the passive cabin ventilation credit, EPA envisioned air flow
consistent with windows and/or sunroof being open for a period of time
to allow hot air to escape the cabin through convective air flow. Under
the original definitions, manufacturers are generating a sizeable

credit for simply opening the interior vents when the vehicle is keyed
off. EPA recognized that this approach would not produce benefits
consistent with the credits but was not able to disallow the credit.
---------------------------------------------------------------------------

    \93\ 77 FR 62833.
---------------------------------------------------------------------------

    Although EPA may have detailed discussions with manufacturers
regarding their claims, in the end, under 40 CFR 86.1869-12(b) EPA's
only recourse in situations where the technology may not provide the
emissions reductions envisioned is to scrutinize the technologies to
determine if the approach does in fact meet the definition. EPA may
also request data, engineering analyses, or other information to
support a manufacturer's claim that a technology meets the regulatory
definition. In cases where EPA finds that it does not meet the
definition, it may disallow the claimed credit. However, if EPA finds
that the approach does meet the definition, EPA may not disallow the
credit even if the technology is not likely to provide a benefit in
line with the menu credit level. In those situations, EPA must revise
the definitions section of the regulations in order to strengthen the
program, a step EPA is now taking in this final rule. To help preserve
the integrity of the off-cycle program, EPA believes that updating the
program by revising the definitions as needed to correct known
deficiencies discovered during implementation is essential to
maintaining program integrity and emissions benefits. Also, EPA's
requests for information regarding the technologies and follow-up with
manufacturers has been flagged by manufacturers as causing delays in
the manufacturer ability to claim credits and that further streamlining
is needed, so revising the definitions will help with program
implementation.
    EPA notes that the off-cycle program is optional, and there is no
requirement for any manufacturer to produce any menu technology. If a
manufacturer does use the off-cycle menu for any given technology, it
is important for EPA and the public to have confidence that technology
used by manufacturers achieves the emission reductions reflected by the
credit value. Thus, we are not persuaded that the issue of lead time is
relevant in the context of optional off-cycle credit technologies or
outweighs the need to maintain off-cycle program integrity by revising
it when necessary to ensure that the program delivers intended
emissions reductions. These are optional, additional, potential avenues
to manufacturers to achieve the standards, but only to the extent that
the technologies indeed provide the expected real-world emission
benefits. EPA has had discussions with manufacturers regarding each of
the technologies where EPA is now revising the definitions, during
which EPA raised questions and concerns regarding certain technological
approaches being taken by manufacturers, so these issues have been
generally known amongst manufacturers claiming credits. Also, the
manufacturers that use technological approaches consistent with the
known intent of the regulations, will continue to generate credits
without interruption due to the definition changes.
    Regarding manufacturer comments that EPA allow some lesser credit
for technologies that meet the unrevised definitions but not the
updated definitions (definitions are discussed below), EPA does not
have sufficient data on which to base an appropriate credit value.
Manufacturers may use the other program pathways to demonstrate a
credit value for such approaches by presenting data to support an
appropriate credit level.
    EPA is only finalizing the 15 g/mile menu credit cap through MY
2026. EPA received several critical comments regarding the off-cycle
program, its value moving forward, and its implementation which has
been challenging both for manufacturers and the agency. EPA intends to
thoroughly review all aspects of the off-cycle program for the future
rulemaking covering MYs 2027 and later.
    EPA received numerous additional comments regarding the structure
and implementation of the off-cycle credits program that were not
specific to the proposed off-cycle program revisions. See the RTC for a
full summary and response to off-cycle credits program comments.
iii. EPA Proposed and Final Modifications to Menu Technology
Definitions
    Some stakeholders have previously raised concerns about whether the
off-cycle credit program produces the real-world emissions reductions
as intended, or results in a loss of emissions benefits.\94\ EPA
believes these are important considerations, as noted above, and
believes it is important to address to the extent possible the issues
that the agency has experienced in implementing the menu credits,
alongside raising the menu cap. EPA believes that raising the menu cap
is appropriate so long as the agency can improve the program and
reasonably expect the use of menu technologies to provide real-world
emissions reductions, consistent with the intent of the program.
Providing additional opportunities for menu credits may allow for more
emissions reductions sooner and at a lower cost than would otherwise be
possible under a program without off-cycle credits. With that in mind,
EPA is finalizing modifications to the menu definitions discussed below
to coincide with increasing the menu cap in MY 2023.
---------------------------------------------------------------------------

    \94\ 85 FR 25237.
---------------------------------------------------------------------------

    The existing menu technologies and associated credits are provided
below in Table 16 and Table 17 for reference.\95\
---------------------------------------------------------------------------

    \95\ See 40 CFR 86.1869-12(b). See also ``Joint Technical
Support Document: Final Rulemaking for 2017-2025 Light-duty Vehicle
Greenhouse Gas Emission Standards and Corporate Average Fuel Economy
Standards for the Final Rule,'' EPA-420-R-12-901, August 2012, for
further information on the definitions and derivation of the credit
values.

Table 16--Existing Off-Cycle Technologies and Credits for Cars and Light
                                 Trucks
------------------------------------------------------------------------
                                                            Credit for
               Technology                   Credit for     light trucks
                                           cars (g/mile)     (g/mile)
------------------------------------------------------------------------
High Efficiency Alternator (at 73%;                  1.0             1.0
 scalable)..............................
High Efficiency Exterior Lighting (at                1.0             1.0
 100W)..................................
Waste Heat Recovery (at 100W; scalable).             0.7             0.7
Solar Roof Panels (for 75W, battery                  3.3             3.3
 charging only).........................
Solar Roof Panels (for 75W, active cabin             2.5             2.5
 ventilation plus battery charging).....
Active Aerodynamic Improvements                      0.6             1.0
 (scalable).............................
Engine Idle Start-Stop with heater                   2.5             4.4
 circulation system.....................
Engine Idle Start-Stop without heater                1.5             2.9
 circulation system.....................
Active Transmission Warm-Up.............             1.5             3.2

Active Engine Warm-Up...................             1.5             3.2
Solar/Thermal Control...................       Up to 3.0       Up to 4.3
------------------------------------------------------------------------

 Table 17--Off-Cycle Technologies and Credits for Solar/Thermal Control
                 Technologies for Cars and Light Trucks
------------------------------------------------------------------------
                                          Car credit (g/   Truck credit
       Thermal control technology              mile)         (g/mile)
------------------------------------------------------------------------
Glass or Glazing........................       Up to 2.9       Up to 3.9
Active Seat Ventilation.................             1.0             1.3
Solar Reflective Paint..................             0.4             0.5
Passive Cabin Ventilation...............             1.7             2.3
Active Cabin Ventilation................             2.1             2.8
------------------------------------------------------------------------

a. Passive Cabin Ventilation
    Some manufacturers have claimed the passive cabin ventilation
credits based on the addition of software logic to their HVAC system
that sets the interior climate control outside air/recirculation vent
to the open position when the power to vehicle is turned off at higher
ambient temperatures. The manufacturers have claimed that the opening
of the vent allows for the flow of ambient temperature air into the
cabin. While opening the vent may ensure that the interior of the
vehicle is open for flow into the cabin, no other action is taken to
improve the flow of heated air out of the vehicle. This technology
relies on the pressure in the cabin to reach a sufficient level for the
heated air in the interior to flow out through body leaks or the body
exhausters to open and vent heated air out of the cabin.
    The credits for passive cabin ventilation were determined based on
an NREL study that strategically opened a sunroof to allow for the
unrestricted flow of heated air to exit the interior of the vehicle
while combined with additional floor openings to provide a minimally
restricted entry for cooler ambient air to enter the cabin. The
modifications that NREL performed on the vehicle reduced the flow
restrictions for both heated cabin air to exit the vehicle and cooler
ambient air to enter the vehicle, creating a convective airflow path
through the vehicle cabin.
    Analytical studies performed by manufacturers to evaluate the
performance of the open dash vent demonstrate that while the dash vent
may allow for additional airflow of ambient temperature air entering
the cabin, it does not reduce the existing restrictions on heated cabin
air exiting the vehicle, particularly in the target areas of the
occupant's upper torso. That hotter air generally must escape through
restrictive (by design to prevent water and exhaust fumes from entering
the cabin) body leaks and occasional venting of the heated cabin air
through the body exhausters. While this may provide some minimal
reduction in cabin temperatures, this open dash vent technology is not
as effective as the combination of vents used by the NREL researchers
to allow additional ambient temperature air to enter the cabin and also
to reduce the restriction of heated air exiting the cabin.
    As noted in the Joint Technical Support Document: Final Rulemaking
for 2017-2025 Light-Duty Vehicle Greenhouse Gas Emission Standards and
Corporate Average Fuel Economy Standards, pg. 584, ``For passive
ventilation technologies, such as opening of windows and/or sunroofs
and use of floor vents to supply fresh air to the cabin (which enhances
convective airflow), (1.7 g/mile for light-duty vehicles and 2.3 g/mile
for light-duty trucks) a cabin air temperature reduction of 5.7 [deg]C
can be realized.'' The passive cabin ventilation credit values were
based on achieving the 5.7 [deg]C cabin temperature reduction.
    The Agency is finalizing revisions to the passive cabin ventilation
definition with clarifying edits to make it consistent with the
technology used to generate the credit value. The Agency continues to
allow for innovation as the definition includes demonstrating
equivalence to the methods described in the Joint TSD. As proposed, EPA
is revising the definition of passive cabin ventilation to include only
methods that create and maintain convective airflow through the body's
cabin by opening windows or a sunroof, or equivalent means of creating
and maintaining convective airflow, when the vehicle is parked outside
in direct sunlight. Current systems claiming the passive ventilation
credit by opening the dash vent would not meet the updated definition.
Manufacturers seeking to claim credits for the open dash vent system
will be eligible to petition the Agency for credits for this technology
using the alternative EPA approved method outlined in 40 CFR86.1869-
12(d). EPA's response to comments and discussion of the clarifying
edits are provided in section 8 of the RTC.
b. Active Engine and Transmission Warm-Up
    In the NPRM for the 2012 rule (76 FR 74854) EPA proposed capturing
waste heat from the exhaust and using that heat to actively warm-up
targeted parts of the engine and the transmission fluid. The exhaust
waste heat from an internal combustion engine is heat that is not being
used as it is exhausted to the atmosphere.
    In the 2012 Final Rule (77 FR 62624), the Agency revised the
definitions for active engine and transmission warm-up by replacing
exhaust waste heat with the waste heat from the vehicle. As noted in
the Joint TSD, pages 5-98 and 5-99, the Alliance of Automobile
Manufacturers and Volkswagen recommended the definition be broadened to
account for other methods of warm-up besides exhaust heat such as a
secondary coolant loop.
    EPA concluded that other methods, in addition to waste heat from
the exhaust, that could provide similar performance--such as coolant
loops or direct heating elements--may prove to be a more effective
alternative to direct exhaust heat. Therefore, the Agency expanded the
definition in the 2012 Final Rule.

    In the 2012 Final Rule the Agency also required two unique heat
exchanger loops--one for the engine and one for the transmission--for a
manufacturer to claim both the Active Engine Warm-up and Active
Transmission Warm-up credits. EPA stated in the Joint TSD that
manufacturers utilizing a single heat exchanging loop would need to
demonstrate that the performance of the single loop would be equivalent
to two dedicated loops in order for the manufacturer to claim both
credits, and that this test program would need to be performed using
the alternative method off-cycle GHG credit application described in 40
CFR 86.1869-12(d).
    All Agency analysis regarding active engine and transmission warm-
up through the 2012 Final Rule (77 FR 62624) was performed assuming the
waste heat utilized for these technologies would be obtained directly
from the exhaust prior to being released into the atmosphere and not
from any engine-coolant-related loops. At this time, many of the
systems in use are engine-coolant-loop-based and are taking heat from
the coolant to warm-up the engine oil and transmission fluid.
    EPA provided additional clarification on the use of waste heat from
the engine coolant in preamble to SAFE rule (85 FR 24174). EPA focused
on systems using heat from the exhaust as a primary source of waste
heat because that heat would be available quickly and also would be
exhausted by the vehicle and otherwise unused (85 FR 25240). Heat from
the engine coolant already may be used by design to warm up the
internal engine oil and components. That heat is traditionally not
considered ``waste heat'' until the engine reaches normal operating
temperature and subsequently requires it to be cooled in the radiator
or other heat exchanger.
    EPA allowed for the possible use of other sources of heat such as
engine coolant circuits, as the basis for the credits as long as those
methods would ``provide similar performance'' as extracting the heat
directly from the exhaust system and would not compromise how the
engine systems would heat up normally absent the added heat source.
However, the SAFE rule also allowed EPA to require manufacturers to
demonstrate that the system is based on ``waste heat'' or heat that is
not being preferentially used by the engine or other systems to warm up
other areas like engine oil or the interior cabin. Systems using waste
heat from the coolant do not qualify for credits if their operation
depends on, and is delayed by, engine oil temperature or interior cabin
temperature. As the engine and transmission components are warming up,
the engine coolant and transmission oil typically do not have any
``waste'' heat available for warming up anything else on the vehicle
since they are both absorbing any heat from combustion cylinder walls
or from friction between moving parts in order to achieve normal
operating temperatures. During engine and transmission warm-up, the
only waste heat source in a vehicle with an internal combustion engine
is the engine exhaust, as the transmission and coolant have not reached
warmed-up operating temperature and therefore do not have any heat to
share (85 FR 25240).
    As proposed, EPA is finalizing revisions to the menu definitions of
active engine and transmission warm-up to no longer allow systems that
capture heat from the coolant circulating in the engine block to
qualify for the Active Engine and Active Transmission warm-up menu
credits. EPA would allow credit for coolant systems that capture heat
from a liquid-cooled exhaust manifold if the system is segregated from
the coolant loop in the engine block until the engine has reached fully
warmed-up operation. The Agency would also allow system design that
captures and routes waste heat from the exhaust to the engine or
transmission, as this was the basis for these two credits as originally
proposed in the proposal for the 2012 rule. The approach EPA is
finalizing will help ensure that the level of menu credit is consistent
with the technology design envisioned by EPA when it established the
credit in the 2012 rule.
    Manufacturers seeking to utilize their existing systems that
capture coolant heat before the engine is fully warmed-up and transfer
this heat to the engine oil and transmission fluid would remain
eligible to seek credits through the alternative method application
process outlined in 40 CFR 86.1869-12(d). EPA expects that these
technologies may provide some benefit, though not the level of credits
included in the menu. But, as noted above, since these system designs
remove heat that is needed to warm-up the engine the Agency expects
that these technologies will be less effective than those that capture
and utilize exhaust waste heat.
    Ford suggested clarifying edits to the proposed revised definitions
for active engine and transmission definitions. In response, EPA has
accepted some of their edits where the meaning of the definition is
clarified but not altered, and has made some additional clarifying
edits as well after reviewing Ford's comments. A full discussion of
these comments and the definition revisions finalized by EPA is
provided in section 8 of the RTC.
iv. Clarification Regarding Use of Menu Credits
    While EPA received extensive comments on implementing the revised
definitions, EPA did not receive many comments on the proposed revised
definitions themselves. Comments on the revised definitions are
summarized and discussed in the RTC.
    Finally, as proposed, EPA is finalizing clarifications that
manufacturers claiming credits for a menu technology must use the menu
pathway rather than claim credits through the public process or 5-cycle
testing pathways. EPA views this as addressing a potential loophole
around the menu cap. As is currently the case, a new technology that
represents an advancement compared to the technology represented by the
menu credit--that is, by providing significantly more emissions
reductions than the menu credit technology--would be eligible for the
other two pathways. Comments received on this provision are summarized
and discussed in the RTC.
4. Air Conditioning System Credits
    There are two mechanisms by which A/C systems contribute to the
emissions of GHGs: through leakage of hydrofluorocarbon refrigerants
into the atmosphere (sometimes called ``direct emissions'') and through
the consumption of fuel to provide mechanical power to the A/C system
(sometimes called ``indirect emissions'').\96\ The high global warming
potential of the previously most common automotive refrigerant, HFC-
134a, means that leakage of a small amount of refrigerant will have a
far greater impact on global warming than emissions of a similar amount
of CO2. The impacts of refrigerant leakage can be reduced
significantly by systems that incorporate leak-tight components, or,
ultimately, by using a refrigerant with a lower global warming
potential. The A/C system also contributes to increased tailpipe
CO2 emissions through the additional work required to
operate the compressor, fans, and blowers. This additional power demand
is ultimately met by using additional fuel, which is converted into
CO2 by the engine during combustion and exhausted through
the tailpipe. These emissions can be reduced by increasing the overall
efficiency of an A/C system, thus reducing the additional load on the
engine from A/C operation, which in turn means a reduction in fuel

consumption and a commensurate reduction in GHG emissions.
---------------------------------------------------------------------------

    \96\ 40 CFR 1867-12 and 40 CFR 86.1868-12.
---------------------------------------------------------------------------

    Manufacturers have been able to generate credits for improved A/C
systems to help them comply with the CO2 fleet average
standards since the 2012 and later MYs. Because A/C credits represent a
low-cost and effective technology pathway, EPA expected manufacturers
to generate both A/C refrigerant and efficiency credits, and EPA
accounted for those credits in developing the final CO2
standards for the 2012 and SAFE rules, by adjusting the standards to
make them more stringent. EPA believes it is important to encourage
manufacturers to continue to implement low GWP refrigerants or low leak
systems. Thus, EPA did not propose and is not finalizing any changes
for its A/C credit provisions and is taking the same approach in
adjusting the level of the standards to reflect the use of the A/C
credits.
    Comments received regarding A/C credits are summarized in the RTC.
5. Natural Gas Vehicles Technical Correction
    EPA is finalizing as proposed a narrow technical amendment to its
regulations to correct a clerical error related to natural gas
vehicles. In the SAFE rule, EPA established incentive multipliers for
MYs 2022-2026 natural gas vehicles.\97\ EPA also received comments
during the SAFE rulemaking recommending that EPA adopt an additional
incentive for natural gas vehicles in the form of a 0.15 multiplicative
factor that would be applied to the CO2 emissions measured
from the vehicle when tested on natural gas. Commenters recommended the
0.15 factor as an appropriate way to account for the potential use of
renewable natural gas (RNG) in the vehicles.\98\
---------------------------------------------------------------------------

    \97\ 85 FR 25211, April 30, 2020.
    \98\ 85 FR 25210-25211.
---------------------------------------------------------------------------

    EPA decided not to adopt the additional 0.15 factor incentive, as
discussed in the preamble to the SAFE Rule.\99\ EPA provided a detailed
rationale for its decision not to implement a 0.15 factor recommended
by commenters in the SAFE Rule.\100\ EPA is not revisiting or reopening
its decision regarding the 0.15 factor. However, the regulatory text
adopted in the SAFE rule contains an inadvertent clerical error that
conflicts with EPA's decision and rationale in the final SAFE rule
preamble and provides an option for manufacturers to use this
additional incentive in MYs 2022-2026 by multiplying the measured
CO2 emissions measured during natural gas operation by the
0.15 factor.\101\ EPA proposed and is finalizing narrow technical
amendments to its regulations to correct this clerical error by
removing the option to use the 0.15 factor in MY 2022 (as discussed in
Section II.B.1.iii of this preamble EPA is eliminating multipliers for
NGVs after MY 2022). This will ensure the regulations are consistent
with the decision and rationale in the SAFE final rule. EPA likely
would not have granted credits under the erroneous regulatory text if
such credits were sought by a manufacturer because the intent of the
agency was clear in the preamble text. In addition, natural gas
vehicles are not currently offered by any auto manufacturer and EPA is
not aware of any plans to do so. Therefore, there are no significant
impacts associated with the correction of this clerical error. The
comments on this provision as well as EPA's analysis and response are
provided in the RTC for the final rule.
---------------------------------------------------------------------------

    \99\ 85 FR 25211.
    \100\ Ibid.
    \101\ See 40 CFR 600.510-12(j)(2)(v) and (j)(2)(vii)(A).
---------------------------------------------------------------------------

C. What alternatives did EPA analyze?

    In addition to analyzing the standards we are finalizing, EPA
analyzed two alternatives, one less stringent and one more stringent
than the final standards. For the less stringent alternative, EPA
assessed the proposed standards, i.e., the coefficients of the
standards proposed in the NPRM, including the advanced technology
multipliers consistent with those proposed. This alternative, referred
to as the ``Proposal'' in Table 18 below, is less stringent than the
final standards in MYs 2025 and 2026.
    For the more stringent alternative, EPA assessed Alternative 2 from
our proposed rule with an additional 10 g/mile increased stringency in
MY 2026 per our request for public comments on this option. This
alternative is more stringent than the final standards, in particular
for MYs 2023 and 2024. For this alternative, EPA used the coefficients
from Alternative 2 in the proposed rule for MYs 2023 through 2025, with
the standards increasing in stringency in MY 2026 by an additional 10
g/mile compared to the Alternative 2. The Alternative 2 minus 10
standards are the same as the final standards in MYs 2025 and 2026 and
differ from the final standards in MYs 2023 and 2024.
    We provide the fleet average target levels for the two alternatives
compared to the final standards in Table 18 below.

              Table 18--Projected Fleet Average Target Levels for Final Standards and Alternatives
                                                 [CO2 g/mile] *
----------------------------------------------------------------------------------------------------------------
                                                                       Final                       Alternative 2
                                                                     standards       Proposal        minus 10
                           Model year                                projected       projected       projected
                                                                      targets         targets         targets
----------------------------------------------------------------------------------------------------------------
2021 **.........................................................             229             229             229
2022 **.........................................................             224             224             224
2023............................................................             202             202             198
2024............................................................             192             192             189
2025............................................................             179             182             180
2026............................................................             161             173             161
----------------------------------------------------------------------------------------------------------------
* Targets shown are modeled results and, therefore, reflect fleet projections impacted by the underlying
  standards. For that reason, slight differences in targets may occur despite equality of standards in a given
  year.
** SAFE rule targets shown for reference.

BILLING CODE 6560-50-P

[GRAPHIC] [TIFF OMITTED] TR30DE21.004

BILLING CODE 6560-50-C
    As shown in Figure 5, the range of alternatives that EPA analyzed
is fairly narrow, with the final standard target levels differing from
the alternatives in MYs 2023-2025 by 3 to 4 g/mile, and in MY 2026 by
12 g/mile. EPA believes the analysis of these alternatives is
reasonable and appropriate considering the shorter lead time for the
revised standards, our assessment of feasibility, the existing
automaker commitments to meet the California Framework (representing
nearly 30 percent of the nationwide auto market), the standards adopted
in the 2012 rule, public comments on the proposed rule, and the need to
reduce GHG emissions. See Chapters 4, 6, and 10 of the RIA for the
analysis of costs and benefits of the alternatives.

III. Technical Assessment of the Final CO2 Standards

    In Section II of this preamble, we describe EPA's final standards
and related program elements and present industry-wide estimates of
projected GHG emissions targets. Section III of this preamble provides
an overview of EPA's technical assessment of the final standards
including the analytical approach, projected target levels by
manufacturer, projected per vehicle cost for each manufacturer,
projections of EV and PHEV technology penetration rates, and a
discussion of why the final standards are technologically feasible,
drawing from these analyses. Finally, this section discusses the
alternative standards EPA analyzed in selecting the final standards.
The RIA presents further details of the analysis including a full
assessment of feasibility, technology penetration rates and cost
projections. In Section VI of this preamble, EPA discusses the basis
for our final standards under CAA section 202(a) and in Section VII of
this preamble presents aggregate cost and benefit projections as well
as other program impacts.

A. What approach did EPA use in analyzing the standards?

    The final standards are based on the extensive light-duty GHG
technical analytical record developed over the past dozen years, as
represented by EPA's supporting analyses for the 2010 and 2012 final
rules, the Mid-Term Evaluation (including the Draft TAR, Proposed
Determination and Final Determinations), as well as the updated
analysis for this final rule, informed by public comments and the best
available data. The updated analysis for the proposal and this final
rule is not intended to be the sole technical basis of the final
standards. EPA's extensive record is consistent and supports EPA's
conclusion that year-over-year stringency increases in the time frame
of this final rule are feasible at reasonable costs and can result in
significant GHG emission reductions and public health and welfare
benefits. The updated analysis shows that, consistent with past
analyses, when modeling standards of similar stringency to those set
forth

in the 2012 rule, the results are similar to the results presented
previously. Chapter 1 of the RIA further discusses and synthesizes
EPA's record supporting stringent GHG standards through the MY 2025-
2026 time frame.
    To confirm that these past analyses continue to provide valid
results for consideration by the Administrator in selecting the most
appropriate level of stringency and other aspects of the final
standards, we have conducted an updated analysis since the proposed
rule issued in August 2021. Prior to the analysis used for the SAFE
FRM, EPA has used its OMEGA (Optimization Model for reducing Emissions
of Greenhouse gases from Automobiles) model as the basis for setting
light-duty GHG emissions standards. EPA's OMEGA model was not used in
the technical analysis of the GHG standards established in the SAFE
FRM; instead, NHTSA's Corporate Average Fuel Economy (CAFE) Compliance
and Effects Modeling System (CCEMS) model was used.
    For this final rule, consistent with the proposed rule, EPA has
chosen to use the peer reviewed CCEMS model, and to use the same
version of that model that was used in support of the SAFE FRM (though,
as discussed below, EPA has updated several inputs to the model since
the proposed rule based on public comments and newer available data).
As explained in the proposed rule, given that the SAFE FRM was
published a little over a year ago, direct comparisons between the
analysis presented in this rulemaking and the analysis presented in
support of the SAFE FRM are more direct if the same modeling tool is
used. For example, CCEMS has categorizations of technologies and model
output formats that are distinct to the model, so continuing use of
CCEMS for this rule has facilitated comparisons to the SAFE FRM. Also,
by using the same modeling tool as used in the SAFE rule, we can more
clearly illustrate the influence of some of the key updates to the
inputs used in the SAFE FRM. EPA considers the SAFE FRM version of the
CCEMS model to be an effective modeling tool for purposes of assessing
standards through the MY 2026 timeframe, along with changes to some of
the key inputs as discussed below (see Table 20).
    For use in future vehicle standards analyses, EPA is developing an
updated version of its OMEGA model. This updated model, OMEGA2, is
being developed to better account for the significant evolution over
the past decade in vehicle markets, technologies, and mobility
services. In particular, the recent advancements in battery electric
vehicles (BEVs), and their introduction into the full range of market
segments provides strong evidence that vehicle electrification can play
a central role in achieving greater levels of emissions reductions in
the future. In developing OMEGA2, EPA is exploring the interaction
between consumer and producer decisions when modeling compliance
pathways and the associated technology penetration into the vehicle
fleet. OMEGA2 also is being designed to have expanded capability to
model a wider range of GHG program options than are possible using
existing tools, which will be especially important for the assessment
of policies that are designed to address future GHG reduction goals.
While the OMEGA2 model is not available for use in this rule, peer
review of the draft model is underway.
    Our updated analysis is based on the same version of the CCEMS
model that was used for the proposed rule and for the SAFE FRM. The
CCEMS model was extensively documented by NHTSA for the SAFE FRM and
the documentation also applies to the updated analysis for this final
rule.\102\ While the CCEMS model itself remains unchanged from the
version used in the final SAFE rule, EPA made the following changes
(shown in Table 19) to the inputs for the analysis supporting the
proposed rule. Further updates to the inputs based on our assessment of
the public comments and newer data are summarized in Table 20.
---------------------------------------------------------------------------

    \102\ See CCEMS Model Documentation on web page https://www.nhtsa.gov/corporate-average-fuel-economy/compliance-and-effects-modeling-system.

   Table 19--Changes Made to CCEMS Model Inputs for the Proposed Rule,
                    Relative to the SAFE FRM Analysis
------------------------------------------------------------------------
            Input file                             Changes
------------------------------------------------------------------------
Parameters file...................  Global social cost of carbon $/ton
                                     values in place of domestic values
                                     (see RIA Chapter 3.3). Inclusion of
                                     global social cost of methane (CH4)
                                     and nitrous oxide (N2O) $/ton
                                     values (see Section IV of this
                                     preamble).
                                    Updated PM2.5 cost factors (benefit
                                     per ton values, see Section VII.E
                                     of this preamble). Rebound effect
                                     of -0.10 rather than -0.20 (see RIA
                                     Chapter 3.1). AEO2021 fuel prices
                                     (expressed in 2018 dollars) rather
                                     than AEO2019. Updated energy
                                     security cost per gallon factors
                                     (see Section VII.F of this
                                     preamble). Congestion cost factors
                                     of 6.34/6.34/5.66 (car/van-SUV/
                                     truck) cents/mile rather than 15.4/
                                     15/4/13.75 (see RIA Chapter 5).
                                    Discounting values to calendar year
                                     2021 rather than calendar year
                                     2019. The following fuel import and
                                     refining inputs have been changed
                                     based on AEO2021 (see RIA Chapter
                                     3.2):
                                    Share of fuel savings leading to
                                     lower fuel imports:
                                    Gasoline 7%; E85 19%; Diesel 7%
                                     rather than 50%; 7.5%; 50%
                                    Share of fuel savings leading to
                                     reduced domestic fuel refining:
                                    Gasoline 93%; E85 25.1%; Diesel 93%
                                     rather than 50%; 7.5%; 50%
                                    Share of reduced domestic refining
                                     from domestic crude:
                                    Gasoline 9%; E85 2.4%; Diesel 9%
                                     rather than 10%; 1.5%; 10%
                                    Share of reduced domestic refining
                                     from imported crude:
                                    Gasoline 91%; E85 24.6%; Diesel 91%
                                     rather than 90%; 13.5%; 90%
Technology file...................  High compression ratio level 2
                                     (HCR2) technology allowance set to
                                     TRUE for all engines beginning in
                                     2018 (see RIA Chapter 2).
Market file.......................  On the Engines sheet, we allow high
                                     compression ratio level 1 (HCR1)
                                     and HCR2 technology on all 6-
                                     cyclinder and smaller engines
                                     rather than allowing it on no
                                     engines (see RIA Chapter 2). Change
                                     the off-cycle credit values on the
                                     Credits and Adjustments sheet to 15
                                     g/mile for 2020 through 2026 (for
                                     the CA Framework) or to 15 g/mile
                                     for 2023 through 2026 (for the
                                     proposed option) depending on the
                                     model run.
------------------------------------------------------------------------

    EPA invited public comment on the input changes noted in Table 19,
as well as any other input choices that EPA should consider making for
the final rule. EPA encouraged stakeholders to provide technical
support for any suggestions on changes to modeling inputs.
    We received comments on our analysis. Specifically, the Alliance
suggested that we use the updated version of CCEMS used in the recent
NHTSA NPRM. The Alliance also suggested that we update our analysis
fleet, model HCR2 technology with a more appropriate level of
effectiveness relative to the HCR0 and HCR1 technologies, and limit the
penetration of BEV200 technology. The Alliance took exception to the
share of BEV200 versus BEV300 technology arguing that BEV300 is more in
line with where industry is headed due to consumer desire for greater
range.
    Regarding the first of these comments, that we use an updated
version of CCEMS, we have chosen not to do so since it is possible that
between the recent CAFE proposal and upcoming CAFE final rule NHTSA may
make changes to that version of the model either of their own accord or
in response to public comment. Therefore, we believe it is premature to
use the NHTSA CAFE NPRM version of the CCEMS model for EPA's final
rulemaking. Regarding each of the other Alliance comments on the use of
the CCEMS model: As discussed further below, we removed HCR2 technology
as a compliance option; we strictly limited BEV200 technology such that
it represents a very small portion of the projected BEV technology
penetration; and we have updated our analysis fleet to reflect the MY
2020 fleet.
    As a result, the analysis supporting this final rule includes
several changes to the inputs as shown in Table 20.

    Table 20--Changes Made to CCEMS Model Inputs for the Final Rule,
                    Relative to the Proposed Analysis
------------------------------------------------------------------------
            Input file                            Changes *
------------------------------------------------------------------------
Parameters file...................  Updated Gross Domestic Product,
                                     Number of Households, VMT growth
                                     rates and Historic Fleet data
                                     consistent with updated projections
                                     from EIA (AEO 2021).
                                    Updated energy security cost per
                                     gallon factors (see Section VII.F
                                     of this preamble). Distinct benefit
                                     per ton values for refinery and
                                     electricity generating unit
                                     benefits instead of treating all
                                     upstream emissions as refinery
                                     emission (see Section V of this
                                     preamble). Updated tailpipe and
                                     upstream emission factors from
                                     MOVES3 and GREET2020 and consistent
                                     with NHTSA's 20201 CAFE NPRM (86 FR
                                     49602, September 3, 2021).
Technology file...................  High compression ratio level 2
                                     (HCR2, sometimes referred to as
                                     Atkinson cycle) technology
                                     allowance set to FALSE thereby
                                     making this technology unavailable.
                                     BEV200 phase-in start year set to
                                     the same year as the new market
                                     file fleet (see below) which, given
                                     the low year-over-year phase-in cap
                                     allows for low penetration of
                                     BEV200 technology in favor of
                                     BEV300 technology.
                                    Battery cost was reduced by about 25
                                     percent (see preamble Section III.A
                                     of this preamble and RIA 2.3.4);
                                     battery cost learning is also held
                                     constant (i.e., no further
                                     learning) beyond the 2029 model
                                     year.
Market file.......................  The market file has been completely
                                     updated to reflect the MY 2020
                                     fleet rather than the MY 2017 fleet
                                     used in EPA's proposed rule (and
                                     the SAFE FRM) using the market file
                                     developed by NHTSA in support of
                                     their recent CAFE NPRM.\103\
                                     Because the market files are
                                     slightly different between the
                                     version of CCEMS we are using and
                                     the version used by NHTSA, the
                                     files are not identical. However,
                                     the data are the same with the
                                     following exceptions:
                                    --We conducted all model runs using
                                     EPA Multiplier Mode 2 rather than
                                     Mode 1 as used in our proposed rule
                                     (and the SAFE FRM).
                                    --We have used projected off-cycle
                                     credits as developed by NHTSA in
                                     support of their recent CAFE NRPM
                                     rather than modeling all
                                     manufacturers as making use of the
                                     maximum allowable off-cycle credits
                                     (see RIA Chapter <IP_ADDRESS>).
                                    --We have updated the credit banks
                                     to incorporate more up-to-date
                                     information from manufacturer
                                     certification and compliance data.
Scenarios file....................  The off-cycle credit cap has been
                                     set to 10 g/mile even in scenarios
                                     and years for which 15 g/mile are
                                     available. In addition, the off-
                                     cycle credit cost is set to $0 and
                                     then post-processed back into the
                                     costs calculated within CCEMS
                                     itself. See RIA Chapter <IP_ADDRESS> for
                                     more detail.
Runtime settings..................  At runtime (in the CCEMS graphical
                                     user interface), the ``Price
                                     Elasticity Multiplier'' is now set
                                     to -0.40 rather than the value of -
                                     1.0 used in the proposed rule
                                     analysis.
*.................................  We are using a MY 2020 baseline
                                     fleet rather than a MY 2017
                                     baseline fleet. However, since some
                                     date-based data used by the model
                                     is hardcoded in the model code, and
                                     because we did not want to change
                                     the model code for analytical
                                     consistency with the proposed rule,
                                     we adjusted any date-related input
                                     data accordingly. Therefore, the
                                     input files we are using have
                                     headings and date-related
                                     identifiers reflecting a MY 2017-
                                     based analysis but the data in the
                                     files have been adjusted by 3 years
                                     to reflect that anything noted as
                                     2017 is actually 2020. For example,
                                     in the Scenarios input file which
                                     specifies the standards in a year-
                                     by-year format, the standards for
                                     MY 2023 through MY 2026 are
                                     actually entered in the columns
                                     noted as 2020 through 2023 due to
                                     this need to ``shift years''.
                                     Importantly, in post-processing of
                                     model results, the ``year-shift''
                                     is corrected back to reflect the
                                     actual years.
------------------------------------------------------------------------

    As noted in Table 20, we have updated the baseline fleet to reflect
the MY 2020 fleet rather than the MY 2017 fleet used in the proposed
rule. As a result, there is slightly more technology contained in the
MY 2020 baseline fleet and the fleet mix has changed to reflect a more
truck-heavy fleet (56 percent truck vs. 44 percent cars, while the
proposed rule fleet had a 50/50 split). There are also roughly 3.5
million fewer sales in the MY 2020 base fleet than were in the MY 2017
based fleet. As in the proposed rule, the future fleet is based on the
CCEMS model's sales, scrappage, and fleet mix responses to the
standards being analyzed, whether from the No Action scenario or one of
the Action scenarios. The MY 2020 baseline fleet was developed by NHTSA
for their recent CAFE NPRM.\104\ As in our proposed rule, we split the
market file into separate California Framework

OEM (FW-OEM) and non-Framework OEM (NonFW-OEM) fleets for model runs.
Note that the scrappage model received many negative comments in
response to the SAFE NPRM, but changes made for the FRM version of the
CCEMS model were responsive to the identified issues involving sales
and VMT results of the SAFE NPRM version of the CCEMS model.\105\ That
said, the Institute for Policy Integrity at New York University (NYU
IPI) expressed concerns on the EPA proposal about the sales and
scrappage modeling and commented that, while EPA has already begun to
revise the modeling, we should continue to make adjustments in the
future. Michalek and Whitefoot in their comments on the EPA proposal
provide some preliminary research suggesting that non-rebound total
fleet VMT might increase due to policy-induced scrappage delay. They do
not rule out an effect of zero and note that their results are
preliminary and not yet peer-reviewed. EPA is maintaining the
assumption of constant non-rebound total fleet VMT for this FRM and
will continue to review these and other modeling approaches for future
analyses.
---------------------------------------------------------------------------

    \103\ 86 FR 49602, September 3, 2021.
    \104\ 86 FR 49602.
    \105\ See 85 FR 24647.
---------------------------------------------------------------------------

    As mentioned, for some model runs we have split the fleet in two,
one fleet consisting of California Framework OEMs and the other
consisting of the non-Framework OEMs. This was done because the
Framework OEMs would be meeting more stringent emission reduction
targets (as set in the scenarios file) and would have access to more
advanced technology incentive multipliers as contained in the
California Framework Agreements, while the non-Framework OEMs would be
meeting less stringent standards and would not have access to any
advanced technology multipliers. For such model runs, a post-processing
step was necessary to properly sales-weight the two sets of model
outputs into a single fleet of results. This post-processing tool is in
the docket for this rule.\106\
---------------------------------------------------------------------------

    \106\ See EPA_CCEMS_PostProcessingTool, Release 0.3.1 July 21,
2021.
---------------------------------------------------------------------------

    In the proposed rule, we modeled all manufacturers as making use of
the maximum number of off-cycle credits available under any given set
of standards being analyzed. For example, under the California
Framework and our proposed standards, manufacturers were projected to
make use of 15 grams CO2 per mile of off-cycle credit and to
incur a cost for each of those credits at a rate of over $70 per credit
(this would be the cost of the technology added to achieve the
credits). Since their off-cycle credit allowance was identical in both
action and no action scenarios, this resulted in no marginal cost for
off-cycle credits for the Framework OEMs. However, for the non-
Framework OEMs, modeled as making use of 10 grams per mile of credit
under the SAFE FRM standards and 15 grams of credit under the proposed
standards, the result was roughly $350 in marginal per vehicle costs
(roughly $70 times 5 grams/mile of credits) even though more cost-
effective technology, compared to off-cycle credits, may be available
to facilitate a manufacturer's efforts toward complying with the
standards. Commenters expressed concerns with our proposed rule over
this approach as resulting in unreasonably high costs for use of the
optional off-cycle credits. In response to the comments, in this final
rule we have made two important changes to our modeling. First, we have
projected use of off-cycle credits consistent with projections
developed by NHTSA for their recent CAFE NPRM except that we have not
exceeded 10 g/mile in any case. In this way, we avoid having a case
where more off-cycle credits are used in an action scenario relative to
a no action scenario. Second, we have set the cost of the off-cycle
credits to $0 in the scenarios input file and are post-processing their
costs back into the costs per vehicle results. CCEMS does not provide
for technology application choices to be made between off-cycle credits
and other technologies; instead the off-cycle credits are applied
within the model regardless of their cost-effectiveness. Therefore,
setting the off-cycle credit cost to $0 in the scenarios input file has
no effect on technology application decisions within the model.
Further, it allows off-cycle credit costs to be applied in a post-
process rather than re-running the model. Last, we have updated the
cost of each off-cycle credit to be less than the costs used in our
proposed rule. As a result, each off-cycle credit is now roughly $30
less costly on a gram per mile basis than in our NRPM. We outline our
methodology for this revised cost in RIA Chapter <IP_ADDRESS>.
    Importantly, our primary model runs consist of a ``No Action''
scenario and an ``Action'' scenario. The results, or impact of our
final standards (or alternatives being analyzed), are measured relative
to the no action scenario. Our No Action scenario consists of the
Framework OEMs (roughly 28 percent of fleet sales) meeting the
Framework emission reduction targets and the Non-Framework OEMs
(roughly 72 percent of fleet sales) meeting the SAFE FRM standards. Our
action scenario consists of the whole fleet meeting our final standards
(or alternatives) for MYs 2023 and later. Throughout this preamble, our
``No Action scenario'' refers to this Framework-OEM/NonFramework-OEM
compliance split.
    In our analysis for the proposed rule, as indicated in Table 19, we
used a VMT rebound effect of 10 percent. The 10 percent value had been
used in EPA supporting analyses for the 2010 and 2012 final rules as
well as for the 2017 MTE Final Determination. The SAFE rule used a VMT
rebound effect of 20 percent. Our assessment for the proposed rule
indicated that a rebound effect of 10 percent was appropriate and
supported by the body of research on the rebound effect for light-duty
vehicle driving. We requested comment on the use of the 10 percent VMT
rebound value, or an alternative value such as 5 or 15 percent, for our
analysis of the MY 2023 through 2026 standards.
    Several commenters (Center for Biological Diversity et al., CARB/
Gillingham, New York University-Institute for Policy Integrity) are
supportive of the approach that EPA has utilized to determine the value
of the VMT rebound effect for this rule. Several commenters (Center for
Biological Diversity et al., CARB/Gillingham, Consumer Federation of
America, Consumer Reports, New York University-Institute for Policy
Integrity) widely support the use of a 10 percent rebound effect, with
a few commenters suggesting that a lower rebound estimate than 10
percent should be used. One commenter (Center for Biological Diversity
et al.) suggests that while EPA's proposed rule reported a range of VMT
rebound estimates from the Hymel and Small (2015) study of 4 to 18
percent, that only the lower value of the range, 4 percent, should be
used in developing an overall estimate of the VMT rebound effect for
use in this rule. We agree with this comment and discuss this issue in
more detail in both the RIA and the RTC. One commenter (Consumer
Reports) requests that EPA consider doing more research prior to future
rulemakings on the potential applicability of rebound effects based on
studies for conventional vehicles being applied to battery electric
vehicles (BEVs). We address this comment in the RTC. After considering
the comments received, EPA is continuing to use a 10 percent rebound
effect for the analysis of the final rule. Our discussion of the basis
for the 10 percent rebound value is in the RIA Chapter 3.1, and our
assessment of the public comments is contained in the RTC.

    For the proposed rule, EPA chose to change a select number of the
SAFE FRM model inputs, as listed in Table 19, largely because we
concluded that other potential updates, regardless of their potential
merit, such as the continued use of the MY 2017 base year fleet, would
not have a significant impact on the assessment of the proposed
standards. In addition, while the technology effectiveness estimates
used in the CCEMS model to support the SAFE FRM could have been updated
with more recent engine maps, the incremental effectiveness values are
of primary importance within the CCEMS model and, while the maps were
somewhat dated, the incremental effectiveness values derived from them
were in rough agreement with incremental values derived from more up-
to-date engine maps (see RIA Chapter 2).
    As noted in Table 20, for this final rule we have chosen to conduct
model runs with high compression ratio level 2 (HCR2) set to FALSE
(i.e., it is not an available technology for the model to choose to
apply in simulating compliance with the standards). We have done this
due to our concerns over the effectiveness of the technology relative
to the HCR0 and HCR1 technologies modeled in the SAFE FRM which were
subsequently used in the analysis for our proposed rule. The HCR2
technology in CCEMS would require a level of cylinder deactivation
technology (dynamic cylinder deactivation) that has not yet been added
to Atkinson Cycle Engines either with or without cooled EGR. HCR1
technologies reflect the effectiveness of Atkinson Cycle engines with
either cooled EGR or cylinder deactivation (however, not both
technologies in combination) and thus also represent a number of high-
volume ICE applications from Mazda, Toyota and Hyundai. The additional
step to HCR2 reflected a level of ICE effectiveness that is not yet
within the light-duty vehicle fleet, and that we do not anticipate
seeing until the later years of this final rule (e.g., MYs 2025-
2026).\107\
---------------------------------------------------------------------------

    \107\ For further information on HCR definitions, see RIA
Chapter 2.3.2. For more information on HCR implementation in CCEMS,
see RIA Chapter <IP_ADDRESS>.
---------------------------------------------------------------------------

    In the proposed rule, we noted that the electrified vehicle battery
costs used in the SAFE FRM, which were carried over to the proposed
rule analysis, could have been lower based on EPA's latest assessment
and that we had ultimately believed at the time of the proposed rule
that updating those costs for the proposed rule would not have a
notable impact on overall cost estimates. This conclusion was based in
part on our expectation that electrification would continue to play a
relatively modest role in our projections of compliance paths for the
proposed standards, as it had in all previous analyses of standards
having a similar level of stringency. We also noted that we could
update battery costs for the final rule and requested comment on
whether our choice of modeling inputs such as these should be modified
for the final rule analysis.
    Commenters on the proposed rule made several observations and
recommendations about battery costs, with most saying that the costs in
the proposed rule analysis were too high. Tesla commented on [EPA's]
``refusal to revisit admittedly over-estimated battery costs in the
agency's analysis,'' further stating that EPA ``failed to complete a
review of battery cost for EVs, asserting it was unnecessary given the
agency does not rely on significant EV penetration for MY 2023-26.''
Tesla stated that it ``agree[s] battery costs in the SAFE rule were too
high,'' further citing various projections for future battery costs:
``UBS reports that leading manufacturers are estimated to reach battery
pack costs as low as $67/kWh between 2022 and 2024. Recently, others
have also projected costs significantly lower than EPA's past
projections. BNEF's recent estimate is that pack prices go below $100/
kWh on a volume-weighted average basis by 2024, hit $58/kWh in 2030,
and could achieve a volume-weighted average price of $45/kWh in 2035.
The National Academies of Sciences found high-volume battery pack
production would be at costs of $65-80/kWh by 2030 and DNV-GL has
predicted costs declining to $80/kWh in 2025. In short, had the agency
rightfully determined that EVs offer the best compliance technology
near term and revisited battery pack costs, it would have found
dramatically decreasing battery costs that further support that EV
deployment will accelerate rapidly near term and represent the best
possible emissions reduction technology.''
    ACEEE commented: ``Battery cost assumptions in the NRPM are too
high and do not consider the manufacturing and technological
advancements of the past few years. EPA uses the same cost figures used
in the SAFE rule, which are based on 2017 data, effectively inflating
the costs of vehicle electrification (EPA 2021b, p. 145).''
    Consumer Reports commented that it: ``recommends that EPA update
their battery costs to be more in line with the current state of the
electric vehicle market. This has the potential to have a significant
impact on the cost-benefit analysis of the rule, especially with
regards to the ability for EPA to push further, and set a stronger
standard than the preferred alternative that is more in line with the
administration's climate commitments.''
    ICCT commented that: ``EPA used an updated ANL BatPaC model (BatPaC
Version 3.1, 9 October 2017) as the basis for BEV, PHEV, HEV and mild
HEV battery costs in its 2018 MTE, but these updated costs were not
used in the proposed rule.'' ``Unlike for the other technologies in the
agencies' analysis, the vast majority of costs related to the RPE
markup are already included in the base costs that the agencies used
from ANL lookup tables. In other words, those lookup tables do not
provide ``direct manufacturing costs,'' they provide total costs,
including indirect costs. Thus, EPA erroneously inflated battery costs
by applying the retail price equivalent (RPE) markup to base costs that
already include indirect costs.'' On this point, ICCT referred to the
Joint NGO 2020 Reconsideration Petition, pages 88-90, which was filed
in response to the final SAFE rule.
    NCAT commented: ``As explained in the Proposed Rule, EPA chose to
continue to use certain model inputs from the modeling conducted
several years ago for the 2020 Rule, including the continued use of MY
2017 as the base year fleet and use of the electric vehicle battery
cost data from the 2020 Rule modeling effort. However, electric vehicle
penetration has grown significantly since that time, see Section IV.A
of this preamble, and battery costs have continued to decline
dramatically [. . .] EPA even acknowledged that the agency may consider
updating the battery costs for the final rule, noting that EPA's latest
assessment suggests they could have been lower. There was a 13 percent
drop in electric vehicle battery cost in just 2020 alone. EPA's
approach was very conservative in light of these older model inputs
relating to electric vehicles.''
    World Resources Institute commented: ``Despite the very dynamic
nature of the ZEV market, EPA chose not to update the battery cost
assumptions used in its compliance modeling even though EPA considers
the assumed battery costs to be too high.'' ``This is a fundamental
error. While EPA is correct in observing that ``significant levels of
vehicle electrification will not be necessary in order to comply with
the proposed standard,'' this in no way obviates the need for EPA to
properly evaluate likely ZEV penetration in order to determine

whether a more stringent standard is appropriate.'' ``EPA should update
its projections of ZEV market shares to reflect current trends in
battery prices, automaker investment plans and EV market development.
EPA should also consider higher penetration scenarios that would occur
if Congress enacts additional incentives and infrastructure investments
and should update the final rule to reflect any enacted legislation.''
``EPA's flawed battery price assumptions and resulting underestimate of
ZEV market penetration rates have a dramatic impact on the emissions
rates that would be required of ICEVs under the proposal as well as the
alternatives considered.'' ``In order to have a rational basis for
setting emissions standards that allow averaging across ICEVs and ZEVs
EPA needs to update its battery cost assumptions and likely additional
assumptions related to ZEV adoption rates.'' ``EPA should update its
projections of ZEV market shares to reflect current trends in battery
prices, automaker investment plans and EV market development.''
    The Alliance noted the inherent uncertainty in predicting future
battery costs, stating: ``Given high levels of investment in research
and development, and production processes, and the considerable
uncertainty of what approaches will succeed or fail, it is possible
that NHTSA's estimates of battery pack direct manufacturing costs
(after learning factor) will be meaningfully low, or high in the MY
2027 timeframe and beyond.'' ``EPA appears to use previous generation
assumptions and battery costs from the SAFE Final Rule record, despite
updated battery pack assumptions, and direct manufacturing cost
assumptions being available for use in the DOT analysis.'' This is a
reference to the NHTSA CAFE NPRM, which uses an updated version of the
SAFE rule analysis, in which NHTSA uses costs from a more recent
release of BatPaC and implements some changes in their input
assumptions, which the Alliance states ``better account for high
voltage isolation costs, and battery cell specifications.''
    The Alliance also encouraged EPA to ``consider costs and
specifications that are reasonable for the industry as a whole to
inform policy analysis, and not to assume that intellectual property
and proprietary production processes that have been the result of
billions of dollars of research and development paid by one
manufacturer will be readily available to all manufacturers.'' The
Alliance went on to state: ``Total industry volumes of battery electric
vehicles are not an appropriate volume assumption for BatPaC. Auto
Innovators recommends that EPA update their approach to that used in
the DOT analysis to estimate battery costs for strong hybrids, plug-in
hybrids, and battery electric vehicles, considering vehicle type and
synergies with other fuel saving technologies.''
    Additional comments from the Alliance that were submitted to NHTSA
as comment on the 2021 NHTSA NPRM were also placed in the EPA docket
and can be found in Response to Comments Section 12.1. Among other
topics, the Alliance commented on the potential for mineral costs to
act as a constraint on the downward trajectory of battery costs in the
future, citing in part a 2019 MIT report on the subject that suggested
that battery costs for chemistries of the type relied on today may not
have the potential to reach as low a cost as suggested by forecasts
cited by other commenters. In response, EPA agrees that mineral and
other material costs are a large component of the cost of the currently
prevailing family of lithium-ion chemistries, that these costs might
decline more slowly or increase if supply fails to meet demand in a
timely manner, and that this is a relevant consideration when
forecasting the potential for future reductions in battery costs. EPA
also notes that manufacturers are working to reduce the content of some
critical minerals in the battery chemistries used today, and that
chemistries that have less critical mineral content may have less
potential exposure to this effect. We have incorporated the
uncertainties surrounding the future effect of mineral costs on battery
cost reductions by limiting projected reductions in future battery
costs to a level that we can reasonably technically validate at this
time, as described below. EPA responds further to these comments in
Section 12.1 of the Response to Comments document.
    Prompted by the totality of comments received on battery costs, EPA
chose to update the battery costs for the FRM analysis. EPA believes
that some of the more optimistic scenarios for reductions in battery
costs that were cited in the public comments are difficult to validate
at this time, given the importance of material costs to the cost of
batteries, and the uncertainties surrounding mineral and other material
costs as demand for batteries increases in the coming years. With
regard to the ICCT comments that BatPaC output costs already include
indirect costs that are represented by the RPE markup and hence RPE was
double counted, EPA disagrees, and we note that the indirect costs
represented in BatPaC output are those that apply to the battery
supplier, and do not represent the indirect costs experienced by the
OEM who purchases the battery and integrates it into the vehicle. EPA
has always considered RPE markup to be applicable to purchased items,
with the exception that BatPaC by default includes a warranty cost,
which we have traditionally subtracted from BatPaC output because it is
already covered in the RPE.
    However, EPA agrees with the commenters that battery costs used in
the SAFE rulemaking, and hence the proposed rule, were higher than
would be supported by information available today. Cited reports that
are based on empirical data of what manufacturers are currently paying,
and near-term forecasts that can reasonably be corroborated with our
battery modeling tools, suggest lower battery costs than were assumed
in the proposal. Consideration of the current and expected near-term
costs of batteries for electrified vehicles, as widely reported in the
trade and academic literature and further supported by our battery cost
modeling tools, led to an adjustment of battery costs to more
accurately account for these trends. Based on an assessment of the
effect of using updated inputs to the BatPaC model in place of those
used in the SAFE rulemaking, we determined that battery costs should be
reduced by about 25 percent.
    We also considered the effect of this reduction on the projected
battery costs for future years beyond MY2026, which due to this
adjustment were now declining to levels below $80 per kWh (for an
example 60 kWh battery) in the mid-2030s, and which our current battery
cost modeling tools cannot technically validate at this time.
    Due to the widely acknowledged uncertainty of quantitatively
projecting declines in battery costs far into the future, and to
reflect current uncertainty about future mineral costs as battery
demand increases (which is consistent with the points raised by the
Alliance), we chose to place a limit on continued battery cost
reductions past MY 2029 so as to prevent future costs from declining
below $90 per kWh for a 60 kWh battery, a level that we can currently
technically validate. More discussion of the rationale for these
changes can be found in Chapters 2.3.4 and <IP_ADDRESS> of the RIA.
    We expect that pending updates to the ANL BatPaC model, as well as
collection of emerging data on forecasts for future mineral prices and
production capacity, will make it possible to more confidently
characterize the declines in battery costs that we continue to believe

will occur in the 2030s and beyond, and we will incorporate this
information in the subsequent rulemaking for MYs 2027 and beyond.
    In response to the Alliance comments on appropriate production
volumes for developing battery costs, EPA understands how BatPaC
considers production volume in developing pack costs and agrees that
use of total industry volume to estimate the cost of a specific pack
design would be inappropriate and would likely underestimate the true
manufacturing cost. However, EPA also recognizes that using a
production volume specific to the actual production of a specific pack
design would tend to overestimate overhead costs by constructing a
plant that is much smaller than the plants currently in operation and
being planned today. For example, a 5 Gigawatt-hour (gWh) plant such as
the LG Chem plant in Holland, Michigan is large enough to manufacture
more than 80,000 60 kWh packs, while other leading plants in operation
and under construction are designed for much higher volumes. For
example, a 30 to 35 gWh plant such as the Tesla factory in Reno,
Nevada, even when manufacturing an assortment of pack and cell designs
would be able to amortize its construction, overhead and maintenance
costs across 500,000 or more packs per year. Also, manufacturers are
increasingly adopting design approaches that reuse cells and parts
across multiple pack designs, meaning that the economies of scale that
are relevant for those cells and parts are likely to be greater than
the volume of a single pack design alone would represent. For these and
similar reasons, EPA continues to believe that using a production
volume specific to a given pack would create overly conservative
estimates of battery manufacturing cost.
    With regard to the Alliance comments on the applicability of
technology assumptions to all manufacturers, EPA recognizes that
different manufacturers may experience different costs resulting from
differences in their past research and investments and differences in
their approach to sourcing components. Manufacturers have largely
approached the sourcing of batteries through joint ventures or
contractual relationships with established cell manufacturers rather
than true vertical integration. For example, while Tesla has developed
intellectual property relating to pack and cell design and production,
their production occurs via a joint venture with Panasonic, and also
includes sourcing from other suppliers that are not part of this
venture. Other manufacturers are increasingly adopting a similar
approach in which new manufacturing plants are to be constructed as
part of a joint venture, by which the OEM may secure a supply of
batteries for its products.108 109 110 111 112 As with other
technologies, the existence of intellectual property belonging to one
manufacturer seldom prevents other manufacturers from developing and
benefiting from similarly effective technologies. The battery costs
that EPA develops are not taken from the example of any specific
manufacturer but are developed based on our assessment of the industry
as a whole.
---------------------------------------------------------------------------

    \108\ Voelcker, J., ``Good News: Ford and GM Are Competing on EV
Investments,'' Car and Driver, October 18, 2021. Accessed on
December 9, 2021 at https://www.caranddriver.com/features/a37930458/ford-gm-ev-investments/.
    \109\ Stellantis, ``Stellantis and LG Energy Solution to Form
Joint Venture for Lithium-Ion Battery Production in North America,''
Press Release, October 18, 2021.
    \110\ Toyota Motor Corporation, ``Toyota Charges into
Electrified Future in the U.S. with 10-year, $3.4 billion
Investment,'' Press Release, October 18, 2021.
    \111\ Ford Motor Company, ``Ford to Lead America's Shift To
Electric Vehicles With New Mega Campus in Tennessee and Twin Battery
Plants in Kentucky; $11.4B Investment to Create 11,000 Jobs and
Power New Lineup of Advanced EVs,'' Press Release, September 27,
2021.
    \112\ General Motors Corporation, ``GM and LG Energy Solution
Investing $2.3 Billion in 2nd Ultium Cells Manufacturing Plant in
U.S.,'' Press Release, April 16, 2021.
---------------------------------------------------------------------------

    In regard to updating the BEV driving ranges that were considered
in the analysis, the Alliance stated that the ``analysis could be
improved by using the BatPaC results for BEV400's and BEV500's, instead
of scaling up BEV300 costs.'' ``Auto Innovators encourages EPA to
include BEV400 and BEV500 in their analysis tool, and to adopt DOT
phase-in caps from the CAFE NPRM in place of the phase-in caps used in
the EPA proposal, as the EPA proposal likely overestimates the number
of consumers who would accept BEV200's, especially given today's
charging infrastructure.''
    In the updated analysis, we set the BEV200 phase-in start year to
the same year as the new market file fleet, which, given the low year-
over-year phase-in cap, allows for low penetration of BEV200 technology
in favor of BEV300 technology. Thus, the great majority of BEV
penetration projected by the model represents BEV300 vehicles. We did
not choose to extend the analysis to BEV400 and BEV500 vehicles. While
BEV400 and BEV500 vehicles are entering the market and are anticipated
to be some part of the future market, the known examples are
concentrated in the luxury, high-end market, limiting their likely
penetration into the fleet during the time frame of the rule.

B. Projected Compliance Costs and Technology Penetrations

1. GHG Targets and Compliance Levels
    The final curve coefficients were presented in Table 10. Here we
present the projected fleet targets for each manufacturer. These
targets are projected based on each manufacturer's car/truck fleets and
their sales weighted footprints. As such, each manufacturer has a set
of targets unique to them. The projected targets are shown by
manufacturer for MYs 2023 through 2026 in Table 21 for cars, Table 22
for light trucks, and Table 23 for the combined fleets.\113\
---------------------------------------------------------------------------

    \113\ Note that these targets are projected based on both
projected future sales in applicable MYs and our final standards for
each MY (i.e., the footprint curve coefficients); the projected
targets shown here will change depending on each manufacturer's
actual sales in any given MY.

                                              Table 21--Car Targets
                                                  [CO2 g/mile]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW.............................................             169             161             152             135
Daimler.........................................             174             166             156             139
FCA.............................................             176             168             158             140
Ford............................................             170             162             153             136
General Motors..................................             163             155             147             130
Honda...........................................             164             156             147             130
Hyundai Kia-H...................................             165             157             148             131
Hyundai Kia-K...................................             163             155             146             129

JLR.............................................             171             163             154             136
Mazda...........................................             163             155             147             130
Mitsubishi......................................             153             145             137             120
Nissan..........................................             166             158             149             132
Subaru..........................................             159             152             143             126
Tesla...........................................             179             171             161             144
Toyota..........................................             164             156             147             130
Volvo...........................................             176             168             158             141
VWA.............................................             164             156             148             131
                                                 ---------------------------------------------------------------
    Total.......................................             166             158             149             132
----------------------------------------------------------------------------------------------------------------

                                          Table 22--Light Truck Targets
                                                  [CO2 g/mile]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW.............................................             227             216             201             182
Daimler.........................................             227             216             201             182
FCA.............................................             241             229             213             193
Ford............................................             249             237             220             200
General Motors..................................             252             240             223             203
Honda...........................................             216             205             191             172
Hyundai Kia-H...................................             231             219             204             184
Hyundai Kia-K...................................             218             207             193             174
JLR.............................................             223             212             197             177
Mazda...........................................             206             196             182             163
Mitsubishi......................................             194             184             171             153
Nissan..........................................             221             210             195             176
Subaru..........................................             202             192             178             160
Tesla...........................................             236             224             209             189
Toyota..........................................             227             215             201             181
Volvo...........................................             222             211             196             176
VWA.............................................             214             203             189             170
                                                 ---------------------------------------------------------------
    Total.......................................             234             222             207             187
----------------------------------------------------------------------------------------------------------------

                                        Table 23--Combined Fleet Targets
                                                  [CO2 g/mile]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW.............................................             190             181             170             152
Daimler.........................................             200             190             177             159
FCA.............................................             231             219             204             185
Ford............................................             228             217             202             183
General Motors..................................             221             210             196             177
Honda...........................................             186             176             165             147
Hyundai Kia-H...................................             171             163             153             136
Hyundai Kia-K...................................             182             172             161             144
JLR.............................................             220             209             195             175
Mazda...........................................             184             175             164             146
Mitsubishi......................................             174             165             155             137
Nissan..........................................             181             172             162             144
Subaru..........................................             191             182             169             151
Tesla...........................................             180             172             162             145
Toyota..........................................             191             181             169             151
Volvo...........................................             210             200             186             167
VWA.............................................             193             183             171             153
                                                 ---------------------------------------------------------------
    Total.......................................             202             192             179             161
----------------------------------------------------------------------------------------------------------------

    The modeled achieved CO2-equivalent (CO2e)
levels for the final standards are shown in Table 24 for cars, Table 25
for light trucks, and Table 26 for the combined fleets. These values
were produced by the modeling analysis and represent the projected
certification emissions values for possible compliance approaches with
the final

standards for each manufacturer. These achieved values, shown as
averages over the respective car, truck and combined fleets, include
the 2-cycle tailpipe emissions based on the modeled application of
emissions-reduction technologies minus the modeled application of off-
cycle credit technologies and the full A/C efficiency credits. The
values also reflect any application of the final advanced technology
multipliers, up to the cap. Hybrid pickup truck incentive credits were
not modeled (the CCEMS version used does not have this capability) and
are therefore not included in the achieved values.
    Comparing the target and achieved values, it can be seen that some
manufacturers are projected to have achieved values that are over
target (higher emissions) on trucks, and under target (lower emissions)
on cars, and vice versa for other manufacturers. This is a feature of
the unlimited credit transfer (across a manufacturer's car and truck
fleets) provision, which results in a compliance determination that is
based on the combined car and truck fleet credits rather than a
separate determination of each fleet's compliance. The application of
technologies is influenced by the relative cost-effectiveness of
technologies among each manufacturer's vehicles, which explains why
different manufacturers exhibit different compliance approaches in the
modeling results. For the combined fleet, the achieved values are
typically close to, or slightly under the target values, which would
represent the banking of credits that can be carried over into other
model years. Note that an achieved value for a manufacturer's combined
fleet that is above the target in a given model year does not indicate
a likely failure to comply with the standards, since the model includes
the GHG program credit banking provisions that allow credits from one
year to be carried into another year.

                                          Table 24--Car Achieved Levels
                                                  [CO2 g/mile]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW.............................................             192             173             138             121
Daimler.........................................             171             150             158             155
FCA.............................................             160             152             163             149
Ford............................................             158             157             158             146
General Motors..................................             163             158             158             153
Honda...........................................             163             153             147             138
Hyundai Kia-H...................................             160             149             134             132
Hyundai Kia-K...................................             166             155             143             142
JLR.............................................             224             188             189             189
Mazda...........................................             166             146             146             145
Mitsubishi......................................             186             185             127             126
Nissan..........................................             170             157             132             132
Subaru..........................................             201             189             188             168
Tesla...........................................             -10             -10             -10             -10
Toyota..........................................             161             138             134             132
Volvo...........................................             207             204             198             181
VWA.............................................             165             153             156             127
                                                 ---------------------------------------------------------------
    Total.......................................             160             148             140             134
----------------------------------------------------------------------------------------------------------------

                                      Table 25--Light Truck Achieved Levels
                                                  [CO2 g/mile]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW.............................................             197             197             203             203
Daimler.........................................             229             229             193              84
FCA.............................................             215             212             210             189
Ford............................................             250             222             222             192
General Motors..................................             265             238             217             193
Honda...........................................             214             167             163             163
Hyundai Kia-H...................................             268             267             266             127
Hyundai Kia-K...................................             209             188             195             194
JLR.............................................             214             203             179             146
Mazda...........................................             203             202             177             118
Mitsubishi......................................             227             226             130             130
Nissan..........................................             205             200             195             181
Subaru..........................................             186             175             167             167
Tesla...........................................              -9              -9              -9              -9
Toyota..........................................             236             208             216             176
Volvo...........................................             158             156             162             161
VWA.............................................             213             203             171             147
                                                 ---------------------------------------------------------------
    Total.......................................             230             211             203             178
----------------------------------------------------------------------------------------------------------------

                                    Table 26--Combined Fleet Achieved Levels
                                                  [CO2 g/mile]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW.............................................             194             182             162             151
Daimler.........................................             199             188             175             122
FCA.............................................             206             202             203             183
Ford............................................             225             205             205             180
General Motors..................................             230             210             196             179
Honda...........................................             184             159             153             148
Hyundai Kia-H...................................             171             160             147             131
Hyundai Kia-K...................................             180             166             160             159
JLR.............................................             215             203             179             149
Mazda...........................................             184             173             161             132
Mitsubishi......................................             207             206             128             128
Nissan..........................................             180             169             150             145
Subaru..........................................             190             178             173             168
Tesla...........................................             -10             -10             -10             -10
Toyota..........................................             192             167             168             150
Volvo...........................................             170             169             172             166
VWA.............................................             193             182             164             139
                                                 ---------------------------------------------------------------
    Total.......................................             197             181             173             157
----------------------------------------------------------------------------------------------------------------

2. Projected Compliance Costs per Vehicle
    EPA has performed an updated assessment of the estimated per
vehicle costs for manufacturers to meet the final MYs 2023-2026
standards. The total car, truck and combined fleet costs per vehicle
for MY 2023-2026 are shown in Table 27.

        Table 27--Car, Light Truck and Fleet Average Cost per Vehicle Relative to the No Action Scenario
                                                 [2018 Dollars]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
Car.............................................            $150            $288            $586            $596
Light Truck.....................................             485             732             909           1,356
Fleet Average...................................             330             524             759           1,000
----------------------------------------------------------------------------------------------------------------

    The car costs per vehicle by manufacturer from this analysis are
shown in Table 28, followed by light truck costs by manufacturer in
Table 29 and combined fleet costs by manufacturer in Table 30. As shown
in these tables, the combined cost for car and truck fleets, averaged
over all manufacturers, increases from MY 2023 to MY 2026 as the final
standards become more stringent. The costs for trucks tend to be
somewhat higher than for cars--many technology costs scale with engine
and vehicle size--but it is important to note that the absolute
emissions, and therefore emissions reductions, also tend to be higher
for trucks. Projected costs for individual manufacturers vary based on
the composition of vehicles produced. The estimated costs for
California Framework Agreement manufacturers in MY 2026 range from
approximately $600-$750 dollars per vehicle--because the final
standards are more stringent than the Framework emission reduction
targets--and fall within the wider cost range of non-Framework
manufacturers. The estimated costs for Framework manufacturers are
somewhat lower than the overall industry average costs of approximately
$1000 per vehicle in MY 2026.

                       Table 28--Car Costs Per Vehicle Relative to the No Action Scenario
                                                 [2018 Dollars]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW *...........................................              $8            $112            $840            $762
Daimler.........................................             232             542             480             479
FCA.............................................             253             212             158             329
Ford *..........................................              19              18             227             202
General Motors..................................             577             546             651             669
Honda *.........................................              67             310             362             329
Hyundai Kia-H...................................              92             132             756             790
Hyundai Kia-K...................................             170             273             644             619
JLR.............................................              26             619             581             547
Mazda...........................................               5             394             471             425
Mitsubishi......................................               0               0             914             898
Nissan..........................................             228             327           1,289           1,194
Subaru..........................................              18              18              17             209

Tesla...........................................               0               0               0               0
Toyota..........................................              21             429             576             578
Volvo *.........................................               0              -1             119             113
VWA *...........................................               0              60             125             549
                                                 ---------------------------------------------------------------
    Total.......................................             150             288             586             596
----------------------------------------------------------------------------------------------------------------
* Framework Manufacturer.

                    Table 29--Light Truck Cost Per Vehicle Relative to the No Action Scenario
                                                 [2018 Dollars]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW *...........................................              $2              $2              $2              $9
Daimler.........................................              35              34             725           3,556
FCA.............................................           1,732           1,574           1,465           1,894
Ford *..........................................              39             477             428             754
General Motors..................................             385             702           1,377           1,746
Honda *.........................................             118             915             950             878
Hyundai Kia-H...................................              45              44              43           4,048
Hyundai Kia-K...................................           1,194           1,327           1,230           1,144
JLR.............................................             133             314           1,321           1,770
Mazda...........................................              11              11             776           2,500
Mitsubishi......................................               0               0           2,159           2,028
Nissan..........................................             699             783             748           1,082
Subaru..........................................               2              27              57              57
Tesla...........................................               0               0               0               0
Toyota..........................................             265             832             763           1,537
Volvo *.........................................             958             853             771             702
VWA *...........................................               0             125             461             856
                                                 ---------------------------------------------------------------
    Total.......................................             485             732             909           1,356
----------------------------------------------------------------------------------------------------------------
* Framework Manufacturer.

                   Table 30--Fleet Average Cost Per Vehicle Relative to the No Action Scenario
                                                 [2018 Dollars]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
BMW *...........................................              $6             $72            $538            $489
Daimler.........................................             136             298             591           1,925
FCA.............................................           1,502           1,355           1,254           1,639
Ford *..........................................              34             353             373             604
General Motors..................................             452             648           1,123           1,369
Honda *.........................................              88             563             606             557
Hyundai Kia-H...................................              87             123             688           1,093
Hyundai Kia-K...................................             518             624             840             797
JLR.............................................             128             332           1,283           1,708
Mazda...........................................               7             207             612           1,411
Mitsubishi......................................               0               0           1,557           1,482
Nissan..........................................             360             453           1,143           1,166
Subaru..........................................               6              26              50             101
Tesla...........................................               0               0               0               0
Toyota..........................................             125             597             655             978
Volvo *.........................................             714             634             603             551
VWA *...........................................               0              97             318             727
                                                 ---------------------------------------------------------------
    Total.......................................             330             524             759           1,000
----------------------------------------------------------------------------------------------------------------
* Framework Manufacturer.

    Overall, EPA estimates the average costs of the final standards at
$1,000 per vehicle in MY 2026 relative to meeting the No Action
scenario in MY 2026. As discussed in Section VII of this preamble,
there are benefits resulting from these costs including savings to
consumers in the form of lower fuel costs.
    In RIA 4.1.3, we present the costs per vehicle extending out
through MY 2050. The data presented there show that projected costs per
vehicle rise somewhat beyond MY 2026 prior to

falling again due to the projected learning effects on technology
costs. This helps to explain the higher present value and annualized
costs in this final rule analysis (see Section VII.I of this preamble)
compared to the proposed rule despite the MY 2026 cost per vehicle
results being slightly lower in this final rule. The similarity of the
cost per vehicle projections presented in the tables above and those
projected in the proposal despite the more stringent final standards is
due in large part to the lower battery costs projected in the final
rule. Those lower costs result in higher penetrations of BEV and PHEV
technology because, although more costly than non-plug-in technologies,
they have such a significant effect on reducing fleet average
emissions. In the modeling, the effect of higher penetrations of BEVs
and PHEVs in turn results in other vehicles adding less technology
toward meeting the fleet average emissions standards, thereby reducing
per-vehicle costs on those vehicles as well.
3. Technology Penetration Rates
    In this section we discuss the projected new sales technology
penetration rates from EPA's updated analysis for the final standards.
Additional detail on this topic can be found in the RIA. EPA's
assessment, consistent with past EPA assessments, shows that the final
standards can largely be met with increased sales of advanced gasoline
vehicle technologies, and projects modest (17 percent) penetration
rates of electrified vehicle technology.
    Table 31, Table 32, and Table 33 show the projected penetration
rates of BEVs and PHEVs combined (BEV+PHEV) technology under the final
standards, with the remaining share being traditional or advanced ICE
technology. Values shown reflect absolute values of fleet penetration
and are not increments from the No Action scenario or other standards.
It is important to note that this is a projection and represents one
out of many possible compliance pathways for the industry. The
standards are performance-based and do not mandate any specific
technology for any manufacturer or any vehicles. As the standards
become more stringent over MYs 2023 to 2026, the projected penetration
of plug-in electrified vehicles (BEV and PHEV combined) increases by
approximately 10 percentage points over this 4-year period, from about
7 percent in MY 2023 to about 17 percent in MY 2026. This is a greater
penetration of BEVs and PHEVs than projected in the proposed rule, and
is driven by several factors, including the increased stringency of our
final standards, the updated baseline fleet that includes more EVs in
the baseline, and the updated battery costs (based on which the model
is selecting more BEV+PHEV technology as the optimal least-cost pathway
to meet the standards). Conversely, in MY 2026 about 83 percent of new
light-duty vehicle sales will continue to utilize ICE technology.

                       Table 31--Car BEV+PHEV Penetration Rates Under the Final Standards
----------------------------------------------------------------------------------------------------------------
                                                     2023 (%)        2024 (%)        2025 (%)        2026 (%)
----------------------------------------------------------------------------------------------------------------
BMW.............................................               4               9              22              29
Daimler.........................................              15              18              18              19
FCA.............................................              20              22              22              22
Ford............................................              13              13              16              21
General Motors..................................              11              11              11              13
Honda...........................................               2               5               8              12
Hyundai Kia-H...................................              10              10              18              18
Hyundai Kia-K...................................               3               3               8               8
JLR.............................................               0               3               3               3
Mazda...........................................               7              13              13              13
Mitsubishi......................................               3               3               3               3
Nissan..........................................               3               3              17              17
Subaru..........................................               0               0               0               3
Tesla...........................................             100             100             100             100
Toyota..........................................               2               6               9               9
Volvo...........................................               3               3               4              11
VWA.............................................              16              17              17              25
                                                 ---------------------------------------------------------------
    Total.......................................              10              12              16              17
----------------------------------------------------------------------------------------------------------------

                   Table 32--Light Truck BEV+PHEV Penetration Rates Under the Final Standards
----------------------------------------------------------------------------------------------------------------
                                                     2023 (%)        2024 (%)        2025 (%)        2026 (%)
----------------------------------------------------------------------------------------------------------------
BMW.............................................              10              10              10              10
Daimler.........................................               8               8              21              56
FCA.............................................              13              13              13              18
Ford............................................               1               7               8              17
General Motors..................................               4               8              14              18
Honda...........................................               0              13              17              17
Hyundai Kia-H...................................               0               0               0              23
Hyundai Kia-K...................................              11              11              11              11
JLR.............................................              16              16              28              35
Mazda...........................................               0               0               0              21
Mitsubishi......................................               0               0              16              16
Nissan..........................................               4               5               5               9
Subaru..........................................               1               1               1               1
Tesla...........................................             100             100             100             100
Toyota..........................................               1              12              12              16

Volvo...........................................              22              22              23              23
VWA.............................................              11              12              12              18
                                                 ---------------------------------------------------------------
    Total.......................................               5               9              11              17
----------------------------------------------------------------------------------------------------------------

                      Table 33--Fleet BEV+PHEV Penetration Rates Under the Final Standards
----------------------------------------------------------------------------------------------------------------
                                                     2023 (%)        2024 (%)        2025 (%)        2026 (%)
----------------------------------------------------------------------------------------------------------------
BMW.............................................               6              10              18              22
Daimler.........................................              12              14              20              36
FCA.............................................              14              15              15              18
Ford............................................               5               9              10              18
General Motors..................................               6               9              13              16
Honda...........................................               1               8              12              14
Hyundai Kia-H...................................               9               9              17              19
Hyundai Kia-K...................................               6               6               9               9
JLR.............................................              15              15              26              34
Mazda...........................................               3               7               7              17
Mitsubishi......................................               2               2              10              10
Nissan..........................................               3               4              14              15
Subaru..........................................               0               0               0               1
Tesla...........................................             100             100             100             100
Toyota..........................................               2               9              10              12
Volvo...........................................              17              17              18              20
VWA.............................................              13              14              14              21
                                                 ---------------------------------------------------------------
    Total.......................................               7              10              14              17
----------------------------------------------------------------------------------------------------------------

C. Are the final standards feasible?

    The final standards are based on the extensive light-duty GHG
technical analytical record developed over the past dozen years, as
represented by EPA's supporting analyses for the 2010 and 2012 final
rules, the Mid-Term Evaluation (including the Draft TAR, Proposed
Determination and Final Determinations), as well as the updated
analyses for this rule and the supporting analyses for the SAFE
rule.\114\ Our conclusion that the program is feasible is based in part
on a projection that the standards primarily will be met using the same
advances in light-duty vehicle engine technologies, transmission
technologies, electric drive systems, aerodynamics, tires, and vehicle
mass reduction that have gradually entered the light-duty vehicle fleet
over the past decade and that are already in use in today's vehicles.
Further support that the technologies needed to meet the standards do
not need to be developed but are already widely available and in use on
vehicles can be found in the fact that five vehicle manufacturers,
representing nearly 30 percent of U.S. auto sales, agreed in 2019 with
the State of California that their nationwide fleets would meet GHG
emission reduction targets more stringent than the applicable EPA
standards for MYs 2021 and 2022, and similar to the final EPA standards
for MYs 2022 and 2023.
---------------------------------------------------------------------------

    \114\ Although the MTE 2018 Revised Final Determination
``withdrew'' the 2017 Final Determination, the D.C. Circuit Court
has noted that EPA did ``not erase[ ] the Draft Technical Assessment
Report, Technical Support Document, or any of the other prior
evidence [EPA] collected.'' California v. EPA, 940 F.3d 1342, 1351
(D.C. Cir. 2019).
---------------------------------------------------------------------------

    Our updated analysis projects that the final standards can be met
with a fleet that achieves a gradually increasing market share of EVs
and PHEVs, approximately 7 percent in MY 2023 up to about 17 percent in
MY 2026 (see Section III.B.3 of this preamble and the following
paragraph). While this represents an increasing penetration of zero-
emission and near-zero emission vehicles into the fleet during the
2023-2026 model years, we believe that the growth in the projected rate
of penetration is consistent with current trends and market forces, as
discussed below.
    The proliferation of GHG-reducing technologies has been steadily
increasing within the light-duty vehicle fleet. As of MY 2020, more
than half of light-duty gasoline spark ignition engines use direct
injection (GDI) engines and more than a third are turbocharged. Nearly
half of all light-duty vehicles have planetary automatic transmissions
with 8 or more gear ratios, and one-quarter are using continuously
variable transmissions (CVT). The sales of vehicles with 12V start/stop
systems has increased from approximately 7 percent to approximately 42
percent between MY 2015 and MY 2020. Significant levels of powertrain
electrification of all types (HEV, PHEV, and EV) have increased more
than 3-fold from MY 2015 to MY 2020. In MY 2015, hybrid electric
vehicles accounted for approximately 2.4 percent of vehicle sales,
which increased to approximately 6.5 percent of vehicle sales in MY
2020. Production of plug-in hybrid electric vehicles (PHEVs) and
battery electric vehicles (EVs) together comprised 0.7 percent of
vehicle production in MY 2015 and increased to about 2.2 percent for MY
2020 (projected to be 4.1 percent for MY 2021),\115\ and from January
through September 2021 they represented 3.6 percent of total U.S.
light-duty vehicle sales.\116\ The pace of introduction of new EV and
PHEV models is rapidly increasing. For

example, the number of EV and PHEV models available for sale in the
U.S. has more than doubled from about 24 in MY 2015 to about 60 in MY
2021.\117\ Even under the less stringent SAFE standards, manufacturers
have indicated that the number of EV and PHEV models will increase to
more than 80 by MY 2023, with many more expected to reach production
before the end of the decade.\118\
---------------------------------------------------------------------------

    \115\ The 2021 EPA Automotive Trends Report, Greenhouse Gas
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420R-
21023, November 2021.
    \116\ Argonne National Laboratory, ``Light Duty Electric Drive
Vehicles Monthly Sales Updates,'' September 2021, accessed on
October 20, 2021 at: https://www.anl.gov/es/light-duty-electric-drive-vehicles-monthly-sales-updates.
    \117\ Fueleconomy.gov, 2015 Fuel Economy Guide and 2021 Fuel
Economy Guide.
    \118\ Environmental Defense Fund and M.J. Bradley & Associates,
``Electric Vehicle Market Status--Update, Manufacturer Commitments
to Future Electric Mobility in the U.S. and Worldwide,'' April 2021.
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    Despite the increased penetration of electrified vehicles that we
are projecting for the final standards, the large majority (more than
80 percent) of vehicles projected to be produced by manufacturers in
complying with the final standards would draw from the various advanced
gasoline vehicle technologies already present in many vehicles within
today's new vehicle fleet. This projection is consistent with EPA's
previous conclusions that a wide variety of emission reducing
technologies are already available at reasonable costs for
manufacturers to incorporate into their vehicles within the timeframe
of the final standards.
    Although the projected penetrations of BEVs and PHEVs are higher
than in the proposal, we find they more accurately reflect the current