might elect to pay in lieu of achieving compliance with CAFE standards,
we report cost increases as estimated average increases in vehicle
price (as MSRP). These are average values, and the agency does not
expect that the prices of every vehicle would increase by the same
amount; rather, the agency's underlying analysis shows unit costs
varying widely between different vehicle models. For example, a small
SUV that replaces an advanced internal combustion engine with a plug-in
hybrid system may incur additional production costs in excess of
$10,000, while a comparable SUV that replaces a basic engine with an
advanced internal combustion engine incurs a cost closer to $2,000.
While we recognize that manufacturers will distribute regulatory costs
throughout their fleet to maximize profit, we have not attempted to
estimate strategic pricing, having insufficient data (which would
likely be confidential business information (CBI)) on which to base
such an attempt. To provide an indication of potential price increases
relative to today's vehicles, we report increases relative to the
market forecast using technology in the MY 2020 fleet--the most recent
actual fleet for which we have information sufficient for use in our
analysis. We provide results starting in MY 2023 in part to illustrate
the cost impacts in the first model year that we believe manufacturers
might actually be able to change their products in preparation for
compliance with standards in MYs 2024-2026.
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[GRAPHIC] [TIFF OMITTED] TP03SE21.185

    Relative to current vehicles (again, as represented here by
technology in the MY 2020 fleet, the most recent for which NHTSA has
adequate data), NHTSA judges these cost increases to be significant,
but not impossible for the market to bear. Cost increases will be
partially offset by fuel savings, which consumers will experience
eventually, if not concurrent with the upfront increase in purchase
price. And as discussed previously, nearly every manufacturer has
already indicated their intent to continue introducing advanced
technology vehicles between now and MY 2026. Again, NHTSA believes that
manufacturers introduce new vehicles (and technologies) expecting that
there is a market for them--if not immediately, then in the near
future. For-profit companies cannot afford to lose money indefinitely.
This trend suggests that manufacturers believe that at least some cost
increases should be manageable for consumers.
    Relative to the Preferred Alternative, however, NHTSA notes
significant further cost increases for several major manufacturers
under Alternative 3. Table VI-11 and Table VI-12 show additional
technology costs estimated to be incurred under Alternative 3 as
compared to the Preferred Alternative.

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[GRAPHIC] [TIFF OMITTED] TP03SE21.187

    For example, Honda's light truck fleet appears to hit an inflection
point in cost where much more aggressive technology application is
required in order to comply with Alternative 3. In general, light truck
fleets appear to be pressed harder to comply with Alternative 3 than
passenger car fleets across the industry. For example, Ford's passenger
car compliance costs are estimated to increase minimally between
Alternative 2 and Alternative 3, but light truck compliance costs
increase by over 40 percent (in most years). A number of other
manufacturers are pushed in both

fleets (Honda, Toyota, and Kia, for example), and make significant
additional investments in fuel economy technology to reach compliance
with the standards in Alternative 3.
    Changes in costs for new vehicles are not the only costs that NHTSA
considers in balancing the statutory factors--fuel costs for consumers
are relevant to the need of the U.S. to conserve energy, and NHTSA
believes that consumers themselves weigh expected fuel savings against
increases in purchase price for vehicles with higher fuel economy. Fuel
costs (or savings) continue to be the largest source of benefits for
CAFE standards, and GHG reduction benefits, which are also part of the
need of the U.S. to conserve energy, are also increasing. E.O. 12866
and Circular A-4 also direct agencies to consider maximizing net
benefits in rulemakings whenever possible and consistent with
applicable law. Thus, because it can be relevant to balancing the
statutory factors and because it is directed by E.O. 12866 and OMB
guidance, NHTSA also considers the net benefits attributable to the
different regulatory alternatives, as shown in Table VI-13.
[GRAPHIC] [TIFF OMITTED] TP03SE21.188

    While maximizing net benefits is a valid decision criterion for
choosing among alternatives, it is not the only reasonable decision
perspective. When NHTSA recognizes that the need of the U.S. to
conserve fuel weighs importantly in the overall balancing of factors,
it is reasonable to consider choosing the regulatory alternative that
produces the largest reduction in fuel consumption, while remaining net
beneficial. The benefit-cost analysis is not the sole factor that NHTSA
considers in determining the maximum feasible stringency, though it
supports NHTSA's tentative conclusion that Alternative 2 is the maximum
feasible stringency. While Alternative 1 produces higher net benefits,
it also continues to allow fuel consumption that could have been
avoided in a cost-beneficial manner. And while Alternative 3 achieves
greater reductions in fuel consumption than Alternative 2, it shows
relatively high negative net benefits under both discount rates.
    While NHTSA estimates that new vehicle sales will be slightly lower
under Alternative 2 than under the No-Action Alternative, as a
consequence of the higher retail prices that result from additional
technology application, the difference is only about 1 percent over the
entire period covered by MYs 2020-2026. NHTSA does not believe that
this estimated change in new vehicle sales over the period covered by
the rule is a persuasive reason to choose another regulatory
alternative. Similarly, the estimated labor impacts within the
automotive industry provide no evidence that another alternative should
be preferred. While the change in sales is estimated to decrease
industry employment over the period, the decrease is even smaller than
the impact on new vehicle sales (about 0.1 percent). As NHTSA explained
earlier in defining economic practicability, standards simply should
avoid a significant loss of jobs, and may still be economically
practicable even though they appear to show a negative impact (here, a
very slight impact) on sales and employment.
    As with any analysis of sufficient complexity, there are a number
of critical assumptions here that introduce uncertainty about
manufacturer compliance pathways, consumer responses to fuel economy
improvements and higher vehicle prices, and future valuations of the
consequences from higher CAFE standards. While NHTSA considers dozens
of sensitivity cases to measure the influence of specific parametric
assumptions and model relationships, only a small number of them
demonstrate meaningful impacts to net benefits under the proposed
standards.
    Looking at these cases more closely, the majority of both costs and
benefits that occur under the proposed standards accrue to buyers of
new cars and trucks, rather than society in general. It then follows
that the assumptions that exert the greatest influence over private
costs and benefits also exert the greatest influence over net
benefits--chief among these is the assumed trajectory of future fuel
prices, specifically gasoline. NHTSA considers the ``High Oil Price''
and ``Low Oil Price'' cases from AEO 2021 as bounding cases, though
they are asymmetrical (while the low case is only about 25 percent
lower than the Reference case on average, the high case is almost 50
percent higher on average). The sensitivity cases suggest that fuel
prices exert considerable influence on net benefits--where higher and
lower prices not only determine the dollar value of each gallon saved,
but also how market demand responds to higher levels of fuel economy in
vehicle offerings. Under the low case, net benefits become negative and
exceed $30 billion, but increase to almost (positive) $50 billion in
the high case (the largest increase among any sensitivity cases run for
this proposal). This suggests that the net benefits resulting from this
proposal are

dependent upon the future price of gasoline being at least as high as
the AEO 2021 Reference Case projects.
    Another critical uncertainty that affects private benefits is the
future cost of advanced electrification technologies, specifically
batteries. These emerging technologies provide both the greatest fuel
savings to new car buyers and impose the highest technology costs (at
the moment). While the cost to produce large vehicle batteries has been
rapidly declining for years, they are still expensive relative to
advancements in internal combustion engines and transmissions. However,
the analysis projects continued cost learning over time and shows
battery electric vehicles reaching price parity with conventional
vehicles in the 2030s for most market segments--after which market
adoption of BEVs accelerates--although other estimates show price
parity occurring sooner and we seek comment on whether and how to use
those estimates in our analysis for the final rule. Electrification is
also a viable compliance strategy, as partially or fully electric
vehicles benefit from generous compliance incentives that improve their
estimated fuel economy relative to measured energy consumption. As
such, the assumption about future battery costs has the ability to
influence compliance costs to manufacturers and prices to consumers,
the rate of electric vehicle adoption in the market, and thus the
emissions associated with their operation. NHTSA considered two
different mechanisms to affect battery costs: Higher/lower direct
costs, and faster/slower cost learning rates. The two mechanisms that
reduce cost (whether by faster cost learning or lower direct costs)
both increase net benefits relative to the central case, though
lowering initial direct costs by 20 percent had a greater effect than
increasing the learning rate by 20 percent. Increasing cost (though
either mechanism) by 20 percent produced a similar effect, but in the
opposite direction (reducing net benefits). However, none of those
cases exerted a level of influence that compares to alternative fuel
price assumptions.
    There is one assumption that affects the analysis without
influencing the benefits and costs that accrue to new car buyers: The
social cost of damages attributable to greenhouse gas emissions. While
there is no feedback in either the analysis or the policy between the
assumed social cost of GHGs and metric tons of GHGs emitted (or gallons
of fuel consumed), it directly controls the valuation of each metric
ton saved over time. The central analysis assumes a SC-GHG cost based
on the 2.5 percent discount rate for the 3 percent social discount
rate, and a SC-GHG cost based on the 3 percent discount rate in the 7
percent social discount rate case. However, this assumption directly
scales total benefits by increasing (or decreasing) the value of each
ton saved. Using the highest SCC-GHG, based on the 95th percentile
estimate, pushes net benefits above $30 billion under Alternative 2.
NHTSA does not independently develop the SC-GHG assumptions used in
this proposal but takes them from the interagency working group on the
social cost of GHGs. If future analyses by that group determine that
the SC-GHG should be different from what it currently is, NHTSA will
consider those values and whether to include them in subsequent
analyses. As the sensitivity cases illustrate, their inclusion could
exert enough influence on net benefits to suggest that a different
alternative could represent the maximum feasible stringency--at least
based on the decision criteria described in this section. As mentioned
above, NHTSA is seeking comment on the methodology employed by that
group for determining the SC-GHG.
    Based on all of the above, NHTSA tentatively concludes that while
all of the action alternatives are technologically feasible,
Alternative 3 may be too costly to be economically practicable in the
rulemaking timeframe, even if choosing it could result in greater fuel
savings. NHTSA interprets the need of the U.S. to conserve energy as
pushing the balancing toward greater stringency--consumer savings on
fuel costs are estimated to be higher under Alternative 3 than under
Alternative 2, but the additional technology cost required to meet
Alternative 3 (as evidenced by the negative net benefits at both
discount rates) may yet make Alternative 3 too stringent for these
model years. Changes in criteria pollutants, health effects, and
vehicle safety effects are relatively minor under all action
alternatives, and thus not dispositive. NHTSA has considered the effect
of other motor vehicle standards of the Government by incorporating the
fuel economy effects of California's ZEV program into its baseline, and
calculating the costs and benefits of CAFE standards as above and
beyond those baseline costs and benefits. The additional costs of the
proposed standards are, on average, not far from what NHTSA estimated
in the 2012 final rule for standards in a similar timeframe; the
additional benefits are lower, but this is due to a variety of factors,
including significant addition of fuel-economy-improving technology to
new vehicles between then and now (including the growing market for
electric vehicles), and lower fuel price projections from EIA. To the
extent that higher prices for new vehicles as a result of the
technology required by the standards could translate to decreases in
new vehicle sales, we note that those effects appear small, as
discussed above. Moreover, improving the fuel efficiency of new
vehicles has effects over time, not just at point of first sale, on
consumer fuel savings. Somewhat-more-expensive-but-more-efficient new
vehicles eventually become more-efficient used vehicles, which may be
purchased by consumers who may be put off by higher new vehicle prices.
The benefits have the potential to continue across the fleet and over
time, for all consumers regardless of their current purchasing power.
    NHTSA recognizes, again, that lead time for this proposal is less
than past rulemakings have provided, and that the economy and the
country are in the process of recovering from a global pandemic. NHTSA
also recognizes that at least parts of the industry are nonetheless
making announcement after announcement of new forthcoming advanced
technology, high-fuel-economy vehicle models, and does not believe that
they would be doing so if they thought there was no market at all for
them. Perhaps some of the introductions are driven by industry
perceptions of future regulation, but the fact remains that the
introductions are happening. CAFE standards can help to buttress this
momentum by continuing to require the fleets as a whole to improve
their fuel economy levels steadily over the coming years, so that a
handful of advanced technology vehicles do not inadvertently allow
backsliding in the majority of the fleet that will continue to be
powered by internal combustion for likely the next 5-10 years. CAFE
standards that increase steadily may help industry make this transition
more smoothly.
    And finally, if the purpose of EPCA is energy conservation, and
NHTSA is interpreting the need to conserve energy to be largely driven
by fuel savings, energy security, and environmental concerns, then it
makes sense to interpret EPCA's factors as asking the agency to push
stringency as far as possible before benefits become negative. The
energy conservation benefits of Alternative 3 appear, under the current
analysis, to be highest, as discussed in the SEIS and in Section VI.C
above, and better protect consumers from international oil market
instability and price spikes. By

increasing the fuel economy of vehicles in the marketplace, more
stringent CAFE standards better insulate consumers against these risks
over longer periods of time. Fuel economy improvements that reduce
demand for oil are a more certain hedging strategy against price
volatility than increasing U.S. energy production. However, with
negative net benefits for Alternative 3 under both discount rates, it
may be that for the moment, the costs of achieving those benefits are
more than the market is willing to bear. NHTSA thus aims to help
bolster the industry's trajectory toward higher future standards, by
keeping stringency high in the mid-term, but not so high as to be
economically impracticable.
    NHTSA therefore proposes that Alternative 2 is maximum feasible for
MYs 2024-2026. We seek comment on this tentative conclusion.

VII. Compliance and Enforcement

A. Introduction

1. Overview of the NHTSA Compliance Program
    A manufacturer's fleet is divided into three compliance categories
of automobiles: Passenger vehicles manufactured domestically, passenger
vehicles not manufactured domestically; and non-passenger
automobiles.\468\ Each category has its own CAFE fleet mpg standard
that a manufacturer is required to meet. The CAFE standard is
determined for each model year by a combination of the production
volume of vehicles produced for sale, the footprint of those vehicles,
and the requisite CAFE footprint-based fuel economy target curves.
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    \468\ See 49 U.S. Code 32903.6. Passenger vehicles not
manufactured domestically are referenced as import passenger cars
and non-passenger automobiles as light trucks.
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    For each compliance category, manufacturers self-report data at the
end of each MY in the form of a Final Model Year Report, and once these
data are verified by EPA, NHTSA determines final compliance. Using
EPA's final verified data, a manufacturer fleet is determined to be
compliant if the 2-cycle CAFE performance of their fleet with the
addition of the Alternative Motor Fuels Act (AMFA) and AC/OC incentives
are equal to or greater than the CAFE fleet mpg standard. The
manufacturer fleet is out of compliance if its fleet mpg falls below
the CAFE mpg standard, in which case the manufacturer may resolve the
shortfall through civil penalties or the use of flexibilities.
Resolving a shortfall through flexibilities may include the application
of CAFE credits through trade, carry-forward, carry-back, or transfer
from within the manufacturer's fleet accounts or from another
manufacturer's fleet accounts.
    The following sections provide a brief overview how CAFE standards
and compliance values are derived, what compliance flexibilities and
incentives are available to manufacturers, and the revisions to the
CAFE program NHTSA is proposing in this rulemaking. In summary, NHTSA
is proposing to: (1) Increase and clarify flexibilities for its off-
cycle program; (2) revive incentives for hybrid and electric full-size
pickup trucks through MY 2025; (3) modify its standardized templates
for CAFE reporting and credit transactions; and (4) add a new template
for manufacturers to report information on the monetary and non-
monetary costs associated with credit trades.
2. How Manufacturers' Target and Achieved Performances Are Calculated
    Compliance begins each model year with manufacturers testing
vehicles on a dynamometer in a laboratory over pre-defined test cycles
and controlled conditions.\469\ EPA and manufacturers use two different
dynamometer test procedures--the Federal Test Procedure (FTP) and the
Highway Fuel Economy Test (HFET) to determine fuel economy. These
procedures originated in the early 1970s and were intended to generally
represent city and highway driving conditions, respectively. These two
tests are commonly referred to as the ``2-cycle'' test procedures for
CAFE. A machine is connected to the vehicle's tailpipe while it
performs the test cycle, which collects and analyzes exhaust gases,
such as CO2 quantities.\470\ Fuel economy is determined from
relating a derived emissions factor to the amount of observed
CO2 using a reference test fuel.\471\ Manufacturers continue
to test vehicles over the course of the model year and will test enough
vehicles to cover approximately 90 percent of the subconfigurations
within each model type. Manufacturers self-report this information to
EPA as part of their end-of-the-model year reports, which are due 90
days after the model year is completed. After manufacturers submit
their reports, EPA confirms and validates those results by testing a
random sample of vehicles at the National Vehicle and Fuel Emissions
Laboratory (NVFEL) in Ann Arbor, Michigan.
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    \469\ For readers unfamiliar with this process, the test is
similar to running a car on a treadmill following a program--or more
specifically, two programs. 49 U.S.C. 32904(c) states that, in
testing for fuel economy, EPA must ``use the same procedures for
passenger automobiles [that EPA] used for model year 1975 (weighted
55 percent urban cycle and 45 percent highway cycle), or procedures
that give comparable results.'' Thus, the ``programs'' are the
``urban cycle,'' or Federal Test Procedure (abbreviated as ``FTP'')
and the ``highway cycle,'' or Highway Fuel Economy Test (abbreviated
as ``HFET''), and they have not changed substantively since 1975.
Each cycle is a designated speed trace (of vehicle speed versus
time) that vehicles must follow during testing--the FTP is meant
roughly to simulate stop and go city driving, and the HFET is meant
roughly to simulate steady flowing highway driving at about 50 mph.
The 2-cycle dynamometer test results differ somewhat from what
consumers will experience in the real-world driving environment
because of the lack of high speeds, rapid accelerations, and hot and
cold temperatures evaluations with the A/C operation. These added
conditions are more so reflected in the EPA 5-cycle test results
listed on each vehicle's fuel economy label and on the
fueleconomy.gov website.
    \470\ Vehicles without tailpipe emissions, such as battery
electric vehicles, have their performance measured differently, as
discussed below.
    \471\ Technically, for the CAFE program, carbon-based tailpipe
emissions (including CO2, CH4, and CO) are
measured, and fuel economy is calculated using a carbon balance
equation. EPA uses carbon-based emissions (CO2,
CH4, and CO, the same as for CAFE) to calculate the
tailpipe CO2 equivalent for the tailpipe portion of its
standards. CO2 is by far the largest carbon-based exhaust
constituent.
---------------------------------------------------------------------------

    A manufacturer's fleet fuel economy performance (hereafter
referenced as Base CAFE) for a given model year is calculated through
the following steps:
     Each vehicle model's mile per gallon (mpg) performance in
the city and highway test cycles are calculated based off the carbon
emitted during dynamometer testing. The vehicle's mpg performance is
combined at 55 percent city and 45 percent highway. Measurement
incentives for alternative fuel vehicles (such as for electricity,
counting 15 percent of the actual energy used to determine the gasoline
equivalent mpg) are applied as part of these procedures;
     Performance improvements not fully captured through 2-
cycle dynamometer testing, such as eligible A/C and off-cycle
technologies are then added to the vehicle's mpg performance.
Incentives for full-size pickup trucks with mild or strong HEV
technology or other technologies that perform significantly better than
the vehicle's target value are also applied.
     The quantity of vehicles produced of each model type
within a manufacturer's fleet is divided by its respective fuel economy
performance (mpg) including any flexibility/incentive increases; The
resulting numbers for each model type are summed;
     The manufacturer's total production volume is then divided
by the summed value calculated in the previous step; and

     That number, which is the harmonic average of the fleet's
fuel economy, is rounded to the nearest tenth of an mpg and represents
the manufacturer's achieved fuel economy.
    The Base CAFE of each fleet is compared to the manufacturer's
unique fleet compliance obligation, which is calculated using the same
approach as the Base CAFE performance, except that the fuel economy
target value (based on the unique footprint of each vehicle within a
model type) is used instead of the measured fuel economy performance
values. The fuel economy target values of the model types within each
fleet and production volumes are used to derive the manufacturer's
fleet standard (also known as the obligation) which is the harmonic
average of these values.
    To further illustrate how Base CAFE and fuel economy targets are
calculated, assume that a manufacturer produces two models of cars--a
hatchback and a sedan. Figure VII-1 shows the two vehicle models
imposed onto a fuel economy target function. From Figure VII-1, we can
see that the target function extends from about 30 mpg for the largest
cars to about 41 mpg for the smallest cars.
[GRAPHIC] [TIFF OMITTED] TP03SE21.189

    The manufacturer's required CAFE obligation would be determined by
calculating the production-weighted harmonic average of the fuel
economy target values applicable at the hatchback and sedan footprints
(from the curve, about 41 mpg for the hatchback and about 33 mpg for
the sedan). The manufacturer's achieved Base CAFE level is determined
by calculating the production-weighted harmonic average of the
hatchback and sedan fuel economy levels (in this example the values
shown in the boxes in Figure VII-1, 48 mpg for the hatchback and 25 mpg
for the sedan). Depending on the relative mix of hatchbacks and sedans
produced, the manufacturer's fleet Base CAFE may be equal to the
standard, perform better than the standard (if the required fleet CAFE
is less than the achieved fleet Base CAFE) and thereby earn credits, or
perform worse than the standard (if the required fleet CAFE is greater
than achieved fleet Base CAFE) and thereby earn a credit shortfall
which would need to be made up using CAFE credits, otherwise the
manufacturer would be subject to civil penalties.
    As illustrated by the example, the CAFE program's use of sales-
weighted harmonic averages makes compliance more intricate than
comparing a model to its target as not every model type needs to
precisely meet its target for a manufacturer to achieve compliance.
Consequently, if a manufacturer finds itself producing large numbers of
vehicles that fall well-short of its targets, a manufacturer can
attempt to equally balance its compliance by producing vehicles that
are excessively over-compliant. However, NHTSA understands that several
factors determine the ability of manufacturers to change their fleet-
mix mid-year. In response, the CAFE program is structured to provide
relief to manufacturers in offsetting any shortfalls by offering
several compliance flexibilities. Many manufacturers use these
flexibilities to avoid civil penalties.
3. The Use for CAFE Compliance Flexibilities and Incentives
    The CAFE program offers several compliance flexibilities which
expand options for compliance, and incentives which encourage
manufacturers to build vehicles with certain technologies to achieve
longer range policy objectives. For example, since MY 2017,
manufacturers have had the flexibility to earn credits for air
conditioning

(A/C) systems with improved efficiency. These fuel economy improvements
are added to the 2-cycle performance results of the vehicle and
increases the calculation of a manufacturer's fleet Base CAFE in
determining compliance relative to standards.\472\
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    \472\ NHTSA characterizes any programmatic benefit manufacturers
can use to comply with CAFE standards that fully accounts for fuel
use as a ``flexibility'' (e.g., credit trading) and any benefit that
counts less than the full fuel use as an ``incentive'' (e.g.,
adjustment of alternative fuel vehicle fuel economy). NHTSA
flexibilities and incentives are discussed further in Section
VII.B.3.a).
---------------------------------------------------------------------------

    Some CAFE flexibilities and incentives are codified by statute in
EPCA or EISA, while others have been implemented by the NHTSA through
regulations, consistent with the statutory scheme. Compliance
flexibilities and incentives have a great deal of theoretical
attractiveness: If designed properly, they can help reduce the overall
regulatory costs, while maintaining or improving programmatic benefits.
If designed poorly, they may create significant potential for market
distortion. Consequently, creating or revising compliance flexibilities
and incentives requires proper governmental and industry collaboration
for understanding upcoming technological developments and for
determining whether a technology is economically feasible for
compliance. When designing these programmatic elements, the agency must
be mindful to ensure flexibilities and incentives are provided with
long term benefits to the CAFE program while avoiding unintended
windfalls for only certain manufacturers or technologies.
    Compliance incentives and flexibilities are structured to encourage
implementation of technology that will further increase fuel savings.
Some incentives are designed to encourage the development of
technologies that may have high initial costs but offer promising fuel
efficiency benefits in the long-term. Others are designed to bring low
cost technologies uniformly into the market that improve fuel economy
in the real-world but may be missed by the 2-cycle test, such as the
cost-effective off-cycle menu technologies included by EPA for CAFE
compliance.
    Below is a summary of all the current and proposed changes to the
flexibilities and incentives for the CAFE and CO2 programs
in Table VII-1 through Table VII-4. Note that this proposal only covers
the CAFE program; the EPA program is listed here to demonstrate the
congruencies between the two programs. NHTSA is proposing to maintain
the bulk of its current program with a few modifications. One of the
changes raised in this proposal is to increase the off-cycle
flexibility technology benefit cap along with new technology
definitions as shown in the table. NHTSA is also proposing to reinstate
incentives for full-size hybrid and game changing advanced technology
pickup trucks for model years 2022 through 2026. NHTSA believes that
these incentives will increase the production of environmentally
beneficial technologies and help achieve economies of scale to reduce
costs that will enable more stringent CAFE standards in the future.
These proposals are explained in further detail in Section VII.B.
BILLING CODE 4910-59-P

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[GRAPHIC] [TIFF OMITTED] TP03SE21.193

BILLING CODE 4910-59-C
4. Light Duty CAFE Compliance Data for MYs 2011-2020
    NHTSA uses compliance data in part to identify industry trends. For
this proposal, NHTSA examined CAFE compliance data for model years 2011
through 2020 using final compliance data for MYs 2011 through
2017,\473\ projections from end-of-the-model year reports submitted by
manufacturers for MYs 2018 and 2019,\474\ and projections from
manufacturers' mid model year reports for MY 2020.\475\ Projections
from the mid-year and end-of-the-model year reports may differ from
EPA-verified final CAFE values either because of differing test results
or final sales-volume figures. MY 2011 was selected as the start of the
data because it represents the first compliance model year for which
manufacturers were permitted to trade and transfer credits.\476\ The
data go up to MY 2020, because this was the most recent year compliance
reports were available.
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    \473\ Final compliance data have been verified by EPA and are
published on the NHTSA's Public Information Center (PIC) site. MY
2017 is currently the most-recent model year verified by EPA.
    \474\ MY 2018 data come from information received in
manufacturers' final reports submitted to EPA according to 40 CFR
600.512-12.
    \475\ Manufacturers' mid-model year CAFE reports are submitted
to NHTSA in accordance with 49 CFR part 537. At the time of the
analysis, end of the model year data had not yet been submitted for
MY 2020.
    \476\ 49 CFR 535.6(c).
---------------------------------------------------------------------------

    Figure VII-2 through Figure VII-5 provide a graphical overview of
the actual and projected compliance data for MYs 2011 to 2020.\477\
---------------------------------------------------------------------------

    \477\ As mentioned previously, the figures include estimated
values for certain model years based on the most up to date
information provided to NHTSA from manufacturers.
---------------------------------------------------------------------------

    In the figures, an overview is provided for the total fuel economy
performance of the industry (the combination of all passenger cars and
light trucks produced for sale during the

model year) as a single fleet, and for each of the three CAFE
compliance fleets: Domestic passenger car, import passenger car, and
light truck fleets. For each of the graphs, a sale-production weighting
is applied to determine the average total or fleet Base CAFE
performances.478 479 480 The graphs do not include
adjustments for full-size pickup trucks because manufactures have yet
to bring qualifying products into production.
---------------------------------------------------------------------------

    \478\ In the figures, the label ``2-Cycle CAFE'' represents the
maximum increase each year in the average fuel economy set to the
limitation ``cap'' for manufacturers attributable to dual-fueled
automobiles as prescribed in 49 U.S.C. 32906. The label ``AC/OC
contribution'' represents the increase in the average fuel economy
adjusted for A/C and off-cycle fuel consumption improvement values
as prescribed by 40 CFR 600.510-12.
    \479\ Consistent with applicable law, NHTSA established
provisions starting in MY 2017 allowing manufacturers to increase
compliance performance based on fuel consumption benefits gained by
technologies not accounted for during normal 2-cycle EPA compliance
testing (called ``off-cycle technologies'' for technologies such as
stop-start systems) as well as for A/C systems with improved
efficiencies and for hybrid or electric full-size pickup trucks.
    \480\ Adjustments for earned credits include those that have
been adjusted for fuel saving using the manufacturers CAFE values
for the model years in which they were earned and adjusted to the
average CAFE values for the fleets they exist within.
---------------------------------------------------------------------------

    The figures also show how many credits remain in the market each
model year. One complicating factor for presenting credits is that the
mpg-value of a credit is contingent where it was earned and applied.
Therefore, the actual use of the credits for MYs 2018 and beyond will
be uncertain until compliance for those model years is completed. Also,
since credits can be retained for up to 6 MYs after they were earned or
applied retroactively to the previous 3 model years, it is impossible
to know the final application of credits for MY 2020 until MY 2023
compliance data are finalized. Instead of attempting to project how
credits would be generated and used, the agency opted to value each
credit based on its actual value when earned, by estimating the value
when applied assuming it was applied to the overall average fleet and
across all vehicles. In the figures, two different approaches were used
to represent the mpg value of credits used to offset shortages (shown
as CAFE after credit allocation in the figures). The mpg shortages for
MYs 2011 to 2017 are based upon actual compliance values from EPA and
the credit allocations or fines manufacturers instructed NHTSA to
adjust and apply to resolve compliance shortages. For MYs 2018 to 2020,
NHTSA used a different approach for representing the mpg shortages,
deriving them from projected estimates adjusted for fuel savings
calculated from the projected fleet average performances and standards
for each model year and fleet. To represent the mpg value of
manufacturers' remaining banked credits in the figures (shown as
Credits in the Market) the same weighting approach was also applied to
these credits based upon the fleet averages. For MYs 2011-2017, the
remaining banked credits include those currently existing in
manufacturers' credit accounts adjusted for fuel savings and
subtracting any expired credits for each year. This approach was taken
to represent these credits for the actual value that would likely exist
if the credits were applied for compliance purposes. Without adjusting
the banked credits, it would provide an unrealistic value of the true
worth of these credits when used for compliance. For MYs 2018-2020, the
mpg value of the remaining banked credits is shown slightly differently
where the value represents the difference between the adjusted credits
carried forward from previous model years (minus expiring credits) and
the projected earned credits minus any expected credit shortages. Since
all the credits in these model years were adjusted using the same
approach it was possible to subtract the credit amounts. However,
readers are reminded that for MYs 2018-2020 since the final CAFE
reports have yet to be issued, the credit allocation process has not
started, and the data shown in the graphs are a projection of potential
overall compliance. Consequently, the credits included for MYs 2018-
2020 are separated from earlier model years by a dashed line to
highlight that there is a margin of uncertainty in the estimated
values. Projecting how and where credits will be used is difficult for
a number of reasons such as not knowing which flexibilities
manufacturers will utilize and the fact that credits are not valued the
same across different fleets. As such, the agency reminds readers that
the projections may not align with how manufacturers will actually
approach compliance for these years.
    Table VII-5 provides the numerical CAFE performance values and
standards for MYs 2011-2020 as shown in the figures.
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BILLING CODE 4910-59-C
    As shown in Figure VII-2, manufacturers' fuel economy performance
(2-cycle CAFE plus AMFA) for the total fleet was better than the fleet-
wide target through MY 2015. On average, the total fleet exceeded the
standards by approximately 0.9 mpg for MYs 2011 to 2015. As shown in
Figure VII-3 through Figure VII-5, domestic and import passenger cars
exceeded standards on average by 2.1 mpg and 2.3 mpg, respectively. By
contrast, light truck manufacturers on average fell below the standards
by 0.3 mpg over the same time period.
    For MYs 2016 through 2020, Figure VII-2 shows that the total fleet
Base CAFE (including 2-Cycle CAFE plus A/C and OC benefits) falls below
and appears to remain below the fleet CAFE standards for these model
years.\481\ The projected compliance shortfall (i.e. the difference
between CAFE performance values and the standards) remains constant and
reaches its greatest difference between MYs 2019 and 2020. Compliance
becomes even more complex when observing individual compliance fleets
over these years. Only domestic passenger car fleets collectively
appear to exceed CAFE standards while import passenger car fleets
appear to have the greatest compliance shortages. In MY 2020, the
import passenger car fleet appear to reach its highest compliance
shortfall equal to 3.3 mpg.
---------------------------------------------------------------------------

    \481\ Until MY 2023 compliance, the last year where earned
credits can be retroactively applied to MY 2020, NHTSA will be
unable to make a determination about the fleet's overall compliance
over this timespan.
---------------------------------------------------------------------------

    The graphs provide an overall representation of the average values
for each fleet, although they are less helpful for evaluating
compliance with the minimum domestic passenger car standards given
statutory prohibitions on manufacturers using traded or transferred
credits to meet those standards.\482\ Consequently, in MY 2020,
domestic passenger car manufacturers may improve their performance by
adding more AC/OC technology, allowing the domestic passenger car fleet
to once again exceed CAFE standards. However, NHTSA notes that several
manufacturers have already reported insufficient earned credits and may
have to make fine payments if they fail to reach the minimum domestic
passenger car standards.
---------------------------------------------------------------------------

    \482\ In accordance with 49 CFR 536.9(c), transferred or traded
credits may not be used, pursuant to 49 U.S.C. 32903(g)(4) and
(f)(2), to meet the domestically manufactured passenger automobile
minimum standard specified in 49 U.S.C. 32902(b)(4) and in 49 CFR
531.5(d).
---------------------------------------------------------------------------

    In summary, MY 2016 is the last compliance model year that
passenger cars complied with CAFE standards relying solely on Base CAFE
performance. Prior to this timeframe, passenger car manufacturers
especially those building domestic fleets could substantially exceed
CAFE standards. MY 2016 marked the first time in the history of the
CAFE program where compliance for passenger car manufacturers fell
below standards thereby increasing shortfalls and forcing the need for
manufacturers to rely heavily upon credit flexibilities. Despite higher
shortfalls, domestic passenger car manufacturers have continued to
generate credits and increase their total credit holdings. The
projections show that for MYs 2018-2020, domestic passenger car fleets
will transition from generating to using credits but will maintain
sizable amounts of banked credits sufficient to sustain compliance
shortfalls in other regulatory fleets. Figure VII-4 shows residual
available banked credits even as far as MY 2020. Domestic passenger car
credits and their off-cycle credits will play an important role in
sustaining manufacturers in complying with CAFE standards.
    From the projections, it appears that based on the number of
remaining domestic passenger credits in the market and the rate at
which they are being used, there will be insufficient credits to cover
the shortfalls in other compliance fleets in years following MY 2020.
Figure VII-2 shows that the total remaining combined credits for the
industry is expected to decline starting in MY 2018. Import passenger
cars and light truck fleets will play a major role in the decline and
possible depletion of all available credits to resolve shortfalls after
MY 2020. Several factors exist that could produce this outcome. First,
increasing credit shortages are occurring in the import passenger car
and light truck fleets especially since the reduction and then
termination of AMFA incentives in MY 2019 (a major contributor for
light trucks). Next, residual banked credits for the light truck fleet
are expected to be exhausted starting in MY 2018 and for import

passenger cars in MY 2020. Finally, the use of AC/OC benefits for
import passenger cars and lights trucks is not a significant factor for
these fleets in complying with CAFE standards. Manufacturers will need
to change their production strategies or introduce substantially more
fuel saving technologies to sustain compliance in the future.
    Figure VII-6 provides a historical overview of the industry's use
of CAFE credit flexibilities and fine payments for addressing
compliance shortfalls.\483\ As mentioned, MY 2017 is the last model
year for which CAFE compliance determinations are completed, and credit
application and civil penalty payment determinations finalized. As
shown in the figure, for MYs 2011-2015, manufacturers generally
resolved credit shortfalls by carrying forward earned credits from
previous years. However, since 2011, the rise in manufacturers
executing credit trades has become increasingly common and, in MY 2017,
credit trades were the most frequently used flexibility for achieving
compliance. Credit transfers have also become increasingly more
prevalent for manufacturers. As a note to readers, credit trades in the
figures can also involve credit transfers but are aggregated in the
figure as credit trades to simplify results. In MY 2016, credit
transfers constituted the highest contributor to credit flexibilities
but are starting to decline signifying that manufacturers are currently
exhausting credit transfers within their own fleets. Manufacturers only
occasionally carry back credits to resolve performance shortfalls.
NHTSA believes that trading credits between manufacturers and to some
degree transferring traded credit across fleets will be the most
commonly used flexibility in complying with future CAFE standards as
started in MY 2017.
---------------------------------------------------------------------------

    \483\ The Figure includes all credits manufacturers have used in
credit transactions to date. Credits contained in carryback plans
yet to be executed or in pending enforcement actions are not
included in the Figure.
---------------------------------------------------------------------------

    Credit trading has generally replaced civil penalty payments as a
compliance mechanism. Only a handful of manufacturers have made civil
penalty payments since the implementation of the credit trading
program. As previously shown, NHTSA believes that manufacturers have
sufficient credits to resolve any import passenger car and light truck
performance shortfalls expected through MY 2020. As of recent, the only
fine payments being made or expected in the future are those directly
resulting from manufacturers failing to comply with the minimum
domestic passenger car standards.\484\ There were two fine payments
made in MYs 2016 and 2017 which fit this exact case. By statute,
manufacturers cannot use traded or transferred credits to address
performance shortfalls for failing to meet the minimum domestic
passenger car standards.\485\ Because of this limitation, the fine
payments made in MY 2016 and 2017 came from one manufacturer that had
exhausted all of its earned domestic passenger credits and could not
carryback future credits.\486\ The same condition will occur for other
manufacturers in the future. NHTSA calculates that six manufacturers
will meet this same condition and have to make substantial civil
penalty payments for failing to comply with the minimum domestic
passenger cars standards in MYs 2018 through 2020.
---------------------------------------------------------------------------

    \484\ Six manufacturers have paid CAFE civil penalties since
credit trading began in 2011. Fiat Chrysler paid the largest civil
penalty total over the period, followed by Jaguar Land Rover and
then Volvo. See Summary of CAFE Civil Penalties Collected, CAFE
Public Information Center, https://one.nhtsa.gov/cafe_pic/CAFE_PIC_Fines_LIVE.html.
    \485\ Congress prescribed minimum domestic passenger car
standards for domestic passenger car manufacturers and unique
compliance requirements for these standards in 49 U.S.C. 32902(b)(4)
and 32903(f)(2).
    \486\ Fiat Chrysler paid $77,268,702.50 in civil penalties for
MY 2016 and $79,376,643.50 for MY 2017 for failing to comply with
the minimum domestic passenger car standards for those MYs.
---------------------------------------------------------------------------

    In Figure VII-8, additional information is provided on the credit
flexibilities exercised and fine payments made by manufacturers for MYs
2011-2017. The figure includes the gasoline gallon equivalent for these
credit flexibilities or for paying civil penalties. The figure shows
that manufacturers used carrying forward credits most often to resolve
shortfalls. Credit trades were the second leading benefit to
manufacturers in using credit flexibilities and then followed by credit
transfers. In summary, manufacturers used these flexibilities amounting
to the equivalent of 2,952,856 gallons of fuel by carrying forward
credits in 2017 and 583,720 gallons of fuel by trading credits in 2017.

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    \487\ For Figure VII-6; in each year some flexibilities were not
utilized by manufacturers. For example, carry backed credits were
not utilized in 2011, 2013, 2014, 2015, 2016, or 2017. Transfer
credits were not used in 2011, 2012 or 2013. No civil penalties were
paid in 2015.

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    Despite this compliance picture, NHTSA's analysis supporting this
NPRM shows some amount of overcompliance in the baseline/No-Action
Alternative for the model years subject to this proposal. This modeled
overcompliance occurs due to assumptions about a variety of factors,
including (1) a number of manufacturers voluntarily binding themselves
to the California Framework Agreements, (2) expected manufacturer
compliance with California's ZEV program, (3) expected manufacturer
compliance with the EPA GHG and NHTSA CAFE standards finalized in 2020,
(4) a small amount of market demand for increased fuel economy (due
mostly to projected fuel prices), (5) the projected affordability of
applying certain technologies that are eligible for compliance boosts
(like off-cycle adjustments), and so on. If these assumptions do not
come to pass in the real world, the difference between the compliance
picture over the last several model years and the one shown in the
analysis for the next several years would accordingly be smaller.
Overcompliance with the regulatory alternatives is much lower than what
was shown in the NPRM that preceded the 2020 final rule and is highly
manufacturer-dependent. NHTSA seeks comment on the amount of
overcompliance with the regulatory alternatives shown, if any, in light
of how the agency has described its modeling approach for this
proposal.
5. Shift in Sales Production From Passenger Cars to Light Trucks
    The apparent stagnant growth in the automotive industry's CAFE
performance is likely related to a relative decrease in the share of
passenger cars, where manufacturers made the most gains in fuel economy
performance combined with an increase in the relative share of light
trucks purchased beginning with MY 2013. Light trucks experienced sharp
increases in sales, increasing by a total of 5 percent from MYs 2013 to
2014. In MY 2014, light trucks comprised approximately 41 percent of
the total sales production volume of automobiles and has continued to
grow ever since. In comparison, for model year 2014, domestic passenger
cars represented 36 percent of the total fleet and import passenger
cars represented 23 percent. Both domestic and import passenger car
sales have continued to fall every year since MY 2013. Figure VII-8
shows the sales production volumes of light trucks and domestic and
import passenger cars for MYs 2004 to 2020. Historically, light truck
fleets have fallen below their associated CAFE standards and have had
larger performance shortages than either import and domestic passenger
car fleets. For MY 2020, NHTSA expects even greater CAFE performance
shortages in the light truck and import passenger car fleets than in
prior model years, based upon manufacturer's mid-model year (MMY)
reports. MY 2020 light trucks are expected to comprise approximately 53
percent of the total. As mentioned previously, the combined effect of
these fuel economy shortages will likely require manufacturers to rely
on compliance flexibilities or pay civil penalties.
    Out of 25 vehicle types listed in the EPA database, 5 vehicle
types--namely compact cars, midsize cars, small and standard SUVs with
4WD, and standard pickup trucks with 4WD have the highest volumes of
vehicles produced for sale in MYs 2012 to 2017. From 2012 to 2020,
there was a drastic decrease of 24% and 17% in the production of
compact cars and midsize cars,

respectively. On the other side, there was a significant increase in
the production of 4WD small and standard equaling approximately 41%
collectively of all sales. Standard pickup trucks with 4WD experienced
little change in the production volume throughout the years. As shown
in Figure VII-9, small SUVs, with 4WD and 2WD drivetrains, have
surpassed the sales production volumes of all other vehicle types over
these the given model years. The number of small and standard SUVs sold
in the U.S. for MY 2017 nearly doubled compared to sales in the U.S.
for MY 2012. During that same period, passenger car sales production as
a total of vehicle sales production decreased by approximately 11
percent. The combination of low gas prices and the increased utility
that SUVs provide, along with aggressive manufacturer marketing, may
explain the shift in sales production. Nonetheless, if the sales of
these small SUVs and pickup trucks continue to increase, there may be
continued stagnation in the CAFE performance of the overall fleet
unless manufacturers respond with greater adoption of fuel economy
technology in the SUV and pickup truck portion of their fleets.
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6. Electrification
    According to data submitted to EPA and NHTSA for MYs 2012 through
2017, the population of electrified vehicles in the passenger car fleet
has steadily increased. The percentage of petroleum-based passenger
cars in the market has decreased. While the nominal amount of electric
light trucks has increased, the percentage of electric light trucks has
decreased due to petroleum-based light trucks growing at

a faster rate. All electric passenger cars account for up to 3 percent
of the total production of light-duty vehicles each year. In
comparison, all electric light trucks account for about 0.2 percent of
the total fleet each year. The number of passenger cars using
alternative fuels has also steadily increased while the population of
alternative fuel light trucks has become non-existent. However,
comparing the total fleet, the population of electric and hybrid
vehicles is steadily increasing each year on average.
[GRAPHIC] [TIFF OMITTED] TP03SE21.203

    Despite the small market share currently for electric and hybrid
trucks, manufacturers are making a strong effort to grow this market.
Starting in 2020, several manufacturers introduced several new models
of hybrid and PEV SUVs and crossovers.
---------------------------------------------------------------------------

    \488\ 49 U.S. Code 538 discusses Flexible Fuel Vehicle.
    \489\ Definition of Electricity/Hybrids can be found in 49 U.S.
Code 523.2.
    \490\ If the fuel type is marked as Hybrid, for this table the
vehicles are automatically counted as Hybrid no matter what type of
fuel category they have. Flexible Fuel Vehicle is everything else
except where the fuel type is gasoline and electric/hybrid.
    \491\ Complete data is only available through MY 2017.
---------------------------------------------------------------------------

    NHTSA is considering new CAFE compliance strategies for electric
pickup trucks in this rulemaking. EPA and NHTSA previously provided
flexibilities for hybrid and electric pickup trucks adopted under the
2017-2025 CAFE and GHG final rule issued in 2012. These flexibilities
would have provided manufacturers with an incentive through MY 2025 to
build additional electric pickup trucks but in the 2020 final rule,
NHTSA and EPA decided to terminate these incentives early. Further
discussion of NHTSA's and EPA's incentive programs for hybrid and
electric pickup trucks is presented in Section B.3.e)(1). As a part of
the section, a new proposal is also included for EPA and NHTSA to
reconsider extending the incentives for pickup trucks back to their
original effective date ending in MY 2025.
7. Vehicle Classification
    Vehicle classification, for purposes of the light-duty CAFE
program, refers to whether an automobile qualifies as a passenger
automobile (car) or a non-passenger automobile (light truck). Passenger
cars and light trucks are subject to different fuel economy standards
as required by EPCA/EISA and consistent with their different
capabilities.
    Vehicles are designated as either passenger automobiles or non-
passenger automobiles. Vehicles ``capable of off-highway operation''
are, by statute, non-passenger automobiles.\492\ Determining ``off-
highway operation'' was left to NHTSA, and currently is a two-part
inquiry: First, does the vehicle either have 4-wheel drive or over
6,000 pounds gross vehicle weight rating (GVWR), and second, does the
vehicle have a significant feature designed for

off-highway operation.\493\ NHTSA's regulation on vehicle
classification contain requirements for vehicles to be classified as
light trucks either on the basis of off-highway capability or on the
basis of having ``truck-like characteristics.'' Over time, NHTSA has
refined the light truck vehicle classification by revising its
regulations and issuing legal interpretations. However, based on the
increase in crossover SUVs and advancements in vehicle design trends,
NHTSA has become aware of vehicle designs that complicate
classification determinations for the CAFE program. Throughout the past
decade, NHTSA has identified these changes in compliance testing, data
analysis, and has discussed the trend in rulemakings, publications, and
with stakeholders.
---------------------------------------------------------------------------

    \492\ 49 U.S. Code 32902.
    \493\ 49 U.S. Code 523.5(A)(5)(ii)(b).
---------------------------------------------------------------------------

    NHTSA believes that an objective procedure for classifying vehicles
is paramount to the agency's continued oversight of the CAFE program.
When there is uncertainty as to how vehicles should be classified,
inconsistency in determining manufacturers' compliance obligations can
result, which is detrimental to the predictability and fairness of the
program. In the 2020 final rule, NHTSA attempted to resolve several
classification issues and committed to continuing research to resolve
others. NHTSA notified the public of its plans to develop a compliance
test procedure for verifying manufacturers' submitted classification
data. An objective standard would help avoid manufacturers having to
reclassify their vehicles, improve consistency and fairness across the
industry, and introduce areas within the criteria where uncertainties
existed and research could be conducted in the near future to resolve.
    In this rulemaking, NHTSA is providing additional classification
guidance and seeking comments on several unknown aspects needed to
develop its compliance test procedure. Based upon the comments received
to this NPRM, NHTSA plans to release its draft test procedure later
this year. No changes are being made in this rulemaking that will
change how vehicles are classified.
(a) Clarifications for Classifications Based Upon ``Off-Road
Capability''
    For a vehicle to qualify as off-highway (off-road) capable, in
addition to either having 4WD or a GVWR more than 6,000 pounds. The
vehicle must have four out of five characteristics indicative of off-
highway operation. These characteristics are:

 An approach angle of not less than 28 degrees
 A breakover angle of not less than 14 degrees
 A departure angle of not less than 20 degrees
 A running clearance of not less than 20 centimeters
 Front and rear axle clearances of not less than 18 centimeters
each
(1) Production Measurements
    NHTSA's regulations require manufacturers to measure vehicle
characteristics when a vehicle is at its curb weight, on a level
surface, with the front wheels parallel to the automobile's
longitudinal centerline, and the tires inflated to the manufacturer's
recommended cold inflation pressure.\494\ NHTSA clarified in the 2020
final rule that 49 CFR part 537 requires manufacturers to classify
vehicles for CAFE based upon their physical production characteristics.
The agency verifies reported values by measuring production vehicles.
Manufacturers must also use physical vehicle measurements as the basis
for values reported to the agency for purposes of vehicle
classification. It may be possible for certain vehicles within a model
type to qualify as light trucks while others would not because of their
production differences. Since issuing the 2020 final rule, NHTSA has
met with manufacturers to reinforce the use of production measurements
and clarifying here that manufacturers are only required to report
classification information for those physical measurements used for
qualification and can omit other measurements.
---------------------------------------------------------------------------

    \494\ 49 U.S. Code 523.5(A)(5).
---------------------------------------------------------------------------

    In the previous rulemaking, NHTSA also identified that certain
vehicle designs incorporate rigid (i.e., inflexible) air dams, valance
panels, exhaust pipes, and other components, equipped as manufacturers'
standard or optional equipment (e.g., running boards and towing
hitches), that likely do not meet the 20-centimeter running clearance
requirement. Despite these rigid features, some manufacturers are not
taking these components into consideration when making classification
decisions. Additionally, other manufacturers provide dimensions for
their base vehicles without considering optional or various trim level
components that may reduce the vehicle's ground clearance. Consistent
with our approach to other measurements, NHTSA believes that ground
clearance, as well as all the other off-highway criteria for a light
truck determination, should use the measurements from vehicles with all
standard and optional equipment installed, at the time vehicles are
shipped to dealerships. These views were shared by manufacturers in
response to the previous CAFE rulemaking.
    The agency reiterates that the characteristics listed in 49 CFR
523.5(b)(2) are characteristics indicative of off-highway capability. A
fixed feature--such as an air dam that does not flex and return to its
original state or an exhaust that could detach--inherently interferes
with the off-highway capability of these vehicles. If manufacturers
seek to classify vehicles as light trucks under 49 CFR 523.5(b)(2) and
the vehicles have a production feature that does not meet the four
remaining characteristics to demonstrate off-highway capability, they
must be classified as passenger cars. NHTSA also clarifies that
vehicles that have adjustable ride height, such as air suspension, and
permit variable on-road or off-road running clearances should be
classified based upon the mode most commonly used or the off-road mode
for those with this feature. NHTSA seeks comments on how to define the
mode most commonly used for any adjustable suspensions. For the test
procedure, would it be more appropriate to allow manufacturers to
define the mode setting for vehicles with adjustable suspensions?
(2) Testing for Approach, Breakover, and Departure Angles
    Approach angle, breakover angle, and departure angle are relevant
to determine off-highway capability. Large approach and departure
angles ensure the front and rear bumpers and valance panels have
sufficient clearance for obstacle avoidance while driving off-road. The
breakover angle ensures sufficient body clearance from rocks and other
objects located between the front and rear wheels while traversing
rough terrain. Both the approach and departure angles are derived from
a line tangent to the front (or rear) tire static loaded radius arc
extending from the ground near the center of the tire patch to the
lowest contact point on the front or rear of the vehicle. The term
``static loaded radius arc'' is based upon the definitions in SAE J1100
and J1544.\495\ The term is defined as the distance from wheel axis of
rotation to the supporting surface (ground) at a given load of the
vehicle and stated inflation pressure of

the tire (manufacturer's recommended cold inflation pressure).
---------------------------------------------------------------------------

    \495\ See SAE J1100 published on May 26, 2012 and SAE J1544
published on Oct 25, 2011.
---------------------------------------------------------------------------

    The static loaded radius arc is easy to measure, but the imaginary
line tangent to the static loaded radius arc is difficult to ascertain
in the field. The approach and departure angles are the angles between
the line tangent to the static loaded radius arc and the level ground
on which the test vehicle rests. For the compliance test procedure, a
substitute measurement will be used. A measurement that provides a good
approximation of the approach and departure angles involve using a line
tangent to the outside diameter or perimeter of the tire and extends to
the lowest contact point on the front or rear of the vehicle. This
approach provides an angle slightly greater than the angle derived from
the true static loaded radius arc. The approach also has the advantage
to allow measurements to be made quickly for measuring angles in the
field to verify data submitted by the manufacturers used to determine
light truck classification decisions. In order to comply, the vehicle
measurement must be equal to or greater than the required measurements
to be considered as compliant and if not, the reported value will
require an investigation which could lead to the manufacturer's vehicle
becoming reclassified as a passenger car.
(3) Running Clearance
    NHTSA regulations define ``running clearance'' as ``the distance
from the surface on which an automobile is standing to the lowest point
on the automobile, excluding unsprung weight.'' Unsprung weight
includes the components (e.g., suspension, wheels, axles, and other
components directly connected to the wheels and axles) that are
connected and translate with the wheels. Sprung weight, on the other
hand, includes all components fixed underneath the vehicle that
translate with the vehicle body (e.g., mufflers and subframes). To
clarify these requirements, NHTSA previously issued a letter of
interpretation stating that certain parts of a vehicle--such as tire
aero deflectors that are made of flexible plastic, bend without
breaking, and return to their original position--would not count
against the 20-centimeter running clearance requirement. The agency
explained that this does not mean a vehicle with less than 20
centimeters running clearance could be elevated by an upward force that
bends the deflectors and still be considered compliant with the running
clearance criterion, as it would be inconsistent with the conditions
listed in the introductory paragraph of 49 CFR 523.5(b)(2). Further,
NHTSA explained that without a flexible component installed, the
vehicle must meet the 20-centimeter running clearance requirement along
its entire underside. This 20-centimeter clearance is required for all
sprung weight components. For its compliance test procedure, NHTSA will
include a list of the all the components under the vehicle considered
as unsprung components. NHTSA will update the list of unsprung
components as the need arises.
(4) Front and Rear Axle Clearance
    NHTSA regulations state that front and rear axle clearances of not
less than 18 centimeters are another criterion that can be used for
designating a vehicle as off-highway capable.\496\ The agency defines
``axle clearance'' as the vertical distance from the level surface on
which an automobile is standing to the lowest point on the axle
differential of the automobile.
---------------------------------------------------------------------------

    \496\ 49 U.S. Code 523.5(b)(2).
---------------------------------------------------------------------------

    The agency believes this definition may be outdated because of
vehicle design changes, including axle system components and
independent front and rear suspension components. In the past,
traditional light trucks with and without 4WD systems had solid rear
axles with center-mounted differential on the axle. For these trucks,
the rear axle differential was closer to the ground than any other axle
or suspension system component. This traditional axle design still
exists today for some trucks with a solid chassis (also known as body-
on-frame configuration). Today, however, many SUVs and CUVs that
qualify as light trucks are constructed with a unibody frame and have
unsprung (e.g., control arms, tie rods, ball joints, struts, shocks,
etc.) and sprung components (e.g., the axle subframes) connected
together as a part of the axle assembly. These unsprung and sprung
components are located under the axles, making them lower to the ground
than the axles and the differential, and were not contemplated when
NHTSA established the definition and the allowable clearance for axles.
The definition also did not originally account for 2WD vehicles with
GVWRs greater than 6,000 pounds that had one axle without a
differential, such as the model year 2018 Ford Expedition. Vehicles
with axle components that are low enough to interfere with the
vehicle's ability to perform off-road would seem inconsistent with the
regulation's intent of ensuring off-highway capability.
    In light of these issues, for the compliance test procedure, NHTSA
will ask manufacturers to identify those axle components that are
sprung or unsprung and provide sufficient justification as a part of
the testing setup request forms sent to manufacturers before testing.
In addition, for vehicles without a differential, NHTSA will request
the location each manufacturer used to establish its axle clearance
qualification. NHTSA will validate the location specified by the
manufacturer but will challenge any location on the vehicle's axle
found to be located at a lower elevation to the ground than the
designed location of its axle clearance measurement.
(5) 49 CFR 571.3 MPV Definition
    The definition for multipurpose passenger vehicle (MPV) is defined
as a ``a motor vehicle with motive power, except a low-speed vehicle or
trailer, designed to carry 10 persons or less which is constructed
either on a truck chassis or with special features for occasional off-
road operation.'' \497\ The regulation is silent, however, in defining
special features for occasional off-road operation are qualified. In a
letter of interpretation dated May 31, 1979, the agency responded to a
question from Subaru requesting the agency's opinion whether a four-
wheel drive hatchback sedan could be classified as an MPV. NHTSA
responded stating that the agency interprets the definition as
requiring that the vehicle contain more than a single feature designed
for off-road use and that four-wheel drive would be useful in snow on
public streets, roads and highways, so this feature cannot be
determinative of the vehicle's classification if there are no features
for off-road use. The interpretation also stated that Subaru needed to
provide additional information (including, but not limited to, pictures
or drawings of the vehicle) concerning other special features of the
vehicle that would make it suitable for off-road operation. Finally,
the interpretation referenced 49 CFR 523.5(b)(2) for a description of
some of the characteristics that would be considered ``special
features'' for off-road operation although that section relates
primarily related to fuel economy. Considering that the definition for
MPVs does not list the ``special features,'' NHTSA is seeking comment
on whether manufacturers use ``special features'' other than those in
49 CFR 523.5(b)(2) to qualify vehicles as MPVs. Should NHTSA link the
definition of MPV in 49 CFR 571.3 (as it relates to special features
for occasional off-road operation) to 49 CFR

523.5(b)(2)? What drawbacks exist in linking both provisions? Using the
longstanding off-road features for fuel economy provides could clarify
the means for certifying that a vehicle meets the definition for MPV in
571.3 when manufacturers may otherwise be uncertain as to how to
classify a vehicle.
---------------------------------------------------------------------------

    \497\ 49 CFR 571.3.
---------------------------------------------------------------------------

B. Complying With the NHTSA CAFE Program

1. Annual Compliance Process
    Manufacturers' production decisions drive the mixture of
automobiles on the road. Manufacturers largely produce a mixture of
vehicles both to influence and meet consumer demand and address
compliance with CAFE standards though the application of fuel economy
improving technologies to those vehicles, and by using compliance
flexibilities and incentives that are available in the CAFE program. As
discussed earlier in this NPRM, each vehicle manufacturer is subject to
separate CAFE standards for passenger cars and light trucks, and for
the passenger car standards, a manufacturer's domestically-manufactured
and imported passenger car fleets are required to comply
separately.\498\ Additionally, domestically-manufactured passenger cars
are subject to a statutory minimum standard. Some CAFE program
flexibilities are described by statute. Other flexibilities are
established by NHTSA through regulation in accordance with the EPCA and
EISA, such as fuel economy improvements for air conditioning
efficiency, off-cycle, and pickup truck advanced technologies that are
not expressly specified by CAFE statute, but are implemented consistent
with EPCA's provisions regarding the calculation of fuel economy
authorized for EPA.
---------------------------------------------------------------------------

    \498\ 49 U.S.C. 32904(b).
---------------------------------------------------------------------------

    Compliance with the CAFE program begins each year with
manufacturers submitting required reports to NHTSA in advance and
during the model year that contain information, specifications, data,
and projections about their fleets.\499\ Manufacturers report early
product projections to NHTSA describing their efforts to comply with
CAFE standards per EPCA's reporting requirements.\500\ Manufacturers'
early projections are required to identify any of the flexibilities and
incentives manufacturers plan to use for air-conditioning (A/C)
efficiency, off-cycle and, through MY 2021, which this action proposes
to extend through MY 2026, full-size pickup truck advanced
technologies. EPA consults with NHTSA when reviewing and considering
manufacturers' requests for fuel consumption improvement values for A/C
and off-cycle technologies that improve fuel economy. NHTSA evaluates
and monitors the performance of the industry using compliance data.
NHTSA also audits manufacturers' projected data for conformance and
verifies vehicle conformance through measurements (e.g., vehicle
footprints) to ensure manufacturers are complying. After the model year
ends, manufacturers submit final reports to EPA, that include final
information on all the flexibilities and incentives allowed or approved
for the given model year.\501\ EPA then verifies manufacturers'
reported information and values and calculates the final fuel economy
level of each fleet produced by each manufacturer, and transmits that
information to NHTSA.\502\
---------------------------------------------------------------------------

    \499\ 49 U.S.C. 32907(a); 49 CFR 537.7.
    \500\ 49 U.S.C. 32907(a).
    \501\ For example, alternative fueled vehicles get special
calculations under EPCA (49 U.S.C. 32905-06), and fuel economy
levels can also be adjusted to reflect air conditioning efficiency
and ``off-cycle'' improvements.
    \502\ 49 U.S.C. 32904(c)-(e). EPCA granted EPA authority to
establish fuel economy testing and calculation procedures; EPA uses
a two-year early certification process to qualify manufacturers to
start selling vehicles, coordinates manufacturer testing throughout
the model year, and validates manufacturer-submitted final test
results after the close of the model year.
---------------------------------------------------------------------------

    In previous years, the normal processes for CAFE compliance between
NHTSA and EPA have been effective at administering the CAFE program for
decades. EPA sends NHTSA its final CAFE results usually between
November to December after the given model year. In recent years, this
process has been disrupted by manufacturers submitting requests for A/C
and off-cycle benefits during the model year and at times well after
the end of the model year. As EPA cannot finalize CAFE results until
all A/C and off-cycle credits for a model year are accounted for, the
belated submissions have significantly delayed NHTSA receiving final
CAFE results for many manufacturers. Late submissions place significant
burdens on the agencies and complicate administering the CAFE program,
including delaying the exchange and use of credits. In the following
sections, NHTSA discusses the adverse impacts on the CAFE program
resulting from late and retro-active A/C and off-cycle requests and
proposes regulatory modifications to mitigate late submissions and help
expedite processes for future off-cycle requests.
    After receiving EPA's final reports, NHTSA completes the remainder
of its compliance processes for manufacturers usually one to three
months after receiving EPA's final reports. The process starts with
NHTSA using EPA's final verified information to determine the CAFE
standard for each of the manufacturer's fleets, and each fleet's
compliance level. Those results are then used to determine credits,
credit shortfalls and credit balances, and NHTSA sends letters to
manufacturers stating the outcome of that assessment. Credit shortfall
letters specify the obligated credit deficiency a manufacturer must
resolve to comply with the applicable CAFE standard for the given model
year. Credit balance letters specify the official balance of credits
NHTSA has allotted to the manufacturer in each of its credit accounts
and a ledger of the credit transactions the manufacturer has executed.
Upon receipt of NHTSA's compliance letters, manufacturers are required
to submit plans explaining how they plan to resolve any shortfalls.
NHTSA periodically releases data and reports to the public through its
CAFE Public Information Center (PIC) based on information in the EPA
final reports for the given compliance model year and based on the
projections manufacturers provide to NHTSA for the next two model
years.\503\
---------------------------------------------------------------------------

    \503\ The NHTSA Public Information Center (PIC) is located at
https://one.nhtsa.gov/cafe_pic/CAFE_PIC_Home.htm.
---------------------------------------------------------------------------

    Some flexibilities are defined, and sometimes limited by statute--
for example, while Congress allowed manufacturers to transfer credits
earned for over-compliance from their car fleet to their truck fleet
and vice versa, Congress also limited the amount by which manufacturers
could increase their CAFE levels using those transfers.\504\ Consistent
with the limits Congress placed on certain statutory flexibilities and
incentives, NHTSA crafted and implemented credit transfer and trading
regulations authorized by EISA ensure that total fuel savings are
preserved when manufacturers exercise statutory compliance
flexibilities required by statute.
---------------------------------------------------------------------------

    \504\ See 49 U.S.C. 32903(g).
---------------------------------------------------------------------------

    NHTSA and EPA have previously developed other compliance
flexibilities and incentives for the CAFE program consistent with the
statutory provisions regarding EPA's calculation of manufacturers' fuel
economy levels. As discussed previously, NHTSA finalized in the 2012
final rule an approach for manufacturers' ``credits'' under EPA's
program to be applied as fuel economy

``adjustments'' or ``improvement values'' under NHTSA's program for:
(1) Technologies that cannot be measured or cannot be fully measured on
the 2-cycle test procedure, i.e., ``off-cycle'' technologies; and (2)
A/C efficiency improvements that also improve fuel economy but cannot
be measured on the 2-cycle test procedure. Additionally, both agencies'
programs give manufacturers compliance incentives through MY 2021, and
proposed to be extended to MY 2026 in this NPRM, for utilizing
specified technologies on full-size pickup trucks, such as
hybridization, or full-size pickup trucks that overperform their fuel
economy stringency target values by greater than a specified amount.
    The following sections outline how NHTSA determines whether
manufacturers are in compliance with CAFE standards for each model
year, and how manufacturers may use compliance flexibilities, or
alternatively address noncompliance through civil penalties. Moreover,
it explains how manufacturers submit data and information to the
agency. This includes a detailed discussion of NHTSA's standardized
CAFE reporting template adopted as a part of the 2020 final rule, and
the standardized template for reporting credit transactions. In the
2020 final rule, NHTSA also adopted requirements for manufacturers to
provide information on terms of credit trades. In this rulemaking,
NHTSA is proposing to make changes to its reporting and credit
templates and to issue a new template to clarify the required reporting
information for credit trades. These new requirements were intended to
streamline reporting and data collection from manufacturers, in
addition to helping the agency use the best available data to inform
CAFE program decision makers.
2. How does NHTSA determine compliance?
(a) Manufacturers Submit Data to NHTSA and EPA and the Agencies
Validate Results
    EPCA, as amended by EISA, in 49 U.S.C. 32907, requires
manufacturers to submit reports to the Secretary of Transportation
explaining how they will comply with the CAFE standards for the model
year for which the report is made; the actions a manufacturer has taken
or intends to take to comply with the standard; and other information
the Secretary requires by regulation.\505\ A manufacturer must submit a
report containing this information during the 30-day period before the
beginning of each model year, and during the 30-day period beginning
the 180th day of the model year.\506\ When a manufacturer determines it
is unlikely to comply with a CAFE standard, the manufacturer must
report additional actions it intends to take to comply and include a
statement about whether those actions are sufficient to ensure
compliance.\507\
---------------------------------------------------------------------------

    \505\ 49 U.S.C. 32907(a).
    \506\ Id.
    \507\ Id.
---------------------------------------------------------------------------

    To implement these reporting requirements, NHTSA issued 49 CFR part
537, ``Automotive Fuel Economy Reports,'' which specifies three types
of CAFE reports that manufacturers must submit.\508\ A manufacturer
must first submit a pre-model year (PMY) report containing the
manufacturer's projected compliance information for that upcoming model
year. By regulation, the PMY report must be submitted in December of
the calendar year prior to the corresponding model year.\509\
Manufacturers must then submit a mid-model year (MMY) report containing
updated information from manufacturers based upon actual and projected
information known midway through the model year. By regulation, the MMY
report must be submitted by the end of July for the applicable model
year.\510\ Finally, manufacturers must submit a supplementary report to
supplement or correct previously submitted information, as specified in
NHTSA's regulation.\511\
---------------------------------------------------------------------------

    \508\ See 47 FR 34986, Aug. 12, 1982.
    \509\ 49 CFR 537.5(b).
    \510\ Id.
    \511\ 49 CFR 537.8.
---------------------------------------------------------------------------

    If a manufacturer wishes to request confidential treatment for a
CAFE report, it must submit both a confidential and redacted version of
the report to NHTSA. CAFE reports submitted to NHTSA contain estimated
sales production information, which may be protected as confidential
until the termination of the production period for that model
year.\512\ NHTSA protects each manufacturer's competitive sales
production strategies for 12 months, but does not permanently exclude
sales production information from public disclosure. Sales production
volumes are part of the information NHTSA routinely makes publicly
available through the CAFE PIC.
---------------------------------------------------------------------------

    \512\ 49 CFR part 512, appx. B(2).
---------------------------------------------------------------------------

    The manufacturer reports provide information on light-duty
automobiles such as projected and actual fuel economy standards, fuel
economy performance, and production volumes, as well as information on
vehicle design features (e.g., engine displacement and transmission
class) and other vehicle attribute characteristics (e.g., track width,
wheelbase, and other off-road features for light trucks). Beginning
with MY 2017, to obtain credit for fuel economy improvement values
attributable to additional technologies, manufacturers must also
provide information regarding A/C systems with improved efficiency,
off-cycle technologies (e.g., stop-start systems, high-efficiency
lighting, active engine warm-up), and full-size pickup trucks with
hybrid technologies or with fuel economy performance that is better
than footprint-based targets by specified amounts. This includes
identifying the makes and model types equipped with each technology,
the compliance category those vehicles belong to, and the associated
fuel economy improvement value for each technology.\513\ In some cases,
NHTSA may require manufacturers to provide supplementary information to
justify or explain the benefits of these technologies and their impact
on fuel consumption or to evaluate the safety implication of the
technologies. These details are necessary to facilitate NHTSA's
technical analyses and to ensure the agency can perform enforcement
audits as appropriate.
---------------------------------------------------------------------------

    \513\ NHTSA collects model type information based upon the EPA
definition for ``model type'' in 40 CFR 600.002.
---------------------------------------------------------------------------

    NHTSA uses manufacturer-submitted PMY, MMY, and supplementary
reports to assist in auditing manufacturer compliance data and
identifying potential compliance issues as early as possible.
Additionally, as part of its footprint validation program, NHTSA
conducts vehicle testing throughout the model year to confirm the
accuracy of the track width and wheelbase measurements submitted in the
reports.\514\ These tests help the agency better understand how
manufacturers may adjust vehicle characteristics to change a vehicle's
footprint measurement, and ultimately its fuel economy target. NHTSA
also includes a summary of manufacturers' PMY and MMY data in an annual
fuel economy performance report made publicly available on its PIC.
---------------------------------------------------------------------------

    \514\ U.S. Department of Transportation, NHTSA, Laboratory Test
Procedure for 49 CFR part 537, Automobile Fuel Economy Attribute
Measurements (Mar. 30, 2009), available at http://www.nhtsa.gov/DOT/NHTSA/Vehicle%20Safety/Test%20Procedures/Associated%20Files/TP-537-01.pdf.
---------------------------------------------------------------------------

    As mentioned, NHTSA uses EPA-verified final-model year (FMY) data
to evaluate manufacturers' compliance with CAFE program requirements
and draw conclusions about the performance of the industry. After

manufacturers submit their FMY data, EPA verifies the information,
accounting for NHTSA and EPA testing, and subsequently forwards the
final verified data to NHTSA.
(b) New CAFE Reporting Templates Adopted in the 2020 Final Rule
    NHTSA adopted changes to its CAFE reporting requirements in the
2020 final rule with the intent of streamlining data collection and
reporting for manufacturers while helping the agency obtain the best
available data to inform CAFE program decision-makers. The agency
adopted two new standardized reporting templates for manufacturers.
NHTSA's goal was to adopt standardized templates to assist
manufacturers in providing the agency with all the necessary data to
ensure they comply with CAFE regulations.
    The first template was designed for manufacturers to simplify
reporting CAFE credit transactions starting in model year 2021. The
template's purpose was to reduce the burden on credit account holders,
encourage compliance, and facilitate quicker NHTSA credit transaction
approval. Before the template, manufacturers would inconsistently
submit information required by 49 CFR 536.8, creating difficulties in
processing credit transactions. Using the template simplifies CAFE
compliance aspects of the credit trading process and helps to ensure
that trading parties follow the requirements for a credit transaction
in 49 CFR 536.8(a).\515\
---------------------------------------------------------------------------

    \515\ Submitting a properly completed template and accompanying
transaction letter will satisfy the trading requirements in 49 CFR
part 536.
---------------------------------------------------------------------------

    The second template was designed to standardize reporting for CAFE
PMY and MMY information, as specified in 49 CFR 537.7(b) and (c), as
well as supplementary information required by 49 CFR 537.8. The
template organizes the required data in a manner consistent with NHTSA
and EPA regulations and simplifies the reporting process by
incorporating standardized responses consistent with those provided to
EPA. The template collects the relevant data, calculates intermediate
and final values in accordance with EPA and NHTSA methodologies, and
aggregates all the final values required by NHTSA regulations in a
single summary worksheet. Thus, NHTSA believes that the standardized
templates will benefit both the agency and manufacturers by helping to
avoid reporting errors, such as data omissions and miscalculations, and
will ultimately simplify and streamline reporting. Manufacturers are
required to use the standardized template for all PMY, MMY, and
supplementary CAFE reports starting in MY 2023. The template also
allowed manufacturers to enter information to generate the required
confidential versions of CAFE reports specified in 49 CFR part 537 and
to produce automatically the required non-confidential versions by
clicking a button within the template.
    The standardized CAFE reporting templates were made available on
the NHTSA website and through the DOT docket. Since then, manufacturers
have downloaded the templates and met with NHTSA to share
recommendations for changes, such as allowing the PMY and MMY reporting
templates to accommodate different types of alternative fueled vehicles
and to clarify and correct the methods for calculating CAFE values. The
proposed changes are discussed in the following sections. NHTSA plans
to host a series of workshops to implement the templates and to provide
an open dialogue for manufacturers to identify any further problems and
seek clarifications. NHTSA plans to announce the workshops through the
Federal Register later this year.
(1) Changes to the CAFE Reporting Template
    The changes to the CAFE Reporting Template include several general
improvements made to simply the use and the effectiveness for
manufacturers. These include, but are not limited to; wording changes,
corrections to calculations and codes, and auto-populating fields
previously requiring manual entry.
    More specifically, NHTSA is proposing to modify the CAFE Reporting
Template by adding filters and sorting functions to help manufacturers
connect the data definitions to the location of each of the required
data fields in the template. Additional information from other parts of
the CAFE Reporting Template would be pulled forward to display on the
summary tab. For the information that must be included pursuant to 49
CFR 537.7(b)(2), manufacturers can also compare the values the template
calculates to their own internally calculated CAFE values.
Additionally, we are proposing to expand the CAFE Reporting Template to
include more of the required information regarding vehicle
classification, and guidance provided to ease manufacturers reporting
burden by having them report only the data used for each vehicle's
qualification pathway ignoring other possible light truck
classification information.
    NHTSA is also proposing that the CAFE Reporting Template be
modified to combine the footprint attribute information and model type
sub-configuration data for the purposes of matching. NHTSA uses this
information to match test data directly to fuel economy footprint
values for the purposes of modeling fuel economy standards. Features
were added to auto-populate redundant information from one worksheet to
another. The data gathered and the formulas coded within the proposed
worksheets have also been updated for the calculation of fuel economy
based on 40 CFR 600.510-12. The changes to the data and formulas will
allow data to more accurately represent the fuel economy of electric
and other vehicles using alternative fuels. NHTSA considers this
information critically important to forming a more complete picture of
the performances of dual fuel and alternative fuel vehicles.
    We are also proposing several corrections so that manufacturers
will submit CAFE data at each of the different sub-configuration levels
they test and will combine CO2 and fuel economy data. As
mentioned, manufacturers test approximately 90-percent of their
vehicles within each model type. Each sub-configuration variant within
a model type has a unique CO2 and CAFE value. Manufacturers
combine other vehicles at the configuration, base level and then
finally at the model type level for determining CAFE performance. The
CAFE performance data for the sub-configurations have been added to the
proposed template. NHTSA determined that this level of data was needed
to verify manufacturers reported CAFE values.
    Finally, we are proposing corrections to the CAFE Reporting
Template to collect information on off-cycle technologies. The proposed
changes match the format of the data with the EPA off-cycle database
system. For example, manufacturers report to EPA high efficiency
lighting as combination packages, so NHTSA is proposing to change its
form to reflect this same level of information.
    Version 2.21 of the template is available on NHTSA's Public
Information Center (PIC) site.
(2) Credit Transactions Reporting Template
    NHTSA established mandatory use of the CAFE credit template
starting on January 1, 2021. However, manufacturers identified several
calculation errors in the version of the credit reporting template
available on

the PIC site. Those calculation errors have been corrected and a new
version of the template is available for download on the NHTSA PIC.
Starting January 1, 2022, NHTSA will only accept its credit template as
the sole source for executing CAFE credit transactions. Until that
time, manufacturers can deviate from the generated language in the
NHTSA credit trade confirmation by adding qualifications but, at a
minimum, must include the core information generated by the template.
(3) Monetary and Non-Monetary Credit Trade Information
    Credit trading became permissible in MY 2011.\516\ To date, NHTSA
has received numerous credit trades from entities, but has only made
limited information publicly available.\517\ As discussed earlier,
NHTSA maintains an online CAFE database with manufacturer and fleetwide
compliance information that includes year-by-year accounting of credit
balances for each credit holder. While NHTSA maintains this database,
the agency's regulations currently state that it will not publish
information on individual transactions, and NHTSA has not previously
required trading entities to submit information regarding the
compensation (whether financial, or other items of value) exchanged for
credits.518 519 Thus, NHTSA's PIC offers sparse information
to those looking to determine the value of a credit.
---------------------------------------------------------------------------

    \516\ 49 CFR 536.6(c).
    \517\ Manufacturers may generate credits, but non-manufacturers
may also hold or trade credits. Thus, the word ``entities'' is used
to refer to those that may be a party to a credit transaction.
    \518\ 49 CFR 536.5(e)(1).
    \519\ NHTSA understands that not all credits are exchanged for
monetary compensation. The proposal that NHTSA is adopting in this
proposed rule requires entities to report compensation exchanged for
credits and is not limited to reporting monetary compensation.
---------------------------------------------------------------------------

    The lack of information regarding credit transactions means
entities wishing to trade credits have little, if any, information to
determine the value of the credits they seek to buy or sell.
Historically we have assumed that the civil penalty for noncompliance
with CAFE standards largely determines the upper value of a credit,
because it is logical to assume that manufacturers would not purchase
credits if it cost less to pay civil penalties instead, but it is
unknown how other factors affect the value. For example, a credit
nearing the end of its five-model-year lifespan would theoretically be
worth less than a credit within its full five-model-year lifespan. In
the latter case, the credit holder would likely value the credit more,
as it can be used for compliance purposes for a longer period of time.
    NHTSA adopted requirements in the 2020 final rule requiring
manufacturers to submit all credit trade contracts, including cost and
transactional information, to the agency starting January 1, 2021.
NHTSA also adopted requirements allowing manufacturers to submit the
information confidentially, in accordance with 49 CFR part 512.\520\ As
stated in the final rule, NHTSA intended to use this information to
determine the true cost of compliance for all manufacturers. This
information would allow NHTSA to better assess the impact of its
regulations on the industry and provide more insightful information in
developing future rulemakings. This confidential information would be
held by secure electronic means in NHTSA's database systems. As for
public information, NHTSA would include more information on the PIC on
aggregated credit transactions, such as the combined flexibilities all
manufacturers used for compliance as shown in Figure VII-6, or
information comparable to the credit information EPA makes available to
the public. In the future, NHTSA will consider what information, if
any, can be meaningfully shared with the public on credit transactional
details or costs, while accounting for the concerns raised by the
automotive industry for protecting manufacturers' competitive sources
of information.
---------------------------------------------------------------------------

    \520\ See also 49 U.S.C. 32910(c).
---------------------------------------------------------------------------

    However, manufacturers continue to argue that disclosing trading
terms may not be as simple as a spot purchase at a given price. As
stated in the 2020 final rule, manufacturers contend a number of
transactions for both CAFE and CO2 credits involve a range
of complexity due to numerous factors that are reflective of the
marketplace, such as the volume of credits, compliance category, credit
expiration date, a seller's compliance strategy, and even the CAFE
penalty rate in effect at that time. In addition, automakers have a
range of partnerships and cooperative agreements with their own
competitors. Credit transactions can be an offshoot of these broader
relationships, and difficult to price separately and independently.
    Since then, NHTSA has identified a series of non-monetary factors
that it believes to be important to the costs associated with credit
trading in the CAFE program.\521\ The agency believes this information
will allow for a better assessment of the true costs of compliance.
NHTSA further notes that greater government oversight is needed over
the CAFE credit market and it needs to understand the full range of
complexity in transactions, monetary and non-monetary, in addition to
the range of partnerships and cooperative agreements between credit
account holders--which may impact the price of credit trades.\522\
Therefore, using the identified series of non-monetary factors, NHTSA
has developed a new CAFE Credit Reporting Template (Form 1621) for
capturing the monetary and non-monetary terms of credit trading
contracts. NHTSA proposes that manufacturers start using the new
template starting September 1, 2022. The draft template can be viewed
and downloaded from the NHTSA PIC site.
---------------------------------------------------------------------------

    \521\ UCS, Detailed Comments, NHTSA-2018-0067-12039; Jason
Schwartz, Detailed Comments, NHTSA-2018-0067-12162.
    \522\ Honda, Detailed Comments, NHTSA-2018-0067-11819.
---------------------------------------------------------------------------

3. What compliance flexibilities and incentives are currently available
under the CAFE program and how do manufacturers use them?
    Generating, trading, transferring, and applying CAFE credits is
governed by statute.\523\ Program credits are generated when a vehicle
manufacturer's fleet over-complies with its standard for a given model
year, meaning its vehicle fleet achieved a higher corporate average
fuel economy value than the amount required by the CAFE program for
that fleet in that model year. Conversely, if the fleet average CAFE
level does not meet the standard, the fleet incurs debits (also
referred to as a shortfall or deficit). A manufacturer whose fleet
generates a credit shortfall in a given model year can resolve its
shortfall using any one or combination of several credits
flexibilities, including credit carryback, credit carry-forward, credit
transfers, and credit trades, and if all credit flexibilities have been
exhausted, then the manufacturer must resolve its shortfall by making
civil penalty payments.\524\
---------------------------------------------------------------------------

    \523\ 49 U.S.C. 32903.
    \524\ Manufacturers may elect to pay civil penalties rather than
utilizing credit flexibilities at their discretion. For purposes of
the analysis, we assume that manufacturers will only pay penalties
when all flexibilities have been exhausted.
---------------------------------------------------------------------------

    NHTSA has also promulgated compliance flexibilities and incentives
consistent with EPCA's provisions regarding calculation of fuel economy
levels for individual vehicles and for fleets.\525\ These compliance
flexibilities and incentives, which were first adopted in the 2012 rule
for MYs 2017 and later, include A/C efficiency improvement and off-
cycle adjustments,

and adjustments for advanced technologies in full-size pickup trucks,
including adjustments for mild and strong hybrid electric full-size
pickup trucks and performance-based incentives in full-size pickup
trucks. The fuel consumption improvement benefits of these technologies
measured by various testing methods can be used by manufacturers to
increase the CAFE performance of their fleets.
---------------------------------------------------------------------------

    \525\ 49 U.S.C. 32904.
---------------------------------------------------------------------------

(a) Available Credit Flexibilities
    Under NHTSA regulations, credit holders (including, but not limited
to manufacturers) have credit accounts with NHTSA where they can, hold
credits, and use them to achieve compliance with CAFE standards, by
carrying forward, carrying back, or transferring credits across
compliance categories, subject to several restrictions. Manufacturers
with excess credits in their accounts can also trade credits to other
manufacturers, who may use those credits to resolve a shortfall
currently or in a future model year. A credit may also be cancelled
before its expiration date if the credit holder so chooses. Traded and
transferred credits are subject to an ``adjustment factor'' to ensure
total oil savings are preserved.\526\
---------------------------------------------------------------------------

    \526\ See Section VII.B.3.b) for details.
---------------------------------------------------------------------------

    Credit ``carryback'' means that manufacturers are able to use
recently earned credits to offset a deficit that had accrued in a prior
model year, while credit ``carry-forward'' means that manufacturers can
bank credits and use them towards compliance in future model years.
EPCA, as amended by EISA, allows manufacturers to carryback credits for
up to three model years, and to carry-forward credits for up to five
model years.\527\ Credits expire the model year after which the credits
may no longer be used to achieve compliance with fuel economy
regulations.\528\ Manufacturers seeking to use carryback credits must
submit a carryback plan to NHTSA, for NHTSA's review and approval,
demonstrating their ability to earn sufficient credits in future MYs
that can be carried back to resolve the current MY's credit shortfall.
---------------------------------------------------------------------------

    \527\ 49 U.S.C. 32903(a).
    \528\ 49 CFR 536.3(b).
---------------------------------------------------------------------------

    Credit ``trading'' refers to the ability of manufacturers or
persons to sell credits to, or purchase credits from, one another while
credit ``transfer'' means the ability to transfer credit between a
manufacturer's compliance fleets to resolve a credit shortfall. EISA
gave NHTSA discretion to establish by regulation a CAFE credit trading
program, to allow credits to be traded between vehicle manufacturers,
now codified at 49 CFR part 536.\529\ EISA prohibits manufacturers from
using traded credits to meet the minimum domestic passenger car CAFE
standard.\530\
---------------------------------------------------------------------------

    \529\ 49 U.S.C. 32903(f).
    \530\ 49 U.S.C. 32903(f)(2).
---------------------------------------------------------------------------

(b) Fuel Savings Adjustment Factor
    Under NHTSA's credit trading regulations, a fuel savings adjustment
factor is applied when trading occurs between manufacturers and those
credits are used, or when a manufacturer transfers credits between its
compliance fleets and those credits are used, but not when a
manufacturer carries credits forward or backwards within the same
fleet.\531\
---------------------------------------------------------------------------

    \531\ See Section III.C for details about carry forward and back
credits.
---------------------------------------------------------------------------

    NHTSA is including in this proposal a restoration of certain
definitions that are part of the adjustment factor equation that had
been inadvertently deleted in the 2020 final rule. The 2020 final rule
had intended to add a sentence to the adjustment factor term in 49 CFR
536.4(c), simply to make clear that the figure should be rounded to
four decimal places. While the 2020 final rule implemented this change,
the amendatory instruction for doing so unintentionally deleted several
other definitions from that paragraph. NHTSA had not intended to modify
or delete those definitions, so they are simply being added back into
the paragraph.
(c) VMT Estimates for Fuel Savings Adjustment Factor
    NHTSA uses VMT estimates as part of its fuel savings adjustment
equation. Including VMT is important as fuel consumption is directly
related to vehicle use, and in order to ensure trading credits between
fleets preserves oil savings, VMT must be considered.\532\ For MYs 2017
and later, NHTSA finalized VMT values of 195,264 miles for passenger
car credits, and 225,865 miles for light truck credits.\533\
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    \532\ See 49 CFR 536.4(c).
    \533\ 77 FR 63130 (Oct. 15, 2012).
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(d) Fuel Economy Calculations for Dual and Alternative Fueled Vehicles
    As discussed at length in prior rulemakings, EPCA, as amended by
EISA, encouraged manufacturers to build alternative-fueled and dual-
(or flexible-) fueled vehicles by providing special fuel economy
calculations for ``dedicated'' (that is, 100 percent) alternative
fueled vehicles and ``dual-fueled'' (that is, capable of running on
either the alternative fuel or gasoline/diesel) vehicles.
    Dedicated alternative-fuel automobiles include electric, fuel cell,
and compressed natural gas vehicles, among others. The statutory
provisions for dedicated alternative fuel vehicles in 49 U.S.C.
32905(a) state that the fuel economy of any dedicated automobile
manufactured after MY 1992 shall be measured ``based on the fuel
content of the alternative fuel used to operate the automobile. A
gallon of liquid alternative fuel used to operate a dedicated
automobile is deemed to contain 0.15 gallon of fuel.'' There are no
limits or phase-out for this special fuel economy calculation within
the statute.
    EPCA's statutory incentive for dual-fueled vehicles at 49 U.S.C.
32906 and the measurement methodology for dual-fueled vehicles at 49
U.S.C. 32905(b) and (d) expired after MY 2019. In the 2012 final rule,
NHTSA and EPA concluded that it would be inappropriate and contrary to
the intent of EPCA/EISA to measure duel-fueled vehicles' fuel economy
like that of conventional gasoline vehicles with no recognition of
their alternative fuel capability. The agencies determined that for MY
2020 and later vehicles, the general statutory provisions authorizing
EPA to establish testing and calculation procedures provide discretion
to set the CAFE calculation procedures for those vehicles. The
methodology for EPA's approach is outlined in the 2012 final rule for
MYs 2017 and later at 77 FR 63128 (Oct. 15, 2012).
(e) Flexibilities for Air-Conditioning Efficiency, Off-Cycle
Technologies, and Full-Size Pickup Trucks
(1) Incentives for Advanced Technologies in Full-Size Pickup Trucks
    Under its EPCA authority for CAFE and under its CAA authority for
GHGs, EPA established fuel consumption improvement values (FCIVs) for
manufacturers that hybridize a significant quantity of their full-size
pickup trucks, or that use other technologies that significantly reduce
fuel consumption of these full-sized pickup trucks. More specifically,
CAFE FCIVs were made available to manufacturers that produce full-size
pickup trucks with Mild HEV or Strong HEV technology, provided the
percentage of production with the technology is greater than specified
percentages.\534\ In addition, CAFE FCIVs were made available for
manufacturers that produce full-size pickups with other technologies
that enable full-size

pickup trucks to exceed their CAFE targets based on footprints by
specified amounts (i.e., electric vehicles and other electric
components).\535\ These performance-based incentives create a
technology-neutral path (as opposed to the other technology-encouraging
path) to achieve the CAFE FCIVs, which would encourage the development
and application of new technological approaches.
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    \534\ 77 FR 62651 (Oct. 15, 2012).
    \535\ Id.
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    Large pickup trucks represent a significant portion of the overall
light duty vehicle fleet and generally have higher levels of fuel
consumption and GHG emissions than most other light duty vehicles.
Improvements in the fuel economy and GHG emissions of these vehicles
can have significant impact on the overall light-duty fleet fuel use
and GHG emissions. NHTSA believes that offering incentives could
encourage the deployment of technologies that can significantly improve
the efficiency of these vehicles and that also will foster production
of those technologies at levels that will help achieve economies of
scale, would promote greater fuel savings overall and make these
technologies more cost effective and available in the future model
years to assist in compliance with CAFE standards.
    EPA and NHTSA also established limits on the eligibility for these
pickup trucks to qualify for incentives. A truck was required to meet
minimum criteria for bed size and towing or payload capacities and meet
minimum production thresholds (in terms of a percentage of a
manufacturer's full-size pickup truck fleet) in order to qualify for
these incentives. Under the provisions, Mild HEVs are eligible for a
per-vehicle CO2 credit of 10 g/mi (equivalent to 0.0011
gallon/mile for a gasoline-fueled truck) during MYs 2017-2021. To be
eligible a manufacturer would have to show that the Mild HEV technology
is utilized in a specified portion of its truck fleet beginning with at
least 20 percent of a company's full-size pickup production in MY 2017
and ramping up to at least 80 percent in MY 2021. Strong HEV pickup
trucks are eligible for a 20 g/mi credit (0.0023 gallon/mile) during
MYs 2017-2021, and in this rulemaking proposed to be extended through
MY 2026, if the technology is used on at least 10 percent of a
company's full-size pickups in that model year. EPA and NHTSA also
adopted specific definitions for Mild and Strong HEV pickup trucks,
based on energy flow to the high-voltage battery during testing.
    Furthermore, to incentivize other technologies that can provide
significant reductions in GHG emissions and fuel consumption for full-
size pickup trucks, EPA also adopted, a performance-based fuel
consumption improvement value for full-size pickup trucks. Eligible
pickup trucks certified as performing 15 percent better than their
applicable CO2 target receive a 10 g/mi credit (0.0011
gallon/mile), and those certified as performing 20 percent better than
their target receive a 20 g/mi credit (0.0023 gallon/mile). The 10 g/mi
performance-based credit is available for MYs 2017 to 2021 and, once
qualifying; a vehicle model will continue to receive the credit through
MY 2021, provided its CO2 emissions level does not increase.
To be eligible a manufacturer would have to show that the technology is
utilized in a specified portion of its truck fleet beginning with at
least 20 percent of a company's full-size pickup production in MY 2017
and ramping up to at least 80 percent in MY 2021. The 20 g/mi
performance-based credit was available for a vehicle model for a
maximum of 5 years within the 2017 to 2021 model year period, and in
this rulemaking proposed to be extended through MY 2026, provided its
CO2 emissions level does not increase. To be eligible, the
technology must be applied to at least 10 percent of a company's full-
size pickups in for the model year.
    The agencies designed a definition for full-size pickup truck based
on minimum bed size and hauling capability, as detailed in 40 CFR
86.1866-12(e). This definition ensured that the larger pickup trucks,
which provide significant utility with respect to bed access and
payload and towing capacities, are captured by the definition, while
smaller pickup trucks with more limited capacities are not covered. A
full-size pickup truck is defined as meeting requirements (1) and (2)
below, as well as either requirement (3) or (4) below.
    (1) Bed Width--The vehicle must have an open cargo box with a
minimum width between the wheelhouses of 48 inches. And--
    (2) Bed Length--The length of the open cargo box must be at least
60 inches. And--
    (3) Towing Capability--the gross combined weight rating (GCWR)
minus the gross vehicle weight rating (GVWR) must be at least 5,000
pounds. Or--
    (4) Payload Capability--the GVWR minus the curb weight (as defined
in 40 CFR 86.1803) must be at least 1,700 pounds.
    In the 2020 CAFE rule, the agencies ended the incentives for full-
size pickup trucks after the end of model year 2021 believing expanded
incentives would likely not result in any further emissions benefits or
fuel economy improvements since an increase in sales volume was
unanticipated. At the time, no manufacturer had qualified to use the
full-size pickup truck incentives since they went into effect in MY
2017. One vehicle manufacturer introduced a mild hybrid pickup truck in
MY 2019 but was ineligible for the FCIV because it did not meet the
minimum production threshold. Other manufacturers had announced
potential collaborations or started designing future hybrid or electric
models, but none were expected to meet production requirements within
the time period of eligibility for these incentives.
    Since the 2020 final rule, many manufacturers have publicly
announced several new model types of full-size electric pickup trucks
starting in MY 2022. NHTSA notes that historically its goal has always
been to promote electric vehicles due to their exceptional fuel saving
benefits. For this reason, even given the discontinuation in MY 2019 of
AMFA incentives for dual fueled vehicles, NHTSA retained its benefits
for alternative dedicated fueled vehicles to focus on the growth of
electric vehicles in the market. Therefore, after the careful
consideration of this new information and the potential role incentives
could play in increasing the production of these technologies, and the
associated beneficial impacts on fuel consumption, the agency is
proposing to extend the full-size pickup truck incentive through MY
2025 for strong hybrids and for full-size pickup trucks performing 20-
percent better than their target. Also, understanding the importance of
electric vehicles in the market, NHTSA is proposing to allow
manufacturers to combine both the incentives for alternative fueled
vehicles and full-size pickup trucks FCIVs when complying with the CAFE
program.
(2) Flexibilities for Air Conditioning Efficiency
    A/C systems are virtually standard automotive accessories, and more
than 95 percent of new cars and light trucks sold in the U.S. are
equipped with mobile A/C systems. A/C system usage places a load on an
engine, which results in additional fuel consumption; the high
penetration rate of A/C systems throughout the light-duty vehicle fleet
means that more efficient systems can significantly impact the total
energy consumed. A/C systems also have non-CO2 emissions
associated with

refrigerant leakage.\536\ Manufacturers can improve the efficiency of
A/C systems though redesigned and refined A/C system components and
controls.\537\ That said, such improvements are not measurable or
recognized using 2-cycle test procedures since A/C is turned off during
2-cycle testing. Any A/C system efficiency improvements that reduce
load on the engine and improve fuel economy is therefore not measurable
on those tests.
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    \536\ Notably, manufacturers cannot claim CAFE-related benefits
for reducing A/C leakage or switching to an A/C refrigerant with a
lower global warming potential. While these improvements reduce GHG
emissions consistent with the purpose of the CAA, they generally do
not impact fuel economy and, thus, are not relevant to the CAFE
program.
    \537\ The approach for recognizing potential A/C efficiency
gains is to utilize, in most cases, existing vehicle technology/
componentry, but with improved energy efficiency of the technology
designs and operation. For example, most of the additional A/C-
related load on an engine is because of the compressor, which pumps
the refrigerant around the system loop. The less the compressor
operates, the less load the compressor places on the engine
resulting in less fuel consumption. Thus, optimizing compressor
operation with cabin demand using more sophisticated sensors,
controls, and control strategies is one path to improving the
efficiency of the A/C system.
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    The CAFE program includes flexibilities to account for the real-
world fuel economy improvements associated with improved A/C systems
and to include the improvements for compliance.\538\ The total A/C
efficiency credits is calculated by summing the individual credit
values for each efficiency improving technology used on a vehicle, as
specified in the A/C credit menu. The total A/C efficiency credit sum
for each vehicle is capped at 5.0 grams/mile for cars and 7.2 grams/
mile for trucks. Additionally, the off-cycle credit program contains
credit earning opportunities for technologies that reduce the thermal
loads on a vehicle from environmental conditions (solar loads or parked
interior air temperature).\539\ These technologies are listed on a
thermal control menu that provides a predefined improvement value for
each technology. If a vehicle has more than one thermal load
improvement technology, the improvement values are added together, but
subject to a cap of 3.0 grams/mile for cars and 4.3 grams/mile for
trucks. Under its EPCA authority for CAFE, EPA calculates equivalent
FCIVs and applies them for the calculation of manufacturer's fleet CAFE
values. Manufacturers seeking credits beyond the regulated caps must
request the added benefit for A/C technology under the off-cycle
program discussed in the next section. The agency is not proposing to
change its A/C efficiency flexibility and will retain its provisions in
its current form.
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    \538\ See 40 CFR 86.1868-12.
    \539\ See 40 CFR 86.1869-12(b).
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(3) Flexibilities for Off-Cycle Technologies
    ``Off-cycle'' technologies are those that reduce vehicle fuel
consumption in the real world, but for which the fuel consumption
reduction benefits cannot be fully measured under the 2-cycle test
procedures (city, highway or correspondingly FTP, HFET) used to
determine compliance with the fleet average standards. The cycles are
effective in measuring improvements in most fuel economy improving
technologies; however, they are unable to measure or underrepresent
certain fuel economy improving technologies because of limitations in
the test cycles. For example, off-cycle technologies that improve
emissions and fuel economy at idle (such as ``stop start'' systems) and
those technologies that improve fuel economy to the greatest extent at
highway speeds (such as active grille shutters which improve
aerodynamics) receive less than their real-world benefits in the 2-
cycle compliance tests.
    In the CAFE rule for MYs 2017-2025, EPA, in coordination with
NHTSA, established regulations extending the off-cycle technology
flexibility to the CAFE program starting with MY 2017. For the CAFE
program, EPA calculates off-cycle fuel consumption improvement values
(FCIVs) that are equivalent to the EPA CO2 credit values,
and applies them in the calculation of manufacturer's CAFE compliance
values for each fleet instead of treating them as separate credits as
for the EPA GHG program.
    For determining benefits, EPA created three compliance pathways for
the off-cycle program. The first approach allows manufacturers to gain
credits using a predetermined approach or ``menu'' of credit values for
specific off-cycle technologies which became effective starting in MY
2014 for EPA.540 541 This pathway allows manufacturers to
use credit values established by EPA for a wide range of off-cycle
technologies, with minimal or no data submittal or testing
requirements.\542\ Specifically, EPA established a menu with a number
of technologies that have real-world fuel consumption benefits not
measured, or not fully measured, by the two-cycle test procedures, and
those benefits were reasonably quantified by the agencies at that time.
For each of the pre-approved technologies on the menu, EPA established
a menu value or approach that is available without testing
verifications. Manufacturers must demonstrate that they are in fact
using the menu technology, but not required to submit test results to
EPA to quantify the technology's effects, unless they wish to receive a