vehicles would continue to be treated differently between the CAFE
and CO2 programs. While harmonization would be
significantly improved, standards would not be fully aligned because
of the small fraction of the fleet that uses diesel and alternative
fuels (e.g., about four percent of the MY 2016 fleet), as well as
differences involving EPCA/EISA provisions EPA, lacking any specific
direction under the CAA, has declined to adopt, such as minimum
standards for domestic passenger cars and limits on credit transfers
between regulated fleets.
---------------------------------------------------------------------------

    EPA also seeks comment on retaining the existing credit program for
regulation of A/C refrigerant leakage, nitrous oxide, and methane
emissions as part of the CO2 standard.
    The agencies have examined these alternatives because the agencies
intend to continue considering them as options for the final rule. The
agencies seek comment on these alternatives and on the analysis
presented here, seek any relevant data and information, and will review
responses. That review could lead the agencies to select one of the

other regulatory alternatives for the final rule.

A. What alternatives did NHTSA and EPA consider?

    The table below shows the different alternatives evaluated in this
proposal.
[GRAPHIC] [TIFF OMITTED] TP24AU18.147

    Also, as mentioned previously in Section III.B., EPA seeks comments
on whether to proceed with this proposal to discontinue accounting for
A/C leakage, methane emissions, and nitrous oxide emissions as part of
the CO2 emissions standards to provide for better harmony
with the CAFE program or whether to continue to consider these factors
toward compliance and retain that as a feature that differs between the
programs. EPA seeks comment on whether to change existing methane and
nitrous oxide standards that were finalized in the 2012 rule.
Specifically, EPA seeks information from the public on whether the
existing standards are appropriate, or whether they should be

revised to be less stringent or more stringent based on any updated
data.
---------------------------------------------------------------------------

    \381\ Carbon dioxide equivalent of air conditioning refrigerant
leakage, nitrous oxide and methane emissions are included for
compliance with the EPA standards for all MYs under the baseline/no
action alternative. Carbon dioxide equivalent is calculated using
the Global Warming Potential (GWP) of each of the emissions.
    \382\ Beginning in MY 2021, air conditioning refrigerant
leakage, nitrous oxide, and methane emissions may be regulated
independently by EPA. The GWP equivalent of each of the emissions
would no longer be included with the tailpipe CO2 for
compliance with tailpipe CO2 standards. A lengthier
discussion of this issue can be found in Section III.B.
---------------------------------------------------------------------------

    Additionally, the agencies note that this proposal also seeks
comment on a number of additional compliance flexibilities for the
programs. See Section X below, and EPA specifically draws attention the
discussion of ``enhanced flexibilities'' in Section X.C.

B. Definition of Alternatives

1. No-Action Alternative
    The No-Action Alternative applies the augural CAFE and final GHG
targets announced in 2012 for MYs 2021-2025. For MY 2026, this
alternative applies the same targets as for MY 2025. Carbon dioxide
equivalent of air conditioning refrigerant leakage, nitrous oxide, and
methane emissions are included for compliance with the EPA standards
for all model years under the baseline/no action alternative.
[GRAPHIC] [TIFF OMITTED] TP24AU18.148

[GRAPHIC] [TIFF OMITTED] TP24AU18.149

2. Alternative 1 (Proposed)
    Alternative 1 holds the stringency of targets constant and MY 2020
levels through MY 2026. Beginning in MY 2021, air conditioning
refrigerant leakage, nitrous oxide, and methane emissions are no longer
included with the tailpipe CO2 for compliance with tailpipe
CO2 standards. Section III, above, defines this alternative
in greater detail.
3. Alternative 2
    Alternative 2 increases the stringency of targets annually during
MYs 2021-2026 (on a gallon per mile basis, starting from MY 2020) by
0.5% for passenger cars and 0.5% for light trucks. Section III
describes the proposed standards included in the preferred alternative.
Beginning in MY 2021, air conditioning refrigerant leakage, nitrous
oxide, and methane emissions are no longer included with the tailpipe
CO2 for compliance with tailpipe CO2 standards.

[GRAPHIC] [TIFF OMITTED] TP24AU18.150

4. Alternative 3
    Alternative 3 phases out A/C and off-cycle adjustments and
increases the stringency of targets annually during MYs 2021-2026 (on a
gallon per mile basis, starting from MY 2020) by 0.5% for passenger
cars and 0.5% for light trucks. The cap on adjustments for AC
efficiency improvements declines from 6 grams per mile in MY 2021 to 5,
4, 3, 2, and 0 grams per mile in MYs 2022, 2023, 2024, 2025, and 2026,
respectively. The cap on adjustments for off-cycle improvements
declines from 10 grams per mile in MY 2021 to 8, 6, 4, 2, and 0 grams
per mile in MYs 2022, 2023, 2024, 2025, and 2026, respectively.
Beginning in MY 2021, air conditioning refrigerant leakage, nitrous
oxide, and methane emissions are no longer included with the tailpipe
CO2 for compliance with tailpipe CO2 standards.

[GRAPHIC] [TIFF OMITTED] TP24AU18.151

5. Alternative 4
    Alternative 4 increases the stringency of targets annually during
MYs 2021-2026 (on a gallon per mile basis, starting from MY 2020) by
1.0% for passenger cars and 2.0% for light trucks. Beginning in MY
2021, air conditioning refrigerant leakage, nitrous oxide, and methane
emissions are no longer included with the tailpipe CO2 for
compliance with tailpipe CO2 standards.

[GRAPHIC] [TIFF OMITTED] TP24AU18.152

6. Alternative 5
    Alternative 5 increases the stringency of targets annually during
MYs 2022-2026 (on a gallon per mile basis, starting from MY 2021) by
1.0% for passenger cars and 2.0% for light trucks. Beginning in MY
2021, air conditioning refrigerant leakage, nitrous oxide, and methane
emissions are no longer included with the tailpipe CO2 for
compliance with tailpipe CO2 standards, and MY 2021
CO2 targets are adjusted accordingly.

[GRAPHIC] [TIFF OMITTED] TP24AU18.153

7. Alternative 6
    Alternative 6 increases the stringency of targets annually during
MYs 2021-2026 (on a gallon per mile basis, starting from MY 2020) by
2.0% for passenger cars and 3.0% for light trucks. Beginning in MY
2021, air conditioning refrigerant leakage, nitrous oxide, and methane
emissions are no longer included with the tailpipe CO2 for
compliance with tailpipe CO2 standards.

[GRAPHIC] [TIFF OMITTED] TP24AU18.154

8. Alternative 7
    Alternative 7 phases out A/C and off-cycle adjustments and
increases the stringency of targets annually during MYs 2021-2026 (on a
gallon per mile basis, starting from MY 2020) by 1.0% for passenger
cars and 2.0% for light trucks. The cap on adjustments for AC
efficiency improvements declines from 6 grams per mile in MY 2021 to 5,
4, 3, 2, and 0 grams per mile in MYs 2022, 2023, 2024, 2025, and 2026,
respectively. The cap on adjustments for off-cycle improvements
declines from 10 grams per mile in MY 2021 to 8, 6, 4, 2, and 0 grams
per mile in MYs 2022, 2023, 2024, 2025, and 2026, respectively.
Beginning in MY 2021, air conditioning refrigerant leakage, nitrous
oxide, and methane emissions are no longer included with the tailpipe
CO2 for compliance with tailpipe CO2 standards.

[GRAPHIC] [TIFF OMITTED] TP24AU18.155

9. Alternative 8
    Alternative 8 increases the stringency of targets annually during
MYs 2022-2026 (on a gallon per mile basis, starting from MY 2021) by
2.0% for passenger cars and 3.0% for light trucks. Beginning in MY
2021, air conditioning refrigerant leakage, nitrous oxide, and methane
emissions are no longer included with the tailpipe CO2 for
compliance with tailpipe CO2 standards, and MY 2021
CO2 targets are adjusted accordingly.

[GRAPHIC] [TIFF OMITTED] TP24AU18.156

V. Proposed Standards, the Agencies' Statutory Obligations, and Why the
Agencies Propose To Choose Them Over the Alternatives

A. NHTSA's Statutory Obligations and Why the Proposed Standards Appear
to be Maximum Feasible

1. EPCA, as Amended by EISA
    EPCA, as amended by EISA, contains a number of provisions regarding
how NHTSA must set CAFE standards. NHTSA must establish separate CAFE
standards for passenger cars and light trucks \383\ for each model
year,\384\ and each standard must be the maximum feasible that NHTSA
believes the manufacturers can achieve in that model year.\385\ In
determining the maximum feasible level achievable by the manufacturers,
EPCA requires that NHTSA consider the four statutory factors of
technological feasibility, economic practicability, the effect of other
motor vehicle standards of the Government on fuel economy, and the need
of the United States to conserve energy.\386\ In addition, NHTSA has
the authority to (and traditionally does) consider other relevant
factors, such as the effect of the CAFE standards on motor vehicle
safety and consumer preferences.\387\ The ultimate determination of
what standards can be considered maximum feasible involves a weighing
and balancing of these factors, and the balance may shift depending on
the information before NHTSA about the expected circumstances in the
model years covered by the rulemaking. The agency's decision must also
support the overarching purpose of EPCA, energy conservation, while
balancing these factors.\388\
---------------------------------------------------------------------------

    \383\ 49 U.S.C. 32902(b)(1) (2007).
    \384\ 49 U.S.C. 32902(a) (2007).
    \385\ Id.
    \386\ 49 U.S.C. 32902(f) (2007).
    \387\ Both of these additional considerations also relate, to
some extent, to economic practicability, but NHTSA also has the
authority to consider them independently of that statutory factor.
    \388\ Center for Biological Diversity v. NHTSA, 538 F. 3d 1172,
1197 (9th Cir. 2008) (``Whatever method it uses, NHTSA cannot set
fuel economy standards that are contrary to Congress' purpose in
enacting the EPCA--energy conservation.'')
---------------------------------------------------------------------------

    Besides the requirement that the standards be maximum feasible for
the fleet in question and the model year in question, EPCA/EISA also
contain

several other requirements as explained below.
(a) Lead Time
    EPCA requires that NHTSA prescribe new CAFE standards at least 18
months before the beginning of each model year.\389\ For light-duty
vehicles, NHTSA has consistently interpreted the ``beginning of each
model year'' as September 1 of the CY prior, such that the beginning of
MY 2019 would be September 1, 2018. Thus, if the first year for which
NHTSA is proposing to set new standards in this NPRM is MY 2022, NHTSA
interprets this provision as requiring us to issue a final rule
covering MY 2022 standards no later than April 1, 2020.
---------------------------------------------------------------------------

    \389\ 49 U.S.C. 32902(a) (2007).
---------------------------------------------------------------------------

    For amendments to existing standards, EPCA requires that if the
amendments make an average fuel economy standard more stringent, at
least 18 months of lead time must be provided.\390\ EPCA contains no
lead time requirement unless amendments make an average fuel economy
standard less stringent. NHTSA therefore interprets EPCA as allowing
amendments to reduce a standard's stringency up until the beginning of
the model year in question. In this rulemaking, NHTSA is proposing to
amend the standards for model year 2021. Since the agency proposes to
reduce these standards, this action is not subject to a lead time
requirement.
---------------------------------------------------------------------------

    \390\ 49 U.S.C. 32902(g)(2) (2007).
---------------------------------------------------------------------------

(b) Separate Standards for Cars and Trucks, and Minimum Standards for
Domestic Passenger Cars
    As discussed above, EPCA requires NHTSA to set separate CAFE
standards for passenger cars and light trucks for each model year.\391\
NHTSA interprets this requirement as preventing the agency from setting
a single combined CAFE standard for cars and trucks together, based on
the plain language of the statute. Congress originally intended
separate CAFE standards for cars and trucks to reflect the different
fuel economy capabilities of those different types of vehicles, and
over the history of the CAFE program, has never revised this
requirement. Even as many cars and trucks have come to resemble each
other more closely over time--many crossover and sport-utility models,
for example, come in versions today that may be subject to either the
car standards or the truck standards depending on their
characteristics--it is still accurate to say that vehicles with truck-
like characteristics such as 4 wheel drive, cargo-carrying capability,
etc., need to use more fuel per mile to perform those jobs than
vehicles without these characteristics. Thus, regardless of the plain
language of the statute, NHTSA believes that the different fuel economy
capabilities of cars and trucks would generally make separate standards
appropriate for these different types of vehicles.
---------------------------------------------------------------------------

    \391\ 49 U.S.C. 32902(b)(1) (2007).
---------------------------------------------------------------------------

    EPCA, as amended by EISA, also requires another separate standard
to be set for domestically-manufactured \392\ passenger cars. Unlike
under the standards for passenger cars and light trucks described
above, the compliance burden of the minimum domestic passenger car
standard is the same for all manufacturers; the statute clearly states
that any manufacturer's domestically-manufactured passenger car fleet
must meet the greater of either 27.5 mpg on average, or
---------------------------------------------------------------------------

    \392\ In the CAFE program, ``domestically-manufactured'' is
defined by Congress in 49 U.S.C. Sec.  32904(b). The specifics of
the definition are too many for a footnote, but roughly, a passenger
car is ``domestically manufactured'' as long as at least 75% of the
cost to the manufacturer is attributable to value added in the
United States, Canada, or Mexico, unless the assembly of the vehicle
is completed in Canada or Mexico and the vehicle is imported into
the United States more than 30 days after the end of the model year.

. . . 92 percent of the average fuel economy projected by the
Secretary for the combined domestic and non-domestic passenger
automobile fleets manufactured for sale in the United States by all
manufacturers in the model year, which projection shall be published
in the Federal Register when the standard for that model year is
promulgated in accordance with [49 U.S.C. 32902(b)].\393\
---------------------------------------------------------------------------

    \393\ 49 U.S.C. Sec.  32902(b)(4) (2007).
---------------------------------------------------------------------------

    Since that requirement was promulgated, the ``92 percent'' has
always been greater than 27.5 mpg. NHTSA published the 92-percent
minimum domestic passenger car standards for model years 2017-2025 at
49 CFR 531.5(d) as part of the 2012 final rule. For MYs 2022-2025,
531.5(e) states that these were to be applied if, when actually
proposing MY 2022 and subsequent standards, the previously identified
standards for those years are deemed maximum feasible, but if NHTSA
determines that the previously identified standards are not maximum
feasible, the 92-percent minimum domestic passenger car standards would
also change. This is consistent with the statutory language that the
92-percent standards must be determined at the time an overall
passenger car standard is promulgated and published in the Federal
Register. Thus, any time NHTSA establishes or changes a passenger car
standard for a model year, the minimum domestic passenger car standard
for that model year will also be evaluated or reevaluated and
established accordingly. NHTSA explained this in the rulemaking to
establish standards for MYs 2017 and beyond and received no
comments.\394\
---------------------------------------------------------------------------

    \394\ 77 FR 62624, 63028 (Oct. 15, 2012).
---------------------------------------------------------------------------

    The 2016 Alliance/Global petition for rulemaking asked NHTSA to
retroactively revise the 92-percent minimum domestic passenger car
standards for MYs 2012-2016 ``to reflect 92 percent of the required
average passenger car standard taking into account the fleet mix as it
actually occurred, rather than what was forecast.'' The petitioners
stated that doing so would be ``fully consistent with the statute.''
\395\
---------------------------------------------------------------------------

    \395\ Automobile Alliance and Global Automakers Petition for
Direct Final Rule with Regard to Various Aspects of the Corporate
Average Fuel Economy Program and the Greenhouse Gas Program (June
20, 2016) at 5, 17-18, available at https://www.epa.gov/sites/production/files/2016-09/documents/petition_to_epa_from_auto_alliance_and_global_automakers.pdf
[hereinafter Alliance/Global Petition].
---------------------------------------------------------------------------

    NHTSA understands that determining the 92 percent value ahead of
the model year to which it applies, based on the information then
available to the agency, results in a different mpg number than if
NHTSA determined the 92 percent value based on the information
available at the end of the model year in question. NHTSA further
understands that determining the 92 percent value ahead of time can
make the domestic minimum passenger car standard more stringent than it
could be if it were determined at the end of the model year, if
manufacturers end up producing more larger-footprint passenger cars
than NHTSA originally anticipated.
    Accordingly, NHTSA seeks comment on this request by Alliance/
Global. Additionally, recognizing the uncertainty inherent in
projecting specific mpg values far into the future, it is possible that
NHTSA could define the mpg values associated with a CAFE standard
(i.e., the footprint curve) as a range rather than as a single number.
For example, the sensitivity analysis included in this proposal and in
the accompanying PRIA could provide a basis for such an mpg range
``defining'' the passenger car standard in any given model year. If
NHTSA took that approach, 92 percent of that ``standard'' would also,
necessarily, be a range. We also seek comment on this or other similar
approaches.
(c) Attribute-Based and Defined by Mathematical Function
    EISA requires NHTSA to set CAFE standards that are ``based on 1 or
more

attributes related to fuel economy and express[ed] . . . in the form of
a mathematical function.'' \396\ NHTSA has thus far based standards on
vehicle footprint and proposes to continue to do so for all the reasons
described in previous rulemakings. As in previous rulemakings, NHTSA
proposes to define the standards in the form of a constrained linear
function that generally sets higher (more stringent) targets for
smaller-footprint vehicles and lower (less stringent) targets for
larger-footprint vehicles. These footprint curves are discussed in much
greater detail in Section II.C above. We seek comment both on the
choice of footprint as the relevant attribute and on the rationale for
the constrained linear functions chosen to represent the standards.
---------------------------------------------------------------------------

    \396\ 49 U.S.C. 32902(b)(3)(A).
---------------------------------------------------------------------------

(d) Number of Model Years for Which Standards May Be Set at a Time
    EISA also states that NHTSA shall ``issue regulations under this
title prescribing average fuel economy standards for at least 1, but
not more than 5, model years.'' \397\ In the 2012 final rule, NHTSA
interpreted this provision as preventing the agency from setting final
standards for all of MYs 2017-2025 in a single rulemaking action, so
the MYs 2022-2025 standards were termed ``augural,'' meaning ``that
they represent[ed] the agency's current judgment, based on the
information available to the agency [then], of what levels of
stringency would be maximum feasible in those model years.'' \398\ That
said, NHTSA also repeatedly clarified that the augural standards were
in no way final standards and that a future de novo rulemaking would be
necessary in order to both propose and promulgate final standards for
MYs 2022-2025.
---------------------------------------------------------------------------

    \397\ 49 U.S.C. 32902(b)(3)(B).
    \398\ 77 FR 62623, 62630 (Oct. 15, 2012).
---------------------------------------------------------------------------

    Today, NHTSA proposes to establish new standards for MYs 2022-2026
and to revise the previously-established final standards for MY 2021.
Legislative history suggests that Congress included the five year
maximum limitation so NHTSA would issue standards for a period of time
where it would have reasonably realistic estimates of market
conditions, technologies, and economic practicability (i.e., not set
standards too far into the future).\399\ However, the concerns Congress
sought to address by imposing those limitations are not present for
nearer model years where NHTSA already has existing standards.
Revisiting existing standards is contemplated by both 49 U.S.C.
32902(c) and 32902(g). We therefore believe that it is reasonable to
interpret section 32902(b)(3)(B) as applying only to the establishing
of new standards rather than to the combined action of establishing new
standards and amending existing standards.
---------------------------------------------------------------------------

    \399\ See 153 Cong. Rec. 2665 (Dec. 28, 2007).
---------------------------------------------------------------------------

    Moreover, we believe it would be an absurd result not intended by
Congress if the five year maximum limitation were interpreted to
prevent NHTSA from revising a previously-established standard that we
have determined to be beyond maximum feasible, while concurrently
setting five years of standards not so distant from today. The concerns
Congress sought to address are much starker when NHTSA is trying to
determine what standards would be maximum feasible 10 years from now as
compared to three years from now.
(e) Maximum Feasible
    As discussed above, EPCA requires NHTSA to consider four factors in
determining what levels of CAFE standards would be maximum feasible,
and NHTSA presents in the sections below its understanding of what
those four factors mean. All factors should be considered, in the
manner appropriate, and then the maximum feasible standards should be
determined.
(1) Technological Feasibility
    ``Technological feasibility'' refers to whether a particular method
of improving fuel economy is available for deployment in commercial
application in the model year for which a standard is being
established. Thus, NHTSA is not limited in determining the level of new
standards to technology that is already being commercially applied at
the time of the rulemaking. For this proposal, NHTSA is considering a
wide range of technologies that improve fuel economy, subject to the
constraints of EPCA regarding how to treat alternative fueled vehicles,
and considering the need to account for which technologies have already
been applied to which vehicle model/configuration, and the need to
realistically estimate the cost and fuel economy impacts of each
technology. NHTSA has not attempted to account for every technology
that might conceivably be applied to improve fuel economy and considers
it unnecessary to do so given that many technologies address fuel
economy in similar ways.\400\ Technological feasibility and economic
practicability are often conflated, as will be covered further in the
following section. To be clear, whether a fuel-economy-improving
technology does or will exist (technological feasibility) is a
different question from what economic consequences could ensue if NHTSA
effectively requires that technology to become widespread in the fleet
and the economic consequences of the absence of consumer demand for
technology that are projected to be required (economic practicability).
It is therefore possible for standards to be technologically feasible
but still beyond the level that NHTSA determines to be maximum feasible
due to consideration of the other relevant factors.
---------------------------------------------------------------------------

    \400\ For example, NHTSA has not considered high-speed flywheels
as potential energy storage devices for hybrid vehicles; while such
flywheels have been demonstrated in the laboratory and even tested
in concept vehicles, commercially available hybrid vehicles
currently known to NHTSA use chemical batteries as energy storage
devices, and the agency has considered a range of hybrid vehicle
technologies that do so.
---------------------------------------------------------------------------

(2) Economic Practicability
    ``Economic practicability'' has traditionally referred to whether a
standard is one ``within the financial capability of the industry, but
not so stringent as to'' lead to ``adverse economic consequences, such
as a significant loss of jobs or unreasonable elimination of consumer
choice.'' \401\ In evaluating economic practicability, NHTSA considers
the uncertainty surrounding future market conditions and consumer
demand for fuel economy alongside consumer demand for other vehicle
attributes. NHTSA has explained in the past that this factor can be
especially important during rulemakings in which the auto industry is
facing significantly adverse economic conditions (with corresponding
risks to jobs). Consumer acceptability is also a major component to
economic practicability,\402\ which can involve consideration of
anticipated consumer responses not just to increased vehicle cost, but
also to the way manufacturers may change vehicle models and vehicle
sales mix in response to CAFE standards. In attempting to determine the
economic practicability of attribute-based standards, NHTSA considers a
wide variety of elements, including the annual rate at which
manufacturers can increase the percentage of their fleet that employs a
particular type of fuel-saving technology,\403\ the specific fleet
mixes of

different manufacturers, and assumptions about the cost of standards to
consumers and consumers' valuation of fuel economy, among other things.
---------------------------------------------------------------------------

    \401\ 67 FR 77015, 77021 (Dec. 16, 2002).
    \402\ See, e.g., Center for Auto Safety v. NHTSA (CAS), 793 F.2d
1322 (D.C. Cir. 1986) (Administrator's consideration of market
demand as component of economic practicability found to be
reasonable); Public Citizen v. NHTSA, 848 F.2d 256 (Congress
established broad guidelines in the fuel economy statute; agency's
decision to set lower standards was a reasonable accommodation of
conflicting policies).
    \403\ For example, if standards effectively require
manufacturers to widely apply technologies that consumers do not
want, or to widely apply technologies before they are ready to be
widespread, NHTSA believes that these standards could potentially be
beyond economically practicable.
---------------------------------------------------------------------------

    Prior to the MYs 2005-2007 rulemaking under the non-attribute-based
(fixed value) CAFE standards, NHTSA generally sought to ensure the
economic practicability of standards in part by setting them at or near
the capability of the ``least capable manufacturer'' with a significant
share of the market, i.e., typically the manufacturer whose fleet mix
was, on average, the largest and heaviest, generally having the highest
capacity and capability so as to not limit the availability of those
types of vehicles to consumers. In the first several rulemakings
establishing attribute-based standards, NHTSA applied marginal cost-
benefit analysis, considering both overall societal impacts and overall
consumer impacts. Whether the standards maximize net benefits has thus
been a touchstone in the past for NHTSA's consideration of economic
practicability. Executive Order 12866, as amended by Executive Order
13563, states that agencies should ``select, in choosing among
alternative regulatory approaches, those approaches that maximize net
benefits . . .'' In practice, however, agencies, including NHTSA, must
consider situations in which the modeling of net benefits does not
capture all of the relevant considerations of feasibility. Therefore,
as in past rulemakings, NHTSA is considering net societal impacts, net
consumer impacts, and other related elements in the consideration of
economic practicability.
    NHTSA's consideration of economic practicability depends on a
number of elements. Expected availability of capital to make
investments in new technologies matters; manufacturers' expected
ability to sell vehicles with certain technologies matters; likely
consumer choices matter and so forth. NHTSA's analysis of the impacts
of this proposal incorporates assumptions to capture aspects of
consumer preferences, vehicle attributes, safety, and other elements
relevant to an impacts estimate; however, it is difficult to capture
every such constraint. Therefore, it is well within the agency's
discretion to deviate from the level at which modeled net benefits are
maximized if the agency concludes that that level would not represent
the maximum feasible level for future CAFE standards. Economic
practicability is complex, and like the other factors must also be
considered in the context of the overall balancing and EPCA's
overarching purpose of energy conservation. Depending on the conditions
of the industry and the assumptions used in the agency's analysis of
alternative standards, NHTSA could well find that standards that
maximize net benefits, or that are higher or lower, could be at the
limits of economic practicability, and thus potentially the maximum
feasible level, depending on how the other factors are balanced.
    While we discuss safety as a separate consideration, NHTSA also
considers safety as closely related to, and in some circumstances a
subcomponent of economic practicability. On a broad level,
manufacturers have finite resources to invest in research and
development. Investment into the development and implementation of fuel
saving technology necessarily comes at the expense of investing in
other areas such as safety technology. On a more direct level, when
making decisions on how to equip vehicles, manufacturers must balance
cost considerations to avoid pricing further consumers out of the
market. As manufacturers add technology to increase fuel efficiency,
they may decide against installing new safety equipment to reduce cost
increases. And as the price of vehicles increase beyond the reach of
more consumers, such consumers continue to drive or purchase older,
less safe vehicles. In assessing practicability, NHTSA also considers
the harm to the nation's economy caused by highway fatalities and
injuries.
(3) The Effect of Other Motor Vehicle Standards of the Government on
Fuel Economy
    ``The effect of other motor vehicle standards of the Government on
fuel economy'' involves analysis of the effects of compliance with
emission, safety, noise, or damageability standards on fuel economy
capability and thus on average fuel economy. In many past CAFE
rulemakings, NHTSA has said that it considers the adverse effects of
other motor vehicle standards on fuel economy. It said so because, from
the CAFE program's earliest years \404\ until recently, the effects of
such compliance on fuel economy capability over the history of the CAFE
program have been negative ones. For example, safety standards that
have the effect of increasing vehicle weight thereby lower fuel economy
capability, thus decreasing the level of average fuel economy that
NHTSA can determine to be feasible. NHTSA has considered the additional
weight that it estimates would be added in response to new safety
standards during the rulemaking timeframe.\405\ NHTSA has also
accounted for EPA's ``Tier 3'' standards for criteria pollutants in its
estimates of technology effectiveness.\406\
---------------------------------------------------------------------------

    \404\ 42 FR 63184, 63188 (Dec. 15, 1977). See also 42 FR 33534,
33537 (June 30, 1977).
    \405\ PRIA, Chapter 5.
    \406\ PRIA, Chapter 6.
---------------------------------------------------------------------------

    In the 2012 final rule establishing CAFE standards for MYs 2017-
2021, NHTSA also discussed whether EPA GHG standards and California GHG
standards should be considered and accounted for as ``other motor
vehicle standards of the Government.'' NHTSA recognized that ``To the
extent the GHG standards result in increases in fuel economy, they
would do so almost exclusively as a result of inducing manufacturers to
install the same types of technologies used by manufacturers in
complying with the CAFE standards.'' \407\ NHTSA concluded that ``the
agency had already considered EPA's [action] and the harmonization
benefits of the National Program in developing its own [action],'' and
that ``no further action was needed.'' \408\
---------------------------------------------------------------------------

    \407\ 77 FR 62624, 62669 (Oct. 15, 2012).
    \408\ Id.
---------------------------------------------------------------------------

    Considering the issue afresh in this proposal, and looking only at
the words in the statute, obviously EPA's GHG standards applicable to
light-duty vehicles are literally ``other motor vehicle standards of
the Government,'' in that they are standards set by a Federal agency
that apply to motor vehicles. Basic chemistry makes fuel economy and
tailpipe CO2 emissions two sides of the same coin, as
discussed at length above, and when two agencies functionally regulate
both (because by regulating fuel economy, you regulate CO2
emissions, and vice versa), it would be absurd not to link their
standards.\409\ The global warming potential of N2O,
CH4, and HFC emissions are not closely linked with fuel
economy, but neither do they affect fuel economy capabilities. How,
then, should NHTSA consider EPA's various GHG standards?
---------------------------------------------------------------------------

    \409\ In fact, EPA includes tailpipe CH4, CO, and
CO2 in the measurement of tailpipe CO2 for GHG
compliance using a carbon balance equation so that the measurement
of tailpipe CO2 exactly aligns with the measurement of
fuel economy for the CAFE compliance.
---------------------------------------------------------------------------

    NHTSA is aware that some stakeholders believe that NHTSA's
obligation to set maximum feasible CAFE standards can best be executed
by letting EPA decide what GHG standards

are appropriate and reasonable under the CAA. NHTSA disagrees. While
EPA and NHTSA consider some similar factors under the CAA and EPCA/
EISA, respectively, they are not identical. Standards that are
appropriate under the CAA may not be ``maximum feasible'' under EPCA/
EISA, and vice versa. Moreover, considering EPCA's language in the
context in which it was written, it seems unreasonable to conclude that
Congress intended EPA to dictate CAFE stringency. In fact, Congress
clearly separated NHTSA's and EPA's responsibilities for CAFE under
EPCA by giving NHTSA authority to set standards and EPA authority to
measure and calculate fuel economy. If Congress had wanted EPA to set
CAFE standards, it could have given that authority to EPA in EPCA or at
any point since Congress amended EPCA.\410\
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    \410\ We note, for instance, that EISA was passed after the
Massachusetts v. EPA decision by the Supreme Court. If Congress had
wanted to amend EPCA in light of that decision, they would have done
so at the time. They did not.
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    NHTSA and EPA are obligated by Congress to exercise their own
independent judgment in fulfilling their statutory missions, even
though both agencies' regulations affect both fuel economy and
CO2 emissions. Because of this relationship, it is incumbent
on both agencies to coordinate and look to one another's actions to
avoid unreasonably burdening industry through inconsistent regulations,
but both agencies must be able to defend their programs on their own
merits. As with other recent CAFE and GHG rulemakings, the agencies are
continuing do all of these things in this proposal.
    With regard to standards issued by the State of California, State
tailpipe standards (whether for greenhouse gases or for other
pollutants) do not qualify as ``other motor vehicle standards of the
Government'' under 49 U.S.C. 32902(f); therefore, NHTSA will not
consider them as such in proposing maximum feasible average fuel
economy standards. States may not adopt or enforce tailpipe greenhouse
gas emissions standards when such standards relate to fuel economy
standards and are therefore preempted under EPCA, regardless of whether
EPA granted any waivers under the Clean Air Act (CAA).\411\
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    \411\ This topic is discussed further in Section VI below.
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    Preempted standards of a State or a political subdivision of a
State include, for example:
    (1) A fuel economy standard; and
    (2) A law or regulation that has the direct effect of a fuel
economy standard, but is not labeled as one (i.e., a State tailpipe
CO2 standard or prohibition on CO2 emissions).
    NHTSA and EPA agree that state tailpipe greenhouse gas emissions
standards do not become Federal standards and qualify as ``other motor
vehicle standards of the Government,'' when subject to a CAA preemption
waiver. EPCA's legislative history supports this position.
    EPCA, as initially passed in 1975, mandated average fuel economy
standards for passenger cars beginning with model year 1978. The law
required the Secretary of Transportation to establish, through
regulation, maximum feasible fuel economy standards \412\ for model
years 1981 through 1984 with the intent to provide steady increases to
achieve the standard established for 1985 and thereafter authorized the
Secretary to adjust that standard.
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    \412\ As is the case today, EPCA required the Secretary to
determine ``maximum feasible average fuel economy'' after
considering technological feasibility, economic practicability, the
effect of other Federal motor vehicle standards on fuel economy, and
the need of the Nation to conserve energy. 15 U.S.C. 2002(e)
(recodified July 5, 1994).
---------------------------------------------------------------------------

    For the statutorily-established standards for model years 1978-
1980, EPCA provided each manufacturer with the right to petition for
changes in the standards applicable to that manufacturer. A petitioning
manufacturer had the burden of demonstrating a ``Federal fuel economy
standards reduction'' was likely to exist for that manufacturer in one
or more of those model years and that it had made reasonable technology
choices. ``Federal standards,'' for that limited purpose, included not
only safety standards, noise emission standards, property loss
reduction standards, and emission standards issued under various
Federal statutes, but also ``emissions standards applicable by reason
of section 209(b) of [the CAA].'' \413\ (Emphasis added). Critically,
all definitions, processes, and required findings regarding a Federal
fuel economy standards reduction were located within a single self-
contained subsection of 15 U.S.C. 2002 that applied only to model years
1978-1980.\414\
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    \413\ Section 202 of the CAA (42 U.S.C. 7521) requires EPA to
prescribe air pollutant emission standards for new vehicles; Section
209 of the CAA (42 U.S.C. 7543) preempts state emissions standards
but allows California to apply for a waiver of such preemption.
    \414\ As originally enacted as part of Public Law 94-163, that
subsection was designated as section 502(d) of the Motor Vehicle
Information and Cost Savings Act.
---------------------------------------------------------------------------

    In 1994, Congress recodified EPCA. As part of this recodification,
the CAFE provisions were moved to Title 49 of the United States Code.
In doing so, unnecessary provisions were deleted. Specifically, the
recodification eliminated subsection (d). The House report on the
recodification declared that the subdivision was ``executed,'' and
described its purpose as ``[p]rovid[ing] for modification of average
fuel economy standards for model years 1978, 1979, and 1980.'' \415\ It
is generally presumed, when Congress includes text in one section and
not in another, that Congress knew what it was doing and made the
decision deliberately.
---------------------------------------------------------------------------

    \415\ H.R. Rep. No. 103-180, at 583-584, tbl. 2A.
---------------------------------------------------------------------------

    NHTSA has previously considered the impact of California's Low
Emission Vehicle standards in establishing fuel economy standards and
occasionally has done so under the ``other standards'' sections.\416\
During the 2012 rulemaking, NHTSA sought comment on the appropriateness
of considering California's tailpipe GHG emission standards in this
section and concluded that doing so was unnecessary.\417\ In light of
the legislative history discussed above, however, NHTSA now determines
that this was not appropriate. Notwithstanding the improper
categorization of such discussions, NHTSA may consider elements not
specifically designated as factors to be considered under EPCA, given
the breadth of such factors as technological feasibility and economic
practicability, and such consideration was appropriate.\418\
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    \416\ See, e.g., 68 FR 16896, 71 FR 17643.
    \417\ See 77 FR 62669.
    \418\ See, e.g., discussion in Center for Automotive Safety v.
National Highway Traffic Safety Administration, et al., 793 F.2d.
1322 (D.C. Cir. 1986) at 1338, et seq., providing that NHTSA may
consider consumer demand in establishing standards, but not ``to
such an extent that it ignored the overarching goal of fuel
conservation. At the other extreme, a standard with harsh economic
consequences for the auto industry also would represent an
unreasonable balancing of EPCA's policies.''
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(4) The Need of the United States To Conserve Energy
    ``The need of the United States to conserve energy'' means ``the
consumer cost, national balance of payments, environmental, and foreign
policy implications of our need for large quantities of petroleum,
especially imported petroleum.'' \419\
---------------------------------------------------------------------------

    \419\ 42 FR 63184, 63188 (Dec. 15, 1977).
---------------------------------------------------------------------------

(i) Consumer Costs and Fuel Prices
    Fuel for vehicles costs money for vehicle owners and operators. All
else equal, consumers benefit from vehicles that need less fuel to
perform the same amount of work. Future fuel prices are a critical
input into the economic

analysis of potential CAFE standards because they determine the value
of fuel savings both to new vehicle buyers and to society, the amount
of fuel economy that the new vehicle market is likely to demand in the
absence of new standards, and they inform NHTSA about the ``consumer
cost . . . of our need for large quantities of petroleum.'' In this
proposal, NHTSA's analysis relies on fuel price projections from the
U.S. Energy Information Administration's (EIA) Annual Energy Outlook
(AEO) for 2017. Federal government agencies generally use EIA's price
projections in their assessment of future energy-related policies.
(ii) National Balance of Payments
    Historically, the need of the United States to conserve energy has
included consideration of the ``national balance of payments'' because
of concerns that importing large amounts of oil created a significant
wealth transfer to oil-exporting countries and left the U.S.
economically vulnerable.\420\ As recently as 2009, nearly half the U.S.
trade deficit was driven by petroleum,\421\ yet this concern has
largely laid fallow in more recent CAFE actions, arguably in part
because other factors besides petroleum consumption have since played a
bigger role in the U.S. trade deficit. Given significant recent
increases in U.S. oil production and corresponding decreases in oil
imports, this concern seems likely to remain fallow for the foreseeable
future.\422\ Increasingly, changes in the price of fuel have come to
represent transfers between domestic consumers of fuel and domestic
producers of petroleum rather than gains or losses to foreign entities.
Some commenters have lately raised concerns about potential economic
consequences for automaker and supplier operations in the U.S. due to
disparities between CAFE standards at home and their counterpart fuel
economy/efficiency and GHG standards abroad. NHTSA finds these concerns
more relevant to technological feasibility and economic practicability
than to the national balance of payments. Moreover, to the extent that
an automaker decides to globalize a vehicle platform to meet more
stringent standards in other countries, that automaker would comply
with United States's standards and additionally generate
overcompensation credits that it can save for future years if facing
compliance concerns,or sell to other automakers. While CAFE standards
are set at maximum feasible rates, efforts of manufacturers to exceed
those standards are rewarded not only with additional credits but a
market advantage in that consumers who place a large weight on fuel
savings will find such vehicles that much more attractive.
---------------------------------------------------------------------------

    \420\ See 42 FR 63184, 63192 (Dec. 15, 1977) ``A major reason
for this need [to reduce petroleum consumption] is that the
importation of large quantities of petroleum creates serious balance
of payments and foreign policy problems. The United States currently
spends approximately $45 billion annually for imported petroleum.
But for this large expenditure, the current large U.S. trade deficit
would be a surplus.''
    \421\ See Today in Energy: Recent improvements in petroleum
trade balance mitigate U.S. trade deficit, U.S. Energy Information
Administration (July 21, 2014), https://www.eia.gov/todayinenergy/detail.php?id=17191.
    \422\ For an illustration of recent increases in U.S.
production, see, e.g., U.S. crude oil and liquid fuels production,
Short-Term Energy Outlook, U.S. Energy Information Administration
(June 2018), https://www.eia.gov/outlooks/steo/images/fig13.png.
While it could be argued that reducing oil consumption frees up more
domestically-produced oil for exports, and thereby raises U.S. GDP,
that is neither the focus of the CAFE program nor consistent with
Congress' original intent in EPCA. EIA's Annual Energy Outlook (AEO)
series provides midterm forecasts of production, exports, and
imports of petroleum products, and is available at https://www.eia.gov/outlooks/aeo/.
---------------------------------------------------------------------------

(iii) Environmental Implications
    Higher fleet fuel economy can reduce U.S. emissions of various
pollutants by reducing the amount of oil that is produced and refined
for the U.S. vehicle fleet but can also increase emissions by reducing
the cost of driving, which can result in increased vehicle miles
traveled (i.e., the rebound effect). Thus, the net effect of more
stringent CAFE standards on emissions of each pollutant depends on the
relative magnitudes of its reduced emissions in fuel refining and
distribution and increases in its emissions from vehicle use. Fuel
savings from CAFE standards also necessarily results in lower emissions
of CO2, the main GHG emitted as a result of refining,
distribution, and use of transportation fuels. Reducing fuel
consumption directly reduces CO2 emissions because the
primary source of transportation-related CO2 emissions is
fuel combustion in internal combustion engines.
    NHTSA has considered environmental issues, both within the context
of EPCA and the context of the National Environmental Policy Act
(NEPA), in making decisions about the setting of standards since the
earliest days of the CAFE program. As courts of appeal have noted in
three decisions stretching over the last 20 years,\423\ NHTSA defined
``the need of the United States to conserve energy'' in the late 1970s
as including, among other things, environmental implications. In 1988,
NHTSA included climate change concepts in its CAFE notices and prepared
its first environmental assessment addressing that subject.\424\ It
cited concerns about climate change as one of its reasons for limiting
the extent of its reduction of the CAFE standard for MY 1989 passenger
cars.\425\ Since then, NHTSA has considered the effects of reducing
tailpipe emissions of CO2 in its fuel economy rulemakings
pursuant to the need of the United States to conserve energy by
reducing petroleum consumption.
---------------------------------------------------------------------------

    \423\ CAS, 793 F.2d 1322, 1325 n. 12 (D.C. Cir. 1986); Public
Citizen, 848 F.2d 256, 262-63 n. 27 (D.C. Cir. 1988) (noting that
``NHTSA itself has interpreted the factors it must consider in
setting CAFE standards as including environmental effects''); CBD,
538 F.3d 1172 (9th Cir. 2007).
    \424\ 53 FR 33080, 33096 (Aug. 29, 1988).
    \425\ 53 FR 39275, 39302 (Oct. 6, 1988).
---------------------------------------------------------------------------

(iv) Foreign Policy Implications
    U.S. consumption and imports of petroleum products impose costs on
the domestic economy that are not reflected in the market price for
crude petroleum or in the prices paid by consumers for petroleum
products such as gasoline. These costs include (1) higher prices for
petroleum products resulting from the effect of U.S. oil demand on
world oil prices, (2) the risk of disruptions to the U.S. economy
caused by sudden increases in the global price of oil and its resulting
impact of fuel prices faced by U.S. consumers, and (3) expenses for
maintaining the strategic petroleum reserve (SPR) to provide a response
option should a disruption in commercial oil supplies threaten the U.S.
economy, to allow the U.S. to meet part of its International Energy
Agency obligation to maintain emergency oil stocks, and to provide a
national defense fuel reserve.\426\ Higher U.S. consumption of crude
oil or refined petroleum products increases the magnitude of these
external economic costs, thus increasing the true economic cost of
supplying transportation fuels above the resource costs of producing
them. Conversely, reducing U.S. consumption of crude oil or refined
petroleum products (by reducing motor fuel use) can reduce these
external costs.
---------------------------------------------------------------------------

    \426\ While the U.S. maintains a military presence in certain
parts of the world to help secure global access to petroleum
supplies, that is neither the primary nor the sole mission of U.S.
forces overseas. Additionally, the scale of oil consumption
reductions associated with CAFE standards would be insufficient to
alter any existing military missions focused on ensuring the safe
and expedient production and transportation of oil around the globe.
See Chapter 7 of the PRIA for more information on this topic.
---------------------------------------------------------------------------

    While these costs are considerations, the United States has
significantly increased oil production capabilities in

recent years to the extent that the U.S. is currently producing enough
oil to satisfy nearly all of its energy needs and is projected to
continue to do so or become a net energy exporter. This has added new
stable supply to the global oil market and reduced the urgency of the
U.S. to conserve energy. We discuss this issue in more detail below.
(5) Factors That NHTSA Is Prohibited From Considering
    EPCA also provides that in determining the level at which it should
set CAFE standards for a particular model year, NHTSA may not consider
the ability of manufacturers to take advantage of several EPCA
provisions that facilitate compliance with CAFE standards and thereby
reduce the costs of compliance.\427\ As discussed further in Section
X.B.1.c) below, NHTSA cannot consider compliance credits that
manufacturers earn by exceeding the CAFE standards and then use to
achieve compliance in years in which their measured average fuel
economy falls below the standards. NHTSA also cannot consider the use
of alternative fuels by dual fuel vehicles nor the availability of
dedicated alternative fuel vehicles in any model year. EPCA encourages
the production of alternative fuel vehicles by specifying that their
fuel economy is to be determined using a special calculation procedure
that results in those vehicles being assigned a higher fuel economy
level than they actually achieve.
---------------------------------------------------------------------------

    \427\ 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

    The effect of the prohibitions against considering these statutory
flexibilities in setting the CAFE standards is that the flexibilities
remain voluntarily-employed measures. If NHTSA were instead to assume
manufacturer use of those flexibilities in setting new standards,
higher standards would appear less costly and therefore more feasible,
which would thus tend to require manufacturers to use those
flexibilities in order to meet higher standards. By keeping NHTSA from
including them in our stringency determination, the provision ensures
that these statutory credits remain true compliance flexibilities.
    Additionally, for non-statutory incentives that NHTSA developed by
regulation, NHTSA does not consider these subject to the EPCA
prohibition on considering flexibilities, either. EPCA is very clear as
to which flexibilities are not to be considered. When the agency has
introduced additional flexibilities such as A/C efficiency and ``off-
cycle'' technology fuel economy improvement values, NHTSA has
considered those technologies as available in the analysis. Thus,
today's analysis includes assumptions about manufacturers' use of those
technologies, as detailed in Section X.B.1.c)(4)
(f) EPCA/EISA Requirements That No Longer Apply Post-2020
    Congress amended EPCA through EISA to add two requirements not yet
discussed in this section relevant to determination of CAFE standards
during the years between MY 2011 and MY 2020 but not beyond. First,
Congress stated that, regardless of NHTSA's determination of what
levels of standards would be maximum feasible, standards must be set at
levels high enough to ensure that the combined U.S. passenger car and
light truck fleet achieves an average fuel economy level of not less
than 35 mpg no later than MY 2020.\428\ And second, between MYs 2011
and 2020, the standards must ``increase ratably'' in each model
year.\429\ Neither of these requirements apply after MY 2020, so given
that this rulemaking concerns the standards for MY 2021 and after, they
are not relevant to this rulemaking.
---------------------------------------------------------------------------

    \428\ 49 U.S.C. 32902(b)(2)(A).
    \429\ 49 U.S.C. 32902(b)(2)(C).
---------------------------------------------------------------------------

(g) Other Considerations in Determining Maximum Feasible Standards
    NHTSA has historically considered the potential for adverse safety
consequences in setting CAFE standards. This practice has been
consistently approved in case law. As courts have recognized, ``NHTSA
has always examined the safety consequences of the CAFE standards in
its overall consideration of relevant factors since its earliest
rulemaking under the CAFE program.'' Competitive Enterprise Institute
v. NHTSA, 901 F.2d 107, 120 n. 11 (D.C. Cir. 1990) (``CEI-I'') (citing
42 FR 33534, 33551 (June 30, 1977)). The courts have consistently
upheld NHTSA's implementation of EPCA in this manner. See, e.g.,
Competitive Enterprise Institute v. NHTSA, 956 F.2d 321, 322 (D.C. Cir.
1992) (``CEI-II'') (in determining the maximum feasible fuel economy
standard, ``NHTSA has always taken passenger safety into account'')
(citing CEI-I, 901 F.2d at 120 n. 11); Competitive Enterprise Institute
v. NHTSA, 45 F.3d 481, 482-83 (D.C. Cir. 1995) (``CEI-III'') (same);
Center for Biological Diversity v. NHTSA, 538 F.3d 1172, 1203-04 (9th
Cir. 2008) (upholding NHTSA's analysis of vehicle safety issues
associated with weight in connection with the MYs 2008-2011 light truck
CAFE rulemaking). Thus, in evaluating what levels of stringency would
result in maximum feasible standards, NHTSA assesses the potential
safety impacts and considers them in balancing the statutory
considerations and to determine the maximum feasible level of the
standards.
    The attribute-based standards that Congress requires NHTSA to set
help to mitigate the negative safety effects of the historical ``flat''
standards originally required in EPCA, in recent rulemakings, NHTSA
limited the consideration of mass reduction in lower weight vehicles in
its analysis, which impacted the resulting assessment of potential
adverse safety effects. That analytical approach did not reflect,
however, the likelihood that automakers may pursue the most cost
effective means of improving fuel efficiency to comply with CAFE
requirements. For this rulemaking, the modeling does not limit the
amount of mass reduction that is applied to any segment but rather
considers that automakers may apply mass reduction based upon cost-
effectiveness, similar to most other technologies. NHTSA does not, of
course, mandate the use of any particular technology by manufacturers
in meeting the standards. The current proposal, like the Draft TAR,
also considers the safety effect associated with the additional vehicle
miles traveled due to the rebound effect.
    In this rulemaking, NHTSA is considering the effect of additional
expenses in fuel savings technology on the affordability of vehicles--
the likelihood that increased standards will result in consumers being
priced out of the new vehicle market and choosing to keep their
existing vehicle or purchase a used vehicle. Since new vehicles are
significantly safer than used vehicles, slowing fleet turnover to newer
vehicles results in older and less safe vehicles remaining on the roads
longer. This significantly affects the safety of the United States
light duty fleet, as described more fully in Section 0 above and in
Chapter 11 of the PRIA accompanying this proposal. Furthermore, as fuel
economy standards become more stringent, and more fuel efficient
vehicles are introduced into the fleet, fueling costs are reduced. This
results in consumers driving more miles, which results in more crashes
and increased highway fatalities.
2. Administrative Procedure Act
    To be upheld under the ``arbitrary and capricious'' standard of
judicial review in the APA, an agency rule must be rational, based on
consideration of the relevant factors, and within the scope of

the authority delegated to the agency by the statute. The agency must
examine the relevant data and articulate a satisfactory explanation for
its action including a ``rational connection between the facts found
and the choice made.'' Burlington Truck Lines, Inc., v. United States,
371 U.S. 156, 168 (1962).
    Statutory interpretations included in an agency's rule are subject
to the two-step analysis of Chevron, U.S.A. v. Natural Resources
Defense Council, 467 U.S. 837 (1984). Under step one, where a statute
``has directly spoken to the precise question at issue,'' id. at 842,
the court and the agency ``must give effect to the unambiguously
expressed intent of Congress,'' id. at 843. If the statute is silent or
ambiguous regarding the specific question, the court proceeds to step
two and asks ``whether the agency's answer is based on a permissible
construction of the statute.'' Id.
    If an agency's interpretation differs from the one that it has
previously adopted, the agency need not demonstrate that the prior
position was wrong or even less desirable. Rather, the agency would
need only to demonstrate that its new position is consistent with the
statute and supported by the record and acknowledge that this is a
departure from past positions. The Supreme Court emphasized this in FCC
v. Fox Television, 556 U.S. 502 (2009). When an agency changes course
from earlier regulations, ``the requirement that an agency provide a
reasoned explanation for its action would ordinarily demand that it
display awareness that it is changing position,'' but ``need not
demonstrate to a court's satisfaction that the reasons for the new
policy are better than the reasons for the old one; it suffices that
the new policy is permissible under the statute, that there are good
reasons for it, and that the agency believes it to be better, which the
conscious change of course adequately indicates.'' \430\ The APA also
requires that agencies provide notice and comment to the public when
proposing regulations,\431\ as we are doing today.
---------------------------------------------------------------------------

    \430\ Ibid., 1181.
    \431\ 5 U.S.C. 553.
---------------------------------------------------------------------------

3. National Environmental Policy Act
    As discussed above, EPCA requires NHTSA to determine the level at
which to set CAFE standards for each model year by considering the four
factors of technological feasibility, economic practicability, the
effect of other motor vehicle standards of the Government on fuel
economy, and the need of the United States to conserve energy. The
National Environmental Policy Act (NEPA) directs that environmental
considerations be integrated into that process.\432\ To accomplish that
purpose, NEPA requires an agency to compare the potential environmental
impacts of its proposed action to those of a reasonable range of
alternatives.
---------------------------------------------------------------------------

    \432\ NEPA is codified at 42 U.S.C. 4321-47.
---------------------------------------------------------------------------

    To explore the environmental consequences of this proposed rule in
depth, NHTSA has prepared a Draft Environmental Impact Statement
(``DEIS''). The purpose of an EIS is to ``provide full and fair
discussion of significant environmental impacts and [to] inform
decisionmakers and the public of the reasonable alternatives which
would avoid or minimize adverse impacts or enhance the quality of the
human environment.'' \433\
---------------------------------------------------------------------------

    \433\ 40 CFR 1502.1.
---------------------------------------------------------------------------

    NEPA is ``a procedural statute that mandates a process rather than
a particular result.'' Stewart Park & Reserve Coal., Inc. v. Slater,
352 F.3d 545, 557 (2d Cir. 2003). The agency's overall EIS-related
obligation is to ``take a `hard look' at the environmental consequences
before taking a major action.'' Baltimore Gas & Elec. Co. v. Natural
Resources Defense Council, Inc., 462 U.S. 87, 97 (1983). Significantly,
``[i]f the adverse environmental effects of the proposed action are
adequately identified and evaluated, the agency is not constrained by
NEPA from deciding that other values outweigh the environmental
costs.'' Robertson v. Methow Valley Citizens Council, 490 U.S. 332, 350
(1989).
    The agency must identify the ``environmentally preferable''
alternative but need not adopt it. ``Congress in enacting NEPA . . .
did not require agencies to elevate environmental concerns over other
appropriate considerations.'' Baltimore Gas & Elec. Co. v. Natural
Resources Defense Council, Inc., 462 U.S. 87, 97 (1983). Instead, NEPA
requires an agency to develop alternatives to the proposed action in
preparing an EIS. 42 U.S.C. 4322(2)(C)(iii). The statute does not
command the agency to favor an environmentally preferable course of
action, only that it make its decision to proceed with the action after
taking a hard look at the environmental consequences.
    We seek comment on the DEIS associated with this NPRM.
4. Evaluating the EPCA Factors and Other Considerations To Arrive at
the Proposed Standards
    NHTSA well recognizes that the decision it proposes to make in
today's NPRM is different from the one made in the 2012 final rule that
established standards for MY 2021 and identified ``augural'' standard
levels for MYs 2022-2025. Not only do we believe that the facts before
us have changed, but we believe that those facts have changed
sufficiently that the balancing of the EPCA factors and other
considerations must also change. The standards we are proposing today
reflect that balancing.
    The overarching purpose of EPCA is energy conservation; that fact
remains the same. Examining that phrasing afresh, Merriam-Webster
states that to ``conserve'' means, in relevant part, ``to keep in a
safe or sound state; especially, to avoid wasteful or destructive use
of.'' \434\ This is consistent with our understanding of Congress'
original intent for the CAFE program: To raise fleet-wide fuel economy
levels in response to the Arab oil embargo in the 1970s and protect the
country from further gasoline price shocks and supply shortages. Those
price shocks, while they were occurring, were disruptive to the U.S.
economy and significantly affected consumers' daily lives. Congress
therefore sought to keep U.S. energy consumption in a safe and sound
state for the sake of consumers and the economy and avoid such shocks
in the future.
---------------------------------------------------------------------------

    \434\ ``Conserve,'' Merriam-Webster, available at https://www.merriam-webster.com/dictionary/conserve (last visited June 25,
2018).
---------------------------------------------------------------------------

    Today, the conditions that led both to those price shocks and to
U.S. energy vulnerability overall have changed significantly. In the
late 1970s, the U.S. was a major oil importer and changes (intentional
or not) in the global oil supply had massive domestic consequences, as
Congress saw. While oil consumption exceeded domestic production for
many years after that, net energy imports peaked in 2005, and since
then, oil imports have declined while exports have increased.
    The relationship between the U.S. and the global oil market has
changed for two principal reasons. The first reason is that the U.S.
now consumes a significantly smaller share of global oil production
than it did in the 1970s. At the time of the Arab oil embargo, the U.S.
consumed about 17 million barrels per day of the globe's approximately
55 million barrels per day.\435\ While OPEC (particularly Saudi Arabia)
still has the ability to influence global oil prices by imposing
discretionary supply restrictions, the greater diversity of both
suppliers and consumers since the 1970s has reduced the degree to which

a single actor (or small collection of actors) can impact the welfare
of individual consumers. Oil is a fungible global commodity, though
there are limits to the substitutability of different types of crude
for a given application. The global oil market can, to a large extent,
compensate for any producer that chooses not to sell to a given buyer
by shifting other supply toward that buyer. And while regional
proximity, comparability of crude oil, and foreign policy
considerations can make some transactions more or less attractive, as
long as exporters have a vested interest in preserving the stability
(both in terms of price and supply) of the global oil market,
coordinated, large-scale actions (like the multi-nation sanctions
against Iran in recent years) would be required to impose costs or
welfare losses on one specific player in the global market. As a
corollary to the small rise in U.S. petroleum consumption over the last
few decades, the oil intensity of U.S. GDP has continued to decline
since the Arab oil embargo, suggesting that U.S. GDP is less
susceptible to increases in global petroleum prices (sudden or
otherwise) than it was at the time of EPCA's passage or when these
policies were last considered in 2012. While the U.S. still has a
higher energy intensity of GDP than some other developed nations, our
energy intensity has been declining since 1950 (shrinking by about 60%
since 1950 and almost 30% between 1990 and 2015).\436\
---------------------------------------------------------------------------

    \435\ Short-Term Energy Outlook, U.S. Energy Information
Administration (June 2018), available at https://www.eia.gov/outlooks/steo/pdf/steo_full.pdf.
    \436\ Today in Energy: Global energy intensity continues to
decline, U.S. Energy Information Administration (July 12, 106),
https://www.eia.gov/todayinenergy/detail.php?id=27032.
---------------------------------------------------------------------------

    The second factor that has changed the United States' relationship
to the global oil market is the changing U.S. reliance on imported oil
over the last decade. U.S. domestic oil production began rising in 2009
with more cost-effective drilling and production technologies.\437\
Domestic oil production became more cost-effective for two basic
reasons. First, technology improved: The use of horizontal drilling in
conjunction with hydraulic fracturing has greatly expanded the ability
of producers to profitably recover natural gas and oil from low-
permeability geologic plays--particularly, shale plays--and
consequently, oil production from shale plays has grown rapidly in
recent years.\438\ And second, rising global oil prices themselves made
using those technologies more feasible. As a hypothetical example, if
it costs $79 per barrel to extract oil from a shale play, when the
market price for that oil is $60 per barrel, it is not worth the
producer's cost to extract the oil; when the market price is $80 per
barrel, it becomes cost-effective.
---------------------------------------------------------------------------

    \437\ Energy Explained, U.S. Energy Information Administration,
https://www.eia.gov/energyexplained/index.cfm (last visited June 25,
2018).
    \438\ Review of Emerging Resources: U.S. Shale Gas and Shale Oil
Plays, U.S. Energy Information Administration (July 8, 2011),
https://www.eia.gov/analysis/studies/usshalegas/. Practical
application of horizontal drilling to oil production began in the
early 1980s, by which time the advent of improved downhole drilling
motors and the invention of other necessary supporting equipment,
materials, and technologies (particularly, downhole telemetry
equipment) had brought some applications within the realm of
commercial viability. EIA's AEO 2018 also projects that by the early
2040s, tight oil production will account for nearly 70% of total
U.S. production, up from 54% of the U.S. total in 2017. See also,
Tight oil remains the leading source of future U.S. crude oil
production, U.S. Energy Information Administration (Feb. 22, 2018),
https://www.eia.gov/todayinenergy/detail.php?id=35052.
---------------------------------------------------------------------------

    Recent analysis further suggests that the U.S. oil supply response
to a rise in global prices is much larger now due to the shale
revolution, as compared to what it was when U.S. production depended
entirely on conventional wells. Unconventional wells may be not only
capable of producing more oil over time but also may be capable of
responding faster to price shocks. One 2017 study concluded that ``The
long-run price responsiveness of supply is about 6 times larger for
tight oil on a per well basis, and about 9 times larger when also
accounting for the rise in unconventional-directed drilling.'' That
same study further found that ``Given a price rise to $80 per barrel,
U.S. oil production could rise by 0.5 million barrels per day in 6
months, 1.2 million in 1 year, 2 million in 2 years, and 3 million in 5
years.'' \439\ Some analysts suggest that shale drillers can respond
more quickly to market conditions because, unlike conventional
drillers, they do not need to spend years looking for new deposits,
because there are simply so many shale oil wells being drilled, and
because they are more productive (although their supply may be
exhausted more quickly than a conventional well, the sheer numbers
appear likely to make up for that concern).\440\ Some commenters
disagree and suggest that the best deposits are already known and
tapped.\441\ Other commenters raise the possibility that even if the
most productive deposits are already tapped, any rises in global oil
prices should spur technology development that improves output of less
productive deposits.\442\ Moreover, even if U.S. production increases
more slowly than, for example, EIA currently estimates, all increases
in U.S. production help to temper global prices and the risk of oil
shocks because they reduce the influence of other producing countries
who might experience supply interruptions due to geopolitical
instability or deliberately reduce supply in an effort to raise
prices.\443\
---------------------------------------------------------------------------

    \439\ Newell, R. G. & Prest, B.C. The Unconventional Oil Supply
Boom: Aggregate Price Response from Microdata, Working Paper 23973,
National Bureau of Economic Research (Oct. 2017), available at
http://www.nber.org/papers/w23973 (last visited June 25, 2018).
    \440\ Ip, G. America's Emerging Petro Economy Flips the Impact
of Oil, Wall Street Journal (Feb. 21, 2018), available at https://www.wsj.com/articles/americas-emerging-petro-economy-flips-the-impact-of-oil-1519209000 (last visited June 25, 2018).
    \441\ Olson, B. Shale Trailblazer Turns Skeptic on Soaring U.S.
Oil Production, Wall Street Journal (Mar. 5, 2018), available at
https://www.wsj.com/articles/shale-trailblazer-turns-skeptic-on-soaring-u-s-oil-production-1520257595.
    \442\ LeBlanc, R. In the Sweet Spot: The Key to Shale, Wall
Street Journal (Mar. 6, 2018), available at http://partners.wsj.com/ceraweek/connection/sweet-spot-key-shale/.
    \443\ Alessi, C. & Sider, A. U.S. Oil Output Expected to Surpass
Saudi Arabia, Rivaling Russia for Top Spot, Wall Street Journal
(Jan. 19, 2018), available at https://www.wsj.com/articles/u-s-crude-production-expected-to-surpass-saudi-arabia-in-2018-1516352405.
---------------------------------------------------------------------------

    These changes in U.S. oil intensity, production, and capacity
cannot entirely insulate consumers from the effects of price shocks at
the gas pump, because although domestic production may be able to
satisfy domestic energy demand, we cannot predict whether domestically
produced oil will be distributed domestically or more broadly to the
global market. But it appears that domestic supply may dampen the
magnitude, frequency, and duration of price shocks. As global per-
barrel oil prices rise, U.S. production is now much better able to (and
does) ramp up in response, pulling those prices back down.
Corresponding per-gallon gas prices may not fall overnight,\444\ but it
is foreseeable that they could moderate over time and likely respond
faster than prior to the shale revolution. EIA's Annual Energy Outlook
for 2018 acknowledges uncertainty regarding these new oil sources but
projects that while retail prices of gasoline and diesel will increase
between 2018 and 2050, annual average gasoline prices would not exceed
$4/gallon (in real dollars) during that timeframe under EIA's
``reference

case'' projection.\445\ The International Energy Agency (IEA)'s Oil
2018 report suggests some concern that excessive focus on investing in
U.S. shale oil production may increase price volatility after 2023 if
investment is not applied more broadly but also states that U.S. shale
oil is capable of and expected to respond quickly to rising prices in
the future, and that American influence on global oil markets is
expected to continue to rise.\446\ From the supply side, it is possible
that the oil market conditions that created the price shocks in the
1970s may no longer exist.
---------------------------------------------------------------------------

    \444\ To be clear, the fact that the risk of gasoline price
shocks may now be lower than in the past is different from arguing
that gasoline prices will never rise again at all. The Energy
Information Administration tracks and reports on pump prices around
the country, and we refer readers to their website for the most up-
to-date information. EIA projects under its ``reference case''
assumptions that the structural changes in the oil market will keep
prices below $4/gallon through 2050. Prices will foreseeably
continue to rise and fall with supply and demand changes; the
relevant question for the need of the U.S. to conserve energy is not
whether there will be any movement in prices but whether that
movement is likely to be sudden and large.
    \445\ Annual Energy Outlook 2018, U.S. Energy Information
Administration (Feb. 6, 2018) at 57, 58, available at https://www.eia.gov/outlooks/aeo/pdf/AEO2018.pdf. The U.S. Energy
Information Administration (EIA) is the statistical and analytical
agency within the U.S. Department of Energy (DOE). EIA is the
nation's premier source of energy information and every fuel economy
rulemaking since 2002 (and every joint CAFE and CO2
rulemaking since 2009) has applied fuel price projections from EIA's
Annual Energy Outlook (AEO). AEO projections, documentation, and
underlying data and estimates are available at https://www.eia.gov/outlooks/aeo/.
    \446\ See Oil 2018: Analysis and Forecasts to 2023 Executive
Summary, International Energy Agency (2018), available at http://www.iea.org/Textbase/npsum/oil2018MRSsum.pdf (last visited June 25,
2018). See also Kent, S. & Puko, T. U.S. Will Be the World's Largest
Oil Producer by 2023, Says IEA, Wall Street Journal (Mar. 5, 2018),
available at https://www.wsj.com/articles/u-s-will-be-the-worlds-largest-oil-producer-by-2023-says-iea-1520236810 (reporting on
remarks at the 2018 CERAWeek energy conference by IEA Executive
Director Fatih Birol).
---------------------------------------------------------------------------

    Regardless of changes in the oil supply market, on the demand side,
conditions are also significantly different from the 1970s. If gasoline
prices increase suddenly and dramatically, in today's market American
consumers have more options for fuel-efficient new vehicles. Fuel-
efficient vehicles were available to purchasers in the 1970s, but they
were generally small entry-level vehicles with features that did not
meet the needs and preferences of many consumers. Today, most U.S.
households maintain a household vehicle fleet that serves a variety of
purposes and represents a variety of fuel efficiency levels.
Manufacturers have responded to fuel economy standards and to consumer
demand over the last decade to offer a wide array of fuel-efficient
vehicles in different segments and with a wide range of features. A
household may now respond to short-term increases in fuel price by
shifting vehicle miles traveled within their household fleet away from
less-efficient vehicles and toward models with higher fuel economy. A
similar option existed in the 1970s, though not as widely as today, and
vehicle owners in 2018 do not have to sacrifice as much utility as
owners did in the 1970s when making fuel-efficiency trade-offs within
their household fleets (or when replacing household vehicles at the
time of purchase). On a longer-term basis, if oil prices rise,
consumers have more options to invest in additional fuel economy when
purchasing new vehicles than at any other time in history.
    Global oil demand conditions are also different than in previous
years. Countries that had very small markets for new light-duty
vehicles in the 1970s are now driving global production as their
economies improve and growing numbers of middle-class consumers are
able to purchase vehicles for personal use. The global increase in
drivers inevitably affects global oil demand, which affects oil prices.
However, these changes generally occur gradually over time, unlike a
disruption that causes a gasoline price shock. Market growth happens
relatively gradually and is subject to many different factors. Oil
supply markets likely have time to adjust to increases in demand from
higher vehicle sales in countries like China and India, and in fact,
those increases in demand may temper global prices by keeping
production increasing more steadily than if demand was less certain;
clear demand rewards increased production and encourages additional
resource development over time. It therefore seems unlikely that growth
in these vehicle markets could lead to gasoline price shocks. Moreover,
even as these vehicle markets grow, it is possible that these and other
vehicle markets may be moving away from petroleum usage under the
direction of their governments.\447\ If this occurs, global oil
production will fall in response to reduced global demand, but latent
production capacity would exist to offset the impacts of unexpected
supply interruptions and maintain a level of global production that is
accessible to petroleum consumers. This, too, would seem likely to
reduce the risk of gasoline price shocks.
---------------------------------------------------------------------------

    \447\ Lynes, M. Plug-in electric vehicles: future market
conditions and adoption rates, U.S. Energy Information
Administration (Oct. 23, 2017), https://www.eia.gov/outlooks/ieo/pev.php.
---------------------------------------------------------------------------

    Considering all of the above factors, if gasoline price shocks are
no longer as much of a threat as they were when EPCA was originally
passed, it seems reasonable to consider what the need of the United
States to conserve oil is today and going forward. Looking to the
discussion above on what factors are relevant to the need of the United
States to conserve oil, one may conclude that the U.S. is no longer as
dependent upon petroleum as the engine of economic prosperity as it was
when EPCA was passed. The national balance of payments considerations
are likely drastically less important than they were in the 1970s, at
least in terms of oil imports and vehicle fuel economy. Foreign policy
considerations appear to have shifted along with the supply shifts also
discussed above.
    Whether and how environmental considerations create a need for CAFE
standards is, perhaps, more complicated. As discussed earlier in this
document, carbon dioxide is a direct byproduct of the combustion of
carbon-based fuels in vehicle engines.\448\ Many argue that it is
likely that human activities, especially emissions of greenhouse gases
like carbon dioxide, contribute to the observed climate warming since
the mid-20th century.\449\ Even taking that premise as given, it is
reasonable to ask whether rapid ongoing increases in CAFE stringency
(or even, for that matter, electric vehicle mandates) can sufficiently
address climate change to merit their costs. To ``conserve,'' again,
means ``to avoid wasteful or destructive use of.''
---------------------------------------------------------------------------

    \448\ Depending on the energy source, it may also be a byproduct
of consumption of electricity by vehicles.
    \449\ Climate Science Special Report: Fourth National Climate
Assessment, Volume I (Wuebbles, D.J. et al., eds. 2017), available
at https://science2017.globalchange.gov/ (last accessed Feb. 23,
2018).
---------------------------------------------------------------------------

    Some commenters have argued essentially that any petroleum use is
destructive because it all adds incrementally to climate change. They
argue that as CAFE standards increase, petroleum use will decrease;
therefore CAFE standard stringency should increase as rapidly as
possible. Other commenters, recognizing that economic practicability is
also relevant, have argued essentially that because more stringent CAFE
standards produce less CO2 emissions, NHTSA should simply
set CAFE standards to increase at the most rapid of the alternative
rates that NHTSA cannot prove is economically impracticable. The
question here, again, is whether the additional fuel saved (and
CO2 emissions avoided) by more rapidly increasing CAFE
standards better satisfies the U.S.'s need to avoid destructive or
wasteful use of energy than more moderate approaches that more
appropiately balance other statutory considerations.
    In the context of climate change, NHTSA believes it is hard to say
that increasing CAFE standards is necessary to avoid destructive or
wasteful use of energy as compared to somewhat-less-rapidly-increasing
CAFE standards. The most stringent of the regulatory

alternatives considered in the 2012 final rule and FRIA (under much
more optimistic assumptions about technology effectiveness), which
would have required a seven percent average annual fleetwide increase
in fuel economy for MYs 2017-2025 compared to MY 2016 standards, was
forecast to only decrease global temperatures in 2100 by 0.02 [deg]C in
2100. Under NHTSA's current proposal, we anticipate that global
temperatures would increase by 0.003 [deg]C in 2100 compared to the
augural standards. As reported in NHTSA's Draft EIS, compared to the
average global mean surface temperature for 1986-2005, global surface
temperatures are still forecast to increase by 3.484-3.487 [deg]C,
depending on the alternative. Because the impacts of any standards are
small, and in fact several-orders-of-magnitude smaller, as compared to
the overall forecast increases, this makes it hard for NHTSA to
conclude that the climate change effects potentially attributable to
the additional energy used, even over the full lifetimes of the
vehicles in question, is ``destructive or wasteful'' enough that the
``need of the U.S. to conserve energy'' requires NHTSA to place an
outsized emphasis on this consideration as opposed to others.\450\
---------------------------------------------------------------------------

    \450\ The question of whether or how rapidly to increase CAFE
stringency is different from the question of whether to set CAFE
standards at all. Massachusetts v. EPA, 549 U.S. 497 (2007)
(``Agencies, like legislatures, do not generally resolve massive
problems in one fell regulatory swoop.'')
---------------------------------------------------------------------------

    Consumer costs are the remaining issue considered in the context of
the need of the U.S. to conserve energy. NHTSA has argued in the past,
somewhat paternalistically, that CAFE standards help to solve
consumers' ``myopia'' about the value of fuel savings they could
receive, when buying a new vehicle if they chose a more fuel-efficient
model. There has been extensive debate over how much consumers do (and/
or should) value fuel savings and fuel economy as an attribute in new
vehicles, and that debate is addressed in Section II.E. For purposes of
considering the need of the U.S. to conserve energy, the question of
consumer costs may be closer to whether U.S. consumers so need to save
money on fuel that they must be required to save substantially more
fuel (through purchasing a new vehicle made more fuel-efficient by more
stringent CAFE standards) than they would otherwise choose.
    Again, when EPCA originally passed, Congress was trying to protect
U.S. consumers from the negative effects of another gasoline price
shock. It appears much more likely today that oil prices will rise only
moderately in the future and that price shocks are less likely.
Accordingly, it is reasonable to believe that U.S. consumers value
future fuel savings accurately and choose new vehicles based on that
view. This is particularly true, since Federal law requires that new
vehicles be posted with a window sticker providing estimated costs or
savings over a five year period compared to average new vehicles.\451\
Even if consumers do not explicitly think to themselves ``this new car
will save me $5,000 in fuel costs over its lifetime compared to that
other new car,'' gradual and relatively predictable fuel price
increases in the foreseeable future allow consumers to roughly estimate
the comparative value of fuel savings among vehicles and choose the
amount of fuel savings that they want, in light of the other vehicle
attributes they value. It seems, then, that consumer cost as an element
of the need of the U.S. to conserve energy is also less urgent in the
context of the structural changes in oil markets over the last several
years.
---------------------------------------------------------------------------

    \451\ 49 CFR 575.401; 40 CFR 600.302-12.
---------------------------------------------------------------------------

    Given the discussion above, NHTSA tentatively concludes that the
need of the U.S. to conserve energy may no longer function as assumed
in previous considerations of what CAFE standards would be maximum
feasible. The overall risks associated with the need of the U.S. to
conserve oil have entered a new paradigm with the risks substantially
lower today and projected into the future than when CAFE standards were
first issued and in the recent past. The effectiveness of CAFE
standards in reducing the demand for fuel combined with the increase in
domestic oil production have contributed significantly to the current
situation and outlook for the near- and mid-term future. The world has
changed, and the need of the U.S. to conserve energy, at least in the
context of the CAFE program, has also changed.
    Of the other factors under 32902(g), the changes are perhaps less
significant. We continue to believe that technological feasibility, per
se, is not limiting during this rulemaking time frame. The technologies
considered in this analysis either are already in commercial production
or likely will be by MY 2021--some at great expense. Based on our
analysis, all of the alternatives appear as though they could narrowly
be considered technologically feasible, in that they could be achieved
based on the existence or the projected future existence of
technologies that could be incorporated on future vehicles. Any of the
alternatives could thus be achieved on a technical basis alone but only
if the level of resources that might be required to implement the
technologies is not considered. However, as discussed above, we no
longer view the need of the U.S. to conserve energy as nearly infinite,
which means that it no longer combines with boundless technological
feasibility to quickly push stringency upward.
    The effect of other motor vehicle standards of the Government on
fuel economy is similarly not limiting during this rulemaking time
frame. As discussed above, the analysis projects that safety standards
will add some mass to new vehicles during this time frame and accounts
for Tier 3 compliance in estimates of technology effectiveness, but
neither of these things appear likely to make it significantly harder
for industry to comply with more stringent CAFE standards. In terms of
EPA's GHG standards, as also discussed above, NHTSA and EPA's
coordination in this proposal should make the two sets of standards
similarly binding, although differences in compliance provisions remain
such that which standards are more binding will vary somewhat between
manufacturers and over time.
    The remaining factor to consider is economic practicability. NHTSA
has typically defined economic practicability, as discussed above, as
whether a given CAFE standard is ``within the financial capability of
the industry but not so stringent as'' to lead to ``adverse economic
consequences, such as a significant loss of jobs or unreasonable
elimination of consumer choice.'' As part of that definition, NHTSA
looks at a variety of elements that can lead to adverse economic
consequences. All of the alternatives considered today arguably raise
economic practicability issues. NHTSA believes there could be potential
for unreasonable elimination of consumer choice, loss of U.S. jobs, and
a number of adverse economic consequences under nearly all if not all
of the regulatory alternatives considered today.
    If a potential CAFE standard requires manufacturers to add
technology to new vehicles that consumers do not want, or to skip
adding technology to new vehicles that consumers do want, it would seem
to present issues with elimination of consumer choice. Depending on the
extent and expense of required fuel saving technology, that elimination
of consumer choice could be unreasonable.
    When deciding on which new vehicle to purchase, American consumers

generally tend not to be interested in better fuel economy above other
attributes, particularly when gasoline prices are low.\452\
Manufacturers have repeatedly indicated to the agencies that new
vehicle buyers are only willing to pay for fuel economy-improving
technology if it pays back within the first two to three years of
vehicle ownership.\453\ NHTSA has therefore incorporated this
assumption (of willingness to pay for technology that pays back within
30 months) into today's analysis. As a result, NHTSA's analysis finds
that the most cost-effective technology is applied with or without CAFE
(or CO2) standards, diminishing somewhat the incremental
cost-effectiveness of new CAFE standards.
---------------------------------------------------------------------------

    \452\ See, e.g., Comment by Global Automakers, Docket ID NHTSA-
2016-0068-0062 (citing a 2014 study by Strategic Vision that found
that ``. . . generally, customers as a whole place a higher priority
on handling and ride than fuel economy.'').
    \453\ This is supported by the 2015 NAS study, which found that
consumers seek to recoup added upfront purchasing costs within two
or three years. See 2015 NAS Report, at pg. 317.
---------------------------------------------------------------------------

    Consumers not being interested in better fuel economy can take two
forms: First, it can dampen sales of vehicles with the additional
technology required to meet the standards, and second, it can increase
sales of vehicles that do not help manufacturers meet the standards
(such as vehicles that fall significantly short of their fuel economy
targets, due to higher levels of performance (e.g., larger, less
efficient engines) or other features). Over the last several years,
despite record sales overall, most manufacturers have been managing
their CAFE compliance obligations through use of credits,\454\ because
many consumers have chosen to buy vehicles that do not improve
manufacturers' compliance positions.
---------------------------------------------------------------------------

    \454\ See CAFE Public Information Center, National Highway
Traffic Safety Administration, https://one.nhtsa.gov/cafe_pic/CAFE_PIC_Mfr_LIVE.html (last visited June 25, 2018). Readers can
examine achieved versus required fuel economy by model year and by
individual manufacturer or by entire fleets. When a manufacturer's
achieved fuel economy falls short of required fuel economy but the
manufacturer has not paid civil penalties, the manufacturer is using
credits somehow to make up the shortfall.
---------------------------------------------------------------------------

    Consumer decisions to purchase relatively low-fuel economy vehicles
might seem irrational if gasoline prices were expected to rebound in
the future, but current indicators suggest this is not particularly
likely. Although we know of no clear ``tipping point'' for gasoline
prices at which American consumers suddenly become more interested in
fuel economy over other attributes, In addition, EIA's latest AEO 2018
suggests, based on current assumptions, that per-gallon prices are
likely to stay under $4 through 2050.\455\ It therefore seems unlikely
that consumer preferences are going to change dramatically in the
foreseeable future and certainly not within the time frame of the
standards covered by this proposal.
---------------------------------------------------------------------------

    \455\ As noted elsewhere in this proposal, the agencies based
analysis on AEO 2017 projections of, for instance, fuel prices, as
it was the best available information at the time the analysis was
conducted. As such, where possible, the agency incorporated latest
AEO 2018 projections into the discussion, in effort to re-confirm no
discernible impact to analysis results or to provide the best
possible information for the discussion.
---------------------------------------------------------------------------

    Thus, if manufacturers are not currently able to sell higher-fuel
economy vehicles without heavy subsidization, particularly HEVs, PHEVs,
and EVs, it seems unlikely that their ability to do so will improve
unless consumer preferences change or fuel prices rise significantly,
either of which seem unlikely. Today's analysis indicates, perhaps
predictably, that electrification rates must increase as stringency
increases among the options the agencies are considering.

[GRAPHIC] [TIFF OMITTED] TP24AU18.157

[GRAPHIC] [TIFF OMITTED] TP24AU18.158

[GRAPHIC] [TIFF OMITTED] TP24AU18.159

[GRAPHIC] [TIFF OMITTED] TP24AU18.160

    Manufacturers have commented to the agencies that ``Although
automakers are offering more of these models every year, with improved
technology and options, sales of these vehicles are not growing,''
noting that even for hybrid

vehicles, which require no adaptation by consumers (for example, to
range limits or refueling by charging), sales ``have declined from a
peak of a 3.1 percent share of the market (in 2013) to . . . 1.8
percent [in 2016].'' \456\ The same source further stated that this
decline was despite the technology being available in the market for
more than 15 years, and that in 2016, ``close to 75 percent of the
people who have traded in a hybrid or electric car to a dealer have
replaced it with a conventional (non-hybrid) gasoline-powered car.''
\457\ While some consumers continue to seek out hybrid and electric
vehicles, then, many other consumers seem uninterested in them, even
given the generous incentives and subsidies often available for
consumers in the form of tax credits, government rebates, High
Occupancy Vehicle Lane access, preferred and/or subsidized parking,
among others. Despite this broad ongoing lack of consumer interest, a
number of manufacturers nonetheless continue to increase their
offerings of these vehicles. At best, this trend seems economically
inefficient; more concerningly for economic practicability, it seems
likely to impact consumer choice (as discussed further below) in ways
that could weigh heavily on sales, jobs, and consumers themselves. We
seek comment on this issue.
---------------------------------------------------------------------------

    \456\ Comment by Global Automakers, Docket ID NHTSA-2016-0068-
0062, citing IHS Global New Vehicle Registration Data for 2013,
2015, and January-June 2016.
    \457\ Id. at B-6 and B-7, citing Matt Richtel, American Drivers
Regain Appetite for Gas Guzzlers, New York Times (June 24, 2016),
https://www.nytimes.com/2016/06/28/science/cars-gas-global-warming.html.
---------------------------------------------------------------------------

    If the evidence indicates that hybrid sales are declining as
gasoline prices remain low, it seems reasonable to conclude that
consumers will not choose to buy more of them going forward as gasoline
prices are forecast to remain low. This is consistent with the analysis
discussed in Section II.E, that even while some consumers may be
willing to pay between $2,000 and $3,000 more for vehicles with
electrified technologies, that incremental willingness-to-pay falls
well short of the additional costs projected for HEVs, PHEVs, and EVs.
This trend may well extend beyond electrification technologies to other
technologies. When costs for fuel economy-improving technology exceed
the fuel savings, consumers may very well be unwilling to pay the full
cost for vehicles with higher fuel economy that would be increasingly
needed as to comply as the stringency of the alternatives increases.
    If consumers are not willing to pay the full cost for vehicles with
higher fuel economy, it seems reasonably foreseeable that they will
consider vehicles made more expensive by higher CAFE standards to be
not ``available'' to them to purchase--or put more simply, that they
will be turned off by more expensive vehicles with technologies they do
not want, and seek instead to purchase cheaper vehicles without that
technology (or with different technologies, such as those that improve
performance or safety). Manufacturers have long cross-subsidized
vehicle models in their lineups in order to recoup costs in cases where
they do not believe they can pass the full costs of development and
production forward as price increases for the vehicle model in
question. Given that this cross-subsidization is ongoing, however, and
possibly deepening as manufacturers have had to meet increasingly
stringent CAFE standards over the past several years, it is unclear how
much additional distribution of costs could be supported by the market.
Certainly, if CAFE standards continue to increase in stringency as
gasoline prices stay relatively low and consumer willingness to pay for
significant additional fuel economy improvements remains
correspondingly low, then additional cross-subsidization of products to
try to ease those products into consumer acceptance seems likely to
impair consumer choice, insofar as the vehicles they want to buy will
cost more and may have technology for which they are unwilling to pay.
Models that have historically been able to bear higher percentages of
the cross-subsidization burden may not be able to bear much more--a
pickup truck buyer, for example, may eventually decide to purchase a
used vehicle, another type of vehicle, or a pickup made by a different
manufacturer rather than pay the extra cost that the manufacturer is
trying to recoup from higher-fuel economy vehicles that had to be
artificially discounted to be sold. We seek comment on the effect of
fuel economy standards on cross-subsidization across models.
    Moreover, assuming that manufacturers try to pass the costs of
those technologies on to consumers in the form of higher new vehicle
prices, rather than absorbing them and hurting profitability, this can
affect consumers' ability to afford new vehicles. The analysis assumes
that the increased cost of meeting standards is passed on to consumers
through higher new vehicle prices, and looks at those increases as a
one-time payment. In the context of, for example, a $30,000 new
vehicle, another $2,000 may not seem significant to some readers. Yet
manufacturers and dealers have repeatedly commented to NHTSA that the
overall price of the vehicle is less relevant to the majority of
consumers than the monthly payment amount, which is a significant
factor in consumers' ability to purchase or lease a new vehicle.
Amortizing a $2,000 price increase over, for example, 48 months may
also not seem like a large amount to some readers, even accounting for
interest payments. Yet the corresponding up-front and monthly costs may
pose a challenge to low-income or credit-challenged purchasers. As
discussed previously, such increased costs will price many consumers
out of the market--leaving them to continue driving an older, less
safe, less efficient, and more polluting vehicle, or purchasing another
used vehicle that would likewise be less safe, less efficient, and more
polluting than an equivalent new vehicle.
    For example, the average MY 2025 prices estimated here under the
baseline and proposed CAFE standards are about $34,800 and $32,750,
respectively (and $34,500 and $32,550 under the baseline and proposed
GHG standards). The buyer of a new MY 2025 vehicle might thus avoid the
following purchase and first-year ownership costs under the proposed
standards:

[GRAPHIC] [TIFF OMITTED] TP24AU18.161

    While the buyer of the average vehicle would also purchase somewhat
more fuel under the proposed standards, this difference might average
only five gallons per month during the first year of ownership.\462\
Some purchasers may consider it more important to avoid these very
certain (e.g., being reflected in signed contracts) cost savings than
the comparatively uncertain (because, e.g., some owners drive
considerably less than others, and may purchase fuel in small
increments as needed) fuel savings. For some low-income purchasers or
credit-challenged purchasers, the cost savings may make the difference
between being able or not to purchase the desired vehicle. As vehicles
get more expensive in response to higher CAFE standards, it will get
more and more difficult for manufacturers and dealers to continue
creating loan terms that both keep monthly payments low and do not
result in consumers still owing significant amounts of money on the
vehicle by the time they can be expected to be ready for a new vehicle.
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    \458\ Using down payment assumption of $4,056. See Press
Release, Edmunds, New Vehicle Prices Climb to All-Time High in
December (Jan. 3, 2018), https://www.edmunds.com/about/press/new-vehicle-prices-climb-to-all-time-high-in-december.html.
    \459\ Using average rate of 5.46% (discussed above in Section
II.E).
    \460\ Using average rate of 4.25% (discussed above in Section
II.E).
    \461\ Using average rate of 1.83% (discussed above in Section
II.E).
    \462\ Based on estimated sales volumes and average fuel
consumption discussed below in Section VI, and on average vehicle
survival and mileage accumulation rates (discussed above in Section
II.E) indicating that the average vehicle delivers about 11% of it
lifetime service (i.e., distance driven) during the first year of
operation.
---------------------------------------------------------------------------

    Over the last decade, as vehicle sales have rebounded in the wake
of the recession, historically low interest rates and increases in the
average duration of financing terms have helped manufacturers and
dealers keep consumers' monthly payments low. These trends (low
interest rates and longer loan periods), along with pent-up demand for
new vehicles, have helped keep vehicle sales high. As interest rates
have increased, and most predict will continue to rise, monthly
payments will foreseeably increase, and the ability to offset such
increases by extending finance terms to account for increased finance
charges and vehicle prices due to CAFE standards is limited by the fact
that doing so increases the amount of time before consumers will have
positive equity in their vehicles (and able to trade in the vehicle for
a newer model). This reduces the mechanisms that manufacturers, captive
finance companies, dealers, and independent lenders have in order to
maintain sales at comparable levels. In other words, if vehicle sales
have not already hit the breaking point, they may be close.\463\ The
agencies seek comment on the impact that increased prices, interest
rates, and financing terms are likely to have on the new vehicle
market.
---------------------------------------------------------------------------

    \463\ See, e.g., Comment by Global Automakers, Docket ID NHTSA-
2016-0068-0062, at 10 (``Current sales are a poor predictor of
future sales. Many of the macroeconomic factors that have
contributed to the current boom may not exist six to nine years into
the future [i.e., during the mid-2020s]. The low interest loans and
extended time loans that are now readily available may not be
available then. The automotive industry is a cyclical business, and
it appears to be near the top of a cycle now.'')

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[GRAPHIC] [TIFF OMITTED] TP24AU18.162

    The increasing risk that manufacturers and dealers will hit a wall
in their ability to keep monthly payments low may fall
disproportionately on new and low-income buyers. To build on the
discussion above, manufacturers often purposely cross-subsidize the
prices of entry-level vehicles to keep monthly payments low and attract
new and young consumers to their brand. Higher CAFE standard stringency
leads to higher costs for technology across manufacturers' fleets,
meaning that more and more cross-subsidization becomes necessary to
maintain affordability for entry-level vehicle purchasers. While this
is clearly an economic issue for industry, it may also slow fleet-wide
improvement in vehicle characteristics like safety--both in terms of
manufacturers having to divert resources to adding technology to
vehicles that consumers do not want and then figuring out how to get
consumers to buy them and in terms of new vehicles potentially becoming
unaffordable for certain groups of consumers, meaning that they must
either defer new vehicle purchases or turn to the used vehicle market,
where levels of safety may not be comparable. We seek comment on these
considerations.
    Alternatively, rather than or in addition to continuing to cross-
subsidize fuel economy improvements that consumers are unwilling to pay
for directly, manufacturers may choose to try to improve their
compliance position under higher CAFE standards by restricting sales of
certain vehicle models or options. If consumers tend to want the 6-
cylinder engine version of a vehicle rather than the 4-cylinder
version, for example, the manufacturer may choose to make fewer 6-
cylinders available. This solution, if chosen, would directly impact
consumer choice. It seems increasingly likely that this solution could
be chosen as CAFE stringency increases.
    In terms of risks to employment, today's analysis focuses on
employment as a function of estimated changes in vehicle price in
response to different levels of standards and assumes that all cost
increases to vehicle models are passed forward to consumers in the form
of price increases for that vehicle model. As Section VII.C on today's
sales and employment analysis indicates, the sales function of the CAFE
model appears fairly accurate at predicting sales trends but does not
presume that sales are particularly responsive to changes in vehicle
price. We are concerned, however, that the sales model as it currently
functions may miss two key points about potential future sales and
employment effects.
    First, the analysis does not account for the risk discussed above
that manufacturers and dealers may not be able to continue keeping
monthly new vehicle payments low, for a variety of reasons. Interest
rates and inflation may rise; further lengthening loan terms may not be
practical as they increase the period of time that the purchaser has
negative equity (which has secondary impacts described above). While
these may be not-entirely-negative things for the economy as a whole,
they would create negative pressure on vehicle sales or employment
associated with those sales.
    Second, as the cost of compliance increases with CAFE stringency,
it is possible that manufacturers may shift

production overseas to locations where labor is cheaper. The CAFE
program contains no mandates with regard to where vehicles are
manufactured and arguably disincentivizes domestic production of
passenger cars through the minimum domestic passenger car standard. If
it becomes substantially more expensive for manufacturers to meet their
CAFE obligations, they may seek to cut costs wherever they can, which
could include layoffs or changing production locations.
    There may be other adverse economic consequences besides those
discussed above. If manufacturers seek to avoid losing sales by
absorbing the additional costs of meeting higher CAFE standards, it is
foreseeable that absorbing those costs would hurt company profits. If
manufacturers choose that approach year after year to avoid losing
market share, continued falling profits would lead to negative earnings
reports and risks to companies' long-term viability. Thus, even if
sales levels are maintained despite higher standards, it seems possible
that industry could face adverse economic consequences.
    More broadly, when gasoline prices stay relatively low (as they are
expected to remain through the lifetime of nearly all vehicles covered
by the rulemaking time frame), higher stringency standards are
increasingly less cost-beneficial. As shown and discussed in Section
VII.C, the analysis of consumer impacts shows that consumers recoup
only a portion of the costs associated with increasing stringency under
all of the alternatives. The fuel savings resulting from each of the
alternatives is substantially less than the costs associated with the
alternative, meaning that net savings for consumers improves as
stringency decreases. Figure V-2 below illustrates this trend.\464\
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    \464\ For the reader's reference, Alternatives 3 and 7 phase out
A/C and off-cycle procedures, while the other alternatives leave
those procedures unchanged. Phasing out these procedures increases
compliance costs and reduces net savings relative to leaving the
procedures unchanged, net savings to consumer with seven percent
discount rate.
[GRAPHIC] [TIFF OMITTED] TP24AU18.163

    We recognize that this is a significantly different analytical
result from the 2012 final rule, which showed the opposite trend. Using
the projections available to the agencies for the 2012 rulemaking, all
of the alternatives considered in that rulemaking were projected to
have net savings to consumers and to society overall, and those net
savings improved as stringency increased. Put simply, the result is
different today from what it was in 2012 because the facts and the
analysis are also different. While the differences in the facts and the
analysis are described extensively in Section II above and in the PRIA
---------------------------------------------------------------------------
accompanying this proposal, a few noteworthy ones include:

     In 2012, we assumed in the main analysis that
manufacturers would add no more technology than needed for
compliance, while today's analysis assumes logically that
manufacturers will add technologies that pay for themselves within
2.5 years, consistent with manufacturer information on payback
period.
     In 2012, we measured impacts of the post-2017 standards
relative to compliance with pre-2017 standards, which meant that a
lot of cost-effective technology attributable to the 2017-2020
standards was ``counted'' toward the 2025 standards.
     In 2012, we used analysis fleets based on 2008 or 2010
technology. Today's analysis uses a 2016-based analysis fleet.

    These three points above mean that, overall, the current analysis
fleet reflects the application of much additional technology than the
2012-final-rule analysis fleet reflected. When technology is used by
the analysis fleet, it is ``unavailable'' to be used again for
compliance with future standards because the same technology cannot be
used twice (once by a manufacturer for its own reasons and then again
by the model to simulate manufacturer responses to higher standards).
Some of this would happen necessarily in an updated rulemaking because
a later-in-time analysis fleet inevitably includes more technology; in
this particular case, 2016 happened to be a somewhat technology-heavy
year, and 2008 and 2010 (the fleets used in 2012) arguably did not
reflect the state of technology in 2012 well.
    Furthermore, readers should note the following changes:

     Estimates of effectiveness and cost are different for a
number of technologies, as discussed in Section II above and in
Chapter 6 of the PRIA, and indirect costs are determined using the
RPE rather than the ICM;
     Fuel prices forecasts are considerably lower in AEO
2017 than they were in AEO 2012;
     The current analysis uses a rebound effect value of 20%
instead of 10%;
     The current analysis newly accounts for price impacts
on fleet turnover;
     The social cost of carbon is different and accounts
only for domestic (not international) impacts;
     The current analysis does not attempt to purposely
limit the appearance of potential safety effects, and the value of a
statistical life is higher than in 2012.

    All of these changes, together, mean that the standards under any
of the regulatory alternatives (compared to the preferred alternative)
are more expensive and have lower benefits than if they had been
calculated using the inputs and assumptions of the 2012 analysis. This,
in turn, helps lead the agency to a different conclusion about what
standards might be maximum feasible in the model years covered by the
rulemaking. NHTSA has thus both relied on new facts and circumstances
in developing today's proposal and reasonably rejected prior facts and
analyses relied on in the 2012 final rule.\465\
---------------------------------------------------------------------------

    \465\ See Fox v. FCC, 556 U.S. at 514-515; see also NAHB v. EPA,
682 F.3d 1032 (D.C. Cir. 2012).
---------------------------------------------------------------------------

    By directing NHTSA to determine maximum feasible standards by
considering the four factors, Congress recognized that ``maximum
feasible'' may change over time as the agency assessed the relative
importance of each factor.\466\ If one factor appears to be more
important than the others in the time frame to be covered by the
standards, it makes sense to give it more weight in the agency's
determination of maximum feasible standards for those model years. If
no factor appears to be particularly paramount, it makes sense to
determine maximum feasible standards by more generally weighing each
factor, as long as EPCA's direction to establish maximum feasible
standards continues to be fulfilled in a manner that does not undermine
energy conservation.
---------------------------------------------------------------------------

    \466\ If this were not accurate, it seems illogical that
Congress would have, at various times, set specific mpg goals for
the CAFE program (e.g., 35 mpg by 2020).
---------------------------------------------------------------------------

    NHTSA tentatively concludes that proposing CAFE standards that hold
the MY 2020 curves for passenger cars and light trucks constant through
MY 2026 would be the maximum feasible standards for those fleets and
would fulfill EPCA's overarching purpose of energy conservation in
light of the facts before the agency today and as we expect them to be
in the rulemaking time frame. In the 2012 final rule that established
CAFE standards for MYs 2017-2021, and presented augural CAFE standards
for MYs 2022-2025, NHTSA stated that ``maximum feasible standards would
be represented by the mpg levels that we could require of the industry
before we reach a tipping point that presents risk of significantly
adverse economic consequences.'' \467\ However, the context of that
rulemaking was meaningfully different from the current context. At that
time, NHTSA understood the need of the U.S. to conserve energy as
necessarily pushing the agency toward setting stricter and stricter
standards. Combining a then-paramount need of the U.S. to conserve
energy with the perception that technological feasibility should no
longer be seen as an important limiting factor, NHTSA then concluded
that only significant economic harm would be a basis for controlling
the pace at which CAFE stringency increased over time.
---------------------------------------------------------------------------

    \467\ 77 FR 62624, 63039 (Oct. 15, 2012).
---------------------------------------------------------------------------

    Today, the relative importance of the need of the U.S. to conserve
energy has changed when compared to the beginning of the CAFE program
and a great deal even since the 2012 rulemaking. As discussed above,
the effectiveness of CAFE standards in reducing the demand for fuel
combined with the increase in domestic oil production have contributed
significantly to the current situation and outlook for the near- and
mid-term future. The world has changed, and the need of the U.S. to
conserve energy may no longer disproportionately outhweigh other
statutorily-mandated considerations such as economic practicability--
even when considering fuel savings from potentially more-stringent
standards.
    Thus, while more stringent standards may be possible, insofar as
production-ready technology exists that the industry could physically
employ to reach higher standards, it is not clear that higher standards
are now economically practicable in light of current U.S. consumer
needs to conserve energy. While vehicles can be built with advanced
fuel economy-improving technology, this does not mean that consumers
will buy the new vehicles that might be required to include such
technology; that industry could continue to subsidize their production
and sale; or that adverse economic consequences would not result from
doing so. The effect of other motor vehicle standards of the Government
is minimal when the two agencies regulating the same aspects of vehicle
performance are working together to develop those regulations.
Therefore, NHTSA views the determination of maximum feasible standards
as a question of the appropriateness of standards given that their
need--either from the societal-benefits perspective in terms of risk
associated with gasoline price shocks or other related catastrophes, or
from the private-benefits perspective in terms of consumer willingness
to purchase new vehicles with expensive technologies that may allow
them to save money on future fuel purchases--seems likely to remain low
for the foreseeable future.
    When determining the maximum feasible standards, and in particular
the economic practicability of higher standards, we also note that the
proposed standards have the most positive effect on on-road safety as
compared to the alternatives considered. The analysis indicates that,
compared to the baseline standards defining the No-Action alternative,
any regulatory alternatives under consideration would improve overall
highway safety. Some of this estimated reduction is attributable to
vehicles, themselves, being generally safer if they do not apply as
much mass reduction to passenger cars as might be applied under the
baseline standards. Additionally, the analysis estimates that the
alternatives to the baseline standards would cause the fleet to turn
over to newer and safer vehicles, which will also be more fuel
efficient than the vehicles being replaced, more quickly than otherwise
anticipated. Furthermore, the analysis estimates that the alternatives
to the baseline standard would involve reduced overall demand for
highway travel. As discussed above in Section II.F, and in Chapter 11
of the accompanying PRIA, most of the estimated overall improvement in
highway safety from this proposal is attributable to reduced travel
demand (attributable to the rebound effect) and accelerated turnover to
safer vehicles. The trend in these results is clear, with the less
stringent alternatives producing the greatest estimated improvement in
highway safety and the proposed standards producing the most favorable
outcomes from a highway safety perspective. These considerations
bolster our determination that the proposed standards are maximum
feasible based upon current and projected technology for the model
years in question.
    Standards that retain the MY 2020 curves through MY 2026 will save
fuel

beyond what the market would achieve on its own for vehicles
manufactured during the rulemaking time frame and will result in the
highest net benefits both for consumers and for society. Such standards
would avoid the risks identified in the discussion of economic
practicability for more stringent standards and are consistent with the
relatively lower need of the United States to conserve energy and the
impact that has on consumer choice. Moreover, as the fuel economy of
the new vehicle fleet improves over time, the marginal benefits of
continued improvements diminish, making the consumer willingness to