[Federal Register Volume 86, Number 248 (Thursday, December 30, 2021)]
[Rules and Regulations]
[Pages 74434-74526]
[FR Doc No: 2021-27854]

Vol. 86

Thursday,

No. 248

December 30, 2021

Part II

Environmental Protection Agency

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40 CFR Parts 86 and 600

Revised 2023 and Later Model Year Light-Duty Vehicle Greenhouse Gas
Emissions Standards; Final Rule

Federal Register / Vol. 86 , No. 248 / Thursday, December 30, 2021 /
Rules and Regulations

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 86 and 600

[EPA-HQ-OAR-2021-0208; FRL 8469-01-OAR]
RIN 2060-AV13

Revised 2023 and Later Model Year Light-Duty Vehicle Greenhouse
Gas Emissions Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: The Environmental Protection Agency (EPA) is revising the
greenhouse gas (GHG) emissions standards under the Clean Air Act
section 202(a) for light-duty vehicles for 2023 and later model years
to make the standards more stringent. On January 20, 2021, President
Biden issued Executive Order 13990 ``Protecting Public Health and the
Environment and Restoring Science To Tackle the Climate Crisis''
directing EPA to consider whether to propose suspending, revising, or
rescinding the standards previously revised under the ``The Safer
Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-
2026 Passenger Cars and Light Trucks,'' promulgated in April 2020. EPA
is revising the GHG standards to be more stringent than the SAFE rule
standards in each model year from 2023 through 2026. EPA is also
including temporary targeted flexibilities to address the lead time of
the final standards and to incentivize the production of vehicles with
zero and near-zero emissions technology. In addition, EPA is making
technical amendments to clarify and streamline our regulations.

DATES: This final rule is effective on February 28, 2022. The
incorporation by reference of certain publications listed in this
regulation is approved by the Director of the Federal Register as of
February 28, 2022.

ADDRESSES: EPA has established a docket for this action under Docket ID
No. EPA-HQ-OAR-2021-0208. All documents in the docket are listed on the
http://www.regulations.gov website. Although listed in the index, some
information is not publicly available, e.g., CBI or other information
whose disclosure is restricted by statute. Certain other material, such
as copyrighted material, is not placed on the internet and will be
publicly available only in hard copy form. Publicly available docket
materials are available electronically through http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Elizabeth Miller, Office of
Transportation and Air Quality, Assessment and Standards Division
(ASD), Environmental Protection Agency, 2000 Traverwood Drive, Ann
Arbor, MI 48105; telephone number:<PHONE_NUMBER>; email address:
[email protected].

SUPPLEMENTARY INFORMATION:

Does this action apply to me?

    This action affects companies that manufacture or sell passenger
automobiles (passenger cars) and non-passenger automobiles (light
trucks) as defined in 49 CFR part 523. Regulated categories and
entities include:

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                                                                                Examples of potentially
               Category                                NAICS codes \A\                     regulated entities
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Industry..............................                                 336111, 336112  Motor Vehicle
                                                                                Manufacturers.
Industry..............................                 811111, 811112, 811198, 423110  Commercial Importers of
                                                                                Vehicles and Vehicle
                                                                                Components.
Industry..............................                                 335312, 811198  Alternative Fuel Vehicle
                                                                                Converters.
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\A\ North American Industry Classification System (NAICS).

    This list is not intended to be exhaustive, but rather provides a
guide regarding entities likely to be regulated by this action. To
determine whether particular activities may be regulated by this
action, you should carefully examine the regulations. You may direct
questions regarding the applicability of this action to the person
listed in FOR FURTHER INFORMATION CONTACT.

Table of Contents

I. Executive Summary
    A. Purpose of This Final Rule and Legal Authority
    1. Final Light-Duty GHG Standards for Model Years 2023-2026
    2. Why does EPA believe the final standards are appropriate
under the CAA?
    B. Summary of Final Light-Duty Vehicle GHG Program
    1. Final Revised GHG Emissions Standards
    2. Final Compliance Flexibilities and Advanced Technology
Incentives
    C. Analytical Support for the Final Revised Standards
    D. Summary of Costs, Benefits and GHG Emission Reductions of the
Final Program
    E. How has EPA considered environmental justice in this final
rule?
    F. Affordability and Equity
II. EPA Standards for MY 2023-2026 Light-Duty Vehicle GHGs
    A. Model Year 2023-2026 GHG Standards for Light-Duty Vehicles,
Light-Duty Trucks, and Medium-Duty Passenger Vehicles
    1. What fleet-wide emissions levels correspond to the
CO2 standards?
    2. What are the final CO2 attribute-based standards?
    3. EPA's Statutory Authority Under the CAA
    4. Averaging, Banking, and Trading Provisions for CO2
Standards
    5. Certification, Compliance, and Enforcement
    6. On-Board Diagnostics Program Updates
    7. Stakeholder Engagement
    8. How do EPA's final standards relate to NHTSA's CAFE proposal
and to California's GHG program?
    B. Manufacturer Compliance Flexibilities
    1. Multiplier Incentives for Advanced Technology Vehicles
    2. Full-Size Pickup Truck Incentives
    3. Off-Cycle Technology Credits
    4. Air Conditioning System Credits
    5. Natural Gas Vehicles Technical Correction
    C. What alternatives did EPA analyze?
III. Technical Assessment of the Final CO2 Standards
    A. What approach did EPA use in analyzing the standards?
    B. Projected Compliance Costs and Technology Penetrations
    1. GHG Targets and Compliance Levels
    2. Projected Compliance Costs per Vehicle
    3. Technology Penetration Rates
    C. Are the final standards feasible?
    D. How did EPA consider alternatives in selecting the final
program?
IV. How does this final rule reduce GHG emissions and their
associated effects?
    A. Impact on GHG Emissions
    B. Climate Change Impacts From GHG Emissions
    C. Global Climate Impacts and Benefits Associated With the Final
Rule's Estimated GHG Emissions Reductions
V. How would the final rule impact non-GHG emissions and their
associated effects?
    A. Impact on Non-GHG Emissions
    B. Health and Environmental Effects Associated With Exposure to
Non-GHG Pollutants Impacted by the Final Standards
    C. Air Quality Impacts of Non-GHG Pollutants
VI. Basis for the Final GHG Standards Under CAA Section 202(a)
    A. Consideration of Technological Feasibility and Lead Time
    B. Consideration of Vehicle Costs of Compliance

    C. Consideration of Impacts on Consumers
    D. Consideration of Emissions of GHGs and Other Air Pollutants
    E. Consideration of Energy, Safety and Other Factors
    F. Balancing of Factors Under CAA 202(a)
VII. What are the estimated cost, economic, and other impacts of the
rule?
    A. Conceptual Framework for Evaluating Consumer Impacts
    B. Vehicle Sales Impacts
    C. Changes in Fuel Consumption
    D. Greenhouse Gas Emission Reduction Benefits
    E. Non-Greenhouse Gas Health Impacts
    F. Energy Security Impacts
    G. Impacts of Additional Driving
    H. Safety Considerations in Establishing GHG Standards
    I. Summary of Costs and Benefits
    J. Impacts on Consumers of Vehicle Costs and Fuel Savings
    K. Employment Impacts
    L. Environmental Justice
    1. GHG Impacts
    2. Non-GHG Impacts
    M. Affordability and Equity Impacts
VIII. Statutory and Executive Order Reviews
    A. Executive Order 12866: ``Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review''
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132: ``Federalism''
    F. Executive Order 13175: ``Consultation and Coordination With
Indian Tribal Governments''
    G. Executive Order 13045: ``Protection of Children From
Environmental Health Risks and Safety Risks''
    H. Executive Order 13211: ``Energy Effects''
    I. National Technology Transfer and Advancement Act and 1 CFR
Part 51
    J. Executive Order 12898: ``Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations''
    K. Congressional Review Act (CRA)
    L. Judicial Review
IX. Statutory Provisions and Legal Authority

I. Executive Summary

A. Purpose of This Final Rule and Legal Authority

1. Final Light-Duty GHG Standards for Model Years 2023-2026
    In this final action, the Environmental Protection Agency (EPA) is
establishing revised, more stringent national greenhouse gas (GHG)
emissions standards for passenger cars and light trucks under section
202(a) of the Clean Air Act (CAA), 42 U.S.C. 7521(a). Section 202(a)
requires EPA to establish standards for emissions of air pollutants
from new motor vehicles which, in the Administrator's judgment, cause
or contribute to air pollution which may reasonably be anticipated to
endanger public health or welfare.
    This action finalizes the standards that EPA proposed in August
2021.\1\
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    \1\ 86 FR 43726.
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    In response to Executive Order 13990 ``Protecting Public Health and
the Environment and Restoring Science To Tackle the Climate Crisis,''
\2\ EPA conducted an extensive review of the existing regulations,
which resulted in EPA proposing revised, more stringent standards. In
the proposed rule, EPA sought public comment on a range of alternative
standards, including alternatives that were less stringent (Alternative
1) and more stringent (Alternative 2) than the proposed standards as
well as standards that were even more stringent (in the range of 5-10
grams CO2 per mile (g/mile)) for model year (MY) 2026. As
discussed in Section I.A.2 of this preamble, based on public comments
and EPA's final analyses, EPA is finalizing standards consistent with
the standards we proposed for MYs 2023 and 2024, and more stringent
than those we proposed for MYs 2025 and 2026. EPA's final standards for
MYs 2025 and 2026 are the most stringent standards considered in the
proposed rule and establish the most stringent GHG standards ever set
for the light-duty vehicle sector. EPA is revising the light-duty
vehicle GHG standards for MYs 2023 through 2026, which had been
previously revised by the SAFE rule, in part by building on earlier EPA
actions and supporting analyses that established or maintained
stringent standards. For example, in 2012, EPA issued a final rule
establishing light-duty vehicle GHG standards for MYs 2017-2025,\3\
which were supported by analyses of compliance costs, lead time and
other relevant factors.\4\ That rule and its analyses also accounted
for the development and availability of advanced GHG emission-reducing
vehicle technologies, which demonstrated that the standards were
appropriate under section 202(a) of the CAA.
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    \2\ 86 FR 7037, January 25, 2021. ``[T]he head of the relevant
agency, as appropriate and consistent with applicable law, shall
consider publishing for notice and comment a proposed rule
suspending, revising, or rescinding the agency action[s set forth
below] within the time frame specified.'' ``Establishing Ambitious,
Job-Creating Fuel Economy Standards: . . . `The Safer Affordable
Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-2026
Passenger Cars and Light Trucks,' 85 FR 24174 (April 30, 2020), by
July 2021. In considering whether to propose suspending, revising,
or rescinding the latter rule, the agency should consider the views
of representatives from labor unions, States, and industry.''
    \3\ EPA's model year emission standards also apply in subsequent
model years, unless revised, e.g., MY 2025 standards issued in the
2012 rule also applied to MY 2026 and beyond.
    \4\ 77 FR 62624, October 15, 2012.
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    This final rule is also supported by updated analyses that consider
the most recent technical and scientific data and continuing
developments in the automotive industry, as well as public comments on
the proposed rule. As noted in the proposed rule, auto manufacturers
continue to implement a broad array of advanced gasoline vehicle GHG
emission-reducing technologies at a rapid pace throughout their vehicle
fleets. Even more notably, vehicle electrification technologies are
advancing at a historic pace as battery costs continue to decline and
automakers continue to announce plans for an increasing diversity and
production volume of zero- and near-zero emission vehicle models. These
trends continue to support EPA's decision to revise the existing GHG
standards, particularly in light of factors indicating that more
stringent near-term standards are feasible at reasonable cost and would
achieve significantly greater GHG emissions reductions and public
health and welfare benefits than the existing program.
    In developing this final rule, EPA considered comments received
during the public comment period, including during the public hearing.
EPA held a two-day virtual public hearing on August 25 and 26, 2021 and
heard from approximately 175 speakers. During the public comment period
that ended on September 27, 2021, EPA received more than 188,000
written comments. This preamble, together with the accompanying
Response to Comments (RTC) document, responds to all significant
comments we received on the proposed rule.
    Comments from automakers that historically have produced primarily
internal combustion engine (ICE) vehicles, such as comments by the
Alliance for Automotive Innovation (hereafter referred to as ``the
Alliance'') as well as comments by several individual automakers,
generally supported the proposed standards and did not support the more
stringent alternatives on which we requested comment. A common theme
from these commenters is that EPA should not overly rely on high
penetrations of electric vehicles (EVs) during the period through MY
2026 as a means of compliance for the industry, because of uncertainty
about the degree of availability of EV charging infrastructure and
market uptake of EVs in this time frame. The United Auto Workers (UAW)
commented similarly, generally supporting the proposed standards and
flexibilities but not

supporting more stringent standards or reduced flexibilities. In
contrast, automakers producing (or planning to produce) only EVs
(Tesla, Rivian, and Lucid) supported standards more stringent than the
proposed standards, and they generally did not support the proposed
flexibilities.
     Comments from organizations representing environmental, public
health, and consumer groups as well as comments from many states and
local governments generally state that in this rulemaking EPA should
address public health, climate change, and social equity in a robust
manner. These commenters expressed nearly universal support for the
more stringent Alternative 2; many also support an additional 10 g/mile
more stringent standards in MY 2026, on which we requested comment. In
addition, during the public hearing, many of these commenters, as well
as speakers who identified themselves as representing frontline
communities, urged the strongest possible emissions standards to
address environmental impacts on overburdened communities. There was
also broad opposition among these commenters to the proposed
flexibilities and incentives, based on concerns that the flexibilities
were unnecessary and would compromise the stringency of the program. In
addition, tens of thousands of individual public commenters echoed
these themes, urging EPA to establish the strongest possible GHG
emissions standards.
    As discussed in Section I.B of this preamble, the final rule
revises GHG emissions standards for MYs 2023-2026, incorporating
several changes from the proposed standards and flexibilities, based on
our consideration of the public comments and updated information and
analysis. As discussed in Section I.A.2 of this preamble, it is EPA's
assessment that the final standards are reasonable and appropriate,
after considering lead time, cost, and other relevant factors under the
CAA.
    As noted in the proposed rule, EPA set previous light-duty vehicle
GHG emission standards in joint rulemakings where NHTSA also
established CAFE standards. EPA concluded that it was not necessary for
this rulemaking to be jointly issued with the National Highway Traffic
Safety Administration (NHTSA). EPA has, however, coordinated with
NHTSA, both on a bilateral level as well as through the interagency
review process for EPA's proposed rule and this final rule facilitated
by the Office of Management and Budget (OMB) under E.O. 12866.
2. Why does EPA believe the final standards are appropriate under the
CAA?
    EPA is revising GHG emissions standards for passenger cars and
light trucks under the authority provided by section 202(a) of the CAA.
Section 202(a) requires EPA to establish standards for emissions of
pollutants from new motor vehicles which, in the Administrator's
judgment, cause or contribute to air pollution which may reasonably be
anticipated to endanger public health or welfare. Standards under
section 202(a) take effect ``after such period as the Administrator
finds necessary to permit the development and application of the
requisite technology, giving appropriate consideration to the cost of
compliance within such period.'' Thus, in establishing or revising
section 202(a) standards designed to reduce air pollution that
endangers public health and welfare, EPA also must consider
technological feasibility, compliance cost, and lead time. EPA also may
consider other factors and in previous light-duty vehicle GHG standards
rulemakings has considered the impacts of potential GHG standards on
the auto industry, cost impacts for consumers, oil conservation, energy
security and other energy impacts, as well as other relevant
considerations such as safety.
    When considering these factors for the SAFE rule, EPA identified
several factors, primarily costs to manufacturers and upfront costs to
vehicle purchasers, as disfavoring maintaining or increasing the
stringency of the then-existing standards, and other factors, such as
reduced emissions that endanger public health and welfare and reduced
operating costs for consumers, as favoring increased stringency (or a
lesser degree of reduced stringency from the then-existing standards).
In balancing these factors in the SAFE rule, EPA placed greater weight
on the former factors (reducing the costs for the manufacturers and
reducing upfront costs for vehicle buyers), and thereby decided to make
EPA's GHG standards significantly less stringent. However, the purpose
of adopting standards under CAA section 202 is to address air pollution
that may reasonably be anticipated to endanger public health and
welfare. Indeed, reducing air pollution has traditionally been the
focus of such standards.
    EPA has reconsidered how costs, lead time and other factors were
weighed in the SAFE rule against the potential for achieving emissions
reductions and is reaching a different conclusion as to the appropriate
stringency of the standards. In light of the statutory purpose of CAA
section 202, the Administrator is placing greater weight on the
emission reductions and resulting public health and welfare benefits
and, taking into consideration EPA's updated technical analysis,
accordingly is establishing significantly more stringent standards for
MYs 2023-2026 compared to the standards established by the SAFE rule.
    We are revising decisions made in the SAFE final rule in accordance
with our updated technical analyses for the proposed and final rule.
EPA's approach is consistent with Supreme Court decisions affirming
that agencies are free to reconsider and revise their prior decisions
where they provide a reasonable explanation for their revised
decisions.\5\ In this rule, the agency is changing its 2020 position
and restoring its previous approach by finding, in light of its updated
technical analyses and of the statutory purposes of the CAA and in
particular of section 202(a), that it is more appropriate to place
greater weight on the magnitude and benefits of reducing emissions that
endanger public health and welfare, while continuing to consider
compliance costs, lead time and other relevant factors. In addition to
the greater emphasis on emissions reductions, the agency's decision to
adopt more stringent standards for MYs 2023-2026 is significantly
informed by consideration of new information that was not available
during the SAFE rule development. Specifically, the agency's decision
has been informed by the further technological advancements and
successful implementations of electric vehicles since the SAFE rule, by
the recent manufacturer announcements signaling an accelerated
transition to electrified vehicles, and by additional evidence of
sustained and active credit trading as manufacturers take advantage of
this additional flexibility for adopting emissions-reducing
technologies across the new vehicle fleet.
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    \5\ See, e.g., Encino Motorcars, LLC v. Navarro, 136 S. Ct.
2117, 2125 (2016); FCC v. Fox Television Stations, Inc., 556 U.S.
502, 515 (2009).
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    When considering these factors for the SAFE rule, EPA identified
several factors, primarily costs to manufacturers and upfront costs to
vehicle purchasers, as disfavoring maintaining or increasing the
stringency of the then-existing standards, and other factors, such as
reduced emissions that endanger public health and welfare and reduced
operating costs for consumers, as favoring increased stringency (or a
lesser degree of reduced stringency from the then-existing standards).
In balancing these factors in the SAFE rule,

EPA placed disproportionate weight on the former factors (reducing the
costs for the manufacturers and reducing upfront costs for vehicle
buyers), and thereby significantly diminished the relative weight given
to the latter factors (increased operating costs and increased harmful
emissions). The SAFE rule relied on this re-weighting to justify making
EPA's GHG standards significantly less stringent in a way that (under
the SAFE rule's own analysis) would have resulted in increases in CO2
emissions of 867 MMT (over the vehicles' lifetimes), increases in
criteria pollutants, and resulting increases in adverse health effects
(as well as net costs to public welfare).\6\
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    \6\ See 85 FR 25111, April 30, 2020.
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    The purpose of adopting standards under CAA section 202, however,
is to address air pollution that may reasonably be anticipated to
endanger public health and welfare. Indeed, reducing air pollution has
traditionally been the focus of such standards. EPA has therefore
updated its technical analysis of potential emissions control
technologies, costs and lead time and reconsidered how those and other
factors were weighed in the SAFE rule against the potential for
achieving emissions reductions. In light of the statutory purpose of
CAA section 202, the Administrator is restoring the appropriate,
central consideration given to the emission reductions from motor
vehicles and resulting public health and welfare benefits, while still
giving appropriate consideration to compliance costs and other factors
(including savings in vehicle operating costs). Accordingly, EPA is
establishing significantly more stringent standards for MYs 2023-2026
compared to the standards established by the SAFE rule.
    As discussed in Section III.A of this preamble, the standards take
into consideration both the updated analyses for the proposed and final
rule and past EPA analyses conducted for previous GHG standards. We are
revising decisions made in the SAFE final rule in accordance with
Supreme Court decisions affirming that agencies are free to reconsider
and revise their prior decisions where they provide a reasonable
explanation for their revised decisions. In this rulemaking, the agency
is changing its 2020 position and restoring its previous approach by
finding, in light of the statutory purposes of the CAA and in
particular of section 202(a), that it is more appropriate to place
considerable weight on the magnitude and benefits of reducing emissions
that endanger public health and welfare, while continuing to consider
compliance costs, lead time and other relevant factors.
    EPA has carefully considered the technological feasibility and cost
of the full range of alternatives on which we sought public comment in
the proposed rule and the available lead time for manufacturers to
comply with them, including the role of flexibilities designed to
facilitate compliance. In our technical assessment, discussed in
further detail in section VI.A of this preamble, we conclude that there
has been ongoing advancement in emissions reducing technologies since
the beginning of the EPA's program in 2012, and that there is potential
for greater penetration of these technologies across all new vehicles.
In addition to improvements in ICE vehicles, recent advancements in
electric vehicle technologies have greatly increased the available
options for manufacturers to meet more stringent standards. Based on
our updated technical analyses and consideration of the public
comments, EPA has determined that standards that are more stringent in
the later model years (i.e., after MY 2024) than the proposed standards
are more appropriate under Section 202(a).
    In recognition of lead time considerations, for MYs 2023 and 2024,
EPA is finalizing the proposed standards for those model years. For MYs
2025 and 2026, EPA has determined that it is appropriate to finalize
standards more stringent than those proposed, and, as described in more
detail in section I.B of this preamble, we are finalizing standards
that are the most stringent of the alternatives considered in the
proposed rule for those model years.
    This approach best meets EPA's responsibility under the CAA to
protect human health and the environment, as well as its statutory
obligation to consider lead time, feasibility, and cost. The final
standards will result in significantly greater reductions of GHG
emissions over time compared to the proposed standards. EPA projects
that the final standards will result in a reduction of 3.1 billion tons
of GHG emissions by 2050--50 percent greater emission reductions than
our proposed standards. In addition, the final standards will reduce
emissions of some criteria pollutants and air toxics, resulting in
important public health benefits, as described in Section V of this
preamble. The final standards will result in reduced vehicle operating
costs for consumers. The fuel consumption reduced by the final
standards will save consumers $210 to $420 billion in retail fuel costs
through 2050. Although the up-front technology cost for a MY 2026
vehicle meeting the final standards is estimated to be $1,000 on
average, drivers will recover that up-front cost over time through
savings in fuel costs. For an individual consumer on average, EPA
estimates that, over the lifetime of a MY 2026 vehicle, the reduction
in fuel costs will exceed the increase in vehicle costs by $1,080 (see
Section VII.J of this preamble). Further, the overall benefits of the
program will far outweigh the costs, as EPA estimates net benefits of
$120 billion to $190 billion through 2050.\7\ Section I.B of this
preamble describes the final standards in more detail.
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    \7\ See Section VII.I of this preamble for more detail.
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    In developing this final rulemaking, EPA updated the analyses
based, in part, on our assessment of the public comments. We agree with
commenters who stated that it is appropriate to update certain key
inputs--for example, the vehicle baseline fleet and certain technology
costs--to reflect newer data. For example, a key update was to the
estimates of battery costs for electrified vehicles, which have
decreased significantly in recent years. EPA's approach to updating
these costs and other inputs to the analyses is described in Section
III.A of this preamble.
    The more stringent standards for MY 2025 and 2026 also provide a
more appropriate transition to new standards for MY 2027 and beyond. As
stated in the proposal, EPA is planning to initiate a rulemaking to
establish multi-pollutant emission standards for MY 2027 and later (see
the preamble to the proposed rule at section I.A.3). Consistent with
the direction of Executive Order 14037, ``Strengthening American
Leadership in Clean Cars and Trucks,'' \8\ this subsequent rulemaking
will extend to at least MY 2030 and will apply to light-duty vehicles
as well as medium-duty vehicles (e.g., commercial pickups and vans,
also referred to as heavy-duty class 2b and 3 vehicles) and is likely
to significantly build upon the standards established in this final
rule. EPA looks forward to engaging with all stakeholders, including
states and our federal partners, to inform the development of these
future standards.
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    \8\ 86 FR 43583, August 10, 2021.
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B. Summary of Final Light-Duty Vehicle GHG Program

    EPA is finalizing revised GHG standards that begin in MY 2023 and
increase in stringency year over year through MY 2026.
    After consideration of public comments, EPA is adopting the

following approach for setting the final standards:
     For MYs 2023 and 2024, EPA is finalizing the proposed
standards.
     For MY 2025, EPA is finalizing the Alternative 2 standards
(the most stringent standards considered in the proposed rule for this
MY).
     For MY 2026, EPA is finalizing the most stringent
alternative upon which we sought comment--the Alternative 2 standards
with an additional 10 g/mile increased stringency.
    EPA is finalizing optional flexibility provisions for manufacturers
that are more targeted than proposed, primarily to focus most of the
flexibilities on MYs 2023-2024 in consideration of lead time for
manufacturers and to help them manage the transition to more stringent
standards by providing some additional flexibility. We summarize the
final flexibility program elements, including an analysis of key public
comments, in Sections II.A.4 and II.B of this preamble.
    This final rule accelerates the rate of stringency increases of the
MY 2023-2026 SAFE standards from a roughly 1.5 percent year-over-year
rate of stringency increase to a nearly 10 percent stringency increase
from MY 2022 to MY 2023, followed by a 5 percent stringency increase in
MY 2024, as proposed. In MY 2025, the stringency of the final standards
increases by 6.6 percent, culminating with a 10 percent stringency
increase in MY 2026, as provided in the Alternative 2 standards with an
additional 10 g/mile increased stringency in MY 2026, on which we
sought comment.
    EPA believes the 10 percent increase in stringency in MY 2023 is
appropriate given the technological investments industry was on track
to make under the 2012 standards and has continued to make beyond what
would be required to meet the SAFE rule standards, as well as the
compliance flexibilities available within the program. This is
illustrated in part by several manufacturers, representing nearly 30
percent of the nationwide auto market, having chosen to participate in
the California Framework Agreements. Our decision to finalize the more
stringent Alternative 2 standards for MY 2025, and the Alternative 2
standards with a further increase of stringency of 10 g/mile in MY 2026
takes into account the additional lead time available for MYs 2025-2026
compared to MYs 2023-2024. Given this additional lead time, EPA has
determined that it is appropriate, particularly in light of the
accelerating transition to electrified vehicles that has already begun,
to require additional emissions reductions in this time frame. The
resulting trajectory of increasing stringency from MYs 2023 to 2026
also takes into account the credit-based emissions averaging, banking
and trading flexibilities of the current program, including flexibility
provisions that have been retained, and the targeted additional
flexibilities that are being extended in this final rule, especially in
the early years of the program. EPA has also taken into account
manufacturers' ability to generate credits against the existing
standards that were relaxed in the SAFE rule for MYs 2021 and 2022,
which we are not revising. The final standards for MYs 2023-2026 will
achieve significant GHG and other emission reductions and related
public health and welfare benefits, while providing consumers with
lower operating costs resulting from significant fuel savings. Our
analyses described in this final rule support the conclusion that the
final standards are appropriate under section 202(a) of the CAA,
considering costs, technological feasibility, available lead time, and
other factors.
    In our design and analyses of the final program, and our overall
updated assessment of feasibility, EPA took into account the decade-
long light-duty vehicle GHG emission reduction program in which the
auto industry has introduced a wide lineup of ever more fuel-efficient,
GHG-reducing technologies that are already present in much of the fleet
and will enable the industry to achieve the standards established in
this rule. As explained in the preamble to the proposed rule, in light
of the design cycle timing for manufacturers of light-duty vehicles,
EPA reasonably expects that the vehicles that automakers will be
selling during the first years of the MY 2023-2026 program were already
designed before the less stringent SAFE standards were adopted.
    Most automakers have launched ambitious plans to develop and
produce increasing numbers of zero- and near-zero-emission vehicles.
EPA recognizes that during the near-term timeframe of the standards,
the new vehicle fleet likely will continue to consist predominantly of
gasoline-fueled vehicles, although the volumes of electrified vehicles
will continue to increase, particularly in MYs 2025 and 2026. In this
preamble and the Regulatory Impact Analysis (RIA), we provide analyses
supporting our assessment that the final standards for MYs 2023 through
2026 are achievable primarily through the application of advanced
gasoline vehicle technologies but with a growing percentage of
electrified vehicles. We project that during the four-year ramp up of
the stringency of the GHG standards, the standards can be met with
gradually increasing sales of plug-in electric vehicles in the U.S.,
from about 7 percent market share in MY 2023 (including both fully
electric vehicles (EVs) and plug-in hybrid vehicles (PHEVs)) up to
about 17 percent in MY 2026. In MY 2020, EVs and PHEVs represented
about 2.2 percent of U.S. new vehicle production.\9\ From January
through September 2021, EVs and PHEVs represented 3.6 percent of total
U.S. light-duty vehicle sales,\10\ and are projected to be 4.1 percent
of production by the end of MY 2021.\11\ This rule is expected to
result in an increase in penetration of EV and PHEV vehicles from
today's levels, and we believe the projected penetrations are
reasonable when considering the results of our analysis as well as
these trends in the growth of EV market share, as well as the
proliferation of recent automaker announcements on plans to transition
toward an electrified fleet (which we discuss in Section III.C of this
preamble). Projections of future EV market share also increasingly show
rates of EV penetration commensurate with what we project under the
final standards.\12\ \13\ \14\ Numerous automaker announcements of a
rapidly increasing focus on EV and PHEV production (see Section III.C
of this preamble), which were reiterated in their public comments, show
that automakers are already preparing for rapid growth in EV
penetration. EPA finds that, given

the rate and breadth of these announcements across the industry, the
levels of EV penetration we project to occur are appropriate. As
described elsewhere in this preamble, based on our analysis of the
final standards, we believe that the targeted incentives and
flexibilities that we are finalizing for the early years of the program
will further address lead time considerations as well as support the
acceleration of automakers' introduction and sales of advanced
technologies, including zero and near-zero-emission technologies.
---------------------------------------------------------------------------

    \9\ ``The 2021 EPA Automotive Trends Report, Greenhouse Gas
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420R-
21023, November 2021.
    \10\ Argonne National Laboratory, ``Light Duty Electric Drive
Vehicles Monthly Sales Updates,'' September 2021, accessed on
October 20, 2021 at: https://www.anl.gov/es/light-duty-electric-drive-vehicles-monthly-sales-updates.
    \11\ ``The 2021 EPA Automotive Trends Report, Greenhouse Gas
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420R-
21023, November 2021.
    \12\ Bloomberg New Energy Finance (BNEF), BNEF EV Outlook 2021,
Figure 5. Accessed on November 1, 2021 at https://about.bnef.com/electric-vehicle-outlook/ (Figure 5 indicates U.S. BEV+PHEV
penetrations of approximately 7% in 2023, 9% in 2024,11% in 2025 and
15% in 2026).
    \13\ IHS Markit, ``US EPA Proposed Greenhouse Gas Emissions
Standards for Model Years 2023-2026; What to Expect,'' August 9,
2021. Accessed on October 28, 2021 at https://ihsmarkit.com/research-analysis/us-epa-proposed-greenhouse-gas-emissions-standards-MY2023-26.html (Table indicates 12.2% in 2023, 16% in
2024, 20.1% in 2025 and 24.3% in 2026).
    \14\ Rhodium Group, ``Pathways to Build Back Better: Investing
in Transportation Decarbonization,'' May 13, 2021. Accessed on
November 1, 2021 at https://rhg.com/research/build-back-better-transportation/ (Figure 3 indicates EV penetration of 11% to 19% in
2026 under a current policy scenario).
---------------------------------------------------------------------------

    We describe additional details of the final standards below and in
later sections of the preamble as well as in the RIA.
1. Final Revised GHG Emissions Standards
    As with EPA's previous light-duty GHG programs, as proposed, EPA is
finalizing footprint-based standards curves for both passenger cars and
light trucks (throughout this action, ``trucks'' or ``light trucks''
refers to light-duty trucks). Each manufacturer has a unique standard
for the passenger cars category and another for the truck category \15\
for each MY based on the sales-weighted footprint-based CO2
targets \16\ of the vehicles produced in that MY.
---------------------------------------------------------------------------

    \15\ Passenger cars include cars and smaller cross-overs and
SUVs, while the truck category includes larger cross-overs and SUVs,
minivans, and pickup trucks.
    \16\ Because compliance is based on the full range of vehicles
in a manufacturer's car and truck fleets, with lower-emitting
vehicles compensating for higher-emitting vehicles, the emission
levels of specific vehicles within the fleet are referred to as
targets, rather than standards.
---------------------------------------------------------------------------

    EPA is finalizing the proposed standards for MYs 2023 and 2024, the
Alternative 2 standards for MY 2025, and the Alternative 2 standards
minus 10 g/mile for MY 2026. In the proposed rule, EPA requested
comment on standards for MY 2026 that would result in fleet average
target levels that are in the range of 5-10 g/mile lower (i.e., more
stringent) than the levels proposed in each of the three alternatives,
and is finalizing a level 10 g/mile lower than the proposed rule's
Alternative 2 for MY 2026.
    Figure 1 shows EPA's final standards, expressed as average
projected fleetwide GHG emissions targets (cars and trucks combined),
through MY 2026. For comparison, the figure also shows the
corresponding targets for the proposed standards (Proposal), the
Alternative 2 standards reduced by 10 g/mile in MY 2026 (Alternative 2
minus 10), as described further in Section II.C of this preamble, the
SAFE standards, and the 2012 FRM standards.\17\ The projected fleet
targets for the final standards increase in stringency in MY 2023 by
almost 10 percent (compared to the SAFE rule standards in MY 2022),
followed by stringency increases of 5 percent in MY 2024, 6.6 percent
in MY 2025 and 10 percent in MY 2026. As with all EPA vehicle emissions
standards, the MY 2026 standards will remain in place for all
subsequent MYs, unless and until the standards for future MYs are
revised in a subsequent rulemaking. As noted previously, EPA is
planning a future rulemaking to establish new emissions standards for
MY 2027 and beyond.
---------------------------------------------------------------------------

    \17\ The Proposal and Alternative 2 minus 10 standards are the
less and more stringent alternatives EPA analyzed in addition to the
final rule. See Sections II.C and III.D of this preamble for more
information these alternatives.
---------------------------------------------------------------------------

    Table 1 presents the projected overall industry fleetwide
CO2-equivalent emission compliance target levels, based on
EPA's final standards presented in Figure 1. The industry fleet-wide
estimates in Table 1 are projections based on EPA's modeling, taking
into consideration projected fleet mix and footprints for each
manufacturer's fleet in each model year. Table 2 presents projected
industry fleet average year-over-year percent reductions (and
cumulative reductions from 2022 through 2026) comparing the standards
under the SAFE rule and the revised final standards. See Section II.A
of this preamble for a full discussion of the final standards and
presentations of the footprint standards curves.
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                 Table 1--Projected Industry Fleet-Wide CO2 Compliance Targets for MYs 2023-2026
                                                   [g/mile] *
----------------------------------------------------------------------------------------------------------------
                                                                                Light trucks
                           Model year                              Cars CO2 (g/    CO2 (g/mile)    Fleet CO2 (g/
                                                                       mile)                           mile)
----------------------------------------------------------------------------------------------------------------
2022 (SAFE reference)...........................................             181             261             224
2023............................................................             166             234             202
2024............................................................             158             222             192
2025............................................................             149             207             179
2026 and later..................................................             132             187             161
                                                                 -----------------------------------------------
    Total change 2022-2026......................................             -49             -74             -63
----------------------------------------------------------------------------------------------------------------
* The combined car/truck CO2 targets are a function of projected car/light truck shares, which have been updated
  for this final rule (MY 2020 is 44 percent car and 56 percent light trucks while the projected mix changes to
  47 percent cars and 53 percent light trucks by MY 2026).

                                   Table 2--Projected Industry Fleet Average Target Year-Over-Year Percent Reductions
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     SAFE rule standards *               Proposed standards **                Final standards **
                                             -----------------------------------------------------------------------------------------------------------
                                                            Trucks     Combined                 Trucks     Combined                 Trucks     Combined
                                               Cars  (%)      (%)         (%)      Cars  (%)      (%)         (%)      Cars  (%)      (%)         (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2023........................................         1.7         1.7         2.1         8.4        10.4         9.8         8.4        10.4         9.8
2024........................................         0.6         1.5         1.4         4.7         5.0         5.1         4.8         4.9         5.1
2025........................................         2.3         1.7         2.2         4.8         5.0         5.0         5.7         7.0         6.6
2026........................................         1.8         1.6         1.9         4.8         5.0         5.0        11.4         9.5        10.3
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Cumulative..............................         6.3         6.3         7.4        20.9        23.1        22.8        27.1        28.3        28.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Note the percentages shown for the SAFE rule targets have changed slightly from the proposed rule, due to the updates in our base year fleet from MY
  2017 to MY 2020 manufacturer fleet data.
** These are modeled results based on projected fleet characteristics and represent percent reductions in projected targets, not the standards (which
  are the footprint car/truck curves), associated with that projected fleet (see Section III of this preamble for more detail on our modeling results).

2. Final Compliance Flexibilities and Advanced Technology Incentives
    EPA received many comments on the proposed flexibility provisions.
After considering the comments along with our updated analyses, we are
finalizing flexibility provisions that are narrower than proposed in
several aspects, primarily to focus the additional flexibilities in MYs
2023-2024 to help manufacturers manage the transition to more stringent
standards by providing some additional flexibility in the near-term. We
summarize the final flexibility program elements, including a summary
and analysis of key comments, in Section II.B of this preamble.
    EPA proposed a set of extended or additional temporary compliance
flexibilities and incentives that we believed would be appropriate
given the stringency and lead time of the proposed standards. We
proposed four types of flexibilities/incentives, in addition to those
already available under EPA's previously established regulations: (1) A
limited extension of carry-forward credits generated in MYs 2016
through 2020 beyond the normal five years otherwise specified in the
regulations; (2) an extension of the advanced technology vehicle
multiplier credits for MYs 2022 through 2025 with a cumulative credit
cap; (3) full-size pickup truck incentives for strong hybrids or
similar performance-based credit for MYs 2022 through 2025 (provisions
which were removed in the SAFE rule); and (4) an increase of the off-
cycle credits menu cap from 10 g/mile to 15 g/mile. EPA also proposed
to remove the multiplier incentives for natural gas fueled vehicles for
MYs 2023-2026.
    The GHG program includes existing provisions initially established
in the 2010 rule, which set the MYs 2012-2016 GHG standards, for how
credits may be used within the program. These averaging, banking, and
trading (ABT) provisions include credit carry-forward, credit carry-
back (also called deficit carry-forward), credit transfers (within a
manufacturer), and credit trading (across manufacturers). These ABT
provisions define how credits may be used and are integral to the
program, essentially enabling manufacturers to plan compliance over a
multi-year time period. The current program allows credits to be
carried forward for 5 years (i.e., a 5-year credit life). EPA proposed
a two-year extension of MYs 2016 credit life and a one-year extension
of MYs 2017-2020 credit life.
    EPA is finalizing a more limited approach to credit life extension,
adopting only a one-year extension for MY 2017-2018 credits, as shown
in Table 3 below. EPA was persuaded by public comments from non-
governmental organizations (NGOs), some states including California,
and EV manufacturers that the proposed credit life extension overall
was unnecessary and could diminish the stringency of the final
standards. While several auto industry commenters suggested even
additional credit life extensions, EPA's assessment is that the
standards are feasible with the more narrowed credit extensions of one-
year for the MYs 2017 and 2018 credits, which make more credits
available in the early years of the program, MYs 2023 and 2024, to help
manufacturers manage the transition to more stringent standards by
providing some additional flexibility. For all other credits generated
in MY 2016 and later, credit carry-forward remains unchanged at five
years.

                                        Table 3--Final Extension of Credit Carry-Forward for MY 2016-2020 Credits
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                MYs credits are valid under extension
           MY credits are banked           -------------------------------------------------------------------------------------------------------------
                                              2016      2017      2018      2019      2020      2021      2022      2023      2024      2025      2026
--------------------------------------------------------------------------------------------------------------------------------------------------------
2016......................................  ........        x         x         x         x         x   ........  ........  ........  ........  ........
2017......................................  ........        x   ........        x         x         x         x         +   ........  ........  ........
2018......................................  ........  ........        x         x   ........        x         x         x         +   ........  ........
2019......................................  ........  ........  ........        x         x   ........        x         x         x   ........  ........
2020......................................  ........  ........  ........  ........        x   ........        x         x         x         x   ........
2021......................................  ........  ........  ........  ........  ........  ........        x         x         x         x         x
--------------------------------------------------------------------------------------------------------------------------------------------------------
x = Previous program. + = Additional years included in Final Rule.

    The previous GHG program also includes temporary incentives through
MY 2021 that encourage the use of advanced technologies such as
electric, hybrid, and fuel cell vehicles, as well as incentives for
full-size pickups using strong hybridization or technologies providing
similar emissions reductions to hybrid technology. The full-size pickup
incentives originally (in the 2012 rule) were available through MY
2025, but the SAFE rule removed these incentives for MYs 2022 through
2025. When EPA established these incentives in the 2012 rule, EPA
recognized that they would reduce the effective stringency of the
standards, but believed that it was worthwhile to have a limited near-
term loss of emissions reduction benefits to increase the potential for
far greater emissions reduction and technology diffusion benefits in
the longer term.\18\ EPA believed that the temporary regulatory
incentives would

help bring low emission technologies to market more quickly than an
effective market would in the absence of incentives.\19\ \20\ With
these same goals in mind for this program, EPA proposed multiplier
incentives from MYs 2022 through MY 2025 with a cap on multiplier
credits and to reinstate the full-size pickup incentives also for MYs
2022 through 2025. The proposed incentives were intended as a temporary
measure supporting the transition to zero-emission vehicles and to
provide additional flexibility in meeting the MY 2023-2026 proposed
standards.
---------------------------------------------------------------------------

    \18\ See Tables III-2 and III-3, 77 FR 62772, October 15, 2012.
    \19\ 77 FR 62812, October 15, 2012.
    \20\ Manufacturers use of the incentives is provided in ``The
2021 EPA Automotive Trends Report, Greenhouse Gas Emissions, Fuel
Economy, and Technology since 1975,'' EPA-420R-21023, November 2021.
---------------------------------------------------------------------------

    However, EPA is finalizing a narrower timeframe for the temporary
multiplier and full-size pickup incentives, focusing the incentives
only in MYs 2023-2024, to help manufacturers manage the transition to
more stringent standards by providing some additional flexibility.
After considering comments and further analyzing the potential impact
of multipliers on costs and emissions reductions, EPA is adopting
temporary multipliers for MYs 2023-2024 at a level lower than proposed
while finalizing the proposed credit cap of 10 g/mile cumulatively, as
further discussed in Section II.B.1 of this preamble. EPA is not
finalizing multiplier incentives for MY 2022 or MY 2025 and is instead
sunsetting them at the end of MY 2024. Under this approach,
manufacturers utilizing this optional incentive program would need to
produce more advanced technology vehicles (EVs, PHEVs or fuel cells) in
order to fully utilize multiplier credits before reaching the cap, thus
incentivizing greater volumes of these zero and near-zero emission
vehicles. Similarly, EPA is finalizing temporary full-size pickup
incentives only for MYs 2023-2024 and sunsetting them at the end of MY
2024. These provisions are further discussed in Section II.B.2 of this
preamble.
    EPA is finalizing our proposed removal of the extended multiplier
incentives for natural gas vehicles (NGVs) after MY 2022, which was
added by the SAFE rule, because NGVs are not a near-zero emissions
technology and EPA believes multipliers are no longer necessary or
appropriate for these vehicles. NGV multiplier incentives are discussed
in Section II.B.1.iii of this preamble.
    For the off-cycle credits program, EPA is finalizing our proposed
incentive to increase the menu cap from 10 to 15 g/mile, but for a more
limited time frame. EPA is finalizing this cap increase beginning in MY
2023 through MY 2026, instead of beginning the cap increase in MY 2020
as in the proposed rule. Off-cycle credits are intended to reflect
real-world emissions reductions for technologies not captured on the
CO2 compliance test cycles. EPA agrees with public comments from many
NGOs and states that increasing the off-cycle credit menu cap starting
in MY 2020 would unnecessarily provide additional credit opportunities
during the years of the weakened SAFE standards in MYs 2021 and 2022.
EPA also is finalizing revised definitions for three off-cycle
technologies to begin in MY 2023, to ensure real-world emission
reductions consistent with the menu credit values. See Section II.B.3
of this preamble for further information.

C. Analytical Support for the Final Revised Standards

    EPA updated several key inputs to our analysis for this final rule
based on public comments and newer available data, as detailed in
Section III.A of this preamble, including updates to the baseline
vehicle fleet and battery costs, issues on which we received a
substantial number of public comments.
    We have updated the baseline vehicle fleet to reflect the MY 2020
fleet rather than the MY 2017 fleet used in the analysis for the
proposed rule.\21\ As a result, there is slightly more GHG-reducing
technology contained in the baseline fleet and the fleet mix has
changed to reflect more light trucks in the fleet (56 percent trucks/44
percent cars, compared to the 50/50 car/truck split in the analysis for
the proposed rule).
---------------------------------------------------------------------------

    \21\ EPA's updated MY 2020 baseline fleet is generally
consistent with that used by NHTSA in their recent CAFE NPRM (86 FR
49602, September 3, 2021).
---------------------------------------------------------------------------

    In the proposed rule, we noted that the electrified vehicle battery
costs used in the SAFE FRM, which were carried over to the proposed
rule analysis, could be lower based on EPA's latest assessment and that
updating those costs for the proposed rule would not have had a notable
impact on overall cost estimates. This conclusion was based in part on
our expectation that electrification would continue to play a
relatively modest role in our projections of compliance paths for the
proposed standards, as it had in all previous analyses of standards
with a similar level of stringency. We also noted in the proposal that
we could update battery costs for the final rule and requested comment
on whether our choice of modeling inputs such as these should be
modified for the final rule analysis. In response to the public
comments regarding EPA's battery cost estimates used in the proposed
rule, EPA has updated the battery costs for the final rule analysis
based on the most recent available data, resulting in lower projected
battery costs compared to our proposed rule. EPA agrees with commenters
that battery costs used in the proposed rule were higher than recent
evidence supports. Consideration of the current costs of batteries for
electrified vehicles, as widely reported in the trade and academic
literature and further supported by our battery cost modeling tools,
led EPA to adjust the battery costs to more accurately account for
these trends. Based on an updated assessment, described further in
Section III.A of this preamble and Chapter 2 of the RIA, we determined
that battery costs should be reduced by about 25 percent. More
information on the public comments we received and the revised inputs
leading to this change is available in Section III.A of this preamble
and Chapter 2 of the RIA.
    Other key changes to our analysis since the proposed rule include:

--Updated projections from EIA (AEO 2021), including Gross Domestic
Product, number of households, vehicle miles traveled (VMT) growth
rates and historic fleet data
--Updated energy security cost per gallon factors
--Updated tailpipe and upstream emission factors
--High compression ratio level 2 (HCR2) technology was removed as a
separate compliance option within the model although HCR0 and HCR1
remain as options 22 23
---------------------------------------------------------------------------

    \22\ For further details on HCR definitions, see Chapter 2.3.2
of the RIA. For HCR implementation in CCEMS, see Chapter <IP_ADDRESS> of
the RIA.
    \23\ See Section III.A of this preamble.
---------------------------------------------------------------------------

--Increased utilization of BEVs with a 300 mile range and lower
utilization of BEVs with a 200 mile range
--Updated credit banks reflecting more recent information from EPA's
manufacturer certification and compliance data
--Updated valuation of off-cycle credits (lower costs) and updated
assumptions for off-cycle credit usage across manufacturers
--Updated vehicle sales elasticity (changed from -1 percent to -0.4
percent) based on a recent EPA study \24\
---------------------------------------------------------------------------

    \24\ See Section VII.B of this preamble.

    More information on these and other analysis updates is in Section
III.A of this preamble.

    As with our earlier analyses, including SAFE and the August 2021
EPA proposed rule, for this final rule EPA used a model to simulate the
decision process of auto manufacturers in choosing among the emission
reduction technologies available to incorporate in vehicles across
their fleets. The model takes into account both the projected costs of
technologies and the relative ability of each of these technologies to
reduce GHG emissions. This process identifies potential pathways for
manufacturers to comply with a given set of GHG standards. EPA then
estimates projected average and total costs for manufacturers to
produce these vehicles to meet the standards under evaluation during
the model years covered by the analysis.
    In addition to projecting the technological capabilities of the
industry and estimating compliance costs for each of the four affected
model years (MYs 2023-2026), EPA has considered the role of the
averaging, banking, and trading system that has been available and
extensively used by the industry since the beginning of the light-duty
vehicle GHG program in model year 2012. Our analysis of the current and
anticipated near-future usage of the GHG credit mechanisms reinforces
the trends we identified in our other analyses showing widespread
technological advancement in the industry at reasonable per-vehicle
costs. Together, these analyses support EPA's conclusion under section
202(a) of the CAA that technologically feasible pathways are available
at reasonable costs for automakers to comply with EPA's standards
during each of the four model years. We discuss these analyses and
their results further in Section III of this preamble.
    We also estimate the GHG and non-GHG emission impacts (tailpipe and
upstream) of the standards. EPA then builds on the estimated changes in
emissions and fuel consumption to calculate projected net economic
impacts from these changes. Key economic inputs include: Measures of
health impacts from changes in criteria pollutant emissions; a value
for the vehicle miles traveled ``rebound effect;'' estimates of energy
security impacts of changes in fuel consumption; the social costs of
GHGs; and costs associated with crashes, noise, and congestion from
additional rebound driving.
    Our overall analytical approach generates key results for the
following metrics: Incremental costs per vehicle (industry-wide
averages and by manufacturer); total vehicle technology costs for the
auto industry; GHG emissions reductions and criteria pollutant
emissions reductions; penetration of key GHG-reducing technologies
across the fleet; consumer fuel savings; oil reductions; and net
societal costs and benefits. We discuss these analyses in Sections III,
IV, V, and VII of this preamble as well as in the RIA.

D. Summary of Costs, Benefits and GHG Emission Reductions of the Final
Program

    EPA estimates that the total benefits of this final rule far exceed
the total costs--the net present value of benefits is between $120
billion to $190 billion (annualized net benefits between $6.2 billion
to $9.5 billion). Table 4 below summarizes EPA's estimates of total
discounted costs, fuel savings, and benefits. The results presented
here project the monetized environmental and economic impacts
associated with the final program during each calendar year through
2050.
    The benefits include climate-related economic benefits from
reducing emissions of GHGs that contribute to climate change,
reductions in energy security externalities caused by U.S. petroleum
consumption and imports, the value of certain particulate matter-
related health benefits, the value of additional driving attributed to
the rebound effect, and the value of reduced refueling time needed to
fill a more fuel-efficient vehicle. Between $8 and $19 billion of the
total benefits through 2050 are attributable to reduced emissions of
non-GHG pollutants, primarily those that contribute to ambient
concentrations of smaller particulate matter (PM2.5).
PM2.5 is associated with premature death and serious health
effects such as hospital admissions due to respiratory and
cardiovascular illnesses, nonfatal heart attacks, aggravated asthma,
and decreased lung function. The program will also have other
significant social benefits including $130 billion in climate benefits
(with the average SC-GHGs at a 3 percent discount rate) and fuel
savings of $150 billion to $320 billion exclusive of fuel taxes. For
American drivers, who purchase fuel inclusive of fuel taxes, the fuel
savings will total $210 billion to $420 billion through 2050 (see Table
44). With these fuel savings, consumers will benefit from reduced
operating costs over the vehicle lifetime. Over the lifetime of a MY
2026 vehicle, EPA estimates that the reduction in fuel costs will
exceed the increase in vehicle costs by $1,080 for consumers on
average.
    The analysis also includes estimates of economic impacts stemming
from additional vehicle use from increased rebound driving, such as the
economic damages caused by crashes, congestion, and noise. See Chapter
3 of the RIA for more information regarding these estimates.

 Table 4--Monetized Discounted Costs, Benefits, and Net Benefits of the Final Program for Calendar Years Through
                                                      2050
                                 [billions of 2018 dollars] \a\ \b\ \c\ \d\ \e\
----------------------------------------------------------------------------------------------------------------
                                                           Present value                 Annualized value
                                                 ---------------------------------------------------------------
                                                    3% discount     7% discount     3% discount     7% discount
                                                       rate            rate            rate            rate
----------------------------------------------------------------------------------------------------------------
Costs...........................................            $300            $180             $15             $14
Fuel Savings....................................             320             150              16              12
Benefits........................................             170             150             8.6             8.1
Net Benefits....................................             190             120             9.5             6.2
----------------------------------------------------------------------------------------------------------------
Notes:
\a\ Values rounded to two significant figures; totals may not sum due to rounding. Present and annualized values
  are based on the stream of annual calendar year costs and benefits included in the analysis (2021-2050) and
  discounted back to year 2021.

\b\ Climate benefits are based on reductions in CO2, CH4 and N2O emissions and are calculated using four
  different estimates of the social cost of each GHG (SC-GHG model average at 2.5%, 3%, and 5% discount rates;
  95th percentile at 3% discount rate), which each increase over time. In this table, we show the benefits
  associated with the average SC-GHGs at a 3% discount rate but the Agency does not have a single central SC-GHG
  point estimate. We emphasize the importance and value of considering the benefits calculated using all four SC-
  GHG estimates and present them later in this preamble. As discussed in Chapter 3.3 of the RIA, a consideration
  of climate benefits calculated using discount rates below 3 percent, including 2 percent and lower, is also
  warranted when discounting intergenerational impacts. For further discussion of how EPA accounted for these
  estimates, please refer to section VI of this preamble and the separate Response to Comments.
\c\ The same discount rate used to discount the value of damages from future GHG emissions (SC-GHGs at 5, 3, and
  2.5 percent) is used to calculate the present and annualized values of climate benefits for internal
  consistency, while all other costs and benefits are discounted at either 3% or 7%.
\d\ Net benefits reflect the fuel savings plus benefits minus costs.
\e\ Non-GHG impacts associated with the standards presented here do not include the full complement of health
  and environmental effects that, if quantified and monetized, would increase the total monetized benefits.
  Instead, the non-GHG benefits are based on benefit-per-ton values that reflect only human health impacts
  associated with reductions in PM2.5 exposure.

    EPA estimates the average per-vehicle cost to meet the standards to
be $1,000 in MY 2026, as shown in Table 5 below. Note that compared to
the proposal, the total costs through 2050, shown in Table 4, are
somewhat higher, while the per-vehicle costs shown in Table 5 are
slightly lower. We discuss this in more detail in Section III.B.2 of
this preamble and RIA Chapter 4.1.3.

         Table 5--Car, Light Truck and Fleet Average Cost per Vehicle Relative to the No Action Scenario
                                                 [2018 dollars]
----------------------------------------------------------------------------------------------------------------
                                                       2023            2024            2025            2026
----------------------------------------------------------------------------------------------------------------
Car.............................................            $150            $288            $586            $596
Light Truck.....................................             485             732             909           1,356
Fleet Average...................................             330             524             759           1,000
----------------------------------------------------------------------------------------------------------------

    The final standards will achieve significant reductions in GHG
emissions. As seen in Table 6 below, through 2050 the program will
achieve more than 3.1 billion tons of GHG emission reductions, which is
50 percent greater emissions reductions than EPA's proposed standards.

                                      Table 6--GHG Reductions Through 2050
----------------------------------------------------------------------------------------------------------------
             Emission impacts relative to no action                        Percent change from no action
----------------------------------------------------------------------------------------------------------------
                                    CH4 (metric     N2O (metric
    CO2 (million metric tons)          tons)           tons)            CO2             CH4             N2O
----------------------------------------------------------------------------------------------------------------
-3,125..........................      -3,272,234         -96,735             -9%             -8%             -8%
----------------------------------------------------------------------------------------------------------------

E. How has EPA considered environmental justice in this final rule?

    Executive Order 12898 (59 FR 7629, February 16, 1994) establishes
federal executive policy on environmental justice. It directs federal
agencies, to the greatest extent practicable and permitted by law, to
make achieving 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 (U.S.). EPA defines environmental
justice as the fair treatment and meaningful involvement of all people
regardless of race, color, national origin, or income with respect to
the development, implementation, and enforcement of environmental laws,
regulations, and policies.\25\
---------------------------------------------------------------------------

    \25\ Fair treatment means that ``no group of people should bear
a disproportionate burden of environmental harms and risks,
including those resulting from the negative environmental
consequences of industrial, governmental and commercial operations
or programs and policies.''. Meaningful involvement occurs when
``(1) potentially affected populations have an appropriate
opportunity to participate in decisions about a proposed activity
[e.g., rulemaking] that will affect their environment and/or health;
(2) the public's contribution can influence [the EPA's rulemaking]
decision; (3) the concerns of all participants involved will be
considered in the decision-making process; and (4) [the EPA will]
seek out and facilitate the involvement of those potentially
affected'' A potential EJ concern is defined as ``the actual or
potential lack of fair treatment or meaningful involvement of
minority populations, low-income populations, tribes, and indigenous
peoples in the development, implementation and enforcement of
environmental laws, regulations and policies.'' See ``Guidance on
Considering Environmental Justice During the Development of an
Action.'' Environmental Protection Agency, https://www.epa.gov/environmentaljustice/guidance-considering-environmental-justice-during-development-action. See also https://www.epa.gov/environmentaljustice.
---------------------------------------------------------------------------

    Executive Order 14008 (86 FR 7619, February 1, 2021) also calls on
federal agencies to make achieving environmental justice part of their
respective missions ``by developing programs, policies, and activities
to address the disproportionately high and adverse human health,
environmental, climate-related and other cumulative impacts on
disadvantaged communities, as well as the accompanying economic
challenges of such impacts.'' It declares a policy ``to secure
environmental justice and spur economic opportunity for disadvantaged
communities that have been historically marginalized and overburdened
by pollution and under-investment in housing, transportation, water and
wastewater infrastructure and health care.''
    Under E.O. 13563, federal agencies may consider equity, human
dignity, fairness, and distributional considerations in their
regulatory analyses, where appropriate and permitted by law.
    EPA's 2016 ``Technical Guidance for Assessing Environmental Justice
in Regulatory Analysis'' provides recommendations on conducting the
highest quality analysis feasible, recognizing that data limitations,
time

and resource constraints, and analytic challenges will vary by media
and regulatory context.\26\
---------------------------------------------------------------------------

    \26\ ``Technical Guidance for Assessing Environmental Justice in
Regulatory Analysis.'' Epa.gov, Environmental Protection Agency,
https://www.epa.gov/sites/production/files/2016-06/documents/ejtg_5_6_16_v5.1.pdf. (June 2016).
---------------------------------------------------------------------------

    EPA's mobile source regulatory program has historically reduced
significant amounts of both GHG and non-GHG pollutants to the benefit
of all U.S. residents, including populations that live near roads and
in communities with environmental justice (EJ) concerns. EJ concerns
may arise in the context of this rulemaking in two key areas.
    First, people of color and low-income populations may be especially
vulnerable to the impacts of climate change. As discussed in Section
IV.C of this preamble, this rulemaking will mitigate the impacts of
climate change by achieving significant GHG emission reductions, which
will benefit populations that may be especially vulnerable to various
forms of damages associated with climate change.
    Second, in addition to significant climate-change benefits, the
standards will also impact non-GHG emissions. As discussed in Section
VII.L.2 of this preamble, numerous studies have found that
environmental hazards such as air pollution are more prevalent in areas
where people of color and low-income populations represent a higher
fraction of the population compared with the general population. There
is substantial evidence, for example, that people who live or attend
school near major roadways are more likely to be of a non-White race,
Hispanic ethnicity, and/or low socioeconomic status (see Section
VII.L.2 of this preamble).
    We project that this rule will, over time, result in reductions of
non-GHG tailpipe emissions and emissions from upstream refinery
sources. We also project that the rule will result in small increases
of non-GHG emissions from upstream Electric Generating Unit (EGU)
sources. Overall, there are substantial PM2.5-related health
benefits associated with the non-GHG emissions reductions that this
rule will achieve. The benefits from these emissions reductions, as
well as the adverse impacts associated with the emissions increases,
could potentially impact communities with EJ concerns, though not
necessarily immediately and not equally in all locations. The air
quality information needed to perform a quantified analysis of the
distribution of such impacts was not available for this rulemaking. We
therefore recommend caution when interpreting these broad, qualitative
observations.
    As noted previously, EPA intends to develop a subsequent rule to
control emissions of GHGs as well as criteria and air toxic pollutants
from light- and medium-duty vehicles for MYs 2027 and beyond. We are
considering how to project air quality impacts from the changes in non-
GHG emissions for that future rulemaking (see Section V.C of this
preamble).

F. Affordability and Equity

    In addition to considering environmental justice impacts, we have
examined the effects of the standards on affordability of vehicles and
transportation services for low-income households in Section VII.L of
this preamble and Chapter 8.4 of the RIA. As with the effects of the
standards on vehicle sales discussed in Section VII.B of this preamble,
the effects of the standards on affordability and equity depend in part
on two countervailing effects: The increase in the up-front costs of
new vehicles subject to more stringent standards, and the decrease in
operating costs from reduced fuel consumption over time. The increase
in up-front new vehicle costs has the potential to increase the prices
of used vehicles, to make credit more difficult to obtain, and to make
the least expensive new vehicles less desirable compared to used
vehicles. The reduction in operating costs over time has the potential
to mitigate or reverse all these effects. Lower operating costs on
their own increase mobility (see RIA Chapter 3.1 for a discussion of
rebound driving).
    While social equity involves issues beyond income and
affordability, including race, ethnicity, gender, gender
identification, and residential location, the potential effects of the
standards on lower-income households are of great importance for social
equity and reflect these contrasting forces. The overall effects on
vehicle ownership, including for lower-income households, depend
heavily on the role of fuel consumption in vehicle sales decisions, as
discussed in Section VII.M of this preamble. At the same time, lower-
income households own fewer vehicles per household and are more likely
to buy used vehicles than new. In addition, for lower-income
households, fuel expenditures are a larger portion of household income,
so the fuel savings that will result from this rule may be more
impactful to these consumers. Thus, the benefits of this rule may be
stronger for lower-income households even (or especially) if they buy
used vehicles: As vehicles meeting the standards enter the used vehicle
market, they will retain the fuel economy/GHG-reduction benefits, and
associated fuel savings, while facing a smaller portion of the upfront
vehicle costs; see Section VII.J of this preamble. The reduction in
operating costs may also increase access to transportation services,
such as ride-hailing and ride-sharing, where the lower per-mile costs
may play a larger role than up-front costs in pricing. As a result,
lower-income consumers may be affected more from the reduction in
operating costs than the increase in up-front costs.
    The analysis for this final rule projects that EVs and PHEVs will
gradually increase to about 17 percent market share by MY 2026,
although the majority of vehicles produced in the time frame of the
final standards will continue to be gasoline-fueled vehicles (see
Section III.B.3 of this preamble). EPA has heard from some
environmental justice groups and Tribes that limited access to electric
vehicles and charging infrastructure for electric vehicles can be a
barrier for purchasing EVs. A recent report from the National Renewable
Energy Laboratory estimates that public and workplace charging is
keeping up with projected needs, based on Level 2 and fast charging
ports per plug-in EV.\27\ Comments received on the proposed rule point
out both the higher up-front costs of EVs as challenges for adoption
and their lower operating and maintenance costs as incentives for
adoption. As noted previously, the higher penetration of EVs in the
current analysis as compared to that of the proposed rule is in part an
outgrowth of updated estimates of battery costs, which reduce the
projected costs of EVs as a compliance path and is consistent with
expectations that cost parity with conventional vehicles is in the
process of being attained in an increasing number of market segments. A
number of auto manufacturers commented on the importance of consumer
education, purchase incentives, and charging infrastructure development
for promoting adoption of electric vehicles. Some NGOs commented that
EV purchase incentives should focus on lower-income households, because
they are more responsive to price incentives than higher-income
households. EPA will continue to monitor and study affordability issues
related to electric

vehicles as their prevalence in the vehicle fleet increases.
---------------------------------------------------------------------------

    \27\ Brown, A., A. Schayowitz, and E. Klotz (2021). ``Electric
Vehicle Infrastructure Trends from the Alternative Fueling Station
Locator: First Quarter 2021.'' National Renewable Energy Laboratory
Technical Report NREL/TP-5400-80684, https://afdc.energy.gov/files/u/publication/electric_vehicle_charging_infrastructure_trends_first_quarter_2021.pdf, accessed 11/3/2021.
---------------------------------------------------------------------------

II. EPA Standards for MY 2023-2026 Light-Duty Vehicle GHGs

A. Model Year 2023-2026 GHG Standards for Light-Duty Vehicles, Light-
Duty Trucks, and Medium-Duty Passenger Vehicles

    As noted, the transportation sector is the largest U.S. source of
GHG emissions, making up 29 percent of all emissions.\28\ Within the
transportation sector, light-duty vehicles are the largest contributor,
58 percent, to transportation GHG emissions in the U.S.\29\ EPA has
concluded that more stringent standards are appropriate in light of our
assessment of the need to reduce GHG emissions, technological
feasibility, costs, lead time, and other factors. The MY 2023 through
MY 2026 program that EPA is finalizing in this action is based on our
assessment of the near-term potential of technologies already available
and present in much of the fleet. This program also will serve as an
important transition to a longer-term program beyond MY 2026. The
following section provides details on EPA's revised standards and
related provisions.
---------------------------------------------------------------------------

    \28\ Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-
2019 (EPA-430-R-21-005, published April 2021).
    \29\ Ibid.
---------------------------------------------------------------------------

    EPA is finalizing revised, more stringent standards to control the
emissions of GHGs from MY 2023 and later light-duty vehicles.\30\
Carbon dioxide (CO2) is the primary GHG resulting from the
combustion of vehicular fuels.\31\ The standards regulate
CO2 on a grams per mile (g/mile) basis, which EPA defines by
separate footprint curves that apply to vehicles in a manufacturer's
car and truck fleets.\32\ The final standards apply to passenger cars,
light-duty trucks, and medium-duty passenger vehicles (MDPVs).\33\ As
an overall group, they are referred to in this preamble as light-duty
vehicles or simply as vehicles. In this preamble, passenger cars may be
referred to as ``cars,'' and light-duty trucks and MDPVs as ``light
trucks'' or ``trucks.'' Based on compliance with the final revised
standards, the industry-wide average emissions target for new light-
duty vehicles is projected to be 161 g/mile of CO2 in MY
2026.\34\ Except for a limited extension of credit carry-forward
provisions for certain model years discussed in Section II.A.4 of this
preamble, EPA is not changing existing averaging, banking, and trading
program elements.
---------------------------------------------------------------------------

    \30\ See Sections III and VI of this preamble for discussion of
our technical assessment and basis of the final standards.
    \31\ EPA's existing vehicle GHG program also includes emissions
standards for methane (CH4) and nitrous oxide (N2O), and credits for
hydrofluorocarbons (HFCs) reductions from air conditioning
refrigerants.
    \32\ Footprint curves are graphical representations of the
algebraic formulae defining the emission standards in the regulatory
text.
    \33\ As with previous GHG emissions standards, EPA will continue
to use the same vehicle category definitions as in the CAFE program.
MDPVs are grouped with light trucks for fleet average compliance
determinations.
    \34\ The reference to CO2 here refers to
CO2 equivalent reductions, as this level includes some
reductions in emissions of greenhouse gases other than
CO2, from refrigerant leakage, as one part of the A/C
related reductions.
---------------------------------------------------------------------------

    EPA has determined that the revised final standards reflect an
appropriate balance of factors considered under section 202(a) of the
CAA, as discussed in Section VI of this preamble. In selecting the
final standards, EPA carefully considered the concerns raised in public
comments submitted by a wide range of stakeholders. EPA appreciates
that the auto industry and the UAW generally support the proposed
standards, and we also recognize the shorter lead time for the
standards beginning in MY 2023. At the same time, we recognize the
multitude of stakeholders who voiced the critical need for greater GHG
emissions reductions from the light-duty vehicle sector through MY 2026
given the significant need to address air pollution and climate change,
as well as the many stakeholders who provided comments and analyses
indicating that more stringent standards are achievable in this time
frame. EPA has considered all public comments and our updated technical
analysis in determining appropriate standards under the CAA. EPA is
finalizing standards that maintain the stringency level of the proposed
standards in the first two years (MYs 2023 and 2024) in consideration
of the shorter lead time, and that are more stringent than the proposed
standards in the latter two years (MYs 2025 and 2026). EPA notes that
the revised final standards in each model year are significantly more
stringent than the SAFE standards.
    After considering the public comments received, EPA is finalizing a
more limited set of optional manufacturer flexibilities than proposed.
Generally, we are narrowing the availability of these flexibilities to
MY 2023 and 2024 in consideration of lead time, with the exception of
the off-cycle menu credit cap which is available for MY 2023 through
2026 given that these credits achieve real-world emission reductions.
The set of four flexibilities includes: (1) A one-year extension of
credit life for MYs 2017 and 2018 credits such that they are available
for use in MY 2023 and 2024, respectively; (2) an increase in the off-
cycle credit menu cap from 10 g/mile to 15 g/mile from MYs 2023 through
2026. EPA also is finalizing revised definitions for three technologies
to ensure real-world emission reductions commensurate with the menu
credit values; (3) multiplier incentives for EVs, PHEVs, and FCVs, for
2023 and 2024, with a cumulative credit cap of 10 g/mile, and with
multiplier levels lower than those proposed to incentivize more
production of advanced technologies. EPA is eliminating multiplier
incentives for natural gas vehicles adopted in the SAFE rule after MY
2022; (4) full size pick-up truck incentives for MYs 2023 and 2024 for
vehicles that meet efficiency performance criteria or include strong
hybrid technology at a minimum level of production volumes. The details
of EPA's final provisions for these flexibilities are discussed in
Section II.A.4 (credit life extension) and Section II.B (off-cycle,
advanced technology multipliers, and full-size pickup credits) of this
preamble.
    The current light-duty vehicle program includes several program
elements that will remain in place, without change. EPA is not changing
the fundamental structure of the GHG standards, which are based on the
footprint attribute with separate footprint curves for cars and trucks.
EPA is also not changing the existing CH4 and N2O
emissions standards or the program structure in terms of vehicle
certification, compliance, and enforcement. EPA is continuing to use
tailpipe-only values to determine vehicle GHG emissions, without
accounting for upstream emissions (i.e., EVs and PHEVs will continue to
apply 0 g/mile through MY 2026). EPA is also not changing existing
program opportunities to earn compliance credits toward the fleet-wide
average CO2 standards for improvements to air conditioning
systems. The current A/C credits program provides credits for
improvements to address both hydrofluorocarbon (HFC) refrigerant direct
losses (i.e., system ``leakage'') and indirect CO2 emissions
related to the increased load on the engine (also referred to as ``A/C
efficiency'' related emissions). We did not propose to change any of
these aspects of the existing program, they continue to function as
intended and we do not presently believe changes are needed in the
context of standards for MY 2023-2026.

1. What fleet-wide emissions levels correspond to the CO2
standards?
    EPA is finalizing revised standards for MYs 2023-2026 that are
projected to result in an industry-wide average target for the light-
duty fleet of 161 g/mile of CO2 in MY 2026. The final
standards are consistent with the proposed standards in MYs 2023 and
2024 and are more stringent than the proposed standards in MYs 2025 and
2026. In MY 2023, the final standards represent a nearly 10 percent
increase in stringency from the SAFE rule standards. The final
standards continue to increase in stringency by 5 percent in MY 2024,
6.6 percent in MY 2025, and more than 10 percent in 2026. For MYs 2025
and 2026, the final standards are more stringent than the 2012 rule
level of stringency, making the MY 2025 and 2026 standards the most
stringent vehicle GHG standards that EPA has finalized to date. Based
on auto manufacturers' continued technological advancements and
progress towards electrification, EPA believes that it is feasible and
appropriate to make additional progress in reducing GHG emissions from
light-duty vehicles by surpassing the level of stringency of the
original MY 2025 and later standards established nine years ago in the
2012 rule, as further described in Sections III and VI of this
preamble. EPA is finalizing standards that will take a reasonable
approach towards achieving the need for ambitious GHG emission
reductions to address climate change. These final standards will play
an important role in the transition from the current fleet to even
greater GHG emissions reductions in the light-duty fleet, which EPA
will pursue in a subsequent rulemaking for MYs 2027 and later.
    The industry fleet average and car/light truck year-over-year
percent reductions for the final standards compared to the proposed
standards and the SAFE rule standards are provided in Table 7 below.
For passenger cars, the footprint curves are projected to result in
reducing industry fleet average CO2 emissions targets by 8.4
percent in MY 2023 followed by year over year reductions of 4.8 to 11.4
percent in MY 2024 through MY 2026. For light-duty trucks, the
footprint standards curves are projected to result in reducing industry
fleet average CO2 emissions targets by 10.4 percent in MY
2023 followed by year over year reductions of 4.9 to 9.5 percent in MY
2024 through MY 2026. Cumulative reductions in the projected fleet
average CO2 targets over the four model year period are
projected to total 27.1 for cars and 28.3 for light-duty trucks.

                                 Table 7--Projected Industry Fleet Average CO2 Target Year-Over-Year Percent Reductions
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     SAFE rule standards *               Proposed standards **                Final standards **
                                             -----------------------------------------------------------------------------------------------------------
                                                            Trucks     Combined                 Trucks     Combined                 Trucks     Combined
                                               Cars  (%)      (%)         (%)      Cars  (%)      (%)         (%)      Cars  (%)      (%)         (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2023........................................         1.7         1.7         2.1         8.4        10.4         9.8         8.4        10.4         9.8
2024........................................         0.6         1.5         1.4         4.7         5.0         5.1         4.8         4.9         5.1
2025........................................         2.3         1.7         2.2         4.8         5.0         5.0         5.7         7.0         6.6
2026........................................         1.8         1.6         1.9         4.8         5.0         5.0        11.4         9.5        10.3
                                             -----------------------------------------------------------------------------------------------------------
    Cumulative..............................         6.3         6.3         7.4        20.9        23.1        22.8        27.1        28.3        28.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Note the percentages shown for the SAFE rule targets have changed slightly from the proposed rule, due to the updates in our base year fleet from MY
  2017 to MY 2020 manufacturer fleet data.
** These are modeled results based on projected fleet characteristics and represent percent reductions in projected targets, not the standards (which
  are the footprint car/truck curves), associated with that projected fleet (see Section III of this preamble for more detail on our modeling results).

    For light-trucks, EPA is finalizing, as proposed, a change to the
upper right cutpoints of the CO2-footprint curves (i.e., the
footprint sizes in sq. ft. at which the CO2 standards level
off as flat CO2 target values for larger vehicle footprints.
See Figure 4). The SAFE rule altered these cutpoints and EPA is now
restoring them to the original upper right cutpoints initially
established in the 2012 rule, for MYs 2023-2026, essentially requiring
increasingly more stringent CO2 targets at the higher
footprint range up to the revised cutpoint levels. The shapes of the
curves and the cutpoints are discussed in Section II.A.2 of this
preamble.
    The 161 g/mile estimated industry-wide target for MY 2026 noted
above is based on EPA's projected fleet mix projections for MY 2026
(approximately 47 percent cars and 53 percent trucks, with only slight
variations from MYs 2023-2026). As discussed below, the final fleet
average standards for each manufacturer ultimately will depend on each
manufacturer's actual rather than projected production in each MY from
MY 2023 to MY 2026 under the sales-weighted footprint-based standard
curves for the car and truck regulatory classes. In the 2012 rule, EPA
estimated that the fleet average target would be 163 g/mile in MY 2025
based on the projected fleet mix for MY 2025 (67 percent car and 33
percent trucks) based on information available at the time of the 2012
rulemaking. Primarily due to the historical and ongoing shift in fleet
mix that has included more crossover and small and mid-size SUVs and
fewer passenger cars, EPA's projection in the Midterm Evaluation (MTE)
January 2017 Final Determination for the original MY 2025 fleet average
target level increased to 173 g/mile.\35\ EPA has again updated its
fleet mix projections for this final rule and projects that the
original 2012 rule MY 2025 footprint standards curves would result in
an industry-wide fleet average target level of 180 g/mile. The
projected fleet average targets under the 2012 rule, using the updated
fleet mix projections and the projected fleet average targets for the
final rule are provided in Table 8 below. Figure 2 below, based on the
values in Table 8, shows the final standards target levels along with
estimated targets for the proposed standards, SAFE rule, and the 2012
rule for comparison.\36\
---------------------------------------------------------------------------

    \35\ ``Final Determination on the Appropriateness of the Model
Year 2022-2025 Light-Duty Vehicle Greenhouse Gas Emissions Standards
under the Midterm Evaluation,'' EPA-420-R-17-001, January 2017.

   Table 8--Fleet Average Target Projections for the Final Standards Compared to Updated Fleet Average Target
                          Projections * for the Proposed Standards, SAFE Rule 2012 Rule
                                                  [CO2 g/mile]
----------------------------------------------------------------------------------------------------------------
                                                       Final         Proposed        SAFE rule
                                                     standards       standards       standards       2012 rule
                       MY                            projected       projected       projected       projected
                                                      targets         targets         targets         targets
----------------------------------------------------------------------------------------------------------------
2021............................................          ** 229          ** 229             229             219
2022............................................          ** 224          ** 224             224             208
2023............................................             202             202             220             199
2024............................................             192             192             216             189
2025............................................             179             182             212             180
2026............................................             161             173             208             179
                                                 ---------------------------------------------------------------
    Total change 2022-2026......................             -63             -51             -16             -29
----------------------------------------------------------------------------------------------------------------
* All projections have been updated to reflect the updated base year fleet, which results in slight changes
  compared to the values shown in the proposed rule.
** SAFE Rule targets shown for reference.

BILLING CODE 6560-50-P
[GRAPHIC] [TIFF OMITTED] TR30DE21.001

BILLING CODE 6560-50-C
    EPA's standards are based in part on EPA's projection of average
industry wide CO2-equivalent emission reductions from A/C
improvements; specifically the footprint standards curves are made
numerically more stringent by an amount equivalent to this projection
of industry-wide A/C

refrigerant leakage credits.\37\ Including this projection of A/C
credits for purposes of setting GHG standards levels is consistent with
the 2012 rule and the SAFE rule.
---------------------------------------------------------------------------

    \37\ The total A/C adjustment is 18.8 g/mile for cars and 24.4
g/mile for trucks.
---------------------------------------------------------------------------

    Table 9 below shows overall fleet average target levels for both
cars and light trucks that are projected over the implementation period
of the final standards. A more detailed manufacturer by manufacturer
break down of the projected target and achieved levels is provided in
Section III.B.1 of this preamble. The actual fleet-wide average g/mile
level that would be achieved in any year for cars and trucks will
depend on the actual production of vehicles for that year, as well as
the use of the various credit and averaging, banking, and trading
provisions. For example, in any year, manufacturers would be able to
generate credits from cars and use the credits for compliance with the
truck standard, or vice versa. In Section V of this preamble, EPA
discusses the year-by-year estimate of emissions reductions that are
projected to be achieved by the standards.
    In general, the level and implementation schedule of the final
standards provides for an incremental phase-in to the MY 2026
stringency level and reflects consideration of the appropriate lead
time for manufacturers to take actions necessary to meet the final
standards.\38\ The technical feasibility of the standards is discussed
in Section III of this preamble and in the RIA. Note that MY 2026 is
the final MY in which the standards become more stringent. The MY 2026
CO2 standards will remain in place for later MYs, unless and
until they are revised by EPA in a future rulemaking. As mentioned in
Section I.A.2 of this preamble, EPA is planning a subsequent rulemaking
to set more stringent standards for the light-duty vehicle sector in
MYs 2027 and beyond.
---------------------------------------------------------------------------

    \38\ As discussed in Section III of this preamble, EPA has used
the Corporate Average Fuel Economy (CAFE) Compliance and Effects
Modeling System (CCEMS) to support the technical assessment. Among
the ways EPA has considered lead time is by using the constraints
built into the CCEMS model which are designed to represent lead-time
constraints, including the use of redesign and refresh cycles. See
CCEMS Model Documentation on web page https://www.nhtsa.gov/corporate-average-fuel-economy/compliance-and-effects-modeling-system and contained in the docket for this rule.
---------------------------------------------------------------------------

    EPA has estimated the overall fleet-wide CO2 emission
target levels that correspond with the attribute-based footprint
standards, based on projections of the composition of each
manufacturer's fleet in each year of the program. As noted above, EPA
estimates that, on a combined fleet-wide national basis, the 2026 MY
standards will result in a target level of 161 g/mile CO2.
The derivation of the 161 g/mile estimate is described in Section III.A
of this preamble. EPA aggregated the estimates for individual
manufacturers based on projected production volumes into the fleet-wide
averages for cars, trucks, and the entire fleet, shown in Table 9.\39\
As discussed above, the combined fleet estimates are based on projected
fleet mix of cars and trucks that varies over the MY 2023-2026
timeframe. This fleet mix distribution can also be found in Section
III.A of this preamble.
---------------------------------------------------------------------------

    \39\ Due to rounding during calculations, the estimated fleet-
wide CO2 target levels may vary by plus or minus 1 gram.

              Table 9--Estimated Fleet-Wide CO2 Target Levels Corresponding to the Final Standards
----------------------------------------------------------------------------------------------------------------
                                                                   Cars CO2 (g/   Trucks CO2 (g/   Fleet CO2 (g/
                           Model year                                  mile)           mile)           mile)
----------------------------------------------------------------------------------------------------------------
2023............................................................             166             234             202
2024............................................................             158             222             192
2025............................................................             149             207             179
2026 and later..................................................             132             187             161
----------------------------------------------------------------------------------------------------------------

    As shown in Table 9, fleet-wide CO2 emission target
levels for cars under the final standards are projected to decrease
from 166 to 132 g/mile between MY 2023 and MY 2026. Similarly, fleet-
wide CO2 target levels for trucks are projected to decrease
from 233 to 187 g/mile during the same period. These target levels
reflect both the final standards and the flexibilities and credits
available in the program.\40\ The estimated fleetwide achieved values
can be found in Section III.B.1 of this preamble.
---------------------------------------------------------------------------

    \40\ The target levels do not reflect credit trading across
manufacturers under the ABT program.
---------------------------------------------------------------------------

    As noted above, EPA is finalizing CO2 standards that are
increasingly more stringent each year from MY 2023 though MY 2026.
Applying the CO2 footprint standard curves applicable in
each MY to the vehicles (and their footprint distributions) projected
to be sold in each MY produces projections of progressively lower
fleet-wide CO2 emission target levels. EPA believes
manufacturers can achieve the final standards and their important
CO2 emissions reductions through the application of
available control technology at reasonable cost, as well as the use of
optional program flexibilities available in certain model years.
    The existing program includes several provisions that we are not
changing and so would continue during the implementation timeframe of
this final rule. Consistent with CAA section 202(a)(1) that standards
be applicable to vehicles ``for their useful life,'' the MY 2023-2026
vehicle standards will apply for the useful life of the vehicle.\41\
Also, in this action EPA is not changing the test procedures over which
emissions are measured and weighted to determine compliance with the
GHG standards. These procedures are the Federal Test Procedure (FTP or
``city'' test) and the Highway Fuel Economy Test (HFET or ``highway''
test). While EPA may consider requiring the use of test procedures
other than the 2-cycle test procedures in a future rulemaking, EPA did
not propose and is not adopting any test procedure changes in this
final rule.
---------------------------------------------------------------------------

    \41\ The GHG emission standards apply for a useful life of 10
years or 120,000 miles for light duty vehicles (LDVs) and light-
light-duty trucks (LLDTs) and 11 years or 120,000 miles for heavy-
light-duty trucks (HLDTs) and medium-duty passenger vehicles
(MDPVs). See 40 CFR 86.1805-17.
---------------------------------------------------------------------------

    EPA has analyzed the feasibility of achieving the car and truck
CO2 footprint based standards through the application of
available technologies, based on projections of technology penetration
rates that are in turn based on our estimates of the effectiveness and
cost of the technology. The results of the analysis are discussed in
detail in Section III of this preamble and in the RIA. EPA also
presents the overall estimated costs and benefits of the final car and
truck CO2 standards in Section VII.I of this preamble.

2. What are the final CO2 attribute-based standards?
    As with the existing GHG standards, EPA is finalizing separate car
and truck standards--that is, vehicles defined as cars have one set of
footprint-based curves, and vehicles defined as trucks would have a
different set.\42\ In general, for a given footprint, the
CO2 g/mile target \43\ for trucks is higher than the target
for a car with the same footprint. The curves are defined
mathematically in EPA's regulations by a family of piecewise linear
functions (with respect to vehicle footprint) that gradually and
continually ramp down from the MY 2022 curves established in the SAFE
rule. EPA's minimum and maximum footprint targets and the corresponding
cutpoints are provided below in Table 10 for MYs 2023-2026 along with
the slope and intercept defining the linear function for footprints
falling between the minimum and maximum footprint values. For
footprints falling between the minimum and maximum, the targets are
calculated as follows: Slope x Footprint + Intercept = Target. Figure 3
and Figure 4 provide the existing MY 2021-2022 and final MY 2023-2026
footprint curves graphically for both car and light trucks,
respectively.
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    \42\ See 49 CFR part 523. Generally, passenger cars include cars
and smaller cross-overs and SUVs, while the truck category includes
larger cross-overs and SUVs, minivans, and pickup trucks.
    \43\ Because compliance is based on a sales-weighting of the
full range of vehicles in a manufacturer's car and truck fleets, the
footprint based CO2 emission levels of specific vehicles
within the fleet are referred to as targets, rather than standards.

                                             Table 10--Final Footprint-Based CO2 Standard Curve Coefficients
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Car                                                Truck
                                                 -------------------------------------------------------------------------------------------------------
                                                      2023         2024         2025         2026         2023         2024         2025         2026
--------------------------------------------------------------------------------------------------------------------------------------------------------
MIN CO2 (g/mile)................................        145.6        138.6        130.5        114.3        181.1        172.1        159.3        141.8
MAX CO2 (g/mile)................................        199.1        189.5        179.4        160.9        312.1        296.5        277.4        254.4
Slope (g/mile/ft\2\)............................         3.56         3.39         3.26         3.11         3.97         3.77         3.58         3.41
Intercept (g/mile)..............................         -0.4         -0.4         -3.2        -13.1         18.4         17.4         12.5          1.9
MIN footprint (ft\2\)...........................           41           41           41           41           41           41           41           41
MAX footprint (ft\2\)...........................           56           56           56           56           74           74           74           74
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    The shapes of the MY 2023-2026 car curves are similar to the MY
2022 car curve. By contrast, the MY 2023-2026 truck curves return to
the cutpoint of 74.0 sq ft that was originally established in the 2012
rule but was changed in the SAFE rule.\44\ The gap between the 2022
curves and the 2023 curves is indicative of the design of the final
standards as described earlier, where the gap between the MY 2022 and
MY 2023 curves is roughly double the gap between the curves for MYs
2024-2026.
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    \44\ 77 FR 62781.
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3. EPA's Statutory Authority Under the CAA
i. Standards-Setting Authority Under CAA Section 202(a)
    Title II of the CAA provides for comprehensive regulation of mobile
sources, authorizing EPA to regulate emissions of air pollutants from
all mobile source categories. Pursuant to these sweeping grants of
authority, when setting GHG standards for light-duty vehicles, EPA
considers such issues as technology effectiveness, technology cost (per
vehicle, per manufacturer, and per consumer), the lead time necessary
to implement the technology, and--based on these considerations--the
feasibility and practicability of potential standards; as well as the
impacts of potential standards on emissions reductions of both GHGs and
non-GHGs; the impacts of standards on oil conservation and energy
security; the impacts of standards on fuel savings by consumers; the
impacts of standards on the auto industry; other energy impacts; and
other relevant factors such as impacts on safety.
    Title II emission standards have stimulated the development of a
broad set of advanced automotive technologies, such as on-board
computers and fuel injection systems, which have been the building
blocks of automotive designs and have yielded not only lower pollutant
emissions, but improved vehicle performance, reliability, and
durability. In response to EPA's adoption of Title II emission
standards for GHGs from light-duty vehicles in 2010 and later,
manufacturers have continued to significantly ramp up their development
and application of a wide range of new and improved technologies,
including more fuel-efficient engine designs, transmissions,
aerodynamics, and tires, air conditioning systems that contribute to
lower GHG emissions, and various levels of electrified vehicle
technologies.
    This rule implements a specific provision in Title II, section
202(a) of the CAA. Section 202(a)(1), 42 U.S.C. 7521(a)(1), states that
``the Administrator shall by regulation prescribe (and from time to
time revise) . . . standards applicable to the emission of any air
pollutant from any class or classes of new motor vehicles . . . which
in his judgment cause, or contribute to, air pollution which may
reasonably be anticipated to endanger public health or welfare.'' Once
EPA makes the appropriate endangerment and cause or contribute
findings,\45\ CAA section 202(a) authorizes EPA to issue standards
applicable to emissions of those pollutants. Indeed, EPA's obligation
to do so is mandatory. See Coalition for Responsible Regulation v. EPA,
684 F.3d 102, 126-27 (D.C. Cir. 2012); Massachusetts v. EPA, 549 U.S.
497, 533 (2007). Moreover, EPA's mandatory legal duty to promulgate
these emission standards derives from ``a statutory obligation wholly
independent of DOT's mandate to promote energy efficiency.''
Massachusetts, 549 U.S. at 532. Consequently, EPA has no discretion to
decline to issue GHG standards under

section 202(a), or to defer issuing such standards due to NHTSA's
regulatory authority to establish fuel economy standards. Rather,
``[j]ust as EPA lacks authority to refuse to regulate on the grounds of
NHTSA's regulatory authority, EPA cannot defer regulation on that
basis.'' Coalition for Responsible Regulation, 684 F.3d at 127.
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    \45\ EPA did so in 2009 for the group of six well-mixed
greenhouse gases--carbon dioxide, methane, nitrous oxide,
hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride--which
taken in combination endanger both the public health and the public
welfare of current and future generations. EPA further found that
the combined emissions of these greenhouse gases from new motor
vehicles and new motor vehicle engines contribute to greenhouse gas
air pollution that endangers public health and welfare. 74 FR 66496
(Dec. 15, 2009).
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    Any standards under CAA section 202(a)(1) ``shall be applicable to
such vehicles . . . for their useful life.'' Emission standards set by
EPA under CAA section 202(a)(1) are technology-based, as the levels
chosen must be premised on a finding of technological feasibility.
Thus, standards promulgated under CAA section 202(a) are to take effect
only ``after such period as the Administrator finds necessary to permit
the development and application of the requisite technology, giving
appropriate consideration to the cost of compliance within such
period.'' CAA section 202(a)(2); see also NRDC v. EPA, 655 F. 2d 318,
322 (D.C. Cir. 1981). EPA must consider costs to those entities which
are directly subject to the standards. Motor & Equipment Mfrs. Ass'n
Inc. v. EPA, 627 F. 2d 1095, 1118 (D.C. Cir. 1979). Thus, ``the
[s]ection 202(a)(2) reference to compliance costs encompasses only the
cost to the motor-vehicle industry to come into compliance with the new
emission standards, and does not mandate consideration of costs to
other entities not directly subject to the proposed standards.'' See
Coalition for Responsible Regulation, 684 F.3d at 128.
    EPA is afforded considerable discretion under CAA section 202(a)
when assessing issues of technical feasibility and availability of lead
time to implement new technology. Such determinations are ``subject to
the restraints of reasonableness,'' which ``does not open the door to
`crystal ball' inquiry.'' NRDC, 655 F. 2d at 328, quoting International
Harvester Co. v. Ruckelshaus, 478 F. 2d 615, 629 (D.C. Cir. 1973).
However, ``EPA is not obliged to provide detailed solutions to every
engineering problem posed in the perfection of [a particular device].
In the absence of theoretical objections to the technology, the agency
need only identify the major steps necessary for development of the
device, and give plausible reasons for its belief that the industry
will be able to solve those problems in the time remaining. The EPA is
not required to rebut all speculation that unspecified factors may
hinder `real world' emission control.'' NRDC, 655 F. 2d at 333-34. In
developing such technology-based standards, EPA has the discretion to
consider different standards for appropriate groupings of vehicles
(``class or classes of new motor vehicles''), or a single standard for
a larger grouping of motor vehicles. NRDC, 655 F.2d at 338. Finally,
with respect to regulation of vehicular GHG emissions, EPA is not
``required to treat NHTSA's . . . regulations as establishing the
baseline for the [section 202(a) standards].'' Coalition for
Responsible Regulation, 684 F.3d at 127 (noting that the section 202(a)
standards provide ``benefits above and beyond those resulting from
NHTSA's fuel-economy standards.'')
    Although standards under CAA section 202(a)(1) are technology-
based, they are not based exclusively on technological capability. EPA
has the discretion to consider and weigh various factors along with
technological feasibility, such as the cost of compliance (section
202(a)(2)), lead time necessary for compliance (section 202(a)(2)),
safety (see NRDC, 655 F. 2d at 336 n. 31),\46\ other impacts on
consumers, and energy impacts associated with use of the technology.
See George E. Warren Corp. v. EPA, 159 F.3d 616, 623-624 (D.C. Cir.
1998) (ordinarily permissible for EPA to consider factors not
specifically enumerated in the Act).
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    \46\ Since its earliest Title II regulations, EPA has considered
the safety of pollution control technologies. See 45 FR 14496, 14503
(1980) (``EPA would not require a particulate control technology
that was known to involve serious safety problems. If during the
development of the trap-oxidizer safety problems are discovered, EPA
would reconsider the control requirements implemented by this
rulemaking'').
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    In addition, EPA has clear authority to set standards under CAA
section 202(a) that are technology-forcing when EPA considers that to
be appropriate, but EPA is not required to do so (as distinguished from
standards under provisions such as section 202(a)(3) and section
213(a)(3)). Section 202(a) of the CAA does not specify the degree of
weight to apply to each factor, and EPA accordingly has discretion in
choosing an appropriate balance among factors. See Sierra Club v. EPA,
325 F.3d 374, 378 (D.C. Cir. 2003) (even where a provision is
technology-forcing, the provision ``does not resolve how the
Administrator should weigh all [the statutory] factors in the process
of finding the `greatest emission reduction achievable' ''); NPRA v.
EPA, 287 F.3d 1130, 1135 (D.C. Cir. 2002) (EPA decisions, under CAA
provision authorizing technology-forcing standards, based on complex
scientific or technical analysis are accorded particularly great
deference); see also Husqvarna AB v. EPA, 254 F. 3d 195, 200 (D.C. Cir.
2001) (great discretion to balance statutory factors in considering
level of technology-based standard, and statutory requirement ``to
[give appropriate] consideration to the cost of applying . . .
technology'' does not mandate a specific method of cost analysis);
Hercules Inc. v. EPA, 598 F. 2d 91, 106 (D.C. Cir. 1978) (``In
reviewing a numerical standard we must ask whether the agency's numbers
are within a zone of reasonableness, not whether its numbers are
precisely right''); Permian Basin Area Rate Cases, 390 U.S. 747, 797
(1968) (same); Federal Power Commission v. Conway Corp., 426 U.S. 271,
278 (1976) (same); Exxon Mobil Gas Marketing Co. v. FERC, 297 F. 3d
1071, 1084 (D.C. Cir. 2002) (same).
ii. Testing Authority
    Under section 203 of the CAA, sales of vehicles are prohibited
unless the vehicle is covered by a certificate of conformity. EPA
issues certificates of conformity pursuant to section 206 of the CAA,
based on (necessarily) pre-sale testing conducted either by EPA or by
the manufacturer. The Federal Test Procedure (FTP or ``city'' test) and
the Highway Fuel Economy Test (HFET or ``highway'' test) are used for
this purpose. Compliance with standards is required not only at
certification but throughout a vehicle's useful life, so that testing
requirements may continue post-certification. Useful life standards may