NHTSA has the broad discretion to weigh and balance the
aforementioned factors in order to accomplish EISA's mandate of
determining maximum feasible standards. The fact that the factors may
often be at odds gives NHTSA significant discretion to decide what
weight to give each of the competing factors, policies and concerns and
then determine how to balance them--as long as NHTSA's balancing does
not undermine the fundamental purpose of the EISA: Energy conservation,
and as long as that balancing reasonably accommodates ``conflicting
policies that were committed to the agency's care by the statute.''
\62\
---------------------------------------------------------------------------

    \62\ Center for Biological Diversity v. National Highway Traffic
Safety Admin., 538 F.3d 1172, 1195 (9th Cir. 2008).
---------------------------------------------------------------------------

    EPA also has significant discretion in assessing, weighing, and
balancing the relevant statutory criteria. Section 202(a)(2) of the
Clean Air Act (42 U.S.C. 7521(a)(2)) requires that the standards ``take
effect after such period as the Administrator finds necessary to permit
the development and application of the requisite technology, giving
appropriate consideration to the cost of compliance within such
period.'' This language affords EPA considerable discretion in how to
weight the critical statutory factors of emission reductions, cost, and
lead time (76 FR 57129-57130). Section 202(a)(2) also allows (although
it does not compel) EPA to adopt technology-forcing standards. Id. at
57130.
    Sections II through VI of this Preamble explain the consideration
that the agencies took into account based on careful assessment and
balancing of the statutory factors under Clean Air Act section
202(a)(1) and (2), and under 49 U.S.C. 32902(k).
(1) Carryover From Phase 1 Program and Compliance Changes
    Phase 2 is carrying over many of the compliance approaches
developed for Phase 1, with certain changes as described below. Readers
are referred to the regulatory text for much more detail. Note that the
agencies have adapted some of these Phase 1 provisions in order to
address new features of the Phase 2 program, notably provisions related
to trailer compliance. The agencies have also reevaluated all of the
compliance provisions to ensure that they will be effective in
achieving the projected reductions without placing an undue burden on
manufacturers.
    The agencies received significant comments from vehicle
manufacturers emphasizing the potential for the structure of the
compliance program to impact stringency. Although the agencies do not
agree with all of these comments (which are discussed in more detail in
later sections), we do agree that it is important to structure the
compliance program so that the effective stringency of standards is
consistent with levels established by regulation. The agencies have
made appropriate improvements to the compliance structure in response
to these comments.
(a) Certification
    EPA and NHTSA are applying the same general certification
procedures for Phase 2 as are currently being used for certifying to
the Phase 1 standards. Tractors and vocational vehicles will continue
to be certified using the vehicle simulation tool (GEM). The agencies,
however, revised the Phase 1 GEM simulation tool to develop a new
version, Phase 2 GEM, that more specifically reflects improvements to
engines, transmissions, and drivetrains.\63\ Rather than the GEM
simulation tool using default values for engines, transmissions and
drivetrains, most manufacturers will enter measured or tested values as
inputs reflecting performance of the actual engine, transmission and
drivetrain technologies.
---------------------------------------------------------------------------

    \63\ As described in Section IV, although the trailer standards
were developed using the simulation tool, the agencies are adopting
a compliance structure that does not require trailer manufacturers
to use it.

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

    The Phase 1 certification process for engines used in tractors and
vocational vehicles was based on EPA's process for showing compliance
with the heavy-duty engine criteria pollutant standards using engine
dynamometer testing, and the agencies are continuing it for Phase 2. We
also will continue certifying HD pickups and vans using the Phase 1
chassis dynamometer testing results and vehicle certification process,
which is very similar to the light-duty vehicle certification process.
The Phase 2 trailer certification process will resemble the Phase 2
tractor certification approach, but with a simplified version of Phase
2 GEM. The trailer certification process allows trailer manufacturers
to use a simple equation to determine GEM-equivalent g/ton-mile
emission rates without actually running GEM.
    EPA and NHTSA are also clarifying provisions related to confirming
a manufacturer's test data during certification (i.e., confirmatory
testing) and verifying a manufacturer's vehicles are being produced to
perform as described in the application for certification (i.e.,
selective enforcement audits or SEAs). The EPA confirmatory testing
provisions for engines, vehicles, and components are in 40 CFR 1036.235
and 1037.235. The SEA provisions are in 40 CFR 1036.301 and 1037.301-
1037.320. The NHTSA provisions are in 49 CFR 535.9(a). As we proposed,
these clarifications will also apply for Phase 1 engines and vehicles.
    In response to comments, we are making several changes to the
proposed EPA confirmatory testing provisions. First, the regulations
being adopted specify that EPA will conduct triplicate tests for engine
fuel maps to minimize the impact of test-to-test variability. The final
regulations also state that we will consider entire fuel maps rather
than individual points. Engine manufacturers objected to EPA's proposal
that individual points could be replaced based on a single test,
arguing that it effectively made the vehicle standards more stringent
due to point-to-point and test-to-test variability. We believe that the
changes being adopted largely address these concerns. We are also
applying this approach for axle and transmission maps for similar
reasons.
    As described in Sections III and IV, EPA has also modified the SEA
regulations for verifying aerodynamic performance. These revised
regulations differ somewhat from the standard SEA regulations to
address the unique challenges of measuring aerodynamic drag. In
particular EPA recognizes that for coastdown testing, test-to-test
variability is expected to be large relative to production variability.
This differs fundamentally from traditional compliance testing, in
which test-to-test variability is expected to be small relative to
production variability. To address this difference, the modified
regulations call for more repeat testing of the same vehicle, but fewer
test samples. These revisions were generally supported by commenters.
See Section III and IV for additional discussion.
    Some commenters suggested that the agencies should apply a
compliance margin to confirmatory and SEA test results to account for
test variability. However, other commenters supported following EPA's
past practice, which has been to base the standards on technology
projections that assume manufacturers will apply compliance margins to
their test results for certification. In other words, they design their
products to have emissions below the standards by some small margin so
that test-to-test or lab-to-lab variability would not cause them to
exceed any applicable standards. Consequently, EPA has typically not
set standards precisely at the lowest levels achievable, but rather at
slightly higher levels--expecting manufacturers to target the lower
levels to provide compliance margins for themselves. As discussed in
Sections II through VI, the agencies have applied this approach to the
Phase 2 standards.
(b) Averaging, Banking and Trading (ABT)
    The Phase 1 ABT provisions were patterned on established EPA ABT
programs that have proven to work well. In Phase 1, the agencies
determined this flexibility would provide an opportunity for
manufacturers to make necessary technological improvements and reduce
the overall cost of the program without compromising overall
environmental and fuel economy objectives. Commenters generally
supported this approach for engines, pickups/vans, tractors, and
vocational vehicles. Thus, we are generally continuing this Phase 1
approach with few revisions to the engine and vehicle segments.
However, as described in Section IV, in response to comments, we are
finalizing a much more limited averaging program for trailers that will
not go into effect until 2027. We are adopting some other provisions
for certain vocational vehicles, which are discussed in Section V.
    The agencies see the overall ABT program as playing an important
role in making the technology-advancing standards feasible, by helping
to address many issues of technological challenges in the context of
lead time and costs. It provides manufacturers flexibilities that
assist the efficient development and implementation of new technologies
and therefore enable new technologies to be implemented at a more
aggressive pace than without ABT.
    ABT programs are more than just add-on provisions included to help
reduce costs. They can be, as in EPA's Title II programs generally, an
integral part of the standard setting itself. A well-designed ABT
program can also provide important environmental and energy security
benefits by increasing the speed at which new technologies can be
implemented (which means that more benefits accrue over time than with
later-commencing standards) and at the same time increase flexibility
for, and reduce costs to, the regulated industry and ultimately
consumers. Without ABT provisions (and other related flexibilities),
standards would typically have to be numerically less stringent since
the numerical standard would have to be adjusted to accommodate issues
of feasibility and available lead time. See 75 FR 25412-25413. By
offering ABT credits and additional flexibilities the agencies can
offer progressively more stringent standards that help meet our fuel
consumption reduction and GHG emission goals at a faster and more cost-
effective pace.\64\
---------------------------------------------------------------------------

    \64\ See NRDC v. Thomas, 805 F. 2d 410, 425 (D.C. Cir. 1986)
(upholding averaging as a reasonable and permissible means of
implementing a statutory provision requiring technology-forcing
standards).
---------------------------------------------------------------------------

(i) Carryover of Phase 1 Credits and Credit Life
    The agencies proposed to continue the five-year credit life
provisions from Phase 1, and not to adopt any general restriction on
the use of banked Phase 1 credits in Phase 2. In other words, Phase 1
credits in MY 2019 could be used in Phase 1 or in Phase 2 in MYs 2021-
2024. CARB commented in support of a more restrictive approach for
Phase 1 credits, based on the potential for manufacturers to delay
implementation of technology in Phase 2 by using credits generated
under Phase 1. We also received comments asking the agencies to provide
a path for manufacturers to generate credits for applying technologies
not explicitly included in the Phase 1 program. In response to these
comments, the agencies have analyzed the potential impacts of Phase 1
credits on the Phase 2 program for each sector and made appropriate
adjustments in the program. For example, as described in Section
II.D.(5), the agencies are adopting some restrictions on the carryover
of windfall Phase 1 engine credits that result from the Phase 1
vocational engine standards.

Also, as described in Section III, the agencies are projecting that
Phase 1 credit balances for tractor manufacturers will enable them to
meet more stringent standards for MY 2021-2023, so the agencies have
increased the stringency of these standards accordingly.
    In contrast to the Phase 1 tractor program, the Phase 1 vocational
chassis program currently offers fewer opportunities to generate
credits for potential carryover into Phase 2. To address comments
related to this particular situation and also to provide a new Phase 1
incentive to voluntarily apply certain Phase 2 technologies, which are
available today but currently not being adopted, the agencies are
finalizing a streamlined Phase 1 off-cycle credit approval process for
these Phase 2 technologies. For vocational chassis, these technologies
include workday idle reduction technologies such as engine stop-start
systems, automatic engine shutdown systems, shift-to-neutral at idle
automatic transmissions, automated manual transmissions, and dual-
clutch transmissions. The agencies are also finalizing a streamlined
Phase 1 off-cycle credit approval process for Phase 2 automatic tire
inflation systems (ATIS), for both tractors and vocational chassis. The
purpose for offering these streamlined off-cycle approval processes for
Phase 1 is to encourage more early adoption of these Phase 2
technologies during the remaining portion of the Phase 1 program (e.g.,
model years 2018, 2019, 2020). Earlier adoption of these technologies
would help demonstrate that these newer, but not advanced, technologies
are effective, reliable and well-accepted into the marketplace by the
time the agencies project that they would be needed for compliance with
the Phase 2 standards.
    The agencies are also including a provision allowing exempt small
business manufacturers of vocational chassis to opt into the Phase 1
program for the purpose of generating credits which can be used
throughout the Phase 2 program, as just described.
    In conjunction with this provision allowing manufacturers to
receive credit in Phase 1 for pulling ahead certain Phase 2
technologies, the agencies are providing an extended credit life for
the Light and Medium heavy-duty vocational vehicle averaging sets (see
next subsection) to provide additional Phase 2 transition flexibility
for these vehicles. Unlike the HD Phase 1 pickup/van and tractor
programs, where the averaging sets are broad; where manufacturers have
many technology choices from which to earn credits (e.g., tractor
aerodynamic and idle reduction technologies, pickup/van engine and
transmission technologies); and where we project manufacturers to have
sufficient pickup/van and tractor credits to manage the transition to
the Phase 2 standards, transitioning to the new Light and Medium
vocational vehicle standards may be more challenging. Manufacturers
selling lower volumes of these lighter vehicles may find themselves
with fewer overall credits to manage the transition to the new
standards, especially the 2027 standards. To facilitate this transition
and better assure adequate lead time, the agencies are extending the
credit life for the Light and Medium heavy-duty vehicle averaging sets
(typically vehicles in Classes 2b through 7) so that all credits
generated in 2018 and later will last at least until 2027. We are not
doing this for the Heavy heavy-duty vocational vehicle category
(typically Class 8) because tractor credits may be used within this
averaging set. Because we project that manufacturers will have
sufficient tractor credits, we believe that they will be able to manage
the Heavy vocational transition to each set of new standards, without
the extended credit life that we are finalizing for Light and Medium
vocational averaging sets. Nevertheless, we will continue to monitor
the manufacturers' progress in transitioning to the Phase 2 standards
for each category, and we may reconsider the need for additional
transitional flexibilities, such as extending other categories' credit
lives.
    Although, as we have already noted, the numerical values of Phase 2
standards are not directly comparable in an absolute sense to the
existing Phase 1 standards (in other words, a given vehicle would have
a different g/ton-mile emission rate when evaluated using Phase 1 GEM
than it would when evaluated using Phase 2 GEM), we believe that the
Phase 1 and Phase 2 credits are largely equivalent. Because the
standards and emission levels are included in a relative sense (as a
difference), it is not necessary for the Phase 1 and Phase 2 standards
to be directly equivalent in an absolute sense in order for the credits
to be equivalent.
    This is best understood by examining the way in which credits are
calculated. For example, the credit equations in 40 CFR 1037.705 and 49
CFR 535.7 calculate credits as the product of the difference between
the standard and the vehicle's emission level (g/ton-mile or gallon/
1,000 ton-mile), the regulatory payload (tons), production volume, and
regulatory useful life (miles). The Phase 2 payloads, production
volumes, and useful lives for tractors, medium and heavy heavy-duty
engines, or medium and heavy heavy-duty vocational vehicles are
equivalent to those of Phase 1. However, EPA is changing the regulatory
useful lives of HD pickups and vans, light heavy-duty vocational
vehicles, spark-ignited engines, and light heavy-duty compression-
ignition engines. Because useful life is a factor in determining the
value of a credit, the agencies proposed to apply interim adjustment
factors to ensure banked credits maintain their value in the transition
from Phase 1 to Phase 2.
    For Phase 1, EPA aligned the useful life for GHG emissions with the
useful life already in place for criteria pollutants. After the Phase 1
rules were finalized, EPA updated the useful life for criteria
pollutants as part of the Tier 3 rulemaking.\65\ The new useful life
implemented for Tier 3 is 150,000 miles or 15 years, whichever occurs
first. This same useful life is being adopted in Phase 2 for HD pickups
and vans, light heavy-duty vocational vehicles, spark-ignited engines,
and light heavy-duty compression-ignition engines.\66\ The numeric
value of the adjustment factor for each of these regulatory categories
depends on the Phase 1 useful life. These are described in detail below
in this Preamble in Sections II, V, and VI. Without these adjustment
factors the changes in useful life would effectively result in a
discount of banked credits that are carried forward from Phase 1 to
Phase 2, which is not the intent of the changes in the useful life.
With the relatively flat deterioration generally associated with
CO2, EPA does not believe the changes in useful life will
significantly affect the feasibility of the Phase 2 standards.
---------------------------------------------------------------------------

    \65\ 79 FR 23492, April 28, 2014 and 40 CFR 86.1805-17.
    \66\ NHTSA's useful life is based on mileage and years of
duration.
---------------------------------------------------------------------------

    We note that the primary purpose of allowing manufacturers to bank
credits is to provide flexibility in managing transitions to new
standards. The five-year credit life is substantial, and allows credits
generated in either Phase 1 or early in Phase 2 to be used for the
intended purpose. The agencies believe a credit life longer than five
years is unnecessary to accomplish this transition. Restrictions on
credit life serve to reduce the likelihood that any manufacturer will
be able to use banked credits to disrupt the heavy-duty vehicle market
in any given year by effectively limiting the amount of credits that
can be held. Without this limit, one manufacturer that saved enough
credits over many years could achieve a significant cost advantage by
using all the credits in a single year. The agencies

believe that allowing a five-year credit life for all credits, and as a
consequence allowing use of Phase 1 credits in Phase 2, creates
appropriate flexibility and appropriately facilitates a smooth
transition to each new level of standards.
(ii) Averaging Sets
    EPA has historically restricted averaging to some extent for its HD
emission standards to avoid creating unfair competitive advantages or
environmental risks due to credits being inconsistent. It also helps to
ensure a robust and manageable compliance program. Under Phase 1,
averaging, banking and trading can only occur within and between
specified ``averaging sets'' (with the exception of credits generated
through use of specified advanced technologies). As proposed, we will
continue this regime in Phase 2, retaining the existing vehicle and
engine averaging sets, and creating new trailer averaging sets. We are
also continuing the averaging set restrictions from Phase 1 in Phase 2.
(See Section V for certain other provisions applicable to vehicles
certified to special standards.) These general averaging sets for
vehicles are:

 Complete pickups and vans
 Other light heavy-duty vehicles (Classes 2b-5)
 Medium heavy-duty vehicles (Class 6-7)
 Heavy heavy-duty vehicles (Class 8)
 Long dry and refrigerated van trailers \67\
---------------------------------------------------------------------------

    \67\ Averaging for trailers does not begin until 2027.
---------------------------------------------------------------------------

 Short dry and refrigerated van trailers

We are not allowing trading between engines and chassis, even within
the same vehicle class. Such trading would essentially result in double
counting of emission credits, because the same engine technology would
likely generate credits relative to both standards (and indeed, certain
engine improvements are reflected exclusively in the vehicle standards
the agencies are adopting). We similarly limit trading among engine
categories to trades within the designated averaging sets:

 Spark-ignition engines
 Compression-ignition light heavy-duty engines
 Compression-ignition medium heavy-duty engines
 Compression-ignition heavy heavy-duty engines

The agencies continue to believe that maintaining trading to be only
within the classes listed above will provide adequate opportunities for
manufacturers to make necessary technological improvements and to
reduce the overall cost of the program without compromising overall
environmental and fuel efficiency objectives, and it is therefore
appropriate and reasonable under EPA's authority and maximum feasible
under NHTSA's authority, respectively. We do not expect emissions from
engines and vehicles--when restricted by weight class--to be
dissimilar. We therefore expect that the lifetime vehicle performance
and emissions levels will be very similar across these defined
categories, and the credit calculations will fairly ensure the expected
fuel consumption and GHG emission reductions.
    These restrictions have generally worked well for Phase 1, and we
continue to believe that these averaging sets create flexibility
without creating an unfair advantage for manufacturers with integrated
portfolios, including engines and vehicles. See 76 FR 57240.
(iii) Credit Deficits
    The Phase 1 regulations allow manufacturers to carry-forward
deficits for up to three years. This is an important flexibility
because the program is designed to address the diversity of the heavy-
duty industry by allowing manufacturers to sell a mix of engines or
vehicles that have very different emission levels and fuel
efficiencies. Under this construct, manufacturers can offset sales of
engines or vehicles not meeting the standards by selling others (within
the same averaging set) that perform better than the standards require.
However, in any given year it is possible that the actual sales mix
will not balance out, and the manufacturer may be short of credits for
that model year. The three-year provision allows for this possibility
and creates additional compliance flexibility to accommodate it.
(iv) Advanced Technology Credits
    At the time of the proposal, the agencies believed it was no longer
appropriate to provide extra credit for any of the technologies
identified as advanced technologies for Phase 1, although we requested
comment on this issue. The Phase 1 advanced technology credits were
adopted to promote the implementation of advanced technologies that
were not included in our basis of the feasibility of the Phase 1
standards. Such technologies included hybrid powertrains, Rankine cycle
waste heat recovery systems on engines, all-electric vehicles, and fuel
cell vehicles (see 40 CFR 86.1819-14(k)(7), 1036.150(h), and
1037.150(p)). The Phase 2 heavy-duty engine and vehicle standards are
premised on the use of some of these technologies, making them
equivalent to other fuel-saving technologies in this context. We
believe the Phase 2 standards themselves will provide sufficient
incentive to develop those specific technologies.
    Although the agencies proposed to eliminate all advanced technology
incentives, we remained open to targeted incentives that would address
truly advanced technology. We specifically requested comment on this
issue with respect to electric vehicle, plug-in hybrid, and fuel cell
technologies. Although the Phase 2 standards are premised on some use
of Rankine cycle waste heat recovery systems on engines and hybrid
powertrains, none of these standards are based on projected utilization
of these other even more-advanced technologies (e.g., all-electric
vehicles, fuel cell vehicles). 80 FR 40158. Commenters generally
supported providing credit multipliers for these advanced technologies.
However, Allison supported ending the incentives for hybrids, fuel
cells, and electric vehicles in Phase 2. ATA, on the other hand,
commented that the agencies should preserve the advanced technology
credits which provide a credit multiplier of 1.5 in order to promote
the use of hybrid and electric vehicles in larger vocational vehicles
and tractors. ARB supported the use of credit multipliers even more
strongly and provided suggestions for values larger than 1.5 that could
be used to incentivize plug-in hybrids, electric vehicles, and fuel
cell vehicles. Eaton recommended the continuation of advanced
technology credits for hybrid powertrains until a sufficient number are
in the market. Overall, the comments indicated that there is support
for such incentives among operators, suppliers, and states. Upon
further consideration, the agencies are adopting advanced technology
credits for these three types of advanced technologies, as shown in
Table I-2 below.

               Table I-2--Advanced Technology Multipliers
------------------------------------------------------------------------
                         Technology                           Multiplier
------------------------------------------------------------------------
Plug-in hybrid electric vehicles...........................          3.5
All-electric vehicles......................................          4.5
Fuel cell vehicles.........................................          5.5
------------------------------------------------------------------------

    Our intention in adopting these multipliers is to create a
meaningful incentive to those considering adopting these qualifying
advanced technologies into their vehicles. The values being

adopted are consistent with values recommended by CARB in their
supplemental comments.\68\ CARB's values were based on a cost analysis
that compared the costs of these technologies to costs of other
conventional technologies. Their costs analysis showed that adopting
multipliers in this range would make these technologies much more
competitive with the conventional technologies and could allow
manufacturers to more easily generate a viable business case to develop
these technologies for heavy-duty and bring them to market at a
competitive price.
---------------------------------------------------------------------------

    \68\ Letter from Michael Carter, ARB, to Gina McCarthy,
Administrator, EPA and Mark Rosekind, Administrator, NHTSA, June 16,
2016.
---------------------------------------------------------------------------

    Another important consideration in the adoption of these larger
multipliers is the tendency of the heavy-duty sector to significantly
lag the light-duty sector in the adoption of advanced technologies.
There are many possible reasons for this, such as:
     Heavy-duty vehicles are more expensive than light-duty
vehicles, which makes it a greater monetary risk for purchasers to
invest in unproven technologies.
     These vehicles are work vehicles, which makes predictable
reliability even more important than for light-duty vehicles.
     Sales volumes are much lower for heavy-duty vehicles,
especially for specialized vehicles.
    As a result of factors such as these, adoption rates for these
advanced technologies in heavy-duty vehicles are essentially non-
existent today and seem unlikely to grow significantly within the next
decade without additional incentives.
    The agencies believe it is appropriate to provide such large
multipliers for these very advanced technologies at least in the short
term, because they have the potential to provide very large reductions
in GHG emissions and fuel consumption and advance technology
development substantially in the long term. However, because they are
so large, we also believe that we should not necessarily allow them to
continue indefinitely. Therefore, the agencies are adopting them as an
interim program that will continue through MY 2027. If the agencies
determine that these credit multipliers should be continued beyond MY
2027, we could do so in a future rulemaking.
    As discussed in Section I.C.(1)(d), the agencies are not
specifically accounting for upstream emissions that might occur from
production of electricity to power these advanced vehicles. This
approach is largely consistent with the incentives offered for electric
vehicles in the light-duty National Program. 77 FR 62810. For light-
duty vehicles, the agencies also did not require manufacturers to
account for upstream emissions during the initial years, as the
technologies are being developed. While we proactively sunset this
allowance for light-duty due to concerns about potential impacts from
very high sales volumes, we do not have similar concerns for heavy-
duty. Nevertheless, in this program we are only adopting these credit
multipliers through MY 2027, and should we not promulgate a future
rulemaking to extend them beyond MY 2027, these multipliers would
essentially sunset in MY 2027.
    One feature of the Phase 1 advanced technology program that is not
being continued in Phase 2 is the allowance to use advanced technology
credits across averaging sets. We believe that combined with the very
large multipliers being adopted, there could be too large a risk of
market distortions if we allowed the use of these credits across
averaging sets.
(v) Transition Flexibility for Meeting the Engine Standards
    Some manufacturers commented that the proposed engine regulations
did not offer sufficient flexibility. Although these commenters
acknowledge that the tractor and vocational vehicle standards will
separately drive engine improvements, they nonetheless maintain that
the MY 2024 engine standards may constrain potential compliance paths
too much. Some commented that advanced technologies (such as waste heat
recovery) may need to be deployed before the technologies are fully
reliable for every engine manufacturer, and may lead to the development
and implementation of additional engine technologies outside of
scheduled engine redesign cycles, which could cause manufacturers to
incur costs which were not accounted for in the agencies' analyses.
These costs could include both product development and equipment costs
for the engine manufacturer, and potential increased costs for vehicle
owners associated with potential reliability issues in-the-field.
    The agencies have considered these comments carefully. See, e.g.,
RIA Section 2.3.9 and RTC Section 3.4. The agencies recognize the
importance of ensuring that there is adequate lead time to develop,
test, and otherwise assure reliability of the technologies projected to
be needed to meet the standards and for the advanced engine
technologies in particular. See Section I.C above; see also responses
regarding waste heat recovery technology in RTC Section 3.4, and
Response 3.4.1. The agencies are therefore adopting an alternative,
optional ABT flexibility for heavy-heavy and medium-heavy engines in
partial response to these comments. This optional provision would
affect only the MYs 2021 and 2024 standards for these engines, not the
final MY 2027 engine standards, and to the extent manufacturers elect
the provision would increase fuel consumption and GHG reduction
benefits, as explained below.
    This optional provision has three aspects:

 A pull ahead of the engine standards to MY 2020
 Extended credit life for engine credits generated against MYs
2018-2019 Phase 1 standards, the MY 2020 pull-ahead Phase 2 engine
standards, and the MYs 2021-2024 Phase 2 engine standards
 Slightly relaxed engine standards for MYs 2024-2026 tractor
engine standards \69\
---------------------------------------------------------------------------

    \69\ Credits can be generated against these standards as well,
but the life of credits generated for 2025 and 2026 would be five
years. The pull ahead of the MY 2021 standards should more than
balance out any slight decreases in benefits attributable to such
credits.

    Thus, the final rule provides the option of an extended credit life
for the medium heavy-duty and heavy heavy-duty engines so that all
credits generated in MY 2018 and later will last at least until MY
2030.\70\ To be eligible for this allowance, manufacturers would need
to voluntarily certify all of their HHD and/or MHD MY 2020 engines
(tractor and vocational) to MY 2021 standards.\71\ Manufacturers could
elect to apply this provision separately to medium heavy-duty and heavy
heavy-duty engines, since these remain separate averaging sets. Credits
banked by the manufacturer in Phase 1 for model year 2018 and 2019
engines would be eligible for the extended credit life for
manufacturers satisfying the pull ahead requirement. Such credits could
be used in any model year 2021 through

2030. Manufacturers that voluntarily certify their engines to MY 2021
standards early would then also be eligible for slightly less stringent
engine tractor standards in MYs 2024-2026, as shown in the following
table.
---------------------------------------------------------------------------

    \70\ The final rule (40 CFR 1036.150(p)) provides that for
engine manufacturers choosing this alternative option, credits
generated with MY 2018-2024 engines can be used until MY 2030.
Credits from later model years can be used for five years from
generation under 40 CFR 1037.740(c).
    \71\ Compliance with this requirement would be evaluated at the
time of certification and when end of year ABT reports are
submitted. Manufacturers that show a net credit deficit for the
averaging set at the end of the year would not meet this
requirement.

             Table I-3--Optional ABT Flexibility Standards for Heavy-Heavy and Medium-Heavy Engines
----------------------------------------------------------------------------------------------------------------
                                                    Medium heavy-duty--tractor       Heavy heavy-duty--tractor
                                                 ---------------------------------------------------------------
                                                      EPA          NHTSA fuel         EPA          NHTSA fuel
                   Model years                     CO[ihel2]      consumption      CO[ihel2]      consumption
                                                  standard (g/  standard  (gal/   standard (g/  standard  (gal/
                                                    bhp-hr)        100bhp-hr)       bhp-hr)        100bhp-hr)
----------------------------------------------------------------------------------------------------------------
2020-2023.......................................          473             4.6464          447             4.3910
2024-2026.......................................          467             4.5874          442             4.3418
----------------------------------------------------------------------------------------------------------------

    Once having opted into this alternative compliance path, engine
manufacturers would have to adhere to that path for the remainder of
the Phase 2 program. The choice would be made when certifying MY 2020
engines. Instead of certifying engines to the final year of the Phase 1
engine standards, manufacturers electing the alternative would indicate
that they are instead certifying to the MY 2021 Phase 2 engine
standard.
    Because these engine manufacturers would be reducing emissions of
engines otherwise subject to the MY 2020 Phase 1 engine standards (and
because engine reductions were not reflected in the Phase 1 vehicle
program), there would be a net benefit to the environment. These
engines would not generate credits relative to the Phase 1 standards
(that is, MY 2020 engines would only use or generate credits relative
to the pulled ahead MY 2021 Phase 2 engines standards) which would
result in net reductions of CO2 and fuel consumption of
about 2 percent for each engine. Thus, if every engine manufacturer
chooses to use this flexibility, there could be resulting reductions of
an additional 12MMT of CO2 and saving of nearly one billion
gallons of diesel fuel.
    This alternative also does not have adverse implications for the
vehicle standards. As just noted, the vehicle standards themselves are
unaffected. Thus, these voluntary standards would not reduce the GHG
reductions or fuel savings of the program. Vehicle manufacturers using
the alternative MYs 2024-2026 engines would need to adopt additional
vehicle technology (i.e. technology beyond that projected to be needed
to meet the standard) to meet the vehicle standards. This means the
vehicles would still achieve the same fuel efficiency in use.\72\
---------------------------------------------------------------------------

    \72\ The agencies view this alternative as of reasonable cost
with respect to the vehicle standards. First, where engine
manufacturers and vehicle manufacturers are vertically integrated,
that manufacturer would choose the alternative which is most cost
advantageous. Second, where engine manufacturers and vehicle
manufacturers are not vertically integrated, the agencies anticipate
that engines certified to the alternative and the main standards
will both be available for the vehicle manufacturer to purchase, so
that the vehicle manufacturer would not need to incur any costs
attributable to the alternative engine standard.
---------------------------------------------------------------------------

    In sum, the agencies view this alternative as being positive from
the environmental and energy conservation perspectives, and believe it
will provide significant flexibility for manufacturers that may reduce
their compliance costs. It also provides a hedge against potential
premature introduction of advanced engine technologies, providing more
lead time to assure in-use reliability.
(c) Innovative Technology and Off-Cycle Credits
    The agencies are continuing the Phase 1 innovative technology
program (reflecting certain streamlining features as just discussed),
but re-designating it as an off-cycle program for Phase 2. In other
words, beginning in MY 2021 technologies that are not accounted for in
the GEM simulation tool, or by compliance dynamometer testing (for
engines or chassis certified vehicles) will be considered ``off-
cycle,'' including those technologies that may no longer be considered
innovative technologies.
    The final rules provide that in order for a manufacturer to receive
these credits for Phase 2, the off-cycle technology will still need to
meet the requirement that it was not in common use prior to MY 2010.
Although we have not identified specific off-cycle technologies at this
time that should be excluded, we believe it is prudent to continue this
requirement to avoid the potential for manufacturers to receive
windfall credits for technologies that they were already using before
MY 2010, and that are therefore reflected in the Phase 2 (and possibly
Phase 1) baselines. However, because the Phase 2 program will be
implemented in MY 2021 and extend at least through MY 2027, the
agencies and manufacturers may have difficulty in the future
determining whether an off-cycle technology was in common use prior to
MY 2010. In order to avoid this approach becoming an unnecessary
hindrance to the off-cycle program, the agencies will presume that off-
cycle technologies were not in common use in 2010 unless we have clear
evidence to the contrary. Neither the agencies nor manufacturers will
be required to demonstrate that the technology meets this 2010
criteria. Rather, the agencies will simply retain the authority to deny
a request for off-cycle credits if it is clear that the technology was
in common use in 2010 and thus part of the baseline.
    Manufacturers will be able to carry over innovative technology
credits from Phase 1 into Phase 2, subject to the same restrictions as
other credits. Manufacturers will also be able to carry over the
improvement factor (not the credit value) of a technology, if certain
criteria are met. The agencies will require documentation for all off-
cycle requests similar to those required by EPA for its light-duty GHG
program.
    Additionally, the agencies will not grant any off-cycle credits for
crash avoidance technologies. The agencies will also require
manufacturers to consider the safety of off-cycle technologies and will
request a safety assessment from the manufacturer for all off-cycle
technologies.
    Similar principles apply to off-cycle credits in this heavy-duty
Phase 2 program as under the light-duty vehicle rules. Thus,
technologies which are part of the basis of a Phase 2 standard would
not be eligible for off-cycle credits. Their benefits have been
accounted for in developing the stringency of the Phase 2 standard, as
have their costs. See 77 FR 62835 (October 15, 2012). In addition,
technologies which are integral or inherent to the basic vehicle design
and are recognized in GEM or under the FTP (for pickups and vans),
including engine, transmission, mass reduction, passive aerodynamic
design, and base tires, will not be eligible for off-cycle credits. 77
FR 62836.

Technologies integral or inherent to basic vehicle design are fully
functioning and are thus recognized in GEM, or operate over the
entirety of the FTP/HFET and therefore are adequately captured by the
test procedure.
    Just as some technologies that were considered off-cycle for Phase
1 are being adopted as primary technologies in Phase 2 on whose
performance standard stringency is calculated, the agencies may revise
the regulation in a future rulemaking to create a more direct path to
recognize technologies currently considered off-cycle. For example,
although we are including specific provisions to recognize certain
electrified accessories, recognizing others would require the
manufacturer to go through the off-cycle process. However, it is quite
possible that the agencies could gather sufficient data to allow us to
adopt specific provisions in a future rulemaking to recognize other
accessories in a simpler manner. Because such a change would merely
represent a simpler way to receive the same credit as could be obtained
under the regulations being adopted today (rather than a change in
stringency), it would not require us to reconsider the standards.
(d) Alternative Fuels and Electric Vehicles
    The agencies will largely continue the Phase 1 approach for engines
and vehicles fueled by fuels other than gasoline and diesel.\73\ Phase
1 engine emission standards applied uniquely for gasoline-fueled and
diesel-fueled engines. The regulations in 40 CFR part 86 implement
these distinctions for alternative fuels by dividing engines into Otto-
cycle and Diesel-cycle technologies based on the combustion cycle of
the engine. However, as proposed, the agencies are making a small
change that is described in Section II. Under this change, we will
require manufacturers to divide their natural gas engines into primary
intended service classes, like the current requirement for compression-
ignition engines. Any alternative fuel-engine qualifying as a heavy
heavy-duty engine will be subject to all the emission standards and
other requirements that apply to compression-ignition engines. Note
that this small change in approach will also apply with respect to
EPA's criteria pollutant program.
---------------------------------------------------------------------------

    \73\ See Section XI for additional discussion of natural gas
engines and vehicles.
---------------------------------------------------------------------------

    We are also applying the Phase 2 standards at the vehicle tailpipe.
That is, compliance is based on vehicle fuel consumption and GHG
emission reductions, and does not reflect any so-called lifecycle
emission properties. The agencies have explained why it is reasonable
that the heavy-duty standards be fuel neutral in this manner and adhere
to this reasoning here. See 76 FR 57123; see also 77 FR 51705 (August
24, 2012) and 77 FR 51500 (August 27, 2012). In particular, EPA notes
that there is a separate, statutorily-mandated program under the Clean
Air Act which encourages use of renewable fuels in transportation
fuels, including renewable fuel used in heavy-duty diesel engines. This
program considers lifecycle greenhouse gas emissions compared to
petroleum fuel. NHTSA notes that the fuel efficiency standards are
necessarily tailpipe-based, and that a lifecycle approach would likely
render it impossible to harmonize the fuel efficiency and GHG emission
standards, to the great detriment of our goal of achieving a
coordinated program. 77 FR 51500-51501; see also 77 FR 51705 (similar
finding by EPA); see also Section I.F.(1)(a) below, Section 1.8 of the
RTC, and Section XI.B.
    The agencies received mixed comments on this issue. Many commenters
supported the proposed approach, generally agreeing with the agencies'
arguments. However, some other commenters opposed this approach.
Opposing commenters generally fell into two categories:
     Commenters concerned that upstream emissions of methane
occurring during the production and distribution of natural gas would
offset some or all of the GHG emission reductions observed at the
tailpipe.
     Commenters concerned that tailpipe-only standards ignore
the GHG benefits of using renewable fuels.
    The agencies are not issuing rules that effectively would turn
these rules into a fuel program, rather than an emissions reduction and
fuel efficiency program. Nor will the agencies disharmonize the program
by having GHG standards reflect upstream emissions having no relation
to fuel efficiency. See e.g. 77 FR 51500-51501; see also 77 FR 51705.
We thus will continue to measure compliance at the tailpipe. Issues
relating to whether to consider in the emission standards upstream
emissions related to natural gas exploration and production are
addressed in detail in Section XI below. It is sufficient to state here
that the agencies carefully investigated the potential use of natural
gas in the heavy-duty sector and the impacts of such use. We do not
believe that the use of natural gas is likely to become a major fuel
source for heavy-duty vehicles during the Phase 2 time frame. Thus,
since we project natural gas vehicles to have little impact on both
overall GHG emissions and fuel consumption during the Phase 2 time
frame, the agencies see no need to make fundamental changes to the
Phase 1 approach for natural gas engines and vehicles.
    The agencies note further that a consequence of the tailpipe-based
approach is that the agencies will treat vehicles powered by
electricity the same as in Phase 1. In Phase 1, EPA treated all
electric vehicles as having zero tailpipe emissions of CO2,
CH4, and N2O (see 40 CFR 1037.150(f)). Similarly,
NHTSA adopted regulations in Phase 1 that set the fuel consumption
standards based on the fuel consumed by the vehicle. The agencies also
did not require emission testing for electric vehicles in Phase 1. The
agencies considered the potential unintended consequence of not
accounting for upstream emissions from the charging of heavy-duty
electric vehicles. In our reassessment for Phase 2, we have found only
one all-electric heavy-duty vehicle manufacturer that has certified
through 2016. As we look to the future, we project limited adoption of
all-electric vehicles into the market. Therefore, we believe that this
provision is still appropriate. Unlike the 2017-2025 light-duty rule,
which included a cap whereby upstream emissions would be counted after
a certain volume of sales (see 77 FR 62816-62822), we believe there is
no need to establish a cap for heavy-duty vehicles because of the small
likelihood of significant production of EV technologies in the Phase 2
timeframe. Commenters specifically addressing electric vehicles
generally supported the agencies' proposal. However, some commenters
did support accounting for emissions from the generation of electricity
in the broader context of supporting full life-cycle analysis. As noted
above, and in more detail in Section I.F.(2)(f) as well as Section 1.8
of the RTC, the agencies are not predicating the standards on a full
life-cycle approach.
(e) Phase 1 Interim Provisions
    EPA adopted several flexibilities for the Phase 1 program (40 CFR
86.1819-14(k), 1036.150 and 1037.150) as interim provisions. Because
the existing regulations do not have an end date for Phase 1, most of
these provisions did not have an explicit end date. NHTSA adopted
similar provisions. With few exceptions, the agencies are not
continuing these provisions for Phase 2. These will generally remain in
effect for the Phase 1 program. In particular, the agencies note that
we are not continuing the blanket exemption for small

manufacturers. Instead, in Phase 2 the agencies are providing more
targeted relief for these entities.
(f) In-Use Standards and Recall
    Section 202(a)(1) of the CAA specifies that EPA is to adopt
emissions standards that are applicable for the useful life of the
vehicle and for the engine. EPA finalized in-use standards for the
Phase 1 program, whereas NHTSA's rules do not include these standards.
For the Phase 2 program, EPA will carry-over its in-use provisions, and
NHTSA is adopting EPA's useful life requirements for its vehicle and
engine fuel consumption standards to ensure manufacturers consider in
the design process the need for fuel efficiency standards to apply for
the same duration and mileage as EPA standards. If EPA determines a
manufacturer fails to meet its in-use standards, civil penalties may be
assessed.
    CAA section 207(c)(1) requires ``the manufacturer'' to remedy
certain in-use problems. The remedy process is to recall the
nonconforming vehicles and bring them into conformity with the
standards and the certificate. The regulations for this process are in
40 CFR part 1068, subpart F. EPA is also adopting regulatory text
addressing recall obligations for component manufacturers and other
non-certifying manufacturers. We note that the CAA does not limit this
responsibility to certificate holders, consistent with the definition
of a ``manufacturer'' as ``any person engaged in the manufacturing or
assembling of new motor vehicles, new motor vehicle engines, new
nonroad vehicles or new nonroad engines, or importing such vehicles or
engines for resale, or who acts for and is under the control of any
such person in connection with the distribution of new motor vehicles,
new motor vehicle engines, new nonroad vehicles or new nonroad engines,
but shall not include any dealer with respect to new motor vehicles,
new motor vehicle engines, new nonroad vehicles or new nonroad engines
received by him in commerce.''
    As discussed in Section I.E.(1) below, this definition was not
intended to restrict the definition of ``manufacturer'' to a single
person per vehicle. Under EPA regulations, we can require any person
meeting the definition of manufacturer for a nonconforming vehicle to
participate in a recall. However, we would normally presume the
certificate holder to have the primary responsibility.
    EPA requested comment on adding regulatory text that would
explicitly apply these provisions to tire manufacturers. Comments from
the tire industry generally opposed this noting that they are not the
manufacturer of the vehicle. These comments are correct that tires are
not incomplete vehicles and hence that the recall authority does not
apply for companies that only manufacture the tires. However, EPA
remains of the view that in the event that vehicles (e.g. trailers) do
not conform to the standards in-use due to nonconforming tires, tire
manufacturers would have a role to play in remedying the problem. In
this (hypothetical) situation, a tire manufacturer would not only have
produced the part in question, but in the case of a trailer
manufacturer or other small vehicle manufacturer, would have
significantly more resources and knowledge regarding how to address
(and redress) the problem. Accordingly, EPA would likely require that a
component manufacturer responsible for the nonconformity assist in the
recall to an extent and in a manner consistent with the provisions of
CAA section 208(a). This section specifies that component and part
manufacturers ``shall establish and maintain records, perform tests
where such testing is not otherwise reasonably available under this
part and part C of this subchapter (including fees for testing), make
reports and provide information the Administrator may reasonably
require to determine whether the manufacturer or other person has acted
or is acting in compliance with this part and part C of this subchapter
and regulations thereunder, or to otherwise carry out the provision of
this part and part C of this subchapter. . .''. Any such action would
be considered on a case-by-case basis, adapted to the particular
circumstances at the time.
(g) Vehicle Labeling
    EPA proposed to largely continue the Phase 1 engine and vehicle
labeling requirements, but to eliminate the requirement for tractor and
vocational vehicle manufacturers to list emission control on the label.
The agencies consider it crucial that authorized compliance inspectors
are able to identify whether a vehicle is certified, and if so whether
it is in its certified condition. To facilitate this identification in
Phase 1, EPA adopted labeling provisions for tractors that included
several items. The Phase 1 tractor label must include the manufacturer,
vehicle identifier such as the Vehicle Identification Number (VIN),
vehicle family, regulatory subcategory, date of manufacture, compliance
statements, and emission control system identifiers (see 40 CFR
1037.135). EPA proposed to apply parallel requirements for trailers.
    In Phase 1, the emission control system identifiers are limited to
vehicle speed limiters, idle reduction technology, tire rolling
resistance, some aerodynamic components, and other innovative and
advanced technologies. However, the number of emission control systems
for greenhouse gas emissions in Phase 2 has increased significantly for
tractors and vocational vehicles. For example, all aspects of the
engine transmission and drive axle; accessories; tire radius and
rolling resistance; wind averaged drag; predictive cruise control; idle
reduction technologies; and automatic tire inflation systems are
controls which can be evaluated on-cycle in Phase 2 (i.e. these
technologies' performance can now be input to GEM), but could not be in
Phase 1. Due to the complexity in determining greenhouse gas emissions
in Phase 2, the agencies do not believe that we can unambiguously
determine whether or not a vehicle is in a certified condition through
simply comparing information that could be made available on an
emission control label with the components installed on a vehicle.
Therefore, EPA proposed to remove the requirement to include the
emission control system identifiers required in 40 CFR 1037.135(c)(6)
and in Appendix III to 40 CFR part 1037 from the emission control
labels for vehicles certified to the Phase 2 standards. The agencies
received comments on the emission control labels from Navistar, which
supported the elimination of the emission control information from the
vehicle GHG label.
    Although we are largely finalizing the proposed labeling
requirements, we remain interested in finding a better approach for
labeling. Under the agencies' existing authorities, manufacturers must
provide detailed build information for a specific vehicle upon our
request. Our expectation is that this information should be available
to us via email or other similar electronic communication on a same-day
basis, or within 24 hours of a request at the latest. The agencies have
started to explore ideas that would provide inspectors with an
electronic method to identify vehicles and access on-line databases
that would list all of the engine-specific and vehicle-specific
emissions control system information. We believe that electronic and
Internet technology exists today for using scan tools to read a bar
code or radio frequency identification tag affixed to a vehicle that
could then lead to secure on-line access to a database of
manufacturers' detailed vehicle and

engine build information. Our exploratory work on these ideas has
raised questions about the level of effort that would be required to
develop, implement and maintain an information technology system to
provide inspectors real-time access to this information. We have also
considered questions about privacy and data security. We requested
comment on the concept of electronic labels and database access,
including any available information on similar systems that exist today
and on burden estimates and approaches that could address concerns
about privacy and data security.
    Although we are not finalizing such a program in this rulemaking,
we remain very interested in the use of electronic labels that could be
used by the agencies to access vehicle information and may pursue these
in a future rulemaking. Such a rulemaking would likely consider the
feasibility of accessing dynamic link libraries in real-time to view
each manufacturer's build records (and perhaps pending orders). The
agencies envision that this could be very useful for our inspectors by
providing them access to the build information by VIN to confirm that
each vehicle has the proper emission control features.
(h) Model Year Definition
    The agencies proposed to continue the Phase definitions of ``model
year'' for compliance with GHG emissions and fuel efficiency standards.
However, in response to comments, the agencies are revising the
definition slightly for Phase 2 tractors and vocational vehicles to
match the model years of the engines installed in them. The revised
definition generally sets the vehicle model year to be the calendar
year of manufacture, but allows the vehicle manufacturer the option to
select the prior year if the vehicle uses an engine manufactured in the
prior model year.\74\ Because Phase 2 vehicle standards are based in
part on engine performance, some commenters stated that the engine
model year should dictate the vehicle's GHG and fuel efficiency
compliance model year, and that the emissions and fuel efficiency
compliance model year should be presented on the vehicle emissions
label. This would allow manufacturers to market a vehicle and certify
it to NHTSA's safety standards based on the standards applicable on the
date of manufacture, but certify the vehicle for GHG emissions and fuel
efficiency purposes based on the engine model compliance year. For
example, a 2023 model year tractor might have a 2022 model year engine
in it. The tractor would be marketed as a model year 2023 tractor,
certified as complying with NHTSA's safety standards applicable at the
time when certifying the vehicle, but would have an ``emissions and
fuel efficiency compliance model year'' of 2022 for purposes of
emissions and fuel efficiency standards. In today's action, NHTSA and
EPA are finalizing standards that allow for the use of an ``emissions
and fuel efficiency compliance model year.'' This is consistent with
past program practice, in which certain manufacturers have been able to
reclassify tractors to the previous model year for emissions purposes
when the tractors use engines from the previous model year.
---------------------------------------------------------------------------

    \74\ Anti-stockpiling provisions will generally prevent vehicle
manufacturers from using new engines older than the prior model
year. See Section XIII.B for a discussion of EPA requirements for
installing older used engines into new vehicles.
---------------------------------------------------------------------------

(2) Phase 2 Standards
    This section briefly summarizes the Phase 2 standards for each
category and identifies the technologies that the agencies project will
be needed to meet the standards. Given the large number of different
regulatory categories and model years for these standards, the actual
numerical standards are not listed. Readers are referred to Sections II
through IV for the tables of standards.
(a) Summary of the Engine Standards
    The agencies are continuing the basic Phase 1 structure for the
Phase 2 engine standards. There will be separate standards and test
cycles for tractor engines, vocational diesel engines, and vocational
gasoline engines. However, as described in Section II, we are adopting
a revised test cycle for tractor engines to better reflect actual in-
use operation. After consideration of comments, including those
specifically addressing whether the agencies should adopt an
alternative with accelerated stringency targets, the agencies are
adopting engine standards that can generally be characterized as more
stringent than the proposed alternative.
    Specifically, for diesel tractor engines, the agencies are adopting
standards for MY 2027 that are more stringent than the preferred
alternative from the proposal, and require reductions in CO2
emissions and fuel consumption that are 5.1 percent better than the
2017 baseline for tractor engines.\75\ We are also adopting standards
for MY 2021 and MY 2024, requiring reductions in CO2
emissions and fuel consumption of 1.8 to 4.2 percent better than the
2017 baseline tractor engines. For vocational diesel engines, the new
standards will require reductions of 2.3, 3.6, and 4.2 percent in MYs
2021, 2024, and 2027, respectively. These levels are more stringent
than the proposed standards for these same MYs, and approximately as
stringent in MY 2021 and MY 2024 as the Alternative 4 standards
discussed at proposal.\76\
---------------------------------------------------------------------------

    \75\ For the flat baseline referenec case, the agencies project
that tractors engines will meet the Phase 1 engine standards with a
small compliancee margin. The Phase 1 standards for diesel engines
will be fully phased-in by MY 2017, so we use MY 2017 as the
baseline engine for tractors. Note that we project that vocational
engines will achieve additioanl overcompliance with the Phase 1
vocational engine standards.
    \76\ As noted in Section II, the numerical levels of the
vocational engine standards also reflect an updated baseline in
which Phase 1 vocational engines are more efficient than assumed for
the proposal. In addition, the numerical levels of the tractor
engine standards reflect an updated baseline to reflect the changes
to the test cycle.
---------------------------------------------------------------------------

    The agencies project that these reductions will be maximum feasible
and reasonable for diesel engines based on technological changes that
will improve combustion and reduce energy losses. For most of these
improvements, the agencies project (i.e., the agencies have set out a
potential, but by no means mandatory, compliance path) that
manufacturers will begin applying improvements to about 45 percent of
their heavy-duty engines by 2021, and ultimately apply them to about 95
percent of their heavy-duty engines by 2024. However, for some of these
improvements we project more limited application rates. In particular,
we project a more limited use of waste exhaust heat recovery systems in
2027, projecting that about 10 percent of tractor engines will have
turbo-compounding systems, and an additional 25 percent of tractor
engines will employ Rankine-cycle waste heat recovery. We do not
project that turbo-compounding or Rankine-cycle waste heat recovery
technology will be utilized in vocational engines due to vocational
vehicle drive cycles under which these technologies would not show
significant benefit, and also due to low sales volumes, limiting the
ability to invest in newer technologies for these vehicles.
    As described in Section III.D.(1)(b)(i), the agencies project that
some engine manufacturers will be able to achieve larger reductions for
at least some of their tractor engines. So in developing the tractor
vehicle standards, we projected slightly better fuel efficiency for the
average tractor engine than is required by the engine standards. We are
projecting that similar over-compliance will occur for heavy heavy-duty
vocational engines.
    For gasoline vocational engines, we are not adopting more stringent
engine standards. Gasoline engines used in

vocational vehicles are generally the same engines as are used in the
complete HD pickups and vans in the Class 2b and 3 weight categories,
although the operational demands of vocational vehicles often require
use of the largest, most powerful SI engines, so that some engines
fitted in complete pickups and vans are not appropriate for use in
vocational vehicles. Given the relatively small sales volumes for
gasoline-fueled vocational vehicles, manufacturers typically cannot
afford to invest significantly in developing separate technology for
these vocational vehicle engines. Thus, we project that in general,
vocational gasoline engines will incorporate much of the technology
that will be used to meet the pickup and van chassis standards, and
this will result in some real world reductions in CO2
emissions and fuel consumption. The agencies received many comments
suggesting that technologies be applied to increase the stringency of
the SI engine standard, which technologies in fact are already presumed
to be adopted at 100 percent to meet the MY 2016 engine standard. The
commenters did not identify any additional engine technologies that are
not already fully considered by the agencies in setting the MY 2016
engine standard, that could be recognized over the HD SI Engine FTP
test cycle. We did, however, consider some additional technologies
recommended by commenters, which can be recognized over the GEM vehicle
cycles. As a result, the Phase 2 vehicle standards for gasoline-fueled
vocational vehicles are predicated on adoption of engine technologies
beyond what is required to meet the separate engine standard, those
additional technologies being advanced engine friction reduction and
cylinder deactivation. As described in Section V, we are projecting
these technologies to improve fuel consumption over the GEM cycles by
nearly one percent in MY 2021, MY 2024, and MY 2027. In other words,
this improvement is reflected in the vehicle standards rather than in
the engine standards. To the extent any SI engines do not incorporate
the projected engine technologies, manufacturers of gasoline-fueled
vocational vehicles would need to achieve equivalent reductions from
some other technology to meet the GEM-based vehicle standards. The
engine standards are summarized in Table I-4.

  Table I-4--Summary of Phase 1 and Phase 2 Requirements for Engines in
              Combination Tractors and Vocational Vehicles
------------------------------------------------------------------------
                                 Phase 1 program    Final 2027 standards
------------------------------------------------------------------------
Covered in this category....  Engines installed in tractors and
                               vocational chassis.
------------------------------------------------------------------------
Share of HDV fuel             Combination tractors and vocational
 consumption and GHG           vehicles account for approximately 85
 emissions.                    percent of fuel use and GHG emissions in
                               the heavy duty truck sector.
------------------------------------------------------------------------
Per vehicle fuel consumption  5%-9% improvement     4%-5% improvement
 and CO[ihel2] improvement.    over MY 2010          over MY 2017 for
                               baseline, depending   diesel engines.
                               vehicle               Note that
                               application.          improvements are
                               Improvements are in   captured in
                               addition to           complete vehicle
                               improvements from     tractor and
                               tractor and           vocational vehicle
                               vocational vehicle    standards, so that
                               standards.            engine improvements
                                                     and the vehicle
                                                     improvement shown
                                                     below are not
                                                     additive.
------------------------------------------------------------------------
Form of the standard........  EPA: CO[ihel2] grams/horsepower-hour and
                               NHTSA: Gallons of fuel/horsepower-hour.
------------------------------------------------------------------------
Example technology options    Combustion, air       Further technology
 available to help             handling, friction    improvements and
 manufacturers meet            and emissions after-  increased use of
 standards.                    treatment             all Phase 1
                               technology            technologies, plus
                               improvements.         waste heat recovery
                                                     systems for tractor
                                                     engines (e.g.,
                                                     turbo-compound and
                                                     Rankine-cycle).
------------------------------------------------------------------------
Flexibilities...............  ABT program which     Same ABT and off-
                               allows emissions      cycle program as
                               and fuel              Phase 1.
                               consumption credits  Adjustment factor of
                               to be averaged,       1.36 for credits
                               banked, or traded     carried forward
                               (five year credit     from Phase 1 to
                               life).                Phase 2 for SI and
                               Manufacturers         LHD CI engines due
                               allowed to carry-     to change in useful
                               forward credit        life.
                               deficits for up to   Revised multipliers
                               three model years.    for Phase 2
                               Interim incentives    advanced
                               for advanced          technologies.
                               technologies,        No Phase 2 early
                               recognition of        credit multipliers.
                               innovative (off-
                               cycle) technologies
                               not accounted for
                               by the HD Phase 1
                               test procedures,
                               and credits for
                               certifying early.
------------------------------------------------------------------------

(b) Summary of the Tractor Standards
    As explained in Section III, the agencies will largely continue the
structure of the Phase 1 tractor program, but adopt new standards and
update test procedures, as summarized in Table I-6. The tractor
standards for MY 2027 will achieve up to 25 percent lower
CO2 emissions and fuel consumption than a 2017 model year
Phase 1 tractor. The agencies project that the 2027 tractor standards
could be met through improvements in the:

 Engine \77\ (including some use of waste heat recovery
systems)
---------------------------------------------------------------------------

    \77\ Although the agencies are adopting new engine standards
with separate engine certification, engine improvements will also be
reflected in the vehicle certification process. Thus, it is
appropriate to also consider engine improvements in the context of
the vehicle standards.
---------------------------------------------------------------------------

 Transmission
 Driveline
 Aerodynamic design
 Tire rolling resistance
 Idle performance
 Other accessories of the tractor.

    The agencies have enhanced the Phase 2 GEM vehicle simulation tool
to recognize these technologies, as described in Section II.C. The
agencies' evaluation shows that some of these technologies are
available today, but have very low adoption rates on current vehicles,
while others will require some lead time for development and
deployment. In addition to the proposed alternative for tractors, the
agencies solicited comment on an alternative that reached similar
ultimate stringencies, but at an accelerated pace.
    We have also determined that there is sufficient lead time to
introduce many of these tractor and engine technologies into the fleet
at a reasonable cost starting in the 2021 model year. The

2021 model year standards for combination tractors and engines will
achieve up to 14 percent lower CO2 emissions and fuel
consumption than a 2017 model year Phase 1 tractor, the 2024 model year
standards will achieve up to 20 percent lower CO2 emissions
and fuel consumption, and as already noted, the 2027 model year
standards will achieve up to 25 percent lower CO2 emissions
and fuel consumption.
    In addition to the CO2 emission standards for tractors,
EPA is adopting new particulate matter (PM) standards which effectively
limit which diesel fueled auxiliary power units (APUs) can be used as
emission control devices to reduce main engine idling in tractors, as
shown in Table I-5. Additional details are discussed in Section
III.C.3.

             Table I-5--PM Standards Related to Diesel APUs
------------------------------------------------------------------------
                                      PM emission
            Tractor MY             standard  (g/kW-    Expected control
                                          hr)             technology
------------------------------------------------------------------------
2018-2023........................              0.15  In-cylinder PM
                                                      control.
2024.............................              0.02  DPF.
------------------------------------------------------------------------

 Table I-6--Summary of Phase 1 and Phase 2 Requirements for Class 7 and
                      Class 8 Combination Tractors
------------------------------------------------------------------------
                                 Phase 1 program    Final 2027 standards
------------------------------------------------------------------------
Covered in this category....  Tractors that are designed to pull
                               trailers and move freight.
------------------------------------------------------------------------
Share of HDV fuel             Combination tractors and their engines
 consumption and GHG           account for approximately sixty percent
 emissions.                    of fuel use and GHG emissions in the
                               heavy duty vehicle sector.
------------------------------------------------------------------------
Per vehicle fuel consumption  10%-23% improvement   19%-25% improvement
 and CO[ihel2] improvement.    over MY 2010          over tractors
                               baseline, depending   meeting the MY 2017
                               on tractor            standards.
                               category.
                               Improvements are in
                               addition to
                               improvements from
                               engine standards.
------------------------------------------------------------------------
Form of the standard........  EPA: CO[ihel2] grams/ton payload mile and
                               NHTSA: Gallons of fuel/1,000 ton payload
                               mile.
------------------------------------------------------------------------
Example technology options    Aerodynamic drag      Further technology
 available to help             improvements; low     improvements and
 manufacturers meet            rolling resistance    increased use of
 standards.                    tires; high           all Phase 1
                               strength steel and    technologies, plus
                               aluminum weight       engine
                               reduction; extended   improvements,
                               idle reduction; and   improved
                               speed limiters.       transmissions and
                                                     axles, tire
                                                     pressure systems,
                                                     and predictive
                                                     cruise control
                                                     (depending on
                                                     tractor type).
------------------------------------------------------------------------
Flexibilities...............  ABT program which     Same ABT and off-
                               allows emissions      cycle program as
                               and fuel              Phase 1.
                               consumption credits  Revised multipliers
                               to be averaged,       for Phase 2
                               banked, or traded     advanced
                               (five year credit     technologies.
                               life).
                               Manufacturers
                               allowed to carry-
                               forward credit
                               deficits for up to
                               three model years.
                               Interim incentives
                               for advanced
                               technologies,
                               recognition of
                               innovative (off-
                               cycle) technologies
                               not accounted for
                               by the HD Phase 1
                               test procedures,
                               and credits for
                               certifying early.
------------------------------------------------------------------------

(c) Summary of the Trailer Standards
    The final rules contain a set of GHG emission and fuel consumption
standards for manufacturers of new trailers that are used in
combination with tractors. These standards will significantly reduce
CO2 and fuel consumption from combination tractor-trailers
nationwide over a period of several years. As described in Section IV,
there are numerous aerodynamic and tire technologies available to
manufacturers to achieve these standards. Many of these technologies
have already been introduced into the market through EPA's voluntary
SmartWay program and California's tractor-trailer greenhouse gas
requirements.
    The agencies are adopting Phase 2 standards that will phase-in
beginning in MY 2018 and be fully phased-in by 2027. These standards
are predicated on use of aerodynamic and tire improvements, with
trailer OEMs making incrementally greater improvements in MYs 2021 and
2024 as standard stringency increases in each of those model years.
EPA's GHG emission standards will be mandatory beginning in MY 2018,
while NHTSA's fuel consumption standards will be voluntary beginning in
MY 2018, and be mandatory beginning in MY 2021. In general, the trailer
standards being finalized apply only for box vans, flatbeds, tankers,
and container chassis.
    As described in Section XIV.D and Chapter 12 of the RIA, the
agencies are adopting special provisions to minimize the impacts on
small business trailer manufacturers. These provisions have been
informed by and are largely consistent with recommendations from the
SBAR Panel that EPA conducted pursuant to section 609(b) of the
Regulatory Flexibility Act (RFA). Broadly, these provisions provide
additional lead time for small business manufacturers, as well as
simplified testing and compliance requirements. The agencies also are
not finalizing standards for various trailer types, including most
specialty types of non-box trailers. Excluding these specialty trailers
also reduces the impacts on small businesses.

         Table I-7--Summary of Phase 2 Requirements for Trailers
------------------------------------------------------------------------
                                 Phase 1 program    Final 2027 standards
------------------------------------------------------------------------
Covered in this category......  All lengths of dry vans, refrigerated
                                 vans, tanks, flatbeds, and container
                                 chassis hauled by low, mid, and high
                                 roof day and sleeper cab tractors.
------------------------------------------------------------------------
Share of HDV fuel consumption   Trailers are modeled together with
 and GHG emissions.              combination tractors and their engines.
                                 Together, they account for
                                 approximately sixty percent of fuel use
                                 and GHG emissions in the heavy duty
                                 truck sector.
------------------------------------------------------------------------
Per vehicle fuel consumption    N/A..............  Between 3% and 9%
 and CO[ihel2] improvement.                         improvement over MY
                                                    2018 baseline,
                                                    depending on the
                                                    trailer type.
------------------------------------------------------------------------
Form of the standard..........  N/A..............  EPA: CO[ihel2] grams/
                                                    ton payload mile and
                                                    NHTSA: Gallons/1,000
                                                    ton payload mile.
------------------------------------------------------------------------
Example technology options      N/A..............  Low rolling
 available to help                                  resistance tires and
 manufacturers meet standards.                      tire pressure
                                                    systems for most
                                                    trailers, plus
                                                    weight reduction and
                                                    aerodynamic
                                                    improvements such as
                                                    side and rear
                                                    fairings, gap
                                                    closing devices, and
                                                    undercarriage
                                                    treatment for box
                                                    vans (e.g., dry and
                                                    refrigerated).
------------------------------------------------------------------------
Flexibilities.................  N/A..............  One year delay in
                                                    implementation for
                                                    small businesses,
                                                    trailer
                                                    manufacturers may
                                                    use pre-approved
                                                    aerodynamic data in
                                                    lieu of additional
                                                    testing, averaging
                                                    program available in
                                                    MY 2027 for
                                                    manufacturers of dry
                                                    and refrigerated box
                                                    vans.
------------------------------------------------------------------------

(d) Summary of the Vocational Vehicle Standards
    As explained in Section V, the agencies are adopting new vocational
vehicle standards that expand upon the Phase 1 Program. These new
standards reflect further subcategorization from Phase 1, with separate
standards based on mode of operation: Urban, regional, and multi-
purpose. The agencies are also adopting optional separate standards for
emergency vehicles and other custom chassis vehicles.
    The agencies project that the vocational vehicle standards could be
met through improvements in the engine, transmission, driveline, lower
rolling resistance tires, workday idle reduction technologies, weight
reduction, and some application of hybrid technology. These are
described in Section V of this Preamble and in Chapter 2.9 of the RIA.
These MY 2027 standards will achieve up to 24 percent lower
CO2 emissions and fuel consumption than MY 2017 Phase 1
standards. The agencies are also making revisions to the compliance
program for vocational vehicles. These include: The addition of two
idle cycles that will be weighted along with the other drive cycles for
each vocational vehicle; and revisions to Phase 2 GEM to recognize
improvements to the engine, transmission, and driveline.
    Similar to the tractor program, we have determined that there is
sufficient lead time to introduce many of these new technologies into
the fleet starting in MY 2021. Therefore, we are adopting new standards
for MY 2021 and 2024. Based on our analysis, the MY 2021 standards for
vocational vehicles will achieve up to 12 percent lower CO2
emissions and fuel consumption than a MY 2017 Phase 1 vehicle, on
average, and the MY 2024 standards will achieve up to 20 percent lower
CO2 emissions and fuel consumption.
    In Phase 1, EPA adopted air conditioning (A/C) refrigerant leakage
standards for tractors, as well as for heavy-duty pickups and vans, but
not for vocational vehicles. For Phase 2, EPA believes that it will be
feasible to apply similar A/C refrigerant leakage standards for
vocational vehicles, beginning with the 2021 model year. The
certification process for vocational vehicles to certify low-leakage A/
C components is identical to that already required for tractors.

  Table I-8--Summary of Phase 1 and Phase 2 Requirements for Vocational
                             Vehicle Chassis
------------------------------------------------------------------------
                                 Phase 1 program     Final 2027 standard
------------------------------------------------------------------------
Covered in this category....  Class 2b--8 chassis that are intended for
                               vocational services such as delivery
                               vehicles, emergency vehicles, dump truck,
                               tow trucks, cement mixer, refuse trucks,
                               etc., except those qualified as off-
                               highway vehicles.
                              Because of sector diversity, vocational
                               vehicle chassis are segmented into Light,
                               Medium and Heavy Heavy-Duty vehicle
                               categories and for Phase 2 each of these
                               segments are further subdivided using
                               three duty cycles: Regional, Multi-
                               purpose, and Urban.
------------------------------------------------------------------------
Share of HDV fuel             Vocational vehicles account for
 consumption and GHG           approximately 17 percent of fuel use and
 emissions.                    GHG emissions in the heavy duty truck
                               sector categories.
------------------------------------------------------------------------
Per vehicle fuel consumption  2% improvement over   Up to 24%
 and CO[ihel2] improvement.    MY 2010 baseline.     improvement over MY
                               Improvements are in   2017 standards.
                               addition to
                               improvements from
                               engine standards.
------------------------------------------------------------------------
Form of the standard........  EPA: CO[ihel2] grams/ton payload mile and
                               NHTSA: Gallons of fuel/1,000 ton payload
                               mile.
------------------------------------------------------------------------
Example technology options    Low rolling           Further technology
 available to help             resistance tires.     improvements and
 manufacturers meet                                  increased use of
 standards.                                          Phase 1
                                                     technologies, plus
                                                     improved engines,
                                                     transmissions and
                                                     axles, weight
                                                     reduction, hybrids,
                                                     and workday idle
                                                     reduction systems.
------------------------------------------------------------------------

Flexibilities...............  ABT program which     Same ABT and off-
                               allows emissions      cycle program as
                               and fuel              Phase 1. Adjustment
                               consumption credits   factor of 1.36 for
                               to be averaged,       credits carried
                               banked, or traded     forward from Phase
                               (five year credit     1 to Phase 2 due to
                               life).                change in useful
                               Manufacturers         life.
                               allowed to carry-    Revised multipliers
                               forward credit        for Phase 2
                               deficits for up to    advanced
                               three model years.    technologies.
                               Interim incentives   No Phase 2 early
                               for advanced          credit multipliers.
                               technologies,        Chassis intended for
                               recognition of        emergency vehicles,
                               innovative (off-      cement mixers,
                               cycle) technologies   coach buses, school
                               not accounted for     buses, transit
                               by the HD Phase 1     buses, refuse
                               test procedures,      trucks, and motor
                               and credits for       homes may
                               certifying early.     optionally use
                                                     application-
                                                     specific Phase 2
                                                     standards using a
                                                     simplified version
                                                     of GEM.
------------------------------------------------------------------------

(e) Summary of the Heavy-Duty Pickup and Van Standards
    The agencies are adopting new Phase 2 GHG emission and fuel
consumption standards for heavy-duty pickups and vans that will be
applied in largely the same manner as the Phase 1 standards. These
standards are based on the extensive use of most known and proven
technologies, and could result in some use of mild or strong hybrid
powertrain technology. These standards will commence in MY 2021. By
2027, these standards are projected to be 16 percent more stringent
than the 2018-2019 standards.

  Table I-9--Summary of Phase 1 and Phase 2 Requirements for HD Pickups
                                and Vans
------------------------------------------------------------------------
                                 Phase 1 program     Final 2027 standard
------------------------------------------------------------------------
Covered in this category....  Class 2b and 3 complete pickup trucks and
                               vans, including all work vans and 15-
                               passenger vans but excluding 12-passenger
                               vans which are subject to light-duty
                               standards.
------------------------------------------------------------------------
Share of HDV fuel             HD pickups and vans account for
 consumption and GHG           approximately 23% of fuel use and GHG
 emissions.                    emissions in the heavy duty truck sector.
------------------------------------------------------------------------
Per vehicle fuel consumption  15% improvement over  16% improvement over
 and CO[ihel2] improvement.    MY 2010 baseline      MY 2018-2019
                               for diesel            standards.
                               vehicles, and 10%
                               improvement for
                               gasoline vehicles.
------------------------------------------------------------------------
Form of the standard........  Phase 1 standards are based upon a ``work
                               factor'' attribute that combines truck
                               payload and towing capabilities, with an
                               added adjustment for 4-wheel drive
                               vehicles. There are separate target
                               curves for diesel-powered and gasoline-
                               powered vehicles. The Phase 2 standards
                               are based on the same approach.
------------------------------------------------------------------------
Example technology options    Engine improvements,  Further technology
 available to help             transmission          improvements and
 manufacturers meet            improvements,         increased use of
 standards.                    aerodynamic drag      all Phase 1
                               improvements, low     technologies, plus
                               rolling resistance    engine stop-start,
                               tires, weight         and powertrain
                               reduction, and        hybridization (mild
                               improved              and strong).
                               accessories.
------------------------------------------------------------------------
Flexibilities...............  Two optional phase-   Same as Phase 1,
                               in schedules; ABT     with phase-in
                               program which         schedule based on
                               allows emissions      year-over-year
                               and fuel              increase in
                               consumption credits   stringency. Same
                               to be averaged,       ABT and off-cycle
                               banked, or traded     program as Phase 1.
                               (five year credit     Adjustment factor
                               life).                of 1.25 for credits
                               Manufacturers         carried forward
                               allowed to carry-     from Phase 1 to
                               forward credit        Phase 2 due to
                               deficits for up to    change in useful
                               three model years.    life.
                               Interim incentives   Revised multipliers
                               for advanced          for Phase 2
                               technologies,         advanced
                               recognition of        technologies.
                               innovative (off-     No Phase 2 early
                               cycle) technologies   credit multipliers.
                               not accounted for
                               by the HD Phase 1
                               test procedures,
                               and credits for
                               certifying early.
------------------------------------------------------------------------

    Similar to Phase 1, the agencies are adopting for Phase 2 a set of
continuous equation-based standards for HD pickups and vans. Please
refer to Section VI for a description of these standards, including
associated tables and figures.

D. Summary of the Costs and Benefits of the Final Rules

    This section summarizes the projected costs and benefits of the
NHTSA fuel consumption and EPA GHG emission standards. See Sections VII
through IX and the RIA for additional details about these projections.
    For these rules, the agencies used two analytical methods for the
heavy-duty pickup and van segment by employing both DOT's CAFE model
and EPA's MOVES model. The agencies used EPA's MOVES model to estimate
fuel consumption and emissions impacts for tractor-trailers (including
the engine that powers the tractor), and vocational vehicles (including
the engine that powers the vehicle). Additional calculations were
performed to determine corresponding monetized program costs and
benefits. For heavy-duty pickups and vans, the agencies performed
separate analyses, which we refer to as ``Method A'' and ``Method B.''
In Method A, a new version of the CAFE model was used to project a
pathway the industry could use to comply with each regulatory
alternative and the estimated effects on fuel consumption, emissions,
benefits and costs. In Method B, the CAFE model from the NPRM was used
to project a pathway the industry could use to comply with each
regulatory alternative, along with resultant impacts on per-vehicle
costs. However, the MOVES model was used to calculate corresponding
changes in total fuel consumption and annual emissions for pickups and
vans in Method B. Additional calculations were performed to determine
corresponding

monetized program costs and benefits. NHTSA considered Method A as its
central analysis and Method B as a supplemental analysis. EPA
considered the results of Method B. The agencies concluded that these
methods led the agencies to the same conclusions and the same selection
of these standards. See Section VII for additional discussion of these
two methods.
(1) Reference Case Against Which Costs and Benefits Are Calculated
    The No Action Alternatives for today's analysis, alternatively
referred to as the ``baselines'' or ``reference cases,'' assume that
the agencies did not issue new rules regarding MD/HD fuel efficiency
and GHG emissions. These are the baselines against which costs and
benefits for these standards are calculated. The reference cases assume
that model year 2018 engine, tractor, vocational vehicle, and HD pickup
and van standards will be extended indefinitely and without change.
They also assume that no new standards would be adopted for trailers.
    The agencies recognize that if these Phase 2 standards had not been
adopted, manufacturers would nevertheless continue to introduce new
heavy-duty vehicles in a competitive market that responds to a range of
factors, and manufacturers might have continued to improve technologies
to reduce heavy-duty vehicle fuel consumption. Thus, as described in
Section VII, both agencies fully analyzed these standards and the
regulatory alternatives against two reference cases. The first case
uses a baseline that projects no improvement in new vehicles in the
absence of new Phase 2 standards, and the second uses a more dynamic
baseline that projects some significant improvements in vehicle fuel
efficiency. NHTSA considered its primary analysis to be based on the
dynamic baseline, where certain cost-effective technologies are assumed
to be applied by manufacturers to improve fuel efficiency beyond the
Phase 1 requirements in the absence of new Phase 2 standards. EPA
considered both reference cases. The results for all of the regulatory
alternatives relative to both reference cases, derived via the same
methodologies discussed in this section, are presented in Section X of
the Preamble.
    The agencies received limited comments on these reference cases.
Some commenters expressed support for a flat baseline in the context of
the need for the regulations, arguing that little improvement would
occur without the regulations. Others supported the less dynamic
baseline because they believe it more fully captures the costs. A
number of commenters expressed that purchasers are willing to and do
pay for fuel efficiency improving technologies, provided the cost for
the technology is paid back through fuel savings within a certain
period of time; this is the premise for a dynamic baseline. Some
commenters thought it reasonable that the agencies consider both
baselines given the uncertainty in this area. No commenters opposed the
consideration of both baselines.
    The agencies have continued to analyze two different baselines for
the final rules because we recognize that there are a number of factors
that create uncertainty in projecting a baseline against which to
compare the future effects of this action and the remaining
alternatives. The composition of the future fleet--such as the relative
position of individual manufacturers and the mix of products they each
offer--cannot be predicted with certainty at this time. Additionally,
the heavy-duty vehicle market is diverse, as is the range of vehicle
purchasers. Heavy-duty vehicle manufacturers have reported that their
customers' purchasing decisions are influenced by their customers' own
determinations of minimum total cost of ownership, which can be unique
to a particular customer's circumstances. For example, some customers
(e.g., less-than-truckload or package delivery operators) operate their
vehicles within a limited geographic region and typically own their own
vehicle maintenance and repair centers within that region. These
operators tend to own their vehicles for long time periods, sometimes
for the entire service life of the vehicle. Their total cost of
ownership is influenced by their ability to better control their own
maintenance costs, and thus they can afford to consider fuel efficiency
technologies that have longer payback periods, outside of the vehicle
manufacturer's warranty period. Other customers (e.g., truckload or
long-haul operators) tend to operate cross-country, and thus must
depend upon truck dealer service centers for repair and maintenance.
Some of these customers tend to own their vehicles for about four to
seven years, so that they typically do not have to pay for repair and
maintenance costs outside of either the manufacturer's warranty period
or some other extended warranty period. Many of these customers tend to
require seeing evidence of fuel efficiency technology payback periods
on the order of 18 to 24 months before seriously considering evaluating
a new technology for potential adoption within their fleet (NAS 2010,
Roeth et al. 2013, and Klemick et al. 2014). Purchasers of HD pickups
and vans wanting better fuel efficiency tend to demand that fuel
consumption improvements pay back within approximately one to three
years, but some HD pickup and van owners accrue relatively few vehicle
miles traveled per year, such that they may be less likely to adopt new
fuel efficiency technologies, while other owners who use their
vehicle(s) with greater intensity may be even more willing to pay for
fuel efficiency improvements. Regardless of the type of customer, their
determination of minimum total cost of ownership involves the customer
balancing their own unique circumstances with a heavy-duty vehicle's
initial purchase price, availability of credit and lease options,
expectations of vehicle reliability, resale value and fuel efficiency
technology payback periods. The degree of the incentive to adopt
additional fuel efficiency technologies also depends on customer
expectations of future fuel prices, which directly impacts customer
payback periods. Purchasing decisions are not based exclusively on
payback period, but also include the considerations discussed above and
in Section X.A.1. For the baseline analysis, the agencies use payback
period as a proxy for all of these considerations, and therefore the
payback period for the baseline analysis is shorter than the payback
period industry uses as a threshold for the further consideration of a
technology. See Section X.A.1 of this Preamble and Chapter 11 of the
RIA for a more detailed discussion of baselines. As part of a
sensitivity analysis, additional baseline scenarios were also evaluated
for HD pickups and vans, including baseline payback periods of 12, 18
and 24 months. See Section VI of this Preamble and Chapter 10 of the
RIA for a detailed discussion of these additional scenarios.
(2) Costs and Benefits Projected for the Phase 2 Standards
    The tables below summarize the benefits and costs for the program
in two ways: First, from the perspective of a program designed to
improve the Nation's energy security and to conserve energy by
improving fuel efficiency and then from the perspective of a program
designed to reduce GHG emissions. The individual categories of benefits
and costs presented in the tables below are defined more fully and
presented in more detail in Chapter 8 of the RIA.
    Lifetime fuel savings, GHG reductions, benefits, costs and net
benefits for model years 2018 through

2029 vehicles as presented below. This is consistent with the NPRM
analysis and allows readers to compare the costs and benefits of the
final program with those projected for the NPRM. It also includes for
modeling purposes at least three model years for each standard.
    Table I-10 shows benefits and costs for these standards from the
perspective of a program designed to improve the Nation's energy
security and conserve energy by improving fuel efficiency. From this
viewpoint, technology costs occur when the vehicle is purchased. Fuel
savings are counted as benefits that occur over the lifetimes of the
vehicles produced during the model years subject to the Phase 2
standards as they consume less fuel.

 Table I-10--Lifetime Fuel Savings, GHG Reductions, Benefits, Costs, and
 Net Benefits for Model Years 2018-2029 Vehicles Using Analysis Method A
                       [Billions of 2013$] \a\ \b\
------------------------------------------------------------------------
            Category               3% discount rate    7% discount rate
------------------------------------------------------------------------
Fuel Reductions (Billion
 Gallons).......................                 71.1-77.7
                                 ---------------------------------------
GHG reductions (MMT CO[ihel2]
 eq)............................                 959-1049
                                 ---------------------------------------
Vehicle Program: Technology and         23.7 to 24.4        16.1 to 16.6
 Indirect Costs, Normal Profit
 on Additional Investments......
Additional Routine Maintenance..          1.7 to 1.7          0.9 to 0.9
Congestion, Crashes, Fatalities           3.1 to 3.2          1.8 to 1.9
 and Noise from Increased
 Vehicle Use \d\................
                                 ---------------------------------------
    Total Costs.................        28.5 to 29.3        18.8 to 19.4
                                 ---------------------------------------
Fuel Savings (valued at pre-tax       149.1 to 163.0        79.7 to 87.0
 prices)........................
Savings from Less Frequent                3.0 to 3.2          1.6 to 1.7
 Refueling......................
Economic Benefits from                    5.4 to 5.5          3.4 to 3.5
 Additional Vehicle Use.........
                                 ---------------------------------------
Reduced Climate Damages from GHG
 Emissions \c\..................               33.0 to 36.0
                                 ---------------------------------------
Reduced Health Damages from Non-        27.1 to 30.0        14.6 to 16.1
 GHG Emissions..................
Increased U.S. Energy Security..          7.3 to 7.9          3.9 to 4.2
                                 ---------------------------------------
    Total Benefits..............          225 to 246          136 to 149
                                 ---------------------------------------
    Net Benefits................          197 to 216          117 to 129
------------------------------------------------------------------------
Notes:
\a\ For an explanation of analytical Methods A and B, please see Section
  I.D; for an explanation of the flat baseline, 1a, and dynamic
  baseline, 1b, please see Section X.A.1.
\b\ Range reflects two reference case assumptions 1a and 1b.
\c\ Benefits and net benefits use the 3 percent global average SCC value
  applied only to CO[ihel2] emissions; GHG reductions include CO[ihel2],
  CH4, N[ihel2]O and HFC reductions, and include benefits to other
  nations as well as the U.S. See Draft RIA Chapter 8.5 and Preamble
  Section IX.G for further discussion.
\d\ ``Congestion, Crashes, Fatalities and Noise from Increased Vehicle
  Use'' includes NHTSA's monetized value of estimated reductions in the
  incidence of highway fatalities associated with mass reduction in HD
  pickup and vans, but this does not include these reductions from
  tractor-trailers or vocational vehicles. This likely results in a
  conservative overestimate of these costs.

    Table I-11 shows benefits and cost from the perspective of reducing
GHG. As shown below in terms of MY lifetime GHG reductions, and in RIA
Chapter 5 in terms of year-by-year GHG reductions, the final program is
expected to reduce more GHGs over the long run than the proposed
program. In general, the greater reductions can be attributed to
increased market penetration and effectiveness of key technologies,
based on new data and comments, leading to increases in stringency such
as with the diesel engine standards (Section I.C.(2)(a) above).

 Table I-11--Lifetime Fuel Savings, GHG Reductions, Benefits, Costs and
 Net Benefits for Model Years 2018-2029 Vehicles Using Analysis Method B
                       [Billions of 2012$] \a\ \b\
------------------------------------------------------------------------
            Category               3% discount rate    7% discount rate
------------------------------------------------------------------------
Fuel Reductions (Billion
 Gallons).......................                   73-82
                                 ---------------------------------------
GHG reductions (MMT CO[ihel2]eq)                 976-1,098
                                 ---------------------------------------
Vehicle Program (e.g.,              -$26.5 to -$26.2    -$17.6 to -$17.4
 technology and indirect costs,
 normal profit on additional
 investments)...................
Additional Routine Maintenance..      -$1.9 to -$1.9      -$1.0 to -$1.0
Fuel Savings (valued at pre-tax     $149.3 to $169.1      $76.8 to $87.2
 prices)........................
Energy Security.................        $6.9 to $7.8        $3.5 to $4.0
Congestion, Crashes, and Noise        -$3.2 to -$3.2      -$1.8 to -$1.8
 from Increased Vehicle Use.....
Savings from Less Frequent              $3.4 to $4.0        $1.8 to $2.1
 Refueling......................
Economic Benefits from                $10.4 to $10.5        $5.7 to $5.7
 Additional Vehicle Use.........
Benefits from Reduced Non-GHG         $28.3 to $31.9      $13.4 to $15.0
 Emissions \c\..................
------------------------------------------------------------------------

Reduced Climate Damages from GHG
 Emissions \d\..................              $33.0 to $37.2
                                 ---------------------------------------
    Net Benefits................        $200 to $229        $114 to $131
------------------------------------------------------------------------
Notes:
\a\ For an explanation of analytical Methods A and B, please see Section
  I.D; for an explanation of the flat baseline, 1a, and dynamic
  baseline, 1b, please see Section X.A.1.
\b\ Range reflects two baseline assumptions 1a and 1b.
\c\ Range reflects both the two baseline assumptions 1a and 1b using the
  mid-point of the low and high $/ton estimates for calculating
  benefits.
\d\ Benefits and net benefits use the 3 percent average directly modeled
  SC-GHG values applied to direct reductions of CO[ihel2], CH[ihel4] and
  N[ihel2]O emissions; GHG reductions include CO[ihel2], CH[ihel4] and
  N[ihel2]O reductions.

    Table I-12 breaks down by vehicle category the benefits and costs
for these standards using the Method A analytical approach. For
additional detail on per-vehicle break-downs of costs and benefits,
please see RIA Chapter 10.

 Table I-12--Per Vehicle Category Lifetime Fuel Savings, GHG Reductions,
   Benefits, Costs and Net Benefits for Model Years 2018-2029 Vehicles
Using Analysis Method A (Billions of 2013$), Relative to Baseline 1b \a\
------------------------------------------------------------------------
    Key costs and benefits by
        vehicle category           3% discount rate    7% discount rate
------------------------------------------------------------------------
                Tractors, Including Engines, and Trailers
------------------------------------------------------------------------
Fuel Reductions (Billion
 Gallons).......................                    50
                                 ---------------------------------------
GHG Reductions (MMT CO[ihel2]
 eq)............................                    685
                                 ---------------------------------------
Total Costs.....................                13.8                 9.0
Total Benefits..................               161.0                96.8
Net Benefits....................               147.2                85.5
------------------------------------------------------------------------
                 Vocational Vehicles, Including Engines
------------------------------------------------------------------------
Fuel Reductions (Billion
 Gallons).......................                    12
                                 ---------------------------------------
GHG Reductions (MMT CO[ihel2]
 eq)............................                    162
                                 ---------------------------------------
Total Costs.....................                 7.3                 4.8
Total Benefits..................                37.8                22.7
Net Benefits....................                30.5                15.3
------------------------------------------------------------------------
                           HD Pickups and Vans
------------------------------------------------------------------------
Fuel Reductions (Billion
 Gallons).......................                    10
                                 ---------------------------------------
GHG Reductions (MMT CO[ihel2]
 eq)............................                    111
                                 ---------------------------------------
Total Costs.....................                 7.4                 5.1
Total Benefits..................                26.0                16.7
Net Benefits....................                18.6                11.6
------------------------------------------------------------------------
Notes:
\a\ For an explanation of analytical Methods A and B, please see Section
  I.D; for an explanation of the flat baseline, 1a, and dynamic
  baseline, 1b, please see Section X.A.1.

                 Table I-13--Per Vehicle Costs, Using Method A (2013$), Relative to Baseline 1b
----------------------------------------------------------------------------------------------------------------
                                                                      MY 2021         MY 2024         MY 2027
----------------------------------------------------------------------------------------------------------------
Per Vehicle Cost ($): \a\
    Tractors....................................................          $6,400          $9,920         $12,160
    Trailers....................................................             850           1,000           1,070
    Vocational Vehicles.........................................           1,110           2,020           2,660
    Pickups/Vans................................................             750             760           1,340
----------------------------------------------------------------------------------------------------------------
Note:
\a\ Per vehicle costs include new engine and vehicle technology only; costs associated with increased insurance,
  taxes and maintenance are included in the payback period values.

                      Table I-14--Per Vehicle Costs Using Method B Relative to Baseline 1a
----------------------------------------------------------------------------------------------------------------
                                                                      MY 2021         MY 2024         MY 2027
----------------------------------------------------------------------------------------------------------------
Per Vehicle Cost ($): \a\
    Tractors....................................................          $6,484         $10,101         $12,442
    Trailers....................................................             868           1,033           1,108
    Vocational Vehicles.........................................           1,110           2,022           2,662
    Pickups/Vans................................................             524             963           1,364
----------------------------------------------------------------------------------------------------------------
Note:
\a\ Per vehicle costs include new engine and vehicle technology only; costs associated with increased insurance,
  taxes and maintenance are included in the payback period values.

    An important metric to vehicle purchasers is the payback period
that can be expected on any new purchase. In other words, there is
greater willingness to pay for new technology if that new technology
``pays back'' within an acceptable period of time. The agencies make no
effort to define the acceptable period of time, but seek to estimate
the payback period for others to make the decision themselves. The
payback period is the point at which reduced fuel expenditures outpace
increased vehicle costs, including increased maintenance, insurance
premiums and taxes. The payback periods for vehicles meeting the
standards considered for the final year of implementation are shown in
Table I-15, and are similar for both Method A and Method B.

Table I-15--Payback Periods for MY 2027 Vehicles Relative to Baseline 1a
        [Payback cccurs in the year shown; using 7% discounting]
------------------------------------------------------------------------

------------------------------------------------------------------------
Tractors/Trailers.........................  2nd.
Vocational Vehicles.......................  4th.
Pickups/Vans..............................  3rd.
------------------------------------------------------------------------

Table I-16--Payback Periods for MY 2027 Vehicles Relative to Baseline 1b
        [Payback occurs in the year shown; using 7% discounting]
------------------------------------------------------------------------

------------------------------------------------------------------------
Tractors/Trailers.........................  2nd.
Vocational Vehicles.......................  4th.
Pickups/Vans..............................  3rd.
------------------------------------------------------------------------

(3) Cost Effectiveness
    These regulations implement section 32902(k) of EISA and section
202(a)(1) and (2) of the Clean Air Act. Through the 2007 EISA, Congress
directed NHTSA to create a medium- and heavy-duty vehicle fuel
efficiency program designed to achieve the maximum feasible improvement
by considering appropriateness, cost effectiveness, and technological
feasibility to determine maximum feasible standards.\78\ The Clean Air
Act requires that any air pollutant emission standards for heavy-duty
vehicles and engines take into account the costs of any requisite
technology and the lead time necessary to implement such technology.
Both agencies considered overall costs, overall benefits and cost
effectiveness in developing the Phase 2 standards. Although there are
different ways to evaluate cost effectiveness, the essence is to
consider some measure of costs relative to some measure of impacts.
---------------------------------------------------------------------------

    \78\ This EISA requirement applies to regulation of medium- and
heavy-duty vehicles. For many years, and as reaffirmed by Congress
in 2007, ``economic practicability'' has been among the factors EPCA
requires NHTSA to consider when setting light-duty fuel economy
standards at the (required) maximum feasible levels. NHTSA
interprets ``economic practicability'' as a factor involving
considerations broader than those likely to be involved in ``cost
effectiveness.''
---------------------------------------------------------------------------

    Considering that Congress enacted EPCA and EISA to, among other
things, address the need to conserve energy, the agencies have
evaluated these standards in terms of costs per gallon of fuel
conserved. We also considered the similar metric of cost of technology
per ton of CO2e removed, consistent with the objective of
CAA section 202(a)(1) and (2) to reduce emissions of air pollutants
which contribute to air pollution which endangers public health and
welfare. As described in the RIA, the agencies also evaluated these
standards using the same approaches employed in HD Phase 1. Together,
the agencies have considered the following three ratios of cost
effectiveness:

1. Total social costs per gallon of fuel conserved
2. Technology costs per ton of GHG emissions reduced (CO2eq)
3. Technology costs minus fuel savings per ton of GHG emissions reduced

By all three of these measures, the total heavy-duty program will be
highly cost effective.
    As discussed below, the agencies estimate that over the lifetime of
heavy-duty vehicles produced for sale in the U.S. during model years
2018-2029, these standards will cost about $30 billion and conserve
about 75 billion gallons of fuel, such that the first measure of cost
effectiveness will be about 40 cents per gallon. Relative to fuel
prices underlying the agencies' analysis, the agencies have concluded
that today's standards will be cost effective.
    With respect to the second measure, which is useful for comparisons
to other GHG rules, these standards will have overall $/ton costs
similar to the HD Phase 1 rule. As Chapter 7 of the RIA shows, social
costs will amount to about $30 per metric ton of GHG (CO2eq)
for the entire HD Phase 2 program. This compares well to both the HD
Phase 1 rule, which was also estimated to cost about $30 per metric ton
of GHG (without fuel savings), and to the agencies' estimates of the
social cost of carbon.\79\ Thus, even without accounting for fuel
savings, these standards will be cost-effective.
---------------------------------------------------------------------------

    \79\ As described in Section IX.G, the social cost of carbon is
a metric that estimates the monetary value of impacts associated
with marginal changes in CO2 emissions in a given year.
---------------------------------------------------------------------------

    The following table include the overall per-unit costs of both
gallons of fuel conserved and metric tons of GHG emissions abated using
both a 3 percent and a 7 percent discount rate. Table I-16 gives these