[Federal Register Volume 87, Number 63 (Friday, April 1, 2022)]
[Rules and Regulations]
[Pages 18994-19007]
[FR Doc No: 2022-06648]

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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Part 578

[Docket No. NHTSA-2021-0001]
RIN 2127-AM32

Civil Penalties

AGENCY: National Highway Traffic Safety Administration (NHTSA),
Department of Transportation (DOT).

ACTION: Final rule.

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SUMMARY: On January 14, 2021, NHTSA published an interim final rule in
response to a petition for rulemaking from the Alliance for Automotive
Innovation. The interim final rule applied the adjusted civil penalty
rate applicable to automobile manufacturers that violate relevant
corporate average fuel economy (CAFE) standards beginning with vehicle
Model Year (MY) 2022. The interim final rule also requested comment. In
light of a subsequent Executive order and the agency's review of
comments, NHTSA reviewed and reconsidered that interim final rule, a
process that included a supplemental notice of proposed rulemaking
(SNPRM) to consider the appropriate path forward and to allow
interested parties sufficient time to provide comments. As a result of
this review and reconsideration, including a careful consideration of
the comments received in response to the SNPRM, NHTSA is repealing the
interim final rule and reverting to the December 2016 final rule that
would apply the adjustment for the CAFE civil penalty rate beginning
with Model Year 2019. In this rule, NHTSA is also applying the
statutorily required annual adjustments through 2022. Going forward,
NHTSA will continue to make the mandatory adjustments to the CAFE civil
penalty rate, as required by law for all civil monetary penalties.

DATES:
    Effective date: This rule is effective as May 31, 2022.
    Petitions for reconsideration: Petitions for reconsideration of
this final rule must be received not later than May 16, 2022.

ADDRESSES: Any petitions for reconsideration should refer to the docket
number of this document and be submitted to: Deputy Administrator,
National Highway Traffic Safety Administration, 1200 New Jersey Avenue
SE, West Building, Fourth Floor, Washington, DC 20590.
    Docket: All documents in the docket are listed on the
www.regulations.gov website. Although listed in the index, some
information is not publicly available, e.g., confidential business
information 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 either
electronically through www.regulations.gov or in hard copy at the
following location: Docket Management Facility, M-30, U.S. Department
of Transportation, West Building, Ground Floor, Rm. W12-140, 1200 New
Jersey Avenue SE, Washington, DC 20590. The telephone number for the
docket management facility is<PHONE_NUMBER>. The docket management
facility is open between 9 a.m. and 5 p.m. Eastern Time, Monday through
Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: Michael Kuppersmith, Office of Chief
Counsel, NHTSA, email [email protected], telephone (202) 366-
2992, facsimile<PHONE_NUMBER>, 1200 New Jersey Ave. SE, Washington, DC
20590.

SUPPLEMENTARY INFORMATION:

Table of Contents

A. CAFE Statutory and Regulatory Background
B. Civil Penalties Inflation Adjustment Act Improvements Act of 2015
C. NHTSA's Actions to Date Regarding CAFE Civil Penalties
    1. Initial Interim Final Rule
    2. Initial Petition for Reconsideration and Response
    3. NHTSA Reconsideration
    4. Subsequent Petitions and Interim Final Rule
    5. Supplemental Notice of Proposed Rulemaking
D. Overview of the Comments Received
E. Response to the Comments
    1. Agency Reconsideration
    2. Procedural Issues
    3. Statutory Authorization
    4. Retroactivity
    5. Reliance Interests
    6. Economic Impact of the COVID-19 Pandemic and Other Factors
    7. Usage of Credits
    8. Additional Adjustments Required by Law
F. Rulemaking Analyses and Notices
    1. Executive Order 12866, Executive Order 13563, and DOT
Regulatory Policies and Procedures
    2. Regulatory Flexibility Act
    3. Executive Order 13132 (Federalism)
    4. Unfunded Mandates Reform Act of 1995
    5. National Environmental Policy Act
    6. Executive Order 12778 (Civil Justice Reform)
    7. Paperwork Reduction Act
    8. Privacy Act

A. CAFE Statutory and Regulatory Background

    NHTSA sets \1\ and enforces \2\ corporate average fuel economy
(CAFE) standards for the United States light-duty automobile fleet, and
in doing so, assesses civil penalties against manufacturers that
violate applicable standards and are unable to make up the shortfall
with credits.\3\ The civil penalty amount for CAFE violations was
originally set by statute in 1975, and beginning in 1997, included a
rate of $5.50 per each tenth of a mile per gallon (0.1) that a
manufacturer's CAFE performance falls short of its compliance
obligation. This shortfall amount is then multiplied by the number of
vehicles in that manufacturer's fleet.\4\ The basic equation for
calculating a manufacturer's civil penalty amount, before accounting
for credits, is as follows:
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    \1\ 49 U.S.C. 32902. The authorities vested in the Secretary
under chapter 329 of Title 49, U.S.C., have been delegated to NHTSA.
49 CFR 1.95(a).
    \2\ 49 U.S.C. 32911, 32912.
    \3\ Within statutory constraints, credits may be either earned
(for over-compliance by a given manufacturer's fleet, in a given
model year), transferred (from one fleet to another), or purchased
(in which case, another manufacturer earned the credits by over-
complying and chose to sell that surplus). 49 U.S.C. 32903.
    \4\ A manufacturer may have up to three fleets of vehicles, for
CAFE compliance purposes, in any given model year--a domestic
passenger car fleet, an imported passenger car fleet, and a light
truck fleet. Each fleet belonging to each manufacturer has its own
compliance obligation, with the potential for either over-compliance
or under-compliance. There is no overarching CAFE requirement for a
manufacturer's total production.

(penalty rate, in $ per 0.1 mpg per vehicle) x (amount of shortfall,
in tenths of an

mpg) x (# of vehicles in manufacturer's fleet).\5\
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    \5\ The process of determining civil penalties occurs after the
end of a model year, following NHTSA's receipt of final reports from
the Environmental Protection Agency (EPA). See 77 FR 62624, 63126
(Oct. 15, 2012). NHTSA uses the penalty rate from the calendar year
that is the same as the model year to assess CAFE violations. For
example, NHTSA will assess the civil penalties for Model Year 2022
vehicles using the 2022 calendar year rate--even if NHTSA ultimately
assesses the penalty in a later calendar year.

    Starting with Model Year 2011, the Energy Independence and Security
Act of 2007 (EISA) provided for credit transfers among a manufacturer's
various fleets.\6\ The law also provided for trading between vehicle
manufacturers, which has allowed vehicle manufacturers the opportunity
to acquire credits from competitors rather than paying civil penalties
for violations. Manufacturers can choose to carry back credits to apply
to any of three model years before they are earned or carry them
forward to apply to any of the five model years after they are earned.
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    \6\ Public Law 110-140, 104.
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    In complement to NHTSA's regulation of fuel economy, the
Environmental Protection Agency (EPA) regulates the emissions of light-
duty vehicles. These regulations include standards to regulate
greenhouse gas emissions from the light-duty fleet. The Clean Air Act
requires EPA to set greenhouse gas (GHG) emissions standards from
light-duty vehicles since EPA has made an ``endangerment finding'' that
greenhouse gases ``cause[s] or contribute[s] to air pollution which may
reasonably be anticipated to endanger public health or welfare.'' \7\
Although NHTSA and EPA have different roles and independent enforcement
and compliance obligations, and operate under different statutory
authority, the agencies work together to achieve the goals of their
respective statutes, and their light-duty vehicle fuel economy
rulemakings are harmonized to the extent possible to work in tandem.
However, the CAFE program is subject to various statutory requirements
not applicable to the EPA GHG program. One such requirement, for
example, requires automakers to meet a separate average fleet
requirement for automobiles that are manufactured domestically.\8\ The
Clean Air Act does not include a similar requirement for EPA's GHG
standards.
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    \7\ 42 U.S.C. 7521, see also 74 FR 66495 (Dec. 15, 2009)
(``Endangerment and Cause or Contribute Findings for Greenhouse
Gases under Section 202(a) of the Clean Air Act'').
    \8\ 49 U.S.C. 32902(b)(4).
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B. Civil Penalties Inflation Adjustment Act Improvements Act of 2015

    On November 2, 2015, the Federal Civil Penalties Inflation
Adjustment Act Improvements Act (2015 Act), Public Law 114-74, Section
701, was signed into law. The 2015 Act required Federal agencies to
promulgate an interim final rule to make an initial ``catch-up''
adjustment to the civil monetary penalties they administer, and then to
make subsequent annual adjustments. The 2015 Act limited the initial
adjustment to 150 percent of the then-current penalty.
    In a February 24, 2016 memorandum, the Director of the Office of
Management and Budget (OMB) provided initial guidance to all Federal
agencies on how to calculate the initial adjustment required by the
2015 Act.\9\ The initial ``catch-up'' adjustment was based on the
change between the Consumer Price Index for all Urban Consumers (CPI-U)
for the month of October in the year the penalty amount was established
or last adjusted by Congress and the October 2015 CPI-U. The February
24, 2016 memorandum contained a table with a multiplier for the change
in CPI-U from the year the penalty was established or last adjusted to
2015. To arrive at the adjusted penalty, the agency multiplied the
penalty amount when it was established or last adjusted by Congress,
excluding adjustments under a prior adjustment statute, by the
multiplier for the increase in CPI-U from the year the penalty was
established or adjusted. Ensuing guidance from OMB identifies the
appropriate multiplier for agencies to use to calculate the subsequent
annual adjustments.\10\
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    \9\ Memorandum from the Director of OMB to Heads of Executive
Departments and Agencies, Implementation of the Federal Civil
Penalties Inflation Adjustment Act Improvements Act of 2015 (Feb.
24, 2016), available online at https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2016/m-16-06.pdf.
    \10\ Memorandum from the Director of OMB to Heads of Executive
Departments and Agencies, Implementation of the 2017 Annual
Adjustment Pursuant to the Federal Civil Penalties Inflation
Adjustment Act Improvements Act of 2015 (Dec. 16, 2016), available
online at https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2017/m-17-11_0.pdf; Memorandum from the Director of OMB to
Heads of Executive Departments and Agencies, Implementation of
Penalty Inflation Adjustments for 2018, Pursuant to the Federal
Civil Penalties Inflation Adjustment Act Improvements Act of 2015
(Dec. 15, 2017), available online at https://www.whitehouse.gov/wp-content/uploads/2017/11/M-18-03.pdf; Memorandum from the Director of
OMB to Heads of Executive Departments and Agencies, Implementation
of Penalty Inflation Adjustments for 2019, Pursuant to the Federal
Civil Penalties Inflation Adjustment Act Improvements Act of 2015
(Dec. 14, 2018), available online at https://www.whitehouse.gov/wp-content/uploads/2017/11/m_19_04.pdf; Memorandum from the Acting
Director of OMB to Heads of Executive Departments and Agencies,
Implementation of Penalty Inflation Adjustments for 2020, Pursuant
to the Federal Civil Penalties Inflation Adjustment Act Improvements
Act of 2015 (Dec. 16, 2019), available online at https://www.whitehouse.gov/wp-content/uploads/2019/12/M-20-05.pdf;
Memorandum from the Director of OMB to Heads of Executive
Departments and Agencies, Implementation of Penalty Inflation
Adjustments for 2021, Pursuant to the Federal Civil Penalties
Inflation Adjustment Act Improvements Act of 2015 (Dec. 23, 2020),
available online at https://www.whitehouse.gov/wp-content/uploads/2020/12/M-21-10.pdf.
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C. NHTSA's Actions to Date Regarding CAFE Civil Penalties

1. Initial Interim Final Rule

    On July 5, 2016, NHTSA published an interim final rule, adopting
the adjustments required by the statute for all civil penalties under
its administration, following the procedure and the formula in the 2015
Act. One of the adjustments NHTSA made at the time was raising the
civil penalty rate for CAFE violations from $5.50 to $14.\11\ NHTSA
also indicated in that interim final rule that the Secretary's
statutory authority under the Energy Policy and Conservation Act (EPCA)
to establish an additional increase for such violations would similarly
need to be adjusted from the statutory cap of $10 to $25, but did not
codify this change in the regulatory text. In the preamble discussion,
NHTSA provided detailed discussion of the authority granted in Public
Law 95-619, 402, 92 Stat. 3255 (Nov. 9, 1978), which allowed the
Secretary of Transportation to establish a new civil penalty for each
.1 of a mile a gallon by which the applicable average fuel economy
standard under EPCA exceeds the average fuel economy for automobiles to
which the standard applies manufactured by the manufacturer during the
model year. NHTSA explained that these amendments, codified in 49
U.S.C. 32912(c), state that the new civil penalty cannot be more than
$10. NHTSA further explained that applying the multiplier for the
increase in CPI-U for 1978 in Table A of the February 24, 2016
memorandum (3.54453) to the $10 maximum penalty the Secretary is
permitted to establish under 49 U.S.C. 32912(c) results in an adjusted
civil penalty of $35. NHTSA then explained that because this
calculation would result in an increase of greater than 150 percent,
the adjusted maximum civil penalty that the Secretary is permitted to
establish under 49 U.S.C. 32912(c) is $25 (current maximum penalty $10
x 2.5). NHTSA concluded that because the new maximum penalty that the
Secretary is permitted to establish under

49 U.S.C. 32912(c) is $25, the new adjusted civil penalty in 49 CFR
578.6(h)(2) of $14 does not exceed the maximum penalty that the
Secretary is permitted to impose. NHTSA addresses the adjustments that
occurred to the statutory cap since that time and codifies the adjusted
cap in this final rule. That initial interim final rule became
effective on August 4, 2016.
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    \11\ 81 FR 43524 (July 5, 2016).
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2. Initial Petition for Reconsideration and Response

    On August 1, 2016, the then-Alliance of Automobile Manufacturers
and the Association of Global Automakers (since combined to form the
Alliance for Automotive Innovation) jointly petitioned NHTSA for
reconsideration of the CAFE penalty provisions issued in the interim
final rule.\12\ The Alliance and Global joint petition raised concerns
with the impact that the increased penalty rate would have on CAFE
compliance costs, which they estimated to be at least $1 billion
annually. Specifically, the petition identified several issues,
including retroactivity. The petitioners were concerned that applying
the penalty increase associated with model years that had already been
completed or for which a company's compliance plan had already been
``set'' was a retroactive application of the adjustment.
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    \12\ Jaguar Land Rover North America, LLC also filed a petition
for reconsideration in response to the July 5, 2016 interim final
rule raising the same concerns as those raised in the joint
petition. Both petitions, along with a supplement to the joint
petition, can be found in Docket No. NHTSA-2016-0075 at
www.regulations.gov.
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    In response to the joint petition, NHTSA issued a final rule on
December 28, 2016.\13\ In that rule, NHTSA agreed that raising the
penalty rate for model years already fully complete at the time the
2015 Act was enacted would be inappropriate, given that courts
generally disfavor the retroactive application of statutes, and that
applying penalties to model years that were already completed could not
deter non-compliance, incentivize compliance, or lead to any
improvements in fuel economy. NHTSA also agreed that raising the rate
for model years for which product changes were infeasible due to lack
of lead time from the enactment of the 2015 Act did not seem consistent
with Congress's intent that the CAFE program be responsive to consumer
demand. Accordingly, NHTSA stated that it would not apply the adjusted
penalty rate of $14 (plus any other required adjustments that occurred
or may occur) until Model Year 2019, as the agency believed that 2019
would be the first year after the 2015 Act in which product changes
could reasonably be made in response to the higher penalty rate. This
final rule had an effective date of January 27, 2017.
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    \13\ 81 FR 95489 (December 28, 2016).
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3. NHTSA Reconsideration

    Beginning in January 2017, NHTSA took a series of actions to delay
the effective date of the December 2016 final rule, ultimately leading
to a rule announcing that the effective date would be delayed
indefinitely.\14\ In April 2018, the United States Court of Appeals for
the Second Circuit vacated NHTSA's indefinite delay of the rule's
effective date, stating that the December 2016 rule was in force.\15\
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    \14\ 82 FR 8694 (January 30, 2017); 82 FR 15302 (March 28,
2017); 82 FR 29009 (June 27, 2017); 82 FR 32139 (July 12, 2017).
    \15\ Order, ECF No. 196, Natural Res. Def. Council v. NHTSA,
Case No. 17-2780 (2d Cir. Apr. 24, 2018); see also Natural Res. Def.
Council v. NHTSA (NRDC), 894 F.3d 95, 116 (2d Cir. 2018) (``The
Civil Penalties Rule, 81 FR 95,489, 95,489-92 (December 28, 2016),
no longer suspended, is now in force.'').
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    In July 2019, NHTSA finalized a rule determining, in part, that the
2015 Act did not apply to the CAFE civil penalty rate. On September 9,
2019, the Institute for Policy Integrity at New York University School
of Law (IPI) submitted a petition for reconsideration of NHTSA's July
2019 final rule. IPI argued that the rule was unreasonable and not in
the public interest because it did not properly account for the
associated costs and benefits. Additionally, IPI challenged NHTSA's
statutory interpretations.
    On August 31, 2020, the United States Court of Appeals for the
Second Circuit vacated the July 2019 rule and ruled again that the
December 2016 rule was in force.\16\ The Second Circuit denied panel
rehearing on November 2, 2020. NHTSA did not issue a decision on the
IPI petition prior to the Second Circuit's decision vacating the rule.
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    \16\ New York v. NHTSA, 974 F.3d 87 (2d Cir. 2020).
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4. Subsequent Petitions and Interim Final Rule

    Following the Second Circuit's decision, on October 2, 2020, NHTSA
received a petition for rulemaking from the Alliance for Automotive
Innovation (Auto Innovators) requesting that the adjustment to $14 not
be applied until Model Year 2022.\17\ According to the Auto Innovators'
petition, ``Model Years 2019 and 2020 are effectively lapsed now,'' and
``[m]anufacturers are unable to change MY 2021 plans at this point.''
The Auto Innovators argued that, as in the December 2016 rule, applying
the increased penalty to any violations that cannot practically be
remedied does not serve the statutory purposes of deterring prohibited
conduct or incentivizing favored conduct. According to the Auto
Innovators, doing so would effectively be punishing violators
retroactively.
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    \17\ The Auto Innovators also submitted a supplement to its
petition on October 22, 2020. The petition, the supplement, and
other supporting materials were posted with the interim final rule
and can be found in Docket No. NHTSA-2021-0001 at
www.regulations.gov.
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    In addition to relying on the reasoning of the December 2016 rule
as it applied to the increase based on the timing of the enactment of
the 2015 Act, the Auto Innovators' petition noted, but did not provide
detailed evidence of, the significant economic impact suffered by the
industry due to COVID-19. Accordingly, the Auto Innovators' petition
also cited the now-revoked Executive Order 13924,\18\ requiring Federal
agencies to take appropriate action--consistent with applicable law--to
combat the economic emergency caused by COVID-19. Several individual
vehicle manufacturers submitted supplemental information to NHTSA
further articulating the negative economic position they were in due to
the COVID-19 public health emergency and the potential and significant
adverse economic consequences of the increased civil penalty rate.
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    \18\ See Executive Order 14018, 86 FR 11855, ``Revocation of
Certain Presidential Actions'' (Feb. 24, 2021).
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    After considering the issues raised, NHTSA granted the Auto
Innovators' petition and promulgated an interim final rule providing
that the increase \19\ will apply beginning with Model Year 2022. The
interim final rule stated that applying the increased civil penalty
rate to vehicles in Model Years 2019, 2020, and 2021 would not result
in additional fuel savings and would impose higher penalties
retroactively because those model years were already completed, or, for
Model Year 2021, production plans were set prior to the Second
Circuit's decision striking down the 2019 rule. The interim final rule
relied in large part on the reasoning in the December 2016 final rule,
though it did not discuss the extent to which the four years between
the two rules should affect that reasoning. Additionally, the interim
final rule addressed the negative economic impact on the automotive
sector caused by the global outbreak of COVID-19.\20\ That interim
final rule

amended the relevant regulatory text accordingly--effective immediately
and without having afforded prior notice or the ability to comment in
advance--and requested comment within ten days. The interim final rule
also noted that IPI's petition was moot, and, to the extent it was not
moot, NHTSA denied it.
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    \19\ The rate is increasing to $14, plus any required
adjustments that occurred or may occur. 49 CFR 578.6(h)(2).
    \20\ The reasoning for the interim final rule is set forth more
fully in the January 14, 2021 document published at 86 FR 3016.
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    The interim final rule is currently the subject of legal challenges
that have been consolidated in the Second Circuit.\21\
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    \21\ Natural Res. Def. Council v. NHTSA, No. 21-139 (2d Cir.)
(consolidated with New York v. NHTSA, No. 21-339 (2d Cir.) and
Tesla, Inc. v. NHTSA, No. 21-593, transferred from No. 21-70367 (9th
Cir.)). This litigation is currently being held in abeyance pending
NHTSA's reconsideration of the interim final rule.
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5. Supplemental Notice of Proposed Rulemaking

    Before NHTSA's interim final rule was published but after the
agency had announced, through the publication of the Fall 2020 Unified
Agenda of Regulatory and Deregulatory Actions, that it had initiated a
rulemaking in response to the Auto Innovators' petition, NHTSA received
two letters regarding the rulemaking: One jointly from the State of New
York, the Natural Resources Defense Council, and the Sierra Club, and
one from Tesla.\22\ These letters raised concerns with NHTSA's
rulemaking, particularly with the entities' inability to review or
comment on the Auto Innovators' petition for rulemaking in advance.
NHTSA did not respond to these letters prior to the publication of the
interim final rule, but NHTSA included both letters in the docket when
the interim final rule was published and noted that they would ``be
treated as comments for appropriate consideration.'' \23\
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    \22\ NHTSA-2021-0001-0001; NHTSA-2021-0001-0009.
    \23\ 86 FR 3016, 3023 n.74 (Jan. 14, 2021).
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    After the interim final rule was published, NHTSA received eight
more substantive comments.\24\ NHTSA received comments from:
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    \24\ NHTSA received a ninth comment that simply said, ``Help.''
NHTSA-2021-0001-0018. Without any additional information, NHTSA
cannot reasonably address or respond to this commenter's concern.
After the close of the comment period, NHTSA also received a letter
from two U.S. Representatives regarding the economic harms of
applying the adjustment before Model Year 2022. NHTSA-2021-0001-
0046. NHTSA is treating this letter as a comment for this rulemaking
and addressing the issue it raises in this final rule. See 49 CFR
553.23.
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     The Attorneys General of California, New York,
Connecticut, Delaware, Illinois, Iowa, Maine, Maryland, Massachusetts,
Minnesota, New Jersey, Oregon, Pennsylvania, Rhode Island, Washington,
and Vermont; \25\
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    \25\ NHTSA-2021-0001-0017.
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     American Council for an Energy-Efficient Economy, Center
for Auto Safety, Center for Biological Diversity, Consumer Federation
of America, Consumer Reports, The Ecology Center (Michigan),
Environmental Law and Policy Center, Interfaith Power & Light, Sierra
Club, Union of Concerned Scientists; \26\
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    \26\ NHTSA-2021-0001-0015.
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     Natural Resources Defense Council and Sierra Club; \27\
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    \27\ NHTSA-2021-0001-0013.
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     The Institute for Policy Integrity at New York University
School of Law; \28\
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    \28\ NHTSA-2021-0001-0011.
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     Tesla; \29\
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    \29\ NHTSA-2021-0001-0012.
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     The Alliance for Automotive Innovation; \30\
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    \30\ NHTSA-2021-0001-0014.
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     The National Automobile Dealers Association (NADA); \31\
and
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    \31\ NHTSA-2021-0001-0016.
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     An anonymous individual.\32\
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    \32\ NHTSA-2021-0001-0019.
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    Most of the comments opposed the interim final rule, raising
serious procedural, legal, and substantive concerns. In general, these
comments argued that NHTSA did not have the authority to delay the
application of the adjusted rate beyond Model Year 2019 and that,
regardless, NHTSA would have to do so through notice-and-comment, not
by an interim final rule that was effective immediately without prior
notice and without the opportunity to comment in advance. In supporting
these arguments, the commenters relied, in part, upon the two earlier
decisions by the Second Circuit.
    Most of these comments also challenged the interim final rule as
arbitrary and capricious on multiple grounds. For example, the comments
discussed that applying the increased rate before Model Year 2022 would
not be retroactive because the increased rate was originally applied in
2016 when it was still prospective--both in the initial interim final
rule in July 2016 and in the rule in response to the initial petition
for reconsideration in December 2016--and NHTSA's subsequent actions
that were invalidated by the Second Circuit did not change that fact.
In these commenters' view, manufacturers have been on notice of the
increase since well before Model Year 2019, and any reliance to the
contrary was undue. These comments argued that this was particularly
true given the rulings from the Second Circuit litigation, in which
many of these commenters and the Auto Innovators were involved, with
the predecessor organizations having intervened and participated in
this litigation. The comments further argued that delaying the
application of the increased rate would affect future compliance
because manufacturers may be incentivized to hold credits for model
years when the higher rate will apply. That is, a credit earned at the
$5.50 rate is likely to be more valuable--either for the manufacturer's
own use or to sell to another manufacturer--in a model year when the
rate increases to at least $14 (although credits must be used within a
limited number of years before they expire). The comments also argued
that the interim final rule improperly analyzed the economic effects of
the COVID-19 pandemic, for example, by not accounting for any positive
economic data and disregarding that some of the relevant conduct
occurred before the pandemic.
    These comments also argued that the interim final rule violated the
National Environmental Policy Act of 1969 (NEPA), by, for example, not
taking a hard look at the environmental consequences of the action and
ignoring the environmental harms that may result from delaying the
penalty increase. Lastly, in response to NHTSA's request for comment
about whether the adjustment should be delayed further until Model Year
2023, these comments opposed any additional delay. Some of these
comments also expressed concern with the short ten-day comment period
provided by the interim final rule--and only after the rule was already
effective without any opportunity to comment beforehand.
    Two of the comments supported the interim final rule. The Auto
Innovators reiterated the reasoning set forth in its petition, which
NHTSA granted in the interim final rule. According to the Auto
Innovators, the interim final rule was consistent with NHTSA's December
2016 rule; appropriately accounted for the industry's production and
design processes, including the unforeseen challenges of the COVID-19
public health emergency; and fairly implemented the Second Circuit's
decision. The Auto Innovators also noted that Model Year 2022 vehicles
could have begun being produced as early as January 2, 2021--about two
weeks before the interim final rule was published--but it believes
NHTSA was reasonable to make the adjustment applicable beginning in
Model Year 2022, declining to request a further delay in the adjustment
to Model Year 2023. NADA supported the Auto

Innovators' comment, adding that increased CAFE civil penalties before
Model Year 2022 would lead to higher vehicle prices for consumers or
manufacturer shifts in available offerings, without any associated
environmental or safety benefits.
    On January 20, 2021--while the post-promulgation comment period for
the interim final rule was still open--the President issued Executive
Order 13990, entitled ``Protecting Public Health and the Environment
and Restoring Science to Tackle the Climate Crisis.'' E.O. 13990
directs the heads of all agencies to immediately review all existing
regulations, orders, guidance documents, policies, and any other
similar agency actions promulgated, issued, or adopted between January
20, 2017, and January 20, 2021, that are, or may be inconsistent with,
or present obstacles to, the policy set forth in E.O. 13990: A policy
``to listen to the science; to improve public health and protect our
environment; to ensure access to clean air and water; to limit exposure
to dangerous chemicals and pesticides; to hold polluters accountable,
including those who disproportionately harm communities of color and
low-income communities; to reduce greenhouse gas emissions; to bolster
resilience to the impacts of climate change; to restore and expand our
national treasures and monuments; and to prioritize both environmental
justice and the creation of the well-paying union jobs necessary to
deliver on these goals.'' \33\ The Secretary of Transportation
expressly identified the January 14, 2021 CAFE civil penalties interim
final rule as subject to E.O. 13990.\34\
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    \33\ 86 FR 7037, 7037 (Jan. 25, 2021).
    \34\ Memorandum from the Acting General Counsel of DOT to the
Chief Counsel and Acting Deputy Administrator of NHTSA and Special
Advisor, ``Implementation of Executive Order 13990, entitled
`Protecting Public Health and the Environment and Restoring Science
to Tackle the Climate Crisis' '' (Feb. 22, 2021). https://www.transportation.gov/sites/dot.gov/files/2021-02/Memo-to-NHTSA.pdf.
---------------------------------------------------------------------------

    In accord with E.O. 13990 and the Secretary's determination, and in
light of the significant concerns raised by the commenters after the
interim final rule was issued, NHTSA began reviewing and reconsidering
the January 14, 2021 interim final rule. Specifically, NHTSA considered
repealing the interim final rule and reverting to the December 2016
final rule that would apply the adjusted rate beginning with Model Year
2019--the rule that the Second Circuit has said twice is ``now in
force.'' \35\
---------------------------------------------------------------------------

    \35\ Nat. Res. Def. Council v. Nat'l Highway Traffic Safety
Admin., 894 F.3d 95, 116 (2d Cir. 2018); New York v. Nat'l Highway
Traffic Safety Admin., 974 F.3d 87, 101 (2d Cir. 2020).
---------------------------------------------------------------------------

    NHTSA believed that an additional period of public comment would
aid the agency in its reexamination of the issues involved in the
interim final rule. Considering the importance of this rulemaking and
the short comment period--ten days--previously provided to interested
parties, NHTSA published a supplemental notice of proposed rulemaking
(SNPRM) on August 20, 2021, to provide the public with an appropriate
amount of time to comment and to enable NHTSA to more fully review and
consider the issues.\36\ In doing so, NHTSA expressly requested comment
on whether it should proceed to a final rule that repeals the interim
final rule and reverts to the December 2016 final rule, restoring the
application of the increased CAFE civil penalty rate beginning with
Model Year 2019. NHTSA also accepted comments on whether the adjustment
should apply beginning with a model year later than Model Year 2019,
with commenters arguing for such a position asked to explain how it is
consistent with the 2015 Act and the Second Circuit's decisions. NHTSA
also noted it would consider comments already submitted in response to
the interim final rule as part of its review and the anticipated
promulgation of a final rule following the comment period. The comment
period for the SNPRM closed on September 20, 2021.
---------------------------------------------------------------------------

    \36\ 86 FR 46811 (Aug. 20, 2021).
---------------------------------------------------------------------------

D. Overview of the Comments Received

    In addition to the comments received in response to the interim
final rule,\37\ NHTSA received seventeen substantive comments in
response to the SNPRM.\38\ NHTSA received comments from:
---------------------------------------------------------------------------

    \37\ Shortly prior to publication of the interim final rule,
NHTSA received two letters regarding the rulemaking. Both letters
are included in the docket for this matter and were treated as
comments for appropriate consideration.
    \38\ An eighteenth comment only expressed a desire to have the
sides of the freeways in the Los Angeles area cleaned. NHTSA-2021-
0001-0030. As NHTSA is required to consider only relevant matter in
finalizing a rule, this comment is outside the scope of this
rulemaking.
---------------------------------------------------------------------------

     The Attorneys General of California, New York,
Connecticut, Delaware, Illinois, Iowa, Maryland, Massachusetts, New
Jersey, Oregon, Pennsylvania, Washington, and Vermont; \39\
---------------------------------------------------------------------------

    \39\ NHTSA 2021-0001-0039. After the close of the comment
period, the Attorneys General of New York, Connecticut, Delaware,
Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, New
Jersey, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington
jointly submitted an additional letter regarding the need to adjust
the CAFE civil penalty rate for 2022. NHTSA-2021-0001-0047. NHTSA is
treating this letter as a comment for this rulemaking and addressing
the issue it raises in this final rule. See 49 CFR 553.23.
---------------------------------------------------------------------------

     Natural Resources Defense Council and Sierra Club; \40\
---------------------------------------------------------------------------

    \40\ NHTSA 2021-0001-0037.
---------------------------------------------------------------------------

     Tesla; \41\
---------------------------------------------------------------------------

    \41\ NHTSA-2021-0001-0036.
---------------------------------------------------------------------------

     The Institute for Policy Integrity at New York University
School of Law; \42\
---------------------------------------------------------------------------

    \42\ NHTSA 2021-0001-0038.
---------------------------------------------------------------------------

     The Alliance for Automotive Innovation; \43\
---------------------------------------------------------------------------

    \43\ NHTSA 2021-0001-0043.
---------------------------------------------------------------------------

     Stellantis (FCA US LLC); \44\
---------------------------------------------------------------------------

    \44\ NHTSA 2021-0001-0042. Stellantis requested confidential
treatment for the business information included in its comment,
pursuant to 49 CFR part 512. As with the companies that requested
confidential treatment for some of the business information included
in each of their individual submissions supplementing the Auto
Innovators' petition that resulted in the interim final rule, the
public version of Stellantis' submission can be found in the docket
for this action at www.regulations.gov.
---------------------------------------------------------------------------

     Jaguar Land Rover North America LLC; \45\
---------------------------------------------------------------------------

    \45\ NHTSA 2021-0001-0040.
---------------------------------------------------------------------------

     Ferrari; \46\
---------------------------------------------------------------------------

    \46\ NHTSA-2021-0001-0044. NHTSA received this comment after the
comment period closed, but still considered it in promulgating this
final rule. Under NHTSA's regulations, ``[l]ate filed comments will
be considered to the extent practicable.'' 49 CFR 553.23.
---------------------------------------------------------------------------

     The National Automobile Dealers Association (NADA); \47\
and
---------------------------------------------------------------------------

    \47\ NHTSA 2021-0001-0041.
---------------------------------------------------------------------------

     Private citizens and anonymous individuals.\48\
---------------------------------------------------------------------------

    \48\ NHTSA-2021-0001-0028; NHTSA 2021-0001-0029; NHTSA 2021-
0001-0032; NHTSA 2021-0001-0033; NHTSA 2021-0001-0034; NHTSA 2021-
0001-0035; NHTSA 2021-0001-0045.
---------------------------------------------------------------------------

    The majority of comments submitted in response to the interim final
rule and to the supplemental notice of proposed rulemaking support
returning to the December 2016 final rule. These comments primarily
argue that NHTSA lacked the statutory authority to issue the January
2021 interim final rule. These comments also generally argue that
retroactivity was not an issue: Automakers were already aware as of
December 2016 that the adjustment would apply in Model Year 2019 and
beyond. It was not until Model Year 2019 was already nearly complete
that NHTSA issued a final rule changing that, which the Second Circuit
subsequently determined was legally invalid. The predecessor
organizations of Auto Innovators participated in that litigation as
intervenors and were well aware of the possibility that the Second
Circuit would restore the applicability of the adjusted rate beginning
with Model Year 2019. In fact, the Second Circuit decision expressly
stated that the court understood the effect of its decisions to be that
the increased penalty amount was in effect. Accordingly, these
commenters argue

that it would be appropriate for NHTSA to revisit the interim final
rule's characterization of the application of the adjustment beginning
with Model Year 2019 as ``retroactive.'' Moreover, these commenters
raised concerns regarding the procedures that the agency used in
issuing the interim final rule, which did not proceed through a more
typical notice-and-comment process and which made the rule effective
immediately upon publication. In addition, these commenters urged NHTSA
to further review and consider the Second Circuit's prior decisions
and, in light of the ongoing litigation, assess the legal risk of
leaving the interim final rule in place, as the interim final rule was
based on an assertion of discretion that is in conflict with the 2015
Act and the Second Circuit's decisions.
    The comments in favor of retaining the interim final rule largely
re-raised the reasoning of the December 2016 final rule, noting that
the affected model years have already lapsed or largely lapsed, and
design and production cycles for the affected model years were already
locked in based on the unadjusted CAFE civil penalty rate. These
comments also described the economic harm that applying the adjusted
rate would have on the industry, which is already facing difficult
economic conditions due to the effects of COVID-19, microchip
shortages, and other supply chain issues.

E. Response to the Comments

1. Agency Reconsideration

    As a threshold matter and as NHTSA has explained before, NHTSA,
like all agencies, must continually consider a range of possible
statutory interpretations and reassess their validity, including in
response to changed circumstances or when questions arise regarding the
legality of the prior action--particularly when a Federal court already
has ruled twice on related issues. Not only is it an agency's
responsibility to reevaluate its interpretations to ensure they are
legally sound, an agency is allowed to change its interpretations,
within reason, based on evolving notions about the appropriate balance
of varying policy considerations. NHTSA is permitted to change its
views based upon its experience and expertise, provided that the
requirements of the Administrative Procedure Act (APA) and other
governing statutes are met. To do so, an agency must show that it is
aware it is changing its position and must provide a reasoned
explanation for the change.\49\
---------------------------------------------------------------------------

    \49\ Encino Motorcars, LLC v. Navarro, 579 U.S. 211, 221 (2016);
FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515-16 (2009).
---------------------------------------------------------------------------

    In the SNPRM, NHTSA expressly acknowledged that it was
reconsidering the January 2021 interim final rule as a result of E.O.
13990, the Secretary's related determination, the significant concerns
raised by commenters in the earlier rulemakings on this issue, further
review and consideration of the Second Circuit's prior decisions, and
in light of the pending litigation. NHTSA provided a reasoned
explanation for its tentative decision in the SNPRM that it does not
have discretion over when the required adjustment should begin to take
effect, and after careful consideration of the relevant information,
finalizes and elaborates on that decision here. In particular, NHTSA
concludes that the interim final rule was procedurally flawed and did
not appropriately carry out the clear command from the Second Circuit's
decision that struck down the 2019 final rule.
    As explained further below, NHTSA does not believe that ``its prior
policy has engendered serious reliance interests that must be taken
into account,'' which may require the agency to ``provide a more
detailed justification than what would suffice for a new policy created
on a blank slate.'' \50\ Nonetheless, NHTSA has provided ``a more
detailed justification'' in the following discussion. Moreover, the
administrative and public process leading to this rule has been more
thorough than the process leading to the interim final rule. NHTSA
undertook extensive agency review, issued an SNPRM, gave the public an
opportunity to comment in advance, and responded to those comments in
detail here. By contrast, NHTSA promulgated the interim final rule
without notice, with only a brief window for public comments, and
without the opportunity to comment in advance.
---------------------------------------------------------------------------

    \50\ FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515
(2009).
---------------------------------------------------------------------------

2. Procedural Issues

    NHTSA promulgated the January 2021 interim final rule without
providing notice and without providing the opportunity to comment in
advance. NHTSA also made the interim final rule effective immediately
and only provided ten days after publication for comments. The interim
final rule did not explain why the post-promulgation comment period was
so short, even though NHTSA could have provided more time for comments
given that the rule was already in effect.
    Upon review, NHTSA agrees with the commenters that argue that these
procedural issues alone merit repeal of the interim final rule. The
Second Circuit previously held that changing the effective date of the
rule that was in force at the time would generally require notice-and-
comment.\51\ For the January 2021 interim final rule, NHTSA concluded
that good cause existed for immediate implementation of the rule
without prior notice and comment on the grounds that it was
impracticable to delay publication of the interim final rule for notice
and comment, public comment was unnecessary, and the agency's action
was in the public interest. However, as many of the affected
manufacturers and their trade association have noted for other
purposes, the affected model years were either completed or already
underway at the time of the interim final rule. There was no pressing
emergency that would have made it impracticable to provide notice and
request comment in advance.
---------------------------------------------------------------------------

    \51\ Natural Res. Def. Council v. NHTSA, 894 F.3d 95, 113 (2d
Cir. 2018).
---------------------------------------------------------------------------

    Public comment was also necessary. While the 2015 Act provides that
the first adjustment shall be made through an interim final rulemaking
without public comment, NHTSA's first adjustment was made in an interim
final rule in July 2016 with a subsequent final rule issued in December
2016. The January 2021 interim final rule was issued years later--after
multiple rounds of requests for comments in other notices on this same
issue.
    Moreover, NHTSA should have sought comment given the public
interest. NHTSA was aware of the public interest in this issue, having
received multiple rounds of comments from a variety of entities and
having proceeded through two rounds of litigation. While the automotive
industry argued in its petition that it has faced unprecedented
economic challenges arising from the COVID-19 national emergency, NHTSA
did not consider any countervailing evidence, discussed further below.
Additionally, any economic harm--which would only be caused by
manufacturers' failures to comply with the applicable CAFE standards--
does not outweigh the public interest in commenting on the change in
advance. Indeed, affording the public the opportunity to comment on the
petition in advance would have given NHTSA additional insight into the
impact of the COVID-19 national emergency on the industry.
    Because NHTSA lacked good cause, the interim final rule also should
not have gone into effect immediately upon

publication in the Federal Register under 5 U.S.C. 553(d)(3) and 5
U.S.C. 808(2).\52\
---------------------------------------------------------------------------

    \52\ The interim final rule also stated that a delayed effective
date was not required because, under 5 U.S.C 553(d)(2), it
``relieve[d] a restriction'' by allowing additional time before the
higher penalty rate would have begun to apply. Regardless of whether
NHTSA continues to believe that delaying the application of a higher
penalty rate counts as relieving a restriction, the lack of good
issue and other procedural issues would still merit repeal of the
interim final rule.
---------------------------------------------------------------------------

3. Statutory Authorization

    In the interim final rule, NHTSA described its authority to issue
the rule as based on its specific statutory authority to administer the
CAFE program and its general statutory authority to do so efficiently
and in the public interest.\53\ NHTSA also explained that the procedure
established in the Energy Policy and Conservation Act (EPCA) \54\ to
increase the CAFE civil penalty rate implies that NHTSA has the broader
authority to oversee the administration and enforcement of the rate
more generally.\55\ NHTSA also noted that for the CAFE civil penalty to
be covered by the 2015 Act, NHTSA must have the authority to assess or
enforce it, and thus oversee and administer it as appropriate.\56\
---------------------------------------------------------------------------

    \53\ 86 FR 3016, 3019-20 (Jan. 14, 2021).
    \54\ Public Law 94-163, 89 Stat. 871 (1975). EPCA created a
comprehensive approach to federal energy policy, including
establishing the CAFE program.
    \55\ 86 FR 3016, 3020 (Jan. 14, 2021).
    \56\ 86 FR 3016, 3020 (Jan. 14, 2021).
---------------------------------------------------------------------------

    For the reasons explained by the Second Circuit and the comments,
NHTSA did not have statutory authority to promulgate the interim final
rule.\57\ As the Second Circuit noted, ``an agency may only act within
the authority granted to it by statute.'' \58\ Neither the 2015 Act,
which applied to all Federal agencies, nor EPCA authorized NHTSA to
issue an interim final rule delaying the application of the previously-
issued adjustment.\59\ To the contrary, the Second Circuit has
concluded that the 2015 Act contains a ``highly circumscribed schedule
for penalty increases'' that confers ``no discretion to the agencies
regarding the timing of the adjustments.'' \60\
---------------------------------------------------------------------------

    \57\ To the extent that the interpretation of NHTSA's statutory
authority in the interim final rule was reasonable, NHTSA
nonetheless concludes that a different interpretation is appropriate
now, for the reasons described throughout this rule.
    \58\ NRDC, 894 F.3d at 108. Agencies do possess some inherent
powers, but issuing an interim final rule to delay the application
of a previously-issued rule is not one of them.
    \59\ See id. at 112 (noting that EPCA provides no authority ``to
delay the penalty as part of'' NHTSA's ``responsibility for
administering the fuel economy portions of that statute'').
    \60\ New York v. NHTSA, 974 F.3d 87, 100 (2d Cir. 2020); Natural
Res. Def. Council v. NHTSA, 894 F.3d 95, 109, 113 n.12 (2d Cir.
2018).
---------------------------------------------------------------------------

    Further, as the Second Circuit made clear, the procedure in EPCA
that allows NHTSA to increase the CAFE civil penalty rate does not
conflict with the agency's duty to comply with the 2015 Act,\61\ which
includes the timing of when the adjustment will apply. To the contrary,
the limited nature of the specific statutory procedure in EPCA for
increasing the CAFE penalty rate (apart from the 2015 Act) suggests
that Congress was restricting the scope of NHTSA's power, authorizing
it to increase the CAFE civil penalty rate only under certain
circumstances. Note that, as NHTSA has previously explained, EPCA acts
as a ``one-way ratchet'' with no means for lowering the CAFE civil
penalty rate \62\ or conferring NHTSA any discretion over when
penalties ought to be assessed. The 2015 Act and its procedures for
adjustments are consistent with EPCA.
---------------------------------------------------------------------------

    \61\ See New York, 974 F.3d at 99-100.
    \62\ 84 FR 36007, 36021 (July 26, 2019).
---------------------------------------------------------------------------

    To the extent that the 2015 Act affords NHTSA any discretion to
act, NHTSA concludes that its discretion would be limited. For example,
the 2015 Act provides express procedures and deadlines for agencies to
apply the adjustments. It also provides narrow exceptions for the
amount of the adjustment and only for the initial ``catch-up''
adjustment. The purposes of the 2015 Act, as Congress stated in the Act
itself, include ``allow[ing] for regular adjustment for inflation of
civil monetary penalties'' and ``maintain[ing] the deterrent effect of
civil monetary penalties and promote compliance with the law.'' \63\
NHTSA notes that the CAFE civil penalty rate was established as $5 in
1975 and held constant at $5.50 since 1997 and that making the required
adjustment aligns with the legislative purpose of catching up the rate
for the lack of adjustments. Accordingly, NHTSA would decline to delay
the adjustment further, even if it had the discretion to do so.
---------------------------------------------------------------------------

    \63\ 28 U.S.C. 2461 note, sec. 2(b)(1)-(2).
---------------------------------------------------------------------------

4. Retroactivity

    In the January 2021 interim final rule being repealed by this
action, NHTSA accepted the industry petition's argument that applying
the increased civil penalty rate to completed or largely completed
model years would raise serious retroactivity concerns.\64\ NHTSA
acknowledged that retroactivity generally is not favored in the law and
concluded that imposing a higher civil penalty rate for model years
already completed or nearly so would not have incentivized improvements
to fuel economy, given the industry timelines for the design,
development, and production of new vehicles.\65\
---------------------------------------------------------------------------

    \64\ 86 FR 3016, 3020-21 (Jan. 14, 2021).
    \65\ 86 FR 3016, 3020-21 (Jan. 14, 2021).
---------------------------------------------------------------------------

    While retroactivity generally is not favored in the law, there is
no rule that Congress cannot legislate retroactively. The 2015 Act
expressly recognizes that it may have a partially retroactive effect;
that is part of the statute's design and Congress's intent. The statute
provides that ``[a]ny increase under this Act in a civil monetary
penalty shall apply only to civil monetary penalties, including those
whose associated violation predated such increase, which are assessed
after the date the increase takes effect.'' \66\
---------------------------------------------------------------------------

    \66\ 28 U.S.C. 2461 note, sec. 6 (emphasis added).
---------------------------------------------------------------------------

    Nonetheless, NHTSA now concludes that the effect of the adjustment
here applying beginning in Model Year 2019 is not retroactive. As NHTSA
mentioned in the SNPRM, automakers were aware, as of December 2016,
that the adjustment would apply beginning with Model Year 2019. The
Second Circuit confirmed that an immediate adjustment was compelled by
the 2015 Act, which long preceded Model Year 2019.\67\ Indeed, the Auto
Innovators acknowledge that ``manufacturers knew there was a
possibility that the $14 civil penalty rate might be applied to MYs
2019 to 2021 vehicles.'' \68\ It was not until Model Year 2019 was
already nearly complete that the agency issued a final rule changing
that--a rule that the Second Circuit subsequently determined was
legally invalid. Auto Innovators (through its predecessor entities)
participated in that litigation as an intervenor and was well aware of
the possibility that the Second Circuit would--and indeed, did--restore
the applicability of the adjustment beginning with Model Year 2019.
Accordingly, NHTSA has reconsidered and rejected its previous
characterization of the application of the adjustment beginning with
Model Year 2019 as ``retroactive.''
---------------------------------------------------------------------------

    \67\ Natural Res. Def. Council v. NHTSA, 894 F.3d 95, 109 (2d
Cir. 2018).
    \68\ Auto Innovators Comment, at 6.
---------------------------------------------------------------------------

    Any violation of the CAFE standards for Model Years 2019 through
2021 occurred or will occur well after NHTSA confirmed in December 2016
that it would apply penalties beginning with Model Year 2019--in
response to a petition from industry to delay the effective application
of the penalty increase precisely to Model Year 2019. Indeed, industry
had reason to believe from the enactment of the 2015 Act and NHTSA's
July 2016 adjustments that the adjustments could have applied

immediately, or in any event, well before Model Year 2019. To the
extent that manufacturers did not have notice by the 2015 Act itself,
they unquestionably had notice by NHTSA's 2016 rules. The industry
previously argued that vehicle designs are often fixed years in
advance. Thus, by the time NHTSA promulgated its July 2019 final rule
(that was promptly challenged in litigation and was subsequently
vacated by the Second Circuit), automakers' designs for Model Years
2019 through 2021 were likely largely set already. At that time,
NHTSA's regulations stated that the CAFE civil penalty adjustment to
$14 (plus any other adjustments that needed to be made) would go into
effect beginning with Model Year 2019. There was no guarantee at that
time that NHTSA would have issued a rule reversing course and blocking
the adjustment, and any attempt to do so would have been legally
vulnerable. Any automakers that made their plans for Model Years 2019
through 2021 thinking that penalties would not increase did so at their
own risk and in defiance of the Second Circuit's decisions.
    The Second Circuit ruled that NHTSA's previous actions to delay or
avoid the adjustment were unlawful, ultimately determining--twice--that
the adjustment was ``now in force.'' \69\ And the Auto Innovators
concede that the Court's determinations that the adjustment is ``now in
force'' is currently ``having effects on manufacturers' decisions with
regard to future model-year fuel economy decisions,'' even though the
interim final rule remained on the books until the effective date of
this final rule.\70\ That some manufacturers may have chosen to base
their compliance decisions and production plans on the chance that
NHTSA may take additional action to attempt to delay or avoid the
adjustment despite legal vulnerability is a risk they took on their
own, aware of the circumstances. The Auto Innovators' argument is
expressly based on assumptions manufacturers made about how the
Administration was ``likely'' to act.\71\ These manufacturers--
particularly those, as noted by the Auto Innovators, that participated
in the court proceedings through their trade associations--were aware
(or at least should have been aware) of the possibility that their
predictions regarding NHTSA's actions would ultimately prove
incorrect.\72\ That possibility is not enough to create retroactivity
concerns.
---------------------------------------------------------------------------

    \69\ New York, 974 F.3d at 101; NRDC, 894 F.3d at 116.
    \70\ Auto Innovators Comment, at 7.
    \71\ Auto Innovators Comment, at 7 (``[Manufacturers] had every
reason to assume that, if the rule under review in the New York case
were vacated, NHTSA would have the authority to undertake the same
non-retroactivity analysis that the Obama Administration Department
of Transportation undertook in the December 2016 Final Rule. They
also had every reason to assume that NHTSA was likely to opt for a
first model year later than MY 2019 for the application of the $14
civil penalty rate and was not precluded by either Second Circuit
decision from doing so.'' (emphasis added)).
    \72\ At least one manufacturer had been budgeting for the
possibility of paying civil penalties with the adjustment in effect
before the July 2019 final rule was enacted. See IPI Comment, at 7.
---------------------------------------------------------------------------

    The Auto Innovators did argue that the statutory purposes of an
adjustment are ``primarily deterrent,'' as stated in the 2015 Act and
acknowledged by the Second Circuit.\73\ However, the first purpose
listed in the statute--and also recognized by the Second Circuit as ``a
primary purpose'' of the statute \74\--is to ``allow for regular
adjustment for inflation of civil monetary penalties.'' \75\ Making the
initial ``catch-up'' adjustment will allow NHTSA to conduct the
required subsequent annual adjustments in line with the agency's other
civil penalties that have already been adjusted on a regular basis.
Furthermore, establishing the increased rate may have a deterrent
effect in future model years as the rate continues to increase. And,
indeed, the fact that automakers knew that an adjustment under the
statute was likely at the time of the statute's passage, as well as
upon the adoption of the 2016 rule--as the Auto Innovators
acknowledged--very likely served as a deterrent for those manufacturers
who opted to meet fuel economy standards rather than pay penalties.
---------------------------------------------------------------------------

    \73\ See 28 U.S.C. 2461 note, sec. 2(b)(2); see also id., sec.
2(a)(2); NRDC, 894 F.3d at 109.
    \74\ NRDC, 894 F.3d at 109.
    \75\ 28 U.S.C. 2461 note, sec. 2(b)(1).
---------------------------------------------------------------------------

    Moreover, the Auto Innovators note elsewhere that imposing an
appropriately adjusted rate to vehicles in Model Years 2019 to 2021
could still have future environmental impacts.\76\ In any event, these
purpose-based policy concerns, even if correct, are insufficient to
override the language and structure of the governing statute, as the
Second Circuit has plainly interpreted it.
---------------------------------------------------------------------------

    \76\ Auto Innovators Comment, at 10. The Auto Innovators argue
that ``the imposition of the $14 civil penalty rate to MYs 2019 to
2021 vehicles actually could have deleterious environmental impacts:
Penalties that lead to increases in the prices of newer vehicles
could discourage consumers from purchasing more efficient, cleaner
vehicles.'' Id. While NHTSA agrees that applying the adjusted rate
to Model Year 2019 to Model Year 2021 vehicles could have
environmental effects, NHTSA believes it is likely that
manufacturers have already priced in the potential of having to pay
increased penalties--if not during the earlier rounds of litigation
and rulemaking, then very likely when the SNPRM was made public.
---------------------------------------------------------------------------

    The Auto Innovators also noted that ``in the December 2016 Final
Rule, NHTSA recognized the need for lead time (and in fact used the 18-
month CAFE statutory lead time as a proxy) when initially delaying
applicability of the $14 civil penalty rate to MY 2019.'' \77\ NHTSA
does acknowledge the importance of lead time for manufacturers, but
concludes here that manufacturers did receive appropriate lead time for
Model Years 2019 through 2021 when the timing of the adjustment was
established in December 2016--established at that time in response to a
request from industry for delay. Under the interim final rule, the
mandatory adjustment would not be applied until Model Year 2022, i.e.,
to vehicles sold more than five years after the statutory deadline for
agencies to make their initial adjustments.
---------------------------------------------------------------------------

    \77\ Auto Innovators Comment, at 7.
---------------------------------------------------------------------------

    NHTSA also notes that it does not need to give 18 months' lead time
before this adjustment becomes effective. The statutory lead time
provision in EPCA for increasing the CAFE civil penalty rate expressly
refers to the specific process described in that paragraph for
increasing the penalty rate, not to adjustments required to be made
pursuant to a separate statute.\78\ The 2015 Act established the timing
NHTSA and all other federal agencies were required to follow for the
initial catch-up adjustment and the process for doing so through an
interim final rulemaking without notice-and-comment.
---------------------------------------------------------------------------

    \78\ ``A higher amount prescribed under subparagraph (A) of this
paragraph is effective for the model year beginning at least 18
months after the regulation stating the higher amount becomes
final.'' 49 U.S.C. 32912(c)(1)(D).
---------------------------------------------------------------------------

    NHTSA will make the mandatory adjustments to the CAFE civil penalty
rate going forward, as required by law for all civil monetary
penalties.

5. Reliance Interests

    For similar reasons, to the extent that industry relied on the CAFE
civil penalty rate not being adjusted as required by the statute, any
such reliance was unreasonable and was at those manufacturers' own
risk--prior to the promulgation of the January 2021 interim final rule
or after.
    In the January 2021 interim final rule, NHTSA concluded that the
industry's reliance on the $5.50 rate was reasonable, as NHTSA
reconsidered application of the 2015 Act by proposing in 2018 that the
2015 Act did not apply and finalizing the proposal in

2019.\79\ However, manufacturers knew (or should have known) that the
CAFE civil penalty rate was going to be adjusted when the 2015 Act was
enacted, when NHTSA issued its initial catch-up adjustments in July
2016, and when NHTSA issued its response to industry's petition in
December 2016 establishing the timing of the adjustment (and
accommodating the industry's request for additional lead time in doing
so). Indeed, the industry petition in 2016 acknowledged and did not
challenge that the 2015 Act applied to the CAFE civil penalty rate.\80\
While there was subsequent rulemaking on the issue, industry
participants were also aware that there was litigation over the
subsequent rules--indeed, they participated actively in the
litigation--and they relied on those subsequent rules at their own
risk. Once the Second Circuit vacated each of the rules, the industry
had no basis for relying on either of those agency actions.\81\ By
industry's own argument, to the extent that manufacturers relied on the
July 2019 final rule, much less the January 2021 interim final rule,
the planning for Model Years 2019 to 2021 was already or largely
complete. This was not a longstanding policy in effect for years
before. Moreover, the interim final rule, by definition, was an interim
rule that remained subject to change following public comment. It was
also quickly subject to legal challenge and agency reconsideration. In
particular, the President issued Executive Order 13990, directing
review of the interim final rule and other regulations, just one week
after the interim final rule was published in the Federal Register and
while the post-promulgation comment period was still open. Given this
short window, there was minimal time for manufacturers to reasonably
rely on the interim final rule remaining in effect.
---------------------------------------------------------------------------

    \79\ 86 FR 3016, 3021 (Jan. 14, 2021).
    \80\ NRDC, 894 F.3d at 102 (``[I]ndustry petitioners conceded
that `NHTSA was obligated to take some action in response to the
Improvements Act' and `NHTSA [was] not empowered to exempt the CAFE
program from this directive.' '').
    \81\ See States Attorneys General Comment, at 5 (citing Envtl.
Def. v. Leavitt, 329 F. Supp. 2d 55, 64 (D.C. Cir. 2004) (``[T]he
vacatur restores the status quo before the invalid rule took effect
and the agency must initiate another rulemaking proceeding if it
would seek to confront the problem anew.'' (internal citations and
quotations omitted))); Nat'l Fuel Gas Supply Corp. v. Fed. Energy
Regulatory Comm'n, 59 F.3d 1281, 1288 (D.C. Cir. 1995); see also
United States v. Sec. Indus. Bank, 459 U.S. 70, 79 (1982) (``The
principle that statutes operate only prospectively, while judicial
decisions operate retrospectively, is familiar to every law
student.'')).
---------------------------------------------------------------------------

    Furthermore, there are countervailing reliance interests to
consider here. It is very likely that some manufacturers relied on the
2015 statute, the July 2015 initial catch-up adjustment, and the
December 2016 final rule in planning for an adjustment to be in effect
for Model Year 2019 and continued to do so given the uncertainty of the
legal challenges to NHTSA's subsequent actions regarding the CAFE civil
penalty rate.\82\ And manufacturers had a strong financial incentive to
do so, given that the value of credits for over-complying with the
standards would be expected to increase dramatically with the initial
adjustment to the CAFE civil penalty rate.\83\ Delaying the application
of the adjustment would almost certainly diminish the value of those
credits.
---------------------------------------------------------------------------

    \82\ See, e.g., Tesla Comment on IFR, NHTSA-2021-0001-0012, at
9.
    \83\ See, e.g., Tesla Comment at 9-10.
---------------------------------------------------------------------------

    As noted in the comments,\84\ industry could have asked the Second
Circuit to invoke its equitable discretion and to remand to NHTSA
without vacatur, but they did not do so in either case that has already
been decided (nor in the pending case challenging the January 2021
interim final rule). The Court also did not do so on its own, instead
confirming twice its conclusion that the December 2016 rule was ``now
in force.'' \85\
---------------------------------------------------------------------------

    \84\ State Attorneys General Comment, at 5 (citing NRDC v. EPA,
808 F.3d 556, 584 (2d Cir. 2015) (when equity demands, remand
without vacatur allows agencies to correct legal deficiencies while
leaving challenged, unlawful regulations in place); see also Sugar
Cane Growers Coop. of Fla. v. Veneman, 289 F.3d 89, 97-98 (D.C. Cir.
2002) (invoking equitable discretion to remand without vacatur
because there was ``no apparent way to restore the status quo
ante''); Allied-Signal, Inc. v. U.S. Nuclear Regulatory Comm'n, 988
F.2d 146, 150-51 (D.C. Cir. 1993)).
    \85\ See NRDC, 894 F.3d at 116; New York, 974 F.3d at 101.
---------------------------------------------------------------------------

6. Economic Impact of the COVID-19 Pandemic and Other Factors

    In the January 2021 interim final rule, NHTSA concluded that, based
on the available information, applying the adjustment to the CAFE civil
penalty rate beginning in Model Year 2019 might inhibit economic
recovery from the effects of the pandemic, while applying the
adjustment beginning in Model Year 2022 was an appropriate action to
take for the purpose of promoting job creation and economic growth,
citing Executive Order 13924, ``Regulatory Relief To Support Economic
Recovery.'' \86\
---------------------------------------------------------------------------

    \86\ 86 FR 3016, 3022 (Jan. 14, 2021).
---------------------------------------------------------------------------

    Executive Order 13924 has since been revoked.\87\ Moreover, because
NHTSA now concludes that it did not have the authority to issue the
interim final rule and lacks discretion regarding when to apply the
adjustment, there is no opportunity for NHTSA to consider the economic
impact of the COVID-19 pandemic or other economic impacts such as those
caused by supply chain shortages and microchip shortages in determining
when to apply the adjustment.\88\ It is true that the 2015 Act did
allow an agency to make the first adjustment of the amount of a civil
monetary penalty by less than the otherwise required amount if
increasing the civil monetary penalty by the otherwise required amount
would have a negative economic impact, or if the social costs of
increasing the civil monetary penalty by the otherwise required amount
outweighed the benefits.\89\ However, NHTSA's attempt to apply this
exception through the ``negative economic impact'' prong was vacated by
the Second Circuit as too late, and the statute provides that the
exception could only be applied to the initial ``catch-up'' adjustment.
Accordingly, there is no need for NHTSA to evaluate the economic
evidence now to determine when it should apply the required adjustment;
as the Second Circuit held, NHTSA has no such discretion.
---------------------------------------------------------------------------

    \87\ 86 FR 11855, 11855 (Mar. 1, 2021).
    \88\ EPCA does, of course, allow the agency to consider general
economic impacts in determining whether to further increase the CAFE
civil penalty rate under U.S.C. 32912(c)(1), as well as the specific
economic conditions of a particular manufacturer in determining
whether to compromise or remit a penalty under 49 U.S.C. 32913.
However, neither provision is relevant here.
    \89\ 28 U.S.C. 2461 note, 4(c). Note also that this exception
only related to the amount of the adjustment, not the timing of it.
---------------------------------------------------------------------------

    Regardless, the economic record on this question is mixed. For
example, despite the industry having lower sales in the middle of 2020,
sales bounced back in 2021. Indeed, NADA reported ``incredibly high
sales in April 2021, . . . the fourth highest monthly total since the
year 2000,'' \90\ Demand also remained ``strong,'' despite ``new-
vehicle average transaction prices reach[ing] record highs at the end
of second quarter.'' \91\ Additional information reported by the
manufacturers themselves also shows evidence of economic success,
despite the challenges presented by the COVID-19 pandemic, microchip
shortages, and other supply chain issues.\92\
---------------------------------------------------------------------------

    \90\ NADA Blog, NADA Issues 2021 Second Quarter Auto Sales
Analysis (July 8, 2021), https://blog.nada.org/2021/07/08/nada-issues-2021-second-quarter-auto-sales-analysis/.
    \91\ Id.
    \92\ See, e.g., Tesla Comment, at 7-9.
---------------------------------------------------------------------------

    NHTSA also notes that the CAFE civil penalty formula incorporates
the number of vehicles manufactured, so if production is reduced
because of lower sales, supply chain issues, or microchip shortages,
then the CAFE civil penalty

liability will also be reduced (before accounting for credits).
    Two additional points bear noting. On the ``front end,'' much of
the relevant conduct (i.e., designing and manufacturing) occurred
before the COVID-19 pandemic commenced. The earliest cases that were
later classified as COVID-19 were first identified in December
2019.\93\ By that time, Model Year 2019 was complete for almost the
entire industry, and under the industry's own view, the planning for
Model Year 2020 had long since been completed by then with planning for
Model Year 2021 well underway in the very least. Further, it was not
until mid-March 2020 when the World Health Organization (WHO) declared
COVID-19 a pandemic and the President declared a national emergency in
the United States--approximately halfway through Model Year 2020 and
only six months before the beginning of Model Year 2021 for most
manufacturers.
---------------------------------------------------------------------------

    \93\ ``CDC Museum COVID-19 Timeline,'' https://www.cdc.gov/museum/timeline/covid19.html.
---------------------------------------------------------------------------

    On the ``back end,'' NHTSA has not yet assessed CAFE civil
penalties for Model Year 2019 and beyond. It is possible that the
economic state of the industry will be stronger, perhaps even above
average, when those penalties are assessed. And the industry may have
accrued or planned to accrue more credits by then to offset any
additional penalty liability.

7. Usage of Credits

    As noted in the SNPRM, some commenters on this issue have argued
that delaying the application of the increased rate would negatively
affect future compliance because manufacturers may be incentivized to
hold credits for model years when the higher rate will apply. Similar
to the economic evidence discussed above, NHTSA lacks discretion to
consider manufacturers' planned uses of credits in determining when to
apply the required adjustment. The government-wide 2015 Act applies
regardless of how manufacturers plan to apply credits to any
shortfalls.
    Even if NHTSA could consider the use of credits in determining the
appropriate timing of the adjustment, the Auto Innovators acknowledge
that while manufacturers would likely use their earliest earned credits
to offset their shortfalls before those credits expire, there could
still be some credits that manufacturers would need to decide whether
to use immediately or carry forward to future model years.\94\ While
the magnitude of the effects of these decisions may be small in the
immediately affected model years, the magnitude of the effects could be
compounded in future model years in a cascade as additional credits
continue to be time-shifted.
---------------------------------------------------------------------------

    \94\ Auto Innovators Comment, at 12 (``[O]lder credits will be
used to mostly, if not completely, cancel any shortfalls. For this
reason, delaying the application of a $14 civil penalty rate to MY
2022 is highly unlikely to affect manufacturers' compliance
strategies by allowing them to delay the use of 2017 or later
credits to MY 2022.'').
---------------------------------------------------------------------------

8. Additional Adjustments Required by Law

    Under the SNPRM, which NHTSA is now finalizing, the civil penalty
rate for violations of CAFE standards for model years beginning with MY
2019 was $14, plus any adjustments that occurred or may occur.\95\ $14
was the initial ``catch-up'' adjustment made by NHTSA on July 5, 2016,
following the procedure and the formula in the 2015 Act. NHTSA is now
addressing the adjustments that occurred since that time. Applying the
annual adjustment procedures in the 2015 Act (including the requirement
to round to the nearest $1) does not result in an increase in the $14
rate for the annual adjustments in 2017 through 2021,\96\ but does
result in an increase to $15 for 2022. Therefore, NHTSA is codifying
the civil penalty rate of $15, along with clarifying regulatory text
explaining that the civil penalty rate is $14 for MY 2019 through MY
2021 (and $5.50 for MYs before 2019).
---------------------------------------------------------------------------

    \95\ The January 2021 interim final rule also used this
language, requiring that the civil penalty rate be $14, plus any
adjustments that occurred or may occur. 86 FR 3016, 3026 (Jan. 14,
2021).
    \96\ The adjusted amount would have rounded down to remain $14
for each required annual adjustment for 2017 through 2021.
---------------------------------------------------------------------------

    EPCA provides a separate statutory authority for NHTSA to increase
the CAFE civil penalty rate based on the impacts on energy conservation
and the economy.\97\ Any increase pursuant to that authority was
initially capped by the statute at $10, based on the original $5 civil
penalty rate. In the 2016 interim final rule, NHTSA noted that the 2015
Act, which required an initial adjustment of the CAFE civil penalty
rate to $14, also required a corresponding adjustment on the cap under
NHTSA's EPCA authority to $25 (from $10). NHTSA explained this in the
preamble of the 2016 interim final rule, but this adjustment was
inadvertently never codified in NHTSA's regulations.\98\ NHTSA is now
codifying that adjustment and the necessary adjustments for the
intervening years. Applying the multipliers for the subsequent years,
the adjusted amount would have remained $25 for 2017, increased to $26
for 2018, increased to $27 for 2019, remained $27 for 2020 and 2021,
before being increased to $29 for 2022. Therefore, NHTSA is codifying
the cap at $29, and NHTSA will make subsequent annual adjustments as
required.
---------------------------------------------------------------------------

    \97\ 49 U.S.C. 32912(c).
    \98\ 81 FR 43524, 43526 (July 5, 2016).
---------------------------------------------------------------------------

    Pursuant to the 2015 Act, NHTSA did not undertake notice or comment
to enact these adjustments. The 2015 Act provides clear direction for
how to adjust the civil penalties, and states at Section 4(b)(2) that
these adjustments shall be made ``notwithstanding section 553 of title
5, United States Code.'' NHTSA will continue to make the mandatory
adjustments to the CAFE civil penalty rate and the statutory cap going
forward, as required by law for all civil monetary penalties.

F. Rulemaking Analyses and Notices

1. Executive Order 12866, Executive Order 13563, and DOT Regulatory
Policies and Procedures

    NHTSA has considered the impact of this rulemaking action under
Executive Order 12866, Executive Order 13563, and the Department of
Transportation's regulatory policies and procedures. OMB has designated
this rule as a ``significant regulatory action'' under section 3(f) of
Executive Order 12866. The Office of Information and Regulatory Affairs
(OIRA) has determined that this rulemaking is ``economically
significant'' and a ``major rule'' as NHTSA believes that the
difference in the amount of penalties received by the government as a
result of this rule are likely to exceed $100 million in at least one
of the years affected by this rulemaking and that there may be
additional economic effects as discussed below.
    As explained in the SNPRM, the adjusted civil penalty rate will
likely induce some degree of greater compliance with fuel economy
standards as a general matter. Manufacturers that are paying civil
penalties for CAFE violations have likely calculated that it is less
costly or otherwise preferable to pay the penalties than to meet the
statutory and regulatory requirements. An increased penalty rate, as
required by the statute, changes this calculation, as it likely raises
either the costs of credits a noncompliant manufacturer may choose to
purchase, the total penalty amount a manufacturer will pay, or both.
    In this final rule, NHTSA is repealing the interim final rule,
which delayed the adjusted penalty rate by three model years, two of
which are already

complete and the last one which is largely complete. This final rule
also codifies the adjusted penalty rate for 2022. An analysis here
would be limited to estimating over this short time horizon: (1) Which
manufacturers did not produce compliant fleets for Model Years 2019 and
2020 and are likely to not produce compliant fleets for Model Years
2021 and 2022; (2) what the shortfalls will be for those non-compliant
manufacturers; and (3) the extent to which those manufacturers will
choose to use credits (either their own or those purchased from over-
compliant manufacturers) or pay penalties to address these shortfalls.
Pointedly, such an analysis would not have sufficient information to
account for whether, and if so, how manufacturers will adjust the
composition of the fleet for these model years in response to the
penalty change.
    Any analysis would estimate what the compliance shortfalls will be
and whether manufacturers will pay penalties or use credits. These
estimates could be used to estimate the effects on individual
manufacturers in the form of higher penalty payments, higher payments
to other manufacturers for credits, or higher receipts for
overcomplying manufacturers for credits sold to other manufacturers.
However, NHTSA has only limited ability to estimate what strategies
manufacturers will take either to use credits or pay penalties to deal
with any noncompliance. That is a decision that each manufacturer must
take based on their unique circumstances, and historically, NHTSA is
not privy to the financial terms of any trades manufacturers make with
each other. In the past, the vast majority of manufacturers pay no
penalties, as only five manufacturers have paid civil penalties since
Model Year 2011.\99\ And only one of those manufacturers faced
particularly heavy penalties--even before the $14 rate would have gone
into effect--for failing to comply with the minimum domestic passenger
car standard, which cannot be made up through the application of
transferred or traded credits.\100\
---------------------------------------------------------------------------

    \99\ See ``Civil Penalties,'' available online at https://one.nhtsa.gov/cafe_pic/CAFE_PIC_Fines_LIVE.html.
    \100\ 49 U.S.C. 32903(f)(2), (g)(4); 49 CFR 536.9(c).
---------------------------------------------------------------------------

    Despite this uncertainty, NHTSA continues to be confident that,
based on the experience of recent model years, this rule will lead to
at least $100 million difference in the amount of penalties in at least
one model year. As explained in the SNPRM, NHTSA projects that the
difference in the nationwide fleetwide net shortfall would result in at
least $100 million more civil penalties being assessed at the $14 rate
than the $5.50 for Model Year 2019.\101\ Specifically, based on mid-
model year fuel economy performance data and assuming a similar
magnitude of production from Model Year 2018 for Model Year 2019, the
projected shortfall of 1.3 miles per gallon across the U.S. fleet in
Model year 2019 would result in a nationwide fleet-wide net shortfall
of approximately $115.4 million at the $5.50 rate or an approximately
$293.9 million shortfall at the $14 rate--an approximately $178.5
million difference.
---------------------------------------------------------------------------

    \101\ 86 FR 46811, 46816-17 (Aug. 20, 2021).
---------------------------------------------------------------------------

    As previously noted, it is expected that much of this increase
would likely fall on a single automobile manufacturer and likely is due
to a failure to comply with the minimum domestic passenger car standard
(which, by law, cannot be made up for through transferred or traded
credits).
    In addition, NHTSA reiterates that commenters on this issue have
raised valid questions about further economic effects, namely that
longer-term impacts may vary as a result of manufacturer multi-year
planning, the transfer of credits across model years and between
manufacturers, and the changing value of credits over time. According
to these commenters, if such variation were to occur, applying the $14
penalty rate beginning in Model Year 2019 may result in manufacturers
applying credit balances to Model Year 2019 through 2021 vehicles and
being incentivized to make fuel economy improvements in their fleet
beyond that timeframe. And for manufacturers that do not currently have
credits or cannot transfer or trade for them to make up a shortfall of
the minimum domestic passenger car standard, applying the adjusted
penalty rate beginning in Model Year 2019 places an even greater
incentive on future compliance and fuel economy improvements to avoid
additional higher penalties going forward, on top of the added benefits
of energy conservation and improved environmental and public health
benefits.
    In any event, based on further consideration of the 2015 Act and
the Second Circuit's decisions on this issue, NHTSA believes that that
it does not have discretion over when the adjustment should begin to
take effect. Further, the 2015 Act provided NHTSA no discretion over
what the adjusted rate should be, as that is merely a function of the
formula established by Congress and calculated by OMB, and mandated
streamlined processes for making both the initial adjustment and any
subsequent adjustments that do not require accompanying analyses or
public comment.\102\
---------------------------------------------------------------------------

    \102\ The 2015 Act, of course, did allow NHTSA one opportunity
at the time of the initial catch-up to use the notice-and-comment
process to adjust the rate ``less than the otherwise required
amount'' under two conditions, but the Second Circuit rejected
NHTSA's belated attempt to use this provision in its decision on the
July 2019 final rule. See New York, 974 F.3d at 100-01.
---------------------------------------------------------------------------

2. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 et seq.,
as amended by the Small Business Regulatory Enforcement Fairness Act
(SBREFA) of 1996), whenever an agency is required to publish a notice
of proposed rulemaking or final rule, it must prepare and make
available for public comment a regulatory flexibility analysis that
describes the effect of the rule on small entities (i.e., small
businesses, small organizations, and small governmental jurisdictions).
No regulatory flexibility analysis is required if the head of an agency
certifies the proposal will not have a significant economic impact on a
substantial number of small entities. NHTSA has considered the impacts
of this notice under the Regulatory Flexibility Act and recertifies
that this rule would not have a significant economic impact on a
substantial number of small entities under 5 U.S.C. 605(b), based on
the factual basis provided in the SNPRM. NHTSA requested comment on the
economic impact of this rule on small entities. None of the comments
NHTSA received in response to the interim final rule or the SNPRM
discussed this issue. The Small Business Administration's (SBA)
regulations define a small business in part as a ``business entity
organized for profit, with a place of business located in the United
States, and which operates primarily within the United States or which
makes a significant contribution to the U.S. economy through payment of
taxes or use of American products, materials or labor.'' \103\ SBA's
size standards were previously organized according to Standard
Industrial Classification (``SIC'') Codes. SIC Code 336211 ``Motor
Vehicle Body Manufacturing'' applied a small business size standard of
1,000 employees or fewer. SBA now uses size standards based on the
North American Industry Classification System (``NAICS''), Subsector
336--Transportation Equipment Manufacturing. This action is expected to
affect manufacturers of motor

vehicles. Specifically, this action affects manufacturers from NAICS
codes 336111--Automobile Manufacturing, and 336112--Light Truck and
Utility Vehicle Manufacturing, which both have a small business size
standard threshold of 1,500 employees.
---------------------------------------------------------------------------

    \103\ 13 CFR 121.105(a).
---------------------------------------------------------------------------

    Though civil penalties collected under 49 CFR 578.6(h)(1) and (2)
apply to some small manufacturers, low volume manufacturers can
petition for an exemption from the Corporate Average Fuel Economy
standards under 49 CFR part 525. This would lessen the impacts of this
rulemaking on small business by allowing them to avoid liability for
penalties under 49 CFR 578.6(h)(2). Small organizations and
governmental jurisdictions will not be affected significantly as the
price of motor vehicles and equipment ought not to change as the result
of this rule.

3. Executive Order 13132 (Federalism)

    Executive Order 13132 requires NHTSA to develop an accountable
process to ensure ``meaningful and timely input by State and local
officials in the development of regulatory policies that have
federalism implications.'' ``Policies that have federalism
implications'' is defined in the Executive order to include regulations
that have ``substantial direct effects on the States, on the
relationship between the [N]ational [G]overnment and the States, or on
the distribution of power and responsibilities among the various levels
of government.'' Under Executive Order 13132, the agency may not issue
a regulation with federalism implications, that imposes substantial
direct compliance costs, and that is not required by statute, unless
the Federal Government provides the funds necessary to pay the direct
compliance costs incurred by State and local governments, the agency
consults with State and local governments, or the agency consults with
State and local officials early in the process of developing the
proposed regulation. As noted previously, this rulemaking will not have
substantial direct effects on the States, on the relationship between
the National Government and the States, or on the distribution of power
and responsibilities among the various levels of government, as
specified in Executive Order 13132. The reason is that this rulemaking
is expected to generally apply to motor vehicle manufacturers. Thus,
the requirements of Section 6 of the Executive order do not apply.

4. Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995, Public Law 104-4,
requires agencies to prepare a written assessment of the cost,
benefits, and other effects of proposed or final rules that include a
Federal mandate likely to result in the expenditure by State, local, or
tribal governments, in the aggregate, or by the private sector, of more
than $100 million annually. Because this rulemaking does not include a
Federal mandate, no unfunded mandate assessment has been prepared.

5. National Environmental Policy Act

    The National Environmental Policy Act of 1969 (NEPA) \104\ directs
that Federal agencies proposing ``major Federal actions significantly
affecting the quality of the human environment'' must, ``to the fullest
extent possible,'' prepare ``a detailed statement'' on the
environmental impacts of the proposed action (including alternatives to
the proposed action).\105\ However, there are some instances where NEPA
does not apply. One consideration is whether the action at issue is a
non-discretionary action to which NEPA may not apply or for which NEPA
may require less detailed analysis.\106\
---------------------------------------------------------------------------

    \104\ 42 U.S.C. 4321-4347.
    \105\ 42 U.S.C. 4332.
    \106\ See Dept. of Transp. v. Public Citizen, 541 U.S. 752, 768-
69 (2014) (holding that the agency need not prepare an Environmental
Impact Statement (EIS) or analyze certain environmental effects in
its EA, and stating, ``[s]ince [the Federal Motor Carrier Safety
Administration] FMCSA has no ability categorically to prevent the
cross-border operations of Mexican motor carriers, the environmental
impact of the cross-border operations would have no effect on
FMCSA's decisionmaking--FMCSA simply lacks the power to act on
whatever information might be contained in the EIS.'').
---------------------------------------------------------------------------

    NHTSA addressed NEPA in promulgating the interim final rule,
concluding that even though a NEPA analysis ``is not required, this
section [of the preamble to the interim final rule] may serve as the
Agency's Environmental Assessment (EA) and Finding of No Significant
Impact (FONSI) for this interim final rule.'' \107\ In the SNPRM, NHTSA
again concluded that no further analysis pursuant to NEPA is required
in adjusting the penalty rate this time, which is in line with legal
precedent concerning non-discretionary agency action.\108\ NHTSA
reiterates that conclusion here.
---------------------------------------------------------------------------

    \107\ 86 FR 3025.
    \108\ 86 FR 46818.
---------------------------------------------------------------------------

    Although NHTSA tentatively concluded in the SNPRM (and affirms
here) that it does not have discretion on whether to adjust the CAFE
civil penalty rate as required by the statute and thus that a NEPA
analysis was not required, NHTSA prepared an environmental assessment
to evaluate the effects of the timing of such an increase on the
environment. When a Federal agency prepares an environmental
assessment, the Council on Environmental Quality (CEQ) NEPA
implementing regulations require the agency to (1) ``[b]riefly provide
sufficient evidence and analysis for determining whether to prepare an
environmental impact statement or a finding of no significant impact,''
and (2) ``[b]riefly discuss the purpose and need for the proposed
action, alternatives . . . , and the environmental impacts of the
proposed action and alternatives, and include a listing of [a]gencies
and persons consulted.'' \109\ Generally, based on the environmental
assessment, the agency must make a determination to prepare an
environmental impact statement or ``prepare a finding of no significant
impact if the [a]gency determines, based on the environmental
assessment, not to prepare an environmental impact statement because
the proposed action will not have significant effects.'' \110\
---------------------------------------------------------------------------

    \109\ 40 CFR 1501.5(c).
    \110\ 40 CFR 1501.6(a).
---------------------------------------------------------------------------

    NHTSA solicited public comments on the applicability of NEPA to
this action and the contents and tentative conclusions of the Draft EA.
The comments were silent on NEPA issues or agreed that no additional
analysis was necessary.\111\ Having reviewed the comments, this section
may serve as the Agency's EA and FONSI for this final rule. NHTSA
considered the findings of this EA prior to deciding that the adjusted
rate will go into effect beginning in Model Year 2019 and making the
subsequent required adjustments through 2022.
---------------------------------------------------------------------------

    \111\ See NHTSA-2021-0001-0036, at 5-6 (arguing that the interim
final rule was ``procedurally invalid'' for failing to abide by the
NEPA requirement to take a hard look at the environmental
consequences of the rule, but raising no objections to the NEPA
analysis in the SNPRM); NHTSA 2021-0001-0037, at 8 (``[T]he agency
need not conduct a NEPA analysis before repealing the Exemption
Rule.''); NHTSA 2021-0001-0043, at 13 (``NHTSA's NEPA analysis [in
the interim final rule] was adequate,'' and ``to the extent that
NHTSA is concerned about the NEPA issue or any of the other
procedural issues raised by commenters, this SNPRM proceeding
provides the opportunity to promulgate a rule in accordance with
applicable procedural standards.'').
---------------------------------------------------------------------------

I. Purpose and Need
    The SNPRM and this final rule set forth the purpose of and need for
this action. Pursuant to the 2015 Act and the Second Circuit's
decision, NHTSA is required to make an initial ``catch-up''

adjustment to the civil monetary penalties it administers for the CAFE
program. The purpose of the SNPRM and this final rule is to consider
the timing of the application of the adjustment to the CAFE civil
penalty rate, consistent with the statutory requirements.
II. Alternatives
    NHTSA considered two alternatives for this action. The first
alternative was to restore the status quo ante prior to the interim
final rule, which is adjusting the CAFE civil penalty rate from $5.50
to $14 beginning in Model Year 2019, before making any subsequent
required adjustments. This timing was originally established by the
December 2016 final rule and was twice made effective by decisions of
the Second Circuit. The second alternative was applying the initial
adjustment beginning in Model Year 2022, which reflects the action
taken in the interim final rule (the No Action Alternative). As noted
in the SNPRM, NHTSA was no longer considering the alternative of
applying the initial adjustment beginning in Model Year 2023, but NHTSA
accepted comments on whether it should consider other alternatives of
the adjustment applying beginning with a model year later than Model
Year 2019. No commenter suggested any other alternative. This EA
describes the potential environmental impacts associated with the two
alternatives in comparison with each other.
III. Environmental Impacts of the Action and Alternatives
    In the interim final rule, NHTSA asserted that it anticipated no
differences in environmental impacts associated with the alternatives
of applying the adjustment beginning in Model Year 2019, 2020, 2021, or
2022. NHTSA based this conclusion on the fact that vehicles for Model
Years 2019 and 2020 had largely if not entirely been produced already,
and many manufacturers were already selling Model Year 2021 vehicles.
    As explained in the SNPRM, NHTSA reconsidered whether this
assessment is complete after reviewing the comments received in
response to the interim final rule. Commenters had argued that,
regardless of the impact of this rulemaking action on Model Year 2019
through 2021 vehicles, longer-term impacts may vary as a result of
manufacturer multi-year planning, the transfer of credits across model
years and between manufacturers, and the changing value of credits over
time. If this is correct, applying the adjustment earlier could result
in manufacturers applying credit balances to Model Year 2019 through
2021 vehicles and being incentivized to make fuel economy improvements
in their fleet beyond that timeframe, rather than paying civil
penalties at the $5.50 rate for Model Years 2019 through 2021 and
saving the credits for future model years when they could be valued
more due to the adjustment. Additionally, for manufacturers without
credit balances, the potential application of a significantly higher
civil penalty for Model Years 2019 through 2021 may spur more rapid
implementation of fuel-saving technology in order to allow the
manufacturer to accrue credits that may be carried back to cover the
shortfall in Model Years 2019 through 2021.
    Overall, NHTSA anticipates that applying the adjustment beginning
with Model Year 2019 may lead to the eventual application of more fuel-
saving technology, resulting in fewer greenhouse gas emissions and
reductions in many criteria and toxic air pollutants compared to
applying the adjustment beginning in Model Year 2022.\112\ Although
Model Years 2019 and 2020 are already completed, and Model Year 2021 is
essentially complete, the civil penalty assessment process is not yet
complete for any of them, much less for Model Year 2022.\113\ As a
result, NHTSA does not yet know the anticipated manufacturer compliance
shortfall for these model years. Because manufacturers can apply
credits across a multi-year window, their decisions about how to apply
credits in earlier model years will affect the availability of credits
and the application of fuel-saving technology in later model years.
However, NHTSA does not know whether and to what degree manufacturers
will choose to pay fines in lieu of applying accrued credits, trade
credits with other manufacturers, or rely on multi-year planning and
credit carry-forward and carry-back to address shortfalls. NHTSA
invited comments, information, and analyses from the public on the
degree to which this may occur as a result of changes to the civil
penalty rate in Model Year 2019 versus Model Year 2022. The Auto
Innovators provided an analysis arguing that ``delaying the application
of a $14 civil penalty rate to MY 2022 is highly unlikely to affect
manufacturers' compliance strategies by allowing them to delay the use
of 2017 or later credits to MY 2022'' because ``older credits will be
used to mostly, if not completely, cancel any shortfalls.'' \114\
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    \112\ See NHTSA's Final Environmental Impact Statements for the
CAFE rulemaking for MYs 2017 and beyond (Docket No. NHTSA-2011-0056)
and for MYs 2021-2026 (Docket No. NHTSA-2017-0069), both of which
illustrate these trends as fuel economy standard stringency
increases across alternatives. Both EISs are also available on the
agency's fuel economy website: https://www.nhtsa.gov/laws-regulations/corporate-average-fuel-economy.
    \113\ Because NHTSA does not have final model year performance
data verified by EPA for these model years, any quantitative
projections of the environmental impact across multiple model years
would be too speculative to rely upon at this time.
    \114\ Auto Innovators Comment, at 12.
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    At this time, NHTSA continues to anticipate the impacts to be
small. The difference between the alternatives contemplated in this
action is only whether or not the initial civil penalty rate increase
applies to three Model Years: 2019, 2020, and 2021. NHTSA continues to
believe the impacts on those Model Years alone is expected to be de
minimis, as all three model years have largely if not entirely been
produced already. Further, as NHTSA has addressed in its CAFE
rulemakings, many manufacturers have been unwilling to pay civil
penalties historically. Those manufacturers may continue to opt to
apply credits even if a lower civil penalty rate applied, rather than
hold credits for future model years when the civil penalty rate would
be higher.
IV. Agencies and Persons Consulted
    NHTSA and DOT have consulted with OMB and the U.S. Department of
Justice and provided other Federal agencies with the opportunity to
review and provide feedback on this rulemaking.
V. Conclusion
    NHTSA has reviewed the information presented in this EA and
concludes that adjusting the CAFE civil penalty rate beginning with
Model Year 2019, as compared to Model Year 2022, would have, at most, a
more positive impact on the quality of the human environment to the
extent that manufacturers may be more likely to expend credit balances
on Model Year 2019 through 2021 vehicles than if the civil penalty rate
remained at $5.50 for those model years. Lacking such credits in future
years, manufacturers would be more likely to make improvements to the
fuel economy of their fleets to avoid paying the higher civil penalty
rates that would occur under either alternative. Additionally, higher
civil penalty rates in Model Years 2019 through 2021 may cause
manufacturers to more rapidly implement fuel-saving technology so that
they may accrue credits to be carried back to cover compliance
shortfalls. But NHTSA does not expect any differences in the impacts
under either of the alternatives to rise to the

level of significance that would necessitate the preparation of an
Environmental Impact Statement.
VI. Finding of No Significant Impact
    NHTSA has reviewed this EA. Based on the EA, NHTSA concludes that
implementation of either of the action alternatives (including this
final rule) will not have a significant effect on the human environment
and that a ``finding of no significant impact'' is appropriate. This
statement constitutes the Agency's ``finding of no significant
impact,'' and an environmental impact statement will not be
prepared.\115\
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    \115\ 40 CFR 1501.6(a).
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6. Executive Order 12988 (Civil Justice Reform)

    This rulemaking does not have a preemptive effect. For the reasons
explained above, this rulemaking does not have a retroactive effect.
Judicial review of the interim final rule or a subsequent final rule
may be obtained pursuant to 5 U.S.C. 702.

7. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1980, NHTSA
states that there are no requirements for information collection
associated with this rulemaking action.

8. Privacy Act

    Please note that anyone is able to search the electronic form of
all comments received into any of DOT's dockets by the name of the
individual submitting the comment (or signing the comment, if submitted
on behalf of an association, business, labor union, etc.). You may
review DOT's complete Privacy Act Statement in the Federal Register
published on April 11, 2000 (65 FR 19477), or you may visit https://www.transportation.gov/privacy.

List of Subjects in 49 CFR Part 578

    Imports, Motor vehicle safety, Motor vehicles, Penalties, Rubber
and rubber products, Tires.

    In consideration of the foregoing, 49 CFR part 578 is amended as
set forth below.

PART 578--CIVIL AND CRIMINAL PENALTIES

0
1. The authority citation for 49 CFR part 578 continues to read as
follows:

    Authority:  Pub. L. 92-513, Pub. L. 94-163, Pub. L. 98-547, Pub.
L. 101-410, Pub. L. 102-388, Pub. L. 102-519, Pub. L. 104-134, Pub.
L. 109-59, Pub. L. 110-140, Pub. L. 112-141, Pub. L. 114-74, Pub. L.
114-94 (49 U.S.C. 30165, 30170, 30505, 32308, 32309, 32507, 32709,
32710, 32902, 32912, 33114, and 33115); delegation of authority at
49 CFR 1.81, 1.95.

0
2. Amend Sec.  578.6 by revising paragraph (h)(2) and adding paragraph
(h)(3) to read as follows:

Sec.  578.6   Civil penalties for violations of specified provisions of
Title 49 of the United States Code.

* * * * *
    (h) * * *
    (2) Except as provided in 49 U.S.C. 32912(c), a manufacturer that
violates a standard prescribed for a model year under 49 U.S.C. 32902
is liable to the United States Government for a civil penalty of $15
(for model years before model year 2019, the civil penalty is $5.50;
for model years 2019 through 2021, the civil penalty is $14),
multiplied by each .1 of a mile a gallon by which the applicable
average fuel economy standard under that section exceeds the average
fuel economy--
    (i) Calculated under 49 U.S.C. 32904(a)(1)(A) or (B) for
automobiles to which the standard applies produced by the manufacturer
during the model year;
    (ii) Multiplied by the number of those automobiles; and
    (iii) Reduced by the credits available to the manufacturer under 49
U.S.C. 32903 for the model year.
    (3) If a higher amount for each .1 of a mile a gallon to be used in
calculating a civil penalty under paragraph (h)(2) of this section is
prescribed pursuant to the process provided in 49 U.S.C. 32912(c), the
amount prescribed may not be more than $29 for each .1 of a mile a
gallon.
* * * * *

    Issued in Washington, DC, under authority delegated in 49 CFR
1.95 and 501.5.
Steven S. Cliff,
Deputy Administrator.
[FR Doc. 2022-06648 Filed 3-31-22; 8:45 am]
BILLING CODE 4910-59-P