reduction of the CAFE standard for MY 1989 passenger cars.\723\ Since
then, NHTSA has considered the benefits of reducing tailpipe carbon
dioxide emissions in its fuel economy

rulemakings pursuant to the statutory requirement to consider the
nation's need to conserve energy by reducing fuel consumption.
---------------------------------------------------------------------------

    \720\ Center for Auto Safety v. NHTSA, 793 F.2d 1322, 1325 n. 12
(DC Cir. 1986); Public Citizen v. NHTSA, 848 F.2d 256, 262-3 n. 27
(DC Cir. 1988) (noting that ``NHTSA itself has interpreted the
factors it must consider in setting CAFE standards as including
environmental effects''); and Center for Biological Diversity v.
NHTSA, 538 F.3d 1172 (9th Cir. 2007).
    \721\ 42 FR 63184, 63188 (Dec. 15, 1977) (emphasis added).
    \722\ 53 FR 33080, 33096 (Aug. 29, 1988).
    \723\ 53 FR 39275, 39302 (Oct. 6, 1988).
---------------------------------------------------------------------------

ii. Other Factors Considered by NHTSA
    The agency historically has considered the potential for adverse
safety consequences in setting CAFE standards. This practice is
recognized approvingly in case law. As the courts have recognized,
``NHTSA has always examined the safety consequences of the CAFE
standards in its overall consideration of relevant factors since its
earliest rulemaking under the CAFE program.'' Competitive Enterprise
Institute v. NHTSA, 901 F.2d 107, 120 n. 11 (DC Cir. 1990) (``CEI I'')
(citing 42 FR 33534, 33551 (June 30, 1977)). The courts have
consistently upheld NHTSA's implementation of EPCA in this manner. See,
e.g., Competitive Enterprise Institute v. NHTSA, 956 F.2d 321, 322 (DC
Cir. 1992) (``CEI II'') (in determining the maximum feasible fuel
economy standard, ``NHTSA has always taken passenger safety into
account.'') (citing CEI I, 901 F.2d at 120 n. 11); Competitive
Enterprise Institute v. NHTSA, 45 F.3d 481, 482-83 (DC Cir. 1995)
(``CEI III'') (same); Center for Biological Diversity v. NHTSA, 538
F.3d 1172, 1203-04 (9th Cir. 2008) (upholding NHTSA's analysis of
vehicle safety issues associated with weight in connection with the MY
2008-11 light truck CAFE rule). Thus, in evaluating what levels of
stringency would result in maximum feasible standards, NHTSA assesses
the potential safety impacts and considers them in balancing the
statutory considerations and to determine the maximum feasible level of
the standards.
    Under the universal or ``flat'' CAFE standards that NHTSA was
previously authorized to establish, manufacturers were encouraged to
respond to higher standards by building smaller, less safe vehicles in
order to ``balance out'' the larger, safer vehicles that the public
generally preferred to buy, which resulted in a higher mass
differential between the smallest and the largest vehicles, with a
correspondingly greater risk to safety. Under the attribute-based
standards being proposed today, that risk is reduced because building
smaller vehicles would tend to raise a manufacturer's overall CAFE
obligation, rather than only raising its fleet average CAFE, and
because all vehicles are required to continue improving their fuel
economy. In prior rulemakings, NHTSA limited the application of mass
reduction in our modeling analysis to vehicles over 5,000 lbs
GVWR,\724\ but for purposes of today's proposed standards, NHTSA has
revised its modeling analysis to allow some application of mass
reduction for most types of vehicles, although it is concentrated in
the largest and heaviest vehicles, because we believe that this is more
consistent with how manufacturers will actually respond to the
standards. However, as discussed above, NHTSA does not mandate the use
of any particular technology by manufacturers in meeting the standards.
More information on the approach to modeling manufacturer use of mass
reduction is available in Chapter 3 of the draft Joint TSD and in
Section V of the PRIA; and the estimated safety impacts that may be due
to the proposed MY 2017-2025 CAFE standards are described in section
IV.G below.
---------------------------------------------------------------------------

    \724\ See 74 FR 14396-14407 (Mar. 30, 2009).
---------------------------------------------------------------------------

    iii. Factors That NHTSA Is Prohibited From Considering
    EPCA also provides that in determining the level at which it should
set CAFE standards for a particular model year, NHTSA may not consider
the ability of manufacturers to take advantage of several EPCA
provisions that facilitate compliance with the CAFE standards and
thereby reduce the costs of compliance.\725\ As discussed further
below, manufacturers can earn compliance credits by exceeding the CAFE
standards and then use those credits to achieve compliance in years in
which their measured average fuel economy falls below the standards.
Manufacturers can also increase their CAFE levels through MY 2019 by
producing alternative fuel vehicles. EPCA provides an incentive for
producing these vehicles by specifying that their fuel economy is to be
determined using a special calculation procedure that results in those
vehicles being assigned a high fuel economy level.
---------------------------------------------------------------------------

    \725\ 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

    The effect of the prohibitions against considering these statutory
flexibilities in setting the CAFE standards is that the flexibilities
remain voluntarily-employed measures. If the agency were instead to
assume manufacturer use of those flexibilities in setting new
standards, that assumption would result in higher standards and thus
tend to require manufacturers to use those flexibilities. By keeping
NHTSA from including them in our stringency determination, the
provision ensures that the statutory credits remain described above
remain true compliance flexibilities.
    On the other hand, NHTSA does not believe that flexibilities other
than those expressly identified in EPCA are similarly prohibited from
being included in the agency's determination of what standards would be
maximum feasible. In order to better meet EPCA's overarching purpose of
energy conservation, the agency is therefore considering manufacturers'
ability to increase the calculated fuel economy levels of their
vehicles through A/C efficiency improvements, as proposed by EPA, in
the proposed CAFE stringency levels for passenger cars and light trucks
for MYs 2017-2025. NHTSA would similarly consider manufacturers'
ability to raise their fuel economy using off-cycle technologies as
potentially relevant to our determination of maximum feasible CAFE
standards, but because we and EPA do not believe that we can yet
reasonably predict an average amount by which manufacturers will take
advantage of this opportunity, it did not seem reasonable for the
proposed standards to include it in our stringency determination at
this time. We expect to re-evaluate whether and how to include off-
cycle credits in determining maximum feasible standards as the off-
cycle technologies and how manufacturers may be expected to employ them
become better defined in the future.
    Additionally, because we interpret the prohibition against
including the defined statutory credits in our determination of maximum
feasible standards as applying only to the flexibilities expressly
identified in 49 U.S.C. 32902(h), NHTSA must, for the first time in
this rulemaking, determine how to consider the fuel economy of dual-
fueled automobiles after the statutory credit sunsets in MY 2019. Once
there is no statutory credit to protect as a compliance flexibility, it
does not seem reasonable to NHTSA to continue to interpret the statute
as prohibiting the agency from setting maximum feasible levels at a
higher standard, if possible, by considering the fuel economy of dual-
fueled automobiles as measured by EPA. The overarching purpose of EPCA
is better served by interpreting 32902(h)(2) as moot once the statutory
credits provided for in 49 U.S.C. 32905 and 32906 have expired.
    49 U.S.C. 32905(b) and (d) states that the special fuel economy
measurement prescribed by Congress for dual-fueled automobiles applies
only ``in model years 1993 through 2019.'' 49 U.S.C. 32906(a) also
provides that the section 32905 calculation will sunset in 2019, as
evidenced by the phase-out of the

allowable increase due to that credit; it is clear that the phase-out
of the allowable increase in a manufacturer's CAFE levels due to use of
dual-fueled automobiles relates only to the special statutory
calculation (and not to other ways of incorporating the fuel economy of
dual-fueled automobiles into the manufacturer's fleet calculation) by
virtue of language in section 32906(b), which states that ``in applying
subsection (a) [i.e., the phasing out maximum increase], the
Administrator of the Environmental Protection Agency shall determine
the increase in a manufacturer's average fuel economy attributable to
dual fueled automobiles by subtracting from the manufacturer's average
fuel economy calculated under section 32905(e) the number equal to what
the manufacturer's average fuel economy would be if it were calculated
by the formula under section 32904(a)(1). * * * '' By referring back to
the special statutory calculation, Congress makes clear that the phase-
out applies only to increases in fuel economy attributable to dual-
fueled automobiles due to the special statutory calculation in sections
32905(b) and (d). Similarly, we interpret Congress' statement in
section 32906(a)(7) that the maximum increase in fuel economy
attributable to dual-fueled automobiles is ``0 miles per gallon for
model years after 2019'' within the context of the introductory
language of section 32906(a) and the language of section 32906(b),
which, again, refers clearly to the statutory credit, and not to dual-
fueled automobiles generally. It would be an absurd result if the
phase-out of the credit meant that manufacturers would be effectively
penalized, in CAFE compliance, for building dual-fueled automobiles
like plug-in hybrid electric vehicles, which may be important
``bridge'' vehicles in helping consumers move toward full electric
vehicles.
    NHTSA has therefore considered the fuel economy of plug-in hybrid
electric vehicles (the only dual-fueled automobiles that we predict in
significant numbers in MY 2020 and beyond; E85-capable FFVs are not
predicted in great numbers after the statutory credit sunsets, and we
do not have sufficient information about potential dual-fueled CNG/
gasoline vehicles to make reasonable estimates now of their numbers in
that time frame in determining the maximum feasible level of the MY
2020-2025 CAFE standards for passenger cars and light trucks.
iv. Determining the Level of the Standards by Balancing the Factors
    NHTSA has broad discretion in balancing the above factors in
determining the appropriate levels of average fuel economy at which to
set the CAFE standards for each model year. Congress ``specifically
delegated the process of setting * * * fuel economy standards with
broad guidelines concerning the factors that the agency must
consider.'' \726\ The breadth of those guidelines, the absence of any
statutorily prescribed formula for balancing the factors and other
considerations, the fact that the relative weight to be given to the
various factors may change from rulemaking to rulemaking as the
underlying facts change, and the fact that the factors may often be
conflicting with respect to whether they militate toward higher or
lower standards give NHTSA broad discretion to decide what weight to
give each of the competing policies and concerns and then determine how
to balance them. The exercise of that discretion is subject to the
necessity of ensuring that NHTSA's balancing does not undermine the
fundamental purpose of EPCA, energy conservation,\727\ and as long as
that balancing reasonably accommodates ``conflicting policies that were
committed to the agency's care by the statute.'' \728\ The balancing of
the factors in any given rulemaking is highly dependent on the factual
and policy context of that rulemaking and the agency's assumptions
about the factual and policy context during the time frame covered by
the standards at issue. Given the changes over time in facts bearing on
assessment of the various factors, such as those relating to economic
conditions, fuel prices, and the state of climate change science, the
agency recognizes that what was a reasonable balancing of competing
statutory priorities in one rulemaking may or may not be a reasonable
balancing of those priorities in another rulemaking.\729\ Nevertheless,
the agency retains substantial discretion under EPCA to choose among
reasonable alternatives.
---------------------------------------------------------------------------

    \726\ Center for Auto Safety v. NHTSA, 793 F.2d 1322, 1341
(C.A.D.C. 1986).
    \727\ Center for Biological Diversity v. NHTSA, 538 F.3d 1172,
1195 (9th Cir. 2008).
    \728\ CAS, 1338 (quoting Chevron U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 845).
    \729\ CBD v. NHTSA, 538 F.3d 1172, 1198 (9th Cir. 2008).
---------------------------------------------------------------------------

    EPCA neither requires nor precludes the use of any type of cost-
benefit analysis as a tool to help inform the balancing process. As
discussed above, while NHTSA used marginal cost-benefit analysis in the
first two rulemakings to establish attribute-based CAFE standards, it
was not required to do so and is not required to continue to do so.
Regardless of what type of analysis is or is not used, considerations
relating to costs and benefits remain an important part of CAFE
standard setting.
    Because the relevant considerations and factors can reasonably be
balanced in a variety of ways under EPCA, and because of uncertainties
associated with the many technological and cost inputs, NHTSA considers
a wide variety of alternative sets of standards, each reflecting
different balancing of those policies and concerns, to aid it in
discerning reasonable outcomes. Among the alternatives providing for an
increase in the standards in this rulemaking, the alternatives range in
stringency from a set of standards that increase, on average, 2 percent
annually to a set of standards that increase, on average, 7 percent
annually.
v. Other Standards
(1) Minimum Domestic Passenger Car Standard
    The minimum domestic passenger car standard was added to the CAFE
program through EISA, when Congress gave NHTSA explicit authority to
set universal standards for domestically-manufactured passenger cars at
the level of 27.5 mpg or 92 percent of the average fuel economy of the
combined domestic and import passenger car fleets in that model year,
whichever was greater.\730\ This minimum standard was intended to act
as a ``backstop,'' ensuring that domestically-manufactured passenger
cars reached a given mpg level even if the market shifted in ways
likely to reduce overall fleet mpg. Congress was silent as to whether
the agency could or should develop similar backstop standards for
imported passenger cars and light trucks. NHTSA has struggled with this
question since EISA was enacted.
---------------------------------------------------------------------------

    \730\ 49 U.S.C. 32902(b)(4).
---------------------------------------------------------------------------

    NHTSA has proposed minimum standards for domestically-manufactured
passenger cars in Section IV.E below, but we also seek comment on
whether to consider, for the final rule, the possibility of minimum
standards for imported passenger cars and light trucks. Although we are
not proposing such standards, we believe it may be prudent to explore
this concept again given the considerable amount of time between now
and 2017-2025 (particularly the later years), and the accompanying
uncertainty in our market forecast and other assumptions,

that might make such minimum standards relevant to help ensure that
currently-expected fuel economy improvements occur during that time
frame. To help commenters' consideration of this question, Section IV.E
presents illustrative levels of minimum standards for those other
fleets.
    The minimum domestic passenger car standard was added to the CAFE
program through EISA, when Congress gave NHTSA explicit authority to
set universal standards for domestically-manufactured passenger cars at
the level explained above. This minimum standard was intended to act as
a ``backstop,'' ensuring that domestically-manufactured passenger cars
reached a given mpg level even if the market shifted in ways likely to
reduce overall fleet mpg. Congress was silent as to whether the agency
could or should develop similar backstop standards for imported
passenger cars and light trucks. NHTSA has struggled with this question
since EISA was enacted.
    In the MY 2011 final rule, facing comments split fairly evenly
between support and opposition to additional backstop standards, NHTSA
noted Congress' silence with respect to minimum standards for imported
passenger cars and light trucks and ``accept[ed] at least the
possibility that * * * [it] could be reasonably interpreted as
permissive rather than restrictive,'' but concluded based on the record
for that rulemaking as a whole that additional minimum standards were
not necessary for MY 2011, given the lack of leadtime for manufacturers
to change their MY 2011 vehicles, the apparently-growing public
preference for smaller vehicles, and the anti-backsliding
characteristics of the footprint-based curves.\731\
---------------------------------------------------------------------------

    \731\ 74 FR at 14412 (Mar. 30, 2009).
---------------------------------------------------------------------------

    In the MYs 2012-2016 final rule where NHTSA declined to set minimum
standards for imported passenger cars and light trucks, the agency did
so not because we believed that we did not have authority to do so, but
because we believed that our assumptions about the future fleet mix
were reliable within the rulemaking time frame, and that backsliding
was very unlikely and would not be sufficient to warrant the regulatory
burden of additional minimum standards for those fleets.\732\ NHTSA
also expressed concern about the possibility of additional minimum
standards imposing inequitable regulatory burdens of the kind that
attribute-based standards sought to avoid, stating that:
---------------------------------------------------------------------------

    \732\ 75 FR 25324, at 25368-70 (May 7, 2010).

    Unless the backstop was at a very weak level, above the high end
of this range, then some percentage of manufacturers would be above
the backstop even if the performance of the entire industry remains
fully consistent with the emissions and fuel economy levels
projected for the final standards. For these manufacturers and any
other manufacturers who were above the backstop, the objectives of
an attribute-based standard would be compromised and unnecessary
costs would be imposed. This could directionally impose increased
costs for some manufacturers. It would be difficult if not
impossible to establish the level of a backstop standard such that
costs are likely to be imposed on manufacturers only when there is a
failure to achieve the projected reductions across the industry as a
whole. An example of this kind of industry-wide situation could be
when there is a significant shift to larger vehicles across the
industry as a whole, or if there is a general market shift from cars
to trucks. The problem the agencies are concerned about in those
circumstances is not with respect to any single manufacturer, but
rather is based on concerns over shifts across the fleet as a whole,
as compared to shifts in one manufacturer's fleet that may be more
than offset by shifts the other way in another manufacturer's fleet.
However, in this respect, a traditional backstop acts as a
manufacturer-specific standard.\733\
---------------------------------------------------------------------------

    \733\ Id. at 25369.

    NHTSA continues to believe that the risk of additional minimum
standards imposing inequitable regulatory burdens on certain
manufacturers is real, but at the same time, we recognize that given
the time frame of the current rulemaking, the agency cannot be as
certain about the unlikelihood of future market changes. Depending on
the price of fuel and consumer preferences, the ``kind of industry-wide
situation'' described in the MYs 2012-2016 rule is possible in the
2017-2025 time frame, particularly in the later years.
    Because the agency does not have sufficient information at this
time regarding what tradeoffs might be associated with additional
minimum standards, specifically, whether the risk of backsliding during
MYs 2017-2025 sufficiently outweighs the possibility of imposing
inequitable regulatory burdens on certain manufacturers, we are seeking
comment in this NPRM on these issues but not proposing additional
minimum standards at this time. We also seek comment on how to
structure additional minimum standards (e.g., whether they should be
flat or attribute-based, and if the latter, how that would work), and
at what level additional minimum standards should potentially be set.
The tables in Section IV.E provide an illustration of what levels the
additional minimum standards would require if the agency followed the
same 92 percent guideline required by EISA for domestically-
manufactured passenger cars.
(2) Alternative Standards for Certain Manufacturers
    Because EPCA states that standards must be set for `` * * *
automobiles manufactured by manufacturers,'' and because Congress
provided specific direction on how small-volume manufacturers could
obtain exemptions from the passenger car standards, NHTSA has long
interpreted its authority as pertaining to setting standards for the
industry as a whole. Prior to this NPRM, some manufacturers raised with
NHTSA the possibility of NHTSA and EPA setting alternate standards for
part of the industry that met certain (relatively low) sales volume
criteria--specifically, that separate standards be set so that
``intermediate-size,'' limited-line manufacturers do not have to meet
the same levels of stringency that larger manufacturers have to meet
until several years later. These manufacturers argued that the same
level of standards would not be technologically feasible or
economically practicable in the same time frame for them, due to their
inability to spread compliance burden across a larger product lineup,
and difficulty in obtaining fuel economy-improving technologies quickly
from suppliers. NHTSA seeks comment on whether or how EPCA, as amended
by EISA, could be interpreted to allow such alternate standards for
certain parts of the industry.
2. Administrative Procedure Act
    To be upheld under the ``arbitrary and capricious'' standard of
judicial review in the APA, an agency rule must be rational, based on
consideration of the relevant factors, and within the scope of the
authority delegated to the agency by the statute. The agency must
examine the relevant data and articulate a satisfactory explanation for
its action including a ``rational connection between the facts found
and the choice made.'' Burlington Truck Lines, Inc. v. United States,
371 U.S. 156, 168 (1962).
    Statutory interpretations included in an agency's rule are
subjected to the two-step analysis of Chevron, U.S.A., Inc. v. Natural
Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694
(1984). Under step one, where a statute ``has directly spoken to the
precise question at issue,'' id. at 842, 104 S.Ct. 2778, the court and
the agency ``must give effect to the unambiguously

expressed intent of Congress,'' id. at 843, 104 S.Ct. 2778. If the
statute is silent or ambiguous regarding the specific question, the
court proceeds to step two and asks ``whether the agency's answer is
based on a permissible construction of the statute.'' Id.
    If an agency's interpretation differs from the one that it has
previously adopted, the agency need not demonstrate that the prior
position was wrong or even less desirable. Rather, the agency would
need only to demonstrate that its new position is consistent with the
statute and supported by the record, and acknowledge that this is a
departure from past positions. The Supreme Court emphasized this
recently in FCC v. Fox Television, 129 S.Ct. 1800 (2009). When an
agency changes course from earlier regulations, ``the requirement that
an agency provide reasoned explanation for its action would ordinarily
demand that it display awareness that it is changing position,'' but
``need not demonstrate to a court's satisfaction that the reasons for
the new policy are better than the reasons for the old one; it suffices
that the new policy is permissible under the statute, that there are
good reasons for it, and that the agency believes it to be better,
which the conscious change of course adequately indicates.'' \734\ The
APA also requires that agencies provide notice and comment to the
public when proposing regulations,\735\ as we are doing here today.
---------------------------------------------------------------------------

    \734\ Ibid., 1181.
    \735\ 5 U.S.C. 553.
---------------------------------------------------------------------------

3. National Environmental Policy Act
    As discussed above, EPCA requires the agency to determine what
level at which to set the CAFE standards for each model year by
considering the four factors of technological feasibility, economic
practicability, the effect of other motor vehicle standards of the
Government on fuel economy, and the need of the United States to
conserve energy. NEPA directs that environmental considerations be
integrated into that process. To accomplish that purpose, NEPA requires
an agency to compare the potential environmental impacts of its
proposed action to those of a reasonable range of alternatives.
    To explore the environmental consequences in depth, NHTSA has
prepared a draft environmental impact statement (``EIS''). The purpose
of an EIS is to ``provide full and fair discussion of significant
environmental impacts and [to] inform decisionmakers and the public of
the reasonable alternatives which would avoid or minimize adverse
impacts or enhance the quality of the human environment.'' 40 CFR
1502.1.
    NEPA is ``a procedural statute that mandates a process rather than
a particular result.'' Stewart Park & Reserve Coal., Inc. v. Slater,
352 F.3d at 557. The agency's overall EIS-related obligation is to
``take a `hard look' at the environmental consequences before taking a
major action.'' Baltimore Gas & Elec. Co. v. Natural Res. Def. Council,
Inc., 462 U.S. 87, 97, 103 S.Ct. 2246, 76 L.Ed.2d 437 (1983).
Significantly, ``[i]f the adverse environmental effects of the proposed
action are adequately identified and evaluated, the agency is not
constrained by NEPA from deciding that other values outweigh the
environmental costs.'' Robertson v. Methow Valley Citizens Council, 490
U.S. 332, 350, 109 S.Ct. 1835, 104 L.Ed.2d 351 (1989).
    The agency must identify the ``environmentally preferable''
alternative, but need not adopt it. ``Congress in enacting NEPA * * *
did not require agencies to elevate environmental concerns over other
appropriate considerations.'' Baltimore Gas and Elec. Co. v. Natural
Resources Defense Council, Inc., 462 U.S. 87, 97 (1983). Instead, NEPA
requires an agency to develop alternatives to the proposed action in
preparing an EIS. 42 U.S.C. 4332(2)(C)(iii). The statute does not
command the agency to favor an environmentally preferable course of
action, only that it make its decision to proceed with the action after
taking a hard look at environmental consequences.

E. What are the proposed CAFE standards?

1. Form of the Standards
    Each of the CAFE standards that NHTSA is proposing today for
passenger cars and light trucks is expressed as a mathematical function
that defines a fuel economy target applicable to each vehicle model
and, for each fleet, establishes a required CAFE level determined by
computing the sales-weighted harmonic average of those targets.\736\
---------------------------------------------------------------------------

    \736\ Required CAFE levels shown here are estimated required
levels based on NHTSA's current projection of manufacturers' vehicle
fleets in MYs 2017-2025. Actual required levels are not determined
until the end of each model year, when all of the vehicles produced
by a manufacturer in that model year are known and their compliance
obligation can be determined with certainty. The target curves, as
defined by the constrained linear function, and as embedded in the
function for the sales-weighted harmonic average, are the real
``standards'' being proposed today.
---------------------------------------------------------------------------

    As discussed above in Section II.C, NHTSA has determined passenger
car fuel economy targets using a constrained linear function defined
according to the following formula:
[GRAPHIC] [TIFF OMITTED] TP01DE11.180

    Here, TARGET is the fuel economy target (in mpg) applicable to
vehicles of a given footprint (FOOTPRINT, in square feet), b and a are
the function's lower and upper asymptotes (also in mpg), respectively,
c is the slope (in gallons per mile per square foot) of the sloped
portion of the function, and d is the intercept (in gallons per mile)
of the sloped portion of the function (that is, the value the sloped
portion would take if extended to a footprint of 0 square feet). The
MIN and MAX functions take the minimum and maximum, respectively of the
included values.
    NHTSA is proposing, consistent with the standards for MYs 2011-
2016, that the CAFE level required of any given manufacturer be
determined by calculating the production-weighted harmonic average of
the fuel economy targets applicable to each vehicle model:
[GRAPHIC] [TIFF OMITTED] TP01DE11.181

    PRODUCTIONi is the number of units produced for sale in
the United States of each i\th\ unique footprint within each model
type, produced for sale in the United States, and TARGETi is
the corresponding fuel economy target (according to the equation shown
above and based on the corresponding

footprint), and the summations in the numerator and denominator are
both performed over all unique footprint and model type combinations in
the fleet in question.
    The proposed standards for passenger cars are, therefore, specified
by the four coefficients defining fuel economy targets:
a = upper limit (mpg)
b = lower limit (mpg)
c = slope (gallon per mile per square foot)
d = intercept (gallon per mile)

    For light trucks, NHTSA is proposing to define fuel economy targets
in terms of a mathematical function under which the target is the
maximum of values determined under each of two constrained linear
functions. The second of these establishes a ``floor'' reflecting the
MY 2016 standard, after accounting for estimated adjustments reflecting
increased air conditioner efficiency. This prevents the target at any
footprint from declining between model years. The resultant
mathematical function is as follows:
[GRAPHIC] [TIFF OMITTED] TP01DE11.182

    The proposed standards for light trucks are, therefore, specified
by the eight coefficients defining fuel economy targets:

a = upper limit (mpg)
b = lower limit (mpg)
c = slope (gallon per mile per square foot)
d = intercept (gallon per mile)
e = upper limit (mpg) of ``floor''
f = lower limit (mpg) of ``floor''
g = slope (gallon per mile per square foot) of ``floor''
h = intercept (gallon per mile) of ``floor''
2. Passenger Car Standards for MYs 2017-2025
    For passenger cars, NHTSA is proposing CAFE standards defined by
the following coefficients during MYs 2017-2025:
[GRAPHIC] [TIFF OMITTED] TP01DE11.183

    For reference, the coefficients defining the MYs 2012-2016
passenger car standards are also provided below:
[GRAPHIC] [TIFF OMITTED] TP01DE11.184

    Also for reference, the following table presents the coefficients
based on 2-cycle CAFE only for easier comparison to the MYs 2012-2016
coefficients presented above. We emphasize, again, that the
coefficients in Table IV-11 define the proposed standards.
[GRAPHIC] [TIFF OMITTED] TP01DE11.185

    Section II.C above and Chapter 2 of the draft Joint TSD discusses
how the coefficients in Table IV-11 were developed for this proposed
rule. The proposed coefficients result in the footprint-dependent
targets shown graphically below for MYs 2017-2025. The MY 2012-2016
final standards are also shown for comparison.
BILLING CODE 4910-59-P

[GRAPHIC] [TIFF OMITTED] TP01DE11.186

    As discussed, the CAFE levels ultimately required of individual
manufacturers will depend on the mix of vehicles they produce for sale
in the United States. Based on the market forecast of future sales that
NHTSA has used to examine today's proposed CAFE standards, the agency
currently estimates that the target curves shown above will result in
the following average required fuel economy levels for individual
manufacturers during MYs 2017-2025 (an updated estimate of the average
required fuel economy level under the final MY 2016 standard is also
shown for comparison): \737\
---------------------------------------------------------------------------

    \737\ In the May 2010 final rule establishing MY 2016 standards
for passenger cars and light trucks, NHTSA estimated that the
required fuel economy levels for passenger cars would average 37.8
mpg under the MY 2016 passenger car standard. Based on the agency's
current forecast of the MY 2016 passenger car market, NHTSA again
estimates that the average required fuel economy level for passenger
cars will be 37.8 mpg in MY 2016.
    \738\ For purposes of CAFE compliance, ``Chrysler/Fiat'' is
assumed to include Ferrari and Maserati in addition to the larger-
volume Chrysler and Fiat brands.

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

[GRAPHIC] [TIFF OMITTED] TP01DE11.187

[GRAPHIC] [TIFF OMITTED] TP01DE11.188

    Because a manufacturer's required average fuel economy level for a
model year under the final standards will be based on its actual
production numbers in that model year, its official required fuel
economy level will not be known until the end of that model year.
However, because the targets for each vehicle footprint will be
established in advance of the model year, a manufacturer should be able
to estimate its required level accurately. Readers should remember that
the mpg levels describing the ``estimated required standards'' shown
throughout this section are not necessarily the ultimate mpg level with
which manufacturers will have to comply, for the reasons explained
above, and that the mpg level designated as ``estimated required'' is
exactly that, an estimate.
---------------------------------------------------------------------------

    \739\ For purposes of CAFE compliance, VW is assumed to include
Audi-Bentley, Bugatti, and Lamborghini, along with the larger-volume
VW brand.
---------------------------------------------------------------------------

    Additionally, again for reference, the following table presents
estimated mpg levels based on 2-cycle CAFE for easier comparison to the
MYs 2012-2016 standards.

[GRAPHIC] [TIFF OMITTED] TP01DE11.189

3. Minimum Domestic Passenger Car Standards
    EISA expressly requires each manufacturer to meet a minimum fuel
economy standard for domestically manufactured passenger cars in
addition to meeting the standards set by NHTSA. According to the
statute (49 U.S.C. 32902(b)(4)), the minimum standard shall be the
greater of (A) 27.5 miles per gallon; or (B) 92 percent of the average
fuel economy projected by the Secretary for the combined domestic and
nondomestic passenger automobile fleets manufactured for sale in the
United States by all manufacturers in

the model year. The agency must publish the projected minimum standards
in the Federal Register when the passenger car standards for the model
year in question are promulgated. As a practical matter, as standards
for both cars and trucks continue to rise over time, 49 U.S.C.
32902(b)(4)(A) will likely eventually cease to be relevant.
---------------------------------------------------------------------------

    \740\ For purposes of CAFE compliance, ``Chrysler/Fiat'' is
assumed to include Ferrari and Maserati in addition to the larger-
volume Chrysler and Fiat brands.
    \741\ For purposes of CAFE compliance, VW is assumed to include
Audi-Bentley, Bugatti, and Lamborghini, along with the larger-volume
VW brand.
---------------------------------------------------------------------------

    As discussed in the final rule establishing the MYs 2012-2016 CAFE
standards, because 49 U.S.C. 32902(b)(4)(B) states that the minimum
domestic passenger car standard shall be 92 percent of the projected
average fuel economy for the passenger car fleet, ``which projection
shall be published in the Federal Register when the standard for that
model year is promulgated in accordance with this section,'' NHTSA
interprets EISA as indicating that the minimum domestic passenger car
standard should be based on the agency's fleet assumptions when the
passenger car standard for that year is promulgated.
    However, we note that we do not read this language to preclude any
change, ever, in the minimum standard after it is first promulgated for
a model year. As long as the 18-month lead-time requirement of 49
U.S.C. 32902(a) is respected, NHTSA believes that the language of the
statute suggests that the 92 percent should be determined anew any time
the passenger car standards are revised. This issue will be
particularly relevant for the current rulemaking, given the
considerable leadtime involved and the necessity of a mid-term review
for the MYs 2022-2025 standards. We seek comment on this
interpretation, and on whether or not the agency should consider
instead for MYs 2017-2025 designating the minimum domestic passenger
car standards proposed here as ``estimated,'' just as the passenger car
standards are ``estimated,'' and waiting until the end of each model
year to finalize the 92 percent mpg value.
    We note also that in the MYs 2012-2016 final rule, we interpreted
EISA as indicating that the 92 percent minimum standard should be based
on the estimated required CAFE level rather than, as suggested by the
Alliance, the estimated achieved CAFE level (which would likely be
lower than the estimated required level if it reflected manufacturers'
use of dual-fuel vehicle credits under 49 U.S.C. 32905, at least in the
context of the MYs 2012-2016 standards). NHTSA continues to believe
that this interpretation is appropriate.
    Based on NHTSA's current market forecast, the agency's estimates of
these minimum standards under the proposed MYs 2017-2025 CAFE standards
(and, for comparison, the final MY 2016 minimum domestic passenger car
standard) are summarized below in Table IV-16.
[GRAPHIC] [TIFF OMITTED] TP01DE11.190

    Again, for the reader's reference, the following table the
following table presents estimated mpg levels based on 2-cycle CAFE for
easier comparison to the MYs 2012-2016 standards.
[GRAPHIC] [TIFF OMITTED] TP01DE11.191

    As discussed in Section IV.D above, NHTSA is also seeking comment
on whether to consider, for the final rule, the possibility of minimum
standards for imported passenger cars and light trucks. Although we are
not proposing

such standards, we believe it may be prudent to explore this concept
again given the considerable amount of time between now and 2017-2025
(particularly the later years), and the accompanying uncertainty in our
market forecast and other assumptions, that might make such minimum
standards relevant to help ensure that currently-expected fuel economy
improvements occur during that time frame. To help commenters'
consideration of this question, illustrative levels of minimum
standards for those other fleets are presented below.
[GRAPHIC] [TIFF OMITTED] TP01DE11.192

    NHTSA emphasizes again that we are not proposing additional minimum
standards for imported passenger cars and light trucks at this time,
but we may consider including them in the final rule if it seems
reasonable and appropriate to do so based on the information provided
by commenters and the agency's analysis. NHTSA also may wait until we
are able to observe potential market changes during the implementation
of the MYs 2012-2016 standards and consider additional minimum
standards in a future rulemaking action. Any additional minimum
standards for MYs 2022-2025 that may be set in the future would, like
the primary standards, be subject to the mid-term review discussed in
Section IV.B above, and potentially revised at that time.
4. Light Truck Standards
    For light trucks, NHTSA is proposing CAFE standards defined by the
following coefficients during MYs 2017-2025:

[GRAPHIC] [TIFF OMITTED] TP01DE11.193

    For reference, the coefficients defining the MYs 2012-2016 light
truck standards (which did not include a ``floor'' term defined by
coefficients e, f, g, and h) are also provided below:
[GRAPHIC] [TIFF OMITTED] TP01DE11.194

    The proposed coefficients result in the footprint-dependent targets
shown graphically below for MYs 2017-2025. MYs 2012-2016 final
standards are shown for comparison.
BILLING CODE 4910-59-9

[GRAPHIC] [TIFF OMITTED] TP01DE11.195

BILLING CODE 4910-59-C
    Also for reference, the following table presents the coefficients
based on2-cycle CAFE only for easier comparison to the MYs 2012-2016
coefficients presented above. We emphasize, again, that the
coefficients in Table IV-20 define the proposed standards.

[GRAPHIC] [TIFF OMITTED] TP01DE11.196

    Again, given these targets, the CAFE levels required of individual
manufacturers will depend on the mix of vehicles they produce for sale
in the United States. Based on the market forecast NHTSA has used to
examine today's proposed CAFE standards, the agency currently estimates
that the targets shown above will result in the following average
required fuel economy levels for individual manufacturers during MYs
2017-2025 (an updated estimate of the average required fuel economy
level under the final MY 2016 standard is shown for comparison): \742\
---------------------------------------------------------------------------

    \742\ In the May 2010 final rule establishing MYs 2012-2016
standards for passenger cars and light trucks, NHTSA estimated that
the required fuel economy levels for light trucks would average 28.8
mpg under the MY 2016 light truck standard. Based on the agency's
current forecast of the MY 2016 light truck market, NHTSA again
estimates that the required fuel economy levels will average 28.8
mpg in MY 2016. However, the agency's market forecast reflects less
of a future market shift away from light trucks than reflected in
the agency's prior market forecast; as a result, NHTSA currently
estimates that the combined (i.e., passenger car and light truck)
average required fuel economy in MY 2016 will be 33.8 mpg, 0.3 mpg
lower than the agency's earlier estimate of 34.1 mpg. The agency has
made no changes to MY 2016 standards and projects no changes in
fleet-specific average requirements (although within-fleet market
shifts could, under an attribute-based standard, produce such
changes).
---------------------------------------------------------------------------

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[GRAPHIC] [TIFF OMITTED] TP01DE11.197

BILLING CODE 4910-59-C
    As discussed above with respect to the proposed passenger cars
standards, we note that a manufacturer's required light truck fuel
economy level for a model year under the ultimate final standards will
be based on its actual production numbers in that model year.
---------------------------------------------------------------------------

    \743\ For purposes of CAFE compliance, ``Chrysler/Fiat'' is
assumed to include Ferrari and Maserati in addition to the larger-
volume Chrysler and Fiat brands.
    \744\ For purposes of CAFE compliance, VW is assumed to include
Audi-Bentley, Bugatti, and Lamborghini, along with the larger-volume
VW brand.
---------------------------------------------------------------------------

    Additionally, again for reference, the following table presents
estimated mpg levels based on 2-cycle CAFE for easier comparison to the
MYs 2012-2016 standards.
BILLING CODE 4910-59-P

[GRAPHIC] [TIFF OMITTED] TP01DE11.198

BILLING CODE 4910-59-C

F. How do the proposed standards fulfill NHTSA's statutory obligations?

    The discussion that follows is necessarily complex, but the central
points are straightforward. NHTSA has tentatively concluded that the
standards presented above in Section IV.E are the maximum feasible
standards for passenger cars and light trucks in MYs 2017-2025. EPCA/
EISA requires NHTSA to consider four statutory factors in determining
the maximum feasible CAFE standards in a rulemaking: Specifically,
technological

feasibility, economic practicability, the effect of other motor vehicle
standards of the Government on fuel economy, and the need of the nation
to conserve energy. The agency considered a number of regulatory
alternatives in its analysis of potential CAFE standards for those
model years, including several that increase stringency on average at
set percentages each year, one that approximates the point at which the
modeled net benefits are maximized in each model year, and one that
approximates the point at which the modeled total costs equal total
benefits in each model year. Some of those alternatives represent
standards that would be more stringent than the proposed
standards,\747\ and some are less stringent.\748\ As the discussion
below explains, we tentatively conclude that the correct balancing of
the relevant factors that the agency must consider in determining the
maximum feasible standards recognizes economic practicability concerns
as discussed below, and sets standards accordingly. We expect that the
proposed standards will enable further research and development into
the more advanced fuel economy-improving technologies, and enable
significant fuel savings and environmental benefits throughout the
program, with particularly substantial benefits in the later years of
the program and beyond. Additionally, consistent with Executive Order
13563, the agency believes that the benefits of the preferred
alternative amply justify the costs; indeed, the monetized benefits
exceed the monetized costs by $358 billion over the lifetime of the
vehicles covered by the proposed standards. In full consideration of
all of the information currently before the agency, we have weighed the
statutory factors carefully and selected proposed passenger car and
light truck standards that we believe are the maximum feasible for MYs
2017-2025.
---------------------------------------------------------------------------

    \745\ For purposes of CAFE compliance, ``Chrysler/Fiat'' is
assumed to include Ferrari and Maserati in addition to the larger-
volume Chrysler and Fiat brands.
    \746\ for purposes of CAFE compliance, VW is assumed to include
Audi-Bentley, Bugatti, and Lamborghini, along with the larger-volume
VW brand.
    \747\ We recognize that higher standards would help the need of
the nation to conserve more energy and might potentially be
technologically feasible (in the narrowest sense) during those model
years, but based on our analysis and the evidence presented by the
industry, we tentatively conclude that higher standards would not
represent the proper balancing for MYs 2017-2025 cars and trucks,
because they would raise serious questions about economic
practicability. As explained above, NHTSA's modeled estimates
necessarily do not perfectly capture all of the factors of economic
practicability, and this conclusion regarding net benefits versus
economic practicability is similar to the conclusion reached in the
2012-2016 analysis.
    \748\ We also recognize that lower standards might be less
burdensome on the industry, but considering the environmental
impacts of the different regulatory alternatives as required under
NEPA and the need of the nation to conserve energy, we do not
believe they would have represented the appropriate balancing of the
relevant factors, because they would have left technology, fuel
savings, and emissions reductions on the table unnecessarily, and
not contributed as much as possible to reducing our nation's energy
security and climate change concerns. They would also have lower net
benefits than the Preferred Alternative.
---------------------------------------------------------------------------

1. What are NHTSA's statutory obligations?
    As discussed above in Section IV.D, NHTSA sets CAFE standards under
EPCA, as amended by EISA, and is also subject to the APA and NEPA in
developing and promulgating CAFE standards.
    NEPA requires the agency to develop and consider the findings of an
Environmental Impact Statement (EIS) for ``major Federal actions
significantly affecting the quality of the human environment.'' NHTSA
has determined that this action is such an action and therefore that an
EIS is necessary, and has accordingly prepared a Draft EIS to inform
its development and consideration of the proposed standards. The agency
has evaluated the environmental impacts of a range of regulatory
alternatives in our proposal, and integrated the results of that
consideration into our balancing of the EPCA/EISA factors, as discussed
below.
    The APA and relevant case law requires our rulemaking decision to
be rational, based on consideration of the relevant factors, and within
the scope of the authority delegated to the agency by EPCA/EISA. The
relevant factors are those required by EPCA/EISA and the additional
factors approved in case law as ones historically considered by the
agency in determining the maximum feasible CAFE standards, such as
safety. The statute requires us to set standards at the maximum
feasible level for passenger cars and light trucks for each model year,
and the agency tentatively concludes that the standards, if adopted as
proposed, would satisfy this requirement. NHTSA has carefully examined
the relevant data and other considerations, as discussed below in our
explanation of our tentative conclusion that the proposed standards are
the maximum feasible levels for those model years based on our
evaluation of the information before us for this NPRM.
    As discussed in Section IV.D, EPCA/EISA requires that NHTSA
establish separate passenger car and light truck standards at ``the
maximum feasible average fuel economy level that it decides the
manufacturers can achieve in that model year,'' based on the agency's
consideration of four statutory factors: Technological feasibility,
economic practicability, the effect of other standards of the
Government on fuel economy, and the need of the nation to conserve
energy.\749\ NHTSA has developed definitions for these terms over the
course of multiple CAFE rulemakings\750\ and determines the appropriate
weight and balancing of the terms given the circumstances in each CAFE
rulemaking. For MYs 2011-2020, EPCA further requires that separate
standards for passenger cars and for light trucks be set at levels high
enough to ensure that the CAFE of the industry-wide combined fleet of
new passenger cars and light trucks reaches at least 35 mpg not later
than MY 2020. For model years after 2020, standards need simply be set
at the maximum feasible level.
---------------------------------------------------------------------------

    \749\ As explained in Section IV.D, EPCA also provides that in
determining the level at which it should set CAFE standards for a
particular model year, NHTSA may not consider the ability of
manufacturers to take advantage of several statutory provisions that
facilitate compliance with the CAFE standards and thereby reduce the
costs of compliance. Specifically, in determining the maximum
feasible level of fuel economy for passenger cars and light trucks,
NHTSA cannot consider the fuel economy benefits of ``dedicated''
alternative fuel vehicles (like battery electric vehicles or natural
gas vehicles), must consider dual-fueled automobiles to be operated
only on gasoline or diesel fuel (at least through MY 2019), and may
not consider the ability of manufacturers to use, trade, or transfer
credits. This provision limits, to some extent, the fuel economy
levels that NHTSA can find to be ``maximum feasible''--if NHTSA
cannot consider the fuel economy of electric vehicles, for example,
NHTSA cannot set standards predicated on manufacturers' usage of
electric vehicles to meet the standards.
    \750\ These factors are defined in Section IV.D; for brevity, we
do not repeat those definitions here.
---------------------------------------------------------------------------

    The agency thus balances the relevant factors to determine the
maximum feasible level of the CAFE standards for each fleet, in each
model year. The next section discusses how the agency balanced the
factors for this proposal, and why we believe the proposed standards
are the maximum feasible.
2. How did the agency balance the factors for this NPRM?
    There are numerous ways that the relevant factors can be balanced
(and thus weight given to each factor) depending on the agency's policy
priorities and on the information before the agency regarding any given
model year, and the agency therefore considered a range of alternatives
that represent different regulatory options that we thought were
potentially reasonable for purposes of this rulemaking. For this
proposal, the regulatory alternatives considered in the agency's
analysis include several alternatives for fuel economy levels that
increase annually, on average, at set rates--specifically, 2%/year, 3%/
year, 4%/year, 5%/year, 6%/year, and 7%/

year.\751\ Analysis of these various rates of increase effectively
encompasses the entire range of fuel economy improvements that, based
on information currently available to the agency, could conceivably
fall within the statutory boundary of ``maximum feasible'' standards.
The regulatory alternatives also include two alternatives based on
benefit-cost criteria, one in which standards would be set at the point
where the modeled net benefits would be maximized for each fleet in
each year (MNB), and another in which standards would be set at the
point at which total costs would be most nearly equal to total benefits
for each fleet in each year (TC=TB),\752\ as well as the preferred
alternative, which is within the range of the other alternatives. These
alternatives are discussed in more detail in Chapter III of the PRIA
accompanying this NPRM, which also contains an extensive analysis of
the relative impacts of the alternatives in terms of fuel savings,
costs (both per-vehicle and aggregate), carbon dioxide emissions
avoided, and many other metrics. Because the agency could conceivably
select any of the regulatory alternatives above, all of which fall
between 2%/year and 7%/year, inclusive, the Draft EIS that accompanies
this proposal analyzes these lower and upper bounds as well as the
preferred alternative. Additionally, the Draft EIS analyzes a ``No
Action Alternative,'' which assumes that, for MYs 2017 and beyond,
NHTSA would set standards at the same level as MY 2016. The No Action
Alternative provides a baseline for comparing the environmental impacts
of the other alternatives.
---------------------------------------------------------------------------

    \751\ This is an approach similar to that used by the agency in
the MY 2012-2016 rulemaking, in which we also considered several
alternatives that increased annually, on average, at 3%, 4%, 5%, 6%
and 7%/year. The ``percent-per-year'' alternatives in this proposal
are somewhat different from those considered in the MY 2012-2016
rulemaking, however, in terms of how the annual rate of increase is
applied. For this proposal, the stringency curves are themselves
advanced directly by the annual increase amount, without reference
to any yearly changes in the fleet mix. In the 2012-2016 rule, the
annual increases for the stringency alternatives reflected the
estimated required fuel economy of the fleet which accounted for
both the changes in the target curves and changes in the fleet mix.
    \752\ We included the MNB and TC=TB alternatives in part for the
reference of commenters familiar with NHTSA's past several CAFE
rulemakings--these alternatives represent balancings carefully
considered by the agency in past rulemaking actions as potentially
maximum feasible--and because Executive Orders 12866 and 13563 focus
attention on an approach that maximizes net benefits. The assessment
of maximum net benefits is challenging in the context of setting
CAFE standards, in part because standards which maximize net
benefits for each fleet, for each model year, would not necessarily
be the standards that lead to the greatest net benefits over the
entire rulemaking period.
---------------------------------------------------------------------------

    NHTSA believes that this approach clearly communicates the level of
stringency of each alternative and allows us to identify alternatives
that represent different ways to balance NHTSA's statutory factors
under EPCA/EISA. Each of the listed alternatives represents, in part, a
different way in which NHTSA could conceivably balance different
policies and considerations in setting the standards that achieve the
maximum feasible levels. For example, the 2% Alternative, the least
stringent alternative, would represent a balancing in which economic
practicability--which include concerns about availability of
technology, capital, and consumer preferences for vehicles built to
meet the future standards--weighs more heavily in the agency's
consideration, and the need of the nation to conserve energy would
weigh less heavily. In contrast, under the 7% Alternative, one of the
most stringent, the need of the nation to conserve energy--which
includes energy conservation and climate change considerations--would
weigh more heavily in the agency's consideration, and other factors
would weigh less heavily. Balancing and assessing the feasibility of
different alternative can also be influenced by differences and
uncertainties in the way in which key economic factors (e.g., the price
of fuel and the social cost of carbon) and technological inputs could
be assessed and estimated or valued. While NHTSA believes that our
analysis conducted in support of this NPRM uses the best and most
transparent technology-related inputs and economic assumption inputs
that the agencies could derive for MYs 2017-2025, we recognize that
there is uncertainty in these inputs, and the balancing could be
different if, for example, the inputs are adjusted in response to new
information.
    This is the first CAFE rulemaking in which the agency has looked
this far into the future, which makes our traditional approach to
balancing more challenging than in past (even recent past) rulemakings.
NHTSA does not presently believe, for example, that technological
feasibility as the agency defines it is as constraining in this
rulemaking as it has been in the past in light of the time frame of
this rulemaking. ``Technological feasibility'' refers to whether a
particular method of improving fuel economy can be available for
commercial application in the model year for which a standard is being
established. In previous CAFE rulemakings, it has been more difficult
for the agency to say that the most advanced technologies would be
available for commercial application in the model years for which
standards were being established. For this rulemaking, which is longer
term, NHTSA has considered all types of technologies that improve real-
world fuel economy, including air-conditioner efficiency and other off-
cycle technology, PHEVs, EVs, and highly-advanced internal combustion
engines not yet in production, but all of which the agencies' expect to
be commercially applicable by the rulemaking time frame. On the one
hand, we recognize that some technologies that currently have limited
commercial use cannot be deployed on every vehicle model in MY 2017,
but require a realistic schedule for widespread commercialization to be
feasible. On the other hand, however, the agency expects, based on our
analysis, that all of the alternatives could narrowly be considered as
technologically feasible, in that they could be achieved based on the
existence or projected future existence of technologies that could be
incorporated on future vehicles, and enable any of the alternatives to
be achieved on a technical basis alone if the level of resources that
might be required to implement the technologies is not considered. If
all alternatives are at least theoretically technologically feasible in
the MY 2017-2025 timeframe, and the need of the nation is best served
by pushing standards as stringent as possible, then the agency might be
inclined to select the alternative that results in the very most
stringent standards considered.
    However, the agency must also consider what is required to
practically implement technologies, which is part of economic
practicability, and to which the most stringent alternatives give
little weight. ``Economic practicability'' refers to whether a standard
is one ``within the financial capability of the industry, but not so
stringent as to lead to adverse economic consequences, such as a
significant loss of jobs or the unreasonable elimination of consumer
choice.'' Consumer acceptability is also an element of economic
practicability, one that is particularly difficult to gauge during
times of uncertain fuel prices.\753\ In a rulemaking such as the
present one,

determining economic practicability requires consideration of the
uncertainty surrounding relatively distant future market conditions and
consumer demand for fuel economy in addition to other vehicle
attributes. In an attempt to evaluate the economic practicability of
attribute-based standards, NHTSA includes a variety of factors in its
analysis, including the annual rate at which manufacturers can increase
the percentage of their fleet that employ a particular type of fuel-
saving technology, the specific fleet mixes of different manufacturers,
and assumptions about the cost of the standards to consumers and
consumers' valuation of fuel economy, among other things. Ensuring that
a reasonable amount of lead time exists to make capital investments and
to devote the resources and time to design and prepare for commercial
production of a more fuel efficient fleet is also relevant to the
agency's consideration of economic practicability. Yet there are some
aspects of economic practicability that the agency's analysis is not
able to capture at this time--for example, the computer model that we
use to analyze alternative standards does not account for all aspects
of uncertainty, in part because the agency cannot know what we cannot
know. The agency must thus account for uncertainty in the context of
economic practicability as best as we can based on the entire record
before us.
---------------------------------------------------------------------------

    \753\ See, e.g., Center for Auto Safety v. NHTSA (CAS), 793 F.2d
1322 (DC Cir. 1986) (Administrator's consideration of market demand
as component of economic practicability found to be reasonable);
Public Citizen v. NHTSA, 848 F.2d 256 (Congress established broad
guidelines in the fuel economy statute; agency's decision to set
lower standard was a reasonable accommodation of conflicting
policies).
---------------------------------------------------------------------------

    Both technological feasibility and economic practicability enter
into the agency's determination of the maximum feasible levels of
stringency, and economic practicability concerns may cause the agency
to decide that standards that might be technologically feasible are, in
fact, beyond maximum feasible. Standards that require aggressive
application of and widespread deployment of advanced technologies could
raise serious issues with the adequacy of time to coordinate such
significant changes with manufacturers' redesign cycles, as well as
with the availability of engineering resources to develop and integrate
the technologies into products, and the pace at which capital costs can
be incurred to acquire and integrate the manufacturing and production
equipment necessary to increase the production volume of the
technologies. Moreover, the agency must consider whether consumers
would be likely to accept a specific technological change under
consideration, and how the cost to the consumer of making that change
might affect their acceptance of it. The agency maintains, as it has in
prior CAFE rulemakings, that there is an important distinction between
considerations of technological feasibility and economic
practicability. As explained above, a given level of performance may be
technologically feasible (i.e., setting aside economic constraints) for
a given vehicle model. However, it would not be economically
practicable to require a level of fleet average performance that
assumes every vehicle will in the first year of the standards perform
at the highest technologically feasible level, because manufacturers do
not have unlimited access to the financial resources or may not
practically be able to hire enough engineers, build enough facilities,
and install enough tooling.
    NHTSA therefore believes, based on the information currently before
us, that economic practicability concerns render certain standards that
might otherwise be technologically feasible to be beyond maximum
feasible within the meaning of the statute for the 2017-2025 standards.
Our analysis indicated that technologies seem to exist to meet the
stringency levels required by future standards under nearly all of the
regulatory alternatives; but it also indicated that manufacturers would
not be able to apply those technologies quickly enough, given their
redesign cycles, and the level of the resources that would be required
to implement those technologies widely across their products, to meet
all applicable standards in every model year under some of the
alternatives.
    Another consideration for economic practicability is incremental
per-vehicle increases in technology cost. In looking at the incremental
technology cost results from our modeling analysis, the agency saw that
in progressing from alternatives with lower stringencies to
alternatives with higher stringencies, technology cost increases
(perhaps predictably) at a progressively higher rate, until the model
projects that manufacturers are unable to comply with the increasing
standards and enter (or deepen) non-compliance. Table IV-25 and Table
IV-26 show estimated cumulative lifetime fuel savings and estimated
average vehicle cost increase for passenger cars and light trucks. The
results show that there is a significant increase in technology cost
between the 4% alternatives and the 5% alternatives.
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[GRAPHIC] [TIFF OMITTED] TP01DE11.200

BILLING CODE 4910-59-C
    Thus, if technological feasibility and the need of the nation are
not particularly limiting in a given rulemaking, then maximum feasible
standards would be represented by the mpg levels that we could require
of the industry to improve fuel economy before we reach a tipping point
that presents risk of significantly adverse economic consequences.
Standards that are lower than that point would likely not be maximum
feasible, because such standards would leave fuel-saving technologies
on the table unnecessarily; standards that are higher than that point
would likely be beyond what the agency would consider economically
practicable, and therefore beyond what we would consider maximum
feasible, even if they might be technologically feasible or better meet
the need of the nation to conserve energy. The agency does not believe
that standards are balanced if they weight one or two factors so
heavily as to ignore another.
    We explained above that part of the way that we try to evaluate
economic practicability is through a variety of model inputs, such as
phase-in caps (the annual rate at which manufacturers can increase the
percentage of their fleet that employ a particular type of fuel-saving
technology) and redesign schedules to account for needed lead time.
These inputs limit how much technology can be applied to a
manufacturer's fleet in the agency's analysis attempting to simulate a
way for the manufacturer to

comply with standards set under different regulatory alternatives. If
the limits (and technology cost-effectiveness) prevent enough
manufacturers from meeting the required levels of stringency, the
agency may decide that the standards under consideration may not be
economically practicable. The difference between the required fuel
economy level that applies to a manufacturer's fleet and the level of
fuel economy that the agency projects the manufacturer would achieve in
that year, based on our analysis, is called a ``compliance shortfall.''
\754\
---------------------------------------------------------------------------

    \754\ The agency's modeling estimates how the application of
technologies could increase vehicle costs, reduce fuel consumption,
and reduce CO2 emissions, and affect other factors. As
CAFE standards are performance-based, NHTSA does not mandate that
specific technologies be used for compliance. CAFE modeling,
therefore projects one way that manufacturers could comply.
Manufacturers may choose a different mix of technologies based on
their unique circumstances and products.
---------------------------------------------------------------------------

    We underscore again that the modeling analysis does not dictate the
``answer,'' it is merely one source of information among others that
aids the agency's balancing of the standards. These considerations,
shortfalls and increases in incremental technology costs, do not
entirely define economic practicability, but we believe they are
symptomatic of it. In looking at the projected compliance shortfall
results from our modeling analysis, the agency preliminarily concluded,
based on the information before us at the time, that for both passenger
car and for light trucks, the MNB and TC=TB alternatives, and the 5%,
6% and 7% alternatives did not appear to be economically practicable,
and were thus likely beyond maximum feasible levels for MYs 2017-2025.
In other words, despite the theoretical technological feasibility of
achieving these levels, various manufacturers would likely lack the
financial and engineering resources and sufficient lead time to do so.
    The analysis showed that for the passenger car 5% alternative,
there were significant compliance shortfalls for Chrysler in MY 2025,
Ford in MYs 2021 and 2023-2025, GM in MYs 2022 and 2024-2025, Mazda in
MYs 2021 and 2024-2025, and Nissan in MY 2025. For light trucks, the
analysis showed the 5% alternative had significant compliance
shortfalls for Chrysler in MYs 2022-2025, Ford in MY 2025, GM in MYs
2023-2025, Kia in MY 2025, Mazda in MYs 2022 and 2025, and Nissan in
MYs 2023-2025. However, the 4%, 3% and 2% alternatives did not appear,
based on shortfalls, to be beyond the level of economic practicability,
and thus appeared potentially to be within the range of alternatives
that might yet be maximum feasible.
[GRAPHIC] [TIFF OMITTED] TP01DE11.201

[GRAPHIC] [TIFF OMITTED] TP01DE11.202

    The preliminary analysis referred to above, in which the agency
tentatively concluded that the 5%, 6%, 7%, MNB, and TC=TB alternatives
were likely beyond the level of economic practicability based on the
information available to the agency at the time, was conducted
following the first SNOI and prior to the second SNOI--thus, between
the end of 2010 and July 2011. The agencies stated in the first SNOI
that we had not conducted sufficient analysis at the time to narrow the
range of potential stringencies that had been discussed in the initial
NOI and in the Interim Joint TAR, and that we would be conducting more
analyses and continuing extensive dialogue with stakeholders in the
coming months to refine our proposal. Based on our initial
consideration of how the factors might be balanced to determine the
maximum feasible standards to propose for MYs 2017-2025 (i.e., where
technological feasibility did not appear to be particularly limiting
and the need of the nation would counsel for choosing more stringent
alternatives, but economic practicability posed significant
limitations), NHTSA's preliminary analysis indicated that the
alternatives including up to 4% per year for cars and 4% per year for
trucks should reasonably remain under consideration.
    With that preliminary estimate of 4%/year for cars and trucks as
the upper end of the range of alternatives that should reasonably
remain under consideration for MYs 2017-2025, the agencies began
meeting again intensely with stakeholders, including many individual
manufacturers, between June 21, 2011 and July 27, 2011 to determine
whether additional information would aid NHTSA in further
consideration. Beginning in the June 21, 2011 meeting, NHTSA and EPA
presented the 4% alternative target curves as a potential concept along
with preliminary program flexibilities and provisions, in order to get
feedback from the manufacturer stakeholders. Manufacturer stakeholders
provided comments, much of which was confidential business information,
which included projections of how they might comply with concept
standards, the challenges that they expected, and their recommendations
on program stringency and provisions.\755\
---------------------------------------------------------------------------

    \755\ Feedback from these stakeholder meetings is summarized in
section IV.B and documents that are referenced in that section.
---------------------------------------------------------------------------

    Regarding passenger cars, several manufacturers shared projections
that they would be capable of meeting stringency levels similar to
NHTSA's preliminary CAFE modeling projections for the 4% alternative in
MY 2020 or in 2021, with some of those arguing that they faced
challenges in the earlier years of that period with meeting a constant
4% rate throughout the entire period. Some manufacturers shared
projections that they could comply with stringencies that ramped up,
increasing more slowly in MY 2017 and then progressively increasing
through MY 2021. Most manufacturers provided limited projections beyond
MY 2021, although some stated that they could meet the agency's concept
stringency targets in MY 2025. Manufacturers generally suggested that
the most significant challenges to meeting a constant 4% (or faster)
year-over-year increase in the passenger car standards related to their
ability to implement the

new technologies quickly enough to achieve the required levels, given
their need to implement fuel economy improvements in both the passenger
car and light truck fleets concurrently; challenges related to the
cadence of redesign and refresh schedules; the pace at which new
technology can be implemented considering economic factors such as
availability of engineering resources to develop and integrate the
technologies into products; and the pace at which capital costs can be
incurred to acquire and integrate the manufacturing and production
equipment necessary to increase the production volume of the
technologies. Manufacturers often expressed concern that the 4% levels
could require greater numbers of advanced technology vehicles than they
thought they would be able to sell in that time frame, given their
belief that the cost of some technologies was much higher than the
agencies had estimated and their observations of current consumer
acceptance of and willingness to pay for advanced technology vehicles
that are available now in the marketplace. A number of manufacturers
argued that they did not believe that they could create a sustainable
business case under passenger car standards that increased at the rate
required by the 4% alternative.
    Regarding light trucks, most manufacturers expressed significantly
greater concerns over the 4% alternative for light trucks than for
passenger cars. Many manufacturers argued that increases in light truck
standard stringency should be slower than increases in passenger car
standard stringency, based on, among other things, the greater payload,
cargo capacity and towing utility requirements of light trucks, and
what they perceived to be lower consumer acceptance of certain (albeit
not all) advanced technologies on light trucks. Many manufacturers also
commented that redesign cycles are longer on trucks than they are on
passenger cars, which reduces the frequency at which significant
changes can be made cost-effectively to comply with increasing
standards, and that the significant increases in stringency in the MY
2012-2016 program \756\ in combination with redesign schedules would
not make it possible to comply with the 4% alternative in the earliest
years of the MY 2017-2025 program, such that only significantly lower
stringencies in those years would be feasible in their estimation. As
for cars, most manufacturers provided limited projections beyond MY
2021. Manufacturers generally stated that the most significant
challenges to meeting a constant 4% (or faster) year-over-year increase
in the light truck standards were similar to what they had described
for passenger cars as enumerated in the paragraph above, but were
compounded by concerns that applying technologies to meet the 4%
alternative standards would result in trucks that were more expensive
and provided less utility to consumers. As was the case for cars,
manufacturers argued that their technology cost estimates were higher
than the agencies' and consumers are less willing to accept/pay for
some advanced technologies in trucks, but manufacturers argued that
these concerns were more significant for trucks than for cars, and that
they were not optimistic that they could recoup the costs through
higher prices for vehicles with the technologies that would be needed
to comply with the 4% alternative. Given their concerns about having to
reduce utility and raise truck prices, and about their ability to apply
technologies quickly enough given the longer redesign periods for
trucks, a number of manufacturers argued that they did not believe that
they could create a sustainable business case under light truck
standards that increased at the rate required by the 4% alternative.
---------------------------------------------------------------------------

    \756\ Some manufacturers indicated that their light truck fleet
fuel economy would be below what they anticipated their required
fuel economy level would be in MY 2016, and that they currently
expect that they will need to employ available flexibilities to
comply with that standard.
---------------------------------------------------------------------------

    Other stakeholders, such as environmental and consumer groups,
consistently stated that stringent standards are technically achievable
and critical to important national interests, such as improving energy
independence, reducing climate change, and enabling the domestic
automobile industry to remain competitive in the global market. Labor
interests stressed the need to carefully consider economic impacts and
the opportunity to create and support new jobs, and consumer advocates
emphasized the economic and practical benefits to consumers of improved
fuel economy and the need to preserve consumer choice. In addition, a
number of stakeholders stated that the standards under development
should not have an adverse impact on safety.
    NHTSA, in collaboration with EPA and in coordination with CARB,
carefully considered the inputs received from all stakeholders,
conducted additional independent analyses, and deliberated over the
feedback received on the agencies' analyses. NHTSA considered
individual manufacturers' redesign cycles and, where available, the
level of technologies planned for their future products that improve
fuel economy, as well as some estimation of the resources that would
likely be needed to support those plans and the potential future
standards. The agency also considered whether we agreed that there
could conceivably be compromises to vehicle utility depending on the
technologies chosen to meet the potential new standards, and whether a
change in the cadence of the rate at which standards increase could
provide additional opportunity for industry to develop and implement
technologies that would not adversely affect utility. NHTSA considered
feedback on consumer acceptance of some advanced technologies and
consumers' willingness to pay for improved fuel economy. In addition,
the agency carefully considered whether manufacturer assertions about
potential uncertainties in the agency's technical, economic, and
consumer acceptance assumptions and estimates were potentially valid,
and if so, what the potential effects of these uncertainties might be
on economic practicability.
    Regarding passenger cars, after considering this feedback from
stakeholders, the agency considered further how it thought the factors
should be balanced to determine the maximum feasible passenger car
standards for MYs 2017-2025. Based on that reconsideration of the
information before the agency and how it informs our balancing of the
factors, NHTSA tentatively concludes that the points raised may
indicate that the agency's preliminary analysis supporting
consideration of standards that increased up to 4%/year may not have
captured fully the level of uncertainty that surrounds economic
practicability in these future model years. Nevertheless, while we
believe there may be some uncertainty, we do not agree that it is
nearly as significant as a number of manufacturers maintained,
especially for passenger cars. The most persuasive information received
from stakeholders for passenger cars concerned practicability issues in
the first phase of the MY 2017-2025 standards. We therefore tentatively
conclude that the maximum feasible stringency levels for passenger cars
are only slightly different from the 4%/year levels suggested as the
high end preliminarily considered by the agency; increasing on average
3.7%/year in MYs 2017-2021, and on average 4.5%/year in MYs 2022-2025.
For the overall MY 2017-2025 period, the maximum feasible stringency
curves increase on average at 4.1%/year, and our analysis

indicates that the costs and benefits attributable to the 4%
alternative and the preferred alternative for passenger cars are very
similar: The preferred alternative is 8.8 percent less expensive for
manufacturers than the 4% alternative (estimated total costs are $113
billion for the preferred alternative and $124 billion for the 4%
alternative), and achieves only $20 billion less in total benefits than
the 4% alternative (estimated total benefits are $310 billion for the
preferred alternative and $330 billion for the 4% alternative), a very
small difference given that benefits are spread across the entire
lifetimes of all vehicles subject to the standards. The analysis also
shows that the lifetime cumulative fuel savings is only 5 percent
higher for the 4% alternative than the preferred alternative (the
estimated fuel savings is 104 billion gallons for the preferred
alternative, and 110 billion gallons for the 4% alternative).
    At the same time, the increase in average vehicle cost in MY 2025
is 9.4 percent higher for the 4% alternative (the estimated cost
increase for the average vehicle is $2,023 for the preferred
alternative, and $2,213 for the 4% alternative). The rates of increase
in stringency for each model year are summarized in Table IV-29. NHTSA
emphasizes that under 49 U.S.C. 32902(b), the standards must be maximum
feasible in each model year without reference to other model years, but
we believe that the small amount of progressiveness in the proposed
standards for MYs 2017-2021, which has very little effect on total
benefits attributable to the proposed passenger car standards, will
help to enable the continuation of, or increases in, research and
development into the more advanced technologies that will enable
greater stringency increases in MYs 2022-2025, and help to capture the
considerable fuel savings and environmental benefits similar to the 4%
alternative beginning in MY 2025.
    We are concerned that requiring manufacturers to invest that
capital to meet higher standards in MYs 2017-2021, rather than allowing
them to increase fuel economy in those years slightly more slowly,
would reduce the levels that would be feasible in the second phase of
the program by diverting research and development resources to those
earlier model years. Thus, after considerable deliberation with EPA and
consultation with CARB, NHTSA selected the preferred alternative as the
maximum feasible alternative for MYs 2017-2025 passenger cars based on
consideration of inputs from manufacturers and the agency's independent
analysis, which reaches the stringency levels of the 4% alternative in
MY 2025, but has a slightly slower ramp up rate in the earlier years.

[GRAPHIC] [TIFF OMITTED] TP01DE11.203

    Regarding light trucks, while NHTSA does not agree with the
manufacturer's overall cost assessments and believe that our technology
cost and effectiveness assumptions should allow the most capable
manufacturers to preserve all necessary vehicle utility, the agencies
do believe there is merit to some of the concerns raised in stakeholder
feedback. Specifically, concerns about longer redesign schedules for
trucks, compounded by the need to invest simultaneously in raising
passenger car fuel economy, may not have been fully captured in our
preliminary analysis. This could lead manufacturers to implement
technologies that do not maintain vehicle utility, based on the cadence
of the standards under the 4% alternative. A number of manufacturers
repeatedly stated, in providing feedback, that the MYs 2012-2016
standards for trucks, while feasible, required significant investment
to reach the required levels, and that given the redesign schedule for
trucks, that level of investment throughout the entire MYs 2012-2025
time period was not sustainable. Based on the confidential business
information that manufacturers provided to us, we believe that this
point may be valid. If the agency pushes CAFE increases that require
considerable sustained investment at a faster rate than industry
redesign cycles, adverse economic

consequences could ensue. The best information that the agency has at
this time, therefore, indicates that requiring light truck fuel economy
improvements at the 4% annual rate could create potentially severe
economic consequences.
    Thus, evaluating the inputs from stakeholders and the agency's
independent analysis, the agency also considered further how it thought
the factors should be balanced to determine the maximum feasible light
truck standards for MYs 2017-2025. Based on that consideration of the
information before the agency and how it informs our balancing of the
factors, NHTSA tentatively concludes that 4%/year CAFE stringency
increases for light trucks in MYs 2017-2021 are likely beyond maximum
feasible, and in fact, in the earliest model years of the MY 2017-2021
period, that the 3%/year and 2%/year alternatives for trucks are also
likely beyond maximum feasible. NHTSA therefore tentatively concludes
that the preferred alternative, which would in MYs 2017-2021 increase
on average 2.6%/year, and in MYs 2022-2025 would increase on average
4.6%/year, is the maximum feasible level that the industry can reach in
those model years. For the overall MY 2017-2025 period, the maximum
feasible stringency curves would increase on average 3.5%/year. The
rates of increase in stringency for each model year are summarized in
Table IV-29 and Table IV-30.
    Our analysis indicates that the preferred alternative has 48
percent lower cost than the 4% alternative (estimated total costs are
$44 billion for the preferred alternative and $83 billion for the 4%
alternative), and the total benefits of the preferred alternative are
30 percent lower ($87 billion lower) than the 4% alternative (estimated
total benefits are $206 billion for the preferred alternative and $293
billion for the 4% alternative), spread across the entire lifetimes of
all vehicles subject to the standards. The analysis also shows that the
lifetime cumulative fuel savings is 42 percent higher for the 4%
alternative than the preferred alternative (the estimated fuel savings
is 69 billion gallons for the preferred alternative, and 98 billion
gallons for the 4% alternative). At the same time, the increase in
average vehicle cost in MY 2025 is 54 percent higher for the 4%
alternative (the estimated cost increase for the average vehicle is
$1,578 for the preferred alternative, and $2,423 for the 4%
alternative).
    While these differences are larger than for passenger cars, NHTSA
believes that standards set at these levels for these model years will
help address concerns raised by manufacturer stakeholders and reduce
the risk for adverse economic consequences, while at the same time
ensuring most of the substantial improvements in fuel efficiency
initially envisioned over the entire period and supported by other
stakeholders. NHTSA believes that these stringency levels, along with
the provisions for incentives for advanced technologies to encourage
their development and implementation, and the agencies' expectation
that some of the uncertainties surrounding consumer acceptance of new
technologies in light trucks should have resolved themselves by that
time frame based on consumers' experience with the advanced
technologies, will enable these increases in stringency over the entire
MY 2017-2025 period. Although, as stated above, the light truck
standards must be maximum feasible in each model year without reference
to other model years, we believe that standards set at the stated
levels for MYs 2017-2021 and the incentives for advanced technologies
for pickup trucks will create the best opportunity to ensure that the
MY 2022-2025 standards are economically practicable, and avoid adverse
consequences. The first phase of light truck standards, in that
respect, acts as a kind of bridge to the second phase, in which
industry should be able to realize considerable additional improvements
in fuel economy.
    The proposed standards also account for the effect of EPA's
standards, in light of the agencies' close coordination and the fact
that both sets of standards were developed together to harmonize as
part of the National Program. Given the close relationship between fuel
economy and CO2 emissions, and the efforts NHTSA and EPA
have made to conduct joint analysis and jointly deliberate on
information and tentative conclusions,\757\ the agencies have sought to
harmonize and align their proposed standards to the greatest extent
possible, consistent with their respective statutory authorities. In
comparing the proposed standards, the agencies' stringency curves are
equivalent, except for the fact that the stringency of EPA's proposed
passenger car standards reflect the ability to improve GHG emissions
through reductions in A/C system refrigerant leakage and the use of
lower GWP refrigerants (direct A/C improvements),\758\ and that EPA
provides incentives for PHEV, EV and FCV vehicles, which NHTSA does not
provide because statutory incentives have already been defined for
these technologies. The stringency of NHTSA's proposed standards for
passenger cars for MYs 2017-2025 align with the stringency of EPA's
equivalent standards when these differences are considered.\759\ NHTSA
is proposing the preferred alternative based on the tentative
determination of maximum feasibility as described earlier in the
section, but, based on efforts NHTSA and EPA have made to conduct joint
analysis and jointly deliberate on information and tentative
conclusions, NHTSA has also aligned the proposed CAFE standards with
EPA's proposed standards.
---------------------------------------------------------------------------

    \757\ NHTSA and EPA conducted joint analysis and jointly
deliberated on information and tentative conclusions related to
technology cost, effectiveness, manufacturers' capability to
implement technologies, the cadence at which manufacturers might
support the implementation of technologies, economic factors, and
the assessment of comments from manufacturers.
    \758\ As these A/C system improvements do not influence fuel
economy, the stringency of NHTSA's preferred alternatives do not
reflect the availability of these technologies.
    \759\ We note, however, that the alignment is based on the
assumption that manufacturers implement the same level of direct A/C
system improvements as EPA currently forecasts for those model
years, and on the assumption of PHEV, EV, and FCV penetration at
specific levels. If a manufacturer implements a higher level of
direct A/C improvement technology and/or a higher penetration of
PHEVs, EVs and FCVs, then NHTSA's proposed standards would
effectively be more stringent than EPA's. Conversely, if a
manufacturer implements a lower level of direct A/C improvement
technology and/or a lower penetration of PHEVs, EVs and FCVs, then
EPA's proposed standards would effectively be more stringent than
NHTSA's.
---------------------------------------------------------------------------

    Thus, consistent with President Obama's announcement on July 29,
2011, and with the August 9, 2011 SNOI, NHTSA has tentatively concluded
that the standards represented by the preferred alternative are the
maximum feasible standards for passenger cars and light trucks in MYs
2017-2025. We recognize that higher standards would help the need of
the nation to conserve more energy and might potentially be
technologically feasible (in the narrowest sense) during those model
years, but based on our analysis and the evidence presented by the
industry, we tentatively conclude that higher standards would not
represent the proper balancing for MYs 2017-2025 cars and trucks.\760\
We

tentatively conclude that the correct balancing recognizes economic
practicability concerns as discussed above, and sets standards at the
levels that the agency is proposing in this NPRM.\761\ In the same
vein, lower standards might be less burdensome on the industry, but
considering the environmental impacts of the different regulatory
alternatives as required under NEPA and the need of the nation to
conserve energy, we do not believe they would have represented the
appropriate balancing of the relevant factors, because they would have
left technology, fuel savings, and emissions reductions on the table
unnecessarily, and not contributed as much as possible to reducing our
nation's energy security and climate change concerns. Standards set at
the proposed levels for MYs 2017-2021 will provide the additional
benefit of helping to promote further research and development into the
more advanced fuel economy-improving technologies to provide a bridge
to more stringent standards in MYs 2022-2025, and enable significant
fuel savings and environmental benefits throughout the program, and
particularly substantial benefits in the later years of the program and
beyond. Additionally, consistent with Executive Order 13563, the agency
believes that the benefits of the preferred alternative amply justify
the costs; indeed, the monetized benefits exceed the monetized costs by
$358 billion over the lifetime of the vehicles covered by the proposed
standards. In full consideration of all of the information currently
before the agency, we have weighed the statutory factors carefully and
selected proposed passenger car and light truck standards that we
believe are the maximum feasible for MYs 2017-2025.
---------------------------------------------------------------------------

    \760\ We note, for example, that while Executive Orders 12866
and 13563 focus attention on an approach that maximizes net
benefits, both Executive Orders recognize that this focus is subject
to the requirements of the governing statute. In this rulemaking,
the standards represented by the ``MNB'' alternative are more
stringent than what NHTSA has tentatively concluded would be maximum
feasible for MYs 2017-2025, and thus setting standards at that level
would be inconsistent with the requirements of EPCA/EISA to set
maximum feasible standards.
    \761\ We underscore that the agency's tentative decision
regarding what standards would be maximum feasible for MYs 2017-2025
is made with reference to the rulemaking time frame and
circumstances of this proposal. Each CAFE rulemaking (indeed, each
stage of any given CAFE rulemaking) presents the agency with new
information that may affect how we balance the relevant actors.
---------------------------------------------------------------------------

G. Impacts of the Proposed CAFE Standards

1. How will these standards improve fuel economy and reduce GHG
emissions for MY 2017-2025 vehicles?
    As discussed above, the CAFE level required under an attribute-
based standard depends on the mix of vehicles produced for sale in the
U.S. Based on the market forecast that NHTSA and EPA have used to
develop and analyze the proposed CAFE and CO2 emissions
standards, NHTSA estimates that the proposed new CAFE standards would
lead average required fuel consumption (fuel consumption is the inverse
of fuel economy) levels to increase by an average of 4.0 percent
annually through MY 2025, reaching a combined average fuel economy
requirement of 49.6 mpg in that model year:
[GRAPHIC] [TIFF OMITTED] TP01DE11.204

    Accounting for differences between fuel economy levels under
laboratory conditions, NHTSA estimates that these requirements would
translate into the following required average levels under real-world
operating conditions:
[GRAPHIC] [TIFF OMITTED] TP01DE11.205

    If manufacturers apply technology only as far as necessary to
comply with CAFE standards, NHTSA estimates that, setting aside factors
the agency cannot consider for purposes of determining maximum feasible
CAFE standards,\762\ average achieved fuel economy levels would
correspondingly increase through MY 2025, but that manufacturers would,
on average, under-comply \763\ in some model years and over-comply
\764\ in others, reaching a combined average fuel economy of 47.4 mpg
(taking into account estimated adjustments reflecting improved air
conditioner efficiency) in MY 2025:
---------------------------------------------------------------------------

    \762\ 49 U.S.C. 32902(h) states that NHTSA may not consider the
fuel economy of dedicated alternative fuel vehicles, the
alternative-fuel portion of dual-fueled automobile fuel economy, or
the ability of manufacturers to earn and use credits for over-
compliance, in determining the maximum feasible stringency of CAFE
standards.
    \763\ ``Under-compliance'' with CAFE standards can be mitigated
either through use of FFV credits, use of existing or ``banked''
credits, or through fine payment. Although, as mentioned above,
NHTSA cannot consider availability of statutorily-provided credits
in setting standards, NHTSA is not prohibited from considering fine
payment. Therefore, the estimated achieved CAFE levels presented
here include the assumption that Aston Martin, BMW, Daimler (i.e.,
Mercedes), Geely (i.e., Volvo), Lotus, Porsche, Spyker (i.e., Saab),
and, Tata (i.e., Jaguar and Rover), and Volkswagen will only apply
technology up to the point that it would be less expensive to pay
civil penalties.
    \764\ In NHTSA's analysis, ``over-compliance'' occurs through
multi-year planning: manufacturers apply some ``extra'' technology
in early model years (e.g., MY 2014) in order to carry that
technology forward and thereby facilitate compliance in later model
years (e.g., MY 2016).

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

[GRAPHIC] [TIFF OMITTED] TP01DE11.206

    Accounting for differences between fuel economy levels under
laboratory conditions, NHTSA estimates that these requirements would
translate into the following required average levels under real-world
operating conditions:

[GRAPHIC] [TIFF OMITTED] TP01DE11.207

    Setting aside the potential to produce additional EVs (or, prior to
MY 2020, PHEVs) or take advantage of EPCA's provisions regarding CAFE
credits, NHTSA estimates that today's proposed standards could increase
achieved fuel economy levels by average amounts of up to 0.5 mpg during
the few model years leading into MY 2017, as manufacturers apply
technology during redesigns leading into model years covered by today's
new standards.\765\ As shown below, these ``early'' fuel economy
increases yield corresponding reductions in fuel consumption and
greenhouse gas emissions, and incur corresponding increases in
technology outlays.
---------------------------------------------------------------------------

    \765\ This outcome is a direct result of revisions, made to
DOT's CAFE model in preparation for the MY 2012-2016 rule, to
simulate ``multiyear planning'' effects--that is, the potential that
manufacturers will apply ``extra'' technology in one model year if
doing so will be sufficiently advantageous with respect to the
ability to comply with CAFE standards in later model years. For
example, for today's rulemaking analysis, NHTSA has estimated that
Ford will redesign the F-150 pickup truck in MY 2015, and again in
MY 2021. As explained in Chapter V of the PRIA, NHTSA expects that
many technologies would be applied as part of a vehicle redesign.
Therefore, in NHTSA's analysis, if Ford does not anticipate ensuing
standards when redesigning the MY 2015 F-150, Ford may find it more
difficult to comply with light truck standard during MY 2016-2020.
Through simulation of multiyear planning effects, NHTSA's analysis
indicates that Ford could apply more technology to the MY 2015 F-150
if standards continue to increase after MY 2016 than Ford need apply
if standards remain unchanged after MY 2016, and that this
additional technology would yield further fuel economy improvements
of up to 1.3 mpg, depending on pickup configuration.
---------------------------------------------------------------------------

    Within the context EPCA requires NHTSA to apply for purposes of
determining maximum feasible stringency of CAFE standards (i.e.,
setting aside EVs, pre-MY 2020 PHEVs, and all statutory CAFE credit
provisions), NHTSA estimates that these fuel economy increases would
lead to fuel savings totaling 173 billion gallons during the useful
lives of vehicles manufactured in MYs 2017-2025 and the few MYs
preceding MY 2017:

[GRAPHIC] [TIFF OMITTED] TP01DE11.208

    The agency also estimates that these new CAFE standards would lead
to corresponding reductions of CO2 emissions totaling 1,834
million metric tons (mmt) during the useful lives of vehicles sold in
MYs 2017-2025 and the few MYs preceding MY 2017:
[GRAPHIC] [TIFF OMITTED] TP01DE11.209

2. How will these standards improve fleet-wide fuel economy and reduce
GHG emissions beyond MY 2025?
    Under the assumption that CAFE standards at least as stringent as
those being proposed today for MY 2025 would be established for
subsequent model years, the effects of the proposed standards on fuel
consumption and GHG emissions will continue to increase for many years.
This will occur because over time, a growing fraction of the U.S.
light-duty vehicle fleet will be comprised of cars and light trucks
that meet at least the MY 2025 standard. The impact of the new
standards on fuel use and GHG emissions would therefore continue to
grow through approximately 2060, when virtually all cars and light
trucks in service will have met standards as stringent as those
established for MY 2025.
    As Table IV-41 shows, NHTSA estimates that the fuel economy
increases resulting from the proposed standards will lead to reductions
in total fuel consumption by cars and light trucks of 3 billion gallons
during 2020, increasing to 40 billion gallons by 2060. Over the period
from 2017, when the proposed standards would begin to take effect,
through 2050, cumulative fuel savings would total 1,232 billion
gallons, as Table IV-41 also indicates.

[GRAPHIC] [TIFF OMITTED] TP01DE11.210

    The energy security analysis conducted for this rule estimates that
the world price of oil will fall modestly in response to lower U.S.
demand for refined fuel. One potential result of this decline in the
world price of oil would be an increase in the consumption of petroleum
products outside the U.S., which would in turn lead to a modest
increase in emissions of greenhouse gases, criteria air pollutants, and
airborne toxics from their refining and use. While additional
information would be needed to analyze this ``leakage effect'' in
detail, NHTSA provides a sample estimate of its potential magnitude in
its Draft EIS. This analysis indicates that the leakage effect is
likely to offset only a very small fraction of the reductions in fuel
use and emissions projected to result from the rule.
    As a consequence of these reductions in fleet-wide fuel
consumption, the agency also estimates that the new CAFE standards for
MYs 2017-2025 would lead to corresponding reductions in CO2
emissions from the U.S. light-duty vehicle fleet. Specifically, NHTSA
estimates that total annual CO2 emissions associated with
passenger car and light truck use in the U.S. use would decline by 32
million metric tons (mmt) in 2020 as a consequence of the new CAFE
standards, as Table IV-42 reports. The table also shows that this
annual reduction is estimated to grow to nearly 488 million metric tons
by the year 2060, and will total over 13 billion metric tons over the
period from 2017, when the proposed standards would take effect,
through 2060.
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    These reductions in fleet-wide CO2 emissions, together
with corresponding reductions in other GHG emissions from fuel
production and use, would lead to small but significant reductions in
projected changes in the future global climate. These changes, based on
analysis documented in the draft Environmental Impact Statement (EIS)
that informed the agency's decisions regarding this proposal, are
summarized in Table IV-43 below.

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3. How will these proposed standards impact non-GHG emissions and their
associated effects?
    Under the assumption that CAFE standards at least as stringent as
those proposed for MY 2025 would be established for subsequent model
years, the effects of the new standards on air quality and its
associated health effects will continue to be felt over the foreseeable
future. This will occur because over time a growing fraction of the
U.S. light-duty vehicle fleet will be comprised of cars and light
trucks that meet the MY 2025 standard, and this growth will continue
until approximately 2060.
    Increases in the fuel economy of light-duty vehicles required by
the new CAFE standards will cause a slight increase in the number of
miles they are driven, through the fuel economy ``rebound effect.'' In
turn, this increase in vehicle use will lead to increases in emissions
of criteria air pollutants and some airborne toxics, since these are
products of the number of miles vehicles are driven.
    At the same time, however, the projected reductions in fuel
production and use reported in Table IV-40 and IV-41 above will lead to
corresponding reductions in emissions of these pollutants that occur
during fuel production and distribution (``upstream'' emissions). For
most of these pollutants, the reduction in upstream emissions resulting
from lower fuel production and distribution will outweigh the increase
in emissions from vehicle use, resulting in a net decline in their
total emissions.\766\
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    \766\ As stated elsewhere, while the agency's analysis assumes
that all changes in upstream emissions result from a decrease in
petroleum production and transport, the analysis of non-GHG
emissions in future calendar years also assumes that retail gasoline
composition is unaffected by this rule; as a result, the impacts of
this rule on downstream non-GHG emissions (more specifically, on air
toxics) may be underestimated. See also Section III.G above for more
information.
---------------------------------------------------------------------------

    Tables IV-44 and IV-45 report estimated reductions in emissions of
selected criteria air pollutants (or their chemical precursors) and
airborne toxics expected to result from the proposed standards during
calendar year 2040. By that date, cars and light trucks meeting the MY
2025 CAFE standards will account for the majority of light-duty vehicle
use, so these reductions provide a useful index of the long-term impact
of the final standards on air pollution and its consequences for human
health. In the tables below, positive values indicate increases in
emissions, while negative values indicate reductions.

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    In turn, the reductions in emissions reported in Tables IV-44 and
IV-45 are projected to result in significant declines in the adverse
health effects that result from population exposure to these
pollutants. Table IV-46 reports the estimated reductions in selected
PM2.5-related human health impacts that are expected to
result from reduced population exposure to unhealthful atmospheric
concentrations of PM2.5. The estimates reported in Table IV-
46, based on analysis documented in the draft Environmental Impact
Statement (EIS) that informed the agency's decisions regarding this
proposed rule, are derived from PM2.5-related dollar-per-ton
estimates that reflect the quantifiable reductions in health impacts
likely to result from reduced population exposure to particular matter
(PM2.5). They do not include all health impacts related to
reduced exposure to PM, nor do they include any reductions in health
impacts resulting from lower population exposure to other criteria air
pollutants (particularly ozone) and air toxics.
    There may be localized air quality and health impacts associated
with this rulemaking that are not reflected in the estimates of
aggregate air quality changes and health impacts reported in this
analysis. Emissions changes and dollar-per-ton estimates alone are not
necessarily a good indication of local or regional air quality and
health impacts, because the atmospheric chemistry governing formation
and accumulation of ambient concentrations of PM2.5, ozone,
and air toxics is very complex. Full-scale photochemical modeling would
provide the necessary spatial and temporal detail to more completely
and accurately estimate the changes in ambient levels of these
pollutants and their associated health and welfare impacts. NHTSA
intends to conduct such modeling for purposes of the final rule, but it
was not available in time to inform these proposed standards or to be
included in the Draft EIS.

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4. What are the estimated costs and benefits of these proposed
standards?
    NHTSA estimates that the proposed standards could entail
significant additional technology beyond the levels that could be
applied under baseline CAFE standards (i.e., the application of MY 2016
CAFE standards to MYs 2017-2025). This additional technology will lead
to increases in costs to manufacturers and vehicle buyers, as well as
fuel savings to vehicle buyers. Also, as discussed above, NHTSA
estimates that today's proposed standards could induce manufacturers to
apply technology during redesigns leading into model years covered by
today's new standards, and to incur corresponding increases in
technology outlays.
    Technology costs are assumed to change over time due to the
influence of cost learning and the conversion from short- to long-term
ICMs. Table I-47 represents the CAFE model inputs for MY 2012, MY 2017,
MY 2021 and MY 2025 approximate net (accumulated) technology costs for
some of the key enabling technologies as applied to Midsize passenger
cars.\768\ Additional details on technology cost estimates can be found
in Chapter V of NHTSA's PRIA and Chapter 3 of the Joint Draft TSD.
---------------------------------------------------------------------------

    \768\ The net (accumulated) technology costs represent the costs
from a baseline vehicle (i.e. the top of the decision tree) to each
of the technologies listed in the table. The baseline vehicle is
assumed to utilize a fixed-valve naturally aspirated inline 4
cylinder engine, 5-speed transmission and no electrification/
hybridization improvements.

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    In order to pay for this additional technology (and, for some
manufacturers, civil penalties), NHTSA estimates that the cost of an
average passenger car and light truck will increase relative to levels
resulting from compliance with baseline (MY 2016) standards by $228-
$2,023 and $44-$1,578, respectively, during MYs 2017-2025. The
following tables summarize the agency's estimates of average cost
increases for each manufacturer's passenger car, light truck, and
overall fleets (with corresponding averages for the industry):
BILLING CODE 4910-59-P

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    These cost estimates reflect the potential that a given
manufacturer's efforts to minimize overall regulatory costs could focus
technology where the most fuel can be saved at the least cost, and not
necessarily, for example, where the cost to add technology would be
smallest relative to baseline production costs. Therefore, if average
incremental vehicle cost increases (including any civil penalties) are
measured as increases relative to baseline prices (estimated by adding
baseline costs to MY 2008 prices), the agency's analysis shows relative
cost increases declining as baseline vehicle price increases. Figure
IV-3 shows the trend for MY 2025, for vehicles with estimated baseline
prices up to $100,000:

[GRAPHIC] [TIFF OMITTED] TP01DE11.223

    If manufacturers pass along these costs rather than reducing
profits, and pass these costs along where they are incurred rather than
``cross-subsidizing'' among products, the quantity of vehicles produced
at different price levels would change. Shifts in production may
potentially occur, which could create marketing challenges for
manufacturers that are active in certain segments. We recognize,
however, that many manufacturers do in fact cross-subsidize to some
extent, and take losses on some vehicles while continuing to make
profits from others. NHTSA has no evidence to indicate that
manufacturers will inevitably shift production plans in response to
these proposed standards, but nevertheless believes that this issue is
worth monitoring in the market going forward. NHTSA seeks comment on
potential market effects related to this issue.
    As mentioned above, these estimated costs derive primarily from the
additional application of technology under the proposed standards. The
following three tables summarize the incremental extent to which the
agency estimates technologies could be added to the passenger car,
light truck, and overall fleets in each model year in response to the
proposed standards. Percentages reflect the technology's additional
application in the market, relative to the estimated application under
baseline standards (i.e., application of MY 2016 standards through MY
2025), and are negative in cases where one technology is superseded
(i.e., displaced) by another. For example, the agency estimates that
manufacturers could apply many improvements to transmissions (e.g.,
dual clutch transmissions, denoted below by ``DCT'') through MY 2025
under baseline standards. However, the agency also estimates that
manufacturers could apply even more advanced high efficiency
transmissions (denoted below by ``HETRANS'') under the proposed
standards, and that these transmissions would supersede DCTs and other
transmission advances. Therefore, as shown in the following three
tables, the incremental application of DCTs under the proposed
standards is negative.
BILLING CODE 4910-59-P

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    Based on the agencies' estimates of manufacturers' future sales
volumes, and taking into account early outlays attributable to
multiyear planning effects (discussed above), the cost increases
associated with this additional application of technology will lead to
a total of nearly $157 billion in incremental outlays during MYs 2017-
2025 (and model years leading up to MY 2017) for additional technology
attributable to the proposed standards:
BILLING CODE 4910-59-P

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    NHTSA notes that these estimates of the economic costs for meeting
higher CAFE standards omit certain potentially important categories of
costs, and may also reflect underestimation (or possibly
overestimation) of some costs that are included. For example, although
the agency's analysis is intended--with very limited exceptions\769\--
to hold vehicle performance, capacity, and utility constant when
applying fuel-saving technologies to vehicles, the analysis imputes no
cost to any actual reductions in vehicle performance, capacity, and
utility that may result from manufacturers' efforts to comply with the
proposed CAFE standards. Although these costs are difficult to estimate
accurately, they nonetheless represent a notable category of omitted
costs if they have not been adequately accounted for in the cost
estimates. Similarly, the agency's estimates of net benefits for
meeting higher CAFE standards includes estimates of the economic value
of potential changes in motor vehicle fatalities that could result from
reductions in the size or weight of vehicles, but not of changes in
non-fatal injuries that could result from reductions in vehicle size
and/or weight.
---------------------------------------------------------------------------

    \769\ For example, the agencies have assumed no cost changes due
to our assumption that HEV towing capability is not maintained; due
to potential drivability issues with the P2 HEV; and due to
potential drivability and NVH issues with the shift optimizer.
---------------------------------------------------------------------------

    Finally, while NHTSA is confident that the cost estimates are the
best available and appropriate for purposes of this proposed rule, it
is possible that the agency may have underestimated or overestimated
manufacturers' direct costs for applying some fuel economy
technologies, or the increases in manufacturer's indirect costs
associated with higher vehicle manufacturing costs. In either case, the
technology outlays reported here will not correctly represent the costs
of meeting higher CAFE standards. Similarly, NHTSA's estimates of
increased costs of congestion, accidents, and noise associated with
added vehicle use are drawn from a 1997 study, and the correct
magnitude of these values may have changed since they were developed.
If this is the case, the costs of increased vehicle use associated with
the fuel economy rebound effect will differ from the agency's estimates
in this analysis. Thus, like the agency's estimates of economic
benefits, estimates of total compliance costs reported here may
underestimate or overestimate the true economic costs of the proposed
standards.
    However, offsetting these costs, the achieved increases in fuel
economy will also produce significant benefits to society. Most of
these benefits are attributable to reductions in fuel consumption; fuel
savings are valued using forecasts of pretax prices in EIA's reference
case forecast from AEO 2011. The total benefits also include other
benefits and dis-benefits, examples of which include the social values
of reductions in CO2 and criteria pollutant emissions, the
value of additional travel (induced by the rebound effect), and the
social costs of additional congestion, accidents, and noise
attributable to that additional travel. The PRIA accompanying today's
proposed rule presents a detailed analysis of the rule's specific
benefits.
    As Tables IV-59 and 60 show, NHTSA estimates that at the discount
rates of 3 percent prescribed in OMB guidance for regulatory analysis,
the present value of total benefits from the proposed CAFE standards
over the lifetimes of MY 2017-2025 (and, accounting for multiyear
planning effects discussed above, model years leading up to MY 2017)
passenger cars and light trucks will be $515 billion.

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    Tables IV-61 and 62 report that the present value of total benefits
from requiring cars and light trucks to achieve the fuel economy levels
specified in the proposed CAFE standards for MYs 2017-25 will be $419
billion when discounted at the 7 percent rate also required by OMB
guidance. Thus the present value of fuel savings and other benefits
over the lifetimes of the vehicles covered by the proposed standards is
$96 billion--or about 19 percent--lower when discounted at a 7 percent
annual rate than when discounted using the 3 percent annual rate.\771\
---------------------------------------------------------------------------

    \770\ Unless otherwise indicated, all tables in Section IV
report benefits calculated using the Reference Case input
assumptions, with future benefits resulting from reductions in
carbon dioxide emissions discounted at the 3 percent rate prescribed
in the interagency guidance on the social cost of carbon.
    \771\ For tables that report total or net benefits using a 7
percent discount rate, future benefits from reducing carbon dioxide
emissions are discounted at 3 percent in order to maintain
consistency with the discount rate used to develop the reference
case estimate of the social cost of carbon. All other future
benefits reported in these tables are discounted using the 7 percent
rate.

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    For both the passenger car and light truck fleets, NHTSA estimates
that the benefits of today's proposed standards will exceed the
corresponding costs in every model year, so that the net social
benefits from requiring higher fuel economy--the difference between the
total benefits that result from higher fuel economy and the technology
outlays required to achieve it--will be substantial. Because the
technology outlays required to achieve the fuel economy levels required
by the proposed standards are incurred during the model years when the
vehicles are produced and sold, however, they are not subject to
discounting, so that their present value does not depend on the
discount rate used. Thus the net benefits of the proposed standards
differ depending on whether the 3 percent or 7 percent discount rate is
used, but only because the choice of discount rates affects the present
value of total benefits, and not that of technology costs.
    As Tables IV-63 and 64 show, over the lifetimes of the affected (MY
2017-2025, and MYs leading up to MY 2017) vehicles, the agency
estimates that when the benefits of the proposed standards are
discounted at a 3 percent rate, they will exceed the costs of the
proposed standards by $358 billion:

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    As indicated previously, when fuel savings and other future
benefits resulting from the proposed standards are discounted at the 7
percent rate prescribed in OMB guidance, they are $96 billion lower
than when the 3 percent discount rate is applied. Because technology
costs are not subject to discounting, using the higher 7 percent
discount rate reduces net benefits by exactly this same amount.
Nevertheless, Tables IV-65 and 66 show that the net benefits from
requiring passenger cars and light trucks to achieve higher fuel
economy are still substantial even when future benefits are discounted
at the higher rate, totaling $262 billion over MYs 2017-25. Net
benefits are thus about 27 percent lower when future benefits are
discounted at a 7 percent annual rate than at a 3 percent rate.

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    NHTSA's estimates of economic benefits from establishing higher
CAFE standards are subject to considerable uncertainty. Most important,
the agency's estimates of the fuel savings likely to result from
adopting higher CAFE standards depend critically on the accuracy of the