuel
consumption. In the case of diesel or gasoline powered vehicles, there
is a one-to-one relationship between these two characteristics. For
alternatively fueled vehicles, which use no petroleum, the situation is
different. For example, a natural gas vehicle that achieves
approximately the same fuel efficiency as a diesel powered vehicle
would emit 20 percent less CO2; and a natural gas vehicle
with the same fuel efficiency as a gasoline vehicle would emit 30
percent less CO2. Yet natural gas vehicles consume no
petroleum. In Phase 1, the agencies balanced these facts by applying
the gasoline and diesel CO2 standards to natural gas engines
based on the engine type of the natural gas engine. Fuel consumption
for these vehicles is then calculated according to their tailpipe
CO2 emissions. In essence, this applies a one-to-one
relationship between fuel efficiency and tailpipe CO2
emissions for all vehicles, including natural gas vehicles. The
agencies determined that this approach would likely create a small
balanced incentive for natural gas use. In other words, it created a
small incentive for the use of natural gas engines that appropriately
balanced concerns about the climate impact methane emissions against
other factors such as the energy security benefits of using domestic
natural gas. See 76 FR 57123. We propose to maintain this approach for
Phase 2. Note that EPA is also considering natural gas in a broader
context of life cycle emissions, as described in Section XI.
(b) Alternative Refrigerants
    In addition to use of leak-tight components in air conditioning
system

design, manufacturers could also decrease the global warming impact of
refrigerant leakage emissions by adopting systems that use alternative,
lower global warming potential (GWP) refrigerants, to replace the
refrigerant most commonly used today, HFC-134a (R-134a). HFC-134a is a
potent greenhouse gas with a GWP 1,430 times greater than that of
CO2.
    Under EPA's Significant New Alternatives Policy (SNAP) Program,\73\
EPA has found acceptable, subject to use conditions, three alternative
refrigerants that have significantly lower GWPs than HFC-134a for use
in A/C systems in newly manufactured light-duty vehicles: HFC-152a,
CO2 (R-744), and HFO-1234yf.\74\ HFC-152a has a GWP of 124,
HFO-1234yf has a GWP of 4, and CO2 (by definition) has a GWP
of 1, as compared to HFC-134a which has a GWP of 1,430.\75\
CO2 is nonflammable, while HFO-1234yf and HFC-152a are
flammable. All three are subject to use conditions requiring labeling
and the use of unique fittings, and where appropriate, mitigating
flammability and toxicity. Currently, the SNAP listing for HFO-1234yf
is limited to newly manufactured A/C systems in LD vehicles, whereas
HFC-152a and CO2 have been found acceptable for all motor
vehicle air conditioning applications, including heavy-duty vehicles.
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    \73\ Section 612(c) of the Clean Air Act requires EPA to review
substitutes for class I and class II ozone-depleting substances and
to determine whether such substitutes pose lower risk than other
available alternatives. EPA is also required to publish lists of