All global GHG emissions................        36,727.9             4.3
------------------------------------------------------------------------

                                                           Share of U.S.
        Other Sources of U.S. GHG              2006       GHG  emissions
                                                             (percent)
------------------------------------------------------------------------
Electricity Sector emissions............          2377.8            33.7
Industrial Sector emissions.............          1371.5            19.4
------------------------------------------------------------------------

h. Summary of Requests for Comment
    EPA is seeking comment on the approach outlined above in the
context of section 202 source categories, regarding how ``air
pollutant'' should be defined, and contribution analyzed. Specifically,
EPA is interested in comments regarding the data and comparisons
underlying the above example contained in Emissions Technical Support
Document. We also welcome comment on prior precedents for assessing
contributions, as well as the potential precedential impact of a
positive section 202 contribution findings for other potential sources
of these and other GHGs. We also welcome comment on the relationship of
these proposals to existing U.S. climate change emissions reduction
programs and the magnitude of reductions sought under these programs.

VI. Mobile Source Authorities, Petitions, and Potential Regulation

A. Mobile Sources and Title II of the Clean Air Act

    Title II of the CAA provides EPA's statutory authority for mobile
source air pollution control. Mobile sources include cars and light
trucks, heavy trucks and buses, nonroad recreational vehicles (such as
dirt bikes and snowmobiles), farm and construction machines, lawn and
garden equipment, marine engines, aircraft, and locomotives. The Title
II program has led to the development and widespread commercialization
of emission control technologies throughout the various categories of
mobile sources. Overall, the new technologies sparked by EPA regulation
over four decades have reduced the rate of emission of regulated
pollutants from personal vehicles by 98% or more, and are key
components of today's high-tech cars and SUVs. EPA's heavy-duty,
nonroad, and transportation fuels regulatory programs have likewise
promoted both pollution reduction and cost-effective technological
innovation.
    In this section, we consider how Title II authorities could be used
to reduce GHG emissions from mobile sources and the fuels that power
them. The existing mobile source emissions control program provides one
possible model for how EPA could use Title II of the CAA to achieve
long-term reductions in mobile source GHG emissions. The approach would
be to set increasingly stringent performance standards that
manufacturers would be required to meet over 10, 20 or 30 years using
flexible compliance mechanisms like emissions averaging, trading and
banking to increase the economic effectiveness of emission reductions
over less flexible approaches. These performance standards would
reflect EPA's evaluation of available and developing technologies,
including the potential for technology innovation, that could provide
sustained long-term GHG emissions reductions while allowing mobile
sources to satisfy the full range of consumer and business needs.
    Another approach we explore is the extent to which CAA authorities
could be used to establish a cap-and-trade system for reducing mobile
source-related GHG emissions that could provide even greater
flexibility to manufacturers in finding least cost emission reductions
available within the sector. With respect to cars and light trucks, we
also present and discuss an alternative approach to standard-setting,
focused on technology already in the market today in evaluating near
term standards, that EPA began developing in 2007 as part of an inter-
agency effort in response to the Massachusetts decision and the
President's May 2007 directive. This approach took into consideration
and used as a starting point the President's 20-in-10 goals for vehicle
standards. Congress subsequently

addressed many of the 20-in-10 goals through its action in passing EISA
in December 2007.
    EPA seeks public comment on how a Title II regulatory program could
serve as an approach for addressing GHG emissions from mobile sources.
In addition, EPA invites comments on the following specific questions:
     What are the implications for developing Title II programs
in view of the global and long-lived nature of GHGs?
     What factors should be considered in developing a long-
term, i.e, 2050, GHG emissions target for the transportation sector?
     Should the transportation sector make GHG emission
reductions proportional to the sector's share of total U.S. GHG
emissions or should other approaches be taken to determining the
relative contribution of the transportation sector to GHG emission
reductions?
     What are the merits and challenges of different regulatory
timeframes such as 5 years, 10-15 years, 30-40 years?
     Should Title II GHG standards be based on environmental
need, current projections of future technology feasibility, and/or
current projections of future net societal benefits?
     Could Title II accommodate a mobile sources cap-and-trade
program and/or could Title II regulations complement a broader cap-and-
trade program?
     Should trading between mobile sources and sources in other
sectors be allowed?
     Is it necessary or would it be helpful to have new
legislation to complement Title II (such as legislation to provide
incentives for the development and commercialization of low-GHG mobile
source technologies)?
     How best can EPA fulfill its CAA obligations under Title
II yet avoid inconsistency with NHTSA's regulatory approach under EPCA?

EPA also invites comments on whether there are specific limitations of
a Title II program that would best be addressed by new legislation.
1. Clean Air Act Title II Authorities
    In this section we review the Title II provisions that could be
applied to GHG emissions from various categories of motor vehicles and
fuels. For each provision, we describe the relevant category of mobile
sources, the terms of any required ``endangerment'' finding, and the
applicable standard-setting criteria. We also identify the full range
of factors EPA may consider, including costs and safety, and discuss
the extent to which standards may be technology-forcing.
a. CAA Section 202(a)
    Section 202(a)(1) provides broad authority to regulate new ``motor
vehicles,'' which are on-road vehicles. While other provisions of Title
II address specific model years and emissions of motor vehicles,
section 202(a)(1) provides the authority that EPA would use to regulate
GHGs from new on-road vehicles. The ICTA petition sought motor vehicle
GHG emission standards under this section of the Act.
    As previously discussed, section 202(a)(1) makes a positive
endangerment finding a prerequisite for setting emission standards for
new motor vehicles. Any such standards ``shall be applicable to such
vehicles * * * for their useful life.'' Emission standards under CAA
section 202(a)(1) are technology-based, i.e. the levels chosen must be
premised on a finding of technological feasibility. They may also be
technology-forcing to the extent EPA finds that technological advances
are achievable in the available lead time and that the reductions such
advances would obtain are needed and appropriate. However, EPA also has
the discretion to consider and weigh various additional factors, such
as the cost of compliance (see section 202(a)(2)), lead time necessary
for compliance (section 202(a)(2)), safety (see NRDC v. EPA, 655 F. 2d
318, 336 n. 31 (D.C. Cir. 1981)) and other impacts on consumers, and
energy impacts. Also see George E. Warren Corp. v. EPA, 159 F.3d 616,
623-624 (D.C. Cir. 1998). CAA section 202(a)(1) does not specify the
weight to apply to each factor, and EPA accordingly has significant
discretion in choosing an appropriate balance among the factors. See
EPA's interpretation of a similar provision, CAA section 231, at 70 FR
69664, 69676 (Nov. 17, 2005), upheld in NACAA v. EPA, 489 F.3d 1221,
1230 (2007).
b. CAA Section 213
    CAA section 213 provides broad authority to regulate emissions of
non-road vehicles and engines, which are a wide array of mobile sources
including ocean-going vessels, locomotives, construction equipment,
farm tractors, forklifts, harbor crafts, and lawn and garden equipment.
    CAA section 213(a)(4) authorizes EPA to establish standards to
control pollutants, other than NOX, volatile organic
compounds and CO, which are addressed in section 213(a)(3), if EPA
determines that emissions from nonroad engines and vehicles as a whole
contribute significantly to air pollution ``which may reasonably be
anticipated to endanger public health or welfare''. Once this
determination is made, CAA section 213(a)(4) provides that EPA ``may''
promulgate standards it deems ``appropriate'' for ``those classes or
categories of new nonroad engines and new nonroad vehicles (other than
locomotives or engines used in locomotives), which in the
Administrator's judgment, cause or contribute to, such air pollution,
taking into account costs, noise, safety, and energy factors associated
with the application of available technology to those vehicles and
engines.'' As with section 202(a)(1), this provision authorizes EPA to
set technology-forcing standards to the extent appropriate considering
all the relevant factors.
    CAA section 213(a)(5) authorizes EPA to adopt standards for new
locomotives and new locomotive engines. These standards must achieve
the greatest degree of emissions reduction achievable through the
application of available technology, giving appropriate consideration
to the cost of applying such technology, lead time, noise, energy and
safety. Section 213(a)(5) does not require that EPA review the
contribution of locomotive emissions to air pollution which may
reasonably be expected to endanger public health or welfare before
setting emission standards, although in the past, EPA has provided such
information in its rulemakings.
c. CAA Section 231
    CAA section 231(a) provides broad authority for EPA to establish
emission standards applicable to the ``emission of any air pollutant
from any class or classes of aircraft engines, which in the
Administrator's judgment, causes, or contributes to, air pollution
which may reasonably be anticipated to endanger public health or
welfare.'' NACAA v. EPA, 489 F.3d 1221, 1229 (D.C. Cir. 2007). As with
sections 202(a) and 213(a)(4), this provision authorizes, but does not
require, EPA to set technology-forcing standards to the extent
appropriate considering all the relevant factors, including noise,
safety, cost and necessary lead time for the development and
application of requisite technology.
    Unlike the motor vehicle and non-road programs, however, EPA does
not directly enforce its standards regulating aircraft engine
emissions. Under CAA section 232, the Federal Aviation Administration
(FAA) is required to prescribe regulations to insure compliance with
EPA's standards. Moreover, FAA has authority to regulate aviation
fuels, under Federal Aviation

Act section 44714. However, under the Federal Aviation Act, the FAA
prescribes standards for the composition or chemical or physical
properties of an aircraft fuel or fuel additive to control or eliminate
aircraft emissions the EPA ``decides under section 231 of the CAA
endanger the public health or welfare[.]''
d. CAA Section 211
    Section 211(c) authorizes regulation of vehicle fuels and fuel
additives (excluding aircraft fuel) as appropriate to protect public
health and welfare, and section 211(o) establishes requirements for the
addition of renewable fuels to the nation's vehicle fuel supply.\118\
In relevant parts, section 211(c) states that, ``[t]he Administrator
may * * * by regulation, control or prohibit the manufacture,
introduction into commerce, offering for sale, or sale of any fuel or
fuel additive for use in a motor vehicle, motor vehicle engine, or
nonroad engine or nonroad vehicle'' if, in the judgment of the
Administrator, any fuel or fuel additive or any emission product of
such fuel or fuel additive causes, or contributes, to air pollution or
water pollution (including any degradation in the quality of
groundwater) which may reasonably be anticipated to endanger the public
health or welfare, * * *'' Similar to other CAA mobile source
provisions, section 211(c)(1) involves an endangerment finding that
includes considering the contribution to air pollution made by the fuel
or fuel additive.
---------------------------------------------------------------------------

    \118\ EPA's authority to regulate fuels under CAA section 211
does not exend to aircraft engine fuel. Instead, under the Federal
Aviatiion Act, the FAA prescribes standads for the compositiion or
chemical or physical properties of an aircraft fuel or additive to
control or eliminate aircraft emissions the EPA ``decides under
section 231 of the Clean Air Act endanger the public health or
welfare[.]'' 49 U.S.C. 44714.
---------------------------------------------------------------------------

    The Energy Policy Act of 2005 also added section 211(o) to
establish the volume-based Renewable Fuels Standard program. Section
211(o) was amended by the Energy Independence and Security Act of 2007.
    Section VI.D of this notice provides more information and
discussion about the CAA section 211 authorities.
2. EPA's Existing Mobile Source Emissions Control Program
    In this notice, EPA is examining whether and how the regulatory
mechanisms employed under Title II to reduce conventional emissions
could also prove effective for reducing GHG emissions. Under Title II,
mobile source standards are technology-based, taking such factors as
cost and lead time into consideration. Various Title II provisions
authorize or require EPA to set standards that are technology forcing,
such as standards for certain pollutants for heavy-duty or nonroad
engines.\119\ Title II also provides for comprehensive regulation of
mobile sources so that emissions of air pollutants from all categories
of mobile sources may be addressed as needed to protect public health
and the environment.
---------------------------------------------------------------------------

    \119\ Technology-forcing standards are based upon performance of
technology that EPA determines will be available (considering
technical feasibility, cost, safety, and other relevant factors)
when the standard takes effect, as opposed to standards based upon
technology which is already available. Technology-forcing standards
further Congress' goal of having EPA project future advances in
pollution control technology, rather than being limited by
technology which already exists. NRDC v. Thomas, 805 F. 2d 410, 428
n. 30 (D.C. Cir. 1981). Technology-forcing standards are performance
standards and do not require the development or use of a specific
technology.
---------------------------------------------------------------------------

    Pursuant to Title II, EPA has taken a comprehensive, integrated
approach to mobile source emission control that has produced benefits
well in excess of the costs of regulation. In developing the Title II
program, the Agency's historic, initial focus was on personal vehicles
since that category represented the largest source of mobile source
emissions. Over time, EPA has established stringent emissions standards
for large truck and other heavy-duty engines, nonroad engines, and
marine and locomotive engines, as well. The Agency's initial focus on
personal vehicles has resulted in significant control of emissions from
these vehicles, and also led to technology transfer to the other mobile
source categories that made possible the stringent standards for these
other categories.
    As a result of Title II requirements, new cars and SUVs sold today
have emissions levels of hydrocarbons, oxides of nitrogen, and carbon
monoxide that are 98-99% lower than new vehicles sold in the 1960s, on
a per mile basis. Similarly, standards established for heavy-duty
highway and nonroad sources require emissions rate reductions on the
order of 90% or more for particulate matter and oxides of nitrogen.
Overall ambient levels of automotive-related pollutants are lower now
than in 1970, even as economic growth and vehicle miles traveled have
nearly tripled. These programs have resulted in millions of tons of
pollution reduction and major reductions in pollution-related deaths
(estimated in the tens of thousands per year) and illnesses. The net
societal benefits of the mobile source programs are large. In its
annual reports on federal regulations, the Office of Management and
Budget reports that many of EPA's mobile source emissions standards
typically have projected benefit-to-cost ratios of 5:1 to 10:1 or more.
Follow-up studies show that long-term compliance costs to the industry
are typically lower than the cost projected by EPA at the time of
regulation, which result in even more favorable real world benefit-to-
cost ratios. Title II emission standards have also stimulated the
development of a much broader set of advanced automotive technologies,
such as on-board computers and fuel injection systems, which are at the
core of today's automotive designs and have yielded not only lower
emissions, but improved vehicle performance, reliability, and
durability.
    EPA requests comment on whether and how the approach it has taken
under Title II could effectively be employed to reduce mobile source
emissions of GHGs. In particular, EPA seeks comment and information on
ways to use Title II authorities that would promote development and
transfer of GHG control technologies for and among the various mobile
source categories. The Agency is also interested in receiving
information on the extent to which GHG-reducing technologies developed
for the U.S. could usefully and profitably be exported around the
world. Finally, EPA requests comments on how the Agency could implement
its independent obligations under the CAA in a manner to avoid
inconsistency with NHTSA CAFE rulemakings, in keeping with the Supreme
Court's observation in the Massachusetts decision (``there is no reason
to think the two agencies cannot both administer their obligations yet
avoid inconsistencies'').
3. Mobile Sources and GHGs
    The domestic transportation sector emits 28% of total U.S. GHG
emissions based on the standard accounting methodology used by EPA in
compiling the inventory of U.S. GHG emissions pursuant to the United
Nations Framework Convention on Climate Change (Figure VI-1).
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    The only economic sector with higher GHG emissions is electricity
generation which accounts for 34% of total U.S. GHG emissions. However,
the inventory accounting methodology attributes to other sectors two
sources of emissions that EPA has the authority to regulate under Title
II of the CAA. First, the methodology includes upstream transportation
fuel emissions (associated with extraction, shipping, refining, and
distribution, some of which occur outside of the U.S.) in the emissions
of the industry sector, not the transportation sector. However,
reducing transportation fuel consumption would automatically and
proportionally reduce upstream transportation fuel-related GHG
emissions as well. Second, nonroad mobile sources (such as
construction, farm, and lawn and garden equipment) are also included in
the industry sector contribution. All of these emissions can be
addressed under CAA Title II authority, at least with respect to
domestic usage. Including these upstream transportation fuel (some of
which occur outside of U.S. boundaries) and nonroad equipment GHG
emissions in the mobile sources inventory would raise the contribution
from mobile sources and the fuels utilized by mobile sources to
approximately 36% of total U.S. GHG emissions. Since, based on 2004
data, the U.S. emits about 23% of global GHG emissions, under the
traditional accounting methodology the U.S. transportation sector
contributes about 6% of the total global inventory. If upstream
transportation fuel emissions and nonroad equipment emissions are also
included, U.S. mobile sources are responsible for about 8% of total
global GHG emissions.
    Personal vehicles (cars, sport utility vehicles, minivans, and
smaller pickup trucks) emit 54% of total U.S. transportation sector GHG
emissions (including nonroad mobile sources), with heavy-duty vehicles
the second largest contributor at 18%, aviation at 11%, nonroad sources
at 8%, marine at 5%, rail at 3%, and pipelines at 1% (Figure VI-2).
CO2 is responsible for about 95% of transportation GHG
emissions, with air conditioner refrigerant HFCs accounting for 3%,
vehicle tailpipe nitrous oxide emissions for 2%, and vehicle tailpipe
methane emissions for less than 1% (Figure VI-3).

[GRAPHIC] [TIFF OMITTED] TP30JY08.030

[GRAPHIC] [TIFF OMITTED] TP30JY08.031

    As noted previously, global climate change is a long-term problem.
Climate experts such as the IPCC often use 2050 as a key reference
point for future projections. Long-term projections of U.S. mobile
source GHG emissions show that there is likely to be a major increase
in transportation GHG emissions in the future.
    Prior to the passage of EISA, U.S. transportation GHG emissions
(including upstream fuel emissions) were projected to grow
significantly, from about 2800 million metric tons in 2005 to about
4800 million metric tons in 2050 (see Figure VI-4, top curve). The fuel
economy and renewable fuels provisions of EISA (Figure VI.A.2.-4,
second curve from top) provide significant near-term mobile source GHG
emissions reductions relative to the non-EISA baseline case. However,
addressing climate change requires setting long-term goals. President
Bush has proposed a new goal of stopping the growth of GHG emissions by
2025, and the IPCC has modeled several long-term climate mitigation
targets for 2050.

    Using Title II authority, mobile sources could achieve additional
GHG emission reductions based on a variety of criteria including the
amount of reduction needed, technological feasibility and cost
effectiveness. While EISA's fuel economy and renewable fuel
requirements will contribute to mobile source GHG emission reductions,
its fuel economy standards affect only CO2 emissions and do
not apply to the full range of mobile source categories. EISA also
specifies that fuel economy standards be set for no more than five
years at a time, effectively limiting the extent to which those
standards can take into account advancing technologies. Moreover, its
renewable fuel provisions are limited in the extent to which they
provide for GHG emission reductions, although EISA does mandate the use
of renewable fuels that meet different lifecycle GHG emission reduction
requirements.
    Under Title II, EPA has broad authority to potentially address all
GHGs from all categories of mobile sources. In addition, Title II does
not restrict EPA to specific timeframes for action. If circumstances
warrant, EPA could set longer term standards and promote technological
advances by basing standards on the performance of technologies not yet
available but which are projected to be available at the time the
standard takes effect. Title II also provides authority to potentially
require GHG emission reductions from transportation fuels.
Consequently, the CAA authorizes EPA to consider what GHG emissions
reductions might be available and appropriate to require from the
mobile source sector, consistent with the Act.
    EPA has not determined what level of GHG emission reduction would
be appropriate from the mobile source sector in the event a positive
endangerment finding is made, although this ANPR includes some
discussion of possible reductions. Any such determination is
necessarily the province of future rulemaking activity. Without
prejudging this important issue, and for illustrative purposes only,
the final three curves in Figure VI-4 illustrate the additional
reductions mobile sources would have to achieve if mobile sources were
to make a proportional contribution to meeting the President's climate
goal, the IPCC 450 CO2 ppm stabilization scenario, and an
economy-wide GHG emissions cap based on a 70% reduction in 2005
emissions by 2050.\120\ As the figure illustrates, EISA provides about
25%, 15% and 10% of the transportation GHG emissions reductions that
would be needed for mobile sources to make a proportional contribution
to meeting the President's climate goal by 2050 (Figure VI-4, third
curve), the IPCC 450 CO2 ppm stabilization scenario in 2050
(Figure VI-4, fourth curve), and a 70% reduction in 2005 levels in 2050
(Figure VI-4, bottom curve), respectively.\121\ These curves shed light
on the possible additional role the transportation sector could play in
achieving reductions, but do not address whether such reductions would
be cost effective compared to other sectors. Title II regulation of GHG
emissions could conceivably achieve greater emissions reductions so
that mobile sources would make a larger contribution to meeting these
targets. EPA requests comment on the usefulness of the information
provided in Figure VI-4 and on approaches for determining what
additional mobile source GHG emissions reductions would be appropriate.
As described later in this section, our assessment of available and
developing mobile source technologies for reducing GHG emissions
indicates that mobile sources could feasibly achieve significant
additional reductions.
---------------------------------------------------------------------------

    \120\ Prior to the passage of EISA, an EPA analysis projected
that, absent additional regulatory approaches, transportation would
provide about one-tenth of the GHG emission reductions that would be
required to comply with an emissions cap based on a 70% reduction
from 2005 levels in 2050, even though transportation is responsible
for 28% of the official U.S. GHG emissions inventory.
    \121\ Calculation of the GHG emission reductions that EISA's
fuel economy provisions will achieve include standards that result
in an industry-wide fleet average fuel economy of 35 miles per
gallon by 2020.

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[GRAPHIC] [TIFF OMITTED] TP30JY08.032

4. Potential Approaches for Using Clean Air Act Title II To Reduce
Mobile Source GHG Emissions
    The regulatory approach and principles that guided development of
our current mobile source emissions control program may prove useful in
considering a possible mobile source GHG emissions control strategy
under Title II of the CAA. As explained above, under Title II, EPA
could potentially apply its historical approach for regulating
traditional tailpipe emissions to long-term mobile source GHG emissions
control, with the aim of providing strong incentives for technological
innovation. The Agency invites public comment on the principles and
underlying legal authority it has applied in the past and other
possible principles for establishing GHG emissions standards under
Title II, including--
     Coverage of all key vehicle, engine, and equipment sub-
sectors in the entire transportation sector so that GHG emission
standards are set not only for cars and light trucks, but for heavy-
duty vehicles, non-road engines and equipment, including locomotive and
marine engines, and aircraft as well. This broader regulatory coverage
would provide more comprehensive mobile source GHG emissions reductions
and market incentives to seek the most cost-effective solutions within
the sector.
     Coverage of all GHGs emitted by the transportation sector
by setting emissions standards that address every GHG for which the
Agency makes the appropriate cause or contribute endangerment finding.
     Inclusion of transportation fuels in the program by
considering vehicles and fuels as a system, rather than as isolated
components.
     Addressing transportation fuels by setting GHG standards
that account for the complete lifecycle of GHG emissions, including
upstream GHG emissions associated with transportation fuel
production.\122\
---------------------------------------------------------------------------

    \122\ EPA invites comment on how such an approach would interact
with GHG regulations under other parts of the CAA or with a possible
economy-wide approach.
---------------------------------------------------------------------------

     Identifying long-term U.S. mobile source GHG emissions
targets based on scientific assessments of environmental need, and
basing the stringency of standards for individual mobile source sub-
sectors on technology feasibility, cost and fuel savings, taking into
account the relationship of mobile source reductions to reductions in
other sectors under any economy-wide program.
     Allowing for staggered rulemakings for various sub-sectors
and fuels, rather than regulating all mobile source entities at one
time. EPA seeks comment on its CAA authority in this area, as well as
on an approach to base the timing of the staggered rulemakings on
factors such as the contribution of the mobile source sub-sector to the
overall GHG emissions inventory and the lead time necessary for the
commercialization of innovative technology.
     Use of Title II statutory authority to adopt technology-
forcing standards, when appropriate, in conjunction with periodic
reviews of technology and other key analytical inputs as a ``reality
check'' to determine whether mid-course corrections in GHG emissions
standards are needed.
     Use of our statutory authority to increase the rate of
emissions reduction targets over time while allowing sufficient time
for entrepreneurs and engineers to develop cost-effective technological
solutions and minimize the risk of early retirement of capital
investments.
     Establishment of a flexible compliance program that would
allow averaging, banking and borrowing, and credit trading. Existing
Title II programs generally allow credit trading only within individual
mobile source sub-sector programs. EPA solicits comments on whether the
global nature of climate

change supports allowing credit trading between obligated parties
across all mobile source sub-sectors and whether this would allow the
sector as a whole to seek the lowest-cost solutions.
     Design of enforcement programs to ensure real world
emissions reductions over the life of vehicles, engines, and equipment.
     Providing sufficient flexibility so that mobile source GHG
emissions control programs can complement and harmonize with existing
regulatory programs for certain pollutants.
    In developing potential approaches to design of a Title II program,
it is critical for EPA to understand the full ramifications of advanced
technologies. Accordingly, EPA seeks public comment on potential GHG
reducing technologies and their impacts, including availability,
practicality, emissions reduction potential, cost, performance,
reliability, and durability. EPA also seeks comment on how best to
balance factors such as the need to send effective long-term signals
that stimulate technology innovation, the imprecision of predictions of
future technology innovation, and the importance of lead time to allow
orderly investment cycles.
    While advanced technology for reducing GHGs would likely increase
the initial cost of vehicles and equipment to consumers and businesses,
it would also increase efficiency and reduce fuel costs. In many cases,
there is the potential for the efficiency advantages of low-GHG
technologies to offset or more than offset the higher initial
technology cost over the lifetime of the vehicle or equipment. EPA
recognizes that not all consumers may understand or value changes to
vehicles that reduce GHG emissions by increasing fuel efficiency, even
though these changes lower fuel costs (see discussion in Section
VI.C.2). One analytic issue that has policy implications is the most
appropriate method for treating future consumer fuel savings when
calculating cost effectiveness for a mobile sources GHG control
strategy. Some analyses that consider the decisions made by automakers
in isolation from the market and consumers exclude future fuel savings
entirely. A second approach, used in models trying to predict future
consumer behavior based on past experience, counts only those future
fuel savings which consumers implicitly value in their new vehicle
purchase decisions. A third method, reflecting a societal-wide
accounting of benefits, includes all future fuel savings over vehicle
lifetimes, whether overtly valued by new vehicle purchasers or not. EPA
seeks comments on what could be done under Title II, or under any new
legislation to complement Title II, to establish economic incentives
that send long-term market signals to consumers and manufacturers that
would help spark development of and investment in the necessary
technology innovation.
    An effective mobile source emissions compliance and enforcement
program is fundamental to ensuring that the environmental benefits of
the emission standards are achieved. We request comments on all aspects
of the compliance approaches discussed in this notice and any other
approaches to a compliance program for mobile source GHG emissions
control. Topics to address could include, but are not limited to,
methods for classifying, grouping and testing vehicles for
certification, useful life and component durability demonstration, in-
use testing, warranty and tampering, prohibited acts, and flexibilities
for manufacturers.
    Historically, EPA's programs to reduce criteria pollutants have
typically included provisions to allow the generation, averaging,
banking, and trading of emission credits within a vehicle or engine
category. For example, there are averaging, banking, and trading (ABT)
programs for light-duty vehicles, heavy-duty engines, and nonroad
engines, among others. In these programs, manufacturers with vehicles
or engines designed to over-comply with the standards can generate
credits. These credits can then be used by that manufacturer or sold to
other manufacturers in order to allow similar vehicles or engines with
emissions above the standards to be certified and sold.
    However, for a variety of reasons, we have in most cases not
provided for trading of emission credits from one mobile source
category to another. For example, credits generated in the light-duty
vehicle program cannot be used for heavy-duty engines to comply, or
credits generated for lawn and garden equipment cannot be used for
larger gasoline engines to comply. These limitations are generally
grounded in characteristics of required pollutants that do not
necessarily apply in the case of GHG emissions. For instance, in the
case of hydrocarbon emissions, because our programs are meant, in part,
to reduce the pollutant in areas where it most contributes to ozone
formation, we have not allowed farm tractors in rural areas to generate
credits that would allow urban passenger cars to be sold with little or
no emission control. Similarly, for problems like carbon monoxide ``hot
spots'' or direct, personal exposure to diesel PM, it has been
important to ensure a certain minimum degree of control from each
vehicle or engine, rather than allowing the very localized benefits to
be ``traded away.''
    Given the global nature of the major GHGs, we request comment on
whether new provisions could be used to allow broad trading of
CO2-equivalent emission credits among the full range of
mobile sources, and if so, how they could be designed, including
highway and nonroad vehicles and engines as well as mobile source
fuels.
    EPA has also considered the potential of GHG emissions leakage to
other domestic economic sectors, or to other countries, should EPA
adopt Title II standards for motor vehicle GHG emissions and GHG
emissions from transportation fuels. As discussed in more detail later
in this section, there are transportation fuels (such as grid
electricity) that do not result in tailpipe GHG emissions, but that do
result in GHG emissions when the fuel is produced. Greater use of such
fuels in transportation would reduce GHG emissions covered by Title II,
but would increase GHG emissions covered by Title I, requiring
coordination among the CAA programs to ensure the desired level of
overall GHG control. In addition, GHG emissions from potential land use
changes caused by transportation fuel changes could cause GHG emissions
leakage unless accounted for in any transportation fuels GHG program.
Finally, since transportation fuels can be fungible commodities, if
other countries do not adopt similar GHG control programs, it is
possible that lower-lifecycle GHG fuels will be concentrated in the
U.S. market, while higher-lifecycle GHG fuels will be concentrated in
unregulated markets. For example, sugar cane-based ethanol, if it were
determined to have more favorable upstream GHG emissions, could shift
from the Brazilian to the U.S. market, and corn-based ethanol, if it
were determined to have less favorable upstream GHG emissions, could
shift from the U.S. to the Brazilian market. This shifting could ease
compliance with U.S. transportation fuel GHG regulations, but could
actually increase global GHG emissions due to the GHG emissions that
would result from transporting both types of ethanol fuels over greater
distances. EPA seeks comments on all possible GHG emissions leakage
issues associated with mobile source GHG regulation, and in particular
on whether the theoretical concern with fungible transportation fuels
is likely to be realized.
    While the preceding discussion has focused on using the existing
CAA Title

II model for regulating mobile source GHG emissions, there are other
alternative regulatory approaches on which EPA invites comments. In
particular, long-term mobile source GHG emissions reductions from
vehicles and equipment might be achieved by establishing GHG emissions
caps on vehicle, engine, and/or equipment manufacturers to the extent
authorized by the CAA. EPA's existing regulatory program uses
performance standards that are rate-based, meaning that they require
manufacturers to meet a certain gram/mile average for their fleet, as
in the Tier 2 light-duty vehicle program. Manufacturers produce
vehicles with varying rates of emissions performance, and through
averaging, banking, and trading demonstrate compliance with this
performance standard on a sales-weighted average basis. While a
manufacturer must take its fleet mix of higher-emitting and lower-
emitting models into account in demonstrating compliance, the sales-
weighted average is independent of overall sales as long as the fleet
mix does not change. As a result, a manufacturer's fleet may emit more
or less total pollution depending on its total sales, so long as the
sales-weighted average emissions of its vehicles do not exceed the
standard.
    In a cap-and-trade program, the standard set by EPA would not be an
average, sales-weighted rate of emissions, but rather a cap on overall
emissions from a manufacturer's production. Under such a program, the
emissions attributable to a manufacturer's fleet could not grow with
sales unless the manufacturer obtained (e.g., through trading)
additional allowances to cover higher emissions. Presumably, EPA could
assign a VMT or usage value to be used by manufacturers, and
manufacturers would demonstrate compliance by combining the rate of
performance of their vehicles, their sales volume, and the assigned VMT
or usage value to determine overall emissions.
    EPA could set standards under an emissions cap-and-trade program by
assessing the same kind of factors as we have in the past: Availability
and effectiveness of technology, cost, safety, energy factors, etc.
Setting an appropriate emissions cap would be more complex, and EPA
would need to demonstrate that the cap is appropriate, given that
changes in sales levels (both industry-wide and for individual
manufacturers) must be accounted for in the standard-setting process.
An emissions cap approach also raises difficult issues of how allowable
emissions under the cap would be allocated among the manufacturers,
including new entrants.
    EPA invites comment on all issues involving this emissions cap-and-
trade approach, including comment on relevant technical and policy
issues, and on EPA's authority to adopt such an approach under Title
II.
    A third possible model for regulating mobile source GHG emissions
would combine elements of these approaches. This type of hybrid
approach would include, as one element, either rate-based GHG emissions
performance standards similar to the existing mobile source program for
conventional pollutants or GHG emissions caps for key vehicle, engine,
and/or equipment manufacturers, both of which would be promulgated
under Title II of the CAA. The second element of this hybrid approach
would be an upstream emissions cap on fuel refiners for all life-cycle
GHG emissions associated with transportation fuels, including both
upstream fuel production GHG emissions and downstream vehicle GHG
emissions, to the extent authorized under the CAA or future climate
change legislation. For a discussion of issues associated with
including direct mobile source obligations in combination with an
economy-wide approach, see section III.F.3.
    An important interrelationship between stationary sources and
mobile sources would develop if grid electricity becomes a more
prevalent transportation fuel in the future. There is considerable
interest, both by consumers and automakers, in the possible development
and commercialization of plug-in hybrid electric vehicles (PHEVs) that
would use electricity from the grid as one of two sources of energy for
vehicle propulsion. Use of grid electricity would yield zero vehicle
tailpipe GHG emissions, providing automakers with a major incentive to
consider PHEVs, which may be appropriate given that vehicle cost is the
single biggest market barrier to PHEV commercialization. But it would
also result in a net increase in demand for electricity, which could
add to the challenge of reducing GHG emissions from the power sector.
Any evaluation of the overall merits of using grid electricity as a
transportation fuel could not be done in isolation, but would require a
coordinated assessment and approach involving both mobile sources under
CAA Title II and stationary sources under CAA Title I. Linking efforts
under Titles I and II would allow for needed coordination regarding any
type of future transportation fuel that would have zero vehicle
tailpipe GHG emissions but significant fuel production GHG emissions.
    EPA seeks comment on all aspects, including the advantages and
disadvantages, of using Title II regulations to complement an economy-
wide cap-and-trade GHG emissions program.
    EPA also seeks public comment on the available authority for, and
the merits of, allowing credit trading between mobile sources and non-
mobile source sectors. One of the potential limitations of allowing
credit trading only within the transportation sector is that it would
not permit firms to take advantage of emission reduction opportunities
available elsewhere in the economy. In particular, EPA requests comment
on the advantages and disadvantages of allowing trading across sectors,
and how to ensure that credit trading would have environmental
integrity and that credits are real and permanent.
    Finally, EPA seeks public comment on two remaining issues: (1) How
a CAA Title II mobile source GHG emissions control program and NHTSA's
corporate average fuel economy program for cars and light-duty trucks
could best be coordinated; and (2) whether and how Title II, or other
provisions in the CAA, could be used to promote lower vehicle miles
traveled and equipment activity.

B. On-Highway Mobile Sources

1. Passenger Cars and Light-Duty Trucks
    In this section, we discuss and request comment on several
potential approaches for establishing light-duty vehicle GHG emission
standards under section 202(a)(1). These approaches build off of, to
varying extents, the analysis EPA undertook during 2007 to support the
development of a near-term control program for GHG emissions for
passenger cars and light duty trucks under the authorities of Title II
of the CAA.
    We begin this section with a discussion of one potential approach
for establishing GHG standards under section 202(a) of the CAA that
reflects EPA's historical approach used for traditional pollutants,
including the principles EPA has used in the past under Title II. This
approach focuses on long-term standard setting based on the technology-
forcing authority provided under Title II. Next we present and discuss
the results of alternative approaches to standard-setting which EPA
considered during 2007 in the work performed under EO 13432. This
alternative approach is based on setting near-term standards based
primarily on technology already in the market today.

This is followed by a discussion of the wide range of technologies
available today and technologies that we project will be available in
the future to reduce GHG emissions from light-duty vehicles. We next
include a discussion of a potential approach to reduce HFC, methane,
N2O, and vehicle air conditioning-related CO2
emissions. We conclude with a discussion of the key implementation
issues EPA has considered for the development of a potential light-duty
vehicle GHG control program.
    Our work to date indicates that there are significant reductions of
GHG emissions that could be achieved for passenger cars and light-duty
trucks up to 2020 and beyond that would result in large net monetized
benefits to society. For example, taking into account specific vehicle
technologies that are likely to be available in that time period and
other factors relevant to motor vehicle standard-setting under the CAA,
EPA's analysis suggests that substantial reductions can occur where the
cost-per-ton of GHG reduced is more than offset by the value of fuel
savings, and the net present value to society could be on the order of
$340 to $830 billion without considering benefits of GHG reductions
(see section VI.B.1.b).\123\
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    \123\ These estimates do not account for the future CAFE
standards that will be established under EISA.
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a. Traditional Approach to Setting Light-Duty Vehicle GHG Standards
    In this section we discuss and request comment on employing EPA's
traditional approach to setting mobile source emissions standards to
develop standards aimed at ensuring continued, long-term, technology-
based GHG reductions from light-duty vehicles, in light of the unique
properties of GHG emissions. We also request comment on how EPA could
otherwise use its CAA Title II authorities to provide incentives to the
market to accelerate the development and introduction of ultra clean,
low GHG emissions technologies.
    Based on our work to date, we expect that such an approach could
result in standards for the 2020 to 2025 time frame that reflect a
majority of the new light-duty fleet achieving emission reductions
based on what could be accomplished by many of the most advanced
technologies we know of today (e.g., hybrids, diesels, plug-in hybrid
vehicles, full electric vehicles, and fuel cell vehicles, all with
significant use of light-weight materials). Our analysis (presented in
section VI.B.1.b) indicates that standards below 250 g/mile
CO2 (above 35 mpg) could be achievable in this time frame,
and the net benefit to society could be in excess of $800 billion.
These estimates, however, do not account for future CAFE standards that
will be established under EISA.
    EPA's historical approach for setting air pollutant standards for
mobile sources has been to assess the capabilities of pollution control
technologies, including advanced control technologies; whether
reductions associated with these technologies are feasible considering
cost, safety, energy, and other relevant factors; and the benefits of
these controls in light of overall public health and environmental
goals. Public health and environmental goals provide the important
context in which this technology-driven process occurs. In many cases
in the past, the goals have involved the need for emissions reductions
to attain and maintain NAAQS.
    As mentioned previously, EPA has utilized the CAA to establish
mobile source programs which apply progressively more stringent
standards over many years, often with substantial lead time to maximize
the potential for technology innovation, and where appropriate, we have
included technology reviews along the way to allow for ``mid-course
corrections,'' if needed. We have also provided incentives for
manufacturers to develop and introduce low emission technologies more
quickly than required by the standards. For example, in our most recent
highway heavy-duty engine standards for PM and NOX, we
established technology-forcing standards via a rulemaking completed in
2000 which provided six years of lead-time for the start of the program
and nearly ten years of lead-time for the completion of the phase-in of
the standards. In addition, EPA performed periodic technology reviews
to ensure industry was on target to comply with the new standards, and
these reviews allowed EPA to adjust the program if necessary. This same
program provided early incentive emission credits for manufacturers who
introduced products complying with the standards well in advance of the
program requirements.
    Consistent with the CAA and with our existing mobile source
programs, we request comment on using the following traditional
principles for development of long-term GHG standards for light-duty
vehicles: Technology-forcing standards, sufficient lead-time (including
phase-in of standards reflecting use of more advanced technologies),
continual improvements in the rate of emissions reduction, appropriate
consideration of the costs and benefits of new standards, and the use
of flexible mechanisms such as banking and credit trading (between
sources within or outside of this sector). EPA's goal would be to
determine the appropriate level of GHG emission standards to require by
an appropriate point in the future. We would establish the future time
frame in light of the needs of the program. EPA would evaluate a broad
range of technologies in order to determine what is feasible and
appropriate in the time frame chosen, when considering the fleet as a
whole. EPA would analyze the costs and reductions associated with the
technologies, and compare those to the benefits from and the need for
such reductions. We would determine what reductions are appropriate to
require in that time frame, assuming industry started now, and then
determine what appropriate interim standards should be set to most
effectively move to this long-term result.
    In developing long-term standards, we would consider known and
projected technologies which in some cases are in the market in limited
production or which may not yet be in the market but which we project
can be, provided sufficient lead-time. We would consider how broadly
and how rapidly specific technologies could be applied across the
industry. If appropriate, EPA could include technology reviews during
the implementation of new standards to review the industry's progress
and to make adjustments as necessary. EPA would evaluate the amount of
lead-time necessary and if appropriate the phase-in period for long-
term standards. To the extent that future standards may result in
significant increases in advanced technologies such as plug-in electric
hybrid or full electric vehicles, we would consider how a Title II
program might interact with a potential Title I program to ensure that
reductions in GHG emissions due to a decrease in gasoline consumption
are not off-set by increases in GHG emissions from the electric utility
sector. We would also consider the need for flexibilities and
incentives to promote technology innovation and provide incentives for
advanced technologies to be developed and brought to the market. We
would consider the need for orderly manufacturer production planning to
ensure that capital investments are wisely used and not stranded.
Finally, EPA would evaluate the near and long-term costs and benefits
of future standards in order to ensure the appropriate relationship
between benefits and costs, e.g. ensuring that

benefits of any future standards exceed the costs. This could lead to
standard phase-in schedules significantly different from the two
approaches contained in our Light-duty Vehicle Technical Support
Document analysis (available in the docket for this advance notice);
which under one approach was the same incremental increase in
stringency each year (the 4% per year approach), and for the second
approach lead to large increases in stringency the first several years
followed by small changes in the later years (the model-optimized
approach).
    One critical element in this approach is the time frame over which
we should consider new GHG standards for light-duty vehicles. We
request comment on the advantages and disadvantages of establishing
standards for the 2020 or 2025 time frame, which is roughly consistent
with EPA's traditional approach to setting standards while allowing a
sufficient time period for investment and technological change, and
even longer. There are two major factors which may support a long-term
approach. First, addressing climate change will require on-going
reductions from the transportation sector for the foreseeable future.
Thus, establishing short-term goals will not provide the long-term road
map which the environmental problem requires. Second, providing a long-
term road map could have substantial benefits for the private sector.
The automotive industry itself is very capital intensive--the costs for
developing and producing a major vehicle model is on the order of
several billion dollars. A manufacturer making a major investment to
build a new engine, transmission or vehicle production plant expects to
continue to use such a facility without major additional investments
for at least 15 years, if not more. A regulatory approach which
provides a long-term road map could allow the automotive industry to
plan their future investments in an orderly manner and minimize the
potential for stranded capital investment, thus helping to ensure the
most efficient use of societal resources. A long-term regulatory
program could also provide industry with the regulatory certainty
necessary to stimulate technology development, and help ensure that the
billions of dollars invested in technology research and development are
focused on long-term needs, rather than on short-term targets alone.
    There could also be disadvantages to establishing long-term
standards. For example, uncertainties in the original analysis
underlying the long-term standards could result in overly conservative
or optimistic assumptions about emission reductions could and should be
accomplished. Long-terms standards could also reduce flexibility to
respond to more immediate market changes or other unforeseen events.
EPA has tools, such as technology reviews, that could help reduce these
risks of long-term standards. We request comment on the advantages and
disadvantages of a long-term approach to standard-setting, and any
issues it might raise for integration with an economy-wide approach to
emission reductions.
    More generally, EPA requests comment on the issues discussed in
this section, and specifically the appropriateness of a light-duty
vehicle GHG regulatory approach in which EPA would identify long-term
emissions targets (e.g., the 2020-2025 time frame or longer) based on
scientific assessments of environmental need, and developing standards
based on a technology-forcing approach with appropriate consideration
for lead-time, costs and societal benefits.
b. 2007 Approach to Setting Light-Duty Vehicle Emission Standards
i. CAA and EPCA Authority; Passage of EISA
    As indicated above in section VI.A.2, CAA section 202(a) provides
broad authority to regulate light-duty vehicles. Standards which EPA
promulgates under this authority are technology-based and applicable
for the useful life of a vehicle. EPA has discretion to consider and
weigh various additional factors, including the cost of compliance,
safety and other impacts on consumers, and energy impacts.
    NHTSA authority to set CAFE standards derives from the Energy
Policy and Conservation Act (42 U.S.C. section 6201 et seq.) as amended
by EISA. This statutory authority, enacted in December 2007, directs
NHTSA to consider four factors in determining maximum feasible fuel
economy standards--technological feasibility, economic practicability,
the effect of other standards issued by the government on fuel economy,
and the need of the nation to conserve energy. NHTSA may also take into
account other relevant considerations such as safety.
    EISA amends NHTSA's fuel economy standard-setting authority in
several ways. Specifically it replaces the statutory default standard
of 27.5 miles per gallon for passenger cars with a mandate to establish
separate passenger cars and light truck standards annually beginning in
model year 2011 to reflect the maximum feasible level. It also requires
that standards for model years 2011-2020 be set sufficiently high to
ensure that the average fuel economy of the combined industry-wide
fleet of all new passenger cars and light trucks sold in the U.S.
during MY 2020 is at least 35 miles per gallon. In addition, EISA
provides that fuel economy standards for no more than five model years
be established in a single rulemaking, and mandated the reform of CAFE
standards for passenger cars by requiring that all CAFE standards be
based on one or more vehicle attributes, among other changes.\124\ EISA
also directs NHTSA to consult with EPA and the Department of Energy on
its new CAFE regulations.
---------------------------------------------------------------------------

    \124\ For a full discussion of EISA requirements and NHTSA
interpretation of its statutory authority please see 73 FR 24352
(May 2, 2008).
---------------------------------------------------------------------------

    Pursuant to EISA's amendments to EPCA, NHTSA recently issued a
notice of proposed rulemaking for new, more stringent CAFE standards
for model years 2011-2015 for both passenger cars and light-duty
trucks. 73 FR 24352 (May 2, 2008).
    Prior to EISA's enactment, EPA and NHTSA had coordinated under EO
13432 on the development of CAA rules that would achieve large GHG
emission reductions and CAFE rules that would achieve large
improvements in fuel economy. As discussed later in this section, there
are important differences in the two agencies' relevant statutory
authorities. EPA nevertheless believes that it is important that any
future GHG regulations under CAA Title II and future fuel economy
regulations under NHTSA's statutory authority be designed to ensure
that an automaker's actions to comply with CAA standards not interfere
with or impede actions taken for meeting fuel economy standards and
vice versa. The goals of oil savings and GHG emissions reductions are
often closely correlated, but they are not the same. As the Supreme
Court pointed out in its Massachusetts decision, ``[EPA's] statutory
obligation is wholly independent of DOT's mandate to promote energy
efficiency'', and ``[t]he two obligations may overlap, but there is no
reason to think the two agencies cannot both administer their
obligations and yet avoid inconsistency.'' It is thus important for EPA
and NHTSA to maximize coordination between their programs so that both
the appropriate degree of GHG emissions reductions and oil savings are
cost-effectively achieved, given the agencies' respective statutory
authorities. EPA asks for comment on how EPA's and NHTSA's respective
statutory authorities can best be

coordinated under all of the alternatives presented in this section so
that inconsistency can be avoided.
ii. 2007 Approach
    In this section, we present an overview of two alternative
approaches for setting potential light-duty vehicle GHG standards based
on our work during 2007 under EO 13432. As noted previously, in
response to Massachusetts v. EPA and as required by EO 13432, prior to
EISA's passage, we coordinated with NHTSA and the Department of Energy
in developing approaches and options for a comprehensive near-term
program under the CAA to reduce GHG emissions from cars and light-duty
trucks.\125\ Results from this effort are discussed below and in a
Technical Support Document, ``Evaluating Potential GHG Reduction
Programs for Light Vehicles'' (referred to as the ``Light-duty Vehicle
TSD'' in the remainder of this notice).
---------------------------------------------------------------------------

    \125\ E.O. 13432 called on the agencies to, ``undertake such
regulatory action, to the maximum extent permitted by law and
determined by the head of the agency to be practicable, jointly with
other agencies.''
---------------------------------------------------------------------------

    The Light-duty Vehicle TSD represents EPA's assessment during 2007
of how a light-duty vehicle program for GHG emissions reduction under
the CAA might be designed and implemented in keeping with program
parameters (e.g., time frame, program structure, and analytical tools)
developed with NHTSA prior to enactment of EISA. In addition, the
Light-duty Vehicle TSD assesses the magnitude of the contribution of
light-duty vehicles to U.S. GHG emissions. It also addresses both
tailpipe CO2 emissions as measured by EPA tests used for
purposes of determining compliance with CAFE standards, and control of
other vehicular GHG emissions. These other emissions are not accounted
for if the regulatory focus is solely on CO2, and involve
greenhouse gases that have higher global warming potentials than
CO2. These emissions, as well as air-conditioning-related
CO2, are not measured by the existing EPA test procedure for
determining compliance with CAFE standards, so that there is no overlap
with control of these emissions and CAFE standards if these emissions
are controlled under the CAA. As described in the section VI.B.1.d of
this advance notice, these emissions account for 10 percent of light-
duty vehicle GHG emissions on a CO2 equivalent basis. They
include emissions of CO2 from air conditioning use and
emissions of HFCs from air conditioning system leaks. Technologies
exist which can reduce these emissions on the order of 40 to 75% (for
air conditioning efficiency improvements and HFC leakage control,
respectively), at an initial cost to the consumer of less than $110.
This initial cost would be more than offset by the reduced maintenance
and fuel savings due to the new technology over the life of the
vehicle. We also considered standards which would prevent future
increases in N2O and methane.
    Based on our work in 2007 pursuant to Executive Order 13432, EPA
developed two different analytical approaches which could be pursued
under the CAA for establishing light-duty vehicle CO2
standards. Both are attribute-based approaches, using vehicle footprint
(correlating roughly to vehicle size) as the attribute. Under either
approach, a CO2-footprint continuous function curve is
defined that establishes different CO2 emission targets for
each unique vehicle footprint. In general, the larger the vehicle
footprint, the higher (less stringent) the corresponding vehicle
CO2 emission target will be. Each manufacturer would have a
different overall fleet average CO2 emissions standard
depending on the distribution of footprint values for the vehicles it
sells. See Section VI.B.1.d and the Light-duty Vehicle TSD of this
Advance Notice for additional discussion of attribute-based standards
and other approaches (e.g., a non-attribute, or universal standard).
    One approach was based on a fixed percentage reduction per year in
CO2 emissions. We examined a 4% per year reduction in CO2 emissions,
reflecting the projected reductions envisioned by the President in his
20-in-10 plan in the 2007 State of the Union address and subsequent
legislative proposals . The other approach identified CO2 standards
which an engineering optimization model projects as resulting in
maximum net benefits for society (hereafter referred to as the ``model-
optimized'' approach). That approach uses a computer model developed by
the Department of Transportation Volpe Center called the CAFE Effects
and Compliance Model (the ``Volpe Model''). The Volpe Model was
designed by DOT as an analytical tool which could evaluate potential
changes in the stringency and structure of the CAFE program, and was
first used in DOT's 2006 rulemaking establishing CAFE standards for
model years 2008-2011 light-trucks.126 127
---------------------------------------------------------------------------

    \126\ See 66 FR 17566--Average Fuel Economy Standards for Light
Trucks Model Years 2008-2011.
    \127\ See ``CAFE Compliance and Effects Modeling System
Documentation, Draft, 1/26/07'' published by DOT, a copy of which is
available in the docket for this Advanced Notice.
---------------------------------------------------------------------------

    Using the fixed percentage reduction approach, projections
regarding technology feasibility, technology effectiveness, and lead-
time are critical as these are the most important factors in
determining whether and how the emission reductions required by a
future standard would be achieved. When using the model-optimized
approach, a larger set of inputs are critical, as each of these inputs
can have a significant impact in the model's projections as to the
future standard. These inputs include technology costs and
effectiveness, lead-time, appropriate discount rates, future fuel
prices, and the valuation of a number of externalities (e.g., criteria
air pollution improvements, GHG emission reductions, and energy
security). Although all of these factors are relevant under either
approach, there are major differences in the way this information is
used in each approach to develop and evaluate appropriate standards.
    EPA believes both of these approaches for establishing fleet-wide
average CO2 emissions standards are permissible, conceptually, under
section 202(a) of the Act. Section 202(a)(2) requires EPA to give
consideration to ``the cost of compliance'' for use of the technology
projected to be used to achieve the standards (``requisite
technology''). The model-optimized approach can be used in appropriate
circumstances to satisfy this requirement.\128\ The fixed percent per
year approach is broadly consistent with EPA's traditional means of
setting standards for mobile sources, which identifies levels of
emissions reductions that are technologically feasible at reasonable
cost with marginal emissions reduction benefits which may far outweigh
marginal program costs, without adverse impacts on safety and with
positive impacts on energy utilization, and which address a societal
need for reductions.\129\ Comparing and contrasting these approaches
with the model-optimized approach is one way to evaluate options for
appropriate standards under section 202(a). We request comment on these
approaches and whether one or the other is a more appropriate method
for EPA to consider future light-duty GHG standards under section 202
of the CAA. We also request comment on other potential approaches

EPA should consider, including the approach described in section
VI.B.1.a.
---------------------------------------------------------------------------

    \128\ See Husqvarna AB v. EPA, 254 F. 3d 195, 200 (D.C. Cir.
2001) (EPA reasonably chose not to use marginal cost-benefit
analysis to analyze standards [under the technology-forcing section
213 of the Act], where section 213 does not mandate a specific
method of cost analysis).
    \129\ See NRDC v. EPA, 655 F. 2d 318, 332-334 (D.C. Cir. 1981).
---------------------------------------------------------------------------

    During 2007, EPA, DOT's Volpe Center, and NHTSA expended a major
technical effort to make a series of significant enhancements to the
Volpe Model by reviewing and updating, where possible, many of the
critical inputs to the Model (e.g., cost reduction learning curves, the
number and estimated costs and effectiveness of potential CO2/mpg
control technologies), as well as making updates to the Model itself.
This technical work notably improved the Volpe Model. However, the
Volpe Model was designed specifically to analyze potential changes to
NHTSA's CAFE program, and there remained several aspects of the
analysis we conducted that did not reflect differences between EPA and
NHTSA statutory authorities, and we were not able to address these
aspects in 2007. As a result, our analysis tended to underestimate the
benefits and/or overestimate the costs of light-duty vehicle CO2
standards that could be established under the CAA. We discuss these
issues below.
    First, past NHTSA CAFE regulatory actions have generally had a
short-term focus (a 3-5 year timeframe), and NHTSA is currently
proposing more stringent CAFE standards for five model years, 2011-
2015, in keeping with its revised statutory authority, as discussed
above. In contrast, EPA's Title II authority permits EPA to set
standards over a significantly longer period of time as appropriate in
light of environmental goals, developing technologies, costs, and other
factors. A short-term focus can have a significant implication for the
technology assumptions which go into a standard-setting analysis.
    In our 2007 analysis, we assumed limited technology innovation
beyond what is known today, and did not include several commercially
available or promising technologies such as advanced lightweight
materials for all vehicle classes (several auto companies have recently
announced plans for large future reductions in vehicle weight), plug-in
hybrids, optimized ethanol vehicles, and electric vehicles. To the
extent such innovations penetrate the market over the next 10 years,
the societal benefits and/or decreased societal cost of CO2 standards
will be greater than what we projected. A short-term focus may yield a
more reliable short-term projection because it relies on available
technology and is less prone to uncertainties involved in projecting
technological developments and other variables over a longer term. The
trade-off is that such a focus may not stimulate the development of
advanced, low GHG-emitting technologies. For the auto industry,
significant technological advances have historically required many
years and large amounts of capital.
    Second, our 2007 analysis does not account for a series of
flexibilities that EPA may employ under the CAA to reduce compliance
costs, such as multi-year strategic planning, and credit trading and
banking. As mentioned previously, EPA has used many of these
flexibilities in its existing mobile source programs, and we would
attempt to include such flexibilities in any future EPA GHG standards
analysis.
    Third, under the CAA manufacturers traditionally choose to comply
instead of non-comply, since they cannot sell new vehicles unless they
receive a certificate of conformity from EPA that is based on a
demonstration of compliance. Under the penalty provisions of the CAA,
light-duty vehicle manufacturers may not pay a civil penalty or a fine
for non-compliance with the standards and still introduce their
vehicles into commerce. In our 2007 analysis, we assumed a number of
manufacturers would pay fees rather than comply with the analyzed
standards. This assumption resulted in a lower compliance cost
estimation and lower GHG benefits.
    Fourth, in our 2007 analysis, we did not reflect the difference in
carbon content between gasoline and diesel fuel. This difference has
not been germane to NHTSA's setting of CAFE standards, but it is
important to the GHG emissions reductions that different standards can
achieve. Therefore, our Light-duty Vehicle TSD analysis did not account
for the higher CO2 emissions which result from the use of a gallon of
diesel fuel compared to a gallon of gasoline (diesel fuel has a higher
carbon content than gasoline fuel), and we would address this issue in
any future EPA GHG standards analysis.
    As noted previously, our 2007 analysis relied upon the use of key
inputs concerning predictions of future technologies and fuel prices
and valuation of a number of externalities, such as the benefits of
climate change mitigation and improvements in energy security. The
information used for these key inputs can have a significant effect on
projections regarding the costs of a standard based on a fixed
percentage reduction or the level of a model-optimized standard. In the
analyses we present in this notice, we have generally taken an approach
similar to NHTSA's, although we have also used alternative values in
some cases to illustrate the impact from different, alternative values.
For example, to account for large uncertainties regarding the magnitude
of the marginal benefits of GHG emission reductions, we looked at
alternative approaches to valuing those benefits and developed a range
of values to capture the uncertainties. (See section III.G in this ANPR
for a discussion of GHG benefits issues and marginal benefits
estimates.)
    Another key, but uncertain, input is the future price of fuel.
Important for any analysis of fuel savings over a long time frame is an
adequate projection of future oil prices. Typically, EPA relies on
Annual Energy Outlook (AEO) forecasts made by the Energy Information
Agency. However, AEO forecasts in past decades have at times over-
predicted the price of oil, and more recently, with the rapid increase
in oil prices over the past several years, AEO forecasts have
consistently under-predicted near-term oil prices. In the Light-duty
Vehicle TSD analysis, we used the Energy Information Administration's
2007 AEO projections for future oil and fuel prices, which correspond
to a projected retail gasoline price of slightly more than $2 per
gallon in the 2010-2020 time period, while current gasoline fuel prices
are on the order of $3.50 to $3.80 per gallon or more. Since our
analyses are sensitive to the oil price used, this raised concerns
regarding the ability to accurately estimate fuel savings. In addition,
when using a model-optimized approach, this can have a significant
impact on the appropriate standard predicted by the model. For our
updated analysis (described in more detail below), however, we have
continued to use the AEO2007 forecasted fuel prices. The ``baseline''
for our Light-duty Vehicle TSD and updated analysis reflects
projections from the automotive manufacturers regarding future product
offerings which were developed by the manufacturers in late 2006
through the spring of 2007. The AEO2007 fuel price projections are more
representative of the fuel prices considered by the manufacturers when
they developed the baseline future product offerings used as an input
in the analysis.
    This approach has certain limitations. Given the large increases in
fuel price in the past year, most major automotive companies have since
announced major changes to their future product offerings, and these
changes are not represented in our analysis. However, the projection of
future product offerings (model mix and sales volume) is static in the
analysis we have performed, both for the baseline (projections with no
new standards) and in the control scenarios (projections

with the impact of new standards). Our analysis to date does not
account for a range of possible consumer and automaker responses to
higher fuel prices, higher vehicle prices and attribute-based standards
that could affect manufacturer market share, car/truck market share, or
vehicle model mix changes. EPA has initiated work with Resources for
the Future to develop a consumer choice economic model which may allow
us to examine the impact of consumer choice and varying fuel prices
when analyzing potential standard scenarios in the future, and to more
realistically estimate a future baseline. Higher fuel prices than those
predicted in AEO2007 can certainly have a large impact on the projected
costs and benefits of future light-duty GHG limits, and we will
continue to examine this issue as part of our on going work.
    We ask for comment on the relative importance of, and how best to
address, the various issues we have highlighted with our analysis of
potential light-duty vehicle GHG standards performed to date. In
particular, we seek comment on the feasibility and utility of
incorporating into the regulations themselves a mechanism for
correcting mistaken future projections or accomplishing the same
through a periodic review of the regulations.
    We now summarize the results from our 2007 analysis. Since 2007 we
have updated this analysis to address several of the issues noted
above, in order to evaluate the impact of these issues. EPA requests
comment on the two approaches we examined for setting standards, and
seeks input on alternative approaches, including the approach described
in section VI.B.1.a.
    In Table VI-1 we present weighted combined car and truck standards
we developed based on efforts to update the work we did in 2007 to
address some of the issues identified above. We show the results from
our 2007 analysis, as well as the updated results when we utilize the
same methodology for the 4% per year approach, but attempt to address a
number of the issues discussed above. As part of addressing these
issues, we have extended the time frame for our analysis to 2020, while
our Light-duty Vehicle TSD analysis was limited to 2018. Our updated
analysis results are documented in a separate technical memorandum
available in the public docket for this Advance Notice.\130\
---------------------------------------------------------------------------

    \130\ See EPA Technical Memorandum, ``Documentation of Updated
Light-duty Vehicle GHG Scenarios.''

 Table VI-1--Projected Vehicle CO2 (Gram/Mile Units) and MPG Standards (MPG Units in Square Brackets), Including
                                                 A/C CO2 Limits
----------------------------------------------------------------------------------------------------------------
                                                              Light-duty vehicle TSD analysis     Updated 2008
                                                           ------------------------------------     analysis
                           Year                                                                -----------------
                                                               4% per year     Model-Optimized     4% per year
----------------------------------------------------------------------------------------------------------------
2011......................................................        338 [26.3]        334 [26.6]        335 [26.5]
2012......................................................        323 [27.5]        317 [28.0]        321 [27.7]
2013......................................................        309 [28.8]        295 [30.1]        307 [28.9]
2014......................................................        296 [30.0]        287 [31.0]        293 [30.3]
2015......................................................        285 [31.2]        281 [31.6]        283 [31.4]
2016......................................................        274 [32.4]        275 [32.3]        272 [32.7]
2017......................................................        263 [33.8]        270 [32.9]        261 [34.0]
2018......................................................        253 [35.1]        266 [33.4]        251 [35.4]
2019......................................................               n/a               n/a        241 [36.9]
2020......................................................               n/a               n/a        232 [38.3]
----------------------------------------------------------------------------------------------------------------

    Compared to the Light-duty Vehicle TSD analysis, we have attempted
in the updated analysis to address for potential CAA purposes several,
but not all, of the noted issues, and as such we continue to believe
that the results of this analysis are conservative--that is, they tend
to overestimate the costs and/or underestimate the benefits. We have
included the following updates:

--Inclusion of plug-in hybrids as a viable technology beginning in
2012;
--Consideration of multi-year planning cycles available to
manufacturers;
--Consideration of CO2 trading between car and truck fleets
within the same manufacturer;
--Assumption that all major manufacturers would comply with the
standards rather than paying a monetary penalty;
--Correction of the CO2 reduction effectiveness for diesel
technology.

    Our updated analysis does not address all of the issues we
discussed previously. For example, we have not considered the
widespread use of lightweight materials, further improvements in the
CO2 reduction effectiveness of existing technologies,
potential for cost reductions beyond our 2007 analysis, and the
potential for new technologies. We also have not addressed the
potential changes in vehicle market shifts that may occur in the future
in response to new standards, new consumer preferences, or the
potential for higher fuel prices. Recent trends in the U.S. auto
industry indicate there may be a major shift occurring in consumer
demand away from light-duty trucks and SUVs and towards smaller
passenger cars.\131\ Such potential trends are not captured in our
analysis and they could have a first-order impact on the results.
---------------------------------------------------------------------------

    \131\ See ``As Gas Costs Soar, Buyers Are Flocking to Small
Cars'', New York Times, May 2, 2008, page A1.
---------------------------------------------------------------------------

    Table VI-2 summarizes the most important societal and consumer
impacts of the standards we have analyzed.

      Table VI-2--Summary of Societal and Consumer Impacts From Potential Light-Duty Vehicle GHG Standards
                                          [2006 $s, AEO2007 oil prices]
----------------------------------------------------------------------------------------------------------------
                                            Light-duty vehicle TSD analysis *             Updated 2008 analysis
                                  ------------------------------------------------------------------------------
                                          4% per year              Model-Optimized             4% per year
----------------------------------------------------------------------------------------------------------------
                                                Societal Impacts
----------------------------------------------------------------------------------------------------------------
GHG Reductions (MMTCO2 equivalent  378......................  343.....................  635
 in 2040).
Fuel Savings (million bpd in       2.3......................  2.0.....................  4.2
 2040).
Net Societal Benefits in 2040      $54 + B..................  $54 + B.................  $130 + B
 (Billion $s) **.
Net Present Value of Net Benefits
 through 2040 (Billion $s): **
    3% DR........................  $320 + B.................  $390 + B................  $830 + B
    7% DR........................  $120 + B.................  $160 + B................  $340 + B
----------------------------------------------------------------------------------------------------------------
                                                Consumer Impacts
----------------------------------------------------------------------------------------------------------------
Per-Vehicle Costs:
    2015.........................  $736.....................  $672....................  $565
    2018.........................  $1,567...................  $995....................  $1,380
    2020.........................  n/a......................  n/a.....................  $1,924
Payback Period: ***
    3% DR........................  6.2 yr. (2018)...........  4.8 yr. (2018)..........  6.0 yrs. (2020)
    7% DR........................  8.9 yr. (2018)...........  6.0 yr. (2018)..........  8.7 yrs. (2020)
Lifetime Monetary Impact: ***
    3% DR........................  $2,753 (2018)............  $2,245 (2018)...........  $1,630 (2020)
    7% DR........................  $1,850 (2018)............  $1,508 (2018)...........  $437 (2020)
----------------------------------------------------------------------------------------------------------------
* The Light-duty Vehicle TSD Societal Impacts are based on new stds. for 2011-2018 for cars and 2012-2017 for
  trucks, while the updated analysis is based on new stds. for 2011-2020 for cars and trucks.
** The identified ``B'' = unquantified benefits, for example, we have not quantified the co-pollutant impacts
  (PM, ozone, and air toxics), and does not include a monetized value for the social cost of carbon. Societal
  benefits exclude all fuel taxes because they represent transfer payments. In addition, for the updated
  analysis, we have not included the increased costs nor the GHG emissions of electricity associated with the
  use of plug-in electric hybrid vehicles. We have also not quantified the costs and/or benefits associated with
  changes in consumer preferences for new vehicles.
*** The payback period and lifetime monetary impact values for Light-duty Vehicle TSD analysis is for the
  average 2018 vehicle, and 2020 for the updated analysis.

    Given the current uncertainty regarding the social cost of carbon,
Table VI-2 does not include a monetized value for the reduction in GHG
emissions. We present here a number of different values and indicate
what impact they would have on the net social benefits for our updated
analysis. Presentation of these values does not represent, and should
not be interpreted to represent, any determination by EPA as to what
the social cost of carbon should be for purposes of calculating
benefits pursuant to the Clean Air Act.
    We have analyzed the valuation for the social cost of carbon of $40
per metric ton (for emission changes in year 2007, in 2006 dollars,
grown at a rate of 3% per year) that reflects potential global,
including domestic, benefits of climate change mitigation. This
valuation (which is the mean value from a meta analysis of global
marginal benefits estimates for a 3% discount rate discussed in section
III.G. of this Advance Notice) would result in an increase in the 2040
monetized benefits for the 2008 updated analysis of $67 billion. Given
the nature of the investment in GHG reductions, we believe that values
associated with lower discount rates should also be considered. For
example, for a 2% discount rate for year 2007, the mean value from the
meta analysis is $68 per metric ton. This valuation would result in an
increase in the 2040 monetized benefits for the 2008 updated analysis
of $110 billion.
    As discussed in section III.G, another approach to developing a
value for the social cost of carbon is to consider only the domestic
benefits of climate change mitigation. The two approaches--use of
domestic or global estimates--are discussed in section III.G of this
notice. There is considerable uncertainty regarding the valuation of
the social cost of carbon, and in future analyses EPA would likely
utilize a range of values (see section III.G).\132\ Furthermore,
current estimates are incomplete and omit a number of impact categories
such that the IPCC has concluded that current estimates of the social
cost of carbon are very likely to underestimate the benefits of GHG
reductions.
---------------------------------------------------------------------------

    \132\ Ranges better reflect the available scientific information
and the uncertainties in marginal benefits estimates, and the fact
that there are estimates well above the means. The corresponding
ranges for the 2007 mean estimates discussed above are the
following: For the meta-analysis global marginal benefits estimates,
the range is $-4 to $106 per metric ton CO2 based on a 3
percent discount rate, or $-3 to $159 per metric ton CO2
based on a 2 percent discount rate. The preliminary domestic ranges
derived from a single model are $0 to $5 per metric ton
CO2 based on a 3 percent discount rate, and $0 to $16 per
metric ton CO2 based on a 2 percent discount rate.
---------------------------------------------------------------------------

    This Advance Notice asks for comment on the appropriate value or
range of values to use to quantify the benefits of GHG emission
reductions, including the use of a global value. While OMB Guidance
allows for consideration of international effects, it also suggests
that the Agency consider domestic benefits in regulatory analysis.
Section III.G.4 discusses very preliminary ranges for U.S. domestic
estimates with means of $1 and $4 per metric ton in 2007, depending on
the discount rate. These valuations ($1 and $4 per metric ton in 2007)
would result in an increase in the 2040 monetized benefits for the 2008
updated analysis of $1.7-6.7 billion. In its recent proposed
rulemaking, NHTSA utilized $7 per metric ton as the initial value for
U.S. CO2 emissions in 2011.
    Table VI-2 shows the impact of addressing a number of the issues
noted

above. With respect to per-vehicle costs, the updated 4% per year
approach shows a $171 per vehicle lower cost in 2015 and a $187 per
vehicle lower cost in 2018 compared to our 2007 analysis, for a
slightly more stringent standard in both cases. This is primarily due
to the impact of including multi-year planning and car-truck trading
within a given manufacturer.
    The estimated CO2 reductions in 2040 from the updated
analysis are much larger than the 2007 analysis (by nearly a factor of
2). This occurs primarily because we have addressed the diesel
CO2 issue noted above, and because we have extended the time
frame for the analyzed standards to 2020. The estimated fuel savings
are also larger primarily due to the additional years we extended the
4% per year standard to. The estimated monetized net benefits for the
updated analysis are also significantly higher than our previous
estimates. This is a result of a combination of factors: lower
estimates for the increased vehicle costs due to multi-year planning
and within manufacturer car-truck trading; and the extension of the
analyzed standards to 2020.
    Table VI-2 also provides estimates of ``payback period'' and
``lifetime monetary impact''. The payback period is an estimate of how
long it will take for the purchaser of the average new vehicle to
break-even; that is, where the increased vehicle costs is off-set by
the fuel savings. Our updated analysis shows for the average 2020
vehicle that period of time ranges from 6.0 to 8.7 years (depending
upon the assumed discount rate). The lifetime monetary impact provides
an estimate of the costs to the consumer who owns a vehicle for the
vehicle's entire life. The lifetime monetary impact is simply the
difference between the higher initial vehicle cost increase and the
lifetime, discounted fuel savings. Our updated analysis indicates the
lifetime, discounted fuel savings will exceed the initial cost increase
substantially. As shown in the table, the positive lifetime monetary
impact ranges from about $440 to $1,630 per vehicle (depending upon the
assumed discount rate). Section VI.C.2 of the Light-duty Vehicle TSD
discusses possible explanations for why consumers do not necessarily
factor in these fuel savings in making car-buying decisions.
    Our updated analysis projects the 2020 CO2 limit of 232
gram/mile (38.3 mpg) shown in Table VI-1, could be achieved with about
33% of the new vehicle fleet in 2020 using diesel engines and full
hybrid systems (including plug-in electric hybrid vehicles). Higher
penetrations of these and other advanced technologies (including for
example the wide-spread application of light-weight materials) could
result in a much greater GHG reductions.
    The results of our updated analysis indicate that:

    --Technology is readily available to achieve significant reductions
in light-duty vehicle GHG emissions between now and 2020 (and beyond);
    --The benefits of these new standards far outweigh their costs;
    --Owners of vehicles complying with the new standard will recoup
their increased vehicle costs within 6-9 years, and;
    --New standards would result in substantial reductions in GHGs.

    We request comment on all aspects of this analysis, the
appropriateness of the two approaches described, and the inputs and the
tools that we utilized in performing the assessment, when considering
the setting of light-duty vehicle GHG standards under the CAA. We also
request comment on the alternative approach for establishing light-duty
vehicle GHG standards described in section VI.B.1.a of this advance
notice.
c. Technologies Available To Reduce Light-Duty Vehicle GHGs
    In this section we discuss a range of technologies that can be used
to significantly reduce GHG emissions from cars and light trucks. We
discuss EPA's assessment of the availability of these technologies,
their readiness for introduction into the market, estimates of their
cost, and estimates of their GHG emission reduction potential. We
request comment on all aspects of our current assessment, including
supporting data regarding technology costs and effectiveness.
    In the past year EPA undertook a comprehensive review of
information in the literature regarding GHG-reducing technologies
available for cars and light trucks. In addition, we reviewed
confidential business information from the majority of the major
automotive companies, and we met with a large number of the automotive
companies as well as global automotive technology suppliers regarding
the costs and effectiveness of current and future GHG-reducing
technologies. EPA also worked with an internationally recognized
automotive technology firm to perform a detailed assessment of the GHG
reduction effectiveness of a number of advanced automotive
technologies.\133\
---------------------------------------------------------------------------

    \133\ See ``A Study of Potential Effectiveness of Carbon Dioxide
Reducing Vehicle Technologies'', Ricardo, Inc., EPA Report 420-R-08-
004a, June 2008.
---------------------------------------------------------------------------

    EPA recently published a Staff Technical Report describing the
results of our assessment, and we provided this report to the National
Academy of Sciences Committee on the Assessment of Technologies for
Improving Light-Duty Vehicle Fuel Economy.\134\ This Staff Technical
Report details our estimates of the costs and GHG reduction potential
of more than 40 technologies applicable to light-duty vehicles, and is
one of the key inputs to our analysis of potential future standards
presented in Section VI.B.1.b. These technologies span a large range of
effectiveness and technical availability, from technologies as simple
as reduced rolling resistance tires (offering a 1-2% reduction in
vehicle CO2 emissions) to advanced powertrain systems like
gasoline and diesel hybrids, plug-in electric hybrids, and full
electric vehicles (offering up to a 100% reduction in vehicle
CO2 emissions).
---------------------------------------------------------------------------

    \134\ See ``EPA Staff Technical Report: Cost and Effectiveness
Estimates of Technologies Used to Reduce Light-duty Vehicle Carbon
Dioxide Emissions'', EPA Report 420-R-08-008, March 2008.
---------------------------------------------------------------------------

    The majority of the technologies we investigated are in production
and available on vehicles today, either in the United States, Japan or
Europe. Over the past year, most of the major automotive companies or
suppliers have announced the introduction of new technologies to the
U.S. market. The following are some recent examples:

--Ford's new ``EcoBoost'' turbocharged, down-sized direct-injection
gasoline engines;
--Honda's new 2009 global gasoline hybrid and 2009 advanced diesel
powertrain;
--Toyota and General Motors plans for gasoline plug-in hybrid systems
within the next two to three years;
--General Motors breakthroughs in lower-cost advanced diesel engines;
--Nissan's 2010 introduction of a clean diesel passenger car;
--Chrysler's widespread use of dual-clutch automated manual
transmissions beginning in 2009; and,
--Mercedes' new product offerings for clean diesel applications as well
as diesel-electric hybrid technologies.

    We also evaluated the costs and potential GHG emissions reductions
from some of the advanced systems not currently in production or that
are only available in specialty niche vehicles, such as gasoline
homogeneous charge compression ignition engines, camless valve
actuation systems, hydraulic hybrid powertrains, and full electric

vehicles. These technologies are described in detail, along with our
estimates for costs and GHG reduction potential, in our Staff Technical
Report.
    An additional area where we see opportunities for significant
CO2 emissions reduction is in material weight substitution.
The substitution of traditional vehicle materials (e.g., steel, glass)
with lighter materials (e.g., aluminum, plastic composites) can provide
substantial reductions in CO2 emissions while maintaining or
enhancing vehicle size, comfort, and safety attributes. Several
companies have recently announced plans to utilize weight reduction as
a means to improve vehicle efficiency while meeting all applicable
safety standards.\135\ We request data and comment on the extent to
which material substitution should be considered as a means to reduce
GHG emissions, and information on the costs and potential scope of
material substitution over the next 5 to 20 years.
---------------------------------------------------------------------------

    \135\ See Automotive News, February 11, 2008, in which Daimler-
Benz CEO states that Mercedes-Benz will reduce the weight of all new
vehicle models by 5%, and Ford announces every model will lose
between 250 and 750 pounds.
---------------------------------------------------------------------------

    Finally, we note that in the past 30 years there has been a steady,
nearly linear increase in the performance of cars and light trucks. We
estimate that the average new vehicle sold in 2007 had a 0-60 miles/
hour acceleration time of 9.6 seconds--compared to 14.1 seconds in
1975.\136\ If this historic trend continues, by 2020 the average 0-60
acceleration for the combined new car and truck fleet will be less than
8 seconds. During the past 20 years, this increase in acceleration has
been accompanied by a gradual increase in vehicle weight. It is
generally accepted that over the past 20 years, while fuel economy for
the light-duty fleet has changed very little, the fuel efficiency has
in fact improved but has largely been used to enable increases in both
the weight and the performance of vehicles. We request comment on how
we should consider the potential for future changes in vehicle weight
and performance (e.g., acceleration time) in assessing the costs and
benefits of standards for reducing GHG emissions.
---------------------------------------------------------------------------

    \136\ See ``Light-Duty Automotive Technology and Fuel Economy
Trends: 1995-2007'', EPA Report EPA420-R-07-008, September 2007.
---------------------------------------------------------------------------

d. Potential Options for Reducing HFCs, N2O, CH4,
and Air Conditioning-Related CO2
    As described above, in addition to fleet average and in-use
CO2 standards, EPA has analyzed how new control measures
might be developed for other car and light truck emissions that have
global warming impacts: air conditioning (``A/C'')-related emissions of
HFCs and CO2, and tailpipe emissions of nitrous oxide
(N2O), and methane (CH4). Under CAA section
202(a), EPA may regulate these emissions if a positive endangerment
finding is made for the relevant GHGs. Together, these emissions
account for about 10% of greenhouse gases from light-duty cars and
trucks (on a CO2 equivalent basis). The direct HFC emissions
account for 4.3%, while the A/C CO2 emissions are 3.1%.
N2O and CH4 account for 2.7% and 0.2%
respectively. With regard to air conditioning-related emissions,
significant opportunity exists to reduce HFC emissions from refrigerant
leakage and CO2 from A/C induced engine loads, and EPA has
considered potential standards to reduce these emissions. In addition,
EPA has considered potential limits for N2O and
CH4 emissions that could apply to both cars and light trucks
that would limit future growth of these emissions.
i. Potential Controls for Air Conditioning-Related GHG Emissions
    Over 95% of the new cars and light trucks in the U.S. are equipped
with A/C systems. There are two mechanisms by which A/C systems
contribute to the emissions of GHGs. The first is through direct
leakage of the refrigerant (currently the HFC compound R134a) into the
air. Based on the higher GWP of HFCs, a small leakage of the
refrigerant has a greater global warming impact than a similar amount
of emissions of other mobile source GHGs. Leakage can occur slowly
through seals, gaskets, hose permeation and even small failures in the
containment of the refrigerant, or more quickly through rapid component
deterioration, vehicle accidents or during maintenance and end-of-life
vehicle scrappage (especially when refrigerant capture and recycling
programs are less efficient). The leakage emissions can be reduced
through the choice of leak-tight, durable components, or the global
warming impact of leakage emissions can be addressed through the
implementation of an alternative refrigerant. Refrigerant emissions
during maintenance and at the end of the vehicle's life (as well as
emissions during the initial charging of the system with refrigerant)
are already addressed by the CAA Title VI stratospheric ozone
protection program, as described in section VIII of this notice.\137\
---------------------------------------------------------------------------

    \137\ The second mechanism by which vehicle A/C systems
contribute to GHG emissions is through the consumption of excess
fuel when the A/C system is running, and from carrying around the
weight of the A/C system hardware all-year round. This excess fuel
required to run the system is converted into CO2 by the
engine during combustion. This excess CO2 from A/C
operation can thus be reduced by increasing the efficiency of the
overall vehicle-A/C system.
---------------------------------------------------------------------------

    EPA's analysis indicates that together, these A/C-related emissions
account for about 7.5% of the GHG emissions from cars and light trucks.
EPA considered standards designed to reduce direct leakage emissions by
75% and to reduce the incremental increase of A/C related
CO2 emissions by 40% in model year 2015 vehicles, phasing in
starting in model year 2012. It is appropriate to separate the
discussion of these two categories of A/C-related emissions because of
the fundamental differences in the emission mechanisms and the methods
of emission control. Refrigerant leakage control is akin in many
respects to past EPA fuel evaporation control programs in that
containment of a fluid is the key control feature, while efficiency
improvements are more similar to the vehicle-based control of
CO2 in that they would be achieved through specific hardware
and controls.
    The Memo to the Docket, ``Light-Duty Vehicle Hydrofluorocarbon,
Nitrous Oxide, Methane, and Air Conditioning-Related Carbon Dioxide
Emissions'' provides a more detailed discussion of the air
conditioning-related GHG emissions, both refrigerant leakage and
CO2 emissions from A/C use, as well as potential test
procedure and compliance approaches that have been considered by EPA.
ii. Feasibility of Potential A/C Reduction Approaches
    EPA believes that significant reductions in A/C HFC leakage and A/C
CO2 emissions would be readily technically feasible and
highly cost effective. The types of technologies and methods that
manufacturers could use to reduce both types of A/C emissions are
commercially available and used today in many models of U.S. cars and
light trucks. For example, materials and components that reduce leakage
as well as electronic monitoring systems have been used on various
vehicles in recent years. Regarding A/C CO2 reduction, such
technologies as variable-displacement compressors and their controls
are also in use today. Although manufacturers might find that more
advanced technologies, like alternate refrigerants, become economically
attractive in the coming years, EPA believes that currently available
technologies and systems designs would

be sufficient to meet potential limits being assessed by EPA.
iii. Potential Impacts of Requiring Improved A/C Systems
(1) Emission Reductions for Improved A/C Systems
    Manufacturers producing cars and light trucks for the U.S. market
have not historically had economic or regulatory incentives or
requirements to reduce refrigerant leakage and CO2 from A/C
systems. As a result, there is an opportunity for significant
reductions in both of these types of emissions. With potential
standards like the ones considered above, EPA has estimated that
reductions in HFC refrigerant leakage, converted to CO2
equivalent emissions, and added to projected A/C CO2
reductions, these limits would result in an average per-vehicle
reduction in CO2-equivalent emissions of about 4.7%
(excluding CH4 and N2O from the baseline). This
reduction is equivalent to about 7.5% of light vehicle CO2-
equivalent emissions, or about 2 tons per year.
(2) Potential Costs for Improved A/C Systems
    Although the technologies and system designs EPA expects could be
used to comply with the two A/C related standards being considered are
currently available, not all manufacturers are using them on all
vehicles. Thus, the industry would necessarily incur some costs to
apply these technologies more broadly across the car and truck fleet.
EPA estimates that the cost of meeting the full HFC leakage standard it
is considering would average about $40 per vehicle (retail price
equivalent or RPE) and that the cost of meeting the A/C CO2
standard would be about $70 per vehicle (RPE). At the same time,
complying with such limits would result in very significant savings in
fuel costs (as system efficiency improves) and in A/C-related
maintenance costs (as more durable systems result in less frequent
repairs). In fact, EPA's analysis shows that these cost savings would
significantly exceed projected retail costs of the potential A/C
standards, more than offsetting the costs of both types of A/C system
improvements.\138\
---------------------------------------------------------------------------

    \138\ See Appendix 3.B. of the EPA Technical Memorandum
``Documentation of Updated Light-duty Vehicle GHG Scenarios'' for a
detailed discussion of these costs estimates.
---------------------------------------------------------------------------

iv. Potential Interaction With Title VI Refrigerant Regulations
    As described further in Section VIII of this notice, Title VI of
the CAA deals with the protection of stratospheric ozone. Section 608
of the Act establishes a comprehensive program to limit emissions of
certain ozone-depleting substances (ODS) from appliances and
refrigeration. The rules promulgated under section 608 regulate the use
and disposal of such substances during the service, repair or disposal
of appliances and industrial process refrigeration. In addition,
section 608 and the regulations promulgated under it prohibit the
knowingly venting or releasing ODS during the course of maintaining,
servicing, repairing or disposing of an appliance or industrial process
refrigeration equipment. Section 609 governs the servicing of motor
vehicle air conditioners (MVACs). The regulations promulgated under
section 609 (40 CFR part 82, subpart B) establish standards and
requirements regarding the servicing of MVACs. These regulations
include establishing standards for equipment that recovers and recycles
or only recovers refrigerant (CFC-12, HFC 134a, and for blends only
recovers) from MVACs; requiring technician training and certification
by an EPA-approved organization; establishing recordkeeping
requirements; imposing sales restrictions; and prohibiting the venting
of refrigerants.
    Another Title VI provision that could interact with potential Title
II motor vehicle regulation of GHGs is section 612, which requires EPA
to review substitutes for ozone depleting substances and to consider
whether such substitutes would cause an adverse effect to human health
or the environment as compared with other substitutes that are
currently or potentially available. EPA promulgated regulations for
this program in 1992 and those regulations are located at 40 CFR part
82, subpart G. When reviewing substitutes, in addition to finding them
acceptable or unacceptable, EPA may also find them acceptable so long
as the user meets certain use conditions. For example, all motor
vehicle air conditioning system must have unique fittings and a
uniquely colored label for the refrigerant being used in the system.
    EPA views the potential program analyzed here as complementing
these Title VI programs, and not conflicting with them. The potential
standards would apply at pre-production when manufacturers demonstrate
that they are utilizing requisite equipment (or utilizing other means
designated in the potential program) to achieve the suggested 75% leak
reduction requirement. These requirements would dovetail with the Title
VI section 609 standards which apply to maintenance events, and to end-
of-vehicle life disposal. In fact, as noted, a benefit of a program is
that there could be fewer and less impactive maintenance events for
MVACs, since there would be less leakage. In addition, although the
suggested standards would also apply in-use, the means of enforcement
should not conflict (or overlap) with the Title VI section 609
standards. EPA also believes the menu of leak control technologies
described above would complement the section 612 requirements because
these control technologies would help ensure that 134a (or other
refrigerants) would be used in a manner that would further minimize
potential adverse effects on human health and the environment.
v. Potential Controls for Nitrous Oxide Emissions
    Nitrous oxide, or N2O, is emitted from gasoline and
diesel car and light truck tailpipes and is generated during specific
catalyst warm-up temperature conditions conducive to N2O
formation. While N2O emissions from current Tier 2 vehicles
with conventional three-way catalysts are relatively low on a mass
basis (e.g., around 0.005 g/mi), N2O does have a high GWP of
310. N2O is a more significant concern with diesel vehicles
(and potentially future gasoline lean-burn engines) equipped with
advanced catalytic NOX emissions control systems. These
systems can (but need not) be designed in a way that emphasizes
efficient NOX control while allowing the formation of
significant quantities of N2O. Excess oxygen present in the
exhaust during lean-burn conditions in diesel (or lean-burn gasoline)
engines equipped with these advanced systems can favor N2O
formation if catalyst temperatures are not carefully controlled.
Without specific attention to controlling N2O emissions in
the development of such new NOX control systems, vehicles
could have N2O emissions many times greater than are emitted
by current gasoline vehicles.
    EPA has considered a ``cap'' approach to controlling N2O
emissions would not require any new technology for current Tier 2
gasoline vehicles, but would limit any increases in N2O
emissions that might otherwise occur with future technology vehicles.
Such an approach would have minimal feasibility, emissions, or cost
impacts.
    The Memo to the Docket, ``Light-Duty Vehicle Hydrofluorocarbon,
Nitrous Oxide, Methane, and Air Conditioning-Related Carbon Dioxide
Emissions'' has more in-depth discussion of car and light truck
N2O emissions, as well as of potential test procedure and
compliance

approaches that have been considered by EPA.
vi. Potential Controls for Methane Emissions
    Methane, or CH4, is emitted from gasoline and diesel car
and light truck tailpipes and is one of the family of hydrocarbon
compounds generated in the engine as a by-product of gasoline and
diesel fuel combustion. As such, levels of CH4 emissions
have been somewhat controlled by the lower hydrocarbon emissions
standards that have been phased in since the early 1970s. Current
CH4 emissions from Tier 2 gasoline vehicles are relatively
low (about 0.017 g/mi on average), and CH4 has a global
warming potential of 23. The one technology where much higher
CH4 emissions could be of concern would be natural gas-
fueled vehicles, since CH4 is the primary constituent of
natural gas fuel and would be the largest component of unburned fuel
emissions.
    As with N2O, EPA has considered a ``cap'' CH4
emissions standard approach that would not require any new technology
for current Tier 2 gasoline vehicles, but would limit any increases in
CH4 emissions that might otherwise occur with future natural
gas vehicles. Such an approach would have no significant feasibility,
emissions, or cost impacts.
    The Memo to the Docket, ``Light-Duty Vehicle Hydrofluorocarbon,
Nitrous Oxide, Methane, and Air Conditioning-Related Carbon Dioxide
Emissions'' has greater discussion of car and light truck
CH4 emissions.
e. Specific Programmatic Design Issues
    As discussed above, Title II of the CAA provides the Agency with
both direction and flexibility in designing and implementing a GHG
control program. Consistent with existing motor vehicle programs, the
Agency would need to develop appropriate mechanisms to address issues
such as certification of new motor vehicles to applicable standards,
ensuring the emissions requirements are being met throughout the
designated useful life of the vehicle, and appropriate compliance
mechanisms if the requirements are not being met. Domestic and imported
vehicles and engines subject to emissions standards must obtain a
certificate of conformity in order to be sold in the U.S. marketplace.
EPA has utilized a wide range of program design tools and compliance
mechanisms to help address the large variation of market participants
yet still provide a level regulatory playing field for these parties.
As part of the design effort for a GHG program, it would be appropriate
to take into account these flexibilities as well as existing
requirements that the automobile and engine industries already face in
order to help reduce compliance costs if possible while still
maintaining our overall environmental objectives. However, given the
nature of GHG control, it would also be appropriate to determine if new
design structures and compliance measures might be more effective.
    The Light-duty Vehicle TSD includes a discussion of a wide range of
programmatic and technical issues and presents potential approaches
that would address these issues in the design of a comprehensive near-
term light-duty vehicle GHG control program. We highlight here a few of
these issues, and point the reader to the Light-duty Vehicle TSD for
additional detail. Among the issues discussed in the Light-duty Vehicle
TSD are several which could differ significantly under a different
approach. EPA specifically requests comment on these issues:

--Potential classification approaches for light-duty vehicles (e.g.,
treating cars and light trucks in a single averaging class or separate,
and the potential classification of vehicle types as either a passenger
car or a light truck);
--How any classification approaches would relate to NHTSA's regulatory
approach;
--The significant flexibilities allowed under Title II which we utilize
for existing criteria pollutant standards for light-duty vehicles,
including detailed concepts for a GHG averaging, banking, and trading
program;
--Potential light-duty GHG compliance program concepts.

    As we have considered various potential light-duty vehicle GHG
approaches, significant thought and stakeholder outreach went into
designing a potential system for determining compliance that would meet
Agency and industry needs and goals. The Light-duty Vehicle TSD
presents a compliance structure for vehicle GHG control that adheres to
CAA requirements and at the same time is compatible with the existing
CAFE program. However, this is not the only approach to compliance, as
is discussed in the Light-duty Vehicle TSD. Other compliance approaches
could also be considered, each with their own advantages. For example,
a GHG compliance program patterned after the Tier 2 light duty vehicles
emissions program offers an approach that is more similar to the
existing compliance structure for other pollutants.
    We discuss below in detail three specific issues regarding
potential future light-duty vehicle GHG programmatic issues: universal
and attribute-based standards; environmental backstop standards; and
tailpipe CO2 test cycles.
i. Universal and Attribute-Based Vehicle GHG Standard Approaches
    A specific programmatic issue that EPA would like to highlight here
is the use of attribute-based standards for vehicle GHG standards, and
the concept of an environmental backstop to accompany an attribute-
based standard promulgated under the CAA, in order to assure that GHG
emission reductions which are feasible at reasonable cost under section
202(a) are not foregone. A CAA program for reducing GHG emissions from
light vehicles could set the average emissions standards for
manufacturers in one of two fundamental ways. A ``universal'' GHG
standard would apply a single numerical requirement to each
manufacturer, to be met on average across its entire light-duty vehicle
production. One potential consequence of the universal approach is that
the costs of compliance may fall unevenly on different manufacturers.
That is, complying with a single standard would be more difficult for
companies with current product mixes weighted relatively heavily toward
vehicles with higher compliance costs.
    The other approach EPA has considered would set individual
standards for each manufacturer, based on one or more vehicle
attributes (such as the footprint attribute approach currently used by
NHTSA). Thus, to the extent a manufacturer produced vehicles with
different attributes from the vehicles of another manufacturer; unique
standards would be set for each company. The Light-duty Vehicle TSD
discusses various vehicle attributes on which light duty vehicle
CO2 standards could be based. EPA requests comment on the
use of an attribute-based approach, and on each of the attributes
considered in the Light-duty Vehicle TSD, as well as on a universal
standard approach. In addition, some in the industry have suggested
power-to-weight ratio may be an appropriate attribute for this purpose,
and we request comment on that attribute as well.
    A key characteristic of any attribute-based program is that
significant industry shifts in the attribute over time would increase
or decrease the average emission performance requirement for the fleet.
For example, if such a shift in attributes resulted in the unique
manufacturer standards being on

average less stringent than those determined to be feasible and cost-
effective in the establishment of the program, the program would fall
short of those overall emissions reductions, and conversely, market
shifts could also result in larger emissions reductions than those
determined to be feasible and cost-effective at the time the program
was established. EPA seeks comment on the universal approach as
compared to the attribute-based approach.
ii. Concepts for Light-Duty Vehicle GHG Environmental Backstops
    In order to limit the potential loss of feasible emissions control
due to a change in market attributes, EPA could consider a supplemental
``backstop'' carbon dioxide emissions standard for each year (also
referred to as an ``anti-backsliding'' provision) as a complement under
the CAA to an attribute-based standard. This would be an additional
obligation for manufacturers that would limit the maximum fleet average
carbon dioxide emissions, independent of attributes. The backstop
requirement could establish fixed minimum and feasible fleet average
CO2 g/mile standards. The backstop would apply separately to
the domestic car, import car, and truck classes. This backstop
obligation may not apply to small volume manufacturers. While EPA will
quantitatively describe one specific backstop concept below, we are
seeking public comment on a range of alternative approaches described
qualitatively below, briefly, as well. More generally, EPA seeks
comment as to whether a backstop approach would be appropriate under
the CAA as a means of providing greater emission reduction certainty.
    A backstop could be an appropriate complement under the CAA to an
attribute-based standard. The most important factor under section
202(a) of the Act is to ensure reductions of the emissions from the
motor vehicle sector which cause or contribute to the endangerment
caused by greenhouse gas emissions. As discussed earlier, one important
feature of an attribute-based program is that collective decisions by
consumers and manufacturers could result in higher or lower industry-
wide average footprint values than projected by EPA at the time of
promulgation. Since the attribute-based curve establishes a fleet
average for a manufacturer based on the manufacturer's sales and
attribute values, the actual reductions achieved by the program could
vary as this mix varies. In the extreme, if the entire industry moved
to much higher attribute values, then the carbon dioxide emissions
reductions could be significantly less than projected by EPA as
technically feasible and cost effective.
    Under section 202(a), EPA could consider a supplemental fleet
average backstop standard that would be the same for every manufacturer
in a given year. Such a standard would ensure that a minimum level of
reductions would be achieved as the fleet mix changes over time. EPA
could base such a standard on feasible carbon dioxide emission
reductions and other important factors such as technological
feasibility, cost, energy, and safety in analyzing section 202(a)
standards. EPA recognizes that a CO2 emissions backstop
could partially reduce the flexibility and market elements of an
attribute-based approach, but believes it could be needed to provide
for an appropriate degree of emissions reduction certainty.
    As with other structural issues such as universal versus attribute-
based approaches, EPA believes that various backstop approaches have
conceptual advantages and disadvantages with respect to relevant
criteria such as certainty of industry-wide carbon dioxide emissions
reductions, flexibility with respect to consumer choice and vehicle
offerings, varying treatment of automakers, and complexity of
explanation and implementation. Any approach would also need to address
the relevant factors, including cost (economic feasibility, cost
effectiveness, and per vehicle cost) and technological feasibility. EPA
encourages commenters to evaluate the design approaches presented
below, as well as to suggest alternative approaches, in terms of these
and other relevant criteria.
    As an illustrative example, Table VI-3 shows one set of fleet
average carbon dioxide emissions and mpg backstops, along with the
projected, average industry-wide carbon dioxide emissions and mpg
compliance levels, for the two sets of fleet average carbon dioxide
emissions standards based on the footprint attribute, analyzed in
December 2007, and discussed earlier in this advance notice: The 4% per
year and model-optimized scenarios. These carbon dioxide emissions
backstops are based on the projected fleet average carbon dioxide
emissions compliance levels for the high-volume car and light truck
manufacturers with the highest projected car and light truck footprint
levels, based on the footprint curves that were developed by EPA in
December 2007. Chrysler is the high-volume car manufacturer with the
highest projected footprint values, and General Motors has the highest
projected footprint values among the high-volume truck manufacturers.
    These backstops would be universally applied to every manufacturer,
except small volume manufacturers, and would become the effective fleet
average standard for any automaker that would otherwise have a higher
fleet average carbon dioxide emissions standard, for any of the three
respective averaging sets (import and domestic cars and trucks), based
on the footprint curve.
    The underlying rationale for this backstop approach is that the
manufacturer that is projected to sell the highest footprint vehicles,