gasoline prices only slightly higher than today's gasoline prices.
---------------------------------------------------------------------------

    \577\ In 2012 dollars. As 2012 is not yet complete, we are not
relating this value to 2010 dollars. See RIA 1 for additional
details on the conversion between dollar years.
    \578\ http://www.eia.gov/petroleum/gasdiesel/ and click on
``full history'' for weekly regular gasoline prices through May 7,
2012, last accessed on May 8, 2012.
    \579\ http://www.eia.gov/forecasts/aeo/er/ last accessed on May
8, 2012.
---------------------------------------------------------------------------

    As discussed at proposal, these are reasonable assumptions to make
for a reference case. See 76 FR 75030-31. EPA has reviewed the
historical record for similar periods when there were relatively stable
fuel economy standards and gasoline prices. EPA maintains, and
publishes every year, the authoritative reference on new light-duty
vehicle CO2 emissions and fuel economy.\580\ This report
contains very detailed data from MYs 1975-2011. There was an extended
18-year period from 1986 through 2003 during which CAFE standards were
essentially unchanged,\581\ and gasoline prices were relatively stable
and remained below $1.50 per gallon for almost the entire period. The
1975-1985 and 2004-2011 timeframes are not relevant in this regard due
to either rising gasoline prices, rising CAFE standards, or both. Thus,
the 1986-2003 timeframe is analogous to the period out to MY 2025
during which AEO projects relatively stable gasoline prices. EPA staff
have analyzed the fuel economy trends data from the 1986-2003 timeframe
(during which CAFE standards did not vary by footprint) and have drawn
three conclusions: (1) There was a small, industry average over-
compliance with CAFE on the order of 1-2 mpg or 3-4%, (2) almost all of
this industry-wide over-compliance was from 3 companies (Toyota, Honda,
and Nissan) that routinely over-complied with the universal (i.e., non-
footprint based) CAFE standards simply because they produced smaller
and lighter vehicles relative to the industry average, and (3) full
line car and truck manufacturers, such as General Motors, Ford, and
Chrysler, which produced larger and heavier vehicles relative to the
industry average and which were constrained by the universal CAFE
standards, rarely over-complied during the entire 18-year period.\582\
---------------------------------------------------------------------------

    \580\ Light-Duty Automotive Technology, Carbon Dioxide
Emissions, and Fuel Economy Trends: 1975 through 2011, March 2012,
available at www.epa.gov/otaq/fetrends.htm.
    \581\ There are no EPA LD GHG emissions regulations prior to MY
2012.
    \582\ See Regulatory Impact Analysis, Chapter 3.
---------------------------------------------------------------------------

    Since the MYs 2012-2016 standards are footprint-based, every major
manufacturer is expected to be constrained by the new standards in
2016, and manufacturers of small vehicles will not routinely over-
comply as they had with the past universal CAFE standards.\583\ Thus,
the historical evidence and the footprint-based design of the MY 2016
GHG emissions and CAFE standards strongly support the use of a
reference case fleet where there are no further fuel economy
improvements beyond those required by the MY 2016 standards. There are
additional factors that reinforce the historical evidence. While it is
possible that one or two companies may over-comply, any voluntary over-
compliance by one company would generate credits that could be sold to
other companies to substitute for their more expensive compliance
technologies. This ability to buy and sell credits could eliminate any
over-compliance for the overall fleet.\584\ NHTSA (for the proposal)
also evaluated EIA assumptions and inputs employed in the version of
NEMS used to support AEO 2011 and found, based on this analysis, that
when fuel economy standards were held constant after MY 2016, EIA
appears to forecast market-driven levels of over- and under-compliance
generally consistent with a CAFE model analysis using a flat, 2016-
based reference case fleet. From a market driven perspective, while
there is considerable evidence that many consumers now care more about
fuel economy than in past decades, the MY 2016 compliance level is
projected to be several mpg higher than that being achieved in the
market today.\585\ On the other hand, some manufacturers have already
announced plans to introduce technology well beyond that required by

the MY 2016 GHG standards.\586\ However, it is difficult, if not
impossible, to separate future fuel economy improvements made for
marketing purposes from those designed to efficiently plan for
compliance with anticipated future CAFE or CO2 emission
standards (e.g., some manufacturers may have made public statements
about higher mpg levels in the future in part because of the
expectation of higher future standards).
---------------------------------------------------------------------------

    \583\ With the notable exception of manufacturers who only
market electric vehicles or other limited product lines.
    \584\ Oates, Wallace E., Paul R. Portney, and Albert M.
McGartland. ``The Net Benefits of Incentive-Based Regulation: A Case
Study of Environmental Standard Setting.'' American Economic Review
79(5) (December 1989): 1233-1242.
    \585\ The average, fleetwide ``laboratory'' or ``unadjusted''
fuel economy value for MY 2011 is 28.6 mpg (see Light-Duty
Automotive Technology, Carbon Dioxide Emissions, and Fuel Economy
Trends: 1975 Through 2011, March 2012, available at www.epa.gov/otaq/fetrends.htm), 6 mpg less than the 34-35 mpg levels necessary
to meet the EPA GHG and NHTSA CAFE levels in MY 2016.
    \586\ For example, Hyundai has made a public commitment to
achieve 50 mpg by 2025. See also section III.D.8 below documenting
those vehicles either achieving their post-MY 2016 targets, or which
could do so with the use of A/C credits.
---------------------------------------------------------------------------

    While EPA exclusively assumed a ``flat'' baseline in the proposal,
NHTSA used a flat baseline for its primary analysis, but assumed an
``increasing'' baseline (i.e., a market-driven fuel economy improvement
in MYs 2017-2025 beyond the projected 34.1 mpg fleetwide CAFE level in
MY 2016) in a sensitivity analysis. The agencies received five comments
on this topic. The American Council for an Energy-Efficient Economy
stated ``[t]here is little historical basis for a scenario in which
there is a sustained increase in fuel economy in the absence of
increases in standards. Public interest in fuel economy does shift with
fuel prices, but even that interest typically has followed from large,
rapid changes in price and has been short-lived. The fuel prices on
which the various agency analyses are largely based are EIA projections
and do not contain dramatic increases in price.'' The Environmental
Defense Fund ``supports EPA's proposal to assume the reference case
fleet in MY 2017-2025 would have fleet wide GHG emissions performance
no better than that projected to be necessary to meet the MY 2016
standards. Because EPA is using AEO2011 fuel price forecasts, which
project relatively stable fuel prices over the next 15 years, it is
reasonable to assume that manufacturers will not over comply with the
2016 standards and/or consumers will not demand fuel economy greater
than the 2016 standard.'' The International Council on Clean
Transportation argued that ``[t]he proposed 2017-2025 standards follow
aggressive increases in standards from 2011 through 2016. Further, the
change to a footprint-based standard means that all manufacturers must
increase the efficiency of their vehicles to comply, even manufacturers
of primarily smaller vehicles. Thus, the 2012-2016 standards have
already driven the market beyond the level of efficiency it would have
demanded in the absence of standards.'' The Natural Resources Defense
Council and joint Sierra Club/Environment America/Safe Climate
Campaign/Clean Air Council comment echoed these arguments.
    In sum, all five comments on this topic supported EPA's exclusive
use of a flat baseline, and no comments supported a sensitivity case
with an increasing baseline.
    Based on the above data-driven rationale for a flat baseline, along
with the fact that all of the public comments on this topic support a
flat baseline, EPA reaffirms the reasonableness of its assumption in
the proposal that, in the absence of more stringent standards, the
greenhouse gas emissions performance of MY 2017-2025 vehicles would
remain at MY 2016 levels, and therefore has used a ``flat'' baseline
for the analysis in this final rulemaking.
    Based on this assessment, the EPA My 2008 based reference case
fleet is estimated through the target curves defined in the MY 2016
rulemaking applied to the projected MYs 2017-2025 fleet.\587\ As in the
MYs 2012-2016 rulemaking, EPA assumes that manufacturers make use of
10.2 grams of air conditioning credits on cars and 11.5 on light
trucks, or an average of approximately 11 grams on the U.S. fleet and
the technology for doing so is included in the reference case (Section
III.C).
---------------------------------------------------------------------------

    \587\ 75 FR 25686.
---------------------------------------------------------------------------

b. Emission Control Scenarios Modeled
    For the emission control scenario (i.e. scenarios where there are
standards for MYs 2017-2025 which differ from the MY 2016 standards),
EPA modeled the final standard curves discussed in Section III.B, as
well as the alternative scenarios discussed in III.D.6.d. Certain
flexibilities are also accounted for in the analysis. Air conditioning
credits (both leakage and efficiency) discussed in section III.C.1 and
III.D.2 are included in the cost and technology analysis described
below. Full size pick-up truck HEV credits are also modeled in this
final rule analysis. See 76 FR 75082 (noting that modeling for the
final rule might include these credits.) The compliance value of 0 g/
mile for EVs and the electric portion of PHEVs are also included. In a
change from the proposal, we have also included some off-cycle credits
(start-stop systems and active aerodynamic improvements) in the cost
assessment as these technologies' two-cycle benefits were already
assumed in EPA's list of technology packages (i.e. the technology
packages modeled by OMEGA). See 76 FR 75022 and section III.C.5
above.\588\ However, advanced technology multipliers through MY 2021,
intermediate volume manufacturer provisions, flexible fuel, and carry
forward/back credits are not included explicitly in the cost analysis.
These flexibilities will offer the manufacturers more compliance
options and lower compliance costs. Moreover, the overall cost analysis
includes small volume manufacturers in the fleet, while in actuality,
these companies would likely have company specific standards (see
section III.B.5). Thus, in these respects EPA is utilizing a
conservative costing methodology.
---------------------------------------------------------------------------

    \588\ The off-cycle technologies not part of EPA's technology
packages are not included in the analysis.
---------------------------------------------------------------------------

    EPA notes that the stringency of the final standards reflects use
of air conditioning improvements and use of the 2-cycle values for the
stop-start and active aerodynamic off-cycle technologies. These
technologies are highly cost effective, and the improvements in GHG
emissions attributable to use of these technologies can be reliably
quantified.\589\ The standards do not directly reflect use of the
credits related to use of advanced technologies on full size pickup
trucks, notwithstanding that EPA believes that there is sufficient
information to reflect and quantify use of these credits in its cost
and feasibility modeling. The reason the standards do not reflect use
of these advanced technology credits is the same reason EPA is
establishing the provisions as incentives: use of advanced technologies
in large pickup trucks may face issues of consumer acceptance of both
the extra cost and of the technologies themselves. Consequently, EPA
has made a reasonable policy choice to encourage penetration of these
technologies into the large pickup truck sector rather than to adopt
standards premised on aggressive penetration rates of these
technologies. See 76 FR 75082.
---------------------------------------------------------------------------

    \589\ See generally TSD 3 and 5.
---------------------------------------------------------------------------

c. Vehicle Groupings Used
    In order to create future technology projections and enable
compliance with the modeled standards, EPA aggregates vehicle sales by
a combination of manufacturer, vehicle platform, and engine design for
the OMEGA model. As discussed above, manufacturers implement major
design changes at vehicle redesign and tend to implement these changes
across a vehicle platform (such as large SUV, mid-size SUV, large
automobile, etc) at a given manufacturing plant. Because the cost of

modifying the engine depends on the valve train design (such as SOHC,
DOHC, etc.), the number of cylinders, and in some cases head design,
the vehicle sales are broken down beyond the platform level to reflect
relevant engine differences. The vehicle groupings are shown in Table
III-21. While there were no comments on this topic, EPA has updated
these groupings from those used in the proposal. The new groupings
provide a more accurate mapping of vehicle technologies to vehicle
platforms.

                   Table III-21--Vehicle Groupings \a\
------------------------------------------------------------------------
      Vehicle description         Vehicle type         Vehicle class
------------------------------------------------------------------------
Auto Subcompact I3 DOHC 4v....                 1  Small car.
Auto Subcompact I4 SOHC/DOHC
 2v/4v
Auto Subcompact Electric
Auto Compact SOHC 2v..........                 2  Standard car.
Auto Compact SOHC/DOHC 4v
Auto Midsize SOHC/DOHC 4v
Pickup Small DOHC 4v
Auto Subcompact I5 SOHC 4v....                 3  Standard car.
Auto Subcompact V6 SOHC/DOHC
 4v
Auto Subcompact I4 SOHC/DOHC
 4v turbo/supercharged
Auto Compact Rotary
Auto Compact I5 DOHC 4v
Auto Compact V6 SOHC/DOHC 4v
Auto Compact I4 SOHC/DOHC 4v
 turbo/supercharged
Auto Midsize V6 SOHC/DOHC 4v
Auto Midsize I4 SOHC/DOHC 4v
 tubo/supercharged
Auto Large V6 SOHC/DOHC 4v
Auto Midsize I4 SOHC 4v tubo/
 supercharged
Auto Subcompact V6 SOHC 3v....                 4  Standard car.
Auto Compact V6 OHV 2v
Auto Midsize V6 SOHC 2v
Auto Midsize V6 OHV 2v
Auto Large V6 OHV 2v
Auto Subcompact V8 DOHC 4v....                 5  Large car.
Auto Compact V10 DOHC 4v
Auto Compact V8 DOHC 4v turbo/
 supercharged
Auto Compact V8 DOHC 4v/5v
Auto Compact V6 DOHC 4v
Auto Compact V5 DOHC 4v turbo/
 supercharged
Auto Midsize V12 DOHC 4v
Auto Midsize V10 DOHC 4v
Auto Midsize V8 DOHC 4v/5v
Auto Midsize V8 SOHC 4v
Auto Midsize V6 DOHC 4v
Auto Midsize V7 DOHC 4v
Auto Large V16 DOHC 4v turbo/
 supercharged
Auto Large V12 SOHC 4v turbo/
 supercharged
Auto Large V12 DOHC 4v
Auto Large V10 DOHC 4v
Auto Large V8 DOHC 4v turbo/
 supercharged
Auto Large V8 DOHC 2v/4v
Auto Large V8 SOHC 4v
Auto Subcompact V10 OHV 2v....                 6  Large car.
Auto Subcompact V8 SOHC 3v
Auto Midsize V8 SOHC 3v turbo/
 supercharged
Auto Midsize V8 SOHC 3v
Auto Midsize V8 OHV 2v
Auto Large V12 SOHC 3v turbo/
 supercharged
Auto Large V8 SOHC 3v turbo/
 supercharged
Auto Large V8 SOHC 2v
Auto Large V8 OHV 2v/4v
SUV Small I4 DOHC 4v..........                 7  Small MPV.
SUV Midsize SOHC/DOHC 4v
SUV Large DOHC 4v
Minivan I4 DOHC 4v
SUV Small I4 DOHC 4v turbo/                    8  Large MPV.
 supercharged.
SUV Midsize V6 SOHC/DOHC 4v
SUV Midsize I4 SOHC/DOHC 4v
 turbo/supercharged
SUV Large V6 SOHC/DOHC 4v
SUV Large I5 DOHC 2v
SUV Large I4 DOHC 4v turbo/
 supercharged
SUV Midsize V6 SOHC 2v........                 9  Large MPV.
SUV Large V6 SOHC 2v
SUV Small V6 OHV 2v...........                10  Large MPV.
SUV Midsize V6 OHV 2v
SUV Large V6 OHV 2v

Minivan V6 OHV 2v
Cargo Van V6 OHV 2v
SUV Large V10 DOHC 4v turbo/                  11  Truck.
 supercharged.
SUV Large V8 DOHC 4v turbo/
 supercharged
SUV Large V8 SOHC/DOHC 4v
SUV Large V6 DOHC 4v turbo/
 supercharged
SUV Large V8 SOHC 3v turbo/                   12  Truck.
 supercharged.
SUV Large V8 SOHC 2v/3v
SUV Large V8 OHV 2v
Cargo Van V10 SOHC 2v
Cargo Van V8 SOHC/OHV 2v
Pickup Large DOHC 4v..........                13  Small MPV.
Pickup Small V6 SOHC 4v.......                14  Large MPV.
Pickup Small I5 DOHC 2v
Pickup Large V6 DOHC 2v/4v
Pickup Large I5 DOHC 2v
Pickup Small V6 SOHC 2v.......                15  Large MPV.
Pickup Small V6 OHV 2v
Pickup Large V6 SOHC 2v
Pickup Large V6 OHV 2v
Pickup Large V8 DOHC 4v.......                16  Truck.
Pickup Large V8 SOHC 2v.......                17  Truck.
Pickup Large V8 SOHC/DOHC 3v                  18  Truck.
 turbo/supercharged.
Pickup Large V8 SOHC 3v
Pickup Large V8 OHV 2v........                19  Truck.
------------------------------------------------------------------------
\a\ I4 = 4 cylinder engine, I5 = 5 cylinder engine, V6, V7, and V8 = 6,
  7, and 8 cylinder engines, respectively, DOHC = Double overhead cam,
  SOHC = Single overhead cam, OHV = Overhead valve, v = number of valves
  per cylinder.

2. What are the effectiveness and costs of CO2-reducing
technologies?
    EPA and NHTSA worked together to develop information on the
effectiveness and cost of most CO2-reducing and fuel
economy-improving technologies. This joint work is reflected in Chapter
3 of the Joint TSD and in Section II.D of this preamble. The work on
technology cost and effectiveness also includes maximum penetration
rates, or ``phase-in caps'' for the OMEGA model. These caps are an
important input to OMEGA that capture the agencies' analysis of the
rate at which technologies can be added to the fleet (see Chapter 3.4.2
of the joint TSD for more detail). This preamble section, rather than
repeating those details, focuses upon EPA-only technology assumptions,
specifically, those relating to air conditioning (A/C) refrigerant.
    EPA expects all manufacturers will choose to use A/C improvement
credit opportunities as a strategy for complying with the
CO2 standards, and has set the stringency of the proposed
and final standards accordingly (see section III.C.1). EPA estimates
that the average level of the credits earned will increase from 2017
(13 g/mile) to 2021 (21 g/mile) as more vehicles in the fleet convert
to use of the new alternative refrigerant.\590\ By 2021, we project
that 100% of the MY 2021 fleet will be using alternative refrigerants,
and that credit usage will remain constant on a car and truck fleet
basis until 2025. Note from the table below that costs then decrease
from 2021 to 2025 due to manufacturer learning as discussed in Section
II of this preamble and in Chapter 3 of the joint TSD. A more in-depth
discussion of feasibility and availability of low GWP alternative
refrigerants can be found in Section III.C.1 of the Preamble.
---------------------------------------------------------------------------

    \590\ See table in III.B.

               Table III-22--Total Costs for A/C Technologies Related to Alternative Refrigerants
                                             [Costs in 2010 dollars]
----------------------------------------------------------------------------------------------------------------
                           Technology                                  2017            2021            2025
----------------------------------------------------------------------------------------------------------------
Car:
    Leakage reduction (continued from the 2012-2016 rule).......              $3              $3              $3
    Low GWP refrigerant.........................................              17              58              50
    Low GWP refrigerant hardware................................               4              17              16
                                                                 -----------------------------------------------
        Total...................................................              23              77              68
Truck:
    Leakage reduction (continued from the 2012-2016 rule).......               1               3               3
    Low GWP refrigerant.........................................               0              58              50
    Low GWP refrigerant hardware................................               0              17              16
                                                                 -----------------------------------------------
        Total...................................................               1              77              68
Fleet:
    Total.......................................................              24              77              68
----------------------------------------------------------------------------------------------------------------

    Additionally, by MY 2019, EPA estimates that 100% of the A/C
efficiency improvements will by fully phased-in. However 85% of these
costs are already in the reference fleet, as this is the level of
penetration assumed in the MYs 2012-2016 final rule. The penetration of
A/C improvements and costs for this final rule can be found in Chapter
5 of the joint TSD.
3. How were technologies combined into ``Packages'' and what is the
cost and effectiveness of packages?
    Individual technologies can be used by manufacturers to achieve
incremental CO2 reductions. However, as discussed
extensively in the MYs 2012-2016 Rule, EPA believes that manufacturers
are more likely to bundle technologies into ``packages'' to capture
synergistic aspects and reflect progressively larger CO2
reductions with additions or changes to any given package. In this
manner, and consistent with the concept of a redesign cycle,
manufacturers can optimize their available resources, including
engineering, development, manufacturing and marketing activities to
create a product with multiple new features. Therefore, the approach
taken here is to group technologies into packages of increasing cost
and effectiveness.
    As in the proposal, EPA built unique technology packages for each
of 19 ``vehicle types,'' which, as in the MYs 2012-2016 rule and the
proposal, provides sufficient resolution to represent the technology of
the entire fleet at varying levels of stringency.\591\ This was the
result of analyzing the existing light duty fleet with respect to
vehicle size and powertrain configurations. All vehicles, including
cars and trucks, were first distributed based on their relative size,
starting from compact cars and working upward to large trucks. Next,
each vehicle was evaluated for powertrain, specifically the engine size
(I4, V6, and V8), valvetrain configuration (DOHC, SOHC, OHV), and
number of valves per cylinder. For purposes of calculating some
technology costs and effectiveness values, each of these 19 vehicle
types is mapped into one of six classes of vehicles: Small car,
Standard car, Large car, Small MPV, Large MPV and Truck.\592\ We
believe that these six vehicle classes, along with engine cylinder
count and valvetrain configuration, provide adequate representation for
the cost basis associated with most technology application. A detailed
table showing the 19 vehicle types, their baseline packages and their
descriptions is contained in Table III-21 and in Chapter 1 of EPA's
RIA.
---------------------------------------------------------------------------

    \591\ Note that the 19 vehicle types have been significantly
modified for this final rule relative to the proposal. These changes
allow more accurate placement of vehicles into the appropriate
vehicle types, such as towing and non-towing vehicles. See Chapter 1
of EPA's final RIA for more detail on the new vehicle types.
    \592\ Note that, for this final rule and representing an update
since the proposal, EPA has used vehicle class designations that are
consistent with those in the lumped parameter model used for
effectiveness determinations. As such, the 19 vehicle types are
mapped into vehicle classes with different names although the
proposal's names and the final rule's names are essentially
identical in meaning. This semantic change is meant to reduce
confusion and to more closely tie the cost elements of our modeling
with the effectiveness elements.
---------------------------------------------------------------------------

    Within each of the 19 vehicle types, multiple technology packages
were created with increasing technology content and resulting increases
in effectiveness. As stated earlier, with few exceptions, each
technology package is meant to provide the same driver-perceived
performance and utility as the baseline package. Note that we refer
throughout this discussion of package building to a ``baseline''
package. This should not be confused with the baseline fleet, which is
the fleet of roughly 16 million 2008MY individual vehicles comprised of
over 1,300 vehicle models. In this discussion, when we refer to
``baseline'' packages we refer to the ``baseline'' configuration of the
given vehicle type. So, we have 19 baseline packages in the context of
building packages. Each of those 19 baseline packages is comprised of a
port fuel injected engine and a 4 speed automatic transmission, the
valvetrain configuration and the number of cylinders changes for each
vehicle type in an effort to encompass the diversity in the 2008
baseline fleet as discussed above. We describe this in more detail in
Chapter 1 of EPA's RIA.
    To develop a set of packages as OMEGA inputs, EPA builds packages
consisting of every feasible combination of technology available,
subject to constraints.\593\ For the 2025MY, this ``master-set'' of
packages consists of roughly 2,500 possible packages of technologies
for each of 19 vehicle types, or roughly 47,000 packages in all. The
cost of each package is determined by adding the cost of each
individual technology contained in the package for the given year of
interest. The effectiveness of each package is determined in a more
complex manner; one cannot simply add the effectiveness of individual
technologies to arrive at a package-level effectiveness because of the
synergistic effects of technologies when grouped with other
technologies that seek to improve the same or similar efficiency loss
mechanism. As an example, the benefits of the engine and transmission
technologies can usually be combined multiplicatively,\594\ but in some
cases, the benefit of the transmission-related technologies overlaps
with the engine technologies. This occurs because the transmission
technologies shift operation of the engine to more efficient locations
on the engine map by incorporating more ratio selections and a wider
ratio span into the transmissions. Some of the engine technologies have
the same goal, such as cylinder deactivation, advanced valve trains,
and turbocharging. In order to account for this overlap and avoid over-
estimating emissions reduction effectiveness, EPA uses an engineering
approach known as the lumped-parameter technique. The results from this
approach were then applied directly to the vehicle packages. The
lumped-parameter technique is well documented in the literature, and
the specific approach developed by EPA is detailed in Chapter 3
(Section 3.3.2) of the joint TSD as well as in Chapter 1 of EPA's RIA.
---------------------------------------------------------------------------

    \593\ Example constraints include the requirement for
stoichiometric gasoline direct injection on every turbocharged and
downsized engine and/or any 27 bar BMEP turbocharged and downsized
engine must also include cooled EGR. Some constraints are the result
of engineering judgment while others are the result of effectiveness
value estimates which are tied to specific combinations of
technologies.
    \594\ For example, if an engine technology reduces
CO2 emissions by five percent and a transmission
technology reduces CO2 emissions by four percent, the
benefit of applying both technologies is 8.8 percent (100%-(100%-4%)
* (100%-5%)).
---------------------------------------------------------------------------

    Table III-23 presents technology costs for a subset of the more
prominent technologies in our analysis (note that all technology costs
are presented in Chapter 3 of the Joint TSD and in Chapter 1.2 of EPA's
RIA). Table III-23 includes technology costs for a V6 dual overhead cam
midsize car and a V8 overhead valve large pickup truck. This table is
meant to illustrate how technology costs are similar and/or different
for these two large selling vehicle classes and how the technology
costs change over time due to learning and indirect cost changes as
described in section II.D of this preamble and at length in Chapter 3.2
of the Joint TSD. Note that these costs are not package costs but,
rather, individual technology costs. We present package costs for the
V6 midsize car in Table III-24, below.
    As discussed in II.D, we received relatively few detailed comments
on technology cost and effectiveness, with the primary comments from
NADA and

ICCT. At a high level, the changes made since the proposal discussed in
Section II.D of this preamble. More detailed discussion of technology
cost and effectiveness is presented in Chapter 3 of the Joint TSD.

          Table III-23--Total Costs of Select Technologies for V6 Midsize Car and V8 Large Pickup Truck
                                                 [2010 dollars]
----------------------------------------------------------------------------------------------------------------
      Vehicle class & base  engine              Technology            2017 MY         2021 MY         2025 MY
----------------------------------------------------------------------------------------------------------------
Midsize/Standard car....................  Dual cam phasing on V6            $205            $178            $168
V6 DOHC.................................  Dual cam phasing on I4              95              83              78
4 valves/cylinder.......................   (used when downsized              417             362             340
Port fuel injected......................   to I4 DOHC).                      277             240             226
4 speed auto trans......................  Stoichiometric
                                           gasoline direct
                                           injection on V6.
                                          Stoichiometric
                                           gasoline direct
                                           injection on I4 (used
                                           when downsized).
                                          18-bar BMEP with                   248             161             169
                                           downsize from V6 DOHC
                                           to I4 DOHC.
                                          24-bar BMEP with                   510             449             383
                                           downsize from V6 DOHC
                                           to I4 DOHC.
                                          Cooled EGR on I-                   305             288             249
                                           configuration (used
                                           when downsized).
                                          Advanced diesel.......            2965            2572            2420
                                          8 speed dual clutch                 47              45              39
                                           transmission (wet).
                                          High efficiency                    251             227             202
                                           gearbox.
                                          Aerodynamic treatments             213             199             176
                                           (active, Aero2).
                                          Stop-start (12 Volt)..             401             338             308
                                          P2 hybrid electric               3,847           3,230           2,861
                                           technology \a\.
                                          Plug-in hybrid                  13,148           9,950           8,145
                                           technology with 20
                                           mile range \a\.
                                          Electric vehicle                17,684          13,232           9,795
                                           technology with 75
                                           mile range \a\.
Large pickup truck......................  Dual cam phasing on V6             205             178             168
V8 OHV..................................   (used when downsized              501             435             409
2 valves/cylinder.......................   to V6 DOHC).                      417             362             340
Port fuel injected......................  Stoichiometric
4 speed auto trans......................   gasoline direct
                                           injection on V8.
                                          Stoichiometric
                                           gasoline direct
                                           injection on V6 (used
                                           when downsized).
                                          18-bar BMEP with                 1,339           1,151           1,080
                                           downsize from V8 OHV
                                           to V6 DOHC.
                                          24-bar BMEP with                 1,781           1,636           1,441
                                           downsize from V8 OHV
                                           to V6 DOHC.
                                          Cooled EGR on V-                   305             288             249
                                           configuration.
                                          Advanced diesel.......           4,154           3,605           3,392
                                          8 speed automatic                   62              54              50
                                           transmission.
                                          High efficiency                    251             227             202
                                           gearbox.
                                          Aerodynamic treatments             213             199             176
                                           (active, Aero2).
                                          Stop-start (12 Volt)..             498             420             383
                                          P2 hybrid electric               4,575           3,851           3,399
                                           technology \a\.
----------------------------------------------------------------------------------------------------------------
\a\ Assumes application of weight reduction technology resulting in 10% weight reduction before adding back the
  weight of batteries and motors resulting in a net weight reduction less than 10% (see Chapter <IP_ADDRESS> of the
  Joint TSD for more details).

    As detailed in Chapter 1 of EPA's RIA, this master-set of packages
is then ranked according to technology application ranking factors
(TARFs) to eliminate packages that are not as cost-effective as
others.\595\
---------------------------------------------------------------------------

    \595\ The Technology Application Ranking Factor (TARF) is
discussed further in III.D.4. More detail on the TARF can be found
in the OMEGA model supporting documentation (see EPA-420-B-10-042).
---------------------------------------------------------------------------

    The OMEGA model can utilize several approaches to determining the
order in which vehicles receive technologies. For this analysis, EPA
used a ``manufacturer-based net cost-effectiveness factor'' to rank the
technology packages in the order in which a manufacturer is likely to
apply them. Conceptually, this approach estimates the cost of adding
the technology from the manufacturer's perspective and divides it by
the mass of CO2 the technology will reduce. One component of
the cost of adding a technology is its production cost, as discussed
above. However, it is expected that purchasers of new vehicles value
improved fuel economy since it reduces the cost of operating the
vehicle. Typical vehicle purchasers are assumed to value the fuel
savings accrued over the period of time which they will own the
vehicle, which is estimated to be roughly five years. It is also
assumed that consumers discount these savings at the same rate as that
used in the rest of the analysis (3 or 7 percent).\596\ Any residual
value of the additional technology which might remain when the vehicle
is sold is not considered. The CO2 emission reduction is the
change in CO2 emissions multiplied by the percentage of
vehicles surviving after each year of use multiplied by the annual
miles travelled by age.
---------------------------------------------------------------------------

    \596\ While our costs and benefits are discounted at 3% or 7%,
the decision algorithm (TARF) used in OMEGA was run at a discount
rate of 3%. Given that manufacturers must comply with the standard
regardless of the discount rate used in the TARF, this has little
impact on the technology projections shown here.
---------------------------------------------------------------------------

    Given this definition, the higher priority technologies are those
with the lowest manufacturer-based net cost-effectiveness value
(relatively low technology cost or high fuel savings leads to lower
values). Because the order of technology application is set for each
vehicle, the model uses the manufacturer-based net cost-effectiveness
primarily to decide which vehicle receives the next technology
addition. Initially, technology package 1 is the only one
available to any particular vehicle. However, as soon as a vehicle
receives technology package 1, the model considers the
manufacturer-based net cost-effectiveness of technology package
2 for that vehicle and so on. In general terms, the equation
describing the calculation of manufacturer-based cost effectiveness is
as follows:

[GRAPHIC] [TIFF OMITTED] TR15OC12.012

Where:

CostEffManuft = Manufacturer-Based Cost Effectiveness (in
dollars per kilogram CO2),
[Delta]TechCost = Difference in marked up cost of the technology
(dollars),
[Delta]FS = Difference in fuel consumption due to the addition of
technology times fuel price and discounted over the payback period,
or the number of years of vehicle use over which consumers value
fuel savings when evaluating the value of a new vehicle at time of
purchase
[Delta]CO2 = Difference in CO2 emissions (g/
mile) due to the addition of technology
VMTregulatory = the statutorily defined VMT

    EPA describes the technology ranking methodology and manufacturer-
based cost effectiveness metric in greater detail in the OMEGA
documentation.\597\ For this final rulemaking, we have additionally
incorporated the off-cycle and hybrid credits into the TARF
equations.\598\ As the calculation is from the manufacturers'
perspective, the credit value is considered as additional
CO2 savings when the model calculates the TARF.\599\
---------------------------------------------------------------------------

    \597\ OMEGA model documentation. EPA-420-B-10-042.
    \598\ As noted previously, selected off-cycle credits were
included in the cost analysis. Thus, their usage was also included
in the TARF (technology selection algorithm), so that the model
could consider both the two cycle and off-cycle effectiveness when
choosing technologies.
    \599\ Of the off-cycle credits on the menu, only stop start and
the active aerodynamics are considered when analyzing costs of
complying with the standards the final analysis. We have done this
because of their relatively high expected penetration rates.
---------------------------------------------------------------------------

    When calculating the fuel savings in the TARF equation, the full
retail price of fuel, including taxes is used. While taxes are not
generally included when calculating the cost or benefits of a
regulation, the net cost component of the manufacturer-based net cost-
effectiveness equation is not a measure of the social cost of this
final rule, but a measure of the private cost, (i.e., a measure of the
vehicle purchaser's willingness to pay more for a vehicle with higher
fuel efficiency). Since vehicle operators pay the full price of fuel,
including taxes, they value fuel costs or savings at this level, and
OMEGA presumes that manufacturers will consider this when choosing
among the technology options.\600\
---------------------------------------------------------------------------

    \600\ This definition of manufacturer-based net cost-
effectiveness ignores any change in the residual value of the
vehicle due to the additional technology when the vehicle is five
years old. Based on historic used car pricing, applicable sales
taxes, and insurance, vehicles are worth roughly 23% of their
original cost after five years, discounted to year of vehicle
purchase at 7% per annum. It is reasonable to estimate that the
added technology to improve CO2 level and fuel economy
will retain this same percentage of value when the vehicle is five
years old. However, it is less clear whether first purchasers, and
thus, manufacturers consider this residual value when making vehicle
purchases and ranking technology choices, respectively. For this
final rule, this factor was not included in our determination of
manufacturer-based net cost-effectiveness in the analyses.
---------------------------------------------------------------------------

    The values of manufacturer-based net cost-effectiveness for
specific technologies will vary from vehicle to vehicle, often
substantially. This occurs for three reasons. First, the technology
cost, change in ownership fuel costs, and lifetime CO2
effectiveness of a specific technology all vary by the type of vehicle
or engine to which it is being applied (e.g., small car versus large
truck, or 4-cylinder versus 8-cylinder engine). Second, the
effectiveness of a specific technology often depends on the presence of
other technologies already being used on the vehicle (i.e., the dis-
synergies). Third, the absolute fuel savings and CO2
reduction of a percentage are an incremental reduction in fuel
consumption depends on the CO2 level of the vehicle prior to
adding the technology. Chapter 1 of EPA's RIA contains further detail
on the values of manufacturer-based net cost-effectiveness for the
various technology packages.
    The result of this TARF ranking process is a ``ranked-set'' of over
700 packages for use as OMEGA inputs, or roughly 40 per vehicle type.
EPA prepares a ranked-set of packages for any MY in which OMEGA is
run,\601\ the initial packages represent what we believe a manufacturer
will most likely implement on all vehicles, including lower rolling
resistance tires, low friction lubricants, engine friction reduction,
aggressive shift logic, early torque converter lock-up, improved
electrical accessories, and low drag brakes (to the extent not
reflected in the baseline vehicle).\602\ Subsequent packages include
gasoline direct injection, turbocharging and downsizing, and more
advanced transmission technologies such as six and eight speed dual-
clutch transmissions and 6 and 8 speed automatic transmissions. The
most technologically advanced packages within a vehicle type include
hybrid-electric, plug-in hybrid-electric and battery-electric
technologies. Note that plug-in hybrid and electric vehicle packages
are only modeled for the non-towing vehicle types, in order to better
maintain utility (see RIA chapter 1). In the proposal, we requested
comment on this approach and whether we should consider plug-in hybrids
for towing vehicle types. We did not receive any comments on this topic
and have maintained the same approach in the final rule as used in the
proposal.
---------------------------------------------------------------------------

    \601\ Note that a ranked-set of package is regenerated for any
year for which OMEGA is run due to the changes in costs and maximum
penetration rates. EPA's RIA chapter 3 contains more details on the
OMEGA modeling and Joint TSD Chapter 3 has more detail on both costs
changes over time and the maximum penetration limits of certain
technologies used in the agencies modeling.
    \602\ When making reference to low friction lubricants, the
technology being referred to is the engine changes and possible
durability testing that would be done to accommodate the low
friction lubricants, not the lubricants themselves.
---------------------------------------------------------------------------

    Table III-24 presents the cost and effectiveness values from a
2025MY ranked-set of packages used in the OMEGA model for EPA's vehicle
type 3, a midsize or standard car class equipped with a V6 engine.
Similar packages were generated for each of the 19 vehicle types and
the costs and effectiveness estimates for each of those packages are
discussed in detail in Chapter 1 of EPA's RIA.

   Table III-24--CO2 Reducing Technology Vehicle Packages Used in OMEGA for a V6 Midsize Car Effectiveness and
                                               Costs in the 2025MY
                                             [Costs in 2010 dollars]
----------------------------------------------------------------------------------------------------------------
                                                                Mass Rdxn
       Tech Pkg              Engine & vehicle           applied            Cost          Effectiveness
                                        technologies            (percent)                           (percent)
----------------------------------------------------------------------------------------------------------------
3.0000.........................  Auto 4VDV6...............              base                $0               0.0

3.0131.........................  Auto 4VDV6 +EFR2 +ASL2                    5               822              29.8
                                  +LDB +IACC1 +EPS +Aero1
                                  +LRRT1 +HEG +DCP +WR5%
                                  +6sp.
3.0195.........................  Auto 4VDI4 +EFR2 +ASL2                    5             1,070              36.8
                                  +LDB +IACC1 +EPS +Aero1
                                  +LRRT1 +HEG +DCP +GDI
                                  +TDS18 +WR5% +6sp.
3.0196.........................  Auto 4VDI4 +EFR2 +ASL2                    5             1,287              40.4
                                  +LDB +IACC2 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +TDS18 +WR5% +6sp.
3.0388.........................  Auto 4VDI4 +EFR2 +ASL2                    5             1,402              42.3
                                  +LDB +IACC2 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +TDS18 +WR5% +8sp.
3.0772.........................  Auto 4VDI4 +EFR2 +ASL2                   10             1,519              43.9
                                  +LDB +IACC2 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +TDS18 +WR10% +8sp.
3.1156.........................  Auto 4VDI4 +EFR2 +ASL2                   15             1,745              45.5
                                  +LDB +IACC2 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +TDS18 +WR15% +8sp.
3.0804.........................  Auto 4VDI4 +EFR2 +ASL2                   10             1,733              45.7
                                  +LDB +IACC2 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +TDS24 +WR10% +8sp.
3.0836.........................  Auto 4VDI4 +EFR2 +ASL2                   10             1,982              47.7
                                  +LDB +IACC2 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +TDS24 +EGR +WR10% +8sp.
3.1220.........................  Auto 4VDI4 +EFR2 +ASL2                   15             2,209              49.2
                                  +LDB +IACC2 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +TDS24 +EGR +WR15% +8sp.
3.2004.........................  Auto 4VDI4 +EFR2 +ASL2                   10             2,722              50.2
                                  +LDB +IACC1 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +MHEV +TDS18 +WR10% +8sp.
3.1604.........................  Auto 4VDI4 +EFR2 +ASL2                   20             2,506              50.7
                                  +LDB +IACC2 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +TDS24 +EGR +WR20% +8sp.
3.1612.........................  Auto 4VDI4 +EFR2 +ASL2                   20             2,814              51.2
                                  +LDB +IACC2 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +SS +TDS24 +EGR +WR20%
                                  +8sp.
3.2196.........................  Auto 4VDI4 +EFR2 +ASL2                   15             2,948              51.4
                                  +LDB +IACC1 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +MHEV +TDS18 +WR15% +8sp.
3.1628.........................  Auto 4VDI4 +EFR2 +ASL2                   20             2,896              51.5
                                  +LDB +IACC2 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +SS +SAX +TDS24 +EGR
                                  +WR20% +8sp.
3.2204.........................  Auto 4VDI4 +EFR2 +ASL2                   15             3,030              51.8
                                  +LDB +IACC1 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +MHEV +SAX +TDS18 +WR15%
                                  +8sp.
3.2020.........................  Auto 4VDI4 +EFR2 +ASL2                   10             2,936              51.9
                                  +LDB +IACC1 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +MHEV +TDS24 +WR10% +8sp.
3.2396.........................  Auto 4VDI4 +EFR2 +ASL2                   20             3,327              53.0
                                  +LDB +IACC1 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +MHEV +SAX +TDS18 +WR20%
                                  +8sp.
3.2400.........................  Auto 4VDI4 +EFR2 +ASL2                   20             3,461              53.4
                                  +LDB +IACC1 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +DVVL
                                  +GDI +MHEV +SAX +TDS18
                                  +WR20% +8sp.
3.2220.........................  Auto 4VDI4 +EFR2 +ASL2                   15             3,245              53.4
                                  +LDB +IACC1 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +MHEV +SAX +TDS24 +WR15%
                                  +8sp.
3.2036.........................  Auto 4VDI4 +EFR2 +ASL2                   10             3,185              53.6
                                  +LDB +IACC1 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +MHEV +TDS24 +EGR +WR10%
                                  +8sp.
3.2228.........................  Auto 4VDI4 +EFR2 +ASL2                   15             3,412              54.7
                                  +LDB +IACC1 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +MHEV +TDS24 +EGR +WR15%
                                  +8sp.
3.2236.........................  Auto 4VDI4 +EFR2 +ASL2                   15             3,494              55.1
                                  +LDB +IACC1 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +MHEV +SAX +TDS24 +EGR
                                  +WR15% +8sp.
3.2428.........................  Auto 4VDI4 +EFR2 +ASL2                   20             3,791              56.2
                                  +LDB +IACC1 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +GDI
                                  +MHEV +SAX +TDS24 +EGR
                                  +WR20% +8sp.
3.1680.........................  Auto 4VDV6 +EFR2 +ASL2                   20             5,156              57.3
                                  +LDB +IACC1 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +DVVL
                                  +GDI +HEV +SAX +ATKCS
                                  +WR20% +8sp.
3.2465.........................  Auto 4VDV6 +EFR2 +ASL2                   20            11,047              74.3
                                  +LDB +IACC1 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +DVVL
                                  +GDI +ATKCS +REEV20
                                  +WR20% +8sp.
3.2466.........................  Auto 4VDV6 +EFR2 +ASL2                   20            13,534              83.8
                                  +LDB +IACC1 +EPS +Aero2
                                  +LRRT2 +HEG +DCP +DVVL
                                  +GDI +ATKCS +REEV40
                                  +WR20% +8sp.
3.2467.........................  +IACC1 +EPS +Aero2 +LRRT2                20            11,451             100.0
                                  +EV75 mile +WR20% +0sp.
3.2468.........................  +IACC1 +EPS +Aero2 +LRRT2                20            13,376             100.0
                                  +EV100 mile +WR20% +0sp.
3.2469.........................  +IACC1 +EPS +Aero2 +LRRT2                20            18,306             100.0
                                  +EV150 mile +WR20% +0sp.
----------------------------------------------------------------------------------------------------------------
6sp = 6sp transmission (DCT-wet for vehicle type 3); 8sp = 8 speed DCT-wet; Aero = aerodynamic treatments; ASL =
  aggressive shift logic; AT = auto trans; ATKCS = Atkinson-cycle; DCP = dual cam phasing; DCT = dual clutch
  trans; DSL-Adv = advanced diesel; DOHC = dual overhead cam; EFR = engine friction reduction; EGR = exhaust gas
  recirculation; EPS = electric power steering; EV = electric vehicle; GDI = stoich gasoline direct injection;
  HEG = high efficiency gearbox; HEV = hybrid EV; MHEV = Mild HEV; IACC = improved accessories; LDB = low drag
  brakes; LRRT = lower rolling resistance tires; REEV = range extended EV or plug-in HEV; SAX = secondary axle
  disconnect; S-S = stop-start; TDS18/24/27 = turbocharged & downsized 18 bar BMEP/24 bar BMEP/27 bar BMEP.
``1'' and ``2'' suffixes to certain technologies indicate the first level versus the second level of the
  technology as described in Chapter 3 of the joint TSD.

Note that MHEV, HEV, REEV and EV technologies include both the cost and effectiveness of IACC2 within the
  electrification technology, so IACC2 is not independently listed in the package description.
Note that the level of weight reduction actually applied to a given vehicle is controlled within OMEGA based on
  safety constraints.

4. How does EPA project how a manufacturer would decide between options
to improve CO2 performance to meet a fleet average standard?
    As discussed, there are many ways for a manufacturer to reduce
CO2-emissions from its vehicles. A manufacturer can choose
from a myriad of CO2 reducing technologies and can apply one
or more of these technologies to some or all of its vehicles. Thus, for
a variety of levels of CO2 emission control, there are an
almost infinite number of technology combinations which produce a
desired CO2 reduction. As explained above, EPA used the
OMEGA model, in order to make a reasonable estimate of how
manufacturers will add technologies to vehicles in order to meet a
fleet-wide CO2 emissions level. EPA has described OMEGA's
specific methodologies and algorithms previously in model
documentation,\603\ makes the model publically available on its Web
site,\604\ and has subjected the model to peer review.\605\
---------------------------------------------------------------------------

    \603\ Previous OMEGA documentation for versions used in MYs
2012-2016 final rule (EPA-420-B-09-035), Interim Joint TAR (EPA-420-
B-10-042)
    \604\ http://www.epa.gov/oms/climate/models.htm
    \605\ EPA-420-R-09-016, September 2009.
---------------------------------------------------------------------------

    The OMEGA model utilizes four basic sets of input data. The first
is a description of the vehicle fleet. The key pieces of data required
for each vehicle are its manufacturer, CO2 emission level,
fuel type, projected sales and footprint. The model also requires that
each vehicle be assigned to one of the 19 vehicle types described
above, which tells the model which set of technologies can be applied
to that vehicle. In addition, the degree to which each baseline vehicle
already reflects the effectiveness and cost of each available
technology must also be input. This avoids the situation, for example,
where the model might try to add a basic engine improvement to a
current hybrid vehicle, or to a vehicle that already has this
equipment. The development of the required data regarding the reference
fleet is described in Section II.B and III.D.1 above and in Chapter 1
of the Joint TSD.
    The second type of input data used by the model is a description of
the technologies available to manufacturers, primarily their cost,
effectiveness, and any credit value that they accrue during the
compliance process. As noted previously, accounting for credit value is
a change from the proposal, and allows EPA to more accurately reflect
compliance related impacts of technology usage in its cost assessment.
This information was described above as well as in Chapter 3 of the
Joint TSD and Chapter 1 of EPA's RIA. In all cases, the order of the
technologies or technology packages for a particular vehicle type is
determined by the model user prior to running the model. The third type
of input data describes vehicle operational data, such as annual
vehicle scrappage rates and mileage accumulation rates, and economic
data, such as fuel prices and discount rates. These estimates are
described in Section II.E above, Section III.H below and Chapter 4 of
the Joint TSD.
    The fourth type of data describes the CO2 emission
standards being modeled. These include the MY 2016 (reference case)
standards, and the MY 2021 and MY 2025 control case standards as well
as the alternative standards described later in this chapter. The
results for intermediate years are interpolated as described in Chapter
5 of the EPA RIA. As described in more detail below, the application of
A/C technology is evaluated in a separate analysis from those
technologies which impact CO2 emissions over the 2-cycle
test procedure. Thus, for the percent of vehicles that are projected to
achieve A/C related reductions, the CO2 credit associated
with the projected use of improved A/C systems is used to adjust the
final CO2 standard which will be applicable to each
manufacturer to develop a target for CO2 emissions over the
2-cycle test which is assessed in our OMEGA modeling. As an example, on
an industry wide basis, EPA projects that manufacturers will generate
11 g/mile of A/C credit in MY 2016. Thus, the MY 2016 CO2
target in OMEGA was approximately eleven grams less stringent for each
manufacturer than predicted by the curves. Similar adjustments were
made for the control cases (i.e. the A/C credits allowed by the rule
are accounted for in the standards), but for a larger amount of A/C
credit (approximately 21 grams).
    As mentioned above for the market data input file utilized by
OMEGA, which characterizes the vehicle fleet, our modeling accounts for
the fact that many baseline vehicles are already equipped with one or
more of the technologies discussed in Section III.D.2 above. Because of
the choice to apply technologies in packages, and because MY 2008
vehicles are equipped with individual technologies in a wide variety of
combinations, accounting for the presence of specific technologies in
terms of their proportion of package cost and CO2
effectiveness required a detailed analysis.
    Thus, EPA developed a method to account for the presence of the
combinations of applied technologies in terms of their proportion of
the technology packages. This analysis can be broken down into four
steps.
    The first step in the process is to break down the available GHG
control technologies into five groups: (1) Engine-related, (2)
transmission-related, (3) hybridization, (4) weight reduction and (5)
other. Within each group, each individual technology was given a
ranking which generally followed the degree of complexity, cost and
effectiveness of the technologies within each group. More specifically,
the ranking is based on the premise that a technology on a baseline
vehicle with a lower ranking would be replaced by one with a higher
ranking which was contained in one of the technology packages which we
included in our OMEGA modeling. The corollary of this premise is that a
technology on a baseline vehicle with a higher ranking would be not be
replaced by one with an equal or lower ranking which was contained in
one of the technology packages which we chose to include in our OMEGA
modeling. This ranking scheme can be seen in an OMEGA pre-processor
(the TEB/CEB calculation macro), available in the docket.
    In the second step of the process, these rankings were used to
estimate the complete list of technologies which would be present on
each baseline vehicle after the application of a technology package. In
other words, this step indicates the specific technology on each
baseline vehicle after a package has been applied to it. EPA then used
the lumped parameter model to estimate the total percentage
CO2 emission reduction associated with the technology
present on the baseline vehicle (termed package 0), as well as the
total percentage reduction after application of each package. A similar
approach was used to determine the total cost of all of the technology
present on the baseline vehicle and after the application of each
applicable technology package.
    The third step in this process is to account for the degree to
which each technology package's incremental effectiveness and
incremental cost is affected by the technology already

present on the baseline vehicle. Termed the technology effectiveness
basis (TEB) and cost effectiveness basis (CEB), respectively, the
values are calculated in this step using the equations shown in EPA RIA
chapter 3. For this final rulemaking, we also account for the credit
values using a factor termed other effectiveness basis (OEB).
    As described in Section III.D.3 above, technology packages are
applied to groups of vehicles which generally represent a single
vehicle platform and which are equipped with a single engine size
(e.g., compact cars with four cylinder engine produced by Ford). These
groupings are described in Table III-21. Thus, the fourth step is to
combine the fractions of the CEB and TEB of each technology package
already present on the individual MY 2008 vehicle models for each
vehicle grouping. For cost, percentages of each package already present
are combined using a simple sales-weighting procedure, since the cost
of each package is the same for each vehicle in a grouping. For
effectiveness, the individual percentages are combined by weighting
them by both sales and base CO2 emission level. This
appropriately weights vehicle models with either higher sales or
CO2 emissions within a grouping. Once again, this process
prevents the model from adding technology which is already present on
vehicles, and thus ensures that the model does not double count
technology effectiveness and cost associated with complying with the
modeled standards.
    Conceptually, the OMEGA model begins by determining the specific
CO2 emission standard applicable for each manufacturer and
its vehicle class (i.e., car or truck). Since the final rule allows for
averaging across a manufacturer's cars and trucks, the model determines
the CO2 emission standard applicable to each manufacturer's
car and truck sales from the two sets of coefficients describing the
piecewise linear standard functions for cars and trucks (i.e. the
respective car and truck curves) in the inputs, and creates a combined
car-truck standard for that manufacturer. This combined standard
considers the difference in lifetime VMT of cars and trucks, as
indicated in the final regulations which govern credit trading between
these two vehicle classes (which reflect the final MYs 2012-2016 rules
on this point).
    As noted above, EPA estimated separately the cost of the improved
A/C systems required to generate the credit. In the reference case
fleet that complies with the MY 2016 standards, 85% of vehicles are
modeled with improved A/C efficiency and leakage prevention technology.
    The model then works with one manufacturer at a time to add
technologies until that manufacturer meets its applicable standard.
5. Projected Compliance Costs and Technology Penetrations
    The following tables present the projected incremental costs and
technology penetrations for the final program. The most significant
differences between the proposal analysis and the final rulemaking
analysis presented below include:
     Cost-impacts of the off-cycle, strong, and mild hybrid
full size pickup provisions: In the proposal, although we included
these credits in our assessment of program impacts, we did not include
these credits in the cost analysis. For this final rulemaking, we
include these credits as further described in EPA RIA chapter 3.\606\
As discussed in III.C.5, while manufacturers were also given the
opportunity to use these credits from the off-cycle menu under the
reference MY 2016 standards, in all cases, these additional compliance
options lead to reductions in costs.
---------------------------------------------------------------------------

    \606\ Of the many off-cycle credits on the menu, only stop start
and active aerodynamics are included in this analysis. As we
explained at proposal, EPA has sufficient information on these
technologies' effectiveness, cost, and availability to reliably
model them, and also has adjusted the stringency of the standard
based on their 2-cycle effectiveness to reflect their use. See 76 FR
75022. This is not the case for the remaining ``menu'' off-cycle
technologies where EPA has virtually no information on costs. Id. at
75022-023. At proposal, we used only the 2-cycle benefits associated
with use of the stop-start and active aero, but in the modeling for
the final rule, we now include their off-cycle credit value in the
analysis of the costs and benefits of the program and, as at
proposal, use these technologies' 2-cycle benefits in setting the
standard.
---------------------------------------------------------------------------

     Mild hybrid technology: As described in Chapter 3 of the
TSD, we did not model a mild hybrid technology in the proposal. Between
proposal and final rulemaking, new technical information has become
available for this technology, and the mild hybrid technology has been
included in the assessment. In combination with the off-cycle credits,
this technology has the potential to be a highly cost-effective
compliance option, and leads to cost reductions in this analysis.
     Updated safety coefficients: As a result of the safety
analysis described in Section II.G, the amount of mass reduction
applied to the fleet was modified in order to show a compliance path
and cost-assessment that is safety neutral. This led to a smaller
application of mass reduction compared to the proposal. This change
slightly increased the costs relative to the proposal since mass
reduction is a relative cost effective technology at the levels we are
estimating it will be implemented.
    As a result, the projected MY 2025 compliance costs are slightly
less than those projected in the proposal (despite the increased cost
from less mass reduction). These changes do not change the agency's
overall assessment of the appropriateness of the standards we are
adopting. As will be discussed later in this section, the proposal
analysis using the MY 2008 based fleet projection, the final rulemaking
results using the MY 2008 based fleet projection, and the final
rulemaking analysis using the MY 2010 based fleet projection, all
support EPA's assessment of the appropriateness of the standards.
    Analysis results in the remainder of this section are for the MY
2008 based fleet projection only. EPA has additionally replicated many
of the analyses discussed in this chapter using the MY 2010 based fleet
projection (EPA RIA chapter 10). As noted, the differences in costs,
benefits, and technology penetrations between results of the two fleet
projections are relatively minor, and do not alter EPA's judgment of
the appropriateness of the final standards.
    Overall projected per vehicle cost increases relative to the
reference fleet (i.e. the MY 2008 based fleet complying with the MY
2016 standard) are $766 in MY 2021 and $1836 in MY 2025. Captured in
these costs, we see significant increases in advanced transmission
technologies such as the high efficiency gear box and 8 speed
transmissions, as well as more moderate increase in turbo downsized,
cooled EGR 24 bar BMEP engines. In the control case, 31 percent of the
MY 2025 fleet is projected to have strong P2 hybrid or mild hybrid
technology (5% P2, 26% MHEV) as compared to 5% in the 2016 reference
case (5% P2, 0% MHEV). Similarly, 2% percent of the MY 2025 fleet are
projected to be electric vehicles while less than 1% percent are
projected to be electric vehicles in the reference case. EPA notes that
we have projected one potential compliance path for each company and
for the industry as a whole--this does not mean that other potential
technology penetrations and pathways are not possible. In fact, it is
likely that each firm will plot their own future course to compliance.
For example, while we show relatively low levels of EV and PHEV
technologies, several firms have announced plans to aggressively pursue
EV and PHEV technologies and thus the actual

penetration of those technologies may turn out to be much higher than
the compliance pathway we present here.

                                 Table III-25--Total Costs per Vehicle by Company, Incremental to the MY 2016 Standards
                                                                         [2010$]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               2021                                            2025
                         Company                         -----------------------------------------------------------------------------------------------
                                                               Cars           Trucks           Fleet           Cars           Trucks           Fleet
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.....................................................            $967            $529            $852          $2,147          $1,250          $1,910
Chrysler/Fiat...........................................             681             796             733           1,617           2,388           1,950
Daimler.................................................           1,985             659           1,655           3,011           1,284           2,616
Ferrari \607\...........................................           6,712               0           6,712           7,864               0           7,864
Ford....................................................             680             875             746           1,811           2,505           2,025
Geely-Volvo.............................................           2,132             734           1,698           3,177           1,504           2,681
GM......................................................             519             720             619           1,518           2,237           1,861
Honda...................................................             532             829             624           1,525           1,923           1,642
Hyundai.................................................             773             875             794           1,673           2,268           1,792
Kia.....................................................             625             908             689           1,572           1,977           1,658
Mazda...................................................             959           1,246           1,010           1,979           2,449           2,057
Mitsubishi..............................................             611           1,127             791           1,939           2,169           2,015
Nissan..................................................             644             904             725           1,618           2,391           1,847
Porsche \608\...........................................           4,878             604           3,871           4,807           1,274           4,044
Spyker-Saab.............................................           3,019             607           2,674           3,580             964           3,238
Subaru..................................................             982           1,594           1,128           1,926           2,495           2,054
Suzuki..................................................           1,032           1,210           1,064           2,112           1,848           2,066
Tata-JLR................................................           3,916           1,061           2,495           5,077           1,447           3,390
Toyota..................................................             488             600             532           1,239           1,700           1,407
VW......................................................           1,492             508           1,293           2,412           1,237           2,181
Fleet...................................................             767             763             766           1,726           2,059           1,836
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs for Aston Martin, Lotus and Tesla are not included here but can be found in EPA's RIA.
Costs include stranded capital and A/C-related costs.
\607\ Note that Ferrari is shown as a separate entity in the table above but could be combined with other Fiat-owned companies for purposes of GHG
  compliance at the manufacturer's discretion. Also, as discussed in Section III.B., companies with U.S. sales below 5,000 vehicles that are able to
  demonstrate ``operational independence'' from their parent company will be eligible to petition EPA for SVM alternative standards. However, since
  these determinations have not yet been made, the costs shown above are based on Ferrari meeting the primary program standards.
\608\ EPA analyzed Porsche and VW as separate fleets for the final rule. However, on August 1, 2012, VW completed its acquisition of Porsche and thus
  EPA expects that the Porsche fleet will be combined with the VW fleet for purposes of compliance with the MY 2017-2025 standards.

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6. How does the technical assessment support the final CO2
standards as compared to the alternatives EPA has considered?
a. What are the targets and achieved levels for the fleet in this final
rule?
    In this section EPA analyzes the final standards alongside several
potential alternative GHG standards. These alternatives (car and truck
standards which are 20 g/mile more and less stringent than those
adopted) reasonably bound the range of alternatives. All analyses shown
in this section are conducted using the MY 2008 based fleet projection.
The analysis using the MY 2010 based fleet projection is shown in EPA
RIA chapter 10 and leads to the same conclusions.
    Table III-30 includes a summary of the final standards and the four
alternatives considered by EPA. In this table and for the majority of
the data presented in this section, EPA focuses on two specific model
years in the MYs 2017-2025 time frame addressed by this final rule. For
the purposes of considering alternatives, EPA assessed these two
specific years as being reasonably separated in time in order to
evaluate a range of meaningfully different standards, rather than
analyzing alternatives for each individual model year. Table III-30
presents the projected reference case targets for the fleet in MYs 2021
and 2025, that is the estimated industry wide targets that would be
required for the projected fleet in those years by the MY 2016
standards.\609\ The alternatives, like the final standards, account for
projected use of A/C related credits. They represent the average
targets for cars and trucks projected for the final standards and the
four alternative standards. They do not represent the manner in which
manufacturers are projected to achieve compliance with these targets,
which includes the ability to transfer credits to and from the car and
truck fleets. That is discussed later, and in tables shown in Section
III.A.
---------------------------------------------------------------------------

    \609\ The reference case targets for MYS 2021 and 2025 may be
different even though the footprint based standards are identical
(the MY 2016 curves). This is because the fleet distribution of cars
and trucks may change in the intervening years thus changing the
targets in MYs 2021 and 2025.

           Table III-30--MYs 2021 and 2025 Fleet Targets for the Final Rule and Alternative Standards
                                               [g/mile CO2] \610\
----------------------------------------------------------------------------------------------------------------
                                                                    Car target     Truck target    Fleet target
----------------------------------------------------------------------------------------------------------------
2021 Final Rule.................................................             172             249             199
Alternative 1: 2021 Trucks + 20.................................             172             229             206
Alternative 2: 2021 Trucks-20...................................             172             269             192
Alternative 3: 2021 Cars + 20...................................             192             249             212
Alternative 4: 2021 Cars-20.....................................             152             249             186
2021 Reference Case.............................................             224             296             250
2025 Final Rule.................................................             143             203             163
Alternative 1: 2025 Trucks + 20.................................             143             223             170
Alternative 2: 2025 Trucks-20...................................             143             183             156
Alternative 3: 2025 Cars + 20...................................             163             203             176
Alternative 4: 2025 Cars-20.....................................             123             203             150
2025 Reference Case.............................................             224             295             248
----------------------------------------------------------------------------------------------------------------

    Alternatives 1 and 2 are focused on changes in the level of
stringency for light-duty trucks only. Alternative 1 is 20 g/mile less
stringent (higher) in 2021 and 2025, and Alternative 2 is 20 g/mile
more stringent (lower) in 2021 and 2025. Alternatives 3 and 4 are
focused on changes in the level of stringency for just passenger cars:
Alternative 3 is 20 g/mile less stringent (higher) in MYs 2021 and
2025, and Alternative 4 is 20 g/mile more stringent (lower) in 2021 and
2025. When combined with the sales projections for MYs 2021 and 2025,
these alternatives span fleet wide targets with a range of 186-212 g/
mile in MY 2021 (equivalent to a range of 42-48 mpge if all
improvements were made with fuel economy technologies) and a range of
150-176 g/mile in MY 2025 (equivalent to a range of 50-59 mpg if all
improvements were made with fuel economy technologies).
---------------------------------------------------------------------------

    \610\ These targets are slightly different than those shown in
the proposal due to minor updates to footprint values in the fleet
projection. On average, many vehicles become slightly smaller, but
this change is not significant at a fleet level. (See TSD 1.3.2).
The target curves are unchanged from proposal.
---------------------------------------------------------------------------

    Using the OMEGA model, EPA evaluated the final standards and each
of the alternatives in MY 2021 and in MY 2025. It is worth noting that
although Alternatives 1 and 2 consider different truck footprint curves
compared to the final rule and Alternatives 3 and 4 evaluate different
car footprint curves compared to the final rule, in all cases EPA
evaluated the alternatives by modeling both the car and truck footprint
curves together (which achieve the fleet targets shown in Table III-30)
as this is how manufacturers would view the future standards given the
opportunity to transfer credits between their car and truck fleets
under the GHG rule.\611\ A manufacturer's ability to transfer GHG
credits between its car and truck fleets without limit does have the
effect of muting the ``truck'' focused and ``car'' focused nature of
the alternatives EPA is evaluating. For example, while Alternative 1
has truck standards projected in MYs 2021 and 2025 to be 20 g/mile less
stringent than the final truck standards and the same car standards as
the final car standards, individual firms may over comply on trucks and
under-comply on cars (or vice versa) in order to meet Alternative 1 in
a cost effective manner from each company's perspective. EPA's modeling
of manufacturer fleets appropriately reflects this flexibility, since
as just noted, it reflects manufacturers' expected response.
---------------------------------------------------------------------------

    \611\ The curves for the alternatives were developed using the
same methods as the final curves, however with different targets.
Thus, just as in the final curves, the car and truck curves
described in TSD 2 were ``fanned'' up or down to determine the
curves of the alternatives.
---------------------------------------------------------------------------

    Table III-31 shows the projected target and projected achieved
levels in MY 2025 for the final standards. This accounts for a
manufacturer's ability to transfer credits to and from cars and trucks
to meet a manufacturer's car and truck targets and consequent standard.

                            Table III-31--MY2025 Projected Target and Achieved Levels for the Final Rule for Individual Firms
                                                                      [g/mile CO2]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Target                             Achieved                               Truck
                        Company                        ------------------------------------------------------------------------ Car  target-   target-
                                                           Cars       Trucks       Fleet       Cars       Trucks       Fleet      achieved     achieved
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW...................................................         146         194         159         144         199         158            2           -5
Chrysler/Fiat.........................................         146         201         170         154         191         170           -8           10
Daimler...............................................         150         208         163         140         233         161           10          -25
Ferrari...............................................         150           0         150         168           0         168          -17          n/a
Ford..................................................         147         212         167         157         192         168          -10           20
Geely-Volvo...........................................         148         189         160         138         207         159           10          -18
GM....................................................         144         213         177         156         202         178          -12           11
Honda.................................................         142         191         156         145         183         156           -3            8
Hyundai...............................................         142         188         151         146         172         152           -4           16
Kia...................................................         139         199         152         145         177         152           -6           22
Mazda.................................................         140         186         148         145         163         148           -5           22
Mitsubishi............................................         139         180         153         146         166         153           -7           14
Nissan................................................         145         202         162         149         191         162           -5           10
Porsche...............................................         131         195         144         118         231         143           12          -37
Spyker-Saab...........................................         139         188         146         132         231         145            7          -43
Subaru................................................         134         169         142         145         138         143          -11           31
Suzuki................................................         132         181         140         133         174         140           -2            8
Tata-JLR..............................................         161         182         171         114         228         167           47          -46
Toyota................................................         141         201         163         146         193         163           -5            8
VW....................................................         138         203         151         131         228         150            7          -25
Fleet.................................................         143         203         163         147         194         163           -4            9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: This table and the remainder in this section do not include projections for Aston Martin and Lotus. These two firms would qualify for
  consideration of the unique Small Volume Manufacturer alternative standards discussed in Section III.B, and thus while we have included modeling for
  these companies in the RIA, we do not present the results in this section. In addition, we do not present in this section results for the firm Tesla,
  as our forecast assumes they only make all electric vehicles, and thus under any standard we analyzed the firm always complies without the addition of
  any technology.

    Similar tables for each of the alternatives for MY 2025 and for the
alternatives and the final rule for MY 2021 are contained in Chapter 3
of EPA's RIA. With the final standards and for Alternatives 1 and 2,
all companies are projected to be able to comply both in MYs2021 and
2025, with the exception of Ferrari, which in each case falls 17 g/mile
short of its projected fleet wide obligation in MY 2025.\612\ In
Alternatives 3 and 4, where the car stringency varies, all companies
are again projected to comply with the exception of Ferrari, which has
a 38 gram shortfall under Alternative 4.
---------------------------------------------------------------------------

    \612\ Note that Ferrari is shown as a separate entity in the
table above but could be combined with other Fiat-owned companies
for purposes of GHG compliance at the manufacturer's discretion.
Also, as discussed above in this section and in Section III.B.5,
companies with U.S. sales below 5,000 vehicles that are able to
demonstrate ``operational independence'' from their parent company
will be eligible to petition EPA for SVM alternative standards.
However, since these determinations have not yet been made, the
costs shown above are based on Ferrari meeting the primary program
standards. As a result of these provisions, Ferrari is not discussed
in the remainder of this section as we discuss the appropriateness
and feasibility of the standards.
---------------------------------------------------------------------------

b. Why is the relative rate of car truck stringency appropriate?
    Table III-31 illustrates the importance of car-truck credit
transfer for individual firms. For example, the OMEGA model projects
for the final standards that in MY 2025, Daimler would under comply for
trucks by 25 g/mile but over comply in their car fleet by 10 g/mile in
order to meet their overall compliance obligation. By contrast, the
OMEGA model projects that under the final standards Kia's truck fleet
would over comply by 22 g/mile and under comply in their car fleet by 6
g/mile in order to meet their compliance obligations. The choice of
transferring credits from cars to trucks, or trucks to cars, is
dependent on the fleet configuration of the individual manufacturers.
Individual manufacturers will be influenced by their relative number of
cars and trucks, as well as by the starting technology and emissions
performance of those vehicles.
    Under the FRM analysis, we project a slightly larger quantity of
credit transfer than that which was projected in the proposal. The
increase in credit transfer is largely attributable to the FRM modeling
of stop start and active aerodynamics off-cycle credits and full-size
pick-up truck HEV flexibilities, which were not included in the cost
modeling used for the proposal. These credits either offer larger
benefits to trucks than to cars (in the case of off-cycle credits), or
are not available to cars (the full size pickup HEV flexibilities).
However, while the total credit transfer value has increased relative
to the proposal analysis, for the fleet as a whole, we project only a
relatively small degree of net credit transfers from the truck fleet to
the car fleet. From the reference case emission level (sales weighted
average of approximately 250) to the control case (sales weighted
average of approximately 163) is a drop of approximately 90 grams. Four
grams of credit transfer (Table III-31) to the car fleet is relatively
small in this context, and demonstrates the appropriate balance between
car and truck stringencies. Table III-25 shows that the average costs
for cars and trucks are also similar for MY 2021 and MY 2025. For MY
2021, the average cost to comply with the car standards is $767, while
it is $763 for trucks. For MY 2025, the average cost to comply with the
car standards is $1,726, while it is $2,059 for trucks. These results
are consistent with the small degree of net projected credit transfer
between cars and trucks. While costs are generally higher for trucks in
MY 2025, these higher estimates reflect the degree of credit transfer
expected in the fleet, and are not necessarily indicative of a
relatively more or less stringent truck standard. One factor in this
cost delta is the relatively larger degree of mass reduction modeled
for trucks under our analysis of safety impacts (see section II.G.5
above).

    After including these factors, the average cost for complying with
the truck and car standards are largely similar, even though the level
of stringency for trucks is increasing at a slower rate than for cars
in the program's initial model years. As described in Section I.B.2 of
the preamble, the final car standards are decreasing (in CO2
space, and therefore increasing in stringency) at a rate of 5% per year
from MYs 2017-2025, while the final truck standards are decreasing at a
rate of 3.5% per year on average from MYs 2017-2021, and 5% per year
thereafter through MY2025. Given this difference in percentage rates of
increase in stringency, the similarity in average cost stems from the
fact that it is more costly to add the technologies to trucks (in
general) than to cars as described in Chapter 1 of the EPA RIA.
Moreover, some technologies are not made available for towing trucks.
These include EVs, PHEVs, Atkinson Cycle engines (matched with HEVs),
and DCTs--the prior two provide significant effectiveness, and the
latter two are relatively cost effective. Together these differences
result in a decrease in effectiveness potential for the heavier towing
trucks compared to non-towing trucks and cars. In addition, while there
is more mass reduction projected for these vehicles, this comes at
higher cost as well, as the cost per pound for mass reduction goes up
with higher levels of mass reduction (that is, the cost increase curves
upward rather than being linear). As described in greater detail in
Chapter 2 of the joint TSD, these factors are among the reasons the
truck curve is steeper relative to the MY 2016 truck curve, resulting
in a truck curve that is ``more parallel'' to cars than was the MY 2016
truck curve.
    Taken together, EPA's analysis shows that under the final
standards, there is relatively little net trading between cars and
trucks as a fraction of the overall improvement; average costs for
compliance with cars is generally similar to that of trucks in MY 2021
as well as MY 2025; and it is more costly to add technologies to trucks
than to cars. These facts corroborate the reasonableness for increasing
the slope of the truck curve relative to MY 2016. These observations
also lead us to the conclusion that (at a fleet level) starting from
MYs 2017-2021, the slower rate of increase for trucks compared to cars
(3.5% compared to 5% per year), and the same rate of increase (5% per
year) for both cars and trucks for MYs 2022-2025 results in car and
truck standards that reflect increases in stringency over time that are
comparable from the perspective of the costs born by cars versus
trucks.
    Many commenters questioned the relative stringency of the car and
truck curves, manufacturers whose fleets are dominated by passenger
cars generally indicating that the curves favored trucks at the expense
of cars, and several groups going so far as maintaining that the
difference in stringency and slope created an inherent incentive to
upsize the fleet. These comments are not supported by the analysis
conducted here. There are no indications that either the truck or car
standards will encourage manufacturers to choose technology paths that
lead to significant over or under compliance for cars or trucks, on an
industry wide level. That is, there is no indication that on average,
in light of the truck standard, manufacturers would consistently under
or over comply with the car standard, or vice versa. As seen in our
final rule modeling, seven manufacturers over-complied on cars, while
twelve over-complied on trucks. A consistent pattern across the
industry of manufacturers choosing to under or over comply with a car
or trucks standard could indicate that the car or truck standard should
be evaluated further to determine if the relative stringency is
appropriate in light of the technology choices available to
manufacturers, and the costs of those technology choices. As just
shown, that is not the case for the final car and truck standards.
Moreover, as noted above, we project only a relatively small overall
degree of net credit transfers from the truck fleet to the car fleet.
In addition, as discussed further below, EPA did evaluate the effect of
the relative stringency of the car and truck standards using
alternative standards and this analysis leads to the same conclusions.
EPA thus continues to believe that the relative stringency of the car
and truck curves is reasonable and appropriate.
c. What are the costs and advanced technology penetration rates for the
alternative standards in relation to the final standards?
    Below we discuss results for the final car and truck standards
compared first to the truck alternatives (Alternatives 1 and 2),
followed by a comparison to the car alternatives (Alternatives 3 and
4).
    Table III-32 presents our projected per-vehicle cost for the
average car, truck and for the fleet in model years 2021 and 2025 for
the final rule and for Alternatives 1 and 2. All costs are relative to
the reference case (i.e. the fleet with technology added to meet the
2016 MY standards). As can be seen, even though only the truck
standards vary among these three scenarios, in each case the projected
average car and truck costs vary as a result of car-truck credit
transfer by individual companies.

  Table III-32--2021 and 2025 Fleet Average Projected Per-Vehicle Costs for Final Rule and Alternatives 1 and 2
                                                 [2010$/vehicle]
----------------------------------------------------------------------------------------------------------------
                                                                       Cars           Trucks           Fleet
----------------------------------------------------------------------------------------------------------------
2021 Final Rule.................................................            $767            $763            $766
Alternative 1: 2021 Trucks + 20.................................             497             492             496
Alternative 2: 2021 Trucks-20...................................           1,062           1,159           1,096
2025 Final Rule.................................................           1,726           2,059           1,836
Alternative 1: 2025 Trucks + 20.................................           1,460           1,582           1,500
Alternative 2: 2025 Trucks-20...................................           2,146           2,434           2,241
----------------------------------------------------------------------------------------------------------------

    Table III-33 presents the per-vehicle cost estimates in MY 2021 by
company for the final rule, Alternative 1, and Alternative 2.

      Table III-33--2021 Projected Per-Vehicle Costs for the Final Rule and Alternatives 1 and 2 by Company
                                         [cars & trucks, 2010$/vehicle]
----------------------------------------------------------------------------------------------------------------
                                                                                Alternative 1   Alternative 2
                                                                    Final rule     (trucks + 20)    (trucks-20)
----------------------------------------------------------------------------------------------------------------
BMW.............................................................            $852            $467          $1,307
Chrysler/Fiat...................................................             733             377           1,156
Daimler.........................................................           1,655           1,226           2,196
Ferrari.........................................................           6,712           6,712           6,712
Ford............................................................             746             438           1,116
Geely-Volvo.....................................................           1,698           1,171           2,376
GM..............................................................             619             271           1,087
Honda...........................................................             624             450             841
Hyundai.........................................................             794             620             963
Kia.............................................................             689             550             872
Mazda...........................................................           1,010             858           1,198
Mitsubishi......................................................             791             468           1,192
Nissan..........................................................             725             495             990
Porsche.........................................................           3,871           3,397           4,468
Spyker-Saab.....................................................           2,674           2,375           3,009
Subaru..........................................................           1,128             865           1,379
Suzuki..........................................................           1,064             840           1,265
Tata-JLR........................................................           2,495           1,365           3,652
Toyota..........................................................             532             359             746
VW..............................................................           1,293             945           1,678
Fleet...........................................................             766             496           1,096
----------------------------------------------------------------------------------------------------------------

    Table III-34 presents the per-vehicle cost estimates in MY 2025 by
company for the final rule, Alternative 1 and Alternative 2. In
general, for most of the companies our projected results show the same
trends as for the industry as a whole, with Alternative 1 generally
less costly than the final rule, and Alternative 2 generally more
costly. Notably, the incremental average cost is higher for the more
stringent alternative than for an equally less stringent alternative
standard. This is not a surprise as more technologies must be added to
vehicles to meet more stringent standards, and these technologies
increase in cost in a non-linear fashion.

      Table III-34--MY 2025 Projected Per-Vehicle Costs for Final Rule and Alternatives 1 and 2 by Company
                                         [cars & trucks, 2010$/vehicle]
----------------------------------------------------------------------------------------------------------------
                                                                                Alternative 1   Alternative 2
                                                                    Final rule     (trucks + 20)    (trucks-20)
----------------------------------------------------------------------------------------------------------------
BMW.............................................................          $1,910          $1,566          $2,300
Chrysler/Fiat...................................................           1,950           1,494           2,474
Daimler.........................................................           2,616           2,176           2,995
Ferrari.........................................................           7,864           7,864           7,864
Ford............................................................           2,025           1,650           2,390
Geely-Volvo.....................................................           2,681           2,141           3,250
GM..............................................................           1,861           1,347           2,517
Honda...........................................................           1,642           1,376           1,907
Hyundai.........................................................           1,792           1,617           2,025
Kia.............................................................           1,658           1,449           1,868
Mazda...........................................................           2,057           1,911           2,233
Mitsubishi......................................................           2,015           1,609           2,369
Nissan..........................................................           1,847           1,530           2,168
Porsche.........................................................           4,044           3,678           4,434
Spyker-Saab.....................................................           3,238           2,971           3,360
Subaru..........................................................           2,054           1,842           2,314
Suzuki..........................................................           2,066           1,946           2,381
Tata-JLR........................................................           3,390           2,534           4,627
Toyota..........................................................           1,407           1,163           1,788
VW..............................................................           2,181           1,953           2,538
Fleet...........................................................           1,836           1,500           2,241
----------------------------------------------------------------------------------------------------------------

    The previous tables present the costs for the final rule and
alternatives 1 and 2 at both the industry and company level. In
addition to costs, another key is the technology expected to be needed
to meet future standards. The EPA assessment of the final rule, as well
as Alternatives 1 and 2, predict the penetration into the fleet of a
large number of technologies at various rates. A subset of these
technologies are discussed below, while EPA's RIA Chapter 3 includes
the details on this much longer list for the passenger car, light-duty
truck, and the overall fleet at both the industry and individual
company level. Table III-35 and Table III-36 present only a sub-set of
the technologies EPA estimates could be used to meet the final
standards as well as alternatives 1 and 2 in MY 2021.

Table III-37 and Table III-38 show the same for MY 2025. The
technologies listed in these tables are those for which there is a
large difference in penetration rates between the final rule and the
alternatives. We have not included here, for example, the penetration
rates for improved high efficiency gear boxes or eight speed
transmissions because for MY 2021, our modeling estimates similar total
fleet penetrations of these technologies for the final rule and
alternatives 1 and 2.
    Table III-35 shows that in MY 2021, the final rule requires higher
levels of penetration for several technologies for trucks than
alternative 1. For example for trucks, compared to the final rule,
alternative 1 leads to a decrease in the penetration of 24 bar turbo-
charged/downsized engines, a decrease in the penetration of cooled EGR,
and a decrease in the penetration of gasoline direct injection fuel
systems. We also see that due to credit transfer between cars and
trucks, the lower level of stringency considered for trucks in
alternative 1 also impacts the penetration of technology to the car
fleet--with alternative 1 leading to a decrease in penetration of 18
bar turbo-downsized engines, a decrease in penetration of 24 bar turbo-
downsize engines, a decrease in penetration of 8 speed dual clutch
transmissions, and a decrease in penetration of gasoline direct
injection fuel systems in the car fleet. For the more stringent
alternative 2, we see increases in the penetration of many of these
technologies projected for MY 2021, and we see this for the truck fleet
as well as for the car fleet. Table III-36 shows these same overall
trends but at the sales weighted fleet level in MY 2021.
    Although EPA does not project dramatic differences in technology
penetration between the final MY 2021 standards and those modeled in
Alternative 2 during these earlier years of the program, EPA remains
concerned about lead time relative to rapid increases in truck standard
stringency between MYs 2016 and 2021. Several vehicle manufacturers,
particularly those who manufacture large trucks, voiced concerns about
the increase in stringency during MYs 2012-2016 as described in the
NPRM (76 FR 74862-865). In comments on the NPRM, Ford noted that it
viewed the MYs 2012-2016 standards as ``overly stringent standards
imposed on light duty trucks in the 2012-2016 model year regulation.''
As discussed in TSD 2.4, EPA does not agree that the MYs 2012-2016
program is overly stringent, however we do acknowledge that it will be
challenging for some manufacturers and furthermore, we acknowledge the
possibility that it may be more challenging for the larger truck market
than the smaller truck or car market. Several issues are unique to the
trucks with the largest footprints (pickup trucks in particular).
Although no individual vehicle need comply with its target, the large
truck segment is dominated by relatively few vehicle platforms with
relatively large sales, and this limited number of vehicle platforms
makes rapid technology changes a greater challenge than in other market
segments. See TSD p. 2-23. The pick-up trucks tend to have longer
redesign cycles. Though there may be evidence to show that redesign
periods are getting shorter for both cars and pickup trucks, the
utility requirements of pick-up trucks relative to smaller vehicles
results in longer development times for validation of a new platform.
Pick-up truck product validation occurs across a broader range of gross
vehicle weights for each platform due to a relatively large payload
capacity and can include validation of trailer towing capability for
multiple trailer configurations. Consequently, EPA is choosing to
provide appropriate lead time in the MY 2017-2021 truck standards.
    Further, EPA has carefully weighed the issue of consumer
acceptance. As many commenters stressed, without consumer acceptance of
these vehicles, the rule's benefits will not accrue. As noted by the
U.S. Coalition for Advanced Diesels, battery electric technologies have
had limited commercial success in larger trucks.\613\ Although EPA has
maintained utility in its analysis of compliance costs and while we do
not expect that future hybrid applications will have the same degree of
consumer resistance, nonetheless EPA regards the issue of consumer
acceptance as legitimate and we therefore are being appropriately
cautious in crafting the standards. We are thus structuring the MY 2021
truck standard to provide appropriate lead time rather than
significantly depending on electrified technologies in the earlier
years of the program.\614\ The MY 2021 truck standard, as shown in
Table III-35, is also projected to require a significant amount of
turbo-charged and downsized engines, in addition to other advanced
technologies. At the same time, we are providing regulatory incentives
and flexibilities to promote further acceptance of electrified
technologies into the pickup truck market sector.
---------------------------------------------------------------------------

    \613\ The U.S. Coalition for Advanced Diesel Cars commented:
``Hybrid powertrains have been available on pickup trucks in the
U.S. market since MY 2005. Since that time, some hybrid variants
have been dropped by manufacturers due to the lack of customer
demand. By 2011, in fact, less than one-quarter of a percent (0.23%)
of customers selected the hybrid pickup truck option where it was
available as an option. In contrast, depending on the model, 15% to
50% of customers selected a diesel powertrain when such an option
was offered.'' Docket no. NHTSA-2010-0131-0246-A1, p.4
    \614\ See Table III-35 below, where under alternative 2, we
project that 20% of the vehicle fleet will be MHEV or HEV (the
projection is 18% MHEV) in MY 2021. By comparison, the final rule is
projected to be 13% MHEV & HEV (11% MHEV).
---------------------------------------------------------------------------

    These issues of consumer acceptance are not as pronounced for
smaller light trucks and cars. On an industry basis, single vehicle
models do not similarly dominate these segments. Further, hybrid
electric technology is more common in both passenger cars and the
smaller light truck fleet. Consumer perception of vehicle utility is
also significant for the largest trucks, and greater challenges exist
in convincing truck buyers that hybrid and even other advanced
powertrains can provide equivalent utility, despite these technologies
existing in other market segments.\615\ Finally, as is shown in section
III.D.7, the rate of increase in stringency for smaller trucks and cars
are similar under the final standards, so that the challenges to the
stringency of the truck standards are essentially addressed only to the
larger footprint trucks. As to these vehicles, EPA is being properly
cautious with respect to issues of lead time and consumer acceptances,
as just explained.
---------------------------------------------------------------------------

    \615\ When mass reduction technologies and turbo-charged and
downsized engines were introduced to full size pickups, analogous
consumer acceptance challenges were experienced (http://moneyland.time.com/2012/07/31/can-an-aluminum-truck-really-be-considered-ford-tough/), despite the eventual popularity of these
technologies.

                 Table III-35--MY 2021 Projected Technology Penetrations for Final Rule and Alternatives 1 and 2 for all Cars and Trucks
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Cars                                           Trucks
                                                         -----------------------------------------------------------------------------------------------
                       Technology                           Final rule        Alt. 1          Alt. 2        Final rule        Alt. 1          Alt. 2
                                                             (percent)       (percent)       (percent)       (percent)       (percent)       (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Turbo-downsize(18 bar)..................................              43              38              50              53              50              58
Turbo-downsize (24 bar).................................              14               9              19              16              12              24
8 speed DCT.............................................              61              61              62               7               6               7
Cooled EGR*.............................................              11               7              17              16               8              22
Hybrid Electric Vehicle.................................               4               4               5               2               1               2
LRRT2...................................................              72              72              72              74              74              74
IACC2...................................................              71              56              70              64              57              61
GDI.....................................................              60              49              74              73              65              86
MHEV....................................................               5               4               6              11               7              18
--------------------------------------------------------------------------------------------------------------------------------------------------------
* In EPA packages TDS27 engines have cooled EGR, nearly all TDS24 engines also have cooled EGR, virtually none of the TDS18 bar engines have cooled EGR
  (See Chapter 1 of the RIA).

    Table III-36--MY 2021 Projected Technology Penetrations for Final Rule and Alternatives 1 and 2 for Fleet
----------------------------------------------------------------------------------------------------------------
                                                                    Final rule        Alt. 1          Alt. 2
                                                                     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Turbo-downsize (18 bar).........................................              46              42              53
Turbo-downsize (24 bar).........................................              15              10              21
8 speed DCT.....................................................              42              42              43
Cooled EGR......................................................              12               7              18
Hybrid Electric Vehicle.........................................               4               3               4
LRRT2...........................................................              73              73              73
IACC2...........................................................              68              56              67
GDI.............................................................              65              54              78
MHEV............................................................               7               5              10
----------------------------------------------------------------------------------------------------------------

    Table III-37 shows that in MY 2025, there is only a small change in
many of these technology penetration rates when comparing the final
rule standards to alternative 1 for trucks, and most of the change
shows up in the car fleet. One important exception is mild hybrid
electric vehicles, where the less stringent alternative 1 is projected
to be met with a decrease in penetration of mild HEVs compared to the
final rule standards. As in MY 2021, we see that due to credit transfer
between cars and trucks, the lower level of stringency considered for
trucks in alternative 1 also impacts the car fleet penetration--with
alternative 1 leading to a decrease in penetration of 24 bar turbo-
downsized engines, a decrease in penetration of cooled EGR, a decrease
in penetration of mild HEVs, and a decrease in penetration of electric
vehicles. For the more stringent alternative 2, we see only small
increases in the penetration of many of these technologies projected
for MY 2025, with a major exception being a significant increase (more
than double) in the penetration of HEVs for trucks compared to the
final rule standards, an increase in the penetration of HEVs and MHEVs
for cars compared to the final rule standards, and a small increase in
the penetration of EVs for cars compared to the final rule standards.

                 Table III-37--MY 2025 Projected Technology Penetrations for Final Rule and Alternatives 1 and 2 for all Cars and Trucks
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Cars                                           Trucks
                                                         -----------------------------------------------------------------------------------------------
                                                            Final rule        Alt. 1          Alt. 2        Final rule        Alt. 1          Alt. 2
                                                             (percent)       (percent)       (percent)       (percent)       (percent)       (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Turbo-downsize (18 bar).................................              25              24              18              19              17              18
Turbo-downsize (24 bar).................................              63              60              69              67              64              69
8 speed DCT.............................................              79              79              78               9               9               9
Cooled EGR..............................................              65              57              71              74              72              74
Hybrid Electric Vehicle.................................               4               4               5               5               2              11
EV......................................................             3.0             2.3             4.6             0.3             0.1             0.5
LRRT2...................................................              96              96              96              99              99              99
IACC2...................................................              73              81              59              55              71              50
GDI.....................................................              93              87              92              97              92              99
MHEV....................................................              20              13              31              39              27              38
--------------------------------------------------------------------------------------------------------------------------------------------------------

     Table III-38--2025 Projected Technology Penetrations for Final Rule and Alternatives 1 and 2 for Fleet
----------------------------------------------------------------------------------------------------------------
                                                                    Final rule        Alt. 1          Alt. 2
                                                                     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Turbo-downsize (18 bar).........................................              23              21              18
Turbo-downsize (24 bar).........................................              64              61              69
8 speed DCT.....................................................              56              56              55
Cooled EGR......................................................              68              62              72
Hybrid Electric Vehicle.........................................               5               3               7
EV..............................................................             2.1             1.6             3.3
LRRT2...........................................................              97              97              97
IACC2...........................................................              67              78              56
GDI.............................................................              94              89              94
MHEV............................................................              26              17              33