quality and health impacts, as there may be localized impacts
associated with the proposed rulemaking. Additionally, the atmospheric
chemistry related to ambient concentrations of PM2.5, ozone
and air toxics is very complex. Full-scale photochemical modeling is
therefore necessary to provide the needed spatial and temporal detail
to more completely and accurately estimate the changes in ambient
levels of these pollutants and their associated health and welfare
impacts. As discussed above, timing and resource constraints precluded
EPA from conducting a full-scale photochemical air quality modeling
analysis in time for the NPRM. For the final rule, however, a national-
scale air quality modeling analysis will be performed to analyze the
impacts of the standards on PM2.5, ozone, and selected air
toxics. The benefits analysis plan for the final rulemaking is
discussed in the next section.
b. Human Health and Environmental Benefits for the Final Rule
i. Human Health and Environmental Impacts
    To model the ozone and PM air quality benefits of the final rule,
EPA will use the Community Multiscale Air Quality (CMAQ) model (see
Section III.G.5. for a description of the CMAQ model). The modeled
ambient air quality data will serve as an input to the Environmental
Benefits Mapping and Analysis Program (BenMAP).\562\ BenMAP is a
computer program developed by EPA that integrates a number of the
modeling elements used in previous RIAs (e.g., interpolation functions,
population projections, health impact functions, valuation functions,
analysis and pooling methods) to translate modeled air concentration
estimates into health effects incidence estimates and monetized
benefits estimates.
---------------------------------------------------------------------------

    \562\ Information on BenMAP, including downloads of the
software, can be found at http://www.epa.gov/ttn/ecas/benmodels.html.
---------------------------------------------------------------------------

    Chapter 6.3 in the DRIA that accompanies this proposal lists the
co-pollutant health effect concentration-response functions EPA will
use to quantify the non-GHG incidence impacts associated with the final
light-duty vehicles standard. These include PM- and ozone-related
premature mortality, chronic bronchitis, nonfatal heart attacks,
hospital admissions (respiratory and cardiovascular), emergency room
visits, acute bronchitis, minor restricted activity days, and days of
work and school lost.
ii. Monetized Impacts
    To calculate the total monetized impacts associated with quantified
health impacts, EPA applies values derived from a number of sources.
For premature mortality, EPA applies a value of a statistical life
(VSL) derived from the mortality valuation literature. For certain
health impacts, such as chronic bronchitis and a number of respiratory-
related ailments, EPA applies willingness-to-pay estimates derived from
the valuation literature. For the remaining health impacts, EPA applies
values derived from current cost-of-illness and/or wage estimates.
Chapter 6.3 in the DRIA that accompanies this proposal presents the
monetary values EPA will apply to changes in the incidence of health
and welfare effects associated with reductions in non-GHG pollutants
that will occur when these GHG control strategies are finalized.
iii. Other Unquantified Health and Environmental Impacts
    In addition to the co-pollutant health and environmental impacts
EPA will quantify for the analysis of the final standard, there are a
number of other health and human welfare endpoints that EPA will not be
able to quantify or monetize because of current limitations in the
methods or available data. These impacts are associated with emissions
of air toxics (including benzene, 1,3-butadiene, formaldehyde,
acetaldehyde, acrolein, and ethanol), ambient ozone, and ambient
PM2.5 exposures. Chapter 6.3 of the DRIA lists these
unquantified health and environmental impacts.
    While there will be impacts associated with air toxic pollutant
emission changes that result from the final standard, EPA will not
attempt to monetize those impacts. This is primarily because currently
available tools and methods to assess air toxics risk from mobile
sources at the national scale are not adequate for extrapolation to
incidence estimations or benefits assessment. The best suite of tools
and methods currently available for assessment at the national scale
are those used in the National-Scale Air Toxics Assessment (NATA). The
EPA Science Advisory Board specifically commented in their review of
the 1996 NATA that these tools were not yet ready for use in a
national-scale benefits analysis, because they did not consider the
full distribution of exposure and risk, or address sub-chronic health
effects.\563\ While EPA has since improved the tools, there remain
critical limitations for estimating incidence and assessing benefits of
reducing mobile source air toxics. EPA continues to work to address
these limitations; however, EPA does not anticipate having methods and
tools available for national-scale application in time for the analysis
of the final rules.\564\
---------------------------------------------------------------------------

    \563\ Science Advisory Board. 2001. NATA--Evaluating the
National-Scale Air Toxics Assessment for 1996--an SAB Advisory.
http://www.epa.gov/ttn/atw/sab/sabrev.html.
    \564\ In April, 2009, EPA hosted a workshop on estimating the
benefits of reducing hazardous air pollutants. This workshop built
upon the work accomplished in the June 2000 Science Advisory Board/
EPA Workshop on the Benefits of Reductions in Exposure to Hazardous
Air Pollutants, which generated thoughtful discussion on approaches
to estimating human health benefits from reductions in air toxics
exposure, but no consensus was reached on methods that could be
implemented in the near term for a broad selection of air toxics.
Please visit http://epa.gov/air/toxicair/2009workshop.html for more
information about the workshop and its associated materials.
---------------------------------------------------------------------------

7. Energy Security Impacts
    The proposed GHG standards require improvements in light-duty
vehicle fuel efficiency which, in turn, will reduce overall fuel
consumption and help to reduce U.S. petroleum imports. Reducing U.S.
petroleum imports lowers both the financial and strategic risks caused
by potential sudden disruptions in the supply of imported petroleum to
the U.S. The economic value of reductions in these risks provides a
measure of improved U.S. energy security. This section summarizes EPA's
estimates of U.S. oil import reductions and energy security benefits
from this proposal. Additional discussion of this issue can be found in
Chapter 4.2.8 of the Joint TSD.
a. Implications of Reduced Petroleum Use on U.S. Imports
    In 2010, U.S. petroleum import expenditures represented 14 percent
of total U.S. imports of all goods and services.\565\ These
expenditures rose to 18 percent by April of 2011.\566\ In 2010, the
United States imported 49 percent of the petroleum it consumed,\567\
and the

transportation sector accounted for 71 percent of total U.S. petroleum
consumption. This compares to approximately 37 percent of total U.S.
petroleum supplied by imports and 55 percent of U.S. petroleum
consumption in the transportation sector in 1975.\568\
---------------------------------------------------------------------------

    \565\ http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTTIMUS2&f=W.
    \566\ http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbblpd_a.htm.
    \567\ http://www.eia.gov/dnav/pet/pet_pri_rac2_dcu_nus_m.htm.
    \568\ Source: U.S. Department of Energy, Annual Energy Review
2008, Report No. DOE/EIA-0384(2008), Tables 5.1 and 5.13c, June 26,
2009.
---------------------------------------------------------------------------

    Requiring vehicle technology that reduces GHGs and fuel consumption
in light-duty vehicles is expected to lower U.S. oil imports. EPA's
estimates of reductions in fuel consumption resulting from the proposed
standards are discussed in Section III.H.3 above, and in EPA's draft
RIA.\569\
---------------------------------------------------------------------------

    \569\ Due to timing constraints, the energy security premiums
($/gallon) were derived using preliminary estimates of the gasoline
consumption reductions projected from this proposal. The energy
security benefits totals shown here were calculated with those $/
gallon values along with the final quantities of gasoline
consumption avoided. Relative to the preliminary gasoline
consumption reductions, the reductions presented in this proposal
are roughly 3% lower in total from 2017 through 2050.
---------------------------------------------------------------------------

    The agencies conducted a detailed analysis of future changes in
U.S. transportation fuel consumption, petroleum imports, and domestic
fuel refining projected to occur under alternative economic growth and
oil price scenarios reported by the EIA in its Annual Energy Outlook
2011.\570\ On the basis of this analysis, we estimate that
approximately 50 percent of the reduction in fuel consumption resulting
from adopting improved GHG emission and fuel efficiency standards is
likely to be reflected in reduced U.S. imports of refined fuel, while
the remaining 50 percent is expected to be reflected in reduced
domestic fuel refining. Of this latter figure, 90 percent is
anticipated to reduce U.S. imports of crude petroleum for use as a
refinery feedstock, while the remaining 10 percent is expected to
reduce U.S. domestic production of crude petroleum. Thus, on balance,
each gallon of fuel saved as a consequence of the GHG and fuel
efficiency standards is anticipated to reduce total U.S. imports of
petroleum by 0.95 gallon.\571\ Table III-74 below compares EPA's
estimates of the reduction in imports of U.S. crude oil and petroleum-
based products from this program to projected total U.S. imports for
selected years.
---------------------------------------------------------------------------

    \570\ Energy Information Administration, Annual Energy Outlook
2011, Reference Case and other scenarios, available at http://www.eia.gov/oiaf/aeo/tablebrowser/ (last accessed October 12, 2011).
    \571\ This figure is calculated as 0.50 + 0.50*0.9 = 0.50 + 0.45
= 0.95.
[GRAPHIC] [TIFF OMITTED] TP01DE11.138

b. Energy Security Implications
    In order to understand the energy security implications of reducing
U.S. petroleum imports, EPA worked with Oak Ridge National Laboratory
(ORNL), which has developed approaches for evaluating the economic
costs and energy security implications of oil use. The energy security
estimates provided below are based upon a methodology developed in a
peer-reviewed study entitled, The Energy Security Benefits of Reduced
Oil Use, 2006-2015, completed in March 2008. This study is included as
part of the docket for this proposal.572 573
---------------------------------------------------------------------------

    \572\ Leiby, Paul N., Estimating the Energy Security Benefits of
Reduced U.S. Oil Imports, Oak Ridge National Laboratory, ORNL/TM-
2007/028, Final Report, 2008. (Docket EPA-HQ-OAR-2010-0162)
    \573\ The ORNL study The Energy Security Benefits of Reduced Oil
Use, 2006-2015, completed in March 2008, is an updated version of
the approach used for estimating the energy security benefits of
U.S. oil import reductions developed in an ORNL 1997 Report by
Leiby, Paul N., Donald W. Jones, T. Randall Curlee, and Russell Lee,
entitled Oil Imports: An Assessment of Benefits and Costs. (Docket
EPA-HQ-OAR-2010-0162).

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

    When conducting its analysis, ORNL considered the full economic
cost of importing petroleum into the United States. The economic cost
of importing petroleum into the U.S. is defined to include two
components in addition to the purchase price of petroleum itself. These
are: (1) the higher costs for oil imports resulting from the effect of
increasing U.S. import demand on the world oil price and on the market
power of the Organization of the Petroleum Exporting Countries (i.e.,
the ``demand'' or ``monopsony'' costs); and (2) the risk of reductions
in U.S. economic output and disruption of the U.S. economy caused by
sudden disruptions in the supply of imported petroleum to the U.S.
(i.e., ``macroeconomic disruption/adjustment costs''). In its analysis
of energy security benefits from reducing U.S. petroleum imports,
however, the agencies included only the latter component (discussed
below).
    ORNL's analysis of energy security benefits from reducing U.S. oil
imports did not include an estimate of potential reductions in costs
for maintaining a U.S. military presence to help secure stable oil
supply from potentially vulnerable regions of the world because
attributing military spending to particular missions or activities is
difficult. Attempts to attribute some share of U.S. military costs to
oil imports are further complicated by the need to estimate how those
costs vary with incremental variations in U.S. oil imports. Several
commenters for the 2012-2016 light-duty vehicle proposal recommended
that the agencies attempt to estimate the avoided U.S. military costs
associated with reductions in U.S. oil imports. The agencies request
comment on this issue, including whether there are new studies that
credibly estimate the military cost of securing stable oil supplies
and, if so, how should these new estimates be factored into this
proposal's energy security analysis. See Section 4.2.8 of the TSD for a
more detailed discussion of the national security implications of this
proposed rule.
    For this action, ORNL estimated energy security premiums by
incorporating the most recently available AEO 2011 Reference Case oil
price forecasts and market trends. Energy security premiums for the
years 2020, 2030, 2035, 2040 and 2050 are presented in Table III-75 as
well as a breakdown of the components of the energy security premiums
for each of these years.\574\ The components of the energy security
premium and their values are discussed in detail in the Joint TSD
Chapter 4.2.8. The oil security premium rises over the future as a
result of changing factors such as the world oil price, global supply/
demand balances, U.S. oil imports and consumption, and U.S. GDP (the
size of economy at risk to oil shocks). The principal factor is
steadily rising oil prices.
---------------------------------------------------------------------------

    \574\ AEO 2011 forecasts energy market trends and values only to
2035. The energy security premium estimates post-2035 were assumed
to be the 2035 estimate.

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

[GRAPHIC] [TIFF OMITTED] TP01DE11.139

    The literature on energy security for the last two decades has
routinely combined the monopsony and the macroeconomic disruption
components when calculating the total value of the energy security
premium. However, in the context of using a global social cost of
carbon (SCC) value, the question arises: How should the energy security
premium be determined when a global perspective is taken? Monopsony
benefits represent avoided payments by the United States to oil
producers in foreign countries that result from a decrease in the world
oil price as the U.S. decreases its consumption of imported oil.
    Although there is clearly a benefit to the U.S. when considered
from a domestic perspective, the decrease in price due to decreased
demand in the U.S. also represents a loss to other countries. Given the
redistributive nature of this monopsony effect from a global
perspective, it is excluded in the energy security benefits
calculations for this proposal. In contrast, the other portion of the
energy security premium, the U.S. macroeconomic disruption and
adjustment cost that arises from U.S. petroleum imports, does not have
offsetting impacts outside of the U.S., and, thus, is included in the
energy security benefits estimated for this proposal. To summarize, EPA
has included only the macroeconomic disruption portion of the energy
security benefits to estimate the monetary value of the total energy
security benefits of this program.
    For this proposal, using EPA's fuel consumption analysis in
conjunction with ORNL's energy security premium
estimates,575 576 the agencies developed estimates of the
total energy security benefits for the years 2017 through 2050 as shown
in Table III-76.\577\
---------------------------------------------------------------------------

    \575\ AEO 2011 forecasts energy market trends and values only to
2035. The energy security premium estimates post-2035 were assumed
to be the 2035 estimate.
    \576\ Due to timing constraints, the energy security premiums
($/gallon) were derived using preliminary estimates of the gasoline
consumption reductions projected from this proposal. The energy
security benefits totals shown here were calculated with those $/
gallon values along with the final quantities of gasoline
consumption avoided. Relative to the preliminary gasoline
consumption reductions, the reductions presented in this proposal
are roughly 3% lower in total from 2017 through 2050.
    \577\ Estimated reductions in U.S. imports of finished petroleum
products and crude oil are 95% of 54.2 million barrels (MMB) in
2020, 609 MMB in 2030, 962 MMB in 2040, and 1,140 MMB in 2050.

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

[GRAPHIC] [TIFF OMITTED] TP01DE11.140

    The energy security analysis conducted for this proposal estimates
that the world price of oil will fall modestly in response to lower
U.S. demand for refined fuel. One potential result of this decline in
the world price of oil would be an increase in the consumption of
petroleum products, particularly outside the U.S. In addition, other
fuels could be displaced from the increasing use of oil worldwide. For
example, if a decline in the world oil price causes an increase in oil
use in China, India, or another country's industrial sector, this
increase in oil consumption may displace natural gas usage.
Alternatively, the increased oil use could result in a decrease in coal
used to produce electricity. An increase in the consumption of
petroleum products, particularly outside the U.S., could lead to a
modest increase in emissions of greenhouse gases, criteria air
pollutants, and airborne toxics from their refining and use. However,
lower usage of, for example, displaced coal would result in a decrease
in greenhouse gas emissions. Therefore, any assessment of the impacts
on GHG emissions from a potential increase in world oil demand would
need to take into account the impacts on all portions of the global
energy sector. The agencies' analyses have not attempted to estimate
these effects.

    Since EPA anticipates that more electric vehicles (EVs) and plug-in
hybrid electric vehicles (PHEVs) will penetrate the U.S. automobile
market over time as a result of this proposal, the Agency is
considering analyzing the energy security implications of these
vehicles and the fuels that they consume. These vehicles run on
electricity either in whole (EVs), or in part (PHEVs), which displaces
conventional transportation fuel such as gasoline and diesel. EPA does
not have sufficient information for this proposal to conduct an
analysis of the energy security implications of increased use of EVs/
PHEVs, but is considering how to conduct this type of analysis in the
future. The Agency recognizes that the fleet penetration of EV/PHEV's
will be relatively small in the time period of these standards (fewer
than 3% of new vehicles in 2025), but views establishing a framework
for examining the energy security implications of these vehicles as
important for longer-term analysis.
    Key questions that arise with increased use of electricity in
vehicles in the U.S. include whether there is the potential for
disruptions in electricity supply in general, or more specifically,
from increased electrification of the U.S. vehicle fleet. Also, if
there is the potential for supply disruptions in electricity markets,
how likely would the disruptions be associated with disruptions in the
supply of oil? In addition, what is the overall expected impact, if
any, of additional EV/PHEV use on the stability and flexibility of fuel
and electricity markets? Finally, such analysis may also need to
consider the source of electricity used to power EVs/PHEVs. EPA
solicits comments on how to best conduct this type of analysis,
including any studies or research that have been published on these
issues.
8. Additional Impacts
    There are other impacts associated with the CO2
emissions standards and associated reduced fuel consumption that vary
with miles driven. Lower fuel consumption would, presumably, result in
fewer trips to the filling station to refuel and, thus, time saved. The
rebound effect, discussed in detail in Section III.H.4.c, produces
additional benefits to vehicle owners in the form of consumer surplus
from the increase in vehicle-miles driven, but may also increase the
societal costs associated with traffic congestion, motor vehicle
crashes, and noise. These effects are likely to be relatively small in
comparison to the value of fuel saved as a result of the standards, but
they are nevertheless important to include. Table III-77 summarizes the
other economic impacts. Please refer to Preamble Section II.E and the
Joint TSD that accompanies this rule for more information about these
impacts and how EPA and NHTSA use them in their analyses.

[GRAPHIC] [TIFF OMITTED] TP01DE11.141

9. Summary of Costs and Benefits
    In this section, the agencies present a summary of costs, benefits,
and net benefits of the proposed program. Table III-78 shows the
estimated annual monetized costs of the proposed program for the
indicated calendar years. The table also shows the net present values
of those costs for the calendar years 2012-2050 using both 3 percent
and 7 percent discount rates.\578\ Table III-79 shows the undiscounted
annual monetized fuel savings of the proposed program. The table also
shows the net present values of those fuel savings for the same
calendar years using both 3 percent and 7 percent discount rates. In
this table, the aggregate value of fuel savings is calculated using
pre-tax fuel prices since savings in fuel taxes do not represent a
reduction in the value of economic resources utilized in producing and
consuming fuel. Note that the fuel savings shown here result from
reductions in fleet-wide fuel use. Thus, fuel savings grow over time as
an increasing fraction of the fleet meets the proposed standards.
---------------------------------------------------------------------------

    \578\ For the estimation of the stream of costs and benefits, we
assume that after implementation of the proposed MY 2017-2025
standards, the 2025 standards apply to each year thereafter.

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

[GRAPHIC] [TIFF OMITTED] TP01DE11.142

    Table III-80 presents estimated annual monetized benefits for the
indicated calendar years. The table also shows the net present values
of those benefits for the calendar years 2012-2050 using both 3 percent
and 7 percent discount rates. The table shows the benefits of reduced
CO2 emissions--and consequently the annual quantified
benefits (i.e., total benefits)--for each of the four social cost of
carbon (SCC) values estimated by the interagency working group. As
discussed in the RIA Chapter 7.2, there are some limitations to the SCC
analysis, including the incomplete way in which the integrated
assessment models capture catastrophic and non-catastrophic impacts,
their incomplete treatment of adaptation and technological change,
uncertainty in the extrapolation of damages to high temperatures, and
assumptions regarding risk aversion.
    In addition, these monetized GHG benefits exclude the value of net
reductions in non-CO2 GHG emissions (CH4,
N2O, HFC) expected under this action. Although EPA has not
monetized the benefits of reductions in non-CO2 GHGs, the
value of these reductions should not be interpreted as zero. Rather,
the net reductions in non-CO2 GHGs will contribute to this
program's climate benefits, as explained in Section III.H.5.

[GRAPHIC] [TIFF OMITTED] TP01DE11.143

[GRAPHIC] [TIFF OMITTED] TP01DE11.144

    Table III-81 presents estimated annual net benefits for the
indicated calendar years. The table also shows the net present values
of those net benefits for the calendar years 2012-2050 using both 3
percent and 7 percent discount

rates. The table includes the benefits of reduced CO2
emissions (and consequently the annual net benefits) for each of the
four SCC values considered by EPA.
[GRAPHIC] [TIFF OMITTED] TP01DE11.145

    EPA also conducted a separate analysis of the total benefits over
the model year lifetimes of the 2017 through 2025 model year vehicles.
In contrast to the calendar year analysis presented above in Table III-
78 through Table III-81, the model year lifetime analysis below shows
the impacts of the proposed program on vehicles produced during each of
the model years 2017 through 2025 over the course of their expected
lifetimes. The net societal benefits over the full lifetimes of
vehicles produced during each of the nine model years from 2017 through
2025 are shown in Table III-82 and Table III-83 at both 3 percent and 7
percent discount rates, respectively.
BILLING CODE 4910-59-P

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BILLING CODE 4910-59-C

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10. U.S. Vehicle Sales Impacts and Payback Period
a. Vehicle Sales Impacts and Payback Period
    Predicting the effects of this rule on vehicles entails comparing
two effects. On the one hand, the vehicles designed to meet the
proposed standards will become more expensive, which would, by itself,
be expected to discourage sales. On the other hand, the vehicles will
have improved fuel economy and thus lower operating costs, producing
lower total costs over the life of vehicles, which makes them more
attractive to consumers. Which of these effects dominates for potential
vehicle buyers when they are considering a purchase will determine the
effect on sales. However, assessing the net effect of these two
competing effects is complex and uncertain, as it rests on how
consumers value fuel savings at the time of purchase and the extent to
which manufacturers and dealers reflect them in the purchase price. The
empirical literature does not provide clear evidence on whether
consumers fully consider the value of fuel savings at the time of
purchase. It also generally does not speak to the efficiency of
manufacturing and dealer pricing decisions. Thus, for the proposal we
do not provide quantified estimates of potential sales impacts. Rather,
we solicit comment on the issues raised here and on methods for
estimating the effect of this rule on vehicle sales.
    For years, consumers have been gaining experience with the benefits
that accrue to them from owning and operating vehicles with greater
fuel efficiency. Many households already own vehicles with a fairly
wide range of fuel economy, and thus already have an opportunity to
learn about the value of fuel economy on their own. Among two-vehicle
households, for example, the least fuel-efficient vehicle averages just
over 22 mpg (EPA test rating), and the range between this and the fuel
economy of their other vehicle averages nearly 7 mpg. Among households
that own 3 or more vehicles, the typical range of the fuel economy they
offer is much wider. Consumer demand may have shifted towards such
vehicles, not only because of higher fuel prices but also if many
consumers are learning about the value of purchases based not only on
initial costs but also on the total cost of owning and operating a
vehicle over its lifetime. This type of learning should continue before
and during the model years affected by this rule, particularly given
the new fuel economy labels that clarify potential economic effects and
should therefore reinforce that learning.
    Today's proposed rule, combined with the new and easier-to-
understand fuel economy label required to be on all new vehicles
beginning in 2012, may increase sales above baseline levels by
hastening this very type of consumer learning. As more consumers
experience, as a result of the rule, the savings in time and expense
from owning more fuel efficient vehicles, demand may shift yet further
in the direction of the vehicles mandated under the rule. This social
learning can take place both within and across households, as consumers
learn from one another.
    First and most directly, the time and fuel savings associated with
operating more fuel efficient vehicles may be more salient to
individuals who own them, which might cause their subsequent purchase
decisions to shift closer to minimizing the total cost of ownership
over the lifetime of the vehicle.
    Second, this appreciation may spread across households through word
of mouth and other forms of communications.
    Third, as more motorists experience the time and fuel savings
associated with greater fuel efficiency, the price of used cars will
better reflect such efficiency, further reducing the cost of owning
more efficient vehicles for the buyers of new vehicles (since the
resale price will increase).
    If these induced learning effects are strong, the rule could
potentially increase total vehicle sales over time. It is not possible
to quantify these learning effects years in advance and that effect may
be speeded or slowed by other factors that enter into a consumer's
valuation of fuel efficiency in selecting vehicles.
    The possibility that the rule will (after a lag for consumer
learning) increase sales need not rest on the assumption that
automobile manufacturers are failing to pursue profitable opportunities
to supply the vehicles that consumers demand. In the absence of the
rule, no individual automobile manufacturer would find it profitable to
move toward the more efficient vehicles mandated under the rule. In
particular, no individual company can fully internalize the future
boost to demand resulting from the rule. If one company were to make
more efficient vehicles, counting on consumer learning to enhance
demand in the future, that company would capture only a fraction of the
extra sales so generated, because the learning at issue is not specific
to any one company's fleet. Many of the extra sales would accrue to
that company's competitors.
    In other words, consumer learning about the benefits of fuel
efficient vehicles involves positive externalities (spillovers) from
one company to the others.\579\ These positive externalities may lead
to benefits for manufacturers as a whole. We emphasize that this
discussion has been tentative and qualified. To be sure, social
learning of related kinds has been identified in a number of
contexts.\580\ Comments are invited on the discussion offered here,
with particular reference to any relevant empirical findings.
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    \579\ Industrywide positive spillovers of this type are hardly
unique to this situation. In many industries, companies form trade
associations to promote industry-wide public goods. For example,
merchants in a given locale may band together to promote tourism in
that locale. Antitrust law recognizes that this type of coordination
can increase output.
    \580\ See Hunt Allcott, Social Norms and Energy Conservation,
Journal of Public Economics (forthcoming 2011), available at http://web.mit.edu/allcott/www/Allcott%202011%20JPubEc%20-%20Social%20Norms%20and%20Energy%20Conservation.pdf; Christophe
Chamley, Rational Herds: Economic Models of Social Learning
(Cambridge, 2003).
---------------------------------------------------------------------------

    In previous rulemakings, EPA and NHTSA conducted vehicle sales
analyses by comparing the up-front costs of the vehicles with the
present value of five years' worth of fuel savings. We assumed that the
costs for the fuel-saving technologies would be passed along fully to
vehicle buyers in the vehicle prices. The up-front vehicle costs were
adjusted to take into account several factors that would affect
consumer costs: The increased sales tax that consumers would pay, the
increase in insurance premiums, the increase in loan payments that
buyers would face, and a higher resale value, with all of these factors
due to the higher up-front cost of the vehicle. Those calculations
resulted in an adjusted increase in costs to consumers. We then assumed
that consumers considered the present value of five years of fuel
savings in their vehicle purchase, which is consistent with the length
of a typical new light-duty vehicle loan, and is similar to the average
time that a new vehicle purchaser holds onto the vehicle.\581\ The
present value of fuel savings was subtracted from technology costs to
get a net effect on vehicle cost of ownership. We then used a short-run
demand elasticity of -1 to convert a change in price into a change in

quantity demanded of vehicles.\582\ An elasticity of -1 means that a 1%
increase in price leads to a 1% reduction in quantity sold. In the
vehicle sales analyses, if five years of fuel savings outweighed the
adjusted technology costs, then vehicle sales were predicted to
increase; if the fuel savings were smaller than the adjusted technology
costs, sales would decrease, compared to a world without the standards.
---------------------------------------------------------------------------

    \581\ In this proposal, the 5-year payback assumption
corresponds to an assumption that vehicle buyers take into account
between 30 and 50 percent of the present value of lifetime vehicle
fuel savings (with the variation depending on discount rate, model
year, and car vs. truck).
    \582\ For a durable good such as an auto, the elasticity may be
smaller in the long run: Though people may be able to change the
timing of their purchase when price changes in the short run, they
must eventually make the investment. We request comment on whether
or when a long-run elasticity should be used for a rule that phases
in over time, as well as how to find good estimates for the long-run
elasticity.
---------------------------------------------------------------------------

    We do not here present a vehicle sales analysis using this
approach. This rule takes effect for MY 2017-2025. In the intervening
years, it is possible that the assumptions underlying this analysis, as
well as market conditions, might change. Instead, we present a payback
period analysis to estimate the number of years of fuel savings needed
to recover the up-front costs of the new technologies. In other words,
the payback period identifies the break-even point for new vehicle
buyers.
    A payback period analysis examines how long it would take for the
expected fuel savings to outweigh the increased cost of a new vehicle.
For example, a new 2025 MY vehicle is estimated to cost $1,946 more (on
average, and relative to the reference case vehicle) due to the
addition of new GHG reducing/fuel economy improving technology (see
Section III.D.6 for details on this cost estimate). This new technology
will result in lower fuel consumption and, therefore, savings in fuel
expenditures (see Section III.H.10 for details on fuel savings). But
how many months or years would pass before the fuel savings exceed the
upfront costs?
    The payback analysis uses annual miles driven (vehicle miles
traveled, or VMT) and survival rates consistent with the emission and
benefits analyses presented in Chapter 4 of the Joint TSD. The control
case includes fuel savings associated with A/C controls. Not included
here are the likely A/C-related maintenance savings as discussed in
Chapter 2 of EPA's RIA. Further, this analysis does not include other
private impacts, such as reduced refueling events, or other societal
impacts, such as the potential rebound miles driven or the value of
driving those rebound miles, or noise, congestion and accidents, since
the focus is meant to be on those factors consumers think about most
while in the showroom considering a new car purchase. Car/truck fleet
weighting is handled as described in Chapter 1 of the Joint TSD. The
costs take into account the effects of the increased costs on sales
tax, insurance, resale value, and finance costs. More detail on this
analysis can be found in Chapter 5 of EPA's draft RIA.
    Table III-84 presents results for MY 2021 because it is the last
year before the mid-term review impacts, if any, will take place, and
MY 2025 because it is the last year of the program. The payback period
in 2021 is shorter than that in 2025, because the technologies required
to meet the proposed MY 2021 standards are more cost-effective than
those for MY 2025. In all cases, the payback periods are less than 4
years.
[GRAPHIC] [TIFF OMITTED] TP01DE11.151

    Most people purchase a new vehicle using credit rather than paying
cash up front. A common car loan today is a five year, 60 month loan.
As of July, 2011, the national average interest rate for a 5 year new
car loan was 5.52 percent.\583\ If the increased vehicle cost is spread
out over 5 years at 5.52 percent, the analysis for a MY 2025 vehicle
would

look like that shown in Table III-85. As can be seen in this table, the
fuel savings immediately outweigh the increased payments on the car
loan, amounting to $145 in discounted net savings (3% discount rate) in
the first year and similar savings for the next four years although
savings decline somewhat due to reduced VMT as the average vehicle
ages. Results are similar using a 7% discount rate. This means that for
every month that the average owner is making a payment for the
financing of the average new vehicle their monthly fuel savings would
be greater than the increase in the loan payments. This amounts to a
savings on the order of $12 per month throughout the duration of the 5
year loan. Note that in year six when the car loan is paid off, the net
savings equal the fuel savings less the increased insurance premiums
(as would be the case for the remaining years of ownership).
---------------------------------------------------------------------------

    \583\ ``National Auto Loan Rates for July 21, 2011,'' http://www.bankrate.com/finance/auto/national-auto-loan-rates-for-july-21-2011.aspx, accessed 7/26/11 (Docket EPA-HQ-OAR-2010-0799).
[GRAPHIC] [TIFF OMITTED] TP01DE11.152

    The lifetime fuel savings and net savings can also be calculated
for those who purchase the vehicle using cash and for those who
purchase the vehicle with credit. This calculation applies to the
vehicle owner who retains the vehicle for its entire life and drives
the vehicle each year at the rate equal to the national projected
average. The results are shown in Table III-86. In either case, the
present value of the lifetime net savings is greater than $4,200 at a
3% discount rate, or $2,900 at a 7% discount rate.

[GRAPHIC] [TIFF OMITTED] TP01DE11.153

    Note that throughout this consumer payback discussion, the analysis
reflects the average number of vehicle miles traveled per year. Drivers
who drive more miles than the average would incur fuel-related savings
more quickly and, therefore, the payback would come sooner. Drivers who
drive fewer miles than the average would incur fuel related savings
more slowly and, therefore, the payback would come later.
    Another method to estimate effects on vehicle sales is to model the
market for vehicles. Consumer vehicle choice models estimate what
vehicles consumers buy based on vehicle and consumer characteristics.
In principle, such models could provide a means of understanding both
the role of fuel economy in consumers' purchase decisions and the
effects of this rule on the benefits that consumers will get from
vehicles. Helfand and Wolverton discuss the wide variation in the
structure and results of these models.\584\ Models or model results
have not frequently been systematically compared to each other. When
they have, the results show large variation over, for instance, the
value that consumers place on additional fuel economy. As discussed in
Section III.H.1 and in Chapter <IP_ADDRESS> of the DRIA, EPA is exploring
development of a consumer vehicle choice model, but the model is not
sufficiently developed for use in this NPRM.
---------------------------------------------------------------------------

    \584\ Helfand, Gloria, and Ann Wolverton. ``Evaluating the
Consumer Response to Fuel Economy: A Review of the Literature.''
International Review of Environmental and Resource Economics 5
(2011): 103-146 (Docket EPA-HQ-OAR-2010-0799).
---------------------------------------------------------------------------

    The effect of this rule on the use and scrappage of older vehicles
will be related to its effects on new vehicle prices, the fuel
efficiency of new vehicle models, the fuel efficiency of used vehicles,
and the total sales of new vehicles. If the value of fuel savings
resulting from improved fuel efficiency to the typical potential buyer
of a new vehicle outweighs the average increase in new models' prices,
sales of new vehicles could rise, while scrappage rates of used
vehicles will increase slightly. This will cause the turnover of the
vehicle fleet (i.e., the retirement of used vehicles and their
replacement by new models) to accelerate slightly, thus accentuating
the anticipated effect of the rule on fleet-wide fuel consumption and
CO2 emissions. However, if potential buyers value future
fuel savings resulting from the increased fuel efficiency of new models
at less than the increase in their average selling price, sales of new
vehicles will decline, as will the rate at which used vehicles are
retired from service. This effect will slow the replacement of used
vehicles by new models, and thus partly reduce the anticipated effects
of this rule on fuel use and emissions.
    Because of the uncertainty regarding how the value of projected
fuel savings from this rule to potential buyers will compare to their
estimates of increases in new vehicle prices, we have not attempted to
estimate explicitly the effects of the rule on scrappage of older
vehicles and the turnover of the vehicle fleet.
    Chapter 5 of EPA's DRIA provides more information on the payback
period analysis, and Chapter 8 of EPA's DRIA has further discussion of
methods for examining the effects of this rule on vehicle sales. We
welcome comments on all aspects of this discussion, including the full
range of considerations and assumptions which influence market behavior
and outcomes and associated uncertainties. We also welcome comments on
all the parameters described here, as well as other quantitative
estimates of the effects of this proposal on sales, accompanied by
detailed descriptions of the methodologies used.
11. Employment Impacts
a. Introduction
    Although analysis of employment impacts is not part of a cost-
benefit analysis (except to the extent that labor costs contribute to
costs), employment impacts of federal rules are of particular concern
in the current economic climate

of sizeable unemployment. When President Obama requested that the
agencies develop this program, he sought a program that would
``strengthen the [auto] industry and enhance job creation in the United
States.'' \585\ The recently issued Executive Order 13563, ``Improving
Regulation and Regulatory Review'' (January 18, 2011), states, ``Our
regulatory system must protect public health, welfare, safety, and our
environment while promoting economic growth, innovation,
competitiveness, and job creation'' (emphasis added). EPA is
accordingly providing partial estimates of the effects of this proposal
on domestic employment in the auto manufacturing and parts sectors,
while qualitatively discussing how it may affect employment in other
sectors more generally.
---------------------------------------------------------------------------

    \585\ President Barack Obama. ``Presidential Memorandum
Regarding Fuel Efficiency Standards. The White House, Office of the
Press Secretary, May 21, 2010. http://www.whitehouse.gov/the-press-office/presidential-memorandum-regarding-fuel-efficiency-standards.
---------------------------------------------------------------------------

    This proposal is expected to affect employment in the United States
through the regulated sector--the auto manufacturing industry--and
through several related sectors, specifically, industries that supply
the auto manufacturing industry (e.g., vehicle parts), auto dealers,
the fuel refining and supply sectors, and the general retail sector.
According to the U.S. Bureau of Labor Statistics, in 2010, about
677,000 people in the U.S. were employed in the Motor Vehicle and Parts
Manufacturing Sector (NAICS 3361, 3362, and 3363). About 129,000 people
in the U.S. were employed specifically in the Automobile and Light
Truck Manufacturing Sector (NAICS 33611), the directly regulated
sector, since it encompasses the auto manufacturers that are
responsible for complying with the proposed standards.\586\ The
employment effects of this rule are expected to expand beyond the
regulated sector. Though some of the parts used to achieve the proposed
standards are likely to be built by auto manufacturers themselves, the
auto parts manufacturing sector also plays a significant role in
providing those parts, and will also be affected by changes in vehicle
sales. Changes in light duty vehicle sales, discussed in Section
III.H.10, could affect employment for auto dealers. As discussed in
Chapter 5.4 of the DRIA, this proposal is expected to reduce the amount
of fuel these vehicles use, and thus affect the petroleum refinery and
supply industries. Finally, since the net reduction in cost associated
with this proposal is expected to lead to lower household expenditures
on fuel net of vehicle costs, consumers then will have additional
discretionary income that can be spent on other goods and services.
---------------------------------------------------------------------------

    \586\ U.S. Bureau of Labor Statistics, Quarterly Census of
Employment and Wages, as accessed on August 9, 2011.
---------------------------------------------------------------------------

    When the economy is at full employment, an environmental regulation
is unlikely to have much impact on net overall U.S. employment;
instead, labor would primarily be shifted from one sector to another.
These shifts in employment impose an opportunity cost on society,
approximated by the wages of the employees, as regulation diverts
workers from other activities in the economy. In this situation, any
effects on net employment are likely to be transitory as workers change
jobs (e.g., some workers may need to be retrained or require time to
search for new jobs, while shortages in some sectors or regions could
bid up wages to attract workers).
    On the other hand, if a regulation comes into effect during a
period of high unemployment, a change in labor demand due to regulation
may affect net overall U.S. employment because the labor market is not
in equilibrium. In such a period, both positive and negative employment
effects are possible.\587\ Schmalansee and Stavins point out that net
positive employment effects are possible in the near term when the
economy is at less than full employment due to the potential hiring of
idle labor resources by the regulated sector to meet new requirements
(e.g., to install new equipment) and new economic activity in sectors
related to the regulated sector.\588\ In the longer run, the net effect
on employment is more difficult to predict and will depend on the way
in which the related industries respond to the regulatory requirements.
As Schmalansee and Stavins note, it is possible that the magnitude of
the effect on employment could vary over time, region, and sector, and
positive effects on employment in some regions or sectors could be
offset by negative effects in other regions or sectors. For this
reason, they urge caution in reporting partial employment effects since
it can ``paint an inaccurate picture of net employment impacts if not
placed in the broader economic context.''
---------------------------------------------------------------------------

    \587\ Masur and Posner, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1920441.
    \588\ Schmalensee, Richard, and Robert N. Stavins. ``A Guide to
Economic and Policy Analysis of EPA's Transport Rule.'' White paper
commissioned by Excelon Corporation, March 2011 (Docket EPA-HQ-OAR-
2010-0799).
---------------------------------------------------------------------------

    It is assumed that the official unemployment rate will have
declined to 5.3 percent by the time this rule takes effect and so the
effect of the regulation on labor will be to shift workers from one
sector to another.\589\ Those shifts in employment impose an
opportunity cost on society, approximated by the wages of the
employees, as regulation diverts workers from other activities in the
economy. In this situation, any effects on net employment are likely to
be transitory as workers change jobs (e.g., some workers may need to be
retrained or require time to search for new jobs, while shortages in
some sectors or regions could bid up wages to attract workers). It is
also possible that the state of the economy will be such that positive
or negative employment effects will occur.
---------------------------------------------------------------------------

    \589\ Office of Management and Budget, ``Fiscal Year 2012 Mid-
Session Review: Budget of the U.S. Government.'' http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/12msr.pdf, p. 10.
---------------------------------------------------------------------------

    A number of different approaches have been used in published
literature to conduct employment analysis. All potential methods of
estimating employment impacts of a rule have advantages and
limitations. We seek comment on the analytical approach presented here,
other appropriate methods for analyzing employment impacts for this
rulemaking, and the inputs used here for employment analysis.
b. Approaches to Quantitative Employment Analysis
    Measuring the employment impacts of a policy depend on a number of
inputs and assumptions. For instance, as discussed, assumptions about
the overall state of unemployment in the economy play a major role in
measured job impacts. The inputs to the models commonly are the changes
in quantities or expenditures in the affected sectors; model results
may vary in different studies depending on the assumptions about the
levels of those inputs, and which sectors receive those changes. Which
sectors are included in the study can also affect the results. For
instance, a study of this program that looks only at employment impacts
in the refinery sector may find negative effects, because consumers
will purchase less gasoline; a study that looks only at the auto parts
sector, on the other hand, may find positive impacts, because the
program will require redesigned or additional parts for vehicles. In
both instances, these would only be partial perspectives

on the overall change in national employment due to Federal regulation.
i. Conceptual Framework for Employment Impacts in the Regulated Sector
    One study by Morgenstern, Pizer, and Shih \590\ provides a
retrospective look at the impacts of regulation in employment in the
regulated sectors by estimating the effects on employment of spending
on pollution abatement for four highly polluting/regulated U.S.
industries (pulp and paper, plastics, steel, and petroleum refining)
using data for six years between 1979 and 1991. The paper provides a
theoretical framework that can be useful for examining the impacts of a
regulatory change on the regulated sector in the medium to longer term.
In particular, it identifies three separate ways that employment levels
may change in the regulated industry in response to a new (or more
stringent) regulation.
---------------------------------------------------------------------------

    \590\ Morgenstern, Richard D., William A. Pizer, and Jhih-Shyang
Shih. ``Jobs Versus the Environment: An Industry-Level
Perspective.'' Journal of Environmental Economics and Management 43
(2002): 412-436 (Docket EPA-HQ-OAR-2010-0799).
---------------------------------------------------------------------------

     Demand effect: higher production costs due to the
regulation will lead to higher market prices; higher prices in turn
reduce demand for the good, reducing the demand for labor to make that
good. In the authors' words, the ``extent of this effect depends on the
cost increase passed on to consumers as well as the demand elasticity
of industry output.''
     Cost effect: as costs go up, plants add more capital and
labor (holding other factors constant), with potentially positive
effects on employment. In the authors' words, as ``production costs
rise, more inputs, including labor, are used to produce the same amount
of output.''
     Factor-shift effect: post-regulation production
technologies may be more or less labor-intensive (i.e., more/less labor
is required per dollar of output). In the authors' words,
``environmental activities may be more labor intensive than
conventional production,'' meaning that ``the amount of labor per
dollar of output will rise,'' though it is also possible that ``cleaner
operations could involve automation and less employment, for example.''

According to the authors, the ``demand effect'' is expected to have a
negative effect on employment,\591\ the ``cost effect'' to have a
positive effect on employment, and the ``factor-shift effect'' to have
an ambiguous effect on employment. Without more information with
respect to the magnitude of these competing effects, it is not possible
to predict the total effect environmental regulation will have on
employment levels in a regulated sector.
---------------------------------------------------------------------------

    \591\ As will be discussed below, the demand effect in this
proposal is potentially an exception to this rule. While the
vehicles become more expensive, they also produce reduced fuel
expenditures; the reduced fuel costs provide a countervailing impact
on vehicle sales. As discussed in Preamble Section III.H.1, this
possibility that vehicles may become more attractive to consumers
after the program poses a conundrum: Why have interactions between
vehicle buyers and producers not provided these benefits without
government intervention?
---------------------------------------------------------------------------

    The authors conclude that increased abatement expenditures
generally have not caused a significant change in employment in those
sectors. More specifically, their results show that, on average across
the industries studied, each additional $1 million spent on pollution
abatement results in a (statistically insignificant) net increase of
1.5 jobs.
    This approach to employment analysis has the advantage of carefully
controlling for many possibly confounding effects in order to separate
the effect of changes in regulatory costs on employment. It was,
however, conducted for only four sectors. It could also be very
difficult to update the study for other sectors, because one of the
databases on which it relies, the Pollution Abatement Cost and
Expenditure survey, has been conducted infrequently since 1994, with
the last survey conducted in 2005. The empirical estimates provided by
Morgenstern et al. are not relevant to the case of fuel economy
standards, which are very different from the pollution control
standards on industrial facilities that were considered in that study.
In addition, it does not examine the effects of regulation on
employment in sectors related to but outside of the regulated sector.
Nevertheless, the theory that Morgenstern et al. developed continues to
be useful in this context.
    The following discussion of additional methodologies draws from
Berck and Hoffmann's review of employment models.\592\
---------------------------------------------------------------------------

    \592\ Berck, Peter, and Sandra Hoffmann. ``Assessing the
Employment Impacts of Environmental and Natural Resource Policy.''
Environmental and Resource Economics 22 (2002): 133-156 (Docket EPA-
HQ-OAR-2010-0799) (Docket EPA-HQ-OAR-2010-0799).
---------------------------------------------------------------------------

ii. Computable General Equilibrium (CGE) Models
    Computable general equilibrium (CGE) models are often used to
assess the impacts of policy. These models include a stylized
representation of supply and demand curves for all major markets in the
economy. The labor market is commonly included. CGE models are very
useful for looking at interaction effects of markets: ``They allow for
substitution among inputs in production and goods in consumption.''
Thus, if one market experiences a change, such as a new regulation,
then the effects can be observed in all other markets. As a result,
they can measure the employment changes in the economy due to a
regulation. Because they usually assume equilibrium in all markets,
though, they typically lack involuntary unemployment. If the total
amount of labor changes, it is due to people voluntarily entering or
leaving the workforce. As a result, these models may not be appropriate
for measuring effects of a policy on unemployment, because of the
assumption that there is no involuntary unemployment. In addition,
because of the assumptions of equilibrium in all markets and forward-
looking consumers and firms, they are designed for examining the long-
run effects of a policy but may offer little insight into its short-run
effects.
iii. Input-Output (IO) Models
    Input-output models represent the economy through a matrix of
coefficients that describe the connections between supplying and
consuming sectors. In that sense, like CGE models, they describe the
interconnections of the economy. These interconnections look at how
changes in one sector ripple through the rest of the economy. For
instance, a requirement for additional technology for vehicles requires
additional steel, which requires more workers in both the auto and
steel sectors; the additional workers in those sectors then have more
money to spend, which leads to more employment in retail sectors. These
are known as ``multiplier'' effects, because an initial impact in one
sector gets multiplied through the economy. Unlike CGE models, input-
output models have fixed, linear relationships among the sectors (e.g.,
substitution among inputs or goods is not allowed), and quantity
supplied need not equal quantity demanded. In particular, these models
do not allow for price changes--an increase in the demand for labor or
capital does not result in a change in its price to help reallocate it
to its best use. As a result, these models cannot capture opportunity
costs from using resources in one area of the economy over another. The
multipliers take an initial impact and can increase it substantially.
    IO models are commonly used for regional analysis of projects. In a
regional analysis, the markets are commonly considered small enough
that wages and prices are determined outside the region, and any excess

supply or demand is due to exports and imports (or, in the case of
labor, emigration or immigration). For national-level employment
analysis, the use of input-output models requires the assumption that
workers flow into or out of the labor market perfectly freely. Wages do
not adjust; instead, people join into or depart from the labor pool as
production requires them. For other markets as well, there is no
substitution of less expensive inputs for more expensive ones. As a
result, IO models provide an upper bound on employment impacts. As
Berck and Hoffmann note, ``For the same reason, they can be thought of
as simulating very short-run adjustment,'' in contrast to the CGE's
implicit assumption of long-run adjustment. Changes in production
processes, introducing new technologies, or learning over time due to
new regulatory requirements are also generally not captured by IO
models, as they are calibrated to already established relationships
between inputs and outputs.
iv. Hybrid Models
    As Berck and Hoffmann note, input-output models and CGE models
``represent a continuum of closely related models.'' Though not
separately discussed by Berck and Hoffmann, some hybrid models combine
some of the features of CGE models (e.g., prices that can change) with
input-output relationships. For instance, a hybrid model may include
the ability to examine disequilibrium phenomena, such as labor being at
less than full employment. Hybrid models depend on assumptions about
how adjustments in the economy occur. CGE models characterize
equilibria but say little about the pathway between them, while IO
models assume that adjustments are largely constrained by previously
defined relationships; the effectiveness of hybrid models depends on
their success in overcoming the limitations of each of these
approaches. Hybrid models could potentially be used to model labor
market impacts of various vehicle policy options, although a number of
judgments need to be made about the appropriate assumptions underlying
the model as well as the empirical basis for the modeling results.
v. Single Sectors
    It is possible to conduct a bottom-up analysis of the partial
effect of regulation on employment in a single sector by estimating the
change in output or expenditures in a sector and multiplying it by an
estimate of the number of workers per unit of output or expenditures,
under the assumption that labor demand is proportional to output or
expenditures. As Berck and Hoffmann note, though, ``Compliance with
regulations may create additional jobs that are not accounted for.''
While such an analysis can approximate the effects in that one sector
in a simple way, it also may miss important connections to related
sectors.
vi. Ex-Post Econometric Studies
    A number of ex-post econometric analyses examine the net effect of
regulation on employment in regulated sectors. Morgenstern, Pizer, and
Shih (2002), discussed above, and Berman and Bui (2001) are two notable
examples that rely on highly disaggregated establishment-level time
series data to estimate longer-run employment effects.\593\ While often
a sophisticated treatment of the issues analyzed, these studies
commonly analyze specific scenarios or sectors in the past; care needs
to be taken in extrapolating their results to other scenarios and to
the future. For instance, neither of these two studies examines the
auto industry and are therefore of limited applicability in this
context.
---------------------------------------------------------------------------

    \593\ Berman, Eli, and Linda T. Bui, (2001) ``Environmental
Regulation and Labor Demand: Evidence from the South Coast Air
Basin,'' Journal of Public Economics, 79, 265--295 (Docket EPA-HQ-
OAR-2010-0799).
---------------------------------------------------------------------------

vii. Summary
    All methods of estimating employment impacts of a regulation have
advantages and limitations. CGE models may be most appropriate for
long-term impacts, but the usual assumption of equilibrium in the
employment market means that it is not useful for looking at changes in
overall employment: overall levels are likely to be premised on full
employment. IO models, on the other hand, may be most appropriate for
small-scale, short-term effects, because they assume fixed
relationships across sectors and do not require market equilibria.
Hybrid models, which combine some features of CGEs with IO models,
depend upon key assumptions and economic relationships that are built
into them. Single-sector models are simple and straightforward, but
they are often based on the assumptions that labor demand is
proportional to output, and that other sectors are not affected.
Finally, econometric models have been developed to evaluate the longer-
run net effects of regulation on sector employment, though these are
ex-post analyses commonly of specific sectors or situations, and the
results may not have direct bearing for the regulation being reviewed.
We seek comment on the analytical approaches presented here, the inputs
used below for employment analysis, and other appropriate methods for
analyzing employment impacts for this rulemaking.
c. Employment analysis of this proposal
    As mentioned above, this program is expected to affect employment
in the regulated sector (auto manufacturing) and other sectors directly
affected by the proposal: auto parts suppliers, auto dealers, the fuel
supply market (which will face reduced petroleum production due to
reduced fuel demand but which may see additional demand for electricity
or other fuels), and consumers (who will face higher vehicle costs and
lower fuel expenditures). In addition, as the discussion above
suggests, each of these sectors could potentially have ripple effects
in the rest of the economy. These ripple effects depend much more
heavily on the state of the macroeconomy than do the direct effects. At
the national level, employment may increase in one industry or region
and decrease in another, with the net effect being smaller than either
individual-sector effect. EPA does not attempt to quantify the net
effects of the regulation on overall national employment.
    The discussion that follows provides a partial, bottom-up
quantitative estimate of the effects of this proposal on the regulated
sector (the auto industry; for reasons discussed below, we include some
quantitative assessment of effects on suppliers to the industry,
although they are not regulated directly). It also includes qualitative
discussion of the effects of the proposal on other sectors. Focusing
quantification of employment impacts on the regulated sector has some
advantages over quantifying all impacts. First, the analysis relies on
data generated as part of the rulemaking process, which focuses on the
regulated sector; as a result, what is presented here is based on
internally consistent assumptions and estimates made in this proposal.
Secondly, as discussed above, net effects on employment in the economy
as a whole depend heavily on the overall state of the economy when this
rule has its effects. Focusing on the regulated sector provides insight
into employment effects in that sector without having to make
assumptions about the state of the economy when this rule has its
impacts. We include a qualitative discussion of employment effects
other sectors to provide a broader perspective on the impacts of this
rule.

    As noted above, in a full-employment economy, any changes in
employment will result from people changing jobs or voluntarily
entering or exiting the workforce. In a full-employment economy,
employment impacts of this proposal will change employment in specific
sectors, but it will have small, if any, effect on aggregate
employment. This rule would take effect in 2017 through 2025; by then,
the current high unemployment may be moderated or ended. For that
reason, this analysis does not include multiplier effects, but instead
focuses on employment impacts in the most directly affected industries.
Those sectors are likely to face the most concentrated employment
impacts. The agencies seek comment on other sectors that are likely to
be significantly affected and thus warrant further analysis in the
final rulemaking analysis.
i. Employment Impacts in the Auto Industry
    Following the Morgenstern et al. conceptual framework for the
impacts of regulation on employment in the regulated sector, we
consider three effects for the auto sector: the demand effect, the cost
effect, and the factor shift effect. However, we are only able to offer
quantitative estimates for the cost effect. We note that these
estimates, based on extrapolations from current data, become more
uncertain as time goes on.
(1) The Demand Effect
    The demand effect depends on the effects of this proposal on
vehicle sales. If vehicle sales increase, then more people will be
required to assemble vehicles and their components. If vehicle sales
decrease, employment associated with these activities will
unambiguously decrease. Unlike in Morgenstern et al.'s study, where the
demand effect unambiguously decreased employment, there are
countervailing effects in the vehicle market due to the fuel savings
resulting from this program. On one hand, this proposal will increase
vehicle costs; by itself, this effect would reduce vehicle sales. On
the other hand, this proposal will reduce the fuel costs of operating
the vehicle; by itself, this effect would increase vehicle sales,
especially if potential buyers have an expectation of higher fuel
prices. The sign of demand effect will depend on which of these effects
dominates. Because, as described in Chapter 8.1, we have not quantified
the impact on sales for this proposal, we do not quantify the demand
effect.
(2) The Cost Effect
    The demand effect, discussed above, measures employment changes due
to new vehicle sales only. The cost effect measures employment impacts
due to the new or additional technologies needed for vehicles to comply
with the proposed standards. As DRIA Chapter <IP_ADDRESS>.3 explains, we
estimate the cost effect by multiplying the costs of rule compliance by
ratios of workers to each $1 million of expenditures in that sector.
The magnitude and relative size of these ratios depends on the sectors'
labor intensity of the production process.
    The use of these ratios has both advantages and limitations. It is
often possible to estimate these ratios for quite specific sectors of
the economy; as a result, it is not necessary to extrapolate employment
ratios from possibly unrelated sectors. On the other hand, these
estimates are averages for the sectors, covering all the activities in
those sectors; they may not be representative of the labor required
when expenditures are required on specific activities, as the factor
shift effect (discussed below) indicates. In addition, these estimates
do not include changes in sectors that supply these sectors, such as
steel or electronics producers. They thus may best be viewed as the
effects on employment in the auto sector due to the changes in
expenditures in that sector, rather than as an assessment of all
employment changes due to these changes in expenditures.
    Some of the costs of this proposal will be spent directly in the
auto manufacturing sector, but some of the costs will be spent in the
auto parts manufacturing sector. Because we do not have information on
the proportion of expenditures in each sector, we separately present
the ratios for both the auto manufacturing sector and the auto parts
manufacturing sector. These are not additive, but should instead be
considered as a range of estimates for the cost effect, depending on
which sector adds technologies to the vehicles to comply with the
regulation.
    We use several public sources for estimates of employment per $1
million expenditures: The U.S. Bureau of Labor Statistics' (BLS)
Employment Requirements Matrix (ERM); \594\ the Census Bureau's Annual
Survey of Manufactures \595\ (ASM); and the Census Bureau's Economic
Census. DRIA Chapter <IP_ADDRESS>.2 provides details on all these sources.
The ASM and the Economic Census have more sectoral detail than the ERM;
we provide estimates for both Motor Vehicle Manufacturing and Light
Duty Vehicle Manufacturing sectors for comparison purposes. For all of
these, we adjust for the ratio of domestic production to domestic
sales. The maximum value for employment impacts per $1 million
expenditures (after accounting for the share of domestic production) in
2009 was estimated to be 2.049 if all the additional costs are in the
parts sector; the minimum value is 0.407, if all the additional costs
are in the light-duty vehicle manufacturing sector: That is, the range
of employment impacts is between 0.4 and 2 additional jobs per $1
million expenditures in the sector. The different data sources provide
similar magnitudes for the estimates for the sectors. Parts
manufacturing appears to be more labor-intensive than vehicle
manufacturing; light-duty vehicle manufacturing appears to be slightly
less labor-intensive than motor vehicle manufacturing as a whole. As
discussed in the DRIA, trends in the BLS ERM are used to estimate
productivity improvements over time that are used to adjust these
ratios over time. Table III-87 shows the cost estimates developed for
this rule, discussed in Section III.H.2. Multiplying those cost
estimates by the maximum and minimum values for the cost effect
(maximum using the ASM ratio if all additional costs are in the parts
sector, and minimum using the Economic Census ratio for the light-duty
sector if all additional costs are borne by auto manufacturers)
provides the cost effect employment estimates. This is a simple way to
examine the relationship between labor required and expenditure, and we
seek comment on refining this method.
---------------------------------------------------------------------------

    \594\ http://www.bls.gov/emp/ep_data_emp_requirements.htm.
    \595\ http://www.census.gov/manufacturing/asm/index.html.
---------------------------------------------------------------------------

    While we estimate employment impacts beginning with the first year
of the standard (2017), some of these job gains may occur earlier as
auto manufacturers and parts suppliers hire staff in anticipation of
compliance with the standard.

[GRAPHIC] [TIFF OMITTED] TP01DE11.154

(3) The Factor Shift Effect
    The factor shift effect looks at the effects on employment due to
changes in labor intensity associated with a regulation. As noted
above, the estimates of the cost effect assume constant labor per $1
million in expenditures, though the new technologies may be either more
or less labor-intensive than the existing ones. An estimate of the
factor shift effect would either increase or decrease the estimate used
for the cost effect.
    We are not quantifying the factor shift effect here, for lack of
data on the labor intensity of all the possible technologies that
manufacturers could use to comply with the proposed standards. As
discussed in DRIA Chapter <IP_ADDRESS>.3, though, for a subset of the
technologies, EPA-sponsored research (discussed in Chapter <IP_ADDRESS> of
the Joint TSD), which compared new technologies to existing ones at the
level of individual components, found that labor use for the new
technologies increased: The new fuel-saving technologies use more labor
than the baseline technologies. For instance, switching from a
conventional mid-size vehicle to a hybrid version of that vehicle
involves an additional $395.85 in labor costs, which we estimate to
require an additional 8.6 hours per vehicle.\596\ For a subset of the
technologies likely to be used to meet the standards in this proposal,
then, the factor shift effect increases labor demand, at least in the
short run; in the long run, as with all technologies, the cost
structure is likely to change due to learning, economies of scale, etc.
The technologies examined in this research are, however, only a subset
of the technologies that auto makers may use to comply with the
standards proposed here. As a result, these results cannot be
considered definitive evidence that the factor-shift effect increases
employment for this rule. We therefore do not quantify the factor shift
effect.
---------------------------------------------------------------------------

    \596\ FEV, Inc. ``Light Duty Technology Cost Analysis, Power-
Split and P2 HEV Case Studies.'' EPA Report EPA-420-R-11--015,
November 2011 (Docket EPA-HQ-OAR-2010-0799).

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

(4) Summary of Employment Effects in the Auto Sector
    While we are not able to quantify the demand or factor shift
effects, the cost effect results show that the employment effects of
the increased spending in the regulated sector (and, possibly, the
parts sector) are expected to be positive and on the order of a few
thousand in the initial years of the program. As noted above, the motor
vehicle and parts manufacturing sectors employed about 677,000 people
in 2010, with automobile and light truck manufacturing accounting for
about 129,000 of that total.
ii. Effects on Employment for Auto Dealers
    The effects of the proposed standards on employment for auto
dealers depend principally on the effects of the standards on light
duty vehicle sales. In addition, auto dealers may be affected by
changes in maintenance and service costs. Increases in those costs are
likely to increase labor demand in dealerships.
    Although this proposal predicts very small penetration of advanced
technology vehicles, the uncertainty on consumer acceptance of such
technology vehicles is even greater. As discussed in Section III.H.1.b,
consumers may find some characteristics of electric vehicles and plug-
in hybrid electric vehicles, such as the ability to fuel with
electricity rather than gasoline, attractive; they may find other
characteristics, such as the limited range for electric vehicles,
undesirable. As a result, some consumers will find that EVs will meet
their needs, but other buyers will choose more conventional vehicles.
Auto dealers may play a major role in explaining the merits and
disadvantages of these new technologies to vehicle buyers. There may be
a temporary need for increased employment to train sales staff in the
new technologies as the new technologies become available.
iii. Effects on Employment in the Auto Parts Sector
    As discussed in the context of employment in the auto industry,
some vehicle parts are made in-house by auto manufacturers; others are
made by independent suppliers who are not directly regulated, but who
will be affected by the proposed standards as well. The additional
expenditures on technologies are expected to have a positive effect on
employment in the parts sector as well as the manufacturing sector; the
breakdown in employment between the two sectors is difficult to
predict. The effects on the parts sector also depend on the effects of
the proposed standards on vehicle sales and on the labor intensity of
the new technologies, qualitatively in the same ways as for the auto
manufacturing sector.
iv. Effects on Employment for Fuel Suppliers
    In addition to the effects on the auto manufacturing and parts
sectors, these rules will result in changes in fuel use that lower GHG
emissions. Fuel saving, principally reductions in liquid fuels such as
gasoline and diesel, will affect employment in the fuel suppliers
industry sectors throughout the supply chain, from refineries to
gasoline stations. To the extent that the proposed standards result in
increased use of electricity, natural gas, or other fuels, employment
effects will result from providing these fuels and developing the
infrastructure to supply them to consumers.
    Expected petroleum fuel consumption reductions can be found in
Section III.H.3. While those figures represent fuel savings for
purchasers of fuel, it represents a loss in value of output for the
petroleum refinery industry, fuel distribution, and gasoline stations.
The loss of expenditures to petroleum fuel suppliers throughout the
petroleum fuel supply chain, from the petroleum refiners to the
gasoline stations, is likely to result in reduced employment in these
sectors.
    This rule is also expected to lead to increases in electricity
consumption by vehicles, as discussed in Section III.H.4. This new fuel
may require additional infrastructure, such as electricity charging
locations. Providing this infrastructure will require some increased
employment. In addition, the generation of electricity will also
require some additional labor. We have insufficient information at this
time to predict whether the increases in labor associated with
increased infrastructure provision and fuel generation for these newer
fuels will be greater or less than the employment reductions associated
with reduced demand for petroleum fuels.
v. Effects on Employment Due to Impacts on Consumer Expenditures
    As a result of these proposed standards, consumers will pay a
higher up-front cost for the vehicles, but they will recover those
costs in a fairly short payback period (see Section III.H.10.b);
indeed, people who finance their vehicles are expected to find that
their fuel savings per month exceed the increase in the loan cost
(though this depends on the particular loan rate a consumer receives).
As a result, consumers will have additional money to spend on other
goods and services, though, for those who do not finance their
vehicles, it will occur after the initial payback period. These
increased expenditures will support employment in those sectors where
consumers spend their savings.
    These increased expenditures will occur in 2017 and beyond. If the
economy returns to full employment by that time, any change in consumer
expenditures would primarily represent a shift in employment among
sectors. If, on the other hand, the economy still has substantial
unemployment, these expenditures would contribute to employment through
increased consumer demand.
d. Summary
    The primary employment effects of this proposal are expected to be
found throughout several key sectors: auto manufacturers, auto dealers,
auto parts manufacturing, fuel production and supply, and consumers.
This rule initially takes effect in model year 2017, a time period
sufficiently far in the future that the current sustained high
unemployment at the national level may be moderated or ended. In an
economy with full employment, the primary employment effect of a
rulemaking is likely to be to move employment from one sector to
another, rather than to increase or decrease employment. For that
reason, we focus our partial quantitative analysis on employment in the
regulated sector, to examine the impacts on that sector directly. We
discuss the likely direction of other impacts in the regulated sector
as well as in other directly related sectors, but we do not quantify
those impacts, because they are more difficult to quantify with
reasonable accuracy, particularly so far into the future.
    For the regulated sector, we have not quantified the demand effect.
The cost effect is expected to increase employment by 600-3,600 workers
in 2017 depending on the share of that employment that is in the auto
manufacturing sector compared to the auto parts manufacturing sector.
As mentioned above, some of these job gains may occur earlier as auto
manufacturers and parts suppliers hire staff to prepare to comply with
the standard. The demand effect is ambiguous and depends on changes in
vehicle sales, which are not quantified for this proposal. Though we do
not have estimates of the factor shift effect for all potential
compliance technologies, the evidence which we do have for some
technologies suggests that

many of the technologies will have increased labor needs.
    Effects in other sectors that are predicated on vehicle sales are
also ambiguous. Changes in vehicle sales are expected to affect labor
needs in auto dealerships and in parts manufacturing. Increased
expenditures for auto parts are expected to require increased labor to
build parts, though this effect also depends on any changes in the
labor intensity of production; as noted, the subset of potential
compliance technologies for which data are available show increased
labor requirements. Reduced fuel production implies less employment in
the petroleum sectors. Finally, consumer spending is expected to affect
employment through changes in expenditures in general retail sectors;
net fuel savings by consumers are expected to increase demand (and
therefore employment) in other sectors.

I. Statutory and Executive Order Reviews

a. Executive Order 12866: ``Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review''
    Under section 3(f)(1) of Executive Order 12866 (58 FR 51735,
October 4, 1993), this action is an ``economically significant
regulatory action'' because it is likely to have an annual effect on
the economy of $100 million or more. Accordingly, EPA submitted this
action to the Office of Management and Budget (OMB) for review under
Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011) and any
changes made in response to OMB recommendations have been documented in
the docket for this action as required by CAA section 307(d)(4)(B)(ii).
    In addition, EPA prepared an analysis of the potential costs and
benefits associated with this action. This analysis is contained in the
Draft Regulatory Impact Analysis, which is available in the docket for
this rulemaking and at the docket internet address listed under
ADDRESSES above.
b. Paperwork Reduction Act
    The information collection requirements in this proposed rule have
been submitted for approval to the Office of Management and Budget
(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The
Information Collection Request (ICR) document prepared by EPA has been
assigned EPA ICR number 0783.61.
    The Agency proposes to collect information to ensure compliance
with the provisions in this rule. This includes a variety of
requirements for vehicle manufacturers. Section 208(a) of the Clean Air
Act requires that vehicle manufacturers provide information the
Administrator may reasonably require to determine compliance with the
regulations; submission of the information is therefore mandatory. We
will consider confidential all information meeting the requirements of
section 208(c) of the Clean Air Act.
    As shown in Table III-88, the total annual reporting burden
associated with this proposal is about 5,100 hours and $1.36 million,
based on a projection of 33 respondents. The estimated burden for
vehicle manufacturers is a total estimate for new reporting
requirements. Burden means the total time, effort, or financial
resources expended by persons to generate, maintain, retain, or
disclose or provide information to or for a Federal agency. This
includes the time needed to review instructions; develop, acquire,
install, and utilize technology and systems for the purposes of
collecting, validating, and verifying information, processing and
maintaining information, and disclosing and providing information;
adjust the existing ways to comply with any previously applicable
instructions and requirements; train personnel to be able to respond to
a collection of information; search data sources; complete and review
the collection of information; and transmit or otherwise disclose the
information.
[GRAPHIC] [TIFF OMITTED] TP01DE11.155

    An agency may not conduct or sponsor, and a person is not required
to respond to a collection of information unless it displays a
currently valid OMB control number. The OMB control numbers for EPA's
regulations in 40 CFR are listed in 40 CFR part 9.
    To comment on the Agency's need for this information, the accuracy
of the provided burden estimates, and any suggested methods for
minimizing respondent burden, including the use of automated collection
techniques, EPA has established a public docket for this rule, which
includes this ICR, under Docket ID number EPA-HQ-OAR-2010-0799. Submit
any comments related to the ICR for this proposed rule to EPA and OMB.
See `Addresses' section at the beginning of this notice for where to
submit comments to EPA. Send comments to OMB at the Office of
Information and Regulatory Affairs, Office of Management and Budget,
725 17th Street NW., Washington, DC 20503, Attention: Desk Office for
EPA. Since OMB is required to make a decision concerning the ICR
between 30 and 60 days after December 1, 2011, a comment to OMB is best
assured of having its full effect if OMB receives it by January 3,
2012. The final rule will respond to any OMB or public comments on the
information collection requirements contained in this proposal.
c. Regulatory Flexibility Act
    The Regulatory Flexibility Act (RFA) generally requires an agency
to prepare a regulatory flexibility analysis of any rule subject to
notice and comment rulemaking requirements under the Administrative
Procedure Act or any other statute unless the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities. Small entities include small businesses,
small organizations, and small governmental jurisdictions.

    For purposes of assessing the impacts of this rule on small
entities, small entity is defined as: (1) A small business as defined
by the Small Business Administration's (SBA) regulations at 13 CFR
121.201 (see table below); (2) a small governmental jurisdiction that
is a government of a city, county, town, school district or special
district with a population of less than 50,000; and (3) a small
organization that is any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field.
    Table III-89 provides an overview of the primary SBA small business
categories included in the light-duty vehicle sector:
[GRAPHIC] [TIFF OMITTED] TP01DE11.156

    After considering the economic impacts of today's proposal on small
entities, EPA certifies that this action will not have a significant
economic impact on a substantial number of small entities. As with the
MY 2012-2016 GHG standards, EPA is proposing to exempt manufacturers
meeting SBA's definition of small business as described in 13 CFR
121.201 due to unique issues involved with establishing appropriate GHG
standards for these small businesses and the potential need to develop
a program that would be structured differently for them (which would
require more time), and the extremely small emissions contribution of
these entities. EPA would instead consider appropriate GHG standards
for these entities as part of a future regulatory action.
    Potentially affected small entities fall into three distinct
categories of businesses for light-duty vehicles: Small volume
manufacturers (SVMs), independent commercial importers (ICIs), and
alternative fuel vehicle converters. Based on our preliminary
assessment, EPA has identified a total of about 21 entities that fit
the Small Business Administration (SBA) criterion of a small business.
There are about 4 small manufacturers, including three electric vehicle
manufacturers, 8 ICIs, and 9 alternative fuel vehicle converters in the
light-duty vehicle market which are small businesses (no major vehicle
manufacturers meet the small-entity criteria as defined by SBA). EPA
estimates that these small entities comprise less than 0.1 percent of
the total light-duty vehicle sales in the U.S., and therefore the
proposed exemption will have a negligible impact on the GHG emissions
reductions from the proposed standards.
    As discussed in Section III.B.7, EPA is proposing to allow small
businesses to waive their small entity exemption and optionally certify
to the GHG standards. This would allow small entity manufacturers to
earn CO2 credits under the GHG program, if their actual
fleetwide CO2 performance was better

than their fleetwide CO2 target standard. EPA proposes to
make the GHG program opt-in available starting in MY 2014, as the MY
2012, and potentially the MY 2013, certification process will have
already occurred by the time this rulemaking is finalized. EPA is also
proposing that manufacturers certifying to the GHG standards for MY
2014 would be eligible to generate early credits for vehicles sold in
MY 2012 and MY 2013. Manufacturers waiving their small entity exemption
would be required to meet all aspects of the GHG standards and program
requirements across their entire product line. However, the exemption
waiver would be optional for small entities and presumably
manufacturers would only opt into the GHG program if it is economically
advantageous for them to do so, for example through the generation and
sale of CO2 credits. Therefore, EPA believes adding this
voluntary option does not affect EPA's determination that the proposed
standards would impose no significant adverse impact on small entities.
    Some commenters to the 2012-2016 light duty vehicle GHG rulemaking
argued that EPA is obligated under the RFA to consider indirect impacts
of the rules in assessing impacts on small businesses, in particular
potential impacts on stationary sources that would not be directly
regulated by the rule. EPA disagrees. When considering whether a rule
should be certified, the RFA requires an agency to look only at the
small entities to which the proposed rule will apply and which will be
subject to the requirement of the specific rule in question. 5 U.S.C.
603, 605 (b); Mid-Tex Elec. Coop. v. FERC, 773 F.3d 327, 342 (DC Cir.
1985). Reading section 605 in light of section 603, we conclude that an
agency may properly certify that no regulatory flexibility analysis is
necessary when it determines that the rule will not have a significant
economic impact on a substantial number of small entities that are
subject to the requirements of the rule; see also Cement Kiln Recycling
Coalition, v. EPA, 255 F.3d 855, 869 (DC Cir. 2001). DC Circuit has
consistently rejected the contention that the RFA applies to small
businesses indirectly affected by the regulation of other
entities.\597\
---------------------------------------------------------------------------

    \597\ In any case, any impacts on stationary sources arise
because of express statutory requirements in the CAA, not as a
result of vehicle GHG regulation. Moreover, GHGs have become subject
to regulation under the CAA by virtue of other regulatory actions
taken by EPA before this proposal.
---------------------------------------------------------------------------

    Since the proposal would regulate exclusively large motor vehicle
manufacturers and small vehicle manufacturers are exempted from the
standards, EPA is properly certifying that the 2017-2025 standards
would not have a significant economic impact on a substantial number of
small entities directly subject to the rule or otherwise would have a
positive economic effect on all of the small entities opting in to the
rule.
    We continue to be interested in the potential impacts of the
proposed rule on small entities and welcome comments on issues related
to such impacts.
d. Unfunded Mandates Reform Act
    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public
Law 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector.
    This proposal contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for State, local, or tribal
governments. The rule imposes no enforceable duty on any State, local
or tribal governments. This action is also not subject to the
requirements of section 203 of UMRA because EPA has determined that
this rule contains no regulatory requirements that might significantly
or uniquely affect small governments. EPA has determined that this
proposal contains a Federal mandate that may result in expenditures of
$100 million or more for the private sector in any one year. EPA
believes that the proposal represents the least costly, most cost-
effective approach to revise the light duty vehicle standards as
authorized by section 202(a)(1). See Section III.A.2.a above. The costs
and benefits associated with the proposal are discussed above and in
the Draft Regulatory Impact Analysis, as required by the UMRA.
e. Executive Order 13132: ``Federalism''
    This proposed action would not have federalism implications. It
will not have substantial direct effects on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government, as specified in Executive Order 13132. This rulemaking
would apply to manufacturers of motor vehicles and not to state or
local governments; state and local governments that purchase new model
year 2017 and later vehicles will enjoy substantial fuel savings from
these more fuel efficient vehicles. Thus, Executive Order 13132 does
not apply to this action. Although section 6 of Executive Order 13132
does not apply to this action, EPA did consult with representatives of
state and local governments in developing this action.
    In the spirit of Executive Order 13132, and consistent with EPA
policy to promote communications between EPA and State and local
governments, EPA specifically solicits comment on this proposed action
from State and local officials.
f. Executive Order 13175: ``Consultation and Coordination with Indian
Tribal Governments''
    This proposed rule does not have tribal implications, as specified
in Executive Order 13175 (65 FR 67249, November 9, 2000). This rule
will be implemented at the Federal level and impose compliance costs
only on vehicle manufacturers. Tribal governments would be affected
only to the extent they purchase and use regulated vehicles; tribal
governments that purchase new model year 2017 and later vehicles will
enjoy substantial fuel savings from these more fuel efficient vehicles.
Thus, Executive Order 13175 does not apply to this rule. EPA
specifically solicits additional comment on this proposed rule from
tribal officials.
g. Executive Order 13045: ``Protection of Children from Environmental
Health Risks and Safety Risks''
    This action is subject to EO 13045 (62 FR 19885, April 23, 1997)
because it is an economically significant regulatory action as defined
by EO 12866, and EPA believes that the environmental health or safety
risk addressed by this action may have a disproportionate effect on
children. Climate change impacts, and in particular the determinations
of the Administrator in the Endangerment and Cause or Contribute
Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act
(74 FR 66496, December 15, 2009), are summarized in Section III.F.2. In
making those Findings, the Administrator placed weight on the fact that
certain groups, including children, are particularly vulnerable to
climate-related health effects. In those Findings, the Administrator
determined that the health effects of climate change linked to observed
and projected elevated concentrations of GHGs include the increased
likelihood of more frequent and intense heat waves, increases in ozone
concentrations over broad areas of the country, an increase of the
severity of extreme weather events such as hurricanes and floods, and
increasing severity of coastal storms due to rising sea levels. These
effects can all increase mortality and morbidity, especially in

vulnerable populations such as children, the elderly, and the poor. In
addition, the occurrence of wildfires in North America have increased
and are likely to intensify in a warmer future. PM emissions from these
wildfires can contribute to acute and chronic illnesses of the
respiratory system, including pneumonia, upper respiratory diseases,
asthma, and chronic obstructive pulmonary disease, especially in
children.
    EPA has estimated reductions in projected global mean surface
temperature and sea level rise as a result of reductions in GHG
emissions associated with the standards proposed in this action
(Section III.F.3). Due to their vulnerability, children may receive
disproportionate benefits from these reductions in temperature and the
subsequent reduction of increased ozone and severity of weather events.
    The public is invited to submit comments or identify peer-reviewed
studies and data that assess effects of early life exposure to the
pollutants addressed by this proposed rule.
h. Executive Order 13211: ``Energy Effects''
    Executive Order 13211; \598\ applies to any rule that: (1) Is
determined to be economically significant as defined under E.O. 12866,
and is likely to have a significant adverse effect on the supply,
distribution, or use of energy; or (2) that is designated by the
Administrator of the Office of Information and Regulatory Affairs as a
significant energy action. If the regulatory action meets either
criterion, we must evaluate the adverse energy effects of the proposed
rule and explain why the proposed regulation is preferable to other
potentially effective and reasonably feasible alternatives considered
by us.
---------------------------------------------------------------------------

    \598\ 66 FR 28355 (May 18, 2001).
---------------------------------------------------------------------------

    The proposed rule seeks to establish passenger car and light truck
fuel economy standards that would significantly reduce the consumption
of petroleum, would achieve energy security benefits, and would not
have any adverse energy effects (Section III.H.7). In fact, this rule
has a positive effect on energy supply and use. Because the GHG
emission standards finalized today result in significant fuel savings,
this rule encourages more efficient use of fuels. Accordingly, this
proposed rulemaking action is not designated as a significant energy
action as defined by E.O. 13211.
i. National Technology Transfer and Advancement Act
    Section 12(d) of the National Technology Transfer and Advancement
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 note)
directs EPA to use voluntary consensus standards in its regulatory
activities unless to do so would be inconsistent with applicable law or
otherwise impractical. Voluntary consensus standards are technical
standards (e.g., materials, specifications, test methods, sampling
procedures, and business practices) that are developed or adopted by
voluntary consensus standards bodies. NTTAA directs EPA to provide
Congress, through OMB, explanations when the Agency decides not to use
available and applicable voluntary consensus standards.
    For CO2 emissions, EPA is proposing to collect data over
the same tests that are used for the MY 2012-2016 CO2
standards and for the CAFE program. This will minimize the amount of
testing done by manufacturers, since manufacturers are already required
to run these tests. For A/C credits, EPA is proposing to use a
consensus methodology developed by the Society of Automotive Engineers
(SAE) and also a new A/C test. EPA knows of no consensus standard
available for the A/C test.
j. Executive Order 12898: ``Federal Actions To Address Environmental
Justice in Minority Populations and Low-Income Populations''
    Executive Order (E.O.) 12898 (59 FR 7629 (Feb. 16, 1994))
establishes federal executive policy on environmental justice. Its main
provision directs federal agencies, to the greatest extent practicable
and permitted by law, to make environmental justice part of their
mission by identifying and addressing, as appropriate,
disproportionately high and adverse human health or environmental
effects of their programs, policies, and activities on minority
populations and low-income populations in the United States.
    With respect to GHG emissions, EPA has determined that this
proposed rule will not have disproportionately high and adverse human
health or environmental effects on minority or low-income populations
because it increases the level of environmental protection for all
affected populations without having any disproportionately high and
adverse human health or environmental effects on any population,
including any minority or low-income population. The reductions in
CO2 and other GHGs associated with the proposed standards
will affect climate change projections, and EPA has estimated
reductions in projected global mean surface temperatures and sea-level
rise (Section III.F.3). Within settlements experiencing climate change,
certain parts of the population may be especially vulnerable; these
include the poor, the elderly, those already in poor health, the
disabled, those living alone, and/or indigenous populations dependent
on one or a few resources.\599\ Therefore, these populations may
receive disproportionate benefits from reductions in GHGs.
---------------------------------------------------------------------------

    \599\ U.S. EPA. (2009). Technical Support Document for
Endangerment or Cause or Contribute Findings for Greenhouse Gases
under Section 202(a) of the Clean Air Act. Washington, DC: U.S. EPA.
Retrieved on April 21, 2009 from http://epa.gov/climatechange/endangerment/downloads/TSD_Endangerment.pdf.
---------------------------------------------------------------------------

    For non-GHG co-pollutants such as ozone, PM2.5, and
toxics, EPA has concluded that it is not practicable to determine
whether there would be disproportionately high and adverse human health
or environmental effects on minority and/or low income populations from
this proposed rule.

J. Statutory Provisions and Legal Authority

    Statutory authority for the vehicle controls proposed today is
found in section 202(a) (which authorizes standards for emissions of
pollutants from new motor vehicles which emissions cause or contribute
to air pollution which may reasonably be anticipated to endanger public
health or welfare), 202(d), 203-209, 216, and 301 of the Clean Air Act,
42 U.S.C. 7521(a), 7521(d), 7522, 7523, 7524, 7525, 7541, 7542, 7543,
7550, and 7601. Statutory authority for EPA to establish CAFE test
procedures is found in section 32904(c) of the Energy Policy and
Conservation Act, 49 U.S.C. section 32904(c).

IV. NHTSA Proposed Rule for Passenger Car and Light Truck CAFE
Standards for Model Years 2017-2025

A. Executive Overview of NHTSA Proposed Rule

1. Introduction
    The National Highway Traffic Safety Administration (NHTSA) is
proposing Corporate Average Fuel Economy (CAFE) standards for passenger
automobiles (passenger cars) and nonpassenger automobiles (light
trucks) for model years (MY) 2017-2025. NHTSA's proposed CAFE standards
would require passenger cars and light trucks to meet an estimated
combined average of 49.6 mpg in MY 2025. This represents an average
annual increase of

4 percent from the estimated 34.4 mpg combined fuel economy level
expected in MY 2016. Due to these proposed standards, we project total
fuel savings of approximately 173 billion gallons over the lifetimes of
the vehicles sold in model years 2017-2025, with corresponding net
societal benefits of over $358 billion using a 3 percent discount
rate,\600\ or $262 billion using a 7 percent discount rate.
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    \600\ This value is based on what NHTSA refers to as ``Reference
Case'' inputs, which are based on the assumptions that NHTSA has
employed for its main analysis (as opposed to sensitivity analyses
to examine the effect of variations in the assumptions on costs and
benefits). The Reference Case inputs include fuel prices based on
the AEO 2011 Reference Case, a 3 percent and a 7 percent discount
rate, a 10 percent rebound effect, a value for the social cost of
carbon (SCC) of $22/metric ton CO2 (in 2010, rising to
$45/metric ton in 2050, at a 3 percent discount rate), etc. For a
full listing of the Reference Case input assumptions, see Section
IV.C.3 below.
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    While NHTSA has been setting fuel economy standards since the
1970s, as discussed in Section I, NHTSA's proposed MYs 2017-2025 CAFE
standards are part of a National Program made up of complementary
regulations by NHTSA and the Environmental Protection Agency. Today's
proposed standards build upon the success of the first phase of the
National Program, finalized on May 7, 2010, in which NHTSA and EPA set
coordinated CAFE and greenhouse gas (GHG) standards for MYs 2012-2016
passenger cars and light trucks. Because of the very close relationship
between improving fuel economy and reducing carbon dioxide
(CO2) tailpipe emissions, a large majority of the projected
benefits are achieved jointly with EPA's GHG rule, described in detail
above in Section III of this preamble. These proposed CAFE standards
are consistent with the President's National Fuel Efficiency Policy
announcement of May 19, 2009, which called for harmonized rules for all
automakers, instead of three overlapping and potentially inconsistent
requirements from DOT, EPA, and the California Air Resources Board. And
finally, the proposed CAFE standards and the analysis supporting them
also respond to President's Obama's May 2010 memorandum requesting the
agencies to develop, through notice and comment rulemaking, a
coordinated National Program for passenger cars and light trucks for
MYs 2017 to 2025.
2. Why does NHTSA set CAFE standards for passenger cars and light
trucks?
    Improving vehicle fuel economy has been long and widely recognized
as one of the key ways of achieving energy independence, energy
security, and a low carbon economy.\601\ The significance accorded to
improving fuel economy reflects several factors. Conserving energy,
especially reducing the nation's dependence on petroleum, benefits the
U.S. in several ways. Improving energy efficiency has benefits for
economic growth and the environment, as well as other benefits, such as
reducing pollution and improving security of energy supply. More
specifically, reducing total petroleum use decreases our economy's
vulnerability to oil price shocks. Reducing dependence on oil imports
from regions with uncertain conditions enhances our energy security.
Additionally, the emission of CO2 from the tailpipes of cars
and light trucks due to the combustion of petroleum is one of the
largest sources of U.S. CO2 emissions.\602\ Using vehicle
technology to improve fuel economy, and thereby reducing tailpipe
emissions of CO2, is one of the three main measures for
reducing those tailpipe emissions of CO2.\603\ The two other
measures for reducing the tailpipe emissions of CO2 are
switching to vehicle fuels with lower carbon content and changing
driver behavior, i.e., inducing people to drive less.
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    \601\ Among the reports and studies noting this point are the
following:
    John Podesta, Todd Stern and Kim Batten, ``Capturing the Energy
Opportunity; Creating a Low-Carbon Economy,'' Center for American
Progress (November 2007), pp. 2, 6, 8, and 24-29, available at:
http://www.americanprogress.org/issues/2007/11/pdf/energy_chapter.pdf (last accessed Sept. 24, 2011).
    Sarah Ladislaw, Kathryn Zyla, Jonathan Pershing, Frank
Verrastro, Jenna Goodward, David Pumphrey, and Britt Staley, ``A
Roadmap for a Secure, Low-Carbon Energy Economy; Balancing Energy
Security and Climate Change,'' World Resources Institute and Center
for Strategic and International Studies (January 2009), pp. 21-22;
available at: http://pdf.wri.org/secure_low_carbon_energy_economy_roadmap.pdf (last accessed Sept. 24, 2011).
    Alliance to Save Energy et al., ``Reducing the Cost of
Addressing Climate Change Through Energy Efficiency'' (2009),
available at: http://www.aceee.org/files/pdf/white-paper/ReducingtheCostofAddressingClimateChange_synopsis.pdf (last
accessed Sept. 24, 2011).
    John DeCicco and Freda Fung, ``Global Warming on the Road; The
Climate Impact of America's Automobiles,'' Environmental Defense
(2006) pp. iv-vii; available at: http://www.edf.org/sites/default/files/5301_Globalwarmingontheroad_0.pdf (last accessed Sept. 24,
2011).
    ``Why is Fuel Economy Important?,'' a Web page maintained by the
Department of Energy and Environmental Protection Agency, available
at http://www.fueleconomy.gov/feg/why.shtml (last accessed Sept. 24,
2011);
    Robert Socolow, Roberta Hotinski, Jeffery B. Greenblatt, and
Stephen Pacala, ``Solving The Climate Problem: Technologies
Available to Curb CO2 Emissions,'' Environment, volume
46, no. 10, 2004, pages 8-19, available at: http://www.princeton.edu/mae/people/faculty/socolow/ENVIRONMENTDec2004issue.pdf (last accessed Sept. 24, 2011).
    \602\ EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks:
1990-2008 (April 2010), pp. ES-5, ES-8, and 2-17. Available at
http://www.epa.gov/climatechange/emissions/usgginv_archive.html
(last accessed Sept. 25, 2011).
    \603\ Podesta et al., p. 25; Ladislaw et al. p. 21; DeCicco et
al. p. vii; ``Reduce Climate Change, a Web page maintained by the
Department of Energy and Environmental Protection Agency at http://www.fueleconomy.gov/feg/climate.shtml (last accessed Sept. 24,
2011).
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Reducing Petroleum Consumption To Improve Energy Security and Save the
U.S. Money
    In 1975, Congress enacted the Energy Policy and Conservation Act
(EPCA), mandating that NHTSA establish and implement a regulatory
program for motor vehicle fuel economy to meet the various facets of
the need to conserve energy, including ones having energy independence
and security, environmental, and foreign policy implications. The need
to reduce energy consumption is even more crucial today than it was
when EPCA was enacted. U.S. energy consumption has been outstripping
U.S. energy production at an increasing rate. Improving our energy and
national security by reducing our dependence on foreign oil has been a
national objective since the first oil price shocks in the 1970s. Net
petroleum imports accounted for approximately 51 percent of U.S.
petroleum consumption in 2009.\604\ World crude oil production is
highly concentrated, exacerbating the risks of supply disruptions and
price shocks as the recent unrest in North Africa and the Persian Gulf
highlights. The export of U.S. assets for oil imports continues to be
an important component of U.S. trade deficits. Transportation accounted
for about 71 percent of U.S. petroleum consumption in 2009.\605\ Light-
duty vehicles account for about 60 percent of transportation oil use,
which means that they alone account for about 40 percent of all U.S.
oil consumption.
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    \604\ Energy Information Administration, ``How dependent are we
on foreign oil?'' Available at http://www.eia.gov/energy_in_brief/foreign_oil_dependence.cfm (last accessed August 28, 2011).
    \605\ Energy Information Administration, Annual Energy Outlook
2011, ``Oil/Liquids.'' Available at http://www.eia.gov/forecasts/aeo/MT_liquidfuels.cfm (last accessed August 28, 2011).
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    Gasoline consumption in the U.S. has historically been relatively
insensitive to fluctuations in both price and consumer income, and
people in most parts of the country tend to view gasoline consumption
as a non-discretionary expense. Thus, when gasoline's share in consumer
expenditures rises, the public experiences fiscal distress. Recent
tight

global oil markets led to prices over $100 per barrel, with gasoline
reaching as high as $4 per gallon in many parts of the U.S., causing
financial hardship for many families and businesses. This fiscal
distress can, in some cases, have macroeconomic consequences for the
economy at large.
    Additionally, since U.S. oil production is only affected by
fluctuations in prices over a period of years, any changes in petroleum
consumption (as through increased fuel economy levels for the on-road
fleet) largely flow into changes in the quantity of imports. Since
petroleum imports account for about 2 percent of GDP, increases in oil
imports can create a discernible fiscal drag. As a consequence,
measures that reduce petroleum consumption, like fuel economy
standards, will directly benefit the balance-of-payments account, and
strengthen the U.S. economy to some degree. And finally, U.S. foreign
policy has been affected by decades by rising U.S. and world dependency
on crude oil as the basis for modern transportation systems, although
fuel economy standards have at best an indirect impact on U.S. foreign
policy.
Reducing Petroleum Consumption To Reduce Climate Change Impacts
    CO2 is the natural by-product of the combustion of fuel
to power motor vehicles. The more fuel-efficient a vehicle is, the less
fuel it needs to burn to travel a given distance. The less fuel it
burns, the less CO2 it emits in traveling that
distance.\606\ Since the amount of CO2 emissions is
essentially constant per gallon combusted of a given type of fuel, the
amount of fuel consumption per mile is closely related to the amount of
CO2 emissions per mile. Motor vehicles are the second
largest GHG-emitting sector in the U.S. after electricity generation,
and accounted for 27 percent of total U.S. GHG emissions in 2008.\607\
Concentrations of greenhouse gases are at unprecedented levels compared
to the recent and distant past, which means that fuel economy
improvements to reduce those emissions are a crucial step toward
addressing the risks of global climate change. These risks are well
documented in Section III of this notice, and in NHTSA's draft
Environmental Impact Statement (DEIS) accompanying these proposed
standards.
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    \606\ Panel on Policy Implications of Greenhouse Warming,
National Academy of Sciences, National Academy of Engineering,
Institute of Medicine, ``Policy Implications of Greenhouse Warming:
Mitigation, Adaptation, and the Science Base,'' National Academies
Press, 1992, at 287. Available at http://www.nap.edu/catalog.php?record_id=1605 (last accessed Sept. 25, 2011).
    \607\ EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks:
1990-2008 (April 2010), p. 2-17. Available at http://www.epa.gov/climatechange/emissions/usgginv_archive.html (last accessed Sept.
25, 2011).
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    Fuel economy gains since 1975, due both to the standards and to
market factors, have resulted in saving billions of barrels of oil and
avoiding billions of metric tons of CO2 emissions. In
December 2007, Congress enacted the Energy Independence and Security
Act (EISA), amending EPCA to require substantial, continuing increases
in fuel economy. NHTSA thus sets CAFE standards today under EPCA, as
amended by EISA, in order to help the U.S. passenger car and light
truck fleet save fuel to promote energy independence, energy security,
and a low carbon economy.
3. Why is NHTSA proposing CAFE standards for MYs 2017-2025 now?
a. President's Memorandum
    During the public comment period for the MY 2012-2016 proposed
rulemaking, many stakeholders encouraged NHTSA and EPA to begin working
toward standards for MY 2017 and beyond in order to maintain a single
nationwide program. After the publication of the final rule
establishing MYs 2012-2016 CAFE and GHG standards, President Obama
issued a Memorandum on May 21, 2010 requesting that NHTSA, on behalf of
the Department of Transportation, and EPA work together to develop a
national program for model years 2017-2025.\608\ Specifically, he
requested that the agencies develop ``* * * a coordinated national
program under the CAA [Clean Air Act] and the EISA [Energy Independence
and Security Act of 2007] to improve fuel efficiency and to reduce
greenhouse gas emissions of passenger cars and light-duty trucks of
model years 2017-2025.'' The President recognized that our country
could take a leadership role in addressing the global challenges of
improving energy security and reducing greenhouse gas pollution,
stating that ``America has the opportunity to lead the world in the
development of a new generation of clean cars and trucks through
innovative technologies and manufacturing that will spur economic
growth and create high-quality domestic jobs, enhance our energy
security, and improve our environment.''
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    \608\ The Presidential Memorandum is found at: http://www.whitehouse.gov/the-press-office/presidential-memorandum-regarding-fuel-efficiency-standards. For the reader's reference, the
President also requested the Administrators of EPA and NHTSA to
issue joint rules under the CAA and EISA to establish fuel
efficiency and greenhouse gas emissions standards for commercial
medium-and heavy-duty on-highway vehicles and work trucks beginning
with the 2014 model year. The agencies recently promulgated final
GHG and fuel efficiency standards for heavy duty vehicles and
engines for MYs 2014-2018. 76 FR 57106 (September 15, 2011).
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    The Presidential Memorandum stated ``The program should also seek
to achieve substantial annual progress in reducing transportation
sector greenhouse gas emissions and fossil fuel consumption, consistent
with my Administration's overall energy and climate security goals,
through the increased domestic production and use of existing,
advanced, and emerging technologies, and should strengthen the industry
and enhance job creation in the United States.'' Among other things,
the agencies were tasked with researching and then developing standards
for MYs 2017 through 2025 that would be appropriate and consistent with
EPA's and NHTSA's respective statutory authorities, in order to
continue to guide the automotive sector along the road to reducing its
fuel consumption and GHG emissions, thereby ensuring corresponding
energy security and environmental benefits. Several major automobile
manufacturers and CARB sent letters to EPA and NHTSA in support of a
MYs 2017 to 2025 rulemaking initiative as outlined in the President's
May 21, 2010 announcement.\609\ The agencies began working immediately
on the next phase of the National Program, work which has culminated in
the standards proposed in this notice for MYs 2017-2025.
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    \609\ These commitment letters in response to the May 21, 2010
Presidential Memorandum are available at http://www.epa.gov/otaq/climate/proposedregs.htm#cl; and http://www.nhtsa.gov/
Laws+&+Regulations/CAFE+-+Fuel+Economy/
Stakeholder+Commitment+Letters (last accessed August 28, 2011).
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b. Benefits of Continuing the National Program
    The National Program is both needed and possible because the
relationship between improving fuel economy and reducing CO2
tailpipe emissions is a very close one. In the real world, there is a
single pool of technologies for reducing fuel consumption and
CO2 emissions. Using these technologies in the way that
minimizes fuel consumption also minimizes CO2 emissions.
While there are emission control technologies that can capture or
destroy the pollutants that are produced by imperfect combustion of
fuel (e.g., carbon monoxide), there are at present no such technologies
for CO2. In fact, the only way at present to reduce tailpipe
emissions of CO2 is by reducing

fuel consumption. The National Program thus has dual benefits: it
conserves energy by improving fuel economy, as required of NHTSA by
EPCA and EISA; in the process, it necessarily reduces tailpipe
CO2 emissions consonant with EPA's purposes and
responsibilities under the Clean Air Act.
    Additionally, by setting harmonized Federal standards to regulate
both fuel economy and greenhouse gas emissions, the agencies are able
to provide a predictable regulatory framework for the automotive
industry while preserving the legal authorities of NHTSA, EPA, and the
State of California. Consistent, harmonized, and streamlined
requirements under the National Program, both for MYs 2012-2016 and for
MYs 2017-2025, hold out the promise of continuing to deliver energy and
environmental benefits, cost savings, and administrative efficiencies
on a nationwide basis that might not be available under a less
coordinated approach. The National Program makes it possible for the
standards of two different Federal agencies and the standards of
California and other ``Section 177'' states to act in a unified fashion
in providing these benefits. A harmonized approach to regulating
passenger car and light truck fuel economy and GHG emissions is
critically important given the interdependent goals of addressing
climate change and ensuring energy independence and security.
Additionally, a harmonized approach would help to mitigate the cost to
manufacturers of having to comply with multiple sets of Federal and
State standards.
    One aspect of this phase of the National Program that is unique for
NHTSA, however, is that the passenger car and light truck CAFE
standards for MYs 2022-2025 must be conditional, while EPA's standards
for those model years will be legally binding when adopted in this
round. EISA requires NHTSA to issue CAFE standards for ``at least 1,
but not more than 5, model years.'' \610\ To maintain the harmonization
benefits of the National Program, NHTSA will therefore propose and
adopt standards for all 9 model years from 2017-2025, but the last 4
years of standards will not be legally binding as part of this