-$0.4
                                                                          -$0.4
                                                                          -$0.4
                                                                          -$0.4
                                                                          -$0.4
                                                                          -$0.4
                                                                          -$0.4
                                                                          -$4.2
Refueling
                                                                           $0.0
                                                                           $0.0
                                                                           $0.0
                                                                           $0.2
                                                                           $0.2
                                                                           $0.2
                                                                           $0.3
                                                                           $0.3
                                                                           $0.4
                                                                           $0.5
                                                                           $0.5
                                                                           $0.5
                                                                           $3.1
Travel value
                                                                           $0.6
                                                                           $0.6
                                                                           $0.7
                                                                           $1.5
                                                                           $1.5
                                                                           $1.5
                                                                           $1.4
                                                                           $1.4
                                                                           $1.4
                                                                           $1.4
                                                                           $1.4
                                                                           $1.4
                                                                          $14.9
Non-GHG
                                                                   $0.0 to $0.1
                                                                   $0.0 to $0.0
                                                                   $0.0 to $0.0
                                                                   $0.9 to $2.0
                                                                   $0.9 to $2.0
                                                                   $0.8 to $1.9
                                                                   $1.1 to $2.4
                                                                   $1.1 to $2.5
                                                                   $0.7 to $1.5
                                                                   $0.7 to $1.7
                                                                   $0.8 to $1.8
                                                                   $0.8 to $1.8
                                                                  $7.8 to $17.7
SCC b,c

SCC_CO2;
5% Avg
                                                                           $0.1
                                                                           $0.1
                                                                           $0.1
                                                                           $0.4
                                                                           $0.4
                                                                           $0.4
                                                                           $0.7
                                                                           $0.7
                                                                           $0.7
                                                                           $0.8
                                                                           $0.8
                                                                           $0.8
                                                                           $6.0
SCC_CO2;
3% Avg
                                                                           $0.3
                                                                           $0.3
                                                                           $0.3
                                                                           $1.6
                                                                           $1.7
                                                                           $1.8
                                                                           $2.8
                                                                           $3.0
                                                                           $3.1
                                                                           $3.7
                                                                           $3.7
                                                                           $3.7
                                                                          $25.9
SCC_CO2;
2.5% Avg
                                                                           $0.4
                                                                           $0.4
                                                                           $0.4
                                                                           $2.6
                                                                           $2.7
                                                                           $2.8
                                                                           $4.4
                                                                           $4.6
                                                                           $4.8
                                                                           $5.8
                                                                           $5.8
                                                                           $5.9
                                                                          $40.7
SCC_CO2;
3% 95th
                                                                           $0.9
                                                                           $0.8
                                                                           $0.8
                                                                           $5.1
                                                                           $5.3
                                                                           $5.5
                                                                           $8.7
                                                                           $9.1
                                                                           $9.5
                                                                          $11.4
                                                                          $11.5
                                                                          $11.5
                                                                          $80.0
Net benefits d

SCC_CO2;
5% Avg
                                                                           $2.4
                                                                           $2.4
                                                                           $2.4
                                                                          $12.7
                                                                          $13.2
                                                                          $13.5
                                                                          $20.7
                                                                          $21.7
                                                                          $21.7
                                                                          $25.2
                                                                          $25.4
                                                                          $25.5
                                                                         $186.7
SCC_CO2;
3% Avg
                                                                           $2.6
                                                                           $2.6
                                                                           $2.6
                                                                          $13.9
                                                                          $14.5
                                                                          $14.9
                                                                          $22.9
                                                                          $23.9
                                                                          $24.1
                                                                          $28.1
                                                                          $28.2
                                                                          $28.3
                                                                         $206.7
SCC_CO2;
2.5% Avg
                                                                           $2.8
                                                                           $2.8
                                                                           $2.8
                                                                          $14.8
                                                                          $15.4
                                                                          $15.9
                                                                          $24.5
                                                                          $25.6
                                                                          $25.8
                                                                          $30.2
                                                                          $30.4
                                                                          $30.5
                                                                         $221.4
SCC_CO2;
3% 95th
                                                                           $3.2
                                                                           $3.2
                                                                           $3.2
                                                                          $17.3
                                                                          $18.0
                                                                          $18.6
                                                                          $28.8
                                                                          $30.1
                                                                          $30.5
                                                                          $35.8
                                                                          $36.0
                                                                          $36.2
                                                                         $260.8
Notes:
a Positive values denote increased social expenditures (costs); negative values denote decreased social expenditures (benefits).
b Net present value of reduced CO2 emissions is calculated differently than other benefits.  The same discount rate used to discount the value of damages from future emissions (SC-CO2 at 5, 3, 2.5 percent) is used to calculate net present value of SC-CO2 for internal consistency.  Refer to the SCC TSD for more detail.
c Section IX.G notes that SCC increases over time.  For the years 2012-2050, the SCC estimates range as follows:  for Average SC-CO2 at 5%:  $12-$28; for Average SC-CO2 at 3%:  $37-$77; for Average SC-CO2 at 2.5%:  $58-$105; and for 95th percentile SC-CO2 at 3%:  $105-$237. Section IX.G also presents these SCC estimates.
d Net impacts are the summation of results within columns of the table with the exception that the net impacts at each SC-CO2 value include only the SC-CO2 impacts at that value.

Table IX-33 Discounted Model Year Lifetime Benefits & Costs of the Preferred Alternative using Method B and Relative to the Less Dynamic Baseline (Billions of 2012$ discounted at 7%)[a]

                                     2018
                                     2019
                                     2020
                                     2021
                                     2022
                                     2023
                                     2024
                                     2025
                                     2026
                                     2027
                                     2028
                                     2029
                                      Sum
Vehicle
program
                                                                          -$0.1
                                                                          -$0.1
                                                                          -$0.1
                                                                          -$1.6
                                                                          -$1.4
                                                                          -$1.4
                                                                          -$1.9
                                                                          -$1.8
                                                                          -$1.7
                                                                          -$2.3
                                                                          -$2.1
                                                                          -$2.0
                                                                         -$16.6
Maintenance
                                                                           $0.0
                                                                           $0.0
                                                                           $0.0
                                                                          -$0.1
                                                                          -$0.1
                                                                          -$0.1
                                                                          -$0.1
                                                                          -$0.1
                                                                          -$0.1
                                                                          -$0.1
                                                                          -$0.1
                                                                           $0.0
                                                                          -$0.6
Pre-tax fuel
                                                                           $1.4
                                                                           $1.3
                                                                           $1.2
                                                                           $6.9
                                                                           $6.9
                                                                           $6.8
                                                                          $10.5
                                                                          $10.4
                                                                          $10.4
                                                                          $11.9
                                                                          $11.5
                                                                          $11.0
                                                                          $90.1
Energy security
                                                                           $0.1
                                                                           $0.1
                                                                           $0.1
                                                                           $0.3
                                                                           $0.3
                                                                           $0.4
                                                                           $0.5
                                                                           $0.6
                                                                           $0.6
                                                                           $0.7
                                                                           $0.7
                                                                           $0.6
                                                                           $4.8
Accidents/
Congestion/
Noise
                                                                          -$0.1
                                                                          -$0.1
                                                                          -$0.1
                                                                          -$0.3
                                                                          -$0.3
                                                                          -$0.2
                                                                          -$0.2
                                                                          -$0.2
                                                                          -$0.2
                                                                          -$0.2
                                                                          -$0.2
                                                                          -$0.2
                                                                          -$2.4
Refueling
                                                                           $0.0
                                                                           $0.0
                                                                           $0.0
                                                                           $0.1
                                                                           $0.1
                                                                           $0.1
                                                                           $0.2
                                                                           $0.2
                                                                           $0.2
                                                                           $0.2
                                                                           $0.2
                                                                           $0.2
                                                                           $1.6
Travel value
                                                                           $0.4
                                                                           $0.4
                                                                           $0.4
                                                                           $0.9
                                                                           $0.9
                                                                           $0.8
                                                                           $0.8
                                                                           $0.8
                                                                           $0.7
                                                                           $0.7
                                                                           $0.7
                                                                           $0.6
                                                                           $8.2
Non-GHG
                                                                   $0.0 to $0.0
                                                                   $0.0 to $0.0
                                                                   $0.0 to $0.0
                                                                   $0.5 to $1.2
                                                                   $0.5 to $1.1
                                                                   $0.4 to $1.0
                                                                   $0.5 to $1.2
                                                                   $0.5 to $1.2
                                                                   $0.3 to $0.6
                                                                   $0.3 to $0.7
                                                                   $0.3 to $0.7
                                                                   $0.3 to $0.7
                                                                   $3.6 to $8.3
SCC b,c

SCC_CO2;
5% Avg
                                                                           $0.1
                                                                           $0.1
                                                                           $0.1
                                                                           $0.4
                                                                           $0.4
                                                                           $0.4
                                                                           $0.7
                                                                           $0.7
                                                                           $0.7
                                                                           $0.8
                                                                           $0.8
                                                                           $0.8
                                                                           $6.0
SCC_CO2;
3% Avg
                                                                           $0.3
                                                                           $0.3
                                                                           $0.3
                                                                           $1.6
                                                                           $1.7
                                                                           $1.8
                                                                           $2.8
                                                                           $3.0
                                                                           $3.1
                                                                           $3.7
                                                                           $3.7
                                                                           $3.7
                                                                          $25.9
SCC_CO2;
2.5% Avg
                                                                           $0.4
                                                                           $0.4
                                                                           $0.4
                                                                           $2.6
                                                                           $2.7
                                                                           $2.8
                                                                           $4.4
                                                                           $4.6
                                                                           $4.8
                                                                           $5.8
                                                                           $5.8
                                                                           $5.9
                                                                          $40.7
SCC_CO2;
3% 95th
                                                                           $0.9
                                                                           $0.8
                                                                           $0.8
                                                                           $5.1
                                                                           $5.3
                                                                           $5.5
                                                                           $8.7
                                                                           $9.1
                                                                           $9.5
                                                                          $11.4
                                                                          $11.5
                                                                          $11.5
                                                                          $80.0
Net benefits d

SCC_CO2;
5% Avg
                                                                           $1.7
                                                                           $1.6
                                                                           $1.5
                                                                           $7.6
                                                                           $7.6
                                                                           $7.6
                                                                          $11.3
                                                                          $11.4
                                                                          $11.0
                                                                          $12.3
                                                                          $12.0
                                                                          $11.6
                                                                          $97.1
SCC_CO2;
3% Avg
                                                                           $1.9
                                                                           $1.8
                                                                           $1.8
                                                                           $8.8
                                                                           $8.9
                                                                           $8.9
                                                                          $13.4
                                                                          $13.7
                                                                          $13.4
                                                                          $15.2
                                                                          $14.8
                                                                          $14.5
                                                                         $117.1
SCC_CO2;
2.5% Avg
                                                                           $2.0
                                                                           $2.0
                                                                           $1.9
                                                                           $9.7
                                                                           $9.9
                                                                           $9.9
                                                                          $15.0
                                                                          $15.3
                                                                          $15.1
                                                                          $17.3
                                                                          $17.0
                                                                          $16.7
                                                                         $131.9
SCC_CO2;
3% 95th
                                                                           $2.5
                                                                           $2.4
                                                                           $2.3
                                                                          $12.2
                                                                          $12.5
                                                                          $12.6
                                                                          $19.3
                                                                          $19.8
                                                                          $19.8
                                                                          $22.9
                                                                          $22.6
                                                                          $22.3
                                                                         $171.2
Notes:
a Positive values denote increased social expenditures (costs); negative values denote decreased social expenditures (benefits).
b Net present value of reduced CO2 emissions is calculated differently than other benefits.  The same discount rate used to discount the value of damages from future emissions (SC-CO2 at 5, 3, 2.5 percent) is used to calculate net present value of SCC for internal consistency.  Refer to the SCC TSD for more detail.
c Section IX.G notes that SC-CO2 increases over time.  For the years 2012-2050, the SC-CO2 estimates range as follows:  for Average SC-CO2 at 5%:  $12-$28; for Average SC-CO2 at 3%:  $37-$77; for Average SC-CO2 at 2.5%:  $58-$105; and for 95th percentile SC-CO2 at 3%:  $105-$237. Section IX.G also presents these SC-CO2 estimates.
d Net impacts are the summation of results within columns of the table with the exception that the net impacts at each SC-CO2 value include only the SC-CO2 impacts at that value.

Table IX-34 shows benefits and costs for the proposed standards 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, just as they do from a GHG-reduction perspective.  However, 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, rather than as negative costs experienced either at the time of purchase or over the lifetimes of these vehicles.
Table IX-34 Lifetime Fuel Savings, GHG Reductions, Benefits, Costs and Net Benefits for Model Years 2018 - 2029 Vehicles Using Analysis Method A (Billions of 2012$) [a]
                                   Category
                                  Baseline 1a
                                  Baseline 1b

                                      3%
                                      7%
                                      3%
                                      7%
Vehicle Program: Technology and Indirect Costs, Normal Profit on Additional Investments
                                     25.4
                                     17.1
                                     25.0
                                     16.8
Additional Routine Maintenance
                                      1.1
                                      0.6
                                      1.0
                                      0.6
Congestion, Accidents, and Noise from Increased Vehicle Use
                                      4.7
                                      2.8
                                      4.5
                                      2.6
Total Costs
                                     31.1
                                     20.5
                                     30.5
                                     20.0
Fuel Savings (valued at pre-tax prices)
                                     175.1
                                     94.2
                                     165.1
                                     89.2
Savings from Less Frequent Refueling
                                      3.1
                                      1.6
                                      2.9
                                      1.5
Economic Benefits from Additional Vehicle Use
                                     15.1
                                      8.4
                                     14.7
                                      8.2
Reduced Climate Damages from GHG Emissions [a]
                                     27.4
                                     27.4
                                     25.7
                                     25.7
Reduced Health Damages from Non-GHG Emissions
                                     12.7
                                      6.6
                                     12.4
                                      6.6
Increased U.S. Energy Security
                                      8.9
                                      4.7
                                      8.1
                                      4.3
Total Benefits
                                     242.2
                                     143.0
                                     229.0
                                     135.6
Net Benefits
                                     211.1
                                     122.5
                                     198.5
                                     115.6
    a   Benefits and net benefits use the 3 percent average SCC value applied only to CO2 emissions; GHG reductions include CO2, CH4, N2O and HFC reductions. Some fraction of these benefits is experienced outside the U.S.

Employment Impacts
Executive Order 13563 (January 18, 2011) directs federal agencies to consider regulatory impacts on, among other criteria, job creation.  According to the Executive Order "Our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation.  It must be based on the best available science."  Analysis of employment impacts of a regulation is not part of a standard benefit-cost analysis (except to the extent that labor costs contribute to costs). Employment impacts of federal rules are of general interest, however, and have been particularly so, historically, in the auto sector during periods of challenging labor market conditions.  For this reason, we are describing the connections of these proposed standards to employment in the regulated sector, the motor vehicle manufacturing sector, as well as the motor vehicle body and trailer and motor vehicle parts manufacturing sectors.
The overall effect of the proposed rule on motor vehicle sector employment depends on the relative magnitude of output and substitution effects, described below.  Because we do not have quantitative estimates of the output effect, and only a partial estimate of the substitution effect, we cannot reach a quantitative estimate of the overall employment effects of the proposed rule on motor vehicle sector employment or even whether the total effect will be positive or negative.
According to the U.S. Bureau of Labor Statistics, in 2014, about 850,000 people in the U.S. were employed in the Motor Vehicle and Parts Manufacturing Sector (NAICS 3361, 3362, and 3363), the directly regulated sector.  The employment effects of this proposed rule are expected to expand beyond the regulated sector.  Though some of the parts used to achieve the proposed standards are likely to be built by motor vehicle manufacturers (including trailer manufacturers) themselves, the motor vehicle parts manufacturing sector also plays a significant role in providing those parts, and will also be affected by changes in vehicle sales.  Changes in truck sales, discussed in Section IX. F. (2) , could also affect employment for truck and trailer vendors.  As discussed in Section IX. C. , this proposed rule is expected to reduce the amount of fuel these vehicles use, and thus affect the petroleum refinery and supply industries as well.  Finally, since the net reduction in cost associated with these proposed rules is expected to lead to lower transportation and shipping costs, in a competitive market a substantial portion of those cost savings will be passed along to consumers, who then will have additional discretionary income (how much of the cost is passed along to consumers depends on market structure and the relative price elasticities).  The proposed rule is not expected to have any notable inflationary or recessionary effect.
The employment effects of environmental regulation are difficult to disentangle from other economic changes and business decisions that affect employment, over time and across regions and industries.  In light of these difficulties, we lean on economic theory to provide a constructive framework for approaching these assessments and for better understanding the inherent complexities in such assessments.  Neoclassical microeconomic theory describes how profit-maximizing firms adjust their use of productive inputs in response to changes in their economic conditions. Berman and Bui (2001, pp. 274-75) model two components that drive changes in firm-level labor demand: output effects and substitution effects.  Regulation can affect the profit-maximizing quantity of output by changing the marginal cost of production.  If regulation causes marginal cost to increase, it will place upward pressure on output prices, leading to a decrease in the quantity demanded, and resulting in a decrease in production.  The output effect describes how, holding labor intensity constant, a decrease in production causes a decrease in labor demand.  As noted by Berman and Bui, although many assume that regulation increases marginal cost, it need not be the case.  A regulation could induce a firm to upgrade to less polluting and more efficient equipment that lowers marginal production costs, or it may induce use of technologies that may prove popular with buyers or provide positive network externalities (see Section IX. A. for discussion of this effect). In such a case, output could increase.
The substitution effect describes how, holding output constant, regulation affects labor intensity of production.  Although increased environmental regulation may increase use of pollution control equipment and energy to operate that equipment, the impact on labor demand is ambiguous.  For example, equipment inspection requirements, specialized waste handling, or pollution technologies that alter the production process may affect the number of workers necessary to produce a unit of output. Berman and Bui (2001) model the substitution effect as the effect of regulation on pollution control equipment and expenditures required by the regulation and the corresponding change in labor intensity of production.
In summary, as output and substitution effects may be positive or negative, theory alone cannot predict the direction of the net effect of regulation on labor demand at the level of the regulated firm.  Operating within the bounds of standard economic theory, empirical estimation of net employment effects on regulated firms is possible when data and methods of sufficient detail and quality are available.  The literature, however, illustrates difficulties with empirical estimation. For example, studies sometimes rely on confidential plant-level employment data from the U.S. Census Bureau, possibly combined with pollution abatement expenditure data that are too dated to be reliably informative.  In addition, the most commonly used empirical methods do not permit estimation of net effects.
The conceptual framework described thus far focused on regulatory effects on plant-level decisions within a regulated industry. Employment impacts at an individual plant do not necessarily represent impacts for the sector as a whole.  The approach must be modified when applied at the industry level.

At the industry level, labor demand is more responsive if: (1) the price elasticity of demand for the product is high, (2) other factors of production can be easily substituted for labor, (3) the supply of other factors is highly elastic, or (4) labor costs are a large share of total production costs. For example, if all firms in an industry are faced with the same regulatory compliance costs and product demand is inelastic, then industry output may not change much, and output of individual firms may change slightly. In this case, the output effect may be small, while the substitution effect depends on input substitutability. Suppose, for example, that new equipment for fuel efficiency improvements requires labor to install and operate. In this case, the substitution effect may be positive, and with a small output effect, the total effect may be positive. As with potential effects for an individual firm, theory cannot determine the sign or magnitude of industry-level regulatory effects on labor demand. Determining these signs and magnitudes requires additional sector-specific empirical study. For environmental rules, much of the data needed for these empirical studies is not publicly available, would require significant time and resources in order to access confidential U.S. Census data for research, and also would not be necessary for other components of a typical RIA.

      In addition to changes to labor demand in the regulated industry, net employment impacts encompass changes in other related sectors. For example, the proposed standards are expected to increase demand for fuel-saving technologies. This increased demand may increase revenue and employment in the firms providing these technologies. At the same time, the regulated industry is purchasing the equipment, and these costs may impact labor demand at regulated firms. Therefore, it is important to consider the net effect of compliance actions on employment across multiple sectors or industries.
If the U.S. economy is at full employment, even a large-scale environmental regulation is unlikely to have a noticeable impact on aggregate net employment. Instead, labor would primarily be reallocated from one productive use to another, and net national employment effects from environmental regulation would be small and transitory (e.g., as workers move from one job to another).
Affected sectors may experience transitory effects as workers change jobs. Some workers may retrain or relocate in anticipation of new requirements or require time to search for new jobs, while shortages in some sectors or regions could bid up wages to attract workers.  These adjustment costs can lead to local labor disruptions.  Although the net change in the national workforce is expected to be small, localized reductions in employment may adversely impact individuals and communities just as localized increases may have positive impacts.

If the economy is operating at less than full employment, economic theory does not clearly indicate the direction or magnitude of the net impact of environmental regulation on employment; it could cause either a short-run net increase or short-run net decrease. An important research question is how to accommodate unemployment as a structural feature in economic models.  This feature may be important in assessing large-scale regulatory impacts on employment.

      Environmental regulation may also affect labor supply.  In particular, pollution and other environmental risks may impact labor productivity or employees' ability to work. While the theoretical framework for analyzing labor supply effects is analogous to that for labor demand, it is more difficult to study empirically.  There is a small emerging literature described in the next section that uses detailed labor and environmental data to assess these impacts.
To summarize, economic theory provides a framework for analyzing the impacts of environmental regulation on employment.  The net employment effect incorporates expected employment changes (both positive and negative) in the regulated sector and elsewhere.  Labor demand impacts for regulated firms, and also for the regulated industry, can be decomposed into output and substitution effects which may be either negative or positive. Estimation of net employment effects for regulated sectors is possible when data of sufficient detail and quality are available.  Finally, economic theory suggests that labor supply effects are also possible. In the next section, we discuss the empirical literature.
Current State of Knowledge Based on the Peer-Reviewed Literature
In the labor economics literature there is an extensive body of peer-reviewed empirical work analyzing various aspects of labor demand, relying on the above theoretical framework. This work focuses primarily on the effects of employment policies, e.g. labor taxes, minimum wage, etc.  In contrast, the peer-reviewed empirical literature specifically estimating employment effects of environmental regulations is very limited. Several empirical studies suggest that net employment impacts may be zero or slightly positive but small even in the regulated sector. Other research suggests that more highly regulated counties may generate fewer jobs than less regulated ones. However, since these latter studies compare more regulated to less regulated counties, they overstate the net national impact of regulation to the extent that regulation causes plants to locate in one area of the country rather than another.  List et al. (2003) find some evidence that this type of geographic relocation may be occurring.  Overall, the peer-reviewed literature does not contain evidence that environmental regulation has a large impact on net employment (either negative or positive) in the long run across the whole economy.
Analytic challenges make it very difficult to accurately produce net employment estimates for the whole economy that would appropriately capture the way in which costs, compliance spending, and environmental benefits propagate through the macro-economy.  Quantitative estimates are further complicated by the fact that macroeconomic models often have very little sectoral detail and usually assume that the economy is at full employment.  EPA is currently in the process of seeking input from an independent expert panel on modeling economy-wide impacts, including employment effects.  For more information, see: https://federalregister.gov/a/2014-02471.
Employment Impacts in the Motor Vehicle and Parts Manufacturing Sector
This section describes changes in employment in the motor vehicle, trailer, and parts (hence, motor vehicle) manufacturing sectors due to this proposed rule.  We focus on the motor vehicle manufacturing sector because it is directly regulated, and because it is likely to bear a substantial share of changes in employment due to this proposed rule.  We include discussion of effects on the parts manufacturing sector, because the motor vehicle manufacturing sector can either produce parts internally or buy them from an external supplier, and we do not have estimates of the likely breakdown of effort between the two sectors.
We follow the theoretical structure of Berman and Bui  of the impacts of regulation in employment in the regulated sectors.  In Berman and Bui's (2001, p. 274-75) theoretical model, as described above, the change in a firm's labor demand arising from a change in regulation is decomposed into two main components:  output and substitution effects.  As the output and substitution effects may be both positive, both negative, or some combination, standard neoclassical theory alone does not point to a definitive net effect of regulation on labor demand at regulated firms.
Following the Berman and Bui framework for the impacts of regulation on employment in the regulated sector, we consider two effects for the motor vehicle sector:  the output effect and the substitution effect.
         The Output Effect
If truck or trailer sales increase, then more people will be required to assemble trucks, trailers, and their components.  If truck or trailer sales decrease, employment associated with these activities will decrease.  The effects of this proposed rulemaking on HD vehicle sales thus depend on the perceived desirability of the new vehicles.  On one hand, this proposed rulemaking will increase truck and trailer costs; by itself, this effect would reduce truck and trailer sales.  In addition, while decreases in truck performance would also decrease sales, this program is not expected to have any negative effect on truck performance.  On the other hand, this proposed rulemaking will reduce the fuel costs of operating the trucks; by itself, this effect would increase truck sales, especially if potential buyers have an expectation of higher fuel prices.  The agencies have not made an estimate of the potential change in truck or trailer sales.  However, as discussed in IX. E. , the agencies have estimated an increase in vehicle miles traveled (i.e., VMT rebound) due to the reduced operating costs of trucks meeting these proposed standards.  Since increased VMT is most likely to be met with more drivers and more trucks, our projection of VMT rebound is suggestive of an increase in vehicle sales and truck driver employment (recognizing that these increases may be partially offset by a decrease in manufacturing and sales for equipment of other modes of transportation such as rail cars or barges).
         The Substitution Effect
The output effect, above, measures the effect due to new truck and trailer sales only.  The substitution effect includes the impacts due to the changes in technologies needed for vehicles to meet the proposed standards, separate from the effect on output (that is, as though holding output constant).  This effect includes both changes in employment due to incorporation of abatement technologies and overall changes in the labor intensity of manufacturing.  We present estimates for this effect to provide a sense of the order of magnitude of expected impacts on employment, which we expect to be small in the automotive sector, and to repeat that regulations may have positive as well as negative effects on employment.
One way to estimate this effect, given the cost estimates for complying with the proposed rule, is to use the ratio of workers to each $1 million of expenditures in that sector.  The use of these ratios has both advantages and limitations.  It is often possible to estimate these ratios for quite specific sectors of the economy:  for instance, it is possible to estimate the average number of workers in the motor vehicle body and trailer manufacturing sector per $1 million spent in the sector, rather than use the ratio from another, more aggregated sector, such as motor vehicle manufacturing.  As a result, it is not necessary to extrapolate employment ratios from possibly unrelated sectors.  On the other hand, these estimates are averages for the sectors, covering all the activities in those sectors; they may not be representative of the labor required when expenditures are required on specific activities, or when manufacturing processes change sufficiently that labor intensity changes.  For instance, the ratio for the motor vehicle manufacturing sector represents the ratio for all vehicle manufacturing, not just for emissions reductions associated with compliance activities.  In addition, these estimates do not include changes in sectors that supply these sectors, such as steel or electronics producers.  They thus may best be viewed as the effects on employment in the motor vehicle sector due to the changes in expenditures in that sector, rather than as an assessment of all employment changes due to these changes in expenditures.  In addition, this approach estimates the effects of increased expenditures while holding constant the labor intensity of manufacturing; it does not take into account changes in labor intensity due to changes in the nature of production.  This latter effect could either increase or decrease the employment impacts estimated here.
Some of the costs of this proposed rule will be spent directly in the motor vehicle manufacturing sector, but it is also likely that some of the costs will be spent in the motor vehicle body and trailer and motor vehicle parts manufacturing sectors.  The analysis here draws on estimates of workers per $1 million of expenditures for each of these sectors.
There are several public sources for estimates of employment per $1 million expenditures.  The U.S. Bureau of Labor Statistics (BLS) provides its Employment Requirements Matrix (ERM), which provides direct estimates of the employment per $1 million in sales of goods in 202 sectors.  The values considered here are for Motor Vehicle Manufacturing (NAICS 3361), Motor Vehicle Body and Trailer Manufacturing (NAICS 3362), and Motor Vehicle Parts Manufacturing (NAICS 3363) for 2012.
The Census Bureau provides the Annual Survey of Manufacturers (ASM), a subset of the Economic Census, based on a sample of establishments; though the Census itself is more complete, it is conducted only every 5 years, while the ASM is annual.  Both include more sectoral detail than the BLS ERM:  for instance, while the ERM includes the Motor Vehicle Manufacturing sector, the ASM and Economic Census have detail at the 6-digit NAICS code level (e.g., light truck and utility vehicle manufacturing).  While the ERM provides direct estimates of employees/$1 million in expenditures, the ASM and Economic Census separately provide number of employees and value of shipments; the direct employment estimates here are the ratio of those values.  At this time, the Economic Census values for 2012 (the most recent year) are not fully available; we therefore do not report them, and instead provide the 2011 ASM results (the most recent available).  The values reported are for Motor Vehicle Manufacturing (NAICS 3361), Light Truck and Utility Vehicle Manufacturing (NAICS 336112), Heavy Duty Truck Manufacturing (33612), Motor Vehicle Body and Trailer manufacturing (3362), and Motor Vehicle Parts Manufacturing (NAICS 3363).
Draft RIA Chapter 9.9 provides the details on the values of workers per $1 million in expenditures for the sectors mentioned above.  In 2012$, these range from 0.4 workers per $1 million for light truck & utility vehicle manufacturing in the ASM, to 2.8 workers per $1 million in expenditures for Motor Vehicle Body and Trailer Manufacturing in the ASM.  These values are then adjusted to remove the employment effects of imports through use of a ratio of domestic production to domestic sales of 0.78.
Over time, the amount of labor needed in the motor vehicle industry has changed:  automation and improved methods have led to significant productivity increases.  The BLS ERM, for instance, provided estimates that, in 1993, 1.33 workers in the Motor Vehicle Manufacturing sector were needed per $1 million, but only 0.46 workers by 2012 (in 2012$).  Because the ERM is available annually for 1993-2012, we used these data to estimate productivity improvements over time.  We then used these productivity estimates to project the ERM through 2027, and to adjust the ASM values for 2011.  RIA Chapter <IP_ADDRESS> provides detail on these calculations.
Finally, to simplify the presentation and give a range of estimates, we compared the projected employment among the 3 sectors for the ERM and ASM, and we provide only the maximum and minimum employment effects estimated for the ERM and the ASM.  We provide the range rather than a point estimate because of the inherent difficulties in estimating employment impacts; the range gives an estimate of the expected magnitude.  The ERM estimates in the Motor Vehicle Parts Manufacturing Sector are consistently the maximum values.  The ERM estimates in the Motor Vehicle Body and Trailer Manufacturing Sector are the minimum values for all years but 2018-2019, when the ASM values for Light Truck and Utility Vehicle Manufacturing provide the minimum values.
Section 0of the Preamble discusses the vehicle cost estimates developed for this proposed rule.  The final step in estimating employment impacts is to multiply costs (in $ millions) by workers per $1 million in costs, to estimate employment impacts in the regulated and parts manufacturing sectors.  Increased costs of vehicles and parts would, by itself, and holding labor intensity constant, be expected to increase employment between 2018 and 2027 from none to a few thousand jobs each year.
While we estimate employment impacts, measured in job-years, beginning with program implementation, some of these employment gains may occur earlier as motor vehicle manufacturers and parts suppliers hire staff in anticipation of compliance with the standards.  A job-year is a way to calculate the amount of work needed to complete a specific task.  For example, a job-year is one year of work for one person.
Table IX-35 Employment Effects due to Increased Costs of Vehicles and Parts, in Job-years
                                     YEAR
                           COSTS (MILLIONS OF 2012$)
MINIMUM Employment Due to Substitution Effect (ERM estimates, expenditures in the Parts Sector[a])
MAXIMUM Employment Due to Substitution Effect (ERM estimates, expenditures in the Body and Trailer Mfg Sector)
                                                                           2018
 $          116
                                                                             0
                                                                           100
                                                                           2019
 $          113
                                                                             0
                                                                           100
                                                                           2020
 $          112
                                                                             0
                                                                           100
                                                                           2021
 $       2,173
                                                                           300
                                                                         2,300
                                                                           2022
 $       2,161
                                                                           300
                                                                         2,200
                                                                           2023
 $       2,224
                                                                           200
                                                                         2,100
                                                                           2024
 $       3,455
                                                                           300
                                                                         3,200
                                                                           2025
 $       3,647
                                                                           200
                                                                         3,200
                                                                           2026
 $       3,736
                                                                           200
                                                                         3,100
                                                                           2027
 $       5,309
                                                                           200
                                                                         4,200
Notes:
a For 2018 and 2019, the minimum employment effects are associated with the ASM's Light Truck and Utility Vehicle Manufacturing sector.
         Summary of Employment Effects in the Motor Vehicle Sector
The overall effect of the proposed rule on motor vehicle sector employment depends on the relative magnitude of the output effect and the substitution effect.  Because we do not have quantitative estimates of the output effect, and only a partial estimate of the substitution effect, we cannot reach a quantitative estimate of the overall employment effects of the proposed rule on motor vehicle sector employment or even whether the total effect will be positive or negative.
The proposed standards are not expected to provide incentives for manufacturers to shift employment between domestic and foreign production.  This is because the proposed standards will apply to vehicles sold in the U.S. regardless of where they are produced. If foreign manufacturers already have increased expertise in satisfying the requirements of the standards, there may be some initial incentive for foreign production, but the opportunity for domestic manufacturers to sell in other markets might increase.  To the extent that the requirements of this proposed rule might lead to installation and use of technologies that other countries may seek now or in the future, developing this capacity for domestic production now may provide some additional ability to serve those markets.
   Employment Impacts in Other Affected Sectors
         Transport and Shipping Sectors
Although not directly regulated by these proposed rules, employment effects in the transport and shipping sector are likely to result from these regulations.  If the overall cost of shipping a ton of freight decreases because of increased fuel efficiency (taking into account the increase in upfront purchasing costs), in a perfectly competitive industry some of these costs savings, depending on the relative elasticities of supply and demand, will be passed along to customers.  With lower prices, demand for shipping would lead to an increase in demand for truck shipping services (consistent with the VMT rebound effect analysis) and therefore an increase in employment in the truck shipping sector.  In addition, if the relative cost of shipping freight via trucks becomes cheaper than shipping by other modes (e.g., rail or barge), then employment in the truck transport industry is likely to increase.  If the trucking industry is more labor intensive than other modes, we would expect this effect to lead to an overall increase in employment in the transport and shipping sectors.[,]  Such a shift would, however, be at the expense of employment in the sectors that are losing business to trucking.  The first effect  -  a gain due to lower shipping costs  -  is likely to lead to a net increase in employment.  The second effect, due to mode-shifting, may increase employment in trucking, but decrease employment in other shipping sectors (e.g., rail or barge), with the net effects dependent on the labor-intensity of the sectors and the volumes.
         Fuel Suppliers
In addition to the effects on the trucking industry and related truck parts sector, these proposed rules will result in reductions in fuel use that lower GHG emissions.  Fuel saving, principally reductions in liquid fuels such as diesel and gasoline, will affect employment in the fuel suppliers industry sectors, principally the Petroleum Refinery sector.
Section IX. C. of this Preamble provides estimates of the effects of these proposed standards on expected fuel consumption.  While reduced fuel consumption represents savings for purchasers of fuel, it also represents a loss in value of output for the petroleum refinery industry, which will result in reduced sectoral employment.  Because this sector is material-intensive, the employment effect is not expected to be large.
         Fuel Savings
As a result of this proposed rulemaking, it is anticipated that trucking firms will experience fuel savings.  Fuel savings lower the costs of transportation goods and services.  In a competitive market, some of the fuel savings that initially accrue to trucking firms are likely to be passed along as lower transportation costs that, in turn, could result in lower prices for final goods and services.  Some of the savings might also be retained by firms for investments or for distributions to firm owners.  Again, how much accrues to customers versus firm owners will depend on the relative elasticities of supply and demand. Regardless, the savings will accrue to some segment of consumers: either owners of trucking firms or the general public, and the effect will be increased spending by consumers in other sectors of the economy, creating jobs in a diverse set of sectors, including retail and service industries.
As described in Section IX. C. (2) the value of fuel savings from this proposed rulemaking is projected to be $15.1 billion (2012$) in 2027, according to Table IX-6.  If all those savings are spent, the fuel savings will stimulate increased employment in the economy through those expenditures.  If the fuel savings accrue primarily to firm owners, they may either reinvest the money or take it as profit.  Reinvesting the money in firm operations could increase employment directly.  If they take the money as profit, to the extent that these owners are wealthier than the general public, they may spend less of the savings, and the resulting employment impacts would be smaller than if the savings went to the public.  Thus, while fuel savings are expected to decrease employment in the refinery sector, they are expected to increase employment through increased consumer expenditures.
Summary of Employment Impacts
The primary employment effects of this rule are expected to be found throughout several key sectors: truck and engine manufacturers, the trucking industry, truck parts manufacturing, fuel production, and consumers.  This rule initially takes effect in model year 2018, a time period sufficiently far in the future that the unemployment rate at that time is unknowable.  In an economy with full employment, the primary employment effect of a rulemaking is likely to be to move employment from one sector to another, rather than to increase or decrease employment.  For that reason, we focus our partial quantitative analysis on employment in the regulated sector, to examine the impacts on that sector directly.  We discuss the likely direction of other impacts in the regulated sector as well as in other directly related sectors, but we do not quantify those impacts, because they are more difficult to quantify with reasonable accuracy, particularly so far into the future.
For the regulated sector, we have not quantified the output effect.  The substitution effect is expected to increase employment from none to a few thousand jobs per year between 2018 and 2027, depending on the share of employment impacts in the affected sectors (Motor Vehicle Manufacturing, Motor Vehicle Body and Trailer Manufacturing, and Motor Vehicle Parts Manufacturing).  These estimates do not include potential changes, either greater or less, in labor intensity of production.  As mentioned above, some of these job gains may occur earlier as auto manufacturers and parts suppliers hire staff to prepare to comply with the standard.
Lower prices for shipping are expected to lead to an increase in demand for truck shipping services and, therefore, an increase in employment in that sector, though this effect may be offset somewhat by changes in employment in other shipping sectors.  Reduced fuel production implies less employment in the fuel provision sectors.  Finally, any net cost savings would be expected to be passed along to some segment of consumers: either the general public or the owners of trucking firms, who are expected then to increase employment through their expenditures.  Under conditions of full employment, any changes in employment levels in the regulated sector due to this program are mostly expected to be offset by changes in employment in other sectors.

Cost of Ownership and Payback Analysis
[Updated text will be forthcoming.]
Here we look at the proposed standards from the perspective of vehicle owners/operators. First, we present aggregate impacts including increased costs associated with vehicles meeting the proposed standards, but also the savings associated with reduced fuel consumption along with reduced refueling time and the benefits of increased travel (or increased vehicle use). We follow that presentation with a look at individual vehicle ownership costs and payback periods. The payback period is an important metric for vehicle buyers especially in the heavy-duty market and the analysis serves to give a sense of when the higher cost vehicles would provide payback via fuel savings.
Table IX-36 and Table IX-37 report the aggregate economic impacts of the Phase 2 preferred alternative standards on all the buyers, operators, and subsequent owners of new vehicles, under the assumption that vehicle manufacturers pass along their costs for improving fuel efficiency in the form of higher purchase prices paid by vehicle buyers.  Table IX-36 reports their gains and losses using Method A and measured relative to each alternative baseline (less and more dynamic) using only the 7% discount rate, since that rate is intended to represent the opportunity cost of any capital that HDV buyers and users must divert from other opportunities to purchase more costly vehicles.  Table IX-37 presents the gains and losses using Method B and relative to the less dynamic baseline using, again, only the 7 percent discount rate. As these tables show, fuel savings and the other benefits from increased fuel efficiency far outweigh the higher prices that buyers of new trucks pay, and as a consequence, in the aggregate, those buyers, truck operators, and their subsequent owners are projected to experience large economic gains from the Phase 2 standards. It should be noted that, because the original buyers may not hold the vehicles for their lifetimes, and because those who own or operate the vehicles may not pay for the fuel, these benefits and costs do not necessarily represent benefits and costs to identifiable individuals.
Table IX-36 MY2018-2029 Lifetime Aggregate Impacts of the Preferred Alternative on All HD Vehicle Buyers and Operators using Method A (billions of 2012$, discounted at 7%)

                                  Baseline 1a
                                  Baseline 1b
Vehicle costs
                                     17.1
                                     16.8
Maintenance & repair costs
                                      0.6
                                      0.6
   Total costs
                                     17.7
                                     17.4
Fuel savings a
(valued at retail prices)
                                     104.6
                                     99.1
Refueling benefits
                                      1.6
                                      1.5
Increased travel benefits
                                      8.4
                                      8.2
   Total benefits
                                     114.7
                                     108.9
Net benefits b
                                     97.0
                                     91.5
            a Fuel savings includes fuel consumed during additional rebound driving.
            b Net benefits shown do not include benefits associated with carbon or other co-pollutant emission reductions, accidents/congestion/noise impacts, energy security, etc.

Table IX-37 MY2018-2029 Lifetime Aggregate Impacts of the Preferred Alternative on All HD Vehicle Buyers and Operators using Method B (billions of 2012$, discounted at 7%)

                                  Baseline 1b
Vehicle costs
                                     $16.6
Maintenance & repair costs
                                     $0.6
   Total costs
                                     $17.2
Fuel savings a
(valued at retail prices)
                                    $100.1
Refueling benefits
                                     $1.6
Increased travel benefits
                                     $8.2
   Total benefits
                                    $109.9
Net benefits b
                                     $92.7
                  a Fuel savings includes fuel consumed during additional rebound driving.
              b Net benefits shown do not include benefits associated with carbon or other co-pollutant emission reductions, accidents/congestion/noise impacts, energy security, etc.

As noted, the agencies also looked at the cost of owning an individual vehicle that complies with the preferred alternative standards and associated payback period  -  the point at which reduced fuel expenditures outpace increased vehicle costs.  For example, a new MY2027 tractor is estimated to cost roughly $11,684 more (on average, or roughly 12 percent of a typical $100,000 reference case tractor) due to the addition of new GHG reducing/fuel consumption improving technology.  This new technology would result in lower fuel consumption and, therefore, reduced fuel expenditures.  But how many months or years would pass before the reduced fuel expenditures would surpass the increased upfront costs?
Table IX-38 presents the discounted annual increased vehicle costs and fuel savings associated with owning a new MY2027 HD pickup or van using both 3 percent and 7 percent discount rates.  Table IX-39 and Table IX-40 show the same information for a MY2027 vocational vehicle and a tractor/trailer, respectively.  We have included sales taxes, excise taxes (for vocational and tractor/trailer) and increased insurance expenditures on the higher values vehicles.  We have also included maintenance costs associated with replacement of lower rolling resistance tires throughout the lifetimes of affected vehicles.  Importantly, the values behind the tables in this payback analysis do not include rebound miles driven and/or rebound gallons consumed.  Instead, the tables use reference case miles driven combined with policy case fuel consumption.  We detail these input metrics in Chapter 7 of the draft RIA.
The fuel expenditure column uses retail fuel prices specific to gasoline and diesel fuel as projected in AEO2014.  This payback analysis does not include other impacts, such as reduced refueling events, the value of driving potential rebound miles, or noise, congestion and accidents. We use retail fuel prices and exclude these other private and social impacts because the focus is meant to be on those factors that buyers think about most while considering a new vehicle purchase and those factors that result in more or fewer dollars in their pockets.
As shown, payback would occur in the 3rd year of ownership for HD pickups and vans (the first year where cumulative net costs turn negative), in the 5th year for vocational vehicles and early in the 2nd year for tractor/trailers. Note that each table reflects the average vehicle and reflects proper weighting of fuel consumption/costs (gasoline vs. diesel).  We request comment and supporting data on all aspects of our payback analysis.
Table IX-38 Discounted Annual Incremental Expenditures for a MY2027 HD Pickup or Van using Method B and Relative to the Less Dynamic Baseline (2012$)
                                 Age in years
                               3% Discount Rate
                               7% Discount Rate

                                   Vehiclea
                                   Maint[b]
                                     Fuelc
                                  Cumulative
                                      Net
                                   Vehiclea
                                   Maint[b]
                                     Fuelc
                                  Cumulative
                                      Net
                                       1
                                                                         $1,587
                                                                             $4
                                                                          -$759
                                                                           $832
                                                                         $1,558
                                                                             $3
                                                                          -$745
                                                                           $817
                                       2
                                                                            $25
                                                                             $3
                                                                          -$734
                                                                           $126
                                                                            $23
                                                                             $3
                                                                          -$694
                                                                           $150
                                       3
                                                                            $23
                                                                             $3
                                                                          -$714
                                                                          -$561
                                                                            $21
                                                                             $3
                                                                          -$649
                                                                          -$476
                                       4
                                                                            $22
                                                                             $3
                                                                          -$693
                                                                        -$1,229
                                                                            $19
                                                                             $3
                                                                          -$606
                                                                        -$1,060
                                       5
                                                                            $20
                                                                             $3
                                                                          -$651
                                                                        -$1,857
                                                                            $17
                                                                             $2
                                                                          -$549
                                                                        -$1,590
                                       6
                                                                            $19
                                                                             $3
                                                                          -$611
                                                                        -$2,446
                                                                            $15
                                                                             $2
                                                                          -$496
                                                                        -$2,067
                                       7
                                                                            $18
                                                                             $2
                                                                          -$571
                                                                        -$2,997
                                                                            $14
                                                                             $2
                                                                          -$446
                                                                        -$2,497
                                       8
                                                                            $16
                                                                             $2
                                                                          -$536
                                                                        -$3,514
                                                                            $12
                                                                             $2
                                                                          -$403
                                                                        -$2,886
Notes:
a Includes new technology costs, insurance costs and sales taxes.
b Maintenance costs.
c Uses AEO2014 retail fuel prices.

Table IX-39 Discounted Annual Incremental Expenditures for a MY2027 Vocational Vehicle using Method B and Relative to the Less Dynamic Baseline (2012$)
                                 Age in years
                               3% Discount Rate
                               7% Discount Rate

                                   Vehiclea
                                   Maint[b]
                                     Fuelc
                                  Cumulative
                                      Net
                                   Vehiclea
                                   Maint[b]
                                     Fuelc
                                  Cumulative
                                      Net
                                       1
                                                                         $3,998
                                                                            $10
                                                                          -$965
                                                                         $3,043
                                                                         $3,924
                                                                            $10
                                                                          -$947
                                                                         $2,987
                                       2
                                                                            $63
                                                                             $9
                                                                          -$937
                                                                         $2,178
                                                                            $59
                                                                             $9
                                                                          -$885
                                                                         $2,169
                                       3
                                                                            $59
                                                                             $9
                                                                          -$914
                                                                         $1,331
                                                                            $53
                                                                             $8
                                                                          -$832
                                                                         $1,399
                                       4
                                                                            $55
                                                                             $9
                                                                          -$891
                                                                           $504
                                                                            $48
                                                                             $8
                                                                          -$780
                                                                           $675
                                       5
                                                                            $51
                                                                             $8
                                                                          -$829
                                                                          -$265
                                                                            $43
                                                                             $7
                                                                          -$699
                                                                            $27
                                       6
                                                                            $48
                                                                             $7
                                                                          -$771
                                                                          -$981
                                                                            $39
                                                                             $6
                                                                          -$625
                                                                          -$554
                                       7
                                                                            $45
                                                                             $7
                                                                          -$716
                                                                        -$1,645
                                                                            $35
                                                                             $5
                                                                          -$559
                                                                        -$1,073
                                       8
                                                                            $42
                                                                             $6
                                                                          -$667
                                                                        -$2,264
                                                                            $31
                                                                             $5
                                                                          -$501
                                                                        -$1,538
Notes:
a Includes new technology costs, insurance costs, excise and sales taxes.
b Maintenance costs.
c Uses AEO2014 retail fuel prices.

Table IX-40 Discounted Annual Incremental Expenditures for a MY2027 Tractor/Trailer using Method B and Relative to the Less Dynamic Baseline (2012$)
                                 Age in years
                               3% Discount Rate
                               7% Discount Rate

                                   Vehiclea
                                   Maint[b]
                                     Fuelc
                                  Cumulative
                                      Net
                                   Vehiclea
                                   Maint[b]
                                     Fuelc
                                  Cumulative
                                      Net
                                       1
                                                                        $15,194
                                                                            $48
                                                                       -$14,649
                                                                           $593
                                                                        $14,914
                                                                            $47
                                                                       -$14,379
                                                                           $582
                                       2
                                                                           $238
                                                                            $46
                                                                       -$14,204
                                                                       -$13,327
                                                                           $225
                                                                            $43
                                                                       -$13,421
                                                                       -$12,571
                                       3
                                                                           $223
                                                                            $44
                                                                       -$13,809
                                                                       -$26,869
                                                                           $203
                                                                            $40
                                                                       -$12,561
                                                                       -$24,889
                                       4
                                                                           $209
                                                                            $42
                                                                       -$13,416
                                                                       -$40,034
                                                                           $183
                                                                            $37
                                                                       -$11,746
                                                                       -$36,415
                                       5
                                                                           $195
                                                                            $39
                                                                       -$12,391
                                                                       -$52,191
                                                                           $164
                                                                            $33
                                                                       -$10,443
                                                                       -$46,661
                                       6
                                                                           $182
                                                                            $35
                                                                       -$11,411
                                                                       -$63,385
                                                                           $148
                                                                            $29
                                                                        -$9,258
                                                                       -$55,743
                                       7
                                                                           $170
                                                                            $32
                                                                       -$10,511
                                                                       -$73,694
                                                                           $133
                                                                            $25
                                                                        -$8,209
                                                                       -$63,794
                                       8
                                                                           $158
                                                                            $29
                                                                        -$9,704
                                                                       -$83,211
                                                                           $119
                                                                            $22
                                                                        -$7,295
                                                                       -$70,949
Notes:
a Includes new technology costs, insurance costs, excise and sales taxes.
b Maintenance costs.
c Uses AEO2014 retail fuel prices.

I.  Analysis of the Alternatives
As discussed throughout this preamble, in developing this proposal the agencies considered a number of regulatory alternatives that could result in potentially fewer or greater GHG emission and fuel consumption reductions than the program we are proposing.  This section summarizes the alternatives we considered and presents estimates of technology costs, CO2 reductions, fuel savings, and other costs and benefits associated with each alternative.  The agencies request comment on each of these alternatives, as well as other potential levels of stringency and implementation timing.  Note that since the impacts of these alternatives differ among the various heavy-duty vehicle categories, commenters are encouraged to address the alternatives separately for each vehicle category.
In developing alternatives, both agencies must consider a range of stringency.  NHTSA must consider EISA's requirement for the MD/HD fuel efficiency program.  In particular, 49 U.S.C. 32902(k)(2) and (3) contain the following three requirements specific to the MD/HD vehicle fuel efficiency improvement program: (1) The program must be "designed to achieve the maximum feasible improvement"; (2) the various required aspects of the program must be appropriate, cost-effective, and technologically feasible for MD/HD vehicles; and (3) the standards adopted under the program must provide not less than four model years of lead time and three model years of regulatory stability. In considering these various requirements, NHTSA will also account for relevant environmental and safety considerations.
As explained in the Phase 1 rule, NHTSA has broad discretion in balancing the above factors in determining the improvement that the manufacturers can achieve. The fact that the factors may often be conflicting gives NHTSA significant discretion to decide what weight to give each of the competing policies and concerns and then determine how to balance them -- as long as NHTSA's balancing does not undermine the fundamental purpose of the EISA: energy conservation, and as long as that balancing reasonably accommodates ``conflicting policies that were committed to the agency's care by the statute."
EPA also has significant discretion in considering a range of stringency.  Section 202(a)(2) of the Clean Air Act requires only 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.  See 76 FR 57129-130.
As discussed in this Preamble's Sections II (engines), III (tractors), IV (trailers), V (vocational vehicles), and VI (pickups and vans), although NHTSA and EPA are proposing Alternative 3 for each vehicle category, we have also closely examined the potential feasibility of Alternative 4 for each category, and specifically direct commenters' attention to the analysis and discussions contained in those sections for both Alternatives 3 and 4.  As discussed in those sections, if we reanalyze relevant existing information or receive relevant comments or new information between the proposal and final rule that supports a more accelerated implementation of the proposed standards, the agencies may consider establishing final fuel consumption and GHG standards at the Alternative 4 levels and timing if we deem them to be maximum feasible and reasonable for NHTSA and EPA, respectively.  This Section X describes all of the alternatives considered, and provides context for the relative stringency, costs, and benefits associated with Alternatives 3 and 4, as compared to the other alternatives.  The agencies seek comment on all of the alternatives, as well as whether we should consider more, fewer or different alternatives for the final rule analysis.
A.    What Are the Alternatives that the Agencies Considered?
The five alternatives below represent a broad range of potential stringency levels, and thus a broad range of associated technologies, costs and benefits for a HD vehicle fuel efficiency and GHG emissions program.  All of the alternatives were modeled using the same methodologies described in Chapter 5 of the draft RIA.  The alternatives in order of increasing fuel efficiency and GHG emissions reductions are as follows:
     (1)     Alternative 1: No Action (the Baseline for Phase 2)
OMB guidance regarding regulatory analysis indicates that proper evaluation of the benefits and costs of regulations and their alternatives requires agencies to identify a baseline:
      "You need to measure the benefits and costs of a rule against a baseline. This baseline should be the best assessment of the way the world would look absent the proposed action. The choice of an appropriate baseline may require consideration of a wide range of potential factors, including:
      :: evolution of the market,
      :: changes in external factors affecting expected benefits and costs,
      :: changes in regulations promulgated by the agency or other government entities, and
      :: the degree of compliance by regulated entities with other regulations.
      It may be reasonable to forecast that the world absent the regulation will resemble the present. If this is the case, however, your baseline should reflect the future effect of current government programs and policies. For review of an existing regulation, a baseline assuming no change in the regulatory program generally provides an appropriate basis for evaluating regulatory alternatives. When more than one baseline is reasonable and the choice of baseline will significantly affect estimated benefits and costs, you should consider measuring benefits and costs against alternative baselines. In doing so you can analyze the effects on benefits and costs of making different assumptions about other agencies' regulations, or the degree of compliance with your own existing rules. In all cases, you must evaluate benefits and costs against the same baseline. You should also discuss the reasonableness of the baselines used in the sensitivity analyses. For each baseline you use, you should identify the key uncertainties in your forecast."
A no-action alternative is also required as a baseline against which to measure environmental impacts of the proposed standards and alternatives. NHTSA, as required by the National Environmental Policy Act, is documenting these estimated impacts in the draft EIS published with this NPRM.
As discussed later in this section, the agencies are requesting comment on Alternative 1 in order to ensure an appropriate analytical baseline (also termed `reference case') for the Phase 2 rulemaking.  Alternative 1 is an analytical tool, but, as discussed below, no new standards beyond Phase 1 is not a potential outcome of the Phase 2 rulemaking, as that outcome would not meet the requirements of either EISA or the CAA.
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. That is, this alternative assumes that the Phase 1 MD/HD fuel efficiency and GHG emissions program's model year 2018 standards would be extended indefinitely and without change.
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.
Another factor the agencies considered is that other federal and state-level policies and programs are specifically aimed at stimulating fuel efficiency technology development and deployment.  Particularly relevant to this sector are DOE's 21[st] Century Truck Partnership, EPA's voluntary SmartWay Transport program, and California's AB32 fleet requirements.[,][,]  The future availability of more cost-effective technologies to reduce fuel consumption could provide manufacturers an incentive to produce more fuel-efficient medium- and heavy-duty vehicles, which in turn could provide customers an incentive to purchase these vehicles.  The availability of more cost-effective technologies to reduce fuel consumption could also lead to a substitution of less cost-effective technologies, where overall fuel efficiency could remain fairly flat if buyers are less interested in fuel consumption improvements than in reduced vehicle purchase prices and/or improved vehicle performance and/or utility.
Although we have estimated the cost and efficacy of fuel-saving technologies assuming performance and utility will be held constant, some uncertainty remains regarding whether these conditions will actually be observed.  In particular, we have assumed payload will be preserved (and possibly improved via reduced vehicle curb weight); however, some fuel-saving technologies, such as natural gas fueled vehicles and hybrid electric vehicles, could reduce payload via increased curb weight due to the fuel tanks or added electrical machine, batteries and controls.  It is also possible that under extended high power demand resulting from a vehicle towing up a road grade, certain types of hybrid powertrains could experience a temporary loss of towing capacity if the capacity of the hybrid's energy storage device (e.g., batteries, hydraulic accumulator) is insufficient for the extended power demand. We have also assumed that fuel-saving technologies will be no more or less reliable than technologies already in production.  However, if manufacturers pursue risky technologies or if the agencies provide insufficient lead-time to fully develop new technologies, they could prove to be less reliable, perhaps leading to increased repair costs and out-of-service time.  This was observed as an unintended consequence of certain manufacturers' initial introduction of certain emissions control technologies to meet EPA's most stringent heavy-duty engine standards.  If the fuel-saving technologies considered here ultimately involve similar reliability problems, overall costs will be greater than we have estimated.  We have assumed drivers will be as accepting of new fuel-saving technologies as they are of technologies already in service.  However, drivers could be less accepting of newer technologies -- particularly any that must be deployed manually.  Except for increased costs to replace more efficient tires, we have assumed that routine maintenance costs will not increase or decrease. However, maintenance of new technologies could involve unique tools and parts.  Therefore, maintenance costs could increase, and maintenance could involve increased vehicle out-of-service time.  On the other hand new technologies can sometimes prove to be more reliable and require less maintenance than the technologies they replace.  One example of this is the auxiliary power unit (APU) frequently installed on heavy-duty sleeper cab tractors.  In the past these have been typically powered by small nonroad diesel engines that can require more frequent maintenance than the main engine of the tractor itself.  However, more recently, as electric battery technology has advanced, some tractor manufacturers have introduced battery APUs instead of engine-driven APUs.  A comparison of recent sales of small engine driven APUs versus battery APUs suggests that customers may prefer battery APUs, and some operators and tractor dealerships have also told the agencies that the decrease in routine maintenance was an important factor in purchase decisions in favor of battery APUs.  Again, insofar as these unaccounted-for costs or savings actually occur, overall costs could be larger or smaller than we have estimated.  We have also applied the EIA's AEO estimates of future fuel prices; however, heavy-duty vehicle customers could be uncertain that fuel prices will rise, thereby reducing the extent to which applying new technology to reduce fuel consumption will lead to a reduced total cost of ownership and dampening enthusiasm for that new technology.
Considering all of these factors, the agencies have approached the definition of the No Action Alternative separately for each vehicle and engine category covered by today's proposal.
For trailers, the agencies considered two No Action alternatives to cover a nominal range of uncertainty. The trailer category is unique in the context of this rulemaking because it is the only heavy-duty category not regulated under Phase 1.  In both No Action cases, the agencies projected that the combination of EPA's voluntary SmartWay program, DOE's 21[st] Century Truck Partnership, California's AB32 trailer requirements for fleets, and the potential for significantly reduced operating costs should result in continuing improvement to new trailers.  Taking this into account, the agencies project that in 2018, 50 percent of new 53' dry van and reefer trailers would have technologies qualifying for the SmartWay label (5 percent aerodynamic improvements and lower rolling resistance tires) and 50 percent would have automatic tire inflation systems to maintain optimal tire pressure.  We also project that adoption of those same technologies would increase 1 percent per year until each technology is being used on 60 percent of new trailers.  In the first case, Alternative 1a, this means that the agencies project that in the absence of new standards, the new trailer fleet technology would stabilize in 2027 to a level of 60 percent adoption in 2027 for the No Action alternative.  In the second case, Alternative 1b, the agencies projected that the fraction of the in-use fleet qualifying for SmartWay would continue to increase beyond 2027 as older trailers are replaced by newer trailers.  We projected that these improvements would continue until 2040 when 75 percent of new trailers would be assumed to include skirts.
For vocational vehicles, the agencies considered one No Action alternative.  For the vocational vehicle category the agencies recognized that these vehicles tend to operate over fewer vehicle miles travelled per year.  Therefore, the projected payback periods for fuel efficiency technologies available for vocational vehicles are generally longer than the payback periods the agencies consider likely to lead to their adoption based solely on market forces.  This is especially true for vehicles used in applications in which the vehicle operation is secondary to the primary business of the company using the vehicle.  For example, since the fuel consumption of vehicles used by utility companies to repair power lines would generally be a smaller cost relative to the other costs of repairing lines, fuel saving technologies would generally not be as strongly demanded for such vehicles.  Thus, the agencies project that fuel-saving technologies would either not be applied or only be applied as a substitute for more expensive fuel efficiency technologies, except as necessitated by the Phase 1 fuel consumption and GHG standards.
For tractors, the agencies considered two No Action alternatives to cover a nominal range of uncertainty.  For Alternative 1a the agencies project that fuel-saving technologies would either not be applied or only be applied as a substitute for more expensive fuel efficiency technologies to tractors (thereby enabling manufacturers to offer tractors that are less expensive to purchase), except as necessitated by the Phase 1 fuel consumption and GHG standards. In Alternative 1b the agencies estimated that some available technologies would save enough fuel to pay back fairly quickly  -  within the first six months of ownership.  The agencies considered a range of information to formulate these two baselines for tractors.
Both public and confidential historical information shows that tractor trailer fuel efficiency improved steadily through improvements in engine efficiency and vehicle aerodynamics over the past 40 years, except for engine efficiency which decreased or was flat between 2000 and approximately 2007 as a consequence of incorporating technologies to meet engine emission regulations.  And today vehicle manufacturers, the Federal Government, academia and others continue to invest in research to develop fuel efficiency improving technologies for the future.
There is also evidence that manufacturers have, in the past, applied technologies to improve fuel efficiency absent a regulatory requirement to do so.  Some manufacturers have even taken regulatory risk in order to increase fuel efficiency; in the 1990s, when fuel was comparatively inexpensive, some tractor manufacturers designed tractor engine controls to determine when the vehicle was not being emissions tested and, under such conditions, shift to more fuel-efficient operation even though doing so caused the vehicles to violate federal standards for NOx emissions.  Also, some manufacturers have recently expressed concern that the Phase I tractor standards do not credit them for fuel-saving technologies they had already implemented before the Phase I standards were adopted.
	In public meetings and in meetings with the agencies, the trucking industry stated that fuel cost for tractors is the number one or number two expense for many operators, and therefore is a very important factor for their business.  However, the pre-Phase 1 market suggests that, tractor manufacturers and operators could be slow to adopt some new technologies, even where the agencies have estimated that the technology would have paid for itself within a few months of operation.  Tractor operators have told the agencies they generally require technologies to be demonstrated in their fleet before widespread adoption so they can assess the actual fuel savings for their fleet and any increase in cost associated with effects on vehicle operation, maintenance, reliability, mechanic training, maintenance and repair equipment, stocking unique parts and driver acceptance, as well as effects on vehicle resale value.  Tractor operators have publicly stated they would consider conducting an assessment of technologies when provided with data that show the technologies may payback costs through fuel savings within 18 to 24 months, based on their assumptions about future fuel costs.  In these cases, an operator may first conduct a detailed paper study of anticipated costs and benefits.  If that study shows likely payback in 18 to 24 months for their business, the fleet may acquire one or several tractors with the technology to directly measure fuel savings, costs and driver acceptance for their fleet.  Small fleets may not have resources to conduct assessments to this degree and may rely on information from larger fleets or observations of widespread acceptance of the technology within the industry before adopting a technology.  This uncertainty over the actual fuel savings and costs and the lengthy process to assess technologies significantly slows the pace at which fuel efficiency technologies are adopted.
The agencies believe that using the two baselines addresses the uncertainties we have identified for tractors.  The six-month payback period of Alternative 1b reflects the agencies' consideration of factors, discussed above, that could limit -- yet not eliminate -- manufacturers' tendencies to voluntarily improve fuel consumption.  In contrast, Alternative 1a reflects a baseline wherein manufacturers either do not apply fuel efficiency technologies or only apply them as a substitute for more expensive fuel efficiency technologies, except as necessitated by the Phase 1 fuel consumption and GHG standards.
For HD pickups and vans, the agencies considered two No Action alternatives to cover a nominal range of uncertainty. In Alternative 1b the agencies considered additional technology application, which involved the explicit estimation of the potential to add specific fuel-saving technologies to each specific vehicle model included in the agencies' HD pickup and van fleet analysis, as discussed in Chapter VI.  Estimated technology application and corresponding impacts depend on the modeled inputs.  Also, under this approach a manufacturer that has improved fuel consumption and GHG emissions enough to achieve compliance with the standards is assumed to apply further improvements, provided those improvements reduce fuel outlays by enough (within a specified amount of time, the payback period) to offset the additional costs to purchase the new vehicle.  These calculations explicitly account for and respond to fuel prices, vehicle survival and mileage accumulation, and the cost and efficacy of available fuel-saving technologies.  Therefore, all else being equal, more technology is applied when fuel prices are higher and/or technology is more cost-effective.  Manufacturers of HD pickups and vans have reported to the agencies that buyers of these vehicles consider the total cost of vehicle ownership, not just new vehicle price, and that manufacturers plan as if buyers will expect fuel consumption improvements to "pay back" within periods ranging from approximately one to three years.  For example, some manufacturers made decisions to introduce more efficient HD vans and HD pickup transmissions before such vehicles were subject to fuel consumption and/or GHG standards.  However, considering factors discussed above that could limit manufacturers' tendency to voluntarily improve HD pickup and van fuel consumption, Alternative 1b applies a 6-month payback period.  In contrast for Alternative 1a the agencies project that fuel-saving technologies would either not be applied or only be applied as a substitute for more expensive fuel efficiency technologies, except as necessitated by the Phase 1 fuel consumption and GHG standards.  In terms of impacts under reference case fuel prices, the payback period input plays a more significant role under the No-Action Alternatives (defined by a continuation of model year 2018 standards) than under the more stringent regulatory alternatives described next.
     (2)     Alternative 2: Less Stringent than the Preferred Alternative
For vocational vehicles and combination tractor-trailers, Alternative 2 represents a stringency level which is approximately half as stringent overall as the preferred alternative.  The agencies developed Alternative 2 to consider a continuation of the Phase 1 approach of applying off-the-shelf technologies rather than requiring the development of new technologies or fundamental improvements to existing technologies.  For tractors and vocational vehicles, this also involved less integrated optimization of the vehicles and engines.  Put another way, Alternative 2 is not technology-forcing.  See, e.g., Sierra Club v. EPA, 325 F. 3d 374, 378 (D.C. Cir. 2003) (under a technology-forcing provision, EPA "must consider future advances in pollution control capability"); see also similar discussion in Husqvarna AB v. EPA, 254 F. 3d 195, 201 (D.C. Cir. 2001).
The agencies' decisions regarding which technologies could be applied to comply with Alternative 2 considered not only assuming the use of only off-the shelf technologies, but also considered other factors as well, such as how broadly certain technologies fit in-use applications and regulatory structure.   The resulting Alternative 2 could be met with most of the same technologies the agencies project could be used to meet the proposed standards, although at lower application rates.  Alternative 2 is estimated to be achievable without the application of some technologies, at any level.  These and other differences are described below by category.
The agencies project that Alternative 2 combination tractor standards could be met by applying lower adoption rates of the projected technologies for Alternative 3.  This includes a projection of slightly lower per-technology effectiveness for Alternative 2 versus 3.   Alternative 2 also assumes that there would be little optimization of combination tractor powertrains.