extensive capital and resources that would be required for
manufacturers to shift from other powertrain technology pathways (such
as turbocharging and downsizing) to standalone Atkinson cycle engine
technology.
(a) HCR1
    A number of Asian manufacturers have launched Atkinson cycle
engines in smaller vehicles that do not use hybrid technologies. These
production engines have been benchmarked to characterize HCR1
technology for today's analysis.
    Today's analysis restricted the application of stand-alone Atkinson
cycle engines in the CAFE model in some cases. The engines benchmarked
for today's analysis were not suitable for MY 2016 baseline vehicle
models that have 8-cylinder engines and in many cases 6-cylinder
engines.
(b) HCR2
    EPA conceptualized a ``future'' Atkinson cycle engine and published
the theoretical engine map in an SAE paper.139 140 For this
engine, EPA staff began with a best-in-class 2.0L Atkinson cycle engine
and then increased the efficiency of the engine map further, through
the theoretical application of additional technologies in combination,
like cylinder deactivation, engine friction reduction, and cooled
exhaust gas recirculation. This engine remains entirely speculative, as
no production engine as outlined in the EPA SAE paper has ever been
commercially produced or even produced as a prototype in a lab setting.
Furthermore, the engine map has not been validated with hardware and
bench data, even on a prototype level (as no such engine exists to test
to validate the engine map).
---------------------------------------------------------------------------

    \139\ Ellies, B., Schenk, C., and Dekraker, P., ``Benchmarking
and Hardware-in-the-Loop Operation of a 2014 MAZDA SkyActiv 2.0L
13:1 Compression Ratio Engine,'' SAE Technical Paper 2016-01-1007,
2016. Available at https://www.sae.org/publications/technical-papers/content/2016-01-1007/.
    \140\ Lee, S., Schenk, C., and McDonald, J., ``Air Flow
Optimization and Calibration in High-Compression-Ratio Naturally
Aspirated SI Engines with Cooled-EGR,'' SAE Technical Paper 2016-01-
0565, 2016. Available at https://www.sae.org/publications/technical-papers/content/2016-01-0565/.
---------------------------------------------------------------------------

    Previously, EPA relied heavily on the HCR2 (or sometimes referred
to as ATK2 in previous EPA analysis) engine as a cost effective pathway
to compliance for stringent alternatives, but many engine experts
questioned its technical feasibility and near term commercial
practicability. Stakeholders asked for the engine to be removed from
compliance simulations until the performance could be validated with
engine hardware.\141\ \142\ While for the Draft TAR, the agencies ran
full-vehicle simulations with the theoretical engine map and made these
available in the CAFE model, HCR2 technology as described in EPA's SAE
paper was not included in today's analysis because there has been no
observable physical demonstration of the speculative technology, and
many questions remain about its practicability as specified, especially
in high load, low engine speed operating conditions. Simulations with
EPA's HCR2 engine map produce results that approach (and sometimes
exceed) diesel powertrain efficiency.\143\ Given the prominence of this
unproven technology in previous rule-makings, the CAFE model may be
configured to consider the application of HCR2 technology for reference
only.
---------------------------------------------------------------------------

    \141\ At NHTSA-2016-0068-0082, FCA recommended, ``Remove ATK2
from OMEGA model until the performance is validated.'', p. viii. And
FCA stated, ``ATK2--High Compression engines coupled with Cylinder
Deactivation and Cooled EGR are unlikely to deliver modeled results,
meet customer needs, or be ready for commercial application.'', p.
6-9.
    \142\ At Docket ID No EPA-HQ-OAR-2015-0827-6156, The Alliance of
Automobile Manufacturers commented, ``[There] is no current example
of combined Atkinson, plus cooled EGR, plus cylinder deactivation
technology in the present fleet to verify EPA's modeled benefits and
. . . EPA could not provide physical test results replicating its
modeled benefits of these combined technologies,'' p. 40.
    \143\ Thomas, J. ``Drive Cycle Powertrain Efficiencies and
Trends Derived from EPA Vehicle Dynamometer Results,'' SAE Int. J.
Passeng. Cars--Mech. Syst. 7(4):2014. Available at https://www.sae.org/publications/technical-papers/content/2014-01-2562/.
---------------------------------------------------------------------------

    As new engines emerge that achieve high thermal efficiency,
questions may be raised as to whether the HCR2 engine is a simulation
proxy for the new engine technology. It is important to conduct a
thorough evaluation of the actual new production engines to measure the
brake specific fuel consumption and to characterize the improvements
attributable to friction and thermal efficiency before drawing
conclusions. Using vehicle level data may misrepresent or conflate
complex interactions between a high thermal efficiency engine, engine
friction reduction, accessory load improvements, transmission
technologies, mass reduction, aerodynamics, rolling resistance, and
other vehicle technologies. For instance, some of the newest high
compression ratio engines show improved thermal efficiency, in large
part due to improved accessory loads or reduced parasitic losses from
accessory systems.\144\ The CAFE model allows for incremental
improvement over existing HCR1 technologies with the addition of
improved accessory devices (IACC), a technology that is available to be
applied on many baseline MY 2016 vehicles with HCR1 engines and may be
applied as part of a pathway of compliance to further improve the
effectiveness of existing HCR1 engines.
---------------------------------------------------------------------------

    \144\ For instance, the MY 2018 2.5L Camry engine that uses HCR
technology also reduces parasitic losses with a variable capacity
oil pump.
---------------------------------------------------------------------------

(c) Emerging Gasoline Engine Technologies
    Manufacturers and suppliers continue to invest in many emerging
engine technologies, and some of these technologies are on the cusp of
commercialization. Often, manufacturers submit information about new
engine technologies that they may soon bring into production. When this
happens, a collaborative effort is undertaken with suppliers and
manufacturers to learn as much as possible and sometimes begin
simulation modeling efforts. Bench data, or performance data for
preproduction vehicles and engines, is usually closely held
confidential business information. To properly characterize the
technologies, it is often necessary to wait until the engine
technologies are in production to study them.
(1) Advanced Cylinder Deactivation (ADEAC)
    Advanced cylinder deactivation systems (or rolling or dynamic
cylinder deactivation systems) allows a further degree of cylinder
deactivation than DEAC. The technology allows the engine to vary the
percentage of cylinders deactivated and the sequence in which cylinders
are deactivated, essentially providing ``displacement on demand'' for
low load operations, so long as the calibration avoids certain
frequencies.

    ADEAC systems may be integrated into the valvetrains with moderate
modifications on OHV engines. However, while the ADEAC operating
concept remains the same on DOHC engines, the valvetrain hardware
configuration is very different, and application on DOHC engines is
projected to be more costly per cylinder due to the valvetrain
differences.
    Some preproduction 8-cylinder OHV prototype vehicles were briefly
evaluated for this analysis, but no production versions of the
technology have been studied.
    Today's analysis relied on CBI to estimate costs and effectiveness
values of ADEAC. Since no engine map was available at the time of the
NPRM analysis, ADEAC was estimated to improve a basic engine with VVL,
VVT, SGDI, and DEAC by three percent (for 4 cylinder engines) six
percent (for engines with more than 4 cylinders).
    ADEAC systems will continue to be studied as production begins.
(2) Variable Compression Ratio Engines (VCR)
    Engines using variable compression ratio (VCR) technology appear to
be at a production-intent stage of development but also appear to be
targeted primarily towards limited production, high performance and
very high BMEP (27-30 bar) applications. Variable compression ratio
engines work by changing the length of the piston stroke of the engine
to operate at a more optimal compression ratio and improve thermal
efficiency over the full range of engine operating conditions.
    A number of manufacturers and suppliers provided information about
VCR technologies, and several design concepts were reviewed that could
achieve a similar functional outcome. In addition to design concept
differences, intellectual property ownership complicates the ability of
the agencies to define a VCR hardware system that could be widely
adopted across the industry.
    For today's analysis, VCR engines have a spot on the technology
simulation tree, but VCR is not actively used in the NPRM simulation.
Reasonable representations of costs and technology characterizations
remain open questions for VCR engine technology and the analysis.
    NHTSA is sponsoring work to develop engine maps for additional
combinations of technologies. Some of these technologies being
researched presently, including VCR, may be used in the analysis
supporting the final rule. Please provide comment on variable
compression ratio engine technology. Should VCR technology be employed
in the timeframe of this proposed rulemaking? Why or why not? Do
commenters believe VCR technology will see widespread adoption in the
US vehicle fleet? Why or why not? What vehicle segments may it best be
suited for, and which segments would it not be best suited for? Why or
why not? What cost and effectiveness values should be used if VCR is
modeled for analysis? Please provide supporting data. Additionally,
please provide any comments on the sponsored work related to VCR,
described further in PRIA Chapter 6.3.
(3) Compression Ignition Gasoline Engines (SpCCI, HCCI)
    For many years, engine developers, researchers, manufacturers have
explored ways to achieve the inherent efficiency of a diesel engine
while maintaining the operating characteristics of a gasoline engine. A
potential pathway for striking this balance is utilizing compression
ignition for gasoline fueled engines, more commonly referred to as
Homogeneous Charge Compression Ignition (HCCI).
    Ongoing, periodic discussions with manufacturers on future fuel
saving technologies and powertrain plans have, generally, included HCCI
as a long-term strategy. The technology appears to always be a strong
consideration as, in theory, it provides the ``best of both worlds,''
meaning a way to provide diesel engine efficiency with gasoline engine
performance and emissions levels.
    Developments in both the research and the potential production
implementation of HCCI for the US market is continually assessed. In
2017, a significant, potentially production breakthrough was announced
by Mazda regarding a gasoline-fueled engine employing Spark Controlled
Compression Ignition (SpCCI), where HCCI is employed for a portion of
its normal operation and spark ignition is used at other times.\145\
Soon after, Mazda publicly stated they plan to introduce this engine as
part of the Skyactiv family of engines in 2019.\146\
---------------------------------------------------------------------------

    \145\ Mazda Next-Generation Technology--Press Information, Mazda
USA (Oct. 24, 2017), https://insidemazda.mazdausa.com/press-release/mazda-next-generation-technology-press-information/ (last visited
Apr. 13, 2018).
    \146\ Mazda introduces updated 2019 CX-3 at 2018 New York
International Auto Show, Mazda USA (Mar. 28, 2018), https://insidemazda.mazdausa.com/press-release/mazda-introduces-2019-cx-3-2018-new-york-auto-show/ (last visited Apr. 13, 2018).
---------------------------------------------------------------------------

    However, HCCI was not included in the simulation and vehicle fleet
modeling for past rulemakings, and is not included in this NPRM
analysis, primarily because effectiveness, cost, and mass market
implementation readiness data are not available.
    Please comment on the potential use of HCCI technology in the
timeframe covered by this rule. More specifically, should HCCI be
included in the final rulemaking analysis for this proposed rulemaking?
Why or why not? Please provide supporting data, including effectiveness
values, costs in relation varying engine types and applications, and
production timing that supports the timeframe of this rulemaking.
(d) Diesel Engines
    Diesel engines have several characteristics that give superior fuel
efficiency, including reduced pumping losses due to lack of (or greatly
reduced) throttling, high pressure direct injection of fuel, a
combustion cycle that operates at a higher compression ratio, and a
very lean air/fuel mixture relative to an equivalent-performance
gasoline engine. This technology requires additional enablers, such as
a NOX adsorption catalyst system or a urea/ammonia selective
catalytic reduction system for control of NOX emissions
during lean (excess air) operation.
(e) Alternative Fuel Engines
(1) Compressed Natural Gas (CNG)
    Compressed Natural Gas (CNG) engines use compressed natural gas as
a fuel source. The fuel storage and supply systems for these engines
differ tremendously from gasoline, diesel, and flex fuel vehicles.
(2) Flex Fuel Engines
    Flex fuel engines can run on regular gasoline and fuel blended with
ethanol. These vehicles may require additional equipment in the fuel
system to effectively supply different blends of fuel to the engine.
(f) Lubrication and Friction Reduction
    Low-friction lubricants including low viscosity and advanced low
friction lubricant oils are now available (and widely used). If
manufacturers choose to make use of these lubricants, they may need to
make engine changes and conduct durability testing to accommodate the
lubricants. The level of low friction lubricants exceeded 85%
penetration in the MY 2016 fleet.
    Reduction of engine friction can be achieved through low-tension
piston rings, roller cam followers, improved material coatings, more
optimal thermal management, piston surface treatments, and other
improvements in the design of

engine components and subsystems that improve efficient engine
operation.
    Manufacturers have already widely adopted both lubrication and
friction reduction technologies. This analysis includes advanced engine
maps that already assume application of low-friction lubricants and
engine friction reduction technologies. Therefore, additional friction
reduction is not considered in today's analysis.
    The use and commercial development of improved lubricants and
friction reduction components will continue to be monitored, including
conical boring and oblong cylinders, and future analyses may be updated
if new information becomes available.
5. Fuel Octane
(a) What is fuel octane level?
    Gasoline octane levels are an integral part of potential engine
performance. According the United States Energy Information
Administration (EIA), octane ratings are measures of fuel stability.
These ratings are based on the pressure at which a fuel will
spontaneously combust (auto-ignite) in a testing engine.\147\
Spontaneous combustion is an undesired condition that will lead to
serious engine damage and costly repairs for consumers if not properly
managed. The higher an octane number, the more stable the fuel,
mitigating the potential for spontaneous combustion, also commonly
known as ``knock.'' Modern engine control systems are sophisticated and
allow manufacturers to detect when ``knock'' occurs during engine
operation. These control systems are designed to adjust operating
parameters to reduce or eliminate ``knock'' once detected.
---------------------------------------------------------------------------

    \147\ U.S. Energy Information Administration, What is Octane?,
https://www.eia.gov/energyexplained/index.cfm?page=gasoline_home#tab2 (last visited Mar. 19, 2018).
---------------------------------------------------------------------------

    In the United States, consumers are typically able to select from
three distinct grades of fuel, each of which provides a different
octane rating. The octane levels can vary from region to region, but on
the majority, the octane levels offered are regular (the lowest octane
fuel-generally 87 Anti-Knock Index (AKI) also expressed as (the average
of Research Octane + Motor Octane), midgrade (the middle range octane
fuel-generally 89-90 AKI), and premium (the highest octane fuel-
generally 91-94 AKI).\148\ At higher elevations, the lowest octane
rating available can drop to 85 AKI.\149\
---------------------------------------------------------------------------

    \148\ Id.
    \149\ See e.g., U.S. Department of Energy and U.S. Environmental
Protection Agency, What is 85 octane, and is it safe to use in my
vehicle?, https://www.fueleconomy.gov/feg/octane.shtml#85 (last
visited Mar. 19, 2018). 85 octane fuel is available in high-
elevation regions where the barometric pressure is lower causing
naturally-aspirated engines to operate with less air and, therefore,
at lower torque and power. This creates less benefit and need for
higher octane fuels as compared to at lower elevations where engine
airflow, torque, and power levels are higher.
---------------------------------------------------------------------------

    Currently, throughout the United States, pump fuel is a blend of
90% gasoline and 10% ethanol. It is standard practice for refiners to
manufacture gasoline and ship it, usually via pipelines, to bulk fuel
terminals across the country. In many cases, refiners supply lower
octane fuels than the minimum 87-octane required by law to these
terminals. The terminals then perform blending operations to bring the
fuel octane level up to the minimum required by law, and higher. In
some cases, typically to lowest fuel grade, the ``base fuel'' is
blended with ethanol, which has a typical octane rating of
approximately 113. For example, in 2013, the State of Nebraska Ethanol
Board defined requirements for refiners to 84-octane gas for blending
to achieve 87-octane prior to final dispensing to consumers.\150\
---------------------------------------------------------------------------

    \150\ Nebraska Ethanol Board, Oil Refiners Change Nebraska Fuel
Components, Nebraska.gov, http://ethanol.nebraska.gov/wordpress/oil-refiners-change-nebraska-fuel-components/ (last visited Mar. 19,
2018).
---------------------------------------------------------------------------

(b) Fuel Octane Level and Engine Performance
    A typical, overarching goal of optimal spark-ignited engine design
and operation is to maximize the greatest amount of energy from the
fuel available, without manifesting detrimental impacts to the engine
over its expected operating conditions. Design factors, such as
compression ratio, intake and exhaust value control specifications,
combustion chamber and piston characteristics, among others, are all
impacted by octane (stability) of the fuel consumers are anticipated to
use.\151\
---------------------------------------------------------------------------

    \151\ Additionally, PRIA Chapter 6 contains a brief discussion
of fuel properties, octane levels used for engine simulation and in
real-world testing, and how octane levels can impact performance
under these test conditions.
---------------------------------------------------------------------------

    Vehicle manufacturers typically develop their engines and engine
control system calibrations based on the fuel available to consumers.
In many cases, manufacturers may recommend a fuel grade for best
performance and to prevent potential damage. In some cases,
manufacturers may require a specific fuel grade for both best
performance and/or to prevent potential engine damage.
    Consumers, though, may or may not choose to follow the
recommendation or requirement for a specific fuel grade. Additionally,
regional fuel availability could also limit consumer choice, or, in the
case of higher elevation regions, present an opportunity for consumers
to use a fuel grade that is below the minimum recommended. As such,
vehicle manufacturers employ strategies for scenarios where a lower
than recommended, or required, fuel grade is used, mitigating engine
damage over the life of a vehicle.
    When knock (also referred to as detonation) is encountered during
engine operation, at the most basic level, non-turbo charged engines
can reduce or eliminate knock by adjusting the timing of the spark that
ignites the fuel, as well as the amounts of fuel injected at each
intake stroke (``fueling''). In turbo-charged applications, boost
levels are typically reduced along with spark timing and fueling
adjustments. Past rulemakings have also discussed other techniques that
may be employed to allow higher compression ratios, more optimal spark
timing to be used without knock, such as the addition of cooled exhaust
gas recirculation (EGR). Regardless of the type of spark-ignition
engine or technology employed, reducing or preventing knock results in
the loss of potential power output, creating a ``knock-limited''
constraint on performance and efficiency.
    Despite limits imposed by available fuel grades, manufacturers
continue to make progress in extracting more power and efficiency from
spark-ignited engines. Production engines are safely operating with
regular 87 AKI fuel with compression ratios and boost levels once
viewed as only possible with premium fuel. According to the Department
of Energy, the average gasoline octane level has remained fundamentally
flat starting in the early 1980's and decreased slightly starting in
the early 2000s. During this time, however, the average compression
ratio for the U.S. fleet has increased from 8.4 to 10.52, a more than
20% increase, yielding the statement that, ``There is some concern that
in the future, auto manufacturers will reach the limit of technological
increases in compression ratios without further increases in the octane
of the fuel.'' \152\
---------------------------------------------------------------------------

    \152\ Fact of the Week, Fact #940: August 29, 2016 Diverging
Trends of Engine Compression Ratio and Gasoline Octane Rating, U.S.
Department of Energy, https://www.energy.gov/eere/vehicles/fact-940-august-29-2016-diverging-trends-engine-compression-ratio-and-gasoline-octane (last visited Mar. 21, 2018).
---------------------------------------------------------------------------

    As such, manufacturers are still limited by the available fuel
grades to consumers and the need to safeguard the durability of their
products for all of the available fuels; thus, the potential

improvement in the design of spark-ignition engines continues to be
overshadowed by the fuel grades available to consumers.
(c) Potential of Higher Octane Fuels
    Automakers and advocacy groups have expressed support for increases
to fuel octane levels for the U.S. market and are actively
participating in Department of Energy research programs on the
potential of higher octane fuel usage.153 154 Some positions
for potential future octane levels include advocacy for today's premium
grade becoming the base grade of fuel available, which could enable low
cost design changes that would improve fuel economy and CO2.
Challenges associated with this approach include the increased fuel
cost to consumers who drive vehicles designed for current regular
octane grade fuel that would not benefit from the use of the higher
cost higher octane fuel. The net costs for a shift to higher octane
fuel would persist well into the future. Net benefits for the
transition would not be achieved until current regular octane fuel is
not available in the North American market, causing manufacturers to
redesign all engines to operate the higher octane fuel, and then after
those vehicles have been in production a sufficient number of model
years to largely replace the current on-road vehicle fleet. The
transition to net positive benefits could take many years.
---------------------------------------------------------------------------

    \153\ Mark Phelan, High octane gas coming--but you'll pay more
for it, Detroit Free Press (Apr. 25, 2017), https://www.freep.com/story/money/cars/mark-phelan/2017/04/25/new-gasoline-promises-lower-emissions-higher-mpg-and-cost-octane-society-of-automotive-engineers/100716174/.
    \154\ The octane game: Auto industry lobbies for 95 as new
regular, Automotive News (April 17, 2018), http://www.autonews.com/article/20180417/BLOG06/180419780/the-octane-game-auto-industry-lobbies-for-95-as-new-regular.
---------------------------------------------------------------------------

    In anticipation of this proposed rulemaking, organizations such as
the High Octane Low Carbon Alliance (HOLC) and the Fuel Freedom
Foundation (FFA), have shared their positions on the potential for
making higher octane fuels available for the U.S. market. Other
stakeholders also commented to past NHTSA rulemakings and/or the Draft
TAR regarding the potential for increasing octane levels for the U.S.
market.
    In the meetings with HOLC and the FFA, the groups advocated for the
potential benefits high octane fuels could provide via the blending of
non-petroleum feedstocks to increase octane levels available at the
pump. The groups' positions on benefits took both a technical approach
by suggesting an octane level of 100 is desired for the marketplace, as
well as, the benefits from potential increased national energy security
by reduced dependencies on foreign petroleum.
(d) Fuel Octane--Request for Comments
    Please comment on the potential benefits, or dis-benefits, of
considering the impacts of increased fuel octane levels available to
consumers for purposes of the model. More specifically, please comment
on how increasing fuel octane levels would play a role in product
offerings and engine technologies. Are there potential improvements to
fuel economy and CO2 reductions from higher octane fuels?
Why or why not? What is an ideal octane level for mass-market
consumption balanced against cost and potential benefits? What are the
negatives associated with increasing the available octane levels and,
potentially, eliminating today's lower octane fuel blends? Please
provide supporting data for your position(s).
6. Transmission Technologies
    Transmissions transmit torque from the engine to the wheels.
Transmissions may improve fuel efficiency primarily through two
mechanisms: (1) Transmissions with more gears allow the engine to
operate more regularly at the most efficient speed-load points, and (2)
transmissions may have improvements in friction (gears, bearings,
seals, and so on), or improvements in shift efficiency that help the
transmission transfer torque more efficiently, lowering parasitic
losses. These mechanisms are very different, so full-vehicle simulation
is helpful to understand how a transmission may work with complementary
equipment to improve fuel economy.
    Today's analysis significantly increased the number of
transmissions modeled in full-vehicle simulations, attempting to more
closely align the Department of Energy full-vehicle simulations with
existing vehicles. Previously, EPA included just five transmissions
\155\ by vehicle class in their analysis, and often EPA represented
upgrades among manual, automatic, continuously variable, and dual
clutch transmissions with the same effectiveness \156\ and cost values
\157\ within a vehicle class. Today's analysis simulated nearly 20
transmissions, with explicit assumptions about gear ratios, gear
efficiencies, gear spans, shift logic, and transmission
architecture.158 159 This analysis improves transparency by
making clear the assumptions underlying the transmissions in the full-
vehicle simulations and by increasing the number of transmissions
simulated since the Draft TAR. Methods will be continuously evaluated
to improve transmission models in full-vehicle simulations. For the box
plots of effectiveness values, as shown in the PRIA Chapter 6, all
automatic transmissions are relative to a 5-speed automatic, and all
manual transmissions are relative to a 5-speed manual. Table II-11
below shows the absolute costs of transmission used for this analysis
including learning and retail price equivalent.
---------------------------------------------------------------------------

    \155\ Null, TRX11, TRX12, TRX21, TRX22.
    \156\ Draft TAR, p. 5-297 through 5-298 summarizes effectiveness
values previously assumed for stepping between transmission
technologies (Null, TRX11, TRX12, TRX21, TRX22).
    \157\ Draft TAR, p. 5-299. ``For future vehicles, it was assumed
that the costs for transitioning from one technology level (TRX11-
TRX22) to another level is the same for each transmission type (AT,
AMT, DCT, and CVT).''
    \158\ See PRIA Chapter 6.3.
    \159\ Ehsan, I.S., Moawad, A., Kim, N., & Rousseau, A. ``A
Detailed Vehicle Simulation Process To Support CAFE Standards.''
ANL/ESD-18/6. Energy Systems Division, Argonne National Laboratory.
2018.

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[GRAPHIC] [TIFF OMITTED] TP24AU18.026

(a) Automatic Transmissions
    Five-, six-, seven-, eight-, nine- and ten-speed automatic
transmissions are optimized by changing the gear ratios to enable the
engine to operate in a more efficient operating range over a broader
range of vehicle operating conditions. While a six speed transmission
application was most prevalent for the MYs 2012-2016 final rule, eight
and higher speed transmissions were more prevalent in the MY 2016
fleet.
    ``L2'' and ``L3'' transmissions designate improved gear efficiency
and reduced parasitic losses. Few transmissions in the MY 2016 fleet
have achieved ``L2'' efficiency, and the highest level of transmission
efficiencies modeled are assumed to be available in MY 2022.
(1) Continuously Variable Transmissions
    Continuously variable transmission (CVT) commonly uses V-shaped
pulleys connected by a metal belt rather than gears to provide ratios
for operation. Unlike manual and automatic transmissions with fixed
transmission ratios, continuously variable transmissions can provide
fully variable and an infinite number of transmission

ratios that enable the engine to operate in a more efficient operating
range over a broader range of vehicle operating conditions. In this
NPRM, two levels of CVTs are considered for future vehicles. The second
level CVT would have a wider transmission ratio, increased torque
capacity, improvements in oil pump efficiency, lubrication
improvements, and friction reduction. While CVTs work well with light
loads, the technology as modeled is not suitable for larger vehicles
such as trucks and large SUVs.
(2) Dual Clutch Transmissions
    Dual clutch or automated shift manual transmissions (DCT) are
similar to manual transmissions except for the vehicle controls
shifting and launch functions. A dual-clutch automated shift manual
transmission uses separate clutches for even-numbered and odd-numbered
gears, so the next expected gear is pre-selected, which allows for
faster and smoother shifting. The 2012-2016 final rule limited DCT
applications to a maximum of 6-speeds. Both 6-speed and 8-speed DCT
transmissions are considered in today's proposal.
    Dual clutch transmissions are very effective transmission
technologies, and previous rule-making projected rapid, and wide
adoption into the fleet. However, early DCT product launches in the
U.S. market experienced shift harshness and poor launch performance,
resulting in customer satisfaction issues--some so extreme as to prompt
vehicle buyback campaigns.\160\ Most manufacturers are not using DCTs
in the U.S. market due to the customer satisfaction issues.
Manufacturers used DCTs in about three percent of the MY 2016 fleet.
Today's analysis limits the application of improved DCTs to vehicles
that already use DCTs. Many of these vehicles are imported performance
products.
---------------------------------------------------------------------------

    \160\ Ford Powershift Transmission Settlement, http://fordtransmissionsettlement.com/ (last visited June 21, 2018).
---------------------------------------------------------------------------

(b) Manual Transmissions
    Manual 6- and 7-speed transmissions offer an additional gear ratio,
sometimes with a higher overdrive gear ratio, over a 5-speed manual
transmission. Similar to automatic transmissions, more gears often
means the engine may operate in the efficient zone more frequently.
7. Vehicle Technologies
    As discussed earlier in Section II.D.1.b)(1), several technologies
were considered for this analysis, and Table II-12, Table II-13, and
Table II-14 below shows the full list of vehicle technologies analyzed
and the associated absolute cost.\161\
---------------------------------------------------------------------------

    \161\ Mass reduction costs are in $/lb.

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[GRAPHIC] [TIFF OMITTED] TP24AU18.027

[GRAPHIC] [TIFF OMITTED] TP24AU18.028

[GRAPHIC] [TIFF OMITTED] TP24AU18.029

(a) Reduced Rolling Resistance
    Lower-rolling-resistance tires have characteristics that reduce
frictional losses associated with the energy dissipated mainly in the
deformation of the tires under load, thereby improving fuel economy and
reducing CO2 emissions. New for this proposal, and also
marking an advance over low rolling resistance tires considered during
the heavy duty greenhouse gas rulemaking,\162\ is a second level of
lower rolling resistance tires that reduce frictional losses even
further. The first level of low rolling resistance tires will have 10%
rolling resistance reduction while the second level would have 20%
rolling resistance reduction. In this NPRM, baseline vehicle reference
rolling resistance values were determined based on the MY 2016 vehicles
rather than the MY 2008 vehicles used in the 2012 final rule. Rolling
resistance values were assigned based on CBI shared by manufacturers.
---------------------------------------------------------------------------

    \162\ See 76 FR 57106, at 57207, 57229 (Sep. 15, 2011).
---------------------------------------------------------------------------

    In some cases, low rolling resistance tires can affect traction,
which may be untenable for some high performance vehicles. For cars and
SUVs with more than 405 horsepower, the analysis restricted the
application of the highest levels of rolling resistance. For cars and
SUVs with more than 500 horsepower, the analysis restricted the
application of any additional rolling resistance technology.
(b) Reduced Aerodynamic Drag Coefficient
    Aerodynamic drag reduction can be achieved via two approaches,
either by reducing the drag coefficients or reducing vehicle frontal
area. To reduce the drag coefficient, skirts, air dams, underbody
covers, and more aerodynamic side view mirrors can be applied. In the
MY 2017-2025 final rule and the 2016 Draft TAR, the analysis included
two levels of aerodynamic technologies. The second level included
active grille shutters, rear visors, and larger under body panels. This
NPRM expanded the aerodynamic drag improvements from two levels to four
to provide more discrete levels. The NPRM levels are 5%, 10%, 15%, and
20%

improvement relative to baseline reference vehicles. The agencies
relied on the wind tunnel testing performed by National Research
Council (NRC), Canada, Transport Canada (TC), and Environment and
Climate Change, Canada (ECCC) to quantify the aerodynamic drag impacts
of various OEM aerodynamic technologies and to explore the improvement
potential of these technologies by expanding the capability and/or
improving the design of MY 2016 state-of-the-art aerodynamic
treatments. The agencies estimated the level of aerodynamic drag in
each vehicle model in the MY 2016 baseline fleet and gathered CBI on
aerodynamic drag coefficients, so each vehicle has an appropriate
initial value for further improvements.
    Notably, today's analysis assumes aerodynamic drag reduction can
only come from reduction in the aerodynamic drag coefficient and not
from reduction of frontal area.\163\ For some bodystyles, the agencies
have no evidence that manufacturers may be able to achieve 15% or 20%
aerodynamic drag coefficient reduction relative to baseline for some
bodystyles (for instance, with pickup trucks) due to form drag
limitions. Previously, EPA analysis assumed some vehicles from all
bodystyles could (and would) reduce aerodynamic forces by 20%, which in
some cases led to future pickup trucks having aerodynamic drag
coefficients better than some of today's typical cars, if frontal area
were held constant. While ANL created full-vehicle simulations for
trucks with 20% drag reduction, those simulations were not used in the
CAFE modeling. That level of drag reduction is likely not
technologically feasible with today's technology, and the analysis
accordingly restricted the application of advanced levels of
aerodynamics in some instances, such as in this case, due to bodystyle
form drag limitations. Separate from form drag limitations, some high
performance vehicles already use advanced aerodynamics technologies to
generate down force, and sometimes these applications must trade-off
between aerodynamic drag coefficient reduction and down force. Today's
analysis does not apply 15% or 20% aerodynamic drag coefficient
reduction to cars and SUVs with more than 405 horsepower.
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    \163\ EPA previously assumed that manufacturers could reduce
frontal area as well as aerodynamic drag coefficient to achieve 20%
aerodynamic force reduction relative to ``Null'' or initial
aerodynamic technology level; however, reducing frontal area would
likely degrade other utility features like interior volume, or
ingress/egress.
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(c) Mass Reduction
    Mass Reduction can be achieved in many ways, such as material
substitution, design optimization, part consolidation, improving
manufacturing process, etc. The analysis utilizes mass reduction levels
of 5, 10, 15, and 20% relative to a reference glider vehicle for each
vehicle subsegment. For HEV, PHEV, and BEV vehicles, net mass reduction
was considered, including the mass reduction applied to the glider and
the added mass of electrification components. An extensive discussion
of mass reduction technologies as well as the cost of mass reduction is
located in Chapter 6.3 of the PRIA. The analysis included an estimated
level of mass reduction technology in each vehicle model in the MY 2016
baseline fleet so that each vehicle model has an appropriate initial
value for further improvements.
(d) Low Drag Brakes (LDB)
    Low-drag brakes reduce the sliding friction of disc brake pads on
rotors when the brakes are not engaged because the brake pads are
pulled away from the rotors.
(e) Secondary Axle Disconnect (SAX)
    Front or secondary axle disconnect for all-wheel drive systems
provides a torque distribution disconnect between front and rear axles
when torque is not required for the non-driving axle. This results in
the reduction of associated parasitic energy losses.
8. Electrification Technologies
    For this NPRM, the analysis of electrification technologies relies
primarily on research published by the Department of Energy, ANL.\164\
ANL's assumptions regarding all hybrid systems, including belt-
integrated starter generators, strong parallel and series hybrids,
plug-in hybrids,\165\ and battery electric vehicles, and most projected
technology costs were adopted for this analysis. In addition, the most
recent ANL BatPaC model is used to estimate battery costs. Table II-15
and Table II-16 below show the absolute costs of all electrification
technologies estimated for this NPRM analysis relative to a basic
internal combustion engine vehicle with a 5-speed automatic
transmission.\166\
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    \164\ Moawad et al., Assessment of vehicle sizing, energy
consumption, and cost through large-scale simulation of advanced
engine technologies, Argonne National Laboratory (March 2016),
available at https://www.autonomie.net/pdfs/Report%20ANL%20ESD-1528%20-%20Assessment%20of%20Vehicle%20Sizing,%20Energy%20Consumption%20and%20Cost%20through%20Large%20Scale%20Simulation%20of%20Advanced%20Vehicle%20Technologies%20-%201603.pdf.
    \165\ Notably all power split hybrids, and all plug-in hybrid
vehicles were assumed to be paired with a high compression ratio
internal combustion engine for this analysis.
    \166\ Note: These costs do not include value loss for HEVs,
PHEVs, and BEVs. Powertrain hardware between cars and small SUV's is
often similar, especially if technology is used vehicles on the same
platform; however, battery pack sizes may vary meaningfully to
deliver similar range in different applications.

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[GRAPHIC] [TIFF OMITTED] TP24AU18.031

(a) Hybrid Technologies
(1) 12-Volt Stop-Start
    12-volt Stop-Start, sometimes referred to as idle-stop or 12-volt
micro hybrid, is the most basic hybrid system that facilitates idle-
stop capability. These systems typically incorporate an enhanced
performance battery and other features such as electric transmission
pump and cooling pump to maintain vehicle systems during idle-stop.
(2) Higher Voltage Stop-Start/Belt Integrated Starter Generator
    Higher Voltage Stop-Start/Belt Integrated Starter Generator (BISG),
sometimes referred to as a mild hybrid system, provides idle-stop
capability and uses a higher voltage battery with increased energy
capacity over typical automotive batteries. The higher system voltage
allows the use of a smaller, more powerful electric motor. This system
replaces a standard alternator with an enhanced power, higher voltage,
higher efficiency starter-alternator, that is belt driven and that can
recover braking energy while the vehicle slows down (regenerative
braking). Today's analysis assumes 48V systems on cars and small SUVs
and high voltage systems for large SUVs and trucks. Future analysis may
reference the application and operation of 48V systems on large SUVs
and trucks, if applicable.
(3) Integrated Motor Assist (IMA)/Crank Integrated Starter Generator
    Integrated Motor Assist (IMA)/Crank integrated starter generator
(CISG) provides idle-stop capability and uses a high voltage battery
with increased energy capacity over typical automotive batteries. The
higher system voltage allows the use of a smaller, more powerful
electric motor and reduces the weight of the wiring harness. This
system replaces a standard alternator with an enhanced power, higher
voltage, higher efficiency starter alternator that is crankshaft-
mounted and can recover braking energy while the vehicle slows down
(regenerative braking).
(4) P2 Hybrid
    P2 Hybrid (SHEVP2) is a newly emerging hybrid technology that uses
a transmission-integrated electric motor placed between the engine and
a gearbox or CVT, much like the IMA system described above except with
a wet or dry separation clutch that is used to decouple the motor/
transmission from the engine. In addition, a P2 hybrid would typically
be equipped with a larger electric machine. Disengaging the clutch
allows all-electric operation and more efficient brake-energy recovery.
Engaging the clutch allows efficient coupling of the engine and
electric motor and, when combined with a DCT transmission, reduces
gear-train losses relative to power-split or 2-mode hybrid systems.
Battery costs are now considered separately from other HEV hardware.
    P2 Hybrid systems typically rely on the internal combustion engine
to deliver high, sustained power levels. While many vehicles may use
HCR1 engines as part of a hybrid powertrain, HCR1 engines may not be
suitable for all vehicles, especially high performance vehicles, or
vehicles designed to carry or tow large loads. Many manufacturers may
prefer turbo engines (with high specific power output) for P2 Hybrid
systems.
(5) Power-Split Hybrid
    Power-split Hybrid (SHEVPS) is a hybrid electric drive system that
replaces the traditional transmission with a single planetary gearset
and a motor/generator. This motor/generator uses the engine to either
charge the battery or supply additional power to the drive motor. A
second, more powerful motor/generator is permanently connected to the
vehicle's final drive and always turns with the wheels. The planetary
gear splits engine power between the first motor/generator and the
drive motor to either charge the battery or supply power to the wheels.
The power-split hybrid technology is included in this analysis as an
enabling technology supporting this proposal, (the agencies evaluate
the P2 hybrid technology discussed above where power-split hybrids
might otherwise have been appropriate). As stated above, battery costs
are now considered separately from other HEV hardware. Power-split
hybrid technology as modeled in this analysis is not suitable for large
vehicles that must handle high loads.
    The ANL Autonomie simulations assumed all power-split hybrids use a
high compression ratio engine. Therefore, all vehicles equipped with
SHEVPS technology in the CAFE model inputs and simulations are assumed
to have high compression ratio engines.
(6) Plug-in Hybrid Electric
    Plug-in hybrid electric vehicles (PHEV) are hybrid electric
vehicles with the means to charge their battery packs from an outside
source of electricity (usually the electric grid). These vehicles have
larger battery packs with more energy storage and a greater capability
to be discharged than other hybrid electric vehicles. They also use a
control system that allows the battery pack to be substantially
depleted under electric-only or blended mechanical/electric operation
and batteries that can be cycled in charge sustaining operation at a
lower state of charge than is typical of other hybrid electric
vehicles. These vehicles are sometimes referred to as Range Extended
Electric Vehicles (REEV). In this NPRM analysis, PHEVs with two all-
electric ranges--both a 30 mile and a 50 mile all-electric range--have
been included as potential technologies. Again, battery costs are now
considered separately from other PHEV hardware.
    The ANL Autonomie simulations assumed all PHEVs use a high
compression ratio engine. Therefore, all vehicles equipped with PHEV
technology in the CAFE model inputs and simulations are assumed to have
high compression ratio engines. In practice, many PHEVs recently
introduced in the marketplace use turbo-charged engines in the PHEV
system, and this is particularly true for PHEVs produced by European
manufacturers and for other PHEV performance vehicle applications.
    Please provide comment on the modeling of PHEV systems. Should
turbo PHEVs be considered instead, or in addition to high compression
ratio PHEVs? Why or why not? What vehicle segments may turbo PHEVs best
be suited for, and which segments would it not be best suited for? What
vehicle segments may high compression ratio PHEVs best be suited for,
and which segments would it not be best suited for? Similarly, the
analysis currently considers PHEVs with 30-mile and 50-mile all-
electric range, and should other ranges be considered? For instance, a
20-mile all-electic range may decrease the battery pack size, and hence
the battery pack cost relative to a 30-mile all-electric range system,
while still providing electric-vehicle functionality in many
applications. Do commenters believe PHEV technology will see widespread
adoption in the US vehicle fleet? Why or why not? Please provide
supporting data.
(b) Full Electrification and Fuel Cell Vehicles
(1) Battery Electric
    Electric vehicles (EV) are equipped with all-electric drive and
with systems powered by energy-optimized batteries charged primarily
from grid electricity. EVs with range of 200 miles have been included
as a potential technology in this NPRM. Battery costs are now
considered separately from other EV hardware.

(2) Fuel Cell Electric
    Fuel cell electric vehicles (FCEVs) utilize a full electric drive
platform but consume electricity generated by an onboard fuel cell and
hydrogen fuel. Fuel cells are electrochemical devices that directly
convert reactants (hydrogen and oxygen via air) into electricity, with
the potential of achieving more than twice the efficiency of
conventional internal combustion engines. High pressure gaseous
hydrogen storage tanks are used by most automakers for FCEVs. The high
pressure tanks are similar to those used for compressed gas storage in
more than 10 million CNG vehicles worldwide, except that they are
designed to operate at a higher pressure (350 bar or 700 bar vs. 250
bar for CNG). FCEVs are currently produced in limited numbers and are
available in limited geographic areas.
(c) Electric Vehicle Infrastructure
    BEVs and PHEVs may be charged at home or elsewhere. Home chargers
may access electricity from a regular wall outlet, or they may require
special equipment to be installed at the home. Commercial chargers may
sometimes be found at businesses or other travel locations. These
chargers often may supply power to the vehicle at a faster rate of
charge but often require significant capital investment to install.
    Time to charge, and availability and convenience of charging are
significant factors for plug-in vehicle operators. For many consumers,
accessible charging stations present inconveniences that may deter the
adoption of battery electric and plug-in hybrid vehicles.
    More detail about charging and charging infrastructure, including a
discussion of potential electric vehicle impacts on the electric grid,
is available in the PRIA, Chapter 6. For today's analysis, costs for
installing chargers and charge convenience is not taken into account in
the CAFE model. Also, today's analysis assumes HEVs, PHEVs, and BEVs
have the same survival rates and mileage accumulation schedules as
vehicles with conventional powertrains, and that HEVs, PHEVs, and BEVs
never receive replacement batteries before being scrapped. The agencies
invite comment on these assumptions and on data and practicable methods
to implement any alternatives.
9. Accessory Technologies
    Two accessory technologies, electric power steering (EPS) and
improved accessories (IACC) (accessory technologies categorized for the
2012 rule) were considered in this analysis, and are described
below.\167\ Table II-17 and Table II-18 below shows the estimated
absolute costs including learning effects and retail price equivalent
utilized in today's analysis.
---------------------------------------------------------------------------

    \167\ For further discussion of accessory technologies, see
Chapter 6 of the PRIA accompanying this NPRM.
[GRAPHIC] [TIFF OMITTED] TP24AU18.032

[GRAPHIC] [TIFF OMITTED] TP24AU18.033

(a) Electric Power Steering (EPS)
    Electric power steering (EPS)/Electrohydraulic power steering
(EHPS) is an electrically-assisted steering system that has advantages
over traditional hydraulic power steering because it replaces a
continuously operated hydraulic pump, thereby reducing parasitic losses
from the accessory drive. Manufacturers have informed the agencies that
full EPS systems are being developed for all types of light-duty
vehicles, including large trucks. However, this analysis applies the
EHPS technology to large trucks and the EPS technology to all other
light-duty vehicles.

(b) Improved Accessories (IACC)
    Improved accessories (IACC) may include high efficiency
alternators, electrically driven (i.e., on-demand) water pumps,
variable geometry oil pumps, cooling fans, a mild regeneration
strategy, and high efficiency alternators. It excludes other electrical
accessories such as electric oil pumps and electrically driven air
conditioner compressors. In the MY 2017-2025 final rule, two levels of
IACC were offered as a technology path (a low improvement level and a
high improvement level). Since much of the market has incorporated some
of these technologies in the MY 2016 fleet, the analysis assumes all
vehicles have incorporated what was previously the low level, so only
the high level remains as an option for some vehicles.
10. Other Technologies Considered but Not Included in This Aanalysis
    Manufacturers, suppliers, and researchers continue to create a
diverse set of fuel economy technologies. Many high potential
technologies that are still in the early stages of the development and
commercialization process are still being evaluated for any final
analysis. Due to uncertainties in the cost and capabilities of emerging
technologies, some new and pre-production technologies are not yet a
part of the CAFE model simulation. Evaluating and benchmarking
promising fuel economy technologies continues to be a priority as
commercial development matures.
(a) Engine Technologies
     Variable compression ratio (VCR)--varies the compression
ratio and swept volume by changing the piston stroke on all cylinders.
Manufacturers accomplish this by changing the effective length of the
piston connecting rod, with some prototypes having a range of 8:1 to
14:1 compression ratio. In turbocharged form, early publications
suggest VCR may be possible to deliver up to 35% improved efficiency
over the existing equivalent-output naturally-aspirated engine.\168\
---------------------------------------------------------------------------

    \168\ See e.g., VC--Turbo--The world's first production-ready
variable compression ratio engine, Nissan Motor Corporation (Dec.
13, 2017), https://newsroom.nissan-global.com/releases/release-917079cb4af478a2d26bf8e5ac00ae49-vc-turbo-the-worlds-first-production-ready-variable-compression-ratio-engine.
---------------------------------------------------------------------------

     Opposed-piston engine--sometimes known as opposed-piston
opposed-cylinder (OPOC), operates with two pistons per cylinder working
in opposite reciprocal motion and running on a two-stroke combustion
cycle. It has no cylinder head or valvetrain but requires a
turbocharger and supercharger for engine breathing. The efficiency may
be significantly higher than MY 2016 turbocharged gasoline engines with
competitive costs. This engine architecture could run on many fuels,
including gasoline and diesel. Packaging constraints, emissions
compliance, and performance across a wide range of operating conditions
remain as open considerations. No production vehicles have been
publicly announced, and multiple manufacturers continue to evaluate the
technology.169 170
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    \169\ Murphy, T. Achates: Opposed-Piston Engine makers tooling
up, Wards Auto (Jan. 23, 2017), http://wardsauto.com/engines/achates-opposed-piston-engine-makers-tooling.
    \170\ Our Formula, Achates Power, http://achatespower.com/our-formula/opposed-piston/ (last visited June 21, 2018).
---------------------------------------------------------------------------

     Dual-fuel--engine concepts such as reactivity controlled
compression ignition (RCCI) combine multiple fuels (e.g. gasoline and
diesel) in cylinder to improve brake thermal efficiency while reducing
NOX and particulate emissions. This technology is still in
the research phase.\171\
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    \171\ Robert Wagner, Enabling the Next Generation of High
Efficiency Engines, Oak Ridge National Laboratory, U.S. Department
of Energy (2012), available at https://www.energy.gov/sites/prod/files/2014/03/f8/deer12_wagner_0.pdf.
---------------------------------------------------------------------------

     Smart accessory technologies--can improve fuel efficiency
through smarter controls of existing systems given imminent or expected
controls inputs in real world driving conditions. For instance, a
vehicle could adjust the use of accessory systems to conserve energy
and fuel as a vehicle approaches a red light. Vehicle connectivity and
sensors can further refine the operation for more benefit and smoother
operation.\172\
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    \172\ EfficientDynamics--The intelligent route to lower
emissions, BMW Group (2007), https://www.bmwgroup.com/content/dam/bmw-group-websites/bmwgroup_com/responsibility/downloads/en/2007/Alex_ED__englische_Version.pdf.
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     High Compression Miller Cycle Engine with Variable
Geometry Turbocharger or Electric Supercharger--Atkinson cycle gasoline
engines with sophisticated forced induction system that requires
advanced controls. The benefits of these technologies provide better
control of EGR rates and boost which is achieved with electronically
controlled turbocharger or supercharger. The electric version of this
technology which incorporates 48V is called E-boost.173 174
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    \173\ Volkswagen at the 37th Vienna Motor Symposium, Volkswagen
(Apr. 28, 2016), https://www.volkswagen-media-services.com/en/detailpage/-/detail/Volkswagen-at-the-37th-Vienna-Motor-Symposium/view/3451577/5f5a4dcc90111ee56bcca439f2dcc518?p_p_auth=M2yfP3Ze.
    \174\ These engines may be considered in the analysis supporting
the final rule, but these engine maps were not available in time for
the NPRM analysis. Please see Chapter 6.3 of the PRIA accompanying
this proposal for more information.
---------------------------------------------------------------------------

(b) Electrified Vehicle Powertrain
     Advanced battery chemistries--many emerging battery
technologies promise to eventually improve the cost, safety, charging
time, and durability in comparison to the MY 2016 automotive lithium-
ion batteries. For instance, many view solid state batteries as a
promising medium-term automotive technology. Solid state batteries
replace the battery's liquid electrolyte with a solid electrolyte to
potentially improve safety, power and energy density, durability, and
cost. Some variations use ceramic, polymer, or sulfide-based solid
electrolytes. Multiple automakers and suppliers are exploring the
technology and possible commercialization that may occur in the early
2020s.175 176 177
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    \175\ Schmitt, B. Ultrafast-Charging Solid-State EV Batteries
Around The Corner, Toyota Confirms, Forbes (Jul. 25, 2017), https://www.forbes.com/sites/bertelschmitt/2017/07/25/ultrafast-charging-solid-state-ev-batteries-around-the-corner-toyota-confirms/#5736630244bb.
    \176\ Moving toward clean mobility, Robert Bosch GmbH, https://www.bosch.com/explore-and-experience/moving-toward-clean-mobility/
(last visited June 21, 2018).
    \177\ Reuters Staff, Honda considers developing all solid-state
EV batteries, Reuters (Dec. 21, 2017), https://www.reuters.com/article/us-honda-nissan/honda-considers-developing-all-solid-state-ev-batteries-idUSKBN1EF0FM.
---------------------------------------------------------------------------

     Supercapacitors/Ultracapacitors--An electrical energy
storage device with higher power density but lower energy density than
batteries. Advanced capacitors may reduce battery degradation
associated with charge and discharge cycles, with some tradeoffs to
cost and engineering complexity. Supercapacitors/Ultracapacitors are
currently not used in parallel or as a standalone traction motor energy
storage device.\178\
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    \178\ Burke, A. & Zhao,H. Applications of Supercapacitors in
Electric and Hybrid Vehicles, Institute of Transportation Studies
University of California, Davis (Apr. 2015), available at https://steps.ucdavis.edu/wp-content/uploads/2017/05/2015-UCD-ITS-RR-15-09-1.pdf.
---------------------------------------------------------------------------

     Motor/Drivetrain:
    [cir] Lower-cost magnets for Brushless Direct Current (BLDC)
motors--BLDC motor technology, common in hybrid and battery electric
vehicles, uses rare earth magnets. By substituting and eliminating rare
earths from the magnets, motor cost can be significantly reduced. This
technology is announced, but not yet in production. The capability and
material configuration of these systems remains a closely guarded trade
secret.\179\
---------------------------------------------------------------------------

    \179\ Buckland, K. & Sano, N. Toyota Readies Cheaper Electric
Motor by Halving Rare Earth Use, Bloomberg (Feb, 20, 2018), https://www.bloomberg.com/news/articles/2018-02-20/toyota-readies-cheaper-electric-motor-by-halving-rare-earth-use.

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    [cir] Integrated multi-phase integrated electric vehicle
drivetrains. Research has been conducted on 6-phase and 9-phase
integrated systems to potentially reduce cost and improve power
density. Manufacturers may improve system power density through
integration of the motor, inverter, control, and gearing. These systems
are in the research phase.180 181
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    \180\ Burkhardt, Y., Spagnolo, A., Lucas, P., Zavesky, M., &
Brockerhoff, P. ``Design and analysis of a highly integrated 9-phase
drivetrain for EV applications '' 20 November 2014. DOI. 10.1109/
ICELMACH.2014.6960219. IEEE xplore.
    \181\ Patel, V., Wang, J., Nugraha, D., Vuletic, R., & Tousen,
J. ``Enhanced Availability of Drivetrain Through Novel Multi-Phase
Permanent Magnet Machine Drive'' 2016. IEEE Transactions on
Industrial Electronics Pages. 469-480.
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(c) Transmission Technologies
     Beltless CVT--Most MY 2016, commercially available CVTs
rely on belt technology. A new architecture of CVT replaces belts or
pulleys with a continuously variable variator, which is a special type
of planetary set with balls and rings instead of gears. The technology
promises to improve efficiency, handle higher torques, and change modes
more quickly. This technology may be commercially available as early as
2020.\182\
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    \182\ Murphy, T. Planets Aligning for Dana's VariGlide Beltless
CVT, Wards Auto (Aug. 22, 2017), http://wardsauto.com/technology/planets-aligning-dana-s-variglide-beltless-cvt.
---------------------------------------------------------------------------

     Multi-speed electric motor transmission--MY 2016 battery
electric vehicle transmissions are single-speed. Multiple gears can
allow for more torque multiplication at lower speeds or a downsized
electric machine, increased efficiency, and higher top speed. Two-speed
transmission designs are available but not currently in
production.\183\
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    \183\ Faid, S. A Highly Efficient Two Speed Transmission for
Electric Vehicles (May 2015), available at http://www.evs28.org/event_file/event_file/1/pfile/EVS28_Saphir_Faid.pdf.
---------------------------------------------------------------------------

(d) Energy-Harvesting Technology
     Vehicle waste heat recovery systems--Internal combustion
engines convert the majority of the fuel's energy to heat.
Thermoelectric generators and heat pipes can convert this heat to
electricity.\184\ Thermoelectric generators, often made of
semiconductors, have been tested by automakers but have traditionally
not been implemented due to low efficiency and high cost.\185\ These
systems are not yet in production.
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    \184\ Orr et al., A review of car waste heat recovery systems
utilising thermoelectric generators and heat pipes, 101 Applied
Thermal Engineering 490-495 (May 25, 2016).
    \185\ Patel, P. Powering Your Car with Waste Heat, MIT
Technology Review (May 25, 2011), https://www.technologyreview.com/s/424092/powering-your-car-with-waste-heat/.
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     Suspension energy recovery--Multiple electromechanical and
electrohydraulic suspension technologies exist that can convert motion
from uneven roads into electricity.186 187 These
technologies are limited to luxury vehicles with limited production
volumes. This technology is not produced in 2016 but planned for
production as early as 2018.\188\
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    \186\ Baeuml, B. et al., The Chassis of the Future, Schaeffler,
https://www.schaeffler.com/remotemedien/media/_shared_media/08_media_library/01_publications/schaeffler_2/symposia_1/downloads_11/Schaeffler_Kolloquium_2014_27_en.pdf (last visited June
21, 2018).
    \187\ Advanced Suspension, Tenneco, http://www.tenneco.com/overview/rc_advanced_suspension/ (last visited June 21, 2018).
    \188\ Audi A8 Active Chassis, Audi, https://www.audi.com/en/innovation/design/more_personal_comfort_a8_active_chassis.html (last
visited June 21, 2018).
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11. Air Conditioning Efficiency and Off-Cycle Technologies
(a) Air Conditioning Efficiency Technologies
    Air conditioning (A/C) is a virtually standard automotive
accessory, with more than 95% of new cars and light trucks sold in the
United States equipped with mobile air conditioning (MAC) systems. Most
of the additional air conditioning related load on an engine is due to
the compressor, which pumps the refrigerant around the system loop. The
less the compressor operates or the more efficiently it operates, the
less load the compressor places on the engine, and the better fuel
consumption will be. This high penetration means A/C systems can
significantly impact energy consumed by the light duty vehicle fleet.
    Vehicle manufacturers can generate credits for improved A/C systems
under EPA's GHG program and receive a fuel consumption improvement
value (FCIV) equal to the value of the benefit not captured on the 2-
cycle test under NHTSA's CAFE program.\189\ Table II-19 provides a
``menu'' of qualifying A/C technologies, with the magnitude of each
improvement value or credit estimated based on the expected reduction
in CO2 emissions from the technology.\190\ NHTSA converts
the improvement in grams per mile to a FCIV for each vehicle for
purposes of measuring CAFE compliance. As part of a manufacturer's
compliance data, manufacturers will provide information about which
off-cycle technologies are present on which vehicles (see Section X for
further discussion of reporting off-cycle technology information).
---------------------------------------------------------------------------

    \189\ 77 FR 62624, 62720 (Oct. 15, 2012).
    \190\ 40 CFR 86.1868-12 (2016).
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    The 2012 final rule for MYs 2017 and later outlined two test
procedures to determine credit or FCIV eligibility for A/C efficiency
menu credits, the idle test, and the AC17 test. The idle test,
performed while the vehicle is at idle, determined the additional
CO2 generated at idle when the A/C system is operated.\191\
The AC17 test is a four-part performance test that combines the
existing SC03 driving cycle, the fuel economy highway test cycle, and a
pre-conditioning cycle, and solar soak period.\192\ Manufacturers could
use the idle test or AC17 test to determine improvement values for MYs
2014-2016, while for MYs 2017 and later, the AC17 test is the exclusive
test that manufacturers can use to demonstrate eligibility for menu A/C
improvement values.
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    \191\ 75 FR 25324, 25431 (May 7, 2010). The A/C CO2
Idle Test is run with and without the A/C system cooling the
interior cabin while the vehicle's engine is operating at idle and
with the system under complete control of the engine and climate
control system.
    \192\ 77 FR 62624, 62723 (Oct. 15, 2012).
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    In MYs 2020 and later, manufacturers will use the AC17 test to
demonstrate eligibility for A/C credits and to partially quantify the
amount of the credit earned. AC17 test results equal to or greater than
the menu value will allow manufacturers to claim the full menu value
for the credit. A test result less than the menu value will limit the
amount of credit to that demonstrated on the AC17 test. In addition,
for MYs 2017 and beyond, A/C fuel consumption improvement values will
be available for CAFE calculations, whereas efficiency credits were
previously only available for GHG compliance. The agencies proposed
these changes in the 2012 final rule for MYs 2017 and later largely as
a result of new data collected, as well as the extensive technical
comments submitted on the proposal.\193\
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    \193\ Id.
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    The pre-defined technology menu and associated car and light truck
credit value is shown in Table II-19 below. The regulations include a
definition of each technology that must be met to be eligible for the
menu credit.\194\ Manufacturers are not required to submit any other
emissions data or information beyond meeting the definition and useful
life requirements \195\ to use the pre-defined

credit value. Manufacturers' use of menu-based credits for A/C
efficiency is subject to a regulatory cap: 5.7 g/mi for cars and trucks
through MY 2016 and separate caps of 5.0 g/mi for cars and 7.2g/mi for
trucks for later MYs.\196\
---------------------------------------------------------------------------

    \194\ Id. at 62725.
    \195\ Lifetime vehicle miles travelled (VMT) for MY 2017-2025
are 195,264 miles and 225,865 miles for passenger cars and light
trucks, respectively. The manufacturer must also demonstrate that
the off-cycle technology is effective for the full useful life of
the vehicle. Unless the manufacturer demonstrates that the
technology is not subject to in-use deterioration, the manufacturer
must account for the deterioration in their analysis.
    \196\ 40 CFR 86.1868-12(b)(2) (2016).
---------------------------------------------------------------------------

    In the 2012 final rule for MYs 2017 and later, the agencies
estimated that manufacturers would employ significant advanced A/C
technologies throughout their fleets to improve fuel economy, and this
was reflected in the stringency of the standards.\197\ Many
manufacturers have since incorporated A/C technology throughout their
fleets, and the utilization of advanced A/C technologies has become a
significant contributor to industry compliance plans. As summarized in
the EPA Manufacturer Performance Report for the 2016 model year,\198\
15 auto manufacturers included A/C efficiency credits as part of their
compliance demonstration in the 2016 MY. These amounted to more than 12
million Mg of fuel consumption improvement values of the total net fuel
consumption improvement values reported. This is equivalent to
approximately four grams per mile across the 2016 fleet. Accordingly, a
significant amount of new information about A/C technology and the
efficacy of test procedures has become available since the 2012 final
rule.
---------------------------------------------------------------------------

    \197\ See e.g., 77 FR 62623, 62803-62806 (Oct. 15, 2012).
    \198\ See Greenhouse Gas Emission Standards for Light-Duty
Vehicles: Manufacturer Performance Report for the 2016 Model Year
(EPA Report 420-R18-002), U.S. EPA (Jan. 2018), available at https://nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P100TGIA.pdf.
---------------------------------------------------------------------------

    The sections below provide a brief history of the AC17 test
procedure for evaluating A/C efficiency improving technology and
discuss stakeholder comments on the AC17 test procedure approach and
discuss A/C efficiency technology valuation through the off-cycle
program.

[GRAPHIC] [TIFF OMITTED] TP24AU18.034

(1) Evaluation of the AC17 Test Procedure Since the Draft TAR
    In developing the AC17 test procedure, the agencies sought to
develop a test procedure that could more reliably generate an
appropriate fuel consumption improvement value based on an ``A'' to
``B'' comparison, that is, a comparison of substantially similar
vehicles in which one has the technology and the other does not.\199\
The agencies believe that the AC17 test procedure is more capable of
detecting the effect of more efficient A/C components and controls
strategies during a transient drive cycle rather than during just idle
(as measured in the old idle test procedure). As described above and in
the 2012 final rule,\200\ the AC17 test is a four-part performance test
that combines the existing SC03 driving

cycle, the fuel economy highway cycle, as well as a pre-conditioning
cycle, and a solar soak period.
---------------------------------------------------------------------------

    \199\ For an explanation of how the agencies, in collaboration
with stakeholders, developed the AC17 test procedure, see the 2017
and later final rule at 77 FR 62624, 62723 (Oct. 15, 2012).
    \200\ See 77 FR 62624, 62723 (Oct. 15, 2012); Joint Technical
Support Document: Final Rulemaking for 2017-2025 Light-Duty Vehicle
Greenhouse Gas Emission and Corporate Average Fuel Economy
Standards, U.S. EPA, National Highway Traffic Safety Administration
at 5-40 (August 2012) .
---------------------------------------------------------------------------

    The agencies received several comments on the Draft TAR evaluation
of the AC17 test procedure. FCA commented generally that A/C efficiency
technologies ``are not showing their full effect on this AC17 test as
most technologies provide benefit at different temperatures and
humidity conditions in comparison to a standard test conditions. All of
these technologies are effective at different levels at different
conditions. So there is not one size fits all in this very complex
testing approach. Selecting one test that captures benefits of all of
these conditions has not been possible.'' \201\
---------------------------------------------------------------------------

    \201\ See Comment by FCA US LLC, Docket ID NHTSA 2016-0068-0082,
at 123-124.
---------------------------------------------------------------------------

    The agencies acknowledge that any single test procedure is unlikely
to equally capture the real-world effect of every potential technology
in every potential use case. Both the agencies and stakeholders
understood this difficulty when developing the AC17 test procedure.
While no test is perfect, the AC17 test procedure represents an
industry best effort at identifying a test that would greatly improve
upon the idle test by capturing a greater range of operating
conditions. General industry evaluation of the AC17 test procedure is
in agreement that the test achieves this objective.
    FCA also noted that ``[i]t is a major problem to find a baseline
vehicle that is identical to the new vehicle but without the new A/C
technology. This alone makes the test unworkable.'' \202\ The agencies
disagree this makes the test unworkable. The regulation describes the
baseline vehicle as a ``similar'' vehicle, selected with good
engineering judgment (such that the test comparison is not unduly
affected by other differences). Also, OEMs expressed confidence in
using A-to-B testing to qualify for fuel consumption improvement values
for software-based A/C efficiency technologies. While hardware
technologies may pose a greater challenge in locating a sufficiently
similar ``A'' baseline vehicle, the engineering analysis provision
under 40 CFR 86.1868-12(g)(2) provides an alternative to locating and
performing an AC17 test on such a vehicle. Further, as the USCAR
program in general and the GM Denso SAS compressor application
specifically have shown, the test is able to resolve small differences
in CO2 effectiveness (1.3 grams in the latter case) when
carefully conducted.
---------------------------------------------------------------------------

    \202\ Id. at 124.
---------------------------------------------------------------------------

    Commenters on the Draft TAR also expressed a desire for
improvements in the process by which manufacturers without an ``A''
vehicle (for the A-to-B comparison) could apply under the engineering
analysis provision, such as development of standardized engineering
analysis and bench testing procedures that could support such
applications. For example, Toyota requested that ``EPA consider an
optional method for validation via an engineering analysis, as is
currently being developed by industry.'' \203\ Similarly, the Alliance
commented that, ``[t]he future success of the MAC credit program in
generating emissions reductions will depend to a large extent on the
manner in which it is administered by EPA, especially with respect to
making the AC17 A-to-B provisions function smoothly, without becoming a
prohibitive obstacle to fully achieving the MAC indirect credits.''
\204\
---------------------------------------------------------------------------

    \203\ See Comment by Toyota (revised), Docket ID NHTSA-2016-
0068-0088, at 23.
    \204\ See Comment by Alliance of Automobile Manufacturers,
Docket ID EPA-HQ-OAR-2015-0827-4089 and NHTSA-2016-0068-0072, at
160.
---------------------------------------------------------------------------

    As described in the Draft TAR, in 2016, USCAR members initiated a
Cooperative Research Program (CRP) through the Society of Automotive
Engineers (SAE) to develop bench testing standards for the four
hardware technologies in the fuel consumption improvement value menu
(blower motor control, internal heat exchanger, improved evaporators
and condensers, and oil separator). The intent of the program is to
streamline the process of conducting bench testing and engineering
analysis in support of an application for A/C credits under 40 CFR part
86.1868-12(g)(2), by creating uniform standards for bench testing and
for establishing the expected GHG effect of the technology in a vehicle
application.
    An update to the list of SAE standards under development originally
presented in the Draft TAR is listed in Table II-20. Since completion
of the Draft TAR, work has continued on these standards, which appear
to be nearing completion. The agencies seek comment with the latest
completion of these SAE standards.
[GRAPHIC] [TIFF OMITTED] TP24AU18.035

(2) A/C Efficiency Technology Valuation Through the Off-Cycle Program
    The A/C technology menu, discussed at length above, includes
several A/C efficiency-improving technologies that were well defined
and had been quantified for effectiveness at the time of the 2012 final
rule for MYs 2017 and beyond. Manufacturers claimed the vast majority
of A/C efficiency credits to date by utilizing technologies on the
menu; however, the agencies recognize that manufacturers will develop
additional technologies that are not currently listed on the menu.
These additional A/C efficiency-improving technologies are eligible for
fuel consumption improvement values on a case-by-case basis under the
off-cycle program. Approval under the off-cycle program also requires
``A-to-B'' comparison testing under the AC17 test, that is, testing
substantially similar vehicles in which one has the technology and the
other does not.
    To date, the agencies have received one type off-cycle application
for an A/C efficiency technology. In December 2014, General Motors
submitted an off-cycle application for the Denso SAS A/

C compressor with variable crankcase suction valve technology,
requesting an off-cycle GHG credit of 1.1 grams CO2 per
mile. In December 2017, BMW of North America, Ford Motor Company,
Hyundai Motor Company, and Toyota petitioned and received approval to
receive the off-cycle improvement value for the same A/C efficiency
technology.205 206 EPA, in consultation with NHTSA,
evaluated the applications and found methodologies described therein
were sound and appropriate.\207\ Accordingly, the agencies approved the
fuel economy improvement value applications.
---------------------------------------------------------------------------

    \205\ EPA Decision Document: Off-Cycle Credits for BMW Group,
Ford Motor Company, and Hyundai Motor Company, U.S. EPA (Dec. 2017),
available at https://nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P100TF06.pdf.
    \206\ Alternative Method for Calculating Off-cycle Credits under
the Light-Duty Vehicle Greenhouse Gas Emissions Program:
Applications from General Motors and Toyota Motor North America, 83
FR 8262 (Feb. 26, 2018).
    \207\ Id.
---------------------------------------------------------------------------

    The agencies received additional stakeholder comments on the off-
cycle approval process as an alternate route to receiving A/C
technology credit values. The Alliance requested that EPA ``simplify
and standardize the procedures for claiming off-cycle credits for the
new MAC technologies that have been developed since the creation of the
MAC indirect credit menu.'' \208\ Other commenters noted the importance
of continuing to incentivize further innovation in A/C efficiency
technologies as new technologies emerge that are not listed on the menu
or when manufacturers begin to reach regulatory caps. The commenters
suggested that EPA should consider adding new A/C efficiency
technologies to the menu and/or update the fuel consumption improvement
values for technology already listed on the menu, particularly in cases
where manufacturers can show through an off-cycle application that the
technology actually deserves more credit than that listed on the menu.
For example, Toyota commented that ``the incentive values for A/C
efficiency should be updated along with including new technologies
being deployed.'' \209\
---------------------------------------------------------------------------

    \208\ Comment by Alliance of Automobile Manufacturers, Docket ID
EPA-HQ-OAR-2015-0827-4089 and NHTSA-2016-0068-0072, at 152.
    \209\ Comment by Toyota (revised), Docket ID NHTSA-2016-0068-
0088, at 23.
---------------------------------------------------------------------------

    The agencies note that some of these comments are directed towards
the off-cycle technology approval process generally, which is described
in more detail in Section X of this preamble. Regarding the A/C
technology menu specifically, the agencies do anticipate that new A/C
technologies not currently on the menu will emerge over the time frame
of the MY 2021-2026 standards. This proposal requests comment on adding
one additional A/C technology to the menu--the A/C compressor with
variable crankcase suction valve technology, discussed below (and also
one off-cycle technology, discussed below). The agencies also request
comment on whether to change any fuel economy improvement values
currently assigned to technologies on the menu.
    Next, as mentioned above, the menu-based improvement values for A/C
efficiency established in the 2012 final rule for MYs 2017 and by end
are subject to a regulatory cap. The rule set a cap of 5.7 g/mi for
cars and trucks through MY 2016 and separate caps of 5.0 g/mi for cars
and 7.2g/mi for trucks for later MYs.\210\ Several commenters asked EPA
to reconsider the applicability of the cap to non-menu A/C efficiency
technologies claimed through the off-cycle process and questioned the
applicability of this cap on several different grounds. These comments
appear to be in response to a Draft TAR passage that stated:
``Applications for A/C efficiency credits made under the off-cycle
credit program rather than the A/C credit program will continue to be
subject to the A/C efficiency credit cap'' (Draft TAR, p. 5-210). The
agencies considered these comments and present clarification below. As
additional context, the 2012 TSD states:
---------------------------------------------------------------------------

    \210\ 40 C.F.R Sec.  86.1868-12(b)(2) (2016).

    ``. . . air conditioner efficiency is an off-cycle technology.
It is thus appropriate [. . .] to employ the standard off-cycle
credit approval process [to pursue a larger credit than the menu
value]. Utilization of bench tests in combination with dynamometer
tests and simulations [. . .] would be an appropriate alternate
method of demonstrating and quantifying technology credits (up to
the maximum level of credits allowed for A/C efficiency) [emphasis
added]. A manufacturer can choose this method even for technologies
that are not currently included in the menu.'' \211\
---------------------------------------------------------------------------

    \211\ Joint Technical Support Document: Final Rulemaking for
2017-2025 Light-Duty Vehicle Greenhouse Gas Emission and Corporate
Average Fuel Economy Standards, U.S. EPA, National Highway Traffic
Safety Administration at 5-58 (August 2012).
---------------------------------------------------------------------------

    This suggests the concept of placing a limit on total A/C fuel
consumption improvement values, even when some are granted under the
off-cycle program, is not entirely new and that EPA considered the menu
cap as being appropriate at the time.
    A/C regulatory caps specified under 40 CFR 86.1868-12(b)(2) apply
to A/C efficiency menu-based improvement values and are not part of the
off-cycle regulation (40 CFR 86.1869-12). However, it should be noted
that off-cycle applications submitted via the public process pathway
are decided individually on merits through a process involving public
notice and opportunity for comment. In deciding whether to approve or
deny a request, the agencies may take into account any factors deemed
relevant, including such issues as the realization of claimed fuel
consumption improvement value in real-world use. Such considerations
could include synergies or interactions among applied technologies,
which could potentially be addressed by application of some form of cap
or other applicable limit, if warranted. Therefore, applying for A/C
efficiency fuel consumption improvement values through the off-cycle
provisions in 40 CFR 86.1869-12 should not be seen as a route to
unlimited A/C fuel consumption improvement values. The agencies discuss
air conditioning efficiency improvement values further in Section X of
this NPRM.
(b) Off-Cycle Technologies
    ``Off-cycle'' emission reductions and fuel consumption improvements
can be achieved by employing off-cycle technologies resulting in real-
world benefits but where that benefit is not adequately captured on the
test procedures used to demonstrate compliance with fuel economy
emission standards. EPA initially included off-cycle technology credits
in the MY 2012-2016 rule and revised the program in the MY 2017-2025
rule.\212\ NHTSA adopted equivalent off-cycle fuel consumption
improvement values for MYs 2017 and later in the MY 2017-2025
rule.\213\
---------------------------------------------------------------------------

    \212\ 77 FR 62624, 62832 (Oct. 15, 2012).
    \213\ Id. at 62839.
---------------------------------------------------------------------------

    Manufacturers can demonstrate the value of off-cycle technologies
in three ways: First, they may select fuel economy improvement values
and CO2 credit values from a pre-defined ``menu'' for off-
cycle technologies that meet certain regulatory specifications. As part
of a manufacturer's compliance data, manufacturers will provide
information about which off-cycle technologies are present on which
vehicles.
    The pre-defined list of technologies and associated off-cycle
light-duty vehicle fuel economy improvement values and GHG credits is
shown in Table II-21 and Table II-22 below.\214\ A

definition of each technology equipment must meet to be eligible for
the menu credit is included at 40 CFR 86.1869-12(b)(4). Manufacturers
are not required to submit any other emissions data or information
beyond meeting the definition and useful life requirements to use the
pre-defined credit value. Credits based on the pre-defined list are
subject to an annual manufacturer fleet-wide cap of 10 g/mile.
---------------------------------------------------------------------------

    \214\ For a description of each technology and the derivation of
the pre-defined credit levels, see Chapter 5 of the Joint Technical
Support Document: Final Rulemaking for 2017-2025 Light-Duty Vehicle
Greenhouse Gas Emission and Corporate Average Fuel Economy
Standards, U.S. EPA, National Highway Traffic Safety Administration
(August 2012).
[GRAPHIC] [TIFF OMITTED] TP24AU18.036

    Manufacturers can also perform their own 5-cycle testing and submit
test results to the agencies with a request explaining the off-cycle
technology. The additional three test cycles have different operating
conditions including high speeds, rapid accelerations, high temperature
with A/C operation and cold temperature, enabling improvements to be
measured for technologies that do not impact operation on the 2-cycle
tests. Credits determined according to this methodology do not undergo
public review.
    The third pathway allows manufacturers to seek EPA approval to use
an alternative methodology for determining the value of an off-cycle
technology. This option is only available if the benefit of the
technology cannot be adequately demonstrated using the 5-cycle
methodology. Manufacturers may also use this option to demonstrate
reductions that exceed

those available via use of the predetermined menu list. The
manufacturer must also demonstrate that the off-cycle technology is
effective for the full useful life of the vehicle. Unless the
manufacturer demonstrates that the technology is not subject to in-use
deterioration, the manufacturer must account for the deterioration in
their analysis.
    Manufacturers must develop a methodology for demonstrating the
benefit of the off-cycle technology, and EPA makes the methodology
available for public comment prior to an EPA determination, in
consultation with NHTSA, on whether to allow the use of the methodology
to measure improvements. The data needed for this demonstration may be
extensive.
    Several manufacturers have requested and been granted use of
alternative test methodologies for measuring improvements. In 2013,
Mercedes requested off-cycle credits for the following off-cycle
technologies in use or planned for implementation in the 2012-2016
model years: Stop-start systems, high-efficiency lighting, infrared
glass glazing, and active seat ventilation. EPA approved methodologies
for Mercedes to determine these off-cycle credits in September
2014.\215\ Subsequently, FCA, Ford, and GM requested off-cycle credits
using this same methodology. FCA and Ford submitted applications for
off-cycle credits from high efficiency exterior lighting, solar
reflective glass/glazing, solar reflective paint, and active seat
ventilation. Ford's application also demonstrated off-cycle benefits
from active aerodynamic improvements (grille shutters), active
transmission warm-up, active engine warm-up technologies, and engine
idle stop-start. GM's application described real-world benefits of an
air conditioning compressor with variable crankcase suction valve
technology. EPA approved the credits for FCA, Ford, and GM in September
2015.\216\ Note, however, that although EPA granted the use of
alternative methodologies to determine credit values, manufacturers
have yet to report credits to EPA based on those alternative
methodologies.
---------------------------------------------------------------------------

    \215\ EPA Decision Document: Mercedes-Benz Off-cycle Credits for
MYs 2012-2016, U.S. EPA (Sept. 2014), available at https://nepis.epa.gov/Exe/ZyPDF.cgi/P100KB8U.PDF?Dockey=P100KB8U.PDF.
    \216\ EPA Decision Document: Off-cycle Credits for Fiat Chrysler
Automobiles, Ford Motor Company, and General Motors Corporation,
U.S. EPA (Sept. 2015), available at https://nepis.epa.gov/Exe/ZyPDF.cgi/P100N19E.PDF?Dockey=P100N19E.PDF.
---------------------------------------------------------------------------

    As discussed below, all three methods have been used by
manufacturers to generate off-cycle improvement values and credits.
(1) Use of Off-Cycle Technologies to Date
    Manufacturers used a wide array of off-cycle technologies in MY
2016 to generate off-cycle GHG credits using the pre-defined menu.
Table II-23 below shows the percent of each manufacturer's production
volume using each menu technology reported to EPA for MY 2016 by
manufacturer. Table II-24 shows the g/mile benefit each manufacturer
reported across its fleet from each off-cycle technology. Like Table
II-23, Table II-24 provides the mix of technologies used in MY 2016 by
manufacturer and the extent to which each technology benefits each
manufacturer's fleet. Fuel consumption improvement values for off-cycle
technologies were not available in the CAFE program until MY 2017;
therefore, only GHG off-cycle credits have been generated by
manufacturers thus far.

[GRAPHIC] [TIFF OMITTED] TP24AU18.037

[GRAPHIC] [TIFF OMITTED] TP24AU18.038

    In 2016, manufacturers generated the vast majority of credits using
the pre-defined menu.\217\ Although MY 2014 was the first year that
manufacturers could generate credits using pre-defined menu values,
manufacturers have acted quickly to generate substantial off-cycle
improvements. FCA and Jaguar Land Rover generated the most off-cycle
credits on a fleet-wide basis, reporting credits equivalent to
approximately 6 g/mile and 5 g/mile, respectively. Several other
manufacturers report fleet-wide credits in the range of approximately 1
to 4 g/mile. In MY 2016, the fleet total across manufacturers equaled
approximately 2.5 g/mile. The agencies

expect that as manufacturers continue expanding their use of off-cycle
technologies, the fleet-wide effects will continue to grow with some
manufacturers potentially approaching the 10 g/mile fleet-wide cap.
---------------------------------------------------------------------------

    \217\ Thus far, the agencies have only granted one manufacturer
(GM) off-cycle credits for technology based on 5-cycle testing.
These credits are for an off-cycle technology used on certain GM
gasoline-electric hybrid vehicles, an auxiliary electric pump, which
keeps engine coolant circulating in cold weather while the vehicle
is stopped and the engine is off, thus allowing the engine stop-
start system to be active more frequently in cold weather.
---------------------------------------------------------------------------

E. Development of Economic Assumptions and Information Used as Inputs
to the Analysis

1. Purpose of Developing Economic Assumptions for Use in Modeling
Analysis
(a) Overall Framework of Costs and Benefits
    It is important to report the benefits and costs of this proposed
action in a format that conveys useful information about how those
impacts are generated and that also distinguishes the impacts of those
economic consequences for private businesses and households from the
effects on the remainder of the U.S. economy. A reporting format will
accomplish the first objective to the extent that it clarifies the
benefits and costs of the proposed action's impacts on car and light
truck producers, illustrates how these are transmitted to buyers of new
vehicles, shows the action's collateral economic effects on owners of
used cars and light trucks, and identifies how these impacts create
costs and benefits for the remainder of the U.S. economy. It will
achieve the second objective by showing clearly how the economy-wide or
``social'' benefits and costs of the proposed action are composed of
its direct effects on vehicle producers, buyers, and users, plus the
indirect or ``external'' benefits and costs it creates for the general
public.
    Table II-25 through Table II-28 present the economic benefits and
costs of the proposed action to reduce CAFE and CO2
emissions standards for model years 2021-26 at three percent and seven
percent discount rates in a format that is intended to meet these
objectives. Note: They include costs which are transfers between
different economic actors--these will appear as both a cost and a
benefit in equal amounts (to separate affected parties). Societal cost
and benefit values shown elsewhere in this document do not show costs
which are transfers for the sake of simplicity but report the same net
societal costs and benefits. As it indicates, the proposed action first
reduces costs to manufacturers for adding technology necessary to
enable new cars and light trucks to comply with fuel economy and
emission regulations (line 1). It may also reduce fine payments by
manufacturers who would have failed to comply with the more demanding
baseline standards. Manufacturers are assumed to transfer these cost
savings on to buyers by charging lower prices (line 5); although this
reduces their revenues (line 3), on balance, the reduction in
compliance costs and lower sales revenue leaves them financially
unaffected (line 4).

[GRAPHIC] [TIFF OMITTED] TP24AU18.039

[GRAPHIC] [TIFF OMITTED] TP24AU18.040

[GRAPHIC] [TIFF OMITTED] TP24AU18.041

[GRAPHIC] [TIFF OMITTED] TP24AU18.042

[GRAPHIC] [TIFF OMITTED] TP24AU18.043

    As the tables show, most impacts of the proposed action will fall
on the businesses and individuals who design, manufacture, and sell (at
retail and wholesale) cars and light trucks, the consumers who
purchase, drive, and subsequently sell or trade-in new models (and
ultimately bear the cost of fuel economy technology), and owners of
used cars and light trucks produced during model years prior to those
covered by this action. Compared to the baseline standards, if the
preferred alternative is finalized, buyers of new cars and light trucks
will benefit from

their lower purchase prices and financing costs (line 5). They will
also avoid the increased risks of being injured in crashes that would
have resulted from manufacturers' efforts to reduce the weight of new
models to comply with the baseline standards, which represents another
benefit from reducing stringency vis-[agrave]-vis the baseline (line
6).
    At the same time, new cars and light trucks will offer lower fuel
economy with more lenient standards in place, and this imposes various
costs on their buyers and users. Drivers will experience higher costs
as a consequence of new vehicles' increased fuel consumption (line 7),
and from the added inconvenience of more frequent refueling stops
required by their reduced driving range (line 8). They will also forego
some mobility benefits as they use newly-purchased cars and light
trucks less in response to their higher fueling costs, although this
loss will be almost fully offset by the fuel and other costs they save
by driving less (line 9). On balance, consumers of new cars and light
trucks produced during the model years subject to this proposed action
will experience significant economic benefits (line 10).
    By lowering prices for new cars and light trucks, this proposed
action will cause some owners of used vehicles to retire them from
service earlier than they would otherwise have done, and replace them
with new models. In effect, it will transfer some driving that would
have been done in used cars and light trucks under the baseline
scenario to newer and safer models, thus reducing costs for injuries
(both fatal and less severe) and property damages sustained in motor
vehicle crashes. This improvement in safety results from the fact that
cars and light trucks have become progressively more protective in
crashes over time (and also slightly less prone to certain types of
crashes, such as rollovers). Thus, shifting some travel from older to
newer models reduces injuries and damages sustained by drivers and
passengers because they are traveling in inherently safer vehicles and
not because it changes the risk profiles of drivers themselves. This
reduction in injury risks and other damage costs produces benefits to
owners and drivers of older cars and light trucks. This also results in
benefits in terms of improved fuel economy and significant reductions
of emissions from newer vehicles (line 11).
    Table II-27 through Table II-28 also show that the changes in fuel
consumption and vehicle use resulting from this proposed action will in
turn generate both benefits and costs to the remainder of the U.S.
economy. These impacts are ``external,'' in the sense that they are by-
products of decisions by private firms and individuals that alter
vehicle use and fuel consumption but are experienced broadly throughout
the U.S. economy rather than by the firms and individuals who
indirectly cause them. Increased refining and consumption of petroleum-
based fuel will increase emissions of carbon dioxide and other
greenhouse gases that theoretically contribute to climate change, and
some of the resulting (albeit uncertain) increase in economic damages
from future changes in the global climate will be borne throughout the
U.S. economy (line 13). Similarly, added fuel production and use will
increase emissions of more localized air pollutants (or their chemical
precursors), and the resulting increase in the U.S. population's
exposure to harmful levels of these pollutants will lead to somewhat
higher costs from its adverse effects on health (line 14). On the other
hand, it is expected that the proposed standards, by reducing new
vehicle prices relative to the baseline, will accelerate fleet turnover
to cleaner, safer, more efficient vehicles (as compared to used
vehicles that might otherwise continue to be driven or purchased).
    As discussed in PRIA Section 9.8, increased consumption and imports
of crude petroleum for refining higher volumes of gasoline and diesel
will also impose some external costs throughout the U.S. economy, in
the form of potential losses in production and costs for businesses and
households to adjust rapidly to sudden changes in energy prices (line
15 of the table), although these costs should be tempered by increasing
U.S. oil production.\218\ Reductions in driving by buyers of new cars
and light trucks in response to their higher operating costs will also
reduce the external costs associated with their contributions to
traffic delays and noise levels in urban areas, and these additional
benefits will be experienced throughout much of the U.S. economy (line
17). Finally, some of the higher fuel costs to buyers of new cars and
light trucks will consist of increased fuel taxes; this increase in
revenue will enable Federal and State government agencies to provide
higher levels of road capacity or maintenance, producing benefits for
all road and transit users (line 18).
---------------------------------------------------------------------------

    \218\ Note: This output was based upon the EIA Annual Energy
Outlook from 2017. The 2018 Annual Energy Outlook projects the U.S.
will be a net exporter by around 2029, with net exports peaking at
around 0.5 mbd circa 2040. See Annual Energy Outlook 2018, U.S.
Energy Information Administration, at 53 (Feb, 6, 2018), https://www.eia.gov/outlooks/aeo/pdf/AEO2018.pdf. Furthermore, pursuant to
Executive Order 13783 (Promoting Energy Independence and Economy
Growth), agencies are expected to review and revise or rescind
policies that unduly burden the development of domestic energy
resources beyond what is necessary to protect the public interest or
otherwise comply with the law. Therefore, it is reasonable to
anticipate further increases in domestic production of petroleum.
The agencies may update the analysis and table to account for this
revised information.
---------------------------------------------------------------------------

    On balance, Table II-27 through Table II-28 show that the U.S.
economy as a whole will experience large net economic benefits from the
proposed action (line 22). While the proposal to establish less
stringent CAFE and GHG emission standards will produce net external
economic costs, as the increase in environmental and energy security
externalities outweighs external benefits from reduced driving and
higher fuel tax revenue (line 19), the table also shows that combined
benefits to vehicle manufacturers, buyers, and users of cars and light
trucks, and the general public (line 20), including the value of the
lives saved and injuries avoided, will greatly outweigh the combined
economic costs they experience as a consequence of this proposed action
(line 21).
    The finding that this action to reduce the stringency of
previously-established CAFE and GHG standards will create significant
net economic benefits--when it was initially claimed that establishing
those standards would also generate large economic benefits to vehicle
buyers and others throughout the economy--is notable. This contrast
with the earlier finding is explained by the availability of updated
information on the costs and effectiveness of technologies that will
remain available to improve fuel economy in model years 2021 and
beyond, the fleet-wide consequences for vehicle use, fuel consumption,
and safety from requiring higher fuel economy (that is, considering
these consequences for used cars and light trucks as well as new ones),
and new estimates of some external costs of fuel in petroleum use.
2. Macroeconomic Assumptions That Affect the Benefit Cost Analysis
    Unlike previous CAFE and GHG rulemaking analyses, the economic
context in which the alternatives are simulated is more explicit. While
both this analysis and previous analyses contained fuel price
projections from the Annual Energy Outlook, which has embedded
assumptions about future macroeconomic conditions, this analysis
requires explicit assumptions about future GDP growth, labor force
participation, and interest rates in order to evaluate the
alternatives.

[GRAPHIC] [TIFF OMITTED] TP24AU18.044

    The analysis simulates compliance through MY 2032 explicitly and
must consider the full useful lives of those vehicles, approximately 40
years, in order to estimate their lifetime mileage accumulation and
fuel consumption. This means that any macroeconomic forecast
influencing those factors must cover a similar span of years. Due to
the long time horizon, a source that regularly produces such lengthy
forecasts of these factors was selected:

the 2017 OASDI Trustees Report from the U.S. Social Security
Administration. While Table-II-29 only displays assumptions through CY
2050, the remaining years merely continue the trends present in the
table.
    The analysis once again uses fuel price projections from the 2017
Annual Energy Outlook.\219\ The projections by fuel calendar year and
fuel type are presented in Table-II-30, in real 2016 dollars. Fuel
prices in this analysis affect not only the value of each gallon of
fuel consumed but relative valuation of fuel-saving technologies
demanded by the market as a result of their associated fuel savings.
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    \219\ The central analysis supporting today's proposal uses
reference case estimates of fuel prices reported in the Energy
Information Administration's (EIA's) Annual Energy Outlook 2017 (AEO
2017). Today's proposal also examines the sensitivity of this
analysis to changes in key inputs, including fuel prices, and
includes cases that apply fuel prices from the AEO 2017 low oil
price and high oil price cases. The reference case prices are
considerably lower than AEO 2011-based reference cases prices
applied in the 2012 rulemaking, and this is one of several important
changes in circumstances supporting revision of previously-issued
standards.
    After significant portions of today's analysis had already been
completed, EIA released AEO 2018, which reports reference case fuel
prices about 10% higher than reported in AEO 2017, though still well
below the above-mentioned prices from AEO 2011. The sensitivity
analysis therefore includes a case that applies fuel prices from the
AEO 2018 reference case. The AEO 2018 low oil price case reports
fuel prices somewhat higher than the AEO 2017 low oil price case,
and the AEO 2018 high oil price case reports fuel prices very
similar to the AEO 2017 high oil price case. Adding the AEO 2018 low
and high oil price cases to the sensitivity analysis would thus have
provided little, if any, additional insight into the sensitivity of
the analysis to fuel prices. As shown in the summary of the
sensitivity analysis, results obtained applying AEO 2018-based fuel
prices are similar to those obtained applying AEO 2017-based fuel
prices. For example, net benefits between the two are about five
percent different, especially considering that decisions regarding
future standards are not single-factor decisions, but rather reflect
a balancing of factors, applying AEO 2018-based fuel prices would
not materially change the extent to which today's analysis supports
the selection of the preferred alternative.
    Like other inputs to the analysis, fuel prices will be updated
for the analysis supporting the final rule after consideration of
related new information and public comment.

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[GRAPHIC] [TIFF OMITTED] TP24AU18.045

3. New Vehicle Sales and Employment Assumptions
    In all previous CAFE and GHG rulemaking analyses, static fleet
forecasts that were based on a combination of manufacturer compliance
data, public data sources, and proprietary forecasts were used. When
simulating compliance with regulatory alternatives, the analysis
projected identical sales across the alternatives, for each
manufacturer down to the make/model level where the exact same number
of each model variant was simulated to be sold in a given model year
under both the least stringent alternative (typically the

baseline) and the most stringent alternative considered. To the extent
that an alternative matched the assumptions made in the production of
the proprietary forecast, using a static fleet based upon those
assumptions may have been warranted. However, it seems intuitive that
any sufficiently large span of regulatory alternatives would contain
alternatives for which that static forecast was unrepresentative. A
number of commenters have encouraged consideration of the potential
impact of CAFE/GHG standards on new vehicle prices and sales, and the
changes to compliance strategies that those shifts could
necessitate.\220\ In particular, the continued growth of the utility
vehicle segment creates compliance challenges within some
manufacturers' fleets as sales volumes shift from one region of the
footprint curve to another.
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    \220\ See e.g., Comment by Alliance of Automobile Manufacturers,
Docket ID EPA-HQ-OAR-2015-0827-4089 and NHTSA-2016-0068-0072.
---------------------------------------------------------------------------

    Any model of sales response must satisfy two requirements: It must
be appropriate for use in the CAFE model, and it must be
econometrically reasonable. The first of these requirements implies
that any variable used in the estimation of the econometric model, must
also be available as a forecast throughout the duration of the years
covered by the simulations (this analysis explicitly simulates
compliance through MY 2032). Some values the model calculates
endogenously, making them available in future years for sales
estimation, but others must be known in advance of the simulation. As
the CAFE model simulates compliance, it accumulates technology costs
across the industry and over time. By starting with the last known
transaction price and adding the accumulated technology cost to that
value, the model is able to represent the average selling price in each
future model year assuming that manufacturers are able to pass all of
their compliance costs on to buyers of new vehicles. Other variables
used in the estimation must enter the model as inputs prior to the
start of the compliance simulation.
(a) How do car and light truck buyers value improved fuel economy?
    How potential buyers value improvements in the fuel economy of new
cars and light trucks is an important issue in assessing the benefits
and costs of government regulation. If buyers fully value the savings
in fuel costs that result from higher fuel economy, manufacturers will
presumably supply any improvements that buyers demand, and vehicle
prices will fully reflect future fuel cost savings consumers would
realize from owning--and potentially re-selling--more fuel-efficient
models. In this case, more stringent fuel economy standards will impose
net costs on vehicle owners and can only result in social benefits by
correcting externalities, since consumers would already fully
incorporate private savings into their purchase decisions. If instead
consumers systematically undervalue the cost savings generated by
improvements in fuel economy when choosing among competing models, more
stringent fuel economy standards will also lead manufacturers to adopt
improvements in fuel economy that buyers might not choose despite the
cost savings they offer.
    The potential for car buyers to forego improvements in fuel economy
that offer savings exceeding their initial costs is one example of what
is often termed the ``energy-efficiency gap.'' This appearance of such
a gap, between the level of energy efficiency that would minimize
consumers' overall expenses and what they actually purchase, is
typically based on engineering calculations that compare the initial
cost for providing higher energy efficiency to the discounted present
value of the resulting savings in future energy costs.
    There has long been an active debate about why such a gap might
arise and whether it actually exists. Economic theory predicts that
individuals will purchase more energy-efficient products only if the
savings in future energy costs they offer promise to offset their
higher initial costs. However, the additional cost of a more energy-
efficient product includes more than just the cost of the technology
necessary to improve its efficiency; it also includes the opportunity
cost of any other desirable features that consumers give up when they
choose the more efficient alternative. In the context of vehicles,
whether the expected fuel savings outweigh the opportunity cost of
purchasing a model offering higher fuel economy will depend on how much
its buyer expects to drive, his or her expectations about future fuel
prices, the discount rate he or she uses to value future expenses, the
expected effect on resale value, and whether more efficient models
offer equivalent attributes such as performance, carrying capacity,
reliability, quality, or other characteristics.
    Published literature has offered little consensus about consumers'
willingness-to-pay for greater fuel economy, and whether it implies
over-, under- or full-valuation of the expected fuel savings from
purchasing a model with higher fuel economy. Most studies have relied
on car buyers' purchasing behavior to estimate their willingness-to-pay
for future fuel savings; a typical approach has been to use ``discrete
choice'' models that relate individual buyers' choices among competing
vehicles to their purchase prices, fuel economy, and other attributes
(such as performance, carrying capacity, and reliability), and to infer
buyers' valuation of higher fuel economy from the relative importance
of purchase prices and fuel economy.\221\ Empirical estimates using
this approach span a wide range, extending from substantial
undervaluation of fuel savings to significant overvaluation, thus
making it difficult to draw solid conclusions about the influence of
fuel economy on vehicle buyers' choices (see Helfand & Wolverton, 2011;
Green (2010) for detailed reviews of these cross-sectional studies).
Because a vehicle's price is often correlated with its other attributes
(both measured and unobserved), analysts have often used instrumental
variables or other approaches to address endogeneity and other
resulting concerns (e.g., Barry, et al. 1995).
---------------------------------------------------------------------------

    \221\ In a typical vehicle choice model, the ratio of estimated
coefficients on fuel economy--or more commonly, fuel cost per mile
driven--and purchase price is used to infer the dollar value buyers
attach to slightly higher fuel economy.
---------------------------------------------------------------------------

    Despite these efforts, more recent research has criticized these
cross-sectional studies; some have questioned the effectiveness of the
instruments they use (Allcott & Greenstone, 2012), while others have
observed that coefficients estimated using non-linear statistical
methods can be sensitive to the optimization algorithm and starting
values (Knittel & Metaxoglou, 2014). Collinearity (i.e., high
correlations) among vehicle attributes--most notably among fuel
economy, performance or power, and vehicle size--and between vehicles'
measured and unobserved features also raises questions about the
reliability and interpretation of coefficients that may conflate the
value of fuel economy with other attributes (Sallee, et al., 2016;
Busse, et al., 2013; Allcott & Wozny, 2014; Allcott & Greenstone, 2012;
Helfand & Wolverton, 2011).
    In an effort to overcome shortcomings of past analyses, three
recently published studies rely on panel data from sales of individual
vehicle models to improve their reliability in identifying the
association between vehicles' prices and their fuel economy (Sallee, et
al. 2016; Allcott & Wozny, 2014; Busse, et al., 2013). Although they
differ in certain details, each of these

analyses relates changes over time in individual models' selling prices
to fluctuations in fuel prices, differences in their fuel economy, and
increases in their age and accumulated use, which affects their
expected remaining life, and thus their market value. Because a
vehicle's future fuel costs are a function of both its fuel economy and
expected gasoline prices, changes in fuel prices have different effects
on the market values of vehicles with different fuel economy; comparing
these effects over time and among vehicle models reveals the fraction
of changes in fuel costs that is reflected in changes in their selling
prices (Allcott & Wozny, 2014). Using very large samples of sales
enables these studies to define vehicle models at an extremely
disaggregated level, which enables their authors to isolate differences
in their fuel economy from the many other attributes, including those
that are difficult to observe or measure, that affect their sale
prices.\222\
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    \222\ These studies rely on individual vehicle transaction data
from dealer sales and wholesale auctions, which includes actual sale
prices and allows their authors to define vehicle models at a highly
disaggregated level. For instance, Allcott & Wozny (2014)
differentiate vehicles by manufacturer, model or nameplate, trim
level, body type, fuel economy, engine displacement, number of
cylinders, and ``generation'' (a group of successive model years
during which a model's design remains largely unchanged). All three
studies include transactions only through mid-2008 to limit the
effect of the recession on vehicle prices. To ensure that the
vehicle choice set consists of true substitutes, Allcott & Wozny
(2014) define the choice set as all gasoline-fueled light-duty cars,
trucks, SUVs, and minivans that are less than 25 years old (i.e.,
they exclude vehicles where the substitution elasticity is expected
to be small). Sallee et al. (2016) exclude diesels, hybrids, and
used vehicles with less than 10,000 or more than 100,000 miles.
---------------------------------------------------------------------------

    These studies point to a somewhat narrower range of estimates than
suggested by previous cross-sectional studies; more importantly, they
consistently suggest that buyers value a large proportion--and perhaps
even all--of the future savings that models with higher fuel economy
offer.\223\ Because they rely on estimates of fuel costs over vehicles'
expected remaining lifetimes, these studies' estimates of how buyers
value fuel economy are sensitive to the strategies they use to isolate
differences among individual models' fuel economy, as well as to their
assumptions about buyers' discount rates and gasoline price
expectations, among others. Since Anderson et al. (2013) find evidence
that consumers expect future gasoline prices to resemble current
prices, we use this assumption to compare the findings of the three
studies and examine how their findings vary with the discount rates
buyers apply to future fuel savings.\224\
---------------------------------------------------------------------------

    \223\ Killian & Sims (2006) and Sawhill (2008) rely on similar
longitudinal approaches to examine consumer valuation of fuel
economy except that they use average values or list prices instead
of actual transaction prices. Since these studies remain
unpublished, their empirical results are subject to change, and they
are excluded from this discussion.
    \224\ Each of the studies makes slightly different assumptions
about appropriate discount rates. Sallee et al. (2016) use five
percent in their base specification, while Allcott & Wozny (2014)
rely on six percent. As some authors note, a five to six percent
discount rate is consistent with current interest rates on car
loans, but they also acknowledge that borrowing rates could be
higher in some cases, which could be justify higher discount rates.
Rather than assuming a specific discount rate, Busse et al. (2013)
directly estimate implicit discount rates at which future fuel costs
would be fully internalized; they find discount rates of six to 21%
for used cars and one to 13% for new cars at assumed demand
elasticities ranging from -2 to -3. Their estimates can be
translated into the percent of fuel costs internalized by consumers,
assuming a particular discount rate. To make these results more
directly comparable to the other two studies, we assume a range of
discount rates and uses the authors' spreadsheet tool to translate
their results into the percent of fuel costs internalized into the
purchase price at each rate. Because Busse et al. (2013) estimate
the effects of future fuel costs on vehicle prices separately by
fuel economy quartile, these results depend on which quartiles of
the fuel economy distribution are compared; our summary shows
results using the full range of quartile comparisons.
---------------------------------------------------------------------------

    As Table 1 indicates, Allcott & Wozny (2014) find that consumers
incorporate 55% of future fuel costs into vehicle purchase decisions at
a six percent discount rate, when their expectations for future
gasoline prices are assumed to reflect prevailing prices at the time of
their purchases. With the same expectation about future fuel prices,
the authors report that consumers would fully value fuel costs only if
they apply discount rates of 24% or higher. However, these authors'
estimates are closer to full valuation when using gasoline price
forecasts that mirror oil futures markets because the petroleum market
expected prices to fall during this period (this outlook reduces the
discounted value of a vehicle's expected remaining lifetime fuel
costs). With this expectation, Allcott & Wozny (2014) find that buyers
value 76% of future cost savings (discounted at six percent) from
choosing a model that offers higher fuel economy, and that a discount
rate of 15% would imply that they fully value future cost savings.
Sallee et al. (2016) begin with the perspective that buyers fully
internalize future fuel costs into vehicles' purchase prices and cannot
reliably reject that hypothesis; their base specification suggests that
changes in vehicle prices incorporate slightly more than 100% of
changes in future fuel costs. For discount rates of five to six
percent, the Busse et al. (2013) results imply that vehicle prices
reflect 60 to 100% of future fuel costs. As Table II-31 suggests,
higher private discount rates move all of the estimates closer to full
valuation or to over-valuation, while lower discount rates imply less
complete valuation in all three studies.

[GRAPHIC] [TIFF OMITTED] TP24AU18.046

    The studies also explore the sensitivity of the results to other
parameters that could influence their results. Busse et al. (2013) and
Allcott & Wozny (2014) find that relying on data that suggest lower
annual vehicle use or survival probabilities, which imply that vehicles