particulate matter is deposited to soils,

water, and biota.\767\ Deposition of heavy metals or other toxics may
lead to the human ingestion of contaminated fish, impairment of
drinking water, damage to terrestrial, freshwater and marine ecosystem
components, and limits to recreational uses. Atmospheric deposition has
been identified as a key component of the environmental and human
health hazard posed by several pollutants including mercury, dioxin and
PCBs.\768\
---------------------------------------------------------------------------

    \767\ U.S. EPA. Integrated Science Assessment for Particulate
Matter (Final Report). U.S. Environmental Protection Agency,
Washington, DC, EPA/600/R-08/139F, 2009.
    \768\ U.S. EPA. (2000). Deposition of Air Pollutants to the
Great Waters: Third Report to Congress. Office of Air Quality
Planning and Standards. EPA-453/R-00-0005.
---------------------------------------------------------------------------

    The ecological effects of acidifying deposition and nutrient
enrichment are detailed in the Integrated Science Assessment for Oxides
of Nitrogen and Sulfur-Ecological Criteria.\769\ Atmospheric deposition
of nitrogen and sulfur contributes to acidification, altering
biogeochemistry and affecting animal and plant life in terrestrial and
aquatic ecosystems across the United States. The sensitivity of
terrestrial and aquatic ecosystems to acidification from nitrogen and
sulfur deposition is predominantly governed by geology. Prolonged
exposure to excess nitrogen and sulfur deposition in sensitive areas
acidifies lakes, rivers, and soils. Increased acidity in surface waters
creates inhospitable conditions for biota and affects the abundance and
biodiversity of fishes, zooplankton, macroinvertebrates, and ecosystem
function. Over time, acidifying deposition also removes essential
nutrients from forest soils, depleting the capacity of soils to
neutralize future acid loadings and negatively affecting forest
sustainability. Major effects in forests include a decline in sensitive
tree species, such as red spruce (Picea rubens) and sugar maple (Acer
saccharum). In addition to the role nitrogen deposition plays in
acidification, nitrogen deposition also leads to nutrient enrichment
and altered biogeochemical cycling. In aquatic systems increased
nitrogen can alter species assemblages and cause eutrophication. In
terrestrial systems nitrogen loading can lead to loss of nitrogen-
sensitive lichen species, decreased biodiversity of grasslands, meadows
and other sensitive habitats, and increased potential for invasive
species.
---------------------------------------------------------------------------

    \769\ NOX and SOX secondary ISA U.S. EPA.
Integrated Science Assessment (ISA) for Oxides of Nitrogen and
Sulfur Ecological Criteria (Final Report). U.S. Environmental
Protection Agency, Washington, DC, EPA/600/R-08/082F, 2008.
---------------------------------------------------------------------------

    Building materials including metals, stones, cements, and paints
undergo natural weathering processes from exposure to environmental
elements (e.g., wind, moisture, temperature fluctuations, sunlight,
etc.). Pollution can worsen and accelerate these effects. Deposition of
PM is associated with both physical damage (materials damage effects)
and impaired aesthetic qualities (soiling effects). Wet and dry
deposition of PM can physically affect materials, adding to the effects
of natural weathering processes, by potentially promoting or
accelerating the corrosion of metals, by degrading paints and by
deteriorating building materials such as stone, concrete and
marble.\770\ The effects of PM are exacerbated by the presence of
acidic gases and can be additive or synergistic due to the complex
mixture of pollutants in the air and surface characteristics of the
material. Acidic deposition has been shown to have an effect on
materials including zinc/galvanized steel and other metal, carbonate
stone (as monuments and building facings), and surface coatings
(paints).\771\ The effects on historic buildings and outdoor works of
art are of particular concern because of the uniqueness and
irreplaceability of many of these objects.
---------------------------------------------------------------------------

    \770\ U.S. Environmental Protection Agency (U.S. EPA). 2009.
Integrated Science Assessment for Particulate Matter (Final Report).
EPA-600-R-08-139F. National Center for Environmental Assessment--RTP
Division. December. Available on the internet at http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=216546.
    \771\ Irving, P.M., e.d. 1991. Acid Deposition: State of Science
and Technology, Volume III, Terrestrial, Materials, Health, and
Visibility Effects, The U.S. National Acid Precipitation Assessment
Program, Chapter 24, page 24-76.
---------------------------------------------------------------------------

(d) Environmental Effects of Air Toxics
    Emissions from producing, transporting, and combusting fuel
contribute to ambient levels of pollutants that contribute to adverse
effects on vegetation. Volatile organic compounds, some of which are
considered air toxics, have long been suspected to play a role in
vegetation damage.\772\ In laboratory experiments, a wide range of
tolerance to VOCs has been observed.\773\ Decreases in harvested seed
pod weight have been reported for the more sensitive plants, and some
studies have reported effects on seed germination, flowering and fruit
ripening. Effects of individual VOCs or their role in conjunction with
other stressors (e.g., acidification, drought, temperature extremes)
have not been well studied. In a recent study of a mixture of VOCs
including ethanol and toluene on herbaceous plants, significant effects
on seed production, leaf water content, and photosynthetic efficiency
were reported for some plant species.\774\
---------------------------------------------------------------------------

    \772\ U.S. EPA. (1991). Effects of organic chemicals in the
atmosphere on terrestrial plants. EPA/600/3-91/001.
    \773\ Cape J. N., Leith, I. D., Binnie, J., Content, J., Donkin,
M., Skewes, M., Price, D. N., Brown, A. R., & Sharpe, A. D. (2003).
Effects of VOCs on herbaceous plants in an open-top chamber
experiment. Environmental Pollution. 124:341-343.
    \774\ Cape, J. N., Leith, I. D., Binnie, J., Content, J.,
Donkin, M., Skewes, M., Price, D. N., Brown, A. R., & Sharpe, A. D.
(2003). Effects of VOCs on herbaceous plants in an open-top chamber
experiment. Environmental Pollution. 124:341-343.
---------------------------------------------------------------------------

    Research suggests an adverse impact of vehicle exhaust on plants,
which has in some cases been attributed to aromatic compounds and in
other cases to nitrogen oxides.775 776 777
---------------------------------------------------------------------------

    \775\ Viskari E. L. (2000). Epicuticular wax of Norway spruce
needles as indicator of traffic pollutant deposition. Water, Air,
and Soil Pollution. 121:327-337.
    \776\ Ugrekhelidze, D., Korte, F., & Kvesitadze, G. (1997).
Uptake and transformation of benzene and toluene by plant leaves.
Ecotox. Environ. Safety 37:24-29.
    \777\ Kammerbauer H., Selinger, H, on Rommelt, R., Ziegler-Jons,
A., Knoppik, D., & Hock, B. (1987). Toxic components of motor
vehicle emissions for the spruce Picea abies. Environmental
Pollution. 48:235-243.
---------------------------------------------------------------------------

F. Air Quality Impacts of Non-GHG Pollutants

    Changes in emissions of non-GHG pollutants due to these rules will
impact air quality. Information on current air quality and the results
of our air quality modeling of the projected impacts of these rules are
summarized in the following section.
1. Current Concentrations of Non-GHG Pollutants
    Nationally, levels of PM2.5, ozone, NOX,
SOX, CO, and air toxics have declined significantly in the
last 30 years and are continuing to drop as previously promulgated
regulations come into full effect. However, as of April 22, 2016, more
than 125 million people lived in counties designated nonattainment for
one or more of the NAAQS, and this figure does not include the people
living in areas with a risk of exceeding a NAAQS in the future. Many
Americans continue to be exposed to ambient concentrations of air
toxics at levels which have the potential to cause adverse health
effects. In addition, populations who live, work, or attend school near
major roads experience elevated exposure concentrations to a wide range
of air pollutants.

(a) Particulate Matter
    There are two primary NAAQS for PM2.5: An annual
standard (12.0 micrograms per cubic meter ([mu]g/m3)) set in 2012 and a
24-hour standard (35 [mu]g/m3) set in 2006, and two secondary NAAQS for
PM2.5: An annual standard (15.0 [mu]g/m3) set in 1997 and a
24-hour standard (35 [mu]g/m3) set in 2006.
    There are many areas of the country that are currently in
nonattainment for the annual and 24-hour primary PM2.5
NAAQS. As of April 22, 2016, more than 23 million people lived in the
seven areas that are still designated as nonattainment for the 1997
annual PM2.5 NAAQS. These PM2.5 nonattainment
areas are comprised of 33 full or partial counties. As of April 22,
2016, nine areas aredesignated as nonattainment for the 2012 annual
PM2.5 NAAQS; these areas are composed of 20 full or partial
counties with a population of more than 23 million. As of April 22,
2016, 16 areas are designated as nonattainment for the 2006 24-hour
PM2.5 NAAQS, these areas are composed of 46 full or partial
counties with a population of more than 32 million. In total, there are
currently 24 PM2.5 nonattainment areas with a population of
more than 39 million people.
    The EPA has already adopted many mobile source emission control
programs that are expected to reduce ambient PM concentrations. As a
result of these and other federal, state and local programs, the number
of areas that fail to meet the PM2.5 NAAQS in the future is
expected to decrease. However, even with the implementation of all
current state and federal regulations, there are projected to be
counties violating the PM2.5 NAAQS well into the future.
States will need to meet the 2006 24-hour standards in the 2015-2019
timeframe and the 2012 primary annual standard in the 2021-2025
timeframe. Ozone
    The primary and secondary NAAQS for ozone are eight-hour standards
with a level of 0.07 ppm. The most recent revision to the ozone
standards was in 2015; the previous eight-hour ozone primary standard,
set in 2008, had a level of 0.075 ppm. As of April 22, 2016, there were
44 ozone nonattainment areas for the 2008 ozone NAAQS, composed of 216
full or partial counties, with a population of more than 120 million.
    States with ozone nonattainment areas are required to take action
to bring those areas into attainment. The attainment date assigned to
an ozone nonattainment area is based on the area's classification. The
attainment dates for areas designated nonattainment for the 2008 eight-
hour ozone NAAQS are in the 2015 to 2032 timeframe, depending on the
severity of the problem in each area. Nonattainment area attainment
dates associated with areas designated for the 2015 NAAQS will be in
the 2020-2037 timeframe, depending on the severity of the problem in
each area.
    EPA has already adopted many emission control programs that are
expected to reduce ambient ozone levels. As a result of these and other
federal, state and local programs, eight-hour ozone levels are expected
to improve in the future. However, even with the implementation of all
current state and federal regulations, there are projected to be
counties violating the ozone NAAQS well into the future.
(b) Nitrogen Dioxide
    On April 6, 2018, based on a review of the full body of scientific
evidence, EPA issued a decision to retain the current national ambient
air quality standards (NAAQS) for oxides of nitrogen (NOX).
The EPA has concluded that the current NAAQS protect the public health,
including the at-risk populations of older adults, children and people
with asthma, with an adequate margin of safety. The NAAQS for nitrogen
oxides are a one-hour standard at a level of 100 ppb based on the
three-year average of 98th percentile of the yearly distribution of
one-hour daily maximum concentrations, and an annual standard at a
level of 53 ppb.
(c) Sulfur Dioxide
    The EPA is currently reviewing the primary SO2 NAAQS and
has proposed to retain the current primary standard (83 FR 26752, June
8, 2018), which is a one-hour standard of 75 ppb established in June
2010. The EPA has been finalizing the initial area designations for the
2010 SO2 NAAQS in phases and completed designations for most
of the country in December 2017. The EPA is under a court order to
finalize initial designations by December 31, 2020, for a remaining set
of about 50 areas where states have deployed new SO2
monitoring networks. As of July 2018, the EPA has designated 42 areas
as nonattainment for the 2010 SO2 NAAQS in actions taken in
2013, 2016, and 2017.\778\ There also remain nine nonattainment areas
for the primary annual SO2 NAAQS set in 1971.
---------------------------------------------------------------------------

    \778\ 78 FR 47191, 81 FR 45049, 81 FR 89870, 83 FR 1098, and 83
FR 14597.
---------------------------------------------------------------------------

(d) Carbon Monoxide
    There are two primary NAAQS for CO: An eight-hour standard (9 ppm)
and a one-hour standard (35 ppm). The primary NAAQS for CO were
retained in August 2011. There are currently no CO nonattainment areas;
as of September 27, 2010, all CO nonattainment areas have been
redesignated to attainment.
    The past designations were based on the existing community-wide
monitoring network. EPA is making changes to the ambient air monitoring
requirements for CO. The new requirements are expected to result in
approximately 52 CO monitors operating near roads within 52 urban areas
by January 2015 (76 FR 54294, August 31, 2011).
(e) Diesel Exhaust PM
    Because DPM is part of overall ambient PM and cannot be easily
distinguished from overall PM, we do not have direct measurements of
DPM in the ambient air. DPM concentrations are estimated using ambient
air quality modeling based on DPM emission inventories. DPM emission
inventories are computed as the exhaust PM emissions from mobile
sources combusting diesel or residual oil fuel. DPM concentrations were
recently estimated as part of the 2011 NATA. Areas with high
concentrations are clustered in the Northeast, Great Lake States,
California, and the Gulf Coast States and are also distributed
throughout the rest of the U.S. The median DPM concentration calculated
nationwide is 0.76 [mu]g/m3.
(f) Air Toxics
    The most recent available data indicate that the majority of
Americans continue to be exposed to ambient concentrations of air
toxics at levels which have the potential to cause adverse health
effects. The levels of air toxics to which people are exposed vary
depending on where people live and work and the kinds of activities in
which they engage, as discussed in detail in EPA's most recent Mobile
Source Air Toxics Rule. According to the National Air Toxic Assessment
(NATA) for 2015, mobile sources were responsible for 50% of outdoor
anthropogenic toxic emissions and were the largest contributor to
cancer and noncancer risk from directly emitted pollutants. Mobile
sources are also large contributors to precursor emissions which react
to form air toxics. Formaldehyde is the largest contributor to cancer
risk of all 71 pollutants quantitatively assessed in the 2011

NATA. Mobile sources were responsible for more than 25% of primary
anthropogenic emissions of this pollutant in 2011 and are major
contributors to formaldehyde precursor emissions. Benzene is also a
large contributor to cancer risk, and mobile sources account for almost
80% of ambient exposure. Over the years, EPA has implemented a number
of mobile source and fuel controls which have resulted in VOC
reductions, which also reduced formaldehyde, benzene and other air
toxic emissions.
2. Air Quality Impacts of Non-GHG Pollutants
(a) Impacts of Proposed Standards on Future Ambient Concentrations of
PM2.5, Ozone and Air Toxics
    Full-scale photochemical air quality modeling is necessary to
accurately project levels of criteria pollutants and air toxics. For
the final rule, a national-scale air quality modeling analysis will be
performed to analyze the impacts of the standards on PM2.5,
ozone, and selected air toxics (i.e., benzene, formaldehyde,
acetaldehyde, acrolein and 1,3-butadiene). The length of time needed to
prepare the necessary emissions inventories, in addition to the
processing time associated with the modeling itself, has precluded us
from performing air quality modeling for this proposal.
    Section VI.D.2 of the preamble present projections of the changes
in criteria pollutant and air toxics emissions because of the proposed
vehicle standards; the basis for those estimates is set out in Chapter
10 of the PRIA. The atmospheric chemistry related to ambient
concentrations of PM2.5, ozone and air toxics is very
complex, and making predictions based solely on emissions changes is
extremely difficult.
3. Other Unquantified Health and Environmental Effects
    In addition, the agencies seek comment on whether there are any
other health and environmental impacts associated with advancements in
technologies that should be considered. For example, the use of
technologies and other strategies to reduce fuel consumption and/or GHG
emissions could have effects on a vehicle's life-cycle impacts (e.g.,
materials usage, manufacturing, end of life disposal), beyond the
issues regarding fuel production and distribution (upstream) GHG
emissions discussed in Section VI.D.2. The agencies seek comment on any
studies or research in this area that should be considered in the
future to assess a fuller range of health and environmental impacts
from the light-duty vehicle fleet shifting to different technologies
and/or materials. At this point, it is unclear whether there is
sufficient information about the lifecycle impacts of the myriad of
available technologies, materials, and cradle-to-grave pathways to
conduct the type of detailed assessments that would be needed in a
regulatory context, but the agencies seek comment on any current or
future studies and research underway on this topic, and how such
analysis could practicably and in a balanced way be integrated in the
modeling, especially considering the characterization of specific
vehicles in the analysis fleet and the characterization of specific
technology options.

G. What are the impacts on the total fleet size, usage, and safety?

1. CAFE Standards

[GRAPHIC] [TIFF OMITTED] TP24AU18.249

2. CO2 Standards

[GRAPHIC] [TIFF OMITTED] TP24AU18.250

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

1. Sensitivity Analysis
    As discussed at the beginning of this section, results presented
today reflect the agencies' best judgments regarding many different
factors. Based on analyses in past rulemakings, the agencies recognize
that some analytical inputs are especially uncertain, some are likely
to exert considerable influence over specific types of estimated
impacts, and some are likely to do so for the bulk of the analysis. To
explore the sensitivity of estimated impacts to changes in model
inputs, analysis was conducted using alternative values for a range of
different inputs. Results of this sensitivity analysis are summarized
below, and detailed model inputs and outputs are available on NHTSA's
website.\779\ Regulatory alternatives are identical across all cases,
except that one case includes an increase in civil penalty rate
starting in MY 2019; NHTSA may consider changing the civil penalty rate
in a separate regulatory action, and depending on the timing of any
such action, the final rule to follow today's proposal could reflect
the change.\780\ The following table lists the cases included in the
sensitivity analysis. The final rule could adopt any combination--or
none--of these alternatives as reference case inputs, and the agencies
invite comment on all of them.
---------------------------------------------------------------------------

    \779\ The CAFE model and all inputs and outputs supporting
today's proposal are available at https://www.nhtsa.gov/corporate-average-fuel-economy/compliance-and-effects-modeling-system.
    \780\ 83 FR 13904 (Apr. 2, 2018).

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

[GRAPHIC] [TIFF OMITTED] TP24AU18.251

[GRAPHIC] [TIFF OMITTED] TP24AU18.252

[GRAPHIC] [TIFF OMITTED] TP24AU18.253

    The remaining tables in the section summarize various estimated
impacts as estimated for all of the cases included in the sensitivity
analysis.
---------------------------------------------------------------------------

    \781\ Climate-related economic damages caused by emissions of
GHGs other than CO2 were estimated by converting those
emissions to their (mass) equivalents in CO2 emissions
and applying the per-ton damage costs used to monetize
CO2 emissions. Specifically, emissions of methane
(CH4) and nitrous oxide (N2O) were converted
to their equivalent in CO2 emissions using the 100-year
Global Warming Potentials (GWPs) for those gases, which are 25 for
CH4 and 298 for N2O. These GWPs were estimated
by the United Nations Intergovernmental Panel on Climate Change in
its 4th Assessment Report (available at https://www.ipcc.ch/publications_and_data/ar4/wg1/en/ch2s2-10-2.html; last accessed July
19, 2018). An alternative approach would be to develop direct
estimates of the climate damage costs for these GHGs derived using
the same process that was used to estimate the SCC, described
previously in PRIA Chapter 8.11.2 and the Appendix to Chapter 8. For
comparison, using the alternative approach results in estmates which
average $256 per (metric) ton for CH4 and $2,820 for
N2O over the analysis period, or about 22% and 13% higher
than the values used in this sensitivity case. A detailed
description of the methods used to construct these alternative
values is available in the docket for this rule. The agency will
consider using this alternative approach in its analysis supporting
the final rule.

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

[GRAPHIC] [TIFF OMITTED] TP24AU18.254

[GRAPHIC] [TIFF OMITTED] TP24AU18.255

[GRAPHIC] [TIFF OMITTED] TP24AU18.256

[GRAPHIC] [TIFF OMITTED] TP24AU18.257

[GRAPHIC] [TIFF OMITTED] TP24AU18.258

[GRAPHIC] [TIFF OMITTED] TP24AU18.259

[GRAPHIC] [TIFF OMITTED] TP24AU18.260

[GRAPHIC] [TIFF OMITTED] TP24AU18.261

[GRAPHIC] [TIFF OMITTED] TP24AU18.262

[GRAPHIC] [TIFF OMITTED] TP24AU18.263

[GRAPHIC] [TIFF OMITTED] TP24AU18.264

[GRAPHIC] [TIFF OMITTED] TP24AU18.265

[GRAPHIC] [TIFF OMITTED] TP24AU18.266

[GRAPHIC] [TIFF OMITTED] TP24AU18.267

VIII. Impacts of Alternative CAFE and CO2 Standards
Considered for MYs 2021/22-2026

    As discussed above, a range of regulatory alternatives are being
considered. Section III defines the proposed preferred alternative, and
Section IV defines the no-action alternative as well as the other seven
alternatives. The potential impacts of each alternative in each case
relative to the no-action alternative were estimated. For the preferred
alternative, these impacts are presented above on an incremental basis,
such that the impacts attributed separately to standards proposed in
each model year. To facilitate comparison of different alternatives,
total estimated impacts (i.e., summing impacts attributable to all
model years' standards) were calculated under each alternative.
    Tables in the remaining section summarize these estimated impacts
for each alternative, considering the same measures as shown above for
the preferred alternative. As for the preferred alternative, social
costs and benefits, private costs and benefits, and environmental and
energy impacts were evaluated, and were done so separately for CAFE and
CO2 standards defining each regulatory alternative. Also, as
for the preferred alternative, the compliance-related private costs and
benefits were evaluated separately for domestic and imported passenger
cars under CAFE standards but not under CO2 standards
because EPCA/EISA's requirement for separate compliance applies only to
CAFE standards.
    This analysis does not explicitly identify ``co-benefits'' from its
proposed action to change fuel economy standards, as such a concept
would include all benefits other than cost savings to vehicle buyers.
Instead, it distinguishes between private benefits--which include
economic impacts on vehicle manufacturers, buyers of new cars and light
trucks, and owners (or users) of used cars and light trucks--and
external benefits, which represent indirect benefits (or costs) to the

remainder of the U.S. economy that stem from the proposal's effects on
the behavior of vehicle manufacturers, buyers, and users. In this
accounting framework, changes in fuel use and safety impacts resulting
from the proposal's effects on the number of used vehicles in use
represent an important component of its private benefits and costs,
despite the fact that previous analyses have failed to recognize these
effects. The agency's presentation of private costs and benefits from
its proposed action clearly distinguishes between those that would be
experienced by owners and users of cars and light trucks produced
during previous model years, and those that would be experienced by
buyers and users of cars and light trucks produced during the model
years it would affect. Moreover, it clearly separates these into
benefits related to fuel consumption and those related to safety
consequences of vehicle use. This is more meaningful and informative
than simply identifying all impacts other than changes in fuel savings
to buyers of new vehicles as ``co-benefits.''
    Like the preferred alternative, all other alternatives involve
standards less stringent than the no-action alternative. Therefore, as
discussed above, incremental benefits and costs for each alternative
are negative--in other words, each alternative involves foregone
benefits and avoided costs. Environmental and energy impacts are
correspondingly negative, involving foregone avoided CO2
emissions and foregone avoided fuel consumption. For consistency with
past rulemakings, these are reported as negative values rather than as
additional CO2 emissions and additional fuel consumption.
    As discussed above, more detailed results are available in the PRIA
and DEIS accompanying today's notice, as well as in underlying model
output files posted on NHTSA's website.

A. What are the social costs and benefits of each alternative, relative
to the no-action alternative?

1. CAFE Standards

[GRAPHIC] [TIFF OMITTED] TP24AU18.268

[GRAPHIC] [TIFF OMITTED] TP24AU18.269

[GRAPHIC] [TIFF OMITTED] TP24AU18.270

[GRAPHIC] [TIFF OMITTED] TP24AU18.271

[GRAPHIC] [TIFF OMITTED] TP24AU18.272

[GRAPHIC] [TIFF OMITTED] TP24AU18.273

[GRAPHIC] [TIFF OMITTED] TP24AU18.274

[GRAPHIC] [TIFF OMITTED] TP24AU18.275

[GRAPHIC] [TIFF OMITTED] TP24AU18.276

[GRAPHIC] [TIFF OMITTED] TP24AU18.277

[GRAPHIC] [TIFF OMITTED] TP24AU18.278

[GRAPHIC] [TIFF OMITTED] TP24AU18.279

[GRAPHIC] [TIFF OMITTED] TP24AU18.280

[GRAPHIC] [TIFF OMITTED] TP24AU18.281

[GRAPHIC] [TIFF OMITTED] TP24AU18.282

[GRAPHIC] [TIFF OMITTED] TP24AU18.283

[GRAPHIC] [TIFF OMITTED] TP24AU18.284

[GRAPHIC] [TIFF OMITTED] TP24AU18.285

B. What are the private costs and benefits of each alternative,
relative to the no-action alternative?

1. What are the impacts on producers of new vehicles?
(a) CAFE Standards

[GRAPHIC] [TIFF OMITTED] TP24AU18.286

[GRAPHIC] [TIFF OMITTED] TP24AU18.287

[GRAPHIC] [TIFF OMITTED] TP24AU18.500

[GRAPHIC] [TIFF OMITTED] TP24AU18.501

[GRAPHIC] [TIFF OMITTED] TP24AU18.502

[GRAPHIC] [TIFF OMITTED] TP24AU18.503

[GRAPHIC] [TIFF OMITTED] TP24AU18.504

[GRAPHIC] [TIFF OMITTED] TP24AU18.505

[GRAPHIC] [TIFF OMITTED] TP24AU18.506

[GRAPHIC] [TIFF OMITTED] TP24AU18.507

[GRAPHIC] [TIFF OMITTED] TP24AU18.508

[GRAPHIC] [TIFF OMITTED] TP24AU18.509

[GRAPHIC] [TIFF OMITTED] TP24AU18.510

[GRAPHIC] [TIFF OMITTED] TP24AU18.511

[GRAPHIC] [TIFF OMITTED] TP24AU18.512

[GRAPHIC] [TIFF OMITTED] TP24AU18.513

[GRAPHIC] [TIFF OMITTED] TP24AU18.514

[GRAPHIC] [TIFF OMITTED] TP24AU18.515

[GRAPHIC] [TIFF OMITTED] TP24AU18.516

[GRAPHIC] [TIFF OMITTED] TP24AU18.517

(b) CO2 Standards

[GRAPHIC] [TIFF OMITTED] TP24AU18.518

[GRAPHIC] [TIFF OMITTED] TP24AU18.519

[GRAPHIC] [TIFF OMITTED] TP24AU18.520

[GRAPHIC] [TIFF OMITTED] TP24AU18.521

[GRAPHIC] [TIFF OMITTED] TP24AU18.522

[GRAPHIC] [TIFF OMITTED] TP24AU18.523

[GRAPHIC] [TIFF OMITTED] TP24AU18.524

[GRAPHIC] [TIFF OMITTED] TP24AU18.525

[GRAPHIC] [TIFF OMITTED] TP24AU18.526

2. What are the impacts on buyers of new vehicles?
(a) CAFE Standards

[GRAPHIC] [TIFF OMITTED] TP24AU18.527

[GRAPHIC] [TIFF OMITTED] TP24AU18.528

(b) CO2 Standards

[GRAPHIC] [TIFF OMITTED] TP24AU18.529

[GRAPHIC] [TIFF OMITTED] TP24AU18.530

C. What are the energy and environmental impacts?

1. CAFE Standards

[GRAPHIC] [TIFF OMITTED] TP24AU18.531

2. CO2 Standards

[GRAPHIC] [TIFF OMITTED] TP24AU18.532

[GRAPHIC] [TIFF OMITTED] TP24AU18.533

[GRAPHIC] [TIFF OMITTED] TP24AU18.534

[GRAPHIC] [TIFF OMITTED] TP24AU18.535

[GRAPHIC] [TIFF OMITTED] TP24AU18.536

D. What are the impacts on the total fleet size, usage, and safety?

1. CAFE Standards

[GRAPHIC] [TIFF OMITTED] TP24AU18.537

[GRAPHIC] [TIFF OMITTED] TP24AU18.538

    2. CO2 Standards

[GRAPHIC] [TIFF OMITTED] TP24AU18.539

[GRAPHIC] [TIFF OMITTED] TP24AU18.540

E. What are the Impacts on Employment?

    As discussed in Section II.E, the analysis includes estimates of
impacts on U.S. auto industry labor, considering the combined impact of
changes in sales volumes and changes in outlays for additional fuel-
saving technology. Note: This analysis does not consider the
possibility that potential new jobs and plants attributable to
increased stringency will not be located in the United States, or that
increased stringency will not lead to the relocation of current jobs or
plants to foreign countries. Compared to the no-action alternative
(i.e., the baseline standards), the proposed standards (alternative 1)
and other regulatory alternatives under consideration all involve
reduced regulatory costs expected to lead to reduced average vehicle
prices and, in turn, increased sales. While the increased sales
slightly increase estimated U.S. auto sector labor, because producing
and selling more vehicles uses additional U.S. labor, the reduced
outlays for fuel-saving technology slightly reduce estimated U.S. auto
sector labor, because manufacturing, integrating, and selling less
technology means using less labor to do so. Of course, this is
technology that may not otherwise be produced or deployed were it not
for regulatory mandate, and the additional costs of this technology
would be borne by a reduced number of consumers given reduction in
sales in response to increased prices. Today's analysis shows the
negative impact of reduced mandatory technology outlays outweighing the
positive impact of increased sales. However, both of these underlying
factors are subject to uncertainty. For example, if fuel-saving
technology that would have been applied under the baseline standards is
more likely to have come from foreign suppliers than estimated here,
less of the foregone labor to manufacture that technology would have
been U.S. labor. Also, if sales would be more positively impacted by
reduced vehicle prices than estimated here, correspondingly positive
impacts on U.S. auto sector labor could be magnified. Alternatively, if
manufacturers are able to deploy technology to improve vehicle
attributes that new car buyers prefer to fuel economy improvements,
both technology spending and vehicle sales would correspondingly
increase. As discussed above, the analysis of sales and employment may
be updated for the final rule, and it is expected that doing so could
possibly produce incremental changes opposite in sign from those
presented below. In particular, comment is sought on the potential for
changes in stringency to result in new jobs and plants being created in
foreign countries or for current United States jobs and plants to be
moved outside of the United States.
    The employment analysis was focused on automotive labor because
adjacent employment factors and consumer spending factors for other
goods and services are uncertain and difficult to predict. How direct
labor changes may affect the macro economy and possibly change
employment in adjacent industries were not considered. For instance,
possible labor changes in vehicle maintenance and repair were not
considered, nor were changes in labor at retail gas stations
considered. Possible labor changes due to raw material production, such
as production of aluminum, steel, copper, and lithium were not
considered, nor were possible labor impacts due to changes in
production of oil and gas, ethanol, and electricity considered. Effects
of how consumers could spend money saved due to improved fuel economy
were not analyzed, nor were effects of how consumers would pay for more
expensive fuel savings technologies at the time of purchase analyzed;
either could affect consumption of other goods and services, and hence
affect labor in other industries. The effects of increased usage of
car-sharing, ride-sharing, and automated vehicles were not analyzed.
How changes in labor from any industry could affect gross domestic
product and possibly affect other industries as a result were not
estimated.
    Also, no assumptions were made about full-employment or not full-
employment and the availability of human resources to fill positions.
When the economy is at full employment, a fuel economy regulation is
unlikely to have much impact on net overall U.S. employment; instead,
labor would primarily be shifted from one sector to another. These
shifts in employment impose an opportunity cost on society,
approximated by the wages of the employees, as regulation diverts
workers from other activities in the economy. In this situation, any
effects on net employment are likely to be transitory as workers change
jobs (e.g., some workers may need to be retrained or require time to
search for new jobs, while shortages in some sectors or regions could
bid up wages to attract workers). On the other hand, if a regulation
comes into effect during a period of high unemployment, a change in
labor demand due to regulation may affect net overall U.S. employment
because the labor market is not in equilibrium. Schmalansee and Stavins
point out that net positive employment effects are possible in the near
term when the economy is at less than full employment due to the
potential hiring of idle labor resources by the regulated sector to
meet new requirements (e.g., to install new equipment) and new economic
activity in sectors related to the regulated sector longer run, the net
effect on employment is more difficult to predict and will depend on
the way in which the related industries respond to the regulatory
requirements. For that reason, this analysis does not include
multiplier effects but instead focuses on labor impacts in the most
directly affected industries. Those sectors are likely to face the most
concentrated labor impacts.
    The tables presented below summarize these results for regulatory
alternatives under consideration. While values are reported as
thousands of job-years, changes in labor utilization would not
necessarily involve the same number of changes in actual jobs, as auto
industry employers may use a range of strategies (e.g., shift changes,
overtime) beyond simply adding or eliminating jobs.
1. CAFE Standards

[GRAPHIC] [TIFF OMITTED] TP24AU18.288

2. CO2 Standards
[GRAPHIC] [TIFF OMITTED] TP24AU18.289

IX. Vehicle Classification

    Vehicle classification, for purposes of the light-duty CAFE and
CO2 programs,\782\ refers to whether a vehicle is considered
to be a passenger automobile (car) or a non-passenger automobile (light
truck).\783\ As discussed above in Section III, passenger cars and
light trucks are subject to different fuel economy and CO2
standards as required by EPCA/

EISA and consistent with their different capabilities.
---------------------------------------------------------------------------

    \782\ See 40 CFR 86.1803-01. For the MYs 2012-2016 standards,
the MYs 2017-2025 standards, and this NPRM, EPA has agreed to use
NHTSA's regulatory definitions for determining which vehicles would
be subject to which CO2 standards.
    \783\ EPCA uses the terms ``passenger automobile'' and ``non-
passenger automobile;'' NHTSA's regulation on vehicle
classification, 49 CFR part 523, further clarifies the EPCA
definitions and introduces the term ``light truck'' as a plainer
language alternative for ``non-passenger automobile.''
---------------------------------------------------------------------------

    In EPCA, Congress designated some vehicles as passenger automobiles
and some as non-passenger automobiles. Vehicles ``capable of off-
highway operation'' are, by statute, not passenger automobiles.
Determining ``off-highway operation'' is a two-part inquiry: First,
does the vehicle have 4-wheel drive, or is it over 6,000 pounds gross
vehicle weight rating (GVWR), and second, does the vehicle (that is
either 4-wheel drive or over 6,000 pounds GVWR) also have ``a
significant feature designed for off-highway operation,'' as defined by
DOT regulations.\784\ Additionally, vehicles that DOT ``decides by
regulation [are] manufactured primarily for transporting not more than
10 individuals'' are, by statute, passenger automobiles; that means
that certain vehicles that DOT decides by regulation are not
manufactured primarily for transporting not more than 10 passengers are
not passenger automobiles. NHTSA's regulation on vehicle
classification,\785\ contains requirements for vehicles to be
classified as light trucks either on the basis of off-highway
capability \786\ or on the basis of having ``truck-like
characteristics.'' \787\ Over time, NHTSA has refined the light truck
vehicle classification by revising its regulations and issuing legal
interpretations. However, based on agency observations of current
vehicle design trends, compliance testing and evaluation, and
discussions with stakeholders, NHTSA has become aware of vehicle
designs that complicate light truck classification determinations for
the CAFE and CO2 programs. When there is uncertainty as to
how vehicles should be classified, inconsistency in determining
manufacturers' compliance obligations can result, which is detrimental
to the predictability and fairness of the program. While the agency has
not assessed the magnitude of the classification issues and is not
proposing any vehicle reclassifications at this time, NHTSA is
interested in gathering more information from commenters on several of
the light truck classification criteria, and therefore seeks comment on
the issues discussed below.
---------------------------------------------------------------------------

    \784\ 49 U.S.C. 32901(a)(18).
    \785\ 49 CFR part 523.
    \786\ 49 CFR 523.5(b).
    \787\ 49 CFR 523.5(a).
---------------------------------------------------------------------------

A. Classification Based on ``truck-like characteristics''

    One of the ``truck-like characteristics'' that allows manufacturers
to classify vehicles as light trucks is having at least three rows of
seats as standard equipment, as long as it also ``permit[s] expanded
use of the automobile for cargo-carrying purposes or other non-
passenger-carrying purposes through the removal or stowing of foldable
or pivoting seats so as to create a flat, leveled cargo surface
extending from the forwardmost point of installation of those seats to
the rear of the automobile's interior.'' \788\ NHTSA has identified two
issues thus far with this criterion that various manufacturers appear
to be approaching differently, which, again, could be causing
unfairness in compliance obligations. Both relate to how to measure the
cargo area when seats are moved out of the way. Given that the purpose
of this criterion is to ``permit expanded use of the automobile for
cargo-carrying purposes or other non-passenger-carrying purposes,'' the
less cargo space the vehicle design can provide, the harder it is for
NHTSA to agree that the vehicle is properly classified as a light
truck.
---------------------------------------------------------------------------

    \788\ 49 CFR 523.5(a)(5)(ii).
---------------------------------------------------------------------------

    The first issue is how to identify the ``forwardmost point of
installation'' and how the location impacts the available cargo floor
area and volume behind the seats. Seating configurations have evolved
considerably over the last 20 years, as minivan seats are now very
complex in design providing far more ergonomic functionality. For
example, the market demand for increased rear seat leg room and the
installation of rear seat air bag systems has resulted in the
introduction of adjustable second row seats--second-row seats that
remain upright, unable to articulate and stow into the vehicle floor.
These seats provide adjustable leg room by sliding forward or backward
on sliding tracks and aim to provide expanded cargo carrying room by
moving forward against the back of the front seats. Earlier seating
designs had fixed attachment points on the vehicle floor, and it was
easy to identify the ``forwardmost point of installation'' because it
was readily observable and did not change. When seats move forward and
backward on sliding tracks, the ``forwardmost point of installation''
is less readily identifiable. Some manufacturers have argued that the
forwardmost point of installation is the forwardmost point where the
seat attaches to the sliding track with the seat positioned at its
rearmost position on the track. This would allow vehicles with certain
second-row seat designs to be considered as meeting this criterion
(e.g., a second-row seat where the bottom cushion folds upward toward
its seatback, allowing the entire seat to slide forward up against the
back of the front seat, beyond the identified forwardmost point of
installation). Other approaches could include adjusting the seat to a
position that can accommodate a 75-percentile male dummy. Selecting any
of these positions will change the forwardmost point of installation
and could ultimately impact the flat floor surface area and cargo
volume, respectively. NHTSA seeks comment on how to determine the
reference point of the forwardmost point of installation of these seats
for vehicles to qualify as light trucks using this provision. Also,
should NHTSA establish a minimum amount of cargo surface area for seats
that remain within the vehicle?
    The second issue is what makes a surface ``flat and leveled.'' Many
SUVs have three rows of designated seating positions, where the second
row has ``captain's seats'' (i.e., two independent bucket seats) rather
than the traditional bench-style seating more common when the provision
was added to NHTSA's regulation. When captain seats are folded down,
the seatback can form a flat surface for expanded cargo carrying
purposes, but the surface of the seatbacks may not be level (i.e., may
be angled at some angle slightly greater than 0[deg]), or may not be
level with the rest of the cargo area (i.e., horizontal surface of
folded seats is 0[deg] at a different height from horizontal surface of
cargo area behind the seats). Captain seats, when folded flat, may also
leave significant gaps around and between the seats. Some manufacturers
have opted to use plastic panels to level the surface and to covers the
gaps between seats, while others have left the space open and the
surface non-level. NHTSA therefore seeks comment on the following
questions related to the requirement for a flat leveled cargo surface:

     Does the cargo surface need to be flat and level in
exactly the same plane, or does it fulfill the intent of the
criterion and provide appropriate cargo-carrying functionality for
the cargo surface to be other than flat and level in the same plane?
     Does the cargo surface need to be flat and level across
the entire surface, or are (potentially large) gaps in that surface
consistent with the intent of the criterion and providing
appropriate cargo-carrying functionality? Should panels to fill gaps
be required?
     Certain third row seats are located on top the rear
axle causing them to sit higher and closer to the vehicle roof. When
these seats fold flat the available cargo-carrying volume is
reduced. Is cargo-carrying functionality better ensured by setting a
minimum amount

of useable cargo-carrying volume in a vehicle when seats fold flat?

B. Issues that NHTSA has Observed Regarding Classification Based on
``off-road capability''

1. Measuring Vehicle Characteristics for Off-Highway Capability
    For a vehicle to qualify as off-highway capable, in addition to
either having 4WD or a GVWR more than 6,000 pounds, the vehicle must
also have four out of five characteristics indicative of off-highway
operation. These characteristics include: \789\

    \789\ 49 CFR 523.5(b)(2).
---------------------------------------------------------------------------

 An approach angle of not less than 28 degrees
 A breakover angle of not less than 14 degrees
 A departure angle of not less than 20 degrees
 A running clearance of not less than 20 centimeters
 Front and rear axle clearances of not less than 18
centimeters each

    NHTSA's regulations require manufacturers to measure these
characteristics when a vehicle is at its curb weight, on a level
surface, with the front wheels parallel to the automobile's
longitudinal centerline, and the tires inflated to the manufacturer's
recommended cold inflation pressure.\790\ Given that the regulations
describe the vehicle's physical position and characteristics at time of
measurement, NHTSA previously assumed that manufacturers would use
physical measurements of vehicles. In practice, NHTSA has instead
received from manufacturers a mixture of angles and dimensions from
design models (i.e., the vehicle as designed, not as actually produced)
and/or physical vehicle measurements.\791\ When appropriate, the agency
will verify reported values by measuring production vehicles in the
field. NHTSA currently requires that manufacturers must use physical
vehicle measurements as the basis for values reported to the agency for
purposes of vehicle classification. NHTSA seeks comment on whether
regulatory changes are needed with respect to this issue.
---------------------------------------------------------------------------

    \790\ Id.
    \791\ NHTSA previously encountered a similar issue when
manufacturers reported CAFE footprint information. In the October
2012 final rule, NHTSA clarified manufacturers must submit footprint
measurements based upon production values. 77 FR 63138 (October 15,
2012).
---------------------------------------------------------------------------

2. Approach, Breakover, and Departure Angles
    Approach angle, breakover angle, and departure angle are relevant
to determining off-highway capability. Large approach and departure
angles ensure the front and rear bumpers and valance panels have
sufficient clearance for obstacle avoidance while driving off-road. The
breakover angle ensures sufficient body clearance from rocks and other
objects located between the front and rear wheels while traversing
rough terrain. Both the approach and departure angles are derived from
a line tangent to the front (or rear) tire static loaded radius arc
extending from the ground near the center of the tire patch to the
lowest contact point on the front or rear of the vehicle. The term
``static loaded radius arc'' is based upon the definitions in SAE J1100
and J1544. The term is defined as the distance from wheel axis of
rotation to the supporting surface (ground) at a given load of the
vehicle and stated inflation pressure of the tire (manufacturer's
recommended cold inflation pressure).\792\
---------------------------------------------------------------------------

    \792\ 49 CFR 523.2.
---------------------------------------------------------------------------

    The static loaded radius arc is easy to measure, but the imaginary
line tangent to the static loaded radius arc is difficult to ascertain
in the field. The approach and departure angles are the angles between
the line tangent to the static loaded radius arc, as explained above,
and the level ground on which the test vehicle rests. Simpler
measurements, that provide good approximations for the approach and
departure angles, involve using a line tangent to the outside diameter
or perimeter of the tire, or a line that originates at the geometric
center of the tire contact patch, and extends to the lowest contact
point on the front or rear of the vehicle. The first method provides an
angle slightly greater than, and the second method provides an angle
slightly less than, the angle derived from the true static loaded
radius arc. When appropriate, the agency would like the ability to
measure these angles in the field to verify data submitted by the
manufacturers used to determine light truck classification decisions.
The agency understands that the term static loaded radius arc is
unclear to many manufacturers. NHTSA seeks comment on what the effect
would be if we replaced reference to the ``static loaded arc radius,''
with simpler terms like, ``outside perimeter of the tire,'' or
``geometric center of the tire contact patch.'' NHTSA would consider
using the outside perimeter of the tire as a reliable method for
ensuring repeatability and reproducibility and accepts that the
approach would provide slightly larger approach and departure angles,
thereby making it slightly easier to qualify as ``off-highway
capable.''
3. Running Clearance
    NHTSA regulations define ``running clearance'' as ``the distance
from the surface on which an automobile is standing to the lowest point
on the automobile, excluding unsprung weight.'' \793\ Unsprung weight
includes the components (e.g., suspension, wheels, axles and other
components directly connected to the wheels and axles) that are
connected and translate with the wheels. Sprung weight, on the other
hand, includes all components fixed underneath the vehicle and
translate with the vehicle body (e.g., mufflers and subframes). To
clarify these requirements, NHTSA previously issued a letter of
interpretation stating that certain parts of a vehicle, such as tire
aero deflectors, which are made of flexible plastic, bend without
breaking, and return to their original position, would not count
against the 20-centimeter running clearance requirement.\794\ The
agency explained that this does not mean a vehicle with less than 20-
centimeters running clearance could be elevated by an upward force
bending the deflectors and then be considered as compliant with the
running clearance criterion, as it would be inconsistent with the
conditions listed in the introductory paragraph of 49 CFR 523.5(b)(2).
Further, NHTSA explained that without a flexible component installed,
the vehicle must meet the 20-centimeter running clearance along its
entire underside. This 20-centimeter clearance is required for all
sprung weight components.
---------------------------------------------------------------------------

    \793\ Id.
    \794\ See letter to Mark D. Edie, Ford Motor Company, July 30,
2012. Available online at https://isearch.nhtsa.gov/files/11-000612%20M.Edie%20(Part%20523).htm (last accessed February 2, 2018).
---------------------------------------------------------------------------

    The agency is aware of vehicle designs that incorporate rigid
(i.e., inflexible) air dams, valance panels, exhaust pipes, and other
components, equipped as manufacturers' standard or optional equipment
(e.g., running boards and towing hitches), that likely do not meet the
20-centimeter running clearance requirement. Despite these rigid
features, it appears manufacturers are not taking these components into
consideration when making measurements. Additionally, we believe some
manufacturers may provide dimensions for their base vehicles without
considering optional or various trim level components that may reduce
the vehicle's ground clearance. Consistent with our approach to other
measurements, NHTSA believes that ground clearance, as well as all the
other suspension criteria for a light

truck determination, should use the measurements from vehicles with all
standard and optional equipment installed, at time of first retail
sale. The agency reiterates that the characteristics listed in 49 CFR
523.5(b)(2) are characteristics indicative of off-highway capability. A
fixed feature, such as an air dam, which does not flex and return to
its original state, or an exhaust, which could detach, inherently
interfere with the off-highway capability of these vehicles. If
manufacturers seek to classify these vehicles as light trucks under 49
CFR 523.5(b)(2) and the vehicles do not meet the four remaining
characteristics to demonstrate off-highway capability, they must be
classified as passenger cars. NHTSA seeks comment on the incorporation
of air dams, exhaust pipes, and other hanging component features--
especially those that are inflexible--and whether the agency should
consider amending its existing regulations to account for new vehicle
designs.
4. Front and Rear Axle Clearance
    NHTSA regulations also state that front and rear axle clearances of
not less than 18 centimeters are another of the criteria that can be
used for designating a vehicle as off-highway capable.\795\ The agency
defines ``axle clearance'' as the vertical distance from the level
surface on which an automobile is standing to the lowest point on the
axle differential of the automobile.\796\
---------------------------------------------------------------------------

    \795\ 49 CFR 523.5(b)(2)(v).
    \796\ 49 CFR 523.3.
---------------------------------------------------------------------------

    The agency believes this definition may be outdated because of
vehicle design changes including axle system components and independent
front and rear suspension components. In the past, traditional light
trucks with and without 4WD systems had solid rear axles with center-
mounted differentials on the axle. For these trucks, the rear axle
differential was closer to the ground than any other axle or suspension
system component. This traditional axle design still exists today for
some trucks with a solid chassis (also known as body-on-frame
configuration). Today, many SUVs and CUVs that qualify as light trucks
are constructed with a unibody frame \797\ and have unsprung (e.g.,
control arms, tie rods, ball joints, struts, shocks, etc.) and sprung
components (e.g., the axle subframes) connected together as a part of
the axle assembly. These unsprung and sprung components are located
under the axles, making them lower to the ground than the axles and the
differential, and were not contemplated when NHTSA established the
definition and the allowable clearance for axles. The definition also
did not originally account for 2WD vehicles with GVWRs greater than
6,000 pounds that had one axle without a differential, such as the
model year 2018 Ford Expedition. Vehicles with axle components that are
low enough to interfere with the vehicle's ability to perform off-road
would seem inconsistent with the regulation's intent of ensuring off-
highway capability, as Congress sought.
---------------------------------------------------------------------------

    \797\ Unibody frames integrate the frame and body components
into a combined structure.
---------------------------------------------------------------------------

    NHTSA seeks comment on whether (and if so, how) to revise the
definition of axle clearance in light of these issues. NHTSA seeks
comment on what unsprung axle components should be considered when
determining a vehicle's axle clearance. Should the definition be
modified to account for axles without differentials? NHTSA also seeks
comment on whether the axle subframes surrounding the axle components
but affixed directly to the vehicle unibody, as sprung mass (lower to
the ground than the axles) should be considered in the allowable
running clearance discussed above. Finally, should NHTSA consider
replacing both the running and axle clearance criteria with a single
ground clearance criterion that considers all components underneath the
vehicle that impact a vehicle's off road capability?

X. Compliance and Enforcement

A. Overview

    The CAFE and CO2 emissions standards are both fleet-
average standards, but for both programs, determining compliance
begins, conceptually, by testing vehicles on dynamometers in a
laboratory over pre-defined test cycles under controlled
conditions.\798\ A machine is connected to the vehicle's tailpipe while
it performs the test cycle, which collects and analyzes the resulting
exhaust gases; a vehicle that has no tailpipe emissions has its
performance measured differently, as discussed below. CO2
quantities, as one of the exhaust gases, can be evaluated directly for
vehicles that produce CO2 emissions directly. Fuel economy
is determined from the amount of CO2 emissions, because the
two are directly mathematically related.\799\ Manufacturers generally
perform their own testing, and EPA confirms and validates those results
by testing some number of vehicles at the National Vehicle and Fuel
Emissions Laboratory (NVFEL) in Ann Arbor, Michigan. The results of
this testing form the basis for determining a manufacturer's compliance
in a given model year: Each vehicle model's performance on the test
cycles is calculated; that performance is multiplied by the number of
vehicles of that model that were produced; that number, in turn, is
averaged with the performance and production volumes of the rest of the
vehicles in the manufacturer's fleet to calculate the fleet's overall
performance. That performance is then compared against the
manufacturer's unique compliance obligation, which is the harmonic
average of the fuel economy and CO2 targets for the
footprints of the vehicles in the manufacturer's fleet, also
harmonically averaged and production-weighted. Using fuel economy
targets to illustrate the concept, the following figure shows two
vehicle models produced in a model year for which passenger cars are
subject to a fuel economy target function that extends from about 30
mpg for the largest cars to about 41 mpg for the smallest cars:
---------------------------------------------------------------------------

    \798\ For readers unfamiliar with this process, it is not unlike
running a car on a treadmill following a program--or more
specifically, two programs. 49 U.S.C. 32904(c) states that EPA must
``use the same procedures for passenger automobiles [that EPA] used
for model year 1975 (weighted 55 percent urban cycle and 45 percent
highway cycle), or procedures that give comparable results.'' Thus,
the ``programs'' are the ``urban cycle,'' or Federal Test Procedure
(abbreviated as ``FTP'') and the ``highway cycle,'' or Highway Fuel
Economy Test (abbreviated as ``HFET''), and they have not changed
substantively since 1975. Each cycle is a designated speed trace (of
vehicle speed versus time) that all certified vehicles must follow
during testing--the FTP is meant to roughly simulate stop and go
city driving, and the HFET is meant to roughly simulate steady
flowing highway driving at about 50 mph.
    \799\ Technically, for the CAFE program, carbon-based tailpipe
emissions (including CO2, CH4, and CO) are
measured and fuel economy is calculated using a carbon balance
equation. EPA uses carbon-based emissions (CO2,
CH4, and CO, the same as for CAFE) to calculate tailpipe
CO2 equivalent for the tailpipe portion of its standards.

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

[GRAPHIC] [TIFF OMITTED] TP24AU18.290

    If these are the only two vehicles the manufacturer produces, the
manufacturer's required CAFE level is determined by calculating the
sales-weighted harmonic average of the targets applicable at the
hatchback and sedan footprints (about 41 mpg for the hatchback and
about 33 mpg for the sedan), and the manufacturer's achieved CAFE level
is determined by calculating the sales-weighted harmonic average of the
hatchback and sedan fuel economy levels (48 mpg for the hatchback and
25 mpg for the sedan). Depending on the relative mix of hatchbacks and
sedans the manufacturer produces, the manufacturer produces a fleet for
which the required and achieved levels are equal, or produce a fleet
that either earns (if required CAFE is less than achieved CAFE) or
applies (if required CAFE is greater than achieved CAFE) CAFE credits.
Although the arithmetic is different for CO2 standards
(which do not involve harmonic averaging), the concept is the same.
    There are thus two parts to the foundation of compliance with CAFE
and CO2 emissions standards: First, how well any given
vehicle model performs relative to its target, and second, how many of
each vehicle model a manufacturer sells. While no given model need
precisely meet its target (and virtually no model exactly meets its
target in the real world), if a manufacturer finds itself producing and
selling large numbers of vehicles that fall well short of their
targets, it will have to find a way of offsetting that shortfall,
either by increasing production of vehicles that exceed their targets,
or by taking advantage of compliance flexibilities. Given that
manufacturers typically need to sell vehicles that consumers want to
buy, their options for pursuing the former approach can often be
limited.
    The CAFE and CO2 programs both offer a number of
compliance flexibilities, discussed in more detail below. Some
flexibilities are provided for by statute, and some have been
implemented voluntarily by the agencies through regulations. Compliance
flexibilities for the CAFE and CO2 programs have a great
deal of theoretical attractiveness: If properly constructed, they can
help to reduce overall regulatory costs while maintaining or improving
programmatic benefits. If poorly constructed, they may create
significant potential for market distortion (for instance, when
manufacturers, in response to an incentive to deploy a particular type
of technology, produce vehicles for which there is no natural market,
such vehicles must be discounted below their cost in order to
sell).\800\ Use of compliance flexibilities without sufficient
transparency may complicate the ability to understand manufacturers'
paths to compliance. Overly-complicated flexibility programs can result
in greater

expenditure of both private sector and government resources to track,
account for, and manage. Moreover, targeting flexibilities toward
specific technologies could theoretically distort the market. By these
means, compliance flexibilities could create an environment in which
entities are encouraged to invest in such government-favored
technologies and, unless those technologies are independently supported
by market forces, encourage rent seeking in order to protect, preserve,
and enhance profits that are parasitic on the distortions created by
government mandate. Further, to the extent that there is a market
demand for vehicles with lower CO2 emissions and higher fuel
economy, compliance flexibilities may create competitive disadvantages
for some manufacturers if they become overly reliant on flexibilities
rather than simply improving their vehicles to meet that market demand.
---------------------------------------------------------------------------

    \800\ Manufacturers are currently required by the state of
California to produce certain percentages of their fleets with
certain types of technologies, partly in order to help California
meet self-imposed GHG reduction goals. While many manufacturers
publicly discuss their commitment to these technologies, consumer
interest in them thus far remains low despite often-large financial
incentives from both manufacturers and the Federal and State
governments in the form of tax credits. It is questionable whether
continuing to provide significant compliance incentives for
technologies that consumers appear not to want is an efficient means
to achieve either compliance or national goals (see, e.g., Congress'
phase-out of the AMFA dual-fueled vehicle incentive in EISA, 49
U.S.C. 32906).
---------------------------------------------------------------------------

    If standards are set at levels that are appropriate/maximum
feasible, then the need for extensive compliance flexibilities should
be low. Comment is sought on whether and how each agency's existing
flexibilities might be amended, revised, or deleted to avoid these
potential negative effects. Specifically, comment is sought on the
appropriate level of compliance flexibility, including credit trading,
in a program that is correctly designed to be both appropriate and
feasible. Comment is sought on allowing all incentive-based adjustments
to expire except those that are mandated by statute, among other
possible simplifications to reduce market distortion, improve program
transparency and accountability, and improve overall performance of the
compliance programs.
[GRAPHIC] [TIFF OMITTED] TP24AU18.291

[GRAPHIC] [TIFF OMITTED] TP24AU18.292

[GRAPHIC] [TIFF OMITTED] TP24AU18.293

[GRAPHIC] [TIFF OMITTED] TP24AU18.294

[GRAPHIC] [TIFF OMITTED] TP24AU18.295

BILLING CODE 4910-59-C
    It is further noted that compliance is a measure of how a
manufacturer's fleet performance compares to its individual compliance
obligation and is generally not a measure of how the manufacturer's
fleet performance compares to other manufacturers' fleets or to some
industry-wide number.\801\ This is because the standards are attribute-
based, per Congress (in the case of CAFE, at least), rather than a
single ``flat'' mpg or g/mi number which each manufacturer's fleet must
meet. This means that a manufacturer can produce, for example, much
larger-footprint vehicles than it was expected to produce when the
standards (i.e., the curves) were set and still be in compliance
because its fleet performance is better than its compliance obligation
given the footprints of the vehicles it ended up producing. This also
means that a manufacturer can produce plenty of small-footprint
vehicles and still fall short of its compliance obligation if enough of
its vehicles fall below their targets and the manufacturer has no other
way of making up the shortfall. Whether the vehicles a manufacturer
produces are large or small therefore has no impact on compliance--
compliance depends, instead, on the performance of a manufacturer's
vehicles relative to their targets, averaged across the fleet as a
whole.
---------------------------------------------------------------------------

    \801\ The exception is the CAFE program's minimum standard for
domestically-manufactured passenger cars, see Section III and V
above and 49 U.S.C. 32902.
---------------------------------------------------------------------------

    The following sections discuss NHTSA's compliance and enforcement
program, EPA's compliance and enforcement program, and seek comment on
a variety of options with respect to the compliance flexibilities
currently available under each program. More broadly, the agencies are
taking the opportunity with this rulemaking to seek comment and
suggestions relating

to the current flexibilities allowed under the existing CAFE and
tailpipe CO2 programs (including eliminating or expanding
existing flexibilities). The agencies also seek comment on several
outstanding petitions relating to existing or newly-proposed
flexibilities, and the current credit trading system.

B. NHTSA Compliance and Enforcement

    NHTSA's CAFE enforcement program is largely dictated by statute. As
discussed earlier in this notice, each vehicle manufacturer is subject
to separate CAFE standards for passenger cars and light trucks, and for
the passenger car standards, a manufacturer's domestically-manufactured
and imported passenger car fleets are required to comply
separately.\802\ Additionally, domestically-manufactured passenger cars
are subject to the statutory minimum standard.\803\
---------------------------------------------------------------------------

    \802\ 49 U.S.C. 32904(b).
    \803\ 49 U.S.C. 32902(b)(4).
---------------------------------------------------------------------------

    EPA calculates the fuel economy level of each fleet produced by
each manufacturer, and transmits that information to NHTSA; \804\ that
calculation includes adjustments to the fuel economy of individual
vehicles depending on whether they have certain incentivized
technologies.\805\ Manufacturers also report early product projections
to NHTSA per EPCA's reporting requirements, and NHTSA relies upon both
this manufacturer data and EPA-validated data to conduct its own
enforcement of the CAFE program. NHTSA also periodically releases
public reports through its CAFE Public Information Center (PIC) to
share recent CAFE program data.\806\
---------------------------------------------------------------------------

    \804\ 49 U.S.C. 32904(c)-(e). EPCA granted EPA authority to
establish fuel economy testing and calculation procedures; EPA uses
a two-year early certification process to qualify manufacturers to
start selling vehicles, coordinates manufacturer testing throughout
the model year, and validates manufacturer-submitted final test
results after the close of the model year.
    \805\ For example, alternative fueled vehicles get special
calculations under EPCA (49 U.S.C. 32905-32906), and fuel economy
levels can also be adjusted to reflect air conditioning efficiency
and ``off-cycle'' improvements, as discussed below.
    \806\ NHTSA CAFE Public Information Center, https://one.nhtsa.gov/cafe_pic/CAFE_PIC_Home.htm.
---------------------------------------------------------------------------

    NHTSA then determines the manufacturer's compliance with each
applicable standard and notifies manufacturers if any of their fleets
have fallen short. Manufacturers have the option of paying civil
penalties on any shortfall or can submit credit plans to NHTSA. Credits
can either be earned or purchased and can be used either in the year
they were earned or in several years prior and following, subject to
various statutory constraints.
    EPCA and EISA specify several flexibilities that are available to
help manufacturers comply with CAFE standards. Some flexibilities are
defined by statute--for example, while Congress required that NHTSA
allow manufacturers to transfer credits earned for over-compliance from
their car fleet to their truck fleet and vice versa, Congress also
limited the amount by which manufacturers could increase their CAFE
levels using those transfers.\807\ NHTSA believes Congress balanced the
energy-saving purposes of the statute against the benefits of certain
flexibilities and incentives and intentionally placed some limits on
certain statutory flexibilities and incentives. NHTSA has done its best
in crafting the credit transfer and trading regulations authorized by
EISA to ensure that total fuel savings are preserved when manufacturers
exercise their statutorily-provided compliance flexibilities.
---------------------------------------------------------------------------

    \807\ See 49 U.S.C. 32903(g).
---------------------------------------------------------------------------

    NHTSA and EPA have previously developed other compliance
flexibilities for the CAFE program under EPA's EPCA authority to
calculate manufacturer's fuel economy levels. As finalized in the 2012
final rule for MYs 2017 and beyond, EPA provides manufacturers
``credits'' under EPA's program and fuel economy ``adjustments'' or
``improvement values'' under NHTSA's program for: (1) Technologies that
cannot be measured on the 2-cycle test procedure, i.e., ``off-cycle''
technologies; and (2) air conditioning (A/C) efficiency improvements
that also improve fuel economy that cannot be measured on the 2-cycle
test procedure. Additionally, the programs give manufacturers
compliance incentives for utilizing ``game changing'' technologies on
pickup trucks, such as pickup truck hybridization.
    The following sections outline how NHTSA determines whether
manufacturers are in compliance with the CAFE standards for each model
year, and how manufacturers may use compliance flexibilities to comply,
or address non-compliance by paying civil penalties. As mentioned
above, some compliance flexibilities are prescribed by statute and some
are implemented through EPA's EPCA authority to measure fuel economy,
such as fuel consumption improvement values for air conditioning
efficiency and off-cycle technologies. This proposal includes language
updating and clarifying existing regulatory text in this area. Comment
is sought on these changes, as well as on the general efficacy of these
flexibilities and their role in the fuel economy and GHG programs.
    Moreover, the following sections explain how manufacturers submit
data and information to the agency--NHTSA is proposing to implement a
new standardized template for manufacturers to use to submit CAFE data
to the agency, as well as standardized templates for reporting credit
transactions. Additionally, NHTSA is proposing to add requirements that
specify the precision of the fuel savings adjustment factor in 49 CFR
536.4. These new proposals are intended to streamline reporting and
data collection from manufacturers, in addition to helping the agency
use the best available data to inform CAFE program decision making.
    Finally, NHTSA provides an overview of CAFE compliance data for MYs
2011 through 2018 to demonstrate how manufacturers have responded to
the progressively increasing CAFE standards for those years. NHTSA
believes that providing this data is important because it gives the
public a better understanding of current compliance trends and the
potential impacts that CAFE compliance in those model years may have on
the future model years addressed by this rulemaking.
    This is, of course, only an overview description of CAFE
compliance. NHTSA also granted a petition for rulemaking in 2016
requesting a number of changes to compliance-related topics.\808\ The
responses to those requests are discussed below. In general, there is a
tentatively decision to deny most of the Alliance and Global's requests
as discussed in the sections that follow. Comment is sought on these
tentative decisions, including what impact granting any of these
individual requests could have on effective stringency and compliance
pathways.
---------------------------------------------------------------------------

    \808\ 81 FR 95553 (Dec. 28, 2016).
---------------------------------------------------------------------------

1. Light-Duty CAFE

(a) How does NHTSA determine compliance?
(1) Manufacturers Submit Data to NHTSA and EPA Facilitates CAFE Testing
    EPCA, as amended by EISA, requires a manufacturer to submit reports
to the Secretary of Transportation explaining whether the manufacturer
will comply with an applicable CAFE standard for the model year for
which the report is made; the actions a manufacturer has taken or
intends to take to comply with

the standard; and other information the Secretary requires by
regulation.\809\ A manufacturer must submit a report containing the
above information during the 30-day period before the beginning of each
model year, and during the 30-day period beginning the 180th day of the
model year.\810\ When a manufacturer decides it is unlikely to comply
with its CAFE standard, the manufacturer must report additional actions
it intends to take to comply and include a statement about whether
those actions are sufficient to ensure compliance.\811\
---------------------------------------------------------------------------

    \809\ 49 U.S.C. 32907(a).
    \810\ Id.
    \811\ Id.
---------------------------------------------------------------------------

    To implement these reporting requirements, NHTSA issued 49 CFR part
537, ``Automotive Fuel Economy Reports,'' which specifies three types
of CAFE reports that manufacturers must submit to comply. Manufacturers
must first submit a pre-model year (PMY) report containing a
manufacturer's projected compliance information for that upcoming model
year. The PMY report must be submitted before December 31st of the
calendar year prior to the corresponding model year. Manufacturers must
then submit a mid-model year (MMY) report containing updated
information from manufacturers based upon actual and projected
information known midway through the model year. The MMY report must be
submitted by July 31 of the given model year. Finally, manufacturers
must submit a supplementary report anytime the manufacturer needs to
correct previously submitted information.
    Manufacturers submit both non-confidential and confidential
versions of CAFE reports to NHTSA. Confidential reports differ in that
they include estimated production sales information that is withheld
from public disclosure to protect each manufacturer's competitive sales
strategies.
    Manufacturer reports include information on light-duty automobiles
and medium-duty passenger vehicles for each model year and describe
projected and actual fuel economy standards, fuel economy performance
values, production volumes, information on vehicle design features
(e.g., engine displacement and transmission class), and other vehicle
attribute characteristics (e.g., track width, wheelbase, and other off-
road features for light trucks). Beginning with MY 2017, manufacturers
may also provide projected information on any air-conditioning (A/C)
systems with improved efficiency, off-cycle technologies (e.g., stop-
start systems), and any hybrid/electric full-size pickup truck
technologies used each model year to calculate the average fuel economy
specified in 40 CFR 600.510-12(c). Manufacturers identify the makes and
model types \812\ equipped with each technology, which compliance
category those vehicles belong to, and the associated fuel economy
adjustment value for each technology. In some cases, NHTSA may require
manufacturers to provide supplemental information to justify or explain
the benefits of these technologies. NHTSA requires manufacturers to
provide detailed information on the model types using these
technologies to gain fuel economy benefits. These details are necessary
to facilitate NHTSA's technical analyses and to ensure the agency can
perform random enforcement audits when necessary.
---------------------------------------------------------------------------

    \812\ NHTSA collects model type information based upon the EPA
definition for ``modet type'' in 40 CFR 600.002.
---------------------------------------------------------------------------

    NHTSA uses PMY, MMY, and supplemental reports to help the agency
and manufacturers anticipate potential compliance issues as early as
possible, and help manufacturers plan compliance strategies. NHTSA also
uses the reports for auditing purposes, which helps manufacturers
correct errors prior to the end of the model year and accordingly,
submit accurate final reports to EPA. Additionally, NHTSA issues public
reports twice a year that provide a summary of manufacturers' final and
projected fleet fuel economy performances values.
    Throughout the model year, NHTSA also conducts vehicle testing as
part of its footprint validation program, to confirm the accuracy of
track width and wheelbase measurements submitted in manufacturer's
reports.\813\ This helps the agency better understand how manufacturers
may adjust vehicle characteristics to change a vehicle's footprint
measurement, and thus its fuel economy target.
---------------------------------------------------------------------------

    \813\ U.S. Department of Transportation, NHTSA, Laboratory Test
Procedure for 49 CFR part 537, Automobile Fuel Economy Attribute
Measurements (Mar. 30, 2009), available at http://www.nhtsa.gov/DOT/NHTSA/Vehicle%20Safety/Test%20Procedures/Associated%20Files/TP-537-01.pdf.
---------------------------------------------------------------------------

    NHTSA ultimately determines a manufacturer's compliance based on
CAFE data EPA receives in final model year reports. EPA verifies the
information, accounting for NHTSA and EPA testing, and forwards the
information to NHTSA. A manufacturer's final model year report must be
submitted to EPA no later than 90 days after December 31 of the model
year.
(2) Proposed Changes to CAFE Reporting Requirements
    NHTSA is proposing changes to CAFE reporting requirements with the
intent to streamline reporting and data collection from manufacturers,
in addition to helping the agency use the best available data to inform
CAFE program decision-making. The agency requests comments on the
following reporting requirements.
(i) Standardized CAFE Report Templates
    In a 2015 rulemaking, NHTSA proposed to amend 49 CFR part 537 to
require a new data format for light-duty vehicle CAFE reports.\814\
NHTSA introduced a new standardized template for collecting
manufacturer's CAFE information under 49 CFR 537.7(b) and (c) in order
to ensure the accuracy and completeness of data collected and to better
align with the final data provided to EPA. NHTSA explained that for MYs
2013-2015, most manufacturer reports NHTSA received did not conform to
all of the requirements specified in 49 CFR part 537. For example,
NHTSA identified several instances where manufacturers' CAFE reports
included ``yes'' or ``no'' values in response to requests for a
vehicle's numerical ground clearance values.
---------------------------------------------------------------------------

    \814\ 80 FR 40540 (Jul. 13, 2015).
---------------------------------------------------------------------------

    Some manufacturers contend that the changes in reporting
requirements may be one source of confusion. NHTSA is aware that
manufacturers seem to be confused about what footprint data is required
because of the modification to the base tire definition \815\ in the
2012 final rule for MYs 2017 and beyond. Specifically, these
manufacturers fail to understand the required reporting information for
model types based upon footprint values. Beginning in MY 2013,
manufacturers were to provide attribute-based target standards in
consideration of the change in the base tire definition for each unique
model type and footprint combination of the manufacturer's automobiles.
NHTSA has found cases where manufacturers did not aggregate their model
types by each unique footprint combination. Likewise, NHTSA found other
errors in manufacturers' vehicle information submissions. A review of
the MY 2015 PMY reports showed that several manufacturers provided the
required information incorrectly.
---------------------------------------------------------------------------

    \815\ 49 CFR 523.2.
---------------------------------------------------------------------------

    Problems with inaccurate or missing data have become an even
greater issue for manufacturers planning to use the new procedures for
A/C efficiency and off-cycle technologies, and incentives

for advanced full-sized pickup trucks.\816\ Manufacturers seeking to
take advantage of the new procedures and incentives must provide
information on the model types equipped with the technologies. However,
NHTSA has identified and contacted several manufacturers that have
failed to submit the required information in their 2017 and 2018 PMY
reports.
---------------------------------------------------------------------------

    \816\ NHTSA allows manufacturers to use these incentives for
complying with standards starting in MY 2017.
---------------------------------------------------------------------------

    Therefore, as part of this rulemaking, NHTSA is proposing to adopt
a standardized template for reporting all required data for PMY, MMY,
and supplemental CAFE reports. The template will be available through
the CAFE Public Information Center (PIC) website. NHTSA is also
proposing to make the PMY and MMY reports exactly the same; many
manufacturers already submit PMY reports and then update the MMY
reports with the same type of information. NHTSA believes that this
approach will further simplify reporting for manufacturers. Further,
NHTSA is expanding its CAFE reporting requirements for manufacturers to
provide additional vehicle descriptors, common EPA carline codes, and
more information on emerging technologies. Additional data columns will
be included in the reporting template for manufacturers to identify
these emerging technologies.
    NHTSA believes adopting a standardized template will ensure
manufacturers provide the agency with all the necessary data in a
simpler, compliant format. The template would organize the required
data in a standardized and consistent manner, adopt formats for values
consistent with those provided to EPA, and calculate manufacturer's
target standards. This will also help NHTSA code CAFE electronic data
for use in the agency's electronic database system. Overall, these
changes are anticipated to drastically reduce manufacturer and
government burden for reporting under both EPCA/EISA and the Paperwork
Reduction Act.\817\
---------------------------------------------------------------------------

    \817\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    NHTSA seeks comment on the use of a standardized reporting
template, or on any possible changes to the proposed standardized
template, which is located in NHTSA's docket for review. Information on
fuel consumption improvement technologies (i.e., off-cycle) in the
template will be collected at the vehicle model type level. NHTSA plans
to revise the template as part of the Paperwork Reduction Act process.
(ii) Standardized Credit Trade Documents
    A credit trade is defined in 49 CFR 536.3 as the receipt by NHTSA
of an instruction from a credit holder to place its credits in the
account of another credit holder. Traded credits are moved from one
credit holder to the recipient credit holder within the same compliance
category for which the credits were originally earned. If a credit has
been traded to another credit holder and is subsequently traded back to
the originating manufacturer, it will be deemed not to have been traded
for compliance purposes. NHTSA does not administer trade negotiations
between manufacturers and when a trade document is received the
agreement must be issued jointly by the current credit holder and the
receiving party. NHTSA does not settle contractual or payment issues
between trading manufacturers.
    NHTSA created its CAFE database to maintain credit accounts for
manufacturers and to track all credit transactions. Credit accounts
consist of a balance of credits in each compliance category and vintage
held by the holder. While maintaining accurate credit records is
essential, it has become a challenging task for the agency given the
recent increase in credit transactions. Manufacturers have requested
NHTSA approve trade or transfer requests not only in response to end-
of-model year shortfalls but also during the model year when purchasing
credits to bank for future model years.
    To reduce the burden on all parties, encourage compliance, and
facilitate quicker NHTSA credit transaction approval, the agency is
proposing to add a required template to standardize the information
parties submit to NHTSA in reporting a credit transaction. Presently,
manufacturers are inconsistent in submitting the information required
by 49 CFR 536.8, creating difficulty for NHTSA in processing
transactions. The template NHTSA is proposing is a simple spreadsheet
that trading parties fill out. When completed, parties will be able to
click a button on the spreadsheet to generate a transaction letter for
the parties to sign and submit to NHTSA, along with the spreadsheet.
Using this template simplifies the credit transaction process, and
ensures that trading parties are following the requirements for a
credit transaction in 49 CFR 536.8(a).\818\
---------------------------------------------------------------------------

    \818\ Submitting a properly completed template and accompanying
transaction letter will satisfy the trading requirements in 49 CFR
part 536.
---------------------------------------------------------------------------

    Additionally, the template includes an acknowledgement of the
fraud/error provisions in 49 CFR 536.8(f), and the finality provisions
of 49 CFR 536.8(g). NHTSA seeks comment on this approach, as well as on
any changes to the template that may be necessary to better facilitate
manufacturer credit transaction requests. The agency's proposed
template is located in NHTSA's docket for review. The finalized
template would be available on the CAFE PIC site for manufacturers to
use.
(iii) Credit Transaction Information
    Though entities are permitted to trade CAFE credits, there is
limited public information available on credit transactions.\819\ As
discussed earlier, NHTSA maintains an online CAFE database with
manufacturer and fleetwide compliance information that includes year-
by-year accounting of credit balances for each manufacturer. While
NHTSA maintains this database, the agency's regulations currently state
that it does not publish information on individual transactions,\820\
and historically, NHTSA has not required trading entities to submit
information regarding the compensation (whether financial, or in terms
of other credits) manufacturers receive in exchange for credits.\821\
Thus, NHTSA's public database offers sparse information to those
looking to determine the value of a credit.
---------------------------------------------------------------------------

    \819\ Manufacturers may generate credits, but non-manufacturers
may also hold or trade credits. Thus, the word ``entities'' is used
to refer to those that may be a party to a credit transaction.
    \820\ 49 CFR 536.5(e)(1).
    \821\ NHTSA understands that not all credits are exchanged for
monetary compensation. If NHTSA were to require entities to report
compensation exchanged for credits, it would not be limited to
reporting monetary compensation.
---------------------------------------------------------------------------

    The lack of information regarding credit transactions means
entities wishing to trade credits have little, if any, information to
determine the value of the credits they seek to buy or sell. It is
widely assumed that the civil penalty for noncompliance with CAFE
standards largely determines the value of a credit, because it is
logical to assume that manufacturers would not purchase credits if it
cost less to pay noncompliance penalties instead, but it is unknown how
other factors affect the value. For example, a credit nearing the end
of its five-model-year lifespan would theoretically be worth less than
a credit with its full five-model-year lifespan remaining. In the
latter case, the credit holder would value the credit more, as it can
be used for a longer period of time.
    In the interest of facilitating a transparent, efficient credit
trading

market, NHTSA is considering modifying its regulations to require
trading parties to submit the amount of compensation exchanged for
credits, in addition to the parties trading and the number of credits
traded in a transaction. NHTSA is considering amending its regulations
to permit the agency to publish information on these specific
transactions. NHTSA seeks comment on requiring these disclosures when
trades occur.
(iv) Precision of the CAFE Credit Adjustment Factor
    EPCA, as amended by EISA, required the Secretary of Transportation
to establish an adjustment factor to ensure total oil savings are
preserved when manufacturers trade credits.\822\ The adjustment factor
applies to credits traded between manufacturers and to credits
transferred across a manufacturer's compliance fleets.
---------------------------------------------------------------------------

    \822\ 49 U.S.C. Sec.  32903(f)(1).
---------------------------------------------------------------------------

    In establishing the adjustment factor, NHTSA did not specify the
exact precision of the output of the equation in 49 CFR 536.4(b).
NHTSA's standard practice has been round to the nearest four decimal
places (e.g., 0.0001) for the adjustment factor. However, in the
absence of a regulatory requirement, many manufacturers have contacted
NHTSA for guidance, and NHTSA has had to correct several credit
transaction requests. In some instances, manufacturers have had to
revise signed credit trade documents and submit additional trade
agreements to properly address credit shortages.
    NHTSA is proposing to add requirements to 49 CFR 536.4 specifying
the precision of the adjustment factor by rounding to four decimal
places (e.g., 0.0001). NHTSA has also included equations for the
adjustment factor in its proposed credit transaction report template,
mentioned above, with the same level of precision. NHTSA seeks comment
on this approach.
(3) NHTSA Then Analyzes EPA-Certified CAFE Values for Compliance
    After manufacturers complete certification testing and submit their
final compliance values to EPA, EPA verifies the data and issues final
CAFE reports to manufacturers and NHTSA. NHTSA then identifies the
manufacturers' compliance categories (i.e., domestic passenger car,
imported passenger car, and light truck fleets) that do not meet the
applicable CAFE standards. NHTSA uses EPA-verified data to compare
fleet average standards with actual fleet performance values in each
compliance category. Each vehicle a manufacturer produces has a fuel
economy target based on its footprint (footprint curves are discussed
above in Section II.C), and each compliance category has a CAFE
standard measured in miles per gallon (mpg). If a vehicle exceeds its
target, it is a ``credit generator,'' if it falls short of its target,
it is a ``credit loser.'' Averaging these vehicles across a compliance
category, accounting for volume, equals a fleet average. A manufacturer
complies with NHTSA's fuel economy standard if its fleet average
performance is greater than or equal to its required standard, or if it
is able to use available compliance flexibilities, described below in
Section X.B.1.e., to resolve any shortfall.
    If the average fuel economy level of the vehicles in a compliance
category falls below the applicable fuel economy standard, NHTSA
provides written notification to the manufacturer that it has not met
that standard. The manufacturer is required to confirm the shortfall
and must either submit a plan indicating how it will allocate existing
credits, or if it does not have sufficient credits available in that
fleet, how it will earn, transfer and/or acquire credits, or pay the
appropriate civil penalty. The manufacturer must submit a credit
allocation plan or payment within 60 days of receiving agency
notification.
    NHTSA approves a credit allocation plan unless it finds the
proposed credits are unavailable or that it is unlikely that the plan
will result in the manufacturer earning sufficient credits to offset
the projected shortfall. If a plan is approved, NHTSA revises the
manufacturer's credit account accordingly. If a plan is rejected, NHTSA
notifies the manufacturer and requests a revised plan or payment of the
appropriate penalty. Similarly, if the manufacturer is delinquent in
submitting a response within 60 days, NHTSA takes action to immediately
collect a civil penalty. If NHTSA receives and approves a
manufacturer's plan to carryback future earned credits within the
following three years in order to comply with current regulatory
obligations, NHTSA will defer levying fines for non-compliance until
the date(s) when the manufacturer's approved plan indicates that the
credits will be earned or acquired to achieve compliance. If the
manufacturer fails to acquire or earn sufficient credits by the plan
dates, NHTSA will initiate non-compliance proceedings.\823\
---------------------------------------------------------------------------

    \823\ See generally 49 CFR part 536.
---------------------------------------------------------------------------

    In the event that a manufacturer does not comply with a CAFE
standard even after the consideration of credits, EPCA provides that
the manufacturer is liable for a civil penalty.\824\ Presently, this
penalty rate is set at $5.50 for each tenth of a mpg that a
manufacturer's average fuel economy falls short of the standard for a
given model year multiplied by the total volume of those vehicles in
the affected compliance category manufactured for that model year.\825\
All penalties are paid to the U.S. Treasury and not to NHTSA itself.
---------------------------------------------------------------------------

    \824\ 49 U.S.C. Sec.  32912.
    \825\ NHTSA proposed retaining the $5.50 civil penalty rate in
an April 2018 NPRM. See 83 FR 13904 (Apr. 2, 2018).
---------------------------------------------------------------------------

(4) Civil Penalties for Non-Compliance
    A manufacturer is liable to the Federal government for a civil
penalty if it does not comply with its applicable average fuel economy
standard, after considering credits available to the manufacturer.\826\
---------------------------------------------------------------------------

    \826\ 49 U.S.C. Sec. Sec.  32911-12.
---------------------------------------------------------------------------

    As previously mentioned, the potential civil penalty rate is
currently $5.50 for each tenth of a mpg that a manufacturer's average
fuel economy falls short of the average fuel economy standard for a
model year, multiplied by the total volume of those vehicles in the
compliance category.
[GRAPHIC] [TIFF OMITTED] TP24AU18.334

    Since the inception of the CAFE program, NHTSA has collected a
total of $890,427,578 in CAFE civil penalty payments. Generally, import
manufacturers have paid significantly more in civil penalties than
domestic manufacturers, with the majority of payments made by import
manufacturers for passenger cars and

not light trucks. Import passenger car manufacturers paid a total of
$890,057,188 in CAFE fines while domestic manufacturers paid a total of
$370,390.
    Prior to the CAFE credit trade and transfer program, several
manufacturers opted to pay civil penalties instead of complying with
CAFE standards. Since NHTSA introduced trading and transferring,
manufacturers have largely traded or transferred credits in lieu of
paying civil penalties. NHTSA assumes that buying and selling credits
is a more cost-effective strategy for manufacturers than paying civil
penalties, in part because it seems logical that the price of a credit
is directly related to the civil penalty rate and decreases as a credit
life diminishes.\827\ Prior to trading and transferring, on average,
manufacturers paid $29,075,899 in civil penalty payments annually (a
total of $814,125,176 from model years 1982 to 2010). Since trading and
transferring, manufacturers now pay an annual average of $15,260,480
each model year. The agency notes that five manufacturers have paid
civil penalties since 2011 totaling $76,302,402, and no civil penalty
payments were made in 2015. However, over the next several years, as
stringency increases, manufacturers are expected to have challenges
with CAFE standard compliance.
---------------------------------------------------------------------------

    \827\ See 49 CFR 536.4 for NHTSA's regulations regarding CAFE
credits.
---------------------------------------------------------------------------

(b) What Exemptions and Exclusions does NHTSA allow?
(a) Emergency and Law Enforcement Vehicles
    Under EPCA, manufacturers are allowed to exclude emergency vehicles
from their CAFE fleet \828\ and all manufacturers that produce
emergency vehicles have historically done so. NHTSA is not proposing
any changes to this exclusion.
---------------------------------------------------------------------------

    \828\ 49 U.S.C. Sec.  32902(e).
---------------------------------------------------------------------------

(b) Small Volume Manufacturers
    Per 49 U.S.C. 32902(d), NHTSA established requirements for exempted
small volume manufacturers in 49 CFR part 525, ``Exemptions from
Average Fuel Economy Standards.'' The small volume manufacturer
exemption is available for any manufacturer whose projected or actual
combined sales (whether in the United States or not) are fewer than
10,000 passenger automobiles in the model year two years before the
model year for which the manufacturer seeks to comply. The manufacturer
must submit a petition with information stating that the applicable
CAFE standard is more stringent than the maximum feasible average fuel
economy level that the manufacturer can achieve. NHTSA must then issue
by Federal Register notice an alternative average fuel economy standard
for the passenger automobiles manufactured by the exempted
manufacturer. The alternative standard is the maximum feasible average
fuel economy level for the manufacturers to which the alternative
standard applies. NHTSA is not proposing any changes to the small
volume manufacturer provision or alternative standards regulations in
this rulemaking.
(c) What compliance flexibilities and incentives are currently
available under the CAFE program and how do manufacturers use them?
    There are several compliance flexibilities that manufacturers can
use to achieve compliance with CAFE standards beyond applying fuel
economy-improving technologies. Some compliance flexibilities are
statutorily mandated by Congress through EPCA and EISA, specifically
program credits, including the ability to carry-forward, carry-back,
trade and transfer credits, and special fuel economy calculations for
dual- and alternative-fueled vehicles (discussed in turn, below).
However, 49 U.S.C. 32902(h) expressly prohibits NHTSA from considering
the availability of statutorily-established credits (either for
building dual- or alternative-fueled vehicles or from accumulated
transfers or traders) in determining the level of the standards. Thus,
NHTSA may not raise CAFE standards because manufacturers have enough of
those credits to meet higher standards. This is an important difference
from EPA's authority under the CAA, which does not contain such a
restriction, and which flexibility EPA has assumed in the past in
determining appropriate levels of stringency for its program.
    NHTSA also promulgated compliance flexibilities in response to
EPA's exercise of discretion under its EPCA authority to calculate fuel
economy levels for individual vehicles and for fleets. These compliance
flexibilities, which were first introduced in the 2012 rule for MYs
2017 and beyond, include air conditioning efficiency improvement and
``off cycle'' adjustments, and incentives for advanced technologies in
full size pick-up trucks, including incentives for mild and strong
hybrid electric full-size pickup trucks and performance-based
incentives in full-size pickup trucks. As explained above, comment is
sought on all of these adjustments and incentives.
(1) Program Credits and Credit Trading
    Generating, trading, transfer, and applying CAFE credits is
fundamentally governed by statutory mandates defined by Congress. As
discussed above in Section X.B.1., program credits are generated when a
vehicle manufacturer's fleet over-complies with its determined standard
for a given model year, meaning its vehicle fleet achieved a higher
corporate average fuel economy value than the amount required by the
CAFE program for that model year. Conversely, if the fleet average CAFE
level does not meet the standard, the fleet would incur debits (also
referred to as a shortfall). A manufacturer whose fleet generates
credits in a given model year has several options for using those
credits, including credit carry-back, credit carry-forward, credit
transfers, and credit trading.
    Credit ``carry-back'' means that manufacturers are able to use
credits to offset a deficit that had accrued in a prior model year,
while credit ``carry-forward'' means that manufacturers can bank
credits and use them towards compliance in future model years. EPCA, as
amended by EISA, requires NHTSA to allow manufacturers to carry back
credits for up to three model years, and to carry forward credits for
up to five model years.\829\ EPA also follows these same limitations
under its GHG program.\830\
---------------------------------------------------------------------------

    \829\ 49 U.S.C. Sec.  32903(a).
    \830\ As part of its 2017-2025 GHG program final rulemaking, EPA
did allow a one-time CO2 carry-forward beyond five years,
such that any credits generated from MYs 2010 through 2016 will be
able to be used to comply with light duty vehicle GHG standards at
any time through MY 2021.
---------------------------------------------------------------------------

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

beyond.\831\ These statutory limits will continue to apply to the
determination of compliance with the CAFE standards. EISA also
prohibits the use of transferred credits to meet the minimum domestic
passenger car fleet CAFE standard.\832\
---------------------------------------------------------------------------

    \831\ 49 U.S.C. Sec.  32903(g)(3).
    \832\ 49 U.S.C. Sec.  32903(g)(4).
---------------------------------------------------------------------------

    In their 2016 petition for rulemaking, the Alliance of Automobile
Manufacturers and Global Automakers (Alliance/Global or Petitioners)
asked NHTSA to amend the definition of ``transfer'' as it pertains to
compliance flexibilities.\833\ In particular, Alliance/Global requested
that NHTSA add text to the definition of ``transfer'' stating that the
statutory transfer cap in 49 U.S.C. 32903(g)(3) applies when the
credits are transferred. Alliance/Global assert that adding this text
to the definition is consistent with NHTSA's prior position on this
issue.
---------------------------------------------------------------------------

    \833\ Auto Alliance and Global Automakers Petition for
rulemaking on Corporate Average Fuel Economy (June 20, 2016) at 13.
---------------------------------------------------------------------------

    In the 2012-2016 final rule, NHTSA stated:

    NHTSA interprets EISA not to prohibit the banking of transferred
credits for use in later model years. Thus, NHTSA believes that the
language of EISA may be read to allow manufacturers to transfer
credits from one fleet that has an excess number of credits, within
the limits specified, to another fleet that may also have excess
credits instead of transferring only to a fleet that has a credit
shortfall. This would mean that a manufacturer could transfer a
certain number of credits each year and bank them, and then the
credits could be carried forward or back `without limit' later if
and when a shortfall ever occurred in that same fleet.\834\
---------------------------------------------------------------------------

    \834\ 75 FR 25666 (May 7, 2010).

    Following that final rule, NHTSA clarified via interpretation that
the transfer cap from EISA does not limit how many credits may be
transferred in a given model year, but it does limit the application of
transferred credits to a compliance category in a model year.\835\
``Thus, manufacturers may transfer as many credits into a compliance
category as they wish, but transferred credits may not increase a
manufacturer's CAFE level beyond the statutory limits.'' \836\
---------------------------------------------------------------------------

    \835\ See, letter from O. Kevin Vincent, Chief Counsel, NHTSA to
Tom Stricker, Toyota (July 5, 2011). Available online at https://isearch.nhtsa.gov/files/10-004142%20--%20Toyota%20CAFE%20credit%20transfer%20banking%20--%205%20Jul%2011%20final%20for%20signature.htm (last accessed Apr.
18, 2018).
    \836\ Id.
---------------------------------------------------------------------------

    NHTSA believes the transfer caps in 49 U.S.C. 32903(g)(3) are still
properly read to limit the application of credits in excess of those
values. NHTSA understands that the language in the 2012-2016 final rule
could be read to suggest that the transfer cap applies at the time
credits are transferred. However, NHTSA believes its subsequent
interpretation--that the transfer cap applies at the time the credits
are used--is a more appropriate, plain language reading of the statute.
While manufacturers have approached NHTSA with various interpretations
that would allow them to circumvent the EISA transfer cap, NHTSA
believes it is improper to ignore a transfer cap Congress clearly
articulated. Therefore, NHTSA proposes to deny Alliance/Global's
petition to revise the definition of ``transfer'' in 49 CFR 536.3.
    Credit ``trading'' means the ability of manufacturers to sell
credits to, or purchase credits from, one another. EISA allowed NHTSA
to establish by regulation a CAFE credit trading program, also now
codified at 49 CFR part 536, to allow credits to be traded between
vehicle manufacturers. EISA also prohibits manufacturers from using
traded credits to meet the minimum domestic passenger car CAFE
standard.\837\
---------------------------------------------------------------------------

    \837\ 49 U.S.C. Sec.  32903(f)(2).
---------------------------------------------------------------------------

    Under 49 CFR part 536, credit holders (including, but not limited
to manufacturers) have credit accounts with NHTSA where they can, as
outlined above, hold credits, use them to achieve compliance with CAFE
standards, transfer credits between compliance categories, or trade
them. A credit may also be cancelled before its expiration date, if the
credit holder so chooses. Traded and transferred credits are subject to
an ``adjustment factor'' to ensure total oil savings are preserved, as
required by EISA. EISA also prohibits credits earned before MY 2011
from being traded or transferred.
    As discussed above, NHTSA is concerned with the potential for
compliance flexibilities to have unintended consequences. Given that
the credit trading program is optional under EISA, comment is sought on
whether the credit trading provisions in 49 CFR part 536 should cease
to apply beginning in MY 2022.
(a) Fuel Savings Adjustment Factor
    Under NHTSA's credit trading regulations, a fuel savings adjustment
factor is applied when trading occurs between manufacturers, but not
when a manufacturer carries credits forward or carries back credits
within their own fleet. The Alliance/Global requested that NHTSA
require manufacturers to apply the fuel savings adjustment factor when
credits are carried forward or carried back within the same fleet,
including for existing, unused credits.
    Per EISA, total oil savings must be preserved in NHTSA's credit
trading program.\838\ The provisions for credit transferring within a
manufacturer's fleet \839\ do not include the same requirement;
however, NHTSA prescribed a fuel savings adjustment factor that applies
to both credit trades between manufacturers and credit transfers
between a manufacturer's compliance fleets.\840\
---------------------------------------------------------------------------

    \838\ 49 U.S.C. Sec.  32903(f)(1).
    \839\ 49 U.S.C. Sec.  32903(g).
    \840\ See 49 CFR 536.5. See also 74 FR 14430 (Mar. 30, 2009)
(Per NHTSA's final rule for MY 2011 Average Fuel Economy Standards
for Passenger Cars and Light Trucks, ``There is no other clear
expression of congressional intent in the text of the statute
suggesting that NHTSA would have authority to adjust transferred
credits, even in the interest of preserving oil savings. However,
the goal of the CAFE program is energy conservation; ultimately, the
U.S. would reap a greater benefit from ensuring that fuel oil
savings are preserved for both trades and transfers. Furthermore,
accounting for traded credits differently than for transferred
credits does add unnecessary burden on program enforcement. Thus,
NHTSA will adjust credits both when they are traded and when they
are transferred so that no loss in fuel savings occurs'').
---------------------------------------------------------------------------

    When NHTSA initially considered the preservation of oil savings,
the agency explained how one credit is not necessarily equal to
another. For example, the fuel savings lost if the average fuel economy
of a manufacturer falls one-tenth of an mpg below the level of a
relatively low standard are greater than the average fuel savings
gained by raising the average fuel economy of a manufacturer one-tenth
of a mpg above the level of a relatively high CAFE standard.\841\ The
effect of applying the adjustment factor is to increase the value of
credits earned for exceeding a relatively low CAFE standard for credits
that are intended to be applied to a compliance category with a
relatively high CAFE standard, and to decrease the value of credits
earned for exceeding a relatively high CAFE standard for credits that
are intended to be applied to a compliance category with a relatively
low CAFE standard.
---------------------------------------------------------------------------

    \841\ 74 FR 14432 (Mar. 30, 2009).
---------------------------------------------------------------------------

    Alliance/Global stated that while carry forward and carry back
credits have been used for many years, the CAFE standards did not
change during the Congressional CAFE freeze, meaning credits earned
during those years were associated with the same amount of fuel savings
from year to year.\842\ Alliance/Global suggest that because there is
no longer a Congressional CAFE freeze, NHTSA should apply the
adjustment

factor when moving credits within a manufacturer's fleet.
---------------------------------------------------------------------------

    \842\ Auto Alliance and Global Automakers Petition for
rulemaking on Corporate Average Fuel Economy (June 20, 2016) at 10.
---------------------------------------------------------------------------

    NHTSA has tentatively decided to deny Alliance/Global's request to
apply the fuel savings adjustment factor to credits that are carried
forward or carried back within the same fleet, to the extent that the
request would impact credits carried forward or backward retroactively
within manufacturer's compliance fleets (i.e., credits that were
generated prior to MY 2021, when this rule takes effect). NHTSA has
tentatively determined that applying the adjustment factor to credits
earned in model years past would be inequitable. Manufacturers planned
compliance strategies based, at least in part, on how credits could be
carried forward and backward, including the lack of an adjustment
factor when credits are carried forward or backward within the same
fleet. Thus, retroactively stating that manufacturers must apply the
adjustment factor in this situation could disadvantage certain
manufacturers, and result in windfalls for other manufacturers.
    However, NHTSA seeks comment on whether the agency should apply the
fuel savings adjustment factor to credits that are carried forward or
carried back within the same fleet beginning with MY 2021.
(b) VMT Estimates for Fuel Savings Adjustment Factor
    NHTSA uses a vehicle miles traveled (VMT) estimate as part of its
fuel savings adjustment equation to ensure that when traded or
transferred credits are used, fuel economy credits are adjusted to
ensure fuel oil savings is preserved.\843\ For model years 2017-2025,
NHTSA finalized VMT values of 195,264 miles for passenger car credits,
and 225,865 miles for light truck credits.\844\ These VMT estimates
harmonized with those used in EPA's GHG program. For model years 2011-
2016, NHTSA estimated different VMTs by model year.
---------------------------------------------------------------------------

    \843\ See 49 CFR Sec.  536.4(c).
    \844\ 77 FR 63130 (Oct. 15, 2012).
---------------------------------------------------------------------------

    Alliance/Global requested that NHTSA apply fixed VMT estimates to
the fuel savings adjustment factor for MYs 2011-2016, similar to how
NHTSA handles MYs 2017-2021. NHTSA rejected a similar request from the
Alliance in the 2017 and later rulemaking, citing lack of scope, and
expressing concern about the potential loss of fuel savings.\845\
---------------------------------------------------------------------------

    \845\ Id.
---------------------------------------------------------------------------

    Alliance/Global argue that data from MYs 2011-2016 demonstrate that
no fuel savings would have been lost, as NHTSA had originally been
concerned about. Alliance/Global assert that by not revising the MY
2012-2016 VMT estimates, credits earned during that timeframe were
undervalued. Therefore, Alliance/Global argue that NHTSA should
retroactively revise its VMT estimates to ``reflect better the real
world fuel economy results.'' \846\
---------------------------------------------------------------------------

    \846\ Auto Alliance and Global Automakers Petition for
rulemaking on Corporate Average Fuel Economy (June 20, 2016) at 11.
---------------------------------------------------------------------------

    Such retroactive adjustments could unfairly penalize manufacturers
for decisions they made based on the regulations as they existed at the
time. As Alliance/Global acknowledge, adjusting vehicle miles travelled
estimates would disproportionately affect manufacturers that have a
credit deficit and were part of EPA's Temporary Lead-time Allowance
Alternative Standards (TLAAS). The TLAAS program sunsets for model
years 2021 and later. Given some manufacturers would be
disproportionately harmed were we to accept Alliance/Global's
suggestion, NHTSA has tentatively decided to deny Alliance/Global's
request to retroactively change the agency's VMT schedules for model
years 2011-2016. Alliance/Global's suggestion that a TLAAS manufacturer
would be allowed to elect either approach does not change the fact that
manufacturers in the TLAAS program made production decisions based on
the regulations as understood at the time.
(2) Special Fuel Economy Calculations for Dual and Alternative Fueled
Vehicles
    As discussed at length in prior rulemakings, EPCA, as amended by
EISA, encouraged manufacturers to build alternative-fueled and dual-
(or flexible-) fueled vehicles by providing special fuel economy
calculations for ``dedicated'' (that is, 100%) alternative fueled
vehicles and ``dual-fueled'' (that is, capable of running on either the
alternative fuel or gasoline/diesel) vehicles.
    Dedicated alternative fuel automobiles include electric, fuel cell,
and compressed natural gas vehicles, among others. NHTSA's provisions
for dedicated alternative fuel vehicles in 49 U.S.C. 32905(a) state
that the fuel economy of any dedicated automobile manufactured after
1992 shall be measured based on the fuel content of the alternative
fuel used to operate the automobile. A gallon of liquid alternative
fuel used to operate a dedicated automobile is deemed to contain .15
gallon of fuel. Under EPCA, for dedicated alternative fuel vehicles,
there are no limits or phase-out for this special fuel economy
calculation, unlike for duel-fueled vehicles, as discussed below.
    EPCA's statutory incentive for dual-fueled vehicles at 49 U.S.C.
32906 and the measurement methodology for dual-fueled vehicles at 49
U.S.C. 32905(b) and (d) expire in MY 2019; therefore, NHTSA had to
examine the future of these provisions in the 2017 and later CAFE
rulemaking.\847\ NHTSA and EPA concluded that it would be inappropriate
to measure duel-fueled vehicles' fuel economy like that of conventional
gasoline vehicles with no recognition of their alternative fuel
capability, which would be contrary to the intent of EPCA/EISA.
Accordingly, the agencies proposed that for MY 2020 and later vehicles,
the general provisions authorizing EPA to establish testing and
calculation procedures would provide discretion to set the CAFE
calculation procedures for those vehicles.\848\ The methodology for
EPA's approach is outlined in the 2012 final rule for MYs 2017 and
beyond at 77 FR 63128 (Oct. 15, 2012). NHTSA seeks comment on the
current approach.
---------------------------------------------------------------------------

    \847\ 77 FR 62651 (Oct. 15, 2012).
    \848\ 49 U.S.C. Sec. Sec.  32904(a), (c).
---------------------------------------------------------------------------

(3) Incentives for Advanced Technologies in Full Size Pickup Trucks
    In the 2012 final rule for MYs 2017 and beyond, EPA finalized
criteria that would provide an adjustment to the fuel economy of a
manufacturer's full size pickup trucks if the manufacturer employed
certain defined hybrid technologies for a significant quantity of those
trucks.\849\ Additionally, EPA finalized an adjustment to the fuel
economy of a manufacturer's full sized pickup truck if it achieved a
fuel economy performance level significantly above the CAFE target for
its footprint.\850\ This performance-based incentive recognized that
not all manufacturers may have wished to pursue hybridization, and
aimed to reward manufacturers for applying fuel-saving technologies
above and beyond what they might otherwise have done. EPA provided the
incentive for its GHG program under its CAA authority, and for the CAFE
program under its EPCA authority, similar to the A/C efficiency and
off-cycle adjustment values described below.
---------------------------------------------------------------------------

    \849\ 77 FR 62651 (Oct. 15, 2012).
    \850\ Id.
---------------------------------------------------------------------------

    EPA established limits on the vehicles eligible to qualify for
these credits; a truck must meet minimum criteria for bed size and
towing or payload

capacity, and there are minimum sales thresholds (in terms of a
percentage of a manufacturer's full-size pickup truck fleet) that a
manufacturer must satisfy in order to qualify for the incentives.
Additionally, the incentives phase out at different rates through
2025--the mild hybrid incentive phases out in MY 2021, the strong
hybrid incentive phases out in 2025, the 15% performance incentive (10
g/mi) credit phases out in MY 2021, and the 20% performance incentive
(20 g/mi) credit is available for a maximum of five years between MYs
2017-2025, provided the vehicle's CO2 emissions level does
not increase.\851\
---------------------------------------------------------------------------

    \851\ 77 FR 62651-2 (Oct. 15, 2012).
---------------------------------------------------------------------------

    At the time of developing this proposal, no manufacturer has
claimed these full-size pickup truck credits. Some vehicle
manufacturers have announced potential collaborations, research
projects, or possible future introduction these technologies for this
segment.\852\ Additionally, similar to the incentive for hybridized
pickup trucks, the agency is not aware of any vehicle manufacturers
currently benefiting from the performance-based incentive. Comment is
sought on whether to extend either the incentive for hybrid full size
pickup trucks or the performance-based incentive past the dates that
EPA specified in the 2012 final rule for MYs 2017 and beyond.
---------------------------------------------------------------------------

    \852\ At the time of this proposal, there is awareness of some
vehicle models that may qualify in future years should manufacturers
choose to claim these credits. For example, the 2019 Ram 1500
introduces a mild hybrid ``eTorque'' system (Sam Abuelsamid, 2019
Ram 1500 Gets 48V Mild Hybrid On All Gas Engines, Forbes (Jan. 15,
2019), https://www.forbes.com/sites/samabuelsamid/2018/01/15/2019-ram-1500-gets-standard-48v-mild-hybrid-on-all-gas-engines/#2a0cc967e9e6); Ford is expected to introduce a hybrid F-150 (Keith