[Federal Register Volume 83, Number 72 (Friday, April 13, 2018)]
[Notices]
[Pages 16077-16087]
[FR Doc No: 2018-07364]

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ENVIRONMENTAL PROTECTION AGENCY

[EPA-HQ-OAR-2015-0827; FRL-9976-61-OAR]

Mid-Term Evaluation of Greenhouse Gas Emissions Standards for
Model Year 2022-2025 Light-Duty Vehicles

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice; withdrawal.

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SUMMARY: In this notice, the Environmental Protection Agency (EPA)
Administrator has reconsidered the previous Final Determination of the
Mid-term Evaluation of greenhouse gas emission standards for model year
2022-2025 light-duty vehicles. The Administrator determines that the
current standards are based on outdated information, and that more
recent information suggests that the current standards may be too
stringent. The Administrator thus concludes that the standards are not
appropriate in light of the record before EPA and, therefore, should be
revised as appropriate. EPA is also withdrawing the previous Final
Determination issued by the agency on January 12, 2017, with this
notice. EPA, in partnership with the National Highway Traffic Safety
Administration, will initiate a notice and comment rulemaking in a
forthcoming Federal Register notice to further consider appropriate
standards for model year 2022-2025 light-duty vehicles, as appropriate.
On March 22, 2017, EPA published a Federal Register notice providing
its intention to reconsider the Final Determination of the Mid-term
Evaluation of greenhouse gas emissions standards for model year 2022-
2025 light-duty vehicles, this notice was published jointly with the
Department of Transportation (DOT). On August 21, 2017, EPA and DOT
jointly published a Federal Register notice providing a 45-day public
comment period on the reconsideration and EPA held a public hearing on
September 6, 2017.

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

SUPPLEMENTARY INFORMATION:

I. Introduction

    In this notice, the Administrator of the Environmental Protection
Agency (EPA) is making a new determination of the Mid-term Evaluation
(MTE) of greenhouse gas (GHG) emission standards for model year (MY)
2022-2025 light-duty vehicles. The Administrator determines that the
standards are not appropriate in light of the record before EPA, and
therefore, should be revised as appropriate. EPA is also withdrawing
the January 12, 2017 Final Determination (January 2017 Determination)
with this notice. EPA, in partnership with the National Highway Traffic
Safety Administration (NHTSA), will initiate a notice and comment
rulemaking in a forthcoming Federal Register notice to further consider
appropriate standards for MY 2022-2025 light-duty vehicles, as
appropriate.

    The Administrator makes this finding due to the significant record
that has been developed since the January 2017 Determination. Many of
the key assumptions EPA relied upon in its January 2017 Determination,
including gas prices and the consumer acceptance of advanced technology
vehicles, were optimistic or have significantly changed and thus no
longer represent realistic assumptions. For example, fuel price
estimates used by EPA in the original rulemaking are very different
from recent EIA forecasts. EPA needs to update these estimates in the
analysis and more accurately reflect changes in US oil production.
Economic inputs such as the social cost of carbon, the rebound effect,
and energy security valuation should also be updated to be consistent
with the literature and empirical evidence.
    EPA has also both developed and received additional data and
assessments since the January 2017 Determination regarding technology
effectiveness and technology costs which warrant additional
consideration.
    In making this finding, the Administrator has also considered that
the reach and success of the program established in the 2012 rulemaking
is significantly limited when consumers cannot afford new cars. New
information and data provided show the potential significant negative
effects of higher vehicle costs.
    Based on our review and analysis of the comments and information
submitted, and EPA's own analysis, the Administrator believes that the
current GHG emission standards for MY 2022-2025 light-duty vehicles
presents challenges for auto manufacturers due to feasibility and
practicability, raises potential concerns related to automobile safety,
and results in significant additional costs on consumers, especially
low-income consumers. On the whole, the Administrator believes the MY
2022-2025 GHG emission standards are not appropriate and, therefore,
should be revised as appropriate. EPA, in partnership with NHTSA, will
further explore the appropriate degree and form of changes to the
program through a notice and comment rulemaking process. This
Determination is not a final agency action. As EPA explained in the
2012 final rule establishing the MTE process, a determination to
maintain the current standards would be a final agency action, but a
determination that the standards are not appropriate would lead to the
initiation of a rulemaking to adopt new standards, and it is the
conclusion of that rulemaking that would constitute a final agency
action and be judicially reviewable as such.\1\
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    \1\ 77 FR 62784, (Federal Register, Vol 77, No 199, pp 62784-
62785).
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II. Background

    The 2012 rulemaking establishing the National Program for federal
GHG emissions and corporate average fuel economy (CAFE) standards for
MY 2017-2025 light-duty vehicles included a regulatory requirement for
the EPA to conduct a Mid-term Evaluation (MTE) of the GHG standards
established for MY 2022-2025.\2\ EPA included this self-required
reevaluation due to the long time frame at issue in setting standards
for MYs 2022-2025, and given NHTSA's obligation to conduct a de novo
rulemaking in order to establish final standards for vehicles for those
model years.\3\ EPA's regulations at 40 CFR 86.1818-12(h) state that
``in making the determination as to whether the existing standards are
appropriate, the Administrator shall consider the information available
on the factors relevant to setting greenhouse gas emission standards
under section 202(a) of the Clean Air Act for model years 2022-2025,
including but not limited to:
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    \2\ 40 CFR 86.1818-12(h).
    \3\ 77 FR 62784.
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    1. The availability and effectiveness of technology, and the
appropriate lead time for introduction of technology;
    2. The cost on the producers or purchasers of new motor vehicles or
new motor vehicle engines;
    3. The feasibility and practicability of the standards;
    4. The impact of the standards on reduction of emissions, oil
conservation, energy security, and fuel savings by consumers;
    5. The impact of the standards on the automobile industry;
    6. The impacts of the standards on automobile safety;
    7. The impact of the greenhouse gas emission standards on the
Corporate Average Fuel Economy standards and a national harmonized
program; and
    8. The impact of standards on other relevant factors.'' \4\
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    \4\ 40 CFR 86.1818-12(h)(1).
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    EPA regulations on the MTE process required EPA to issue a Final
Determination no later than April 1, 2018 on whether the GHG standards
for MY 2022-2025 light-duty vehicles remain appropriate under section
202(a) of the Clean Air Act.\5\ The regulations also required the
issuance of a draft Technical Assessment Report (TAR) by November 15,
2017, an opportunity for public comment on the draft TAR, and, before
making a Final Determination, an opportunity for public comment on
whether the GHG standards for MY 2022-2025 remain appropriate. In July
2016, the draft TAR was issued for public comment jointly by the EPA,
NHTSA, and the California Air Resources Board (CARB).\6\ Following the
draft TAR, EPA published a Proposed Determination for public comment on
December 6, 2016 and provided less than 30 days for public comments
over major holidays.\7\ EPA published the January 2017 Determination on
EPA's website and regulations.gov finding that the MY 2022-2025
standards remained appropriate.\8\
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    \5\ Id.; see also 77 FR 62624 (October 15, 2012).
    \6\ 81 FR 49217 (July 27, 2016).
    \7\ 81 FR 87927 (December 6, 2016).
    \8\ Docket item EPA-HQ-OAR-2015-0827-6270 (EPA-420-R-17-001).
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    On March 15, 2017, President Trump announced a restoration of the
original mid-term review timeline. The President made clear in his
remarks, ``[i]f the standards threatened auto jobs, then commonsense
changes'' would be made in order to protect the economic viability of
the U.S. automotive industry.'' \9\ In response to the President's
direction, EPA announced in a March 22, 2017,\10\ Federal Register
notice, its intention to reconsider the Final Determination of the MTE
of GHGs emissions standards for MY 2022-2025 light-duty vehicles. The
Administrator stated that EPA would coordinate its reconsideration with
the rulemaking process to be undertaken by NHTSA regarding CAFE
standards for cars and light trucks for the same model years.
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    \9\ See https://www.whitehouse.gov/briefings-statements/remarks-president-trump-american-center-mobility-detroit-mi/.
    \10\ 82 FR 14671 (March 22, 2017).
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    On August 21, 2017,\11\ EPA published a notice in the Federal
Register announcing the opening of a 45-day public comment period and
inviting stakeholders to submit any additional comments, data, and
information they believed were relevant to the Administrator's
reconsideration of the January 2017 Determination. EPA held a public
hearing in Washington, DC on September 6, 2017.\12\ EPA received more
than 290,000 comments in response to the August 21, 2017 notice.\13\
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    \11\ 82 FR 39551 (August 21, 2017).
    \12\ 82 FR 39976 (August 23, 2017).
    \13\ The public comments, public hearing transcript, and other
information relevant to the Mid-term Evaluation are available in
docket EPA-HQ-OAR-2015-0827.

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III. The Administrator's Assessment of Factors Relevant to the
Appropriateness of the MY 2022-2025 GHG Emission Standards

    In the following sections, the Administrator provides his
assessment on why the current standards for MY 2022-2025 are not
appropriate based on the regulatory provisions found in 40 CFR 86.1818-
12(h). The Administrator considered the complete record, including all
comments provided on the reconsideration, in his determination.

Factor 1: The Availability and Effectiveness of Technology, and the
Appropriate Lead Time for Introduction of Technology; and Factor 3: The
Feasibility and Practicability of the Standards

    The Administrator finds, based on the record, including new data
and information provided since January 2017, that the January 2017
Determination was optimistic in its assumptions and projections with
respect to the availability and effectiveness of technology and the
feasibility and practicability of the standards. Accordingly, the
Administrator now determines that the MY 2022-2025 GHG emissions
standards may not be feasible or practicable and there is greater
uncertainty as to whether technology will be available to meet the
standards on the timetable established in the regulations. This is a
result of: (1) The changes in trends of electrification since the
January 2017 Determination; (2) reliance on future technology advances;
and (3) the acceptance rate of the necessary technology by consumers.
a. The Changes in Trends of Electrification Since the January 2017
Determination
    The agency's January 2017 Determination was completed at a time
when the trends and data associated with MY 2012-2015 showed that the
majority of the major car-manufacturing companies were ``over-
complying'' with their relative GHG compliance requirements and
building up credits. EPA's latest data \14\ alongside new reports and
data submitted by stakeholders \15\ show that starting in MY 2016 many
companies, for the first time, had to rely on credits in order to
comply with the program, and predicts this will occur again for Model
Year 2017. While these companies did remain in compliance, they are
relying on banked credits which suggests that it may be increasingly
difficult for them to comply going forward as they use up their supply
of credits. Additionally, the stringency curve dramatically increases
at around the same time these credits could run out, further
complicating the feasibility of compliance for MY 2022-2025.
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    \14\ EPA, Greenhouse Gas Emission Standards for Light-Duty
Vehicles--Manufacturer Performance Report for the 2016 Model Year,
Office of Transportation and Air Quality, EPA-420-R-18-002, January
2018, https://www.epa.gov/regulations-emissions-vehicles-and-engines/greenhouse-gas-ghg-emission-standards-light-duty-vehicles.
    \15\ See e.g., Analysis of EPA Vehicle Technology Walks in Prior
Final Determination Response to Comments (Alliance Attachment 2);
Evaluation of the Environmental Protection Agency's Lumped Parameter
Model Informed Projections from the Proposed Determination (Novation
Analytics, September 2017) (Alliance Attachment 3); and Critical
Assessment of Certain Technical and Economic Assumptions Made in
EPA's Final Determination on the Appropriateness of the Model Year
2022-2025 Light-Duty Vehicle Greenhouse Gas Emission Standards under
the Midterm Evaluation (Trinity Consultants, NERA Economic
Consulting, October 2017) (Alliance Attachment 6).
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    The figure below shows that since a peak in 2013, electrified
light-vehicle (LV) sales have decreased both as a total and as a
percentage of all light-vehicle sales. This calls into question EPA
assumptions for the 2012 rulemaking and the January 2017 Determination
that sales of electrified LVs will be sufficient to support compliance
with the MY 2022-2025 standards.
    Multiple commenters also questioned the feasibility of the
standards due to flagging consumer demand for fuel-efficient vehicles
including electric vehicles. The Alliance of Automobile Manufacturers
(Alliance) stated that the level of technology modeled by EPA is
insufficient to meet the standards and that the actual level of
technology needed is misaligned with market realities. Global
Automakers similarly charged that ``decline in vehicle sales, lower gas
prices, an increased preference for light trucks over cars, and
sluggish demand for high fuel economy vehicles--are taking place as the
stringency of the standards increase at an unprecedented rate. There
is, simply put, a misalignment between the increasing stringency of the
standards and the decreasing consumer demand for fuel efficiency'' and
that ``revised findings would support the conclusion that adjustments
to the regulations are needed.'' Global Automakers submitted the figure
below to show the sluggish demand for electrification in the U.S.
market from 1999 through early 2016.

[GRAPHIC] [TIFF OMITTED] TN13AP18.000

    The Alliance stated that ``[i]nformation on compliance trends,
including the feasibility of meeting the standards, projections on
compliance, and the credit system are increasingly indicating that it
is not feasible--taking all technology, cost, product cycle, and
practical market factors into account--to meet the standards as they
are currently set.'' For example, Figure 2 below shows that significant
vehicle electrification, specifically strong hybrids, would be needed
to meet the standards, contrary to the agency's assertion in the
January 2017 Determination.
[GRAPHIC] [TIFF OMITTED] TN13AP18.001

    Global Automakers, the Alliance, and individual automakers provided
detailed information on a variety of technologies that EPA projected
could be used to meet the MY 2022 through 2025 standards. Regarding the
need for electrification, the Alliance asserts that advanced internal
combustion engine technologies alone will not meet MY 2025 standards
and that the need for greater electrification than EPA originally
projected means that issues unique to electrification must be
considered. The Alliance further

provided that presently only electric vehicles (e.g., strong hybrid,
plug-in hybrid (PHEV), or electric vehicle (EV)) meet MY 2025
standards, even with credit assumptions, and that those vehicles make
up a minimal amount of the market share indicating a less than adequate
acceptance by consumers. Despite automakers continuing to offer an
increasing amount of advance technology vehicles for sale, consumer
adoption remains very low. These comments provide data that raises
concerns about EPA's 2017 Determination.
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    \16\ The Alliance submitted this figure in color with the upper
shaded portion in red as indicated in the note in the figure.
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    Toyota provided comment that ``compliance with the current
requirements through the 2025 MY require gasoline hybrid electric
vehicles or more sophisticated forms of vehicle electrification at
sales volumes significantly higher than the agencies' estimates and at
levels the market is unable or unwilling to support absent significant
changes in market signals.'' Toyota further provided that they continue
to disagree with EPA's past assessment that lighter, more aerodynamic
vehicles powered by less expensive conventional gasoline powertrains
will be sufficient to comply with the standards. Fiat Chrysler
Automobiles (FCA) similarly indicated, ``FCA continues to provide data
that shows more technology is necessary than the agencies have assumed
for 2022-2025MY compliance. The advanced technologies needed, including
higher levels of electrification will negatively affect affordability,
lowering sales, and ultimately impacting jobs.'' Mercedes Benz
estimated that it will need more than 25 percent battery electric
vehicles (BEVs) and around 5 percent PHEVs in its fleet to meet the
standards in MY 2025, noting that these estimates are significantly
higher than the 7 percent BEV and 3 percent PHEV shares projected by
EPA for the overall fleet. One commenter stated that they believe
standards can be met with only small increases in the efficiency of
fossil fuel engines.
    EPA also received comments from several non-governmental
organizations stating that the existing record supports the previous
determination. Several commenters also provided technical information
and/or analysis. The Union of Concerned Scientists (UCS) provided that
they do not believe the auto manufacturers are correct about the degree
of electrification that they claim will be necessary to meet the
standards.
    Several commenters supported extending incentives for advanced
technologies. The Alliance recommended that EPA extend the advanced
technology multiplier incentives beyond MY 2021 and that manufacturers
should not be held responsible for upstream power plant emissions
(i.e., manufacturers should be allowed to use the 0 g/mile emissions
factor for electric powered vehicles rather than having to account for
upstream electricity generation emissions). Toyota similarly commented
that EPA should extend the current advanced technology sales multiplier
and 0 g/mi allowance through MY 2025. Mercedes Benz requested that EPA
extend the multipliers through at least MY 2025 to support further
commercialization of electric and hybrid vehicles. Jaguar Land Rover
supported the reconsideration of the final determination as a way ``to
enable a future final determination that provides incentives for very
clean technologies.''
    NGV America urged the agency provide a level playing field for
natural gas vehicles. As stated in their comments, ``Regulatory
incentives currently in place for vehicle manufacturers provide no
benefit for renewable natural gas and include requirements that prevent
automakers from realizing benefit from selling natural gas vehicles,''
including the driving range requirement on alternative fuel that is
required for natural gas vehicles but not for electric vehicles.
    Several commenters also supported flexibilities for advanced
technology vehicles. CALSTART stated that to spur the EV market, the
agencies could consider maintaining the current credits for full zero
emission vehicles, and delay the upstream emissions factors for such
vehicles. Securing America's Future Energy (SAFE) commented in support
of extending the advanced technology credits out to MY 2025 to help
facilitate and accelerate the transition to energy sources other than
oil. Edison Electric Institute and California Electric Transportation
Coalition also commented in support of extending the advanced
technology credits. The National Coalition for Advanced Transportation
(NCAT) commented that to the extent that EPA seeks to make adjustments
to increase flexibility, it urges the agency to recognize and support
the role of EVs and other advanced technology vehicles.
    The Alliance and Toyota commented that the current full size pick-
up truck incentives should be available to all light-duty trucks. They
further commented that the program's sales volume thresholds should be
removed because they discourage the application of technology, since
manufacturers cannot be confident of achieving the sales thresholds.
    Based on consideration of the information provided, the
Administrator believes that it would not be practicable to meet the MY
2022-2025 emission standards without significant electrification and
other advanced vehicle technologies that lack a requisite level of
consumer acceptance.
b. Reliance on Future Technology
    EPA received comments from the auto manufacturers that EPA should
exclude technologies that are protected by intellectual property rights
and have not been introduced and certified to Tier 3 emissions
requirements. Specifically, the Alliance stated that EPA should exclude
from its technology assessments dynamic skip fire, variable compression
ratio engines, Mazda's SkyActiv X, and other technologies that are
protected by intellectual property rights and have not been introduced
and certified to Tier 3 emissions requirements. Toyota's information
stated that ``[n]ot yet implemented technologies, such as advanced
cylinder deactivation and 48V mild hybrid systems, can play a role in
improving efficiency and reducing CO2 emissions moving
forward; however, we do not project these technologies as sufficient to
meet the 2025 MY requirements.''
    Regarding the use of Atkinson cycle engines, the Alliance commented
that the EPA analysis oversimplified and did not consider the financial
consequence of aggressive penetration. New information from Global
Automakers provided that ``it is difficult to maintain confidence in
the agency's optimism about the wide consumer acceptance, supply
availability, safety and learning for new, unproven technologies such
as the broad application of naturally aspirated Atkinson cycle
engines.''
    In general, the Alliance, Global Automakers and others found that
EPA's modeling overestimates the role conventional technologies can
play in meeting future standards and that industry believes more strong
hybrids and plug-in electric vehicles will be needed to meet current
standards, raising concerns about cost and affordability. Both the
Alliance and Global Automakers submitted detailed information regarding
various aspects of EPA modeling, raising several technical issues, and
submitted several new studies in support of their comments.\17\
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    \17\ See ``Analysis of EPA Vehicle Technology Walks in Prior
Final Determination Response to Comments'' (Alliance Attachment 2),
``Evaluation of the Environmental Protection Agency's Lumped
Parameter Model Informed Projections from the Proposed
Determination'' (Novation Analytics, September 2017) (Alliance
Attachment 3), and ``Critical Assessment of Certain Technical and
Economic Assumptions Made in EPA's Final Determination on the
Appropriateness of the Model Year 2022-2025 Light-Duty Vehicle
Greenhouse Gas Emission Standards under the Midterm Evaluation''
(Trinity Consultants, NERA Economic Consulting, October 2017)
(Alliance Attachment 6).

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    Other commenters were more optimistic about the availability of
advanced technologies. Suppliers provided comments about specific
technologies available to meet the standards. The Motor and Equipment
Manufacturers Association (MEMA) commented that suppliers continue to
improve a myriad of technologies as industry pushes innovation--
specifically, more capable 48-volt systems, higher efficiency turbo
engines, various advances in thermal management and control
technologies, and new composites and materials for improved light-
weighting. Manufacturers of Emission Controls Association (MECA) noted
that automakers have announced plans to adopt 48-volt mild hybrids at a
faster rate than originally planned and commented on new technologies
that will be in production prior to 2021 but were not considered in the
draft TAR, including dynamic cylinder deactivation, variable
compression ratio and electric boost. MECA gave an example that dynamic
cylinder deactivation combined with 48-volt systems which they stated
has the potential to improve fuel economy by up to 20 percent. One
commenter stated that they believe existing standards are achievable
now without expensive or ``boutique'' technologies and are becoming
even more cost-effective as time passes.\18\ Other commenters performed
analyses of the technical feasibility of meeting the MY2025
standards,\19\ including analyses of a number of engine and other
technologies that they believe EPA did not fully consider.
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    \18\ See comments in the docket from the Advanced Engine Systems
Institute.
    \19\ See ``Efficiency Technology and Cost Assessment for the
U.S. 2025-2030 Light-Duty Vehicles'' (International Council on Clean
Transportation, March 2017, Attachment 5 to ICCT comments),
``Technical Assessment of CO2 Emission Reductions for
Passenger Vehicles in the Post-2025 Timeframe'' (Environmental
Defense Fund).
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    Based on EPA's review of the comments and information received
since the January 2017 Determination, technologies continue to develop.
Some technologies, such as continuously variable transmissions, have
been adopted in many more vehicle applications than originally
anticipated by EPA in the 2012 rulemaking and have continued to
demonstrate potential further improvements in efficiency. Other
technologies such as the dual clutch transmissions EPA projected in the
2012 rulemaking have not gained significant customer acceptance and as
such, have proven difficult for manufacturers to deploy. A third
category, of recently adopted technologies such as dynamic skip fire
(2019 Chevrolet Silverado) and variable compression ratio engines (2019
Infiniti QX50), may have the potential to offer additional technology
pathways to aid future compliance. As such, it is appropriate that the
EPA continue to evaluate these and other technology developments in the
forthcoming rulemaking.
    Some commenters supported strengthening the standards in any future
reconsideration and at a minimum retaining the standards due to certain
new information and analysis available since the rule was adopted in
2012. For example, one commenter stated that they believe the costs of
compliance are declining and believes that final compliance costs will
be less than initially estimated.
    To note, ethanol producers and agricultural organizations commented
in support of high octane blends from clean sources as a way to enable
GHG reducing technologies such as higher compression ratio engines.
They provided information suggesting that mid-level (e.g., E30) high
octane ethanol blends should be considered as part of the Mid-term
Evaluation and that EPA should consider requiring that mid-level blends
be made available at service stations. The petroleum industry noted
that high octane fuel is available today for vehicles that require it
and commented that EPA has no basis for including octane number as a
factor in the Mid-term Evaluation because it was not considered in the
prior rulemakings or the draft TAR. The Alliance and Global Automakers
commented that higher octane gasoline enables opportunities for use of
more energy-efficient technologies (e.g., higher compression ratio
engines, improved turbocharging, optimized engine combustion) and that
manufacturers would support a transition to higher octane gasoline, but
do not advocate any sole pathway for producing increased octane.
    Several state and local governments commented on the
appropriateness of the MY 2022-2025 standards. CARB referenced its
independent midterm review completed in March 2017 where it found the
MY 2022-2025 GHG emission standards to be appropriate and that the
latest information continues to support maintain or strengthening the
current standards.\20\
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    \20\ CARB, Advanced Clean Cars Midterm Review, Resolution 17-3
(March 24, 2017), available at: https://www.arb.ca.gov/msprog/acc/mtr/res17-3.pdf; CARB, California's Advanced Clean Cars Midterm
Review, Summary Report for the Technical Analysis of the Light Duty
Vehicle Standards (January 18, 2017) (p. ES-3), available at:
https://www.arb.ca.gov/msprog/acc/mtr/acc_mtr_finalreport_full.pdf.
See CARB comments at docket item EPA-HQ-OAR-2015-0827-9197.
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    Other state government agencies stated that the standards are
appropriate, continue to apply, and that they believe compliance will
be even easier than expected with newer conventional technologies.
    The Aluminum Association provided new studies regarding the use of
aluminum in light-weighting and noted additional forthcoming studies
which could inform EPA's reconsideration, commenting that the aluminum
industry continues to provide and improve light-weighting solutions to
help meet rigorous GHG and fuel efficiency regulations without
sacrificing safety.
    EPA has given careful consideration to these comments and agrees
that these commenters have identified both current and promising
technologies that may be able to deliver significant improvements in
reducing GHG emissions once fully deployed. However, EPA also
recognizes that there is significant uncertainty both in the pace of
development of these technologies and in the degree of efficiency
improvements they will ultimately be able to deliver. EPA believes that
this uncertainty further supports its determination to reconsider the
current standards through a subsequent rulemaking.
c. The Acceptance of the Necessary Technologies by Consumers
    In addition to the issues related to new technologies needing to be
developed to meet the MY 2022-2025 emission standards, consumers'
preferences must change to ensure that the current standards can be
met--that is, consumers will need to be willing to purchase vehicles
with new technologies. However, as shown below, consumers' preferences
are not necessarily aligned to meet emission standards and there is
uncertainty on this issue that merits further consideration. Consumers'
preferences are driven by many factors and fuel economy is merely one
factor that increases and decreases based on the price of gasoline.
    The Alliance and Global Automakers state that the standards will be
effective only if people buy a mix of vehicles that

is sufficiently fuel-efficient on average to meet the standards, but
that current trends do not indicate an acceptance by consumers of the
increased costs and tradeoffs in other desirable vehicle attributes
that are needed to comply with more stringent GHG standards going
forward. The only MY 2017 vehicles that could comply with the MY 2025
standard have a very low consumer acceptance rate today and make up
less than 5 percent of the total market share (see Figure 2 above).
Despite the auto industry providing an increasing number of battery-
electric vehicle models and plug-in hybrid electric vehicle models,
combined national sales of these vehicles still account for just over
one percent of the market. According to data submitted by the Global
Automakers, sales of hybrids peaked in 2013 at 3.1 percent, but only
accounted for 2 percent of the market in 2016.
    The Alliance, Global Automakers, Mercedes-Benz, and National Corn
Growers Association expressed concerns about low adoption rates of
electrified vehicles (strong hybrids, PHEVs, and EVs). Global
Automakers stated that customers are not buying electrified vehicles at
a rate sufficient for compliance. Mitsubishi and Mercedes-Benz pointed
to low gasoline prices and limited infrastructure for electric vehicle
charging as an additional obstacle for electric vehicle adoption.
Mitsubishi considered the standards unachievable if consumers are not
willing to buy more electrification in their vehicles.
    Some commenters countered that consumers do prioritize fuel economy
that sales numbers decreased because of the cyclical nature of the
industry, and that there is enough flexibility in the market to meet
consumer needs. Also, a number of commenters asserted that there is a
growing understanding and acceptance of electrification in vehicles,
pointing to an increased percentage of EV sales and automakers
announcing plans for electrification. Contrary to these comments, as
shown in Figure 1, EV sales have decreased and when looking at very
small numbers, percentage growth may be misleading.
    A further issue is the growing preference for light duty trucks
over cars. In 2012, the car and light truck shares were projected to be
67 percent to 33 percent respectively for MY 2025. According to EPA's
2017 Fuel Economy Trends Report, the split in MY 2016 was 55 percent
cars and 45 percent trucks. With regard to MY 2016 compliance, the
Alliance commented that the large shift in consumer buying patterns
toward the light-truck fleet has negatively impacted industry
compliance because the light-truck standards were relatively more
demanding during this period of time.
    Several commenters expressed concern over potential adverse effects
on other vehicle attributes due to the standards. The Alliance, Global
Automakers, and other stakeholders noted that consumers consider a wide
range of features in their purchase decisions. Mercedes-Benz cited low
sales of its S550E PHEV which, though more efficient than its internal
combustion engine counterpart, had slower acceleration and reduced
trunk space. The National Automobile Dealers Association (NADA) and
International Union, United Automobile, Aerospace and Agricultural
Implement Workers of America (UAW) noted that consumers' preferences
vary with time and market conditions, such as fuel prices. The
Alliance, Global Automakers, and Mitsubishi stated that current low gas
prices make the standards more difficult to achieve. The Alliance and
NADA pointed to a recent study from Resources for the Future that found
greater willingness to pay for performance than for fuel economy, and
the potential for misestimating willingness to pay if not taking into
account other vehicle attributes.\21\ Global Automakers expressed
concern that, if EPA cannot calculate consumers' willingness to pay for
attributes, it may overestimate the probability of success for the
standards. One commenter stated that consumers slightly undervalue or
fully value future fuel savings while other commenters cited a poll in
Ohio supporting achieving an average of 40 mpg in 2025. Consumers Union
cited research that found that fuel economy is the top factor that
consumers want to be improved in their next vehicle.
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    \21\ To note, there are numerous peer-reviewed studies related
to this subject and many of them are available in the docket
associated with this action. EPA intends to summarize and assess the
studies on this topic as part of the forthcoming rulemaking.
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    Commenters shared perspectives on the current and projected state
of the vehicle market and demand. Global Automakers commented that
overall vehicle sales have leveled off, and it believes that sales may
decline in coming years. CFA noted that vehicle models with larger fuel
economy improvements had larger sales increases while sales for those
with lower improvements had lower increases. EPA intends to continue to
consider vehicle sales and the potential impact of the EPA standards on
vehicle sales as a relevant factor in the forthcoming rulemaking.
    Various comments raised questions about how to predict the impacts
of the standards on vehicle sales. The Alliance and NADA argued that
EPA has not yet conducted an ``appropriate analysis'' of the sales
impacts of the standards, and NADA asks the agencies to ``fully
understand'' consumer vehicle purchase decisions. The Alliance
referenced work by Ford suggesting that the standards would reduce
sales volumes by four percent using cost estimates from the draft TAR.
Other commenters provided that neither EPA nor NHTSA has found vehicle
demand modeling methods robust enough to predict sales impacts; and EDF
stated EPA and NHTSA could consider using a static forecast (that is,
assuming market shares to be unaffected by the standards).
    Auto industry and dealer comments discussed implications for
vehicle fleet turnover. The Alliance noted that low fleet turnover
would reduce the effectiveness of the GHG program. NADA suggested that
the GHG program should seek to maximize fleet turnover.
    Several commenters discussed a study by researchers at Indiana
University. The Indiana University's `Total Cost of Ownership' analysis
found that the MY2017-2025 standards would decrease sales using a
``2016 perspective'' but that it would increase sales when using inputs
from the 2012 final rulemaking. Some commenters raised concerns related
to the study related to future benefits of improved fuel economy and
different assumptions in consumer willingness to pay. Graham, a
coauthor of the IU study, supported the assumptions of the report in a
response to those comments.
    EPA agrees that impacts on new vehicle sales and fleet turnover are
important factors that were not adequately considered in the January
2017 Determination. As noted above, if new vehicle sales are lower than
expected because of higher prices, or lack of consumer acceptance of
advanced technologies, significant share of projected GHG reductions
and fuel saving gains on a fleet-wide basis may not be realized. EPA
intends to more fully consider these potential actions in the
forthcoming rulemaking. EPA intends to explore new analytical tools to
look at new vehicle sales and fleet turnover as part of its decision-
making record for the new rule.

Factor 2: The Cost on the Producers or Purchasers of New Motor Vehicles
or New Motor Vehicle Engines

    The cost on the producers (e.g., suppliers, auto manufacturers),
intermediaries (e.g., auto dealers), and purchasers (e.g., consumers,
car drivers) can be rather significant based on the standards set. For
consumers, especially

low-income consumers, moderate increases to the cost of cars can result
in significant impacts to disposable income.
    Both the Alliance and Global Automakers identified areas where EPA
underestimated costs. The Alliance identified three areas related to
technology cost that it believes need further assessment: Direct
technology costs, indirect cost multipliers, and cost learning
curves.\22\ Global Automakers asserted that EPA's modeling has
consistently underestimated the costs associated with technologies and
the amount of technology needed, commenting that a quality check at
every step of the process needs to be done with real-world data that
has been supplied by manufacturers.
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    \22\ See ``Critical Assessment of Certain Technical and Economic
Assumptions Made in EPA's Final Determination on the Appropriateness
of the Model Year 2022-2025 Light-Duty Vehicle Greenhouse Gas
Emission Standards under the Midterm Evaluation'' (Trinity
Consultants, NERA Economic Consulting, October 2017) (Alliance
Attachment 6).
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    The January 2017 Determination did not give appropriate
consideration to the effect on low-income consumers. The Administrator
believes that affordability of new cars across the income spectrum, and
especially among low-income consumers, is an important factor, both
because of its equity impacts and because of its potential impacts on
the total energy savings delivered by the standards. In its new
rulemaking, EPA plans to thoroughly assess the impacts of the standards
on affordability and reconsider the importance of this factor in
selecting an appropriate level of the standard.
    The Alliance, Mitsubishi, and Vermont Energy Investment Corporation
(VEIC) recommended that EPA revisit affordability concerns. The
Alliance and Global noted that average vehicle transactions prices have
increased. The Alliance stated that consumers do not change the
fraction of their budgets for transportation; if vehicles become more
expensive, they will have to buy less expensive vehicles with fewer
features. Global Automakers expected price increases to lead some low-
income households to switch from buying new to used vehicles, and some
to be forced out of the market entirely. The Alliance reiterated that
the standards have a disproportionate negative impact on low-income
households. Mitsubishi expressed concern that it would have to add
electrification to already efficient low-priced vehicles and the
increased price could drive buyers to less efficient used vehicles.
NADA and Graham expressed concerns that potential buyers will not be
able to get loans large enough to cover the increased vehicle prices.
Mercedes-Benz pointed out that up to half its sales in some markets are
leased; the payback period for technologies to meet the standards may
exceed the typical three-year leasing period, and low residual values
for advanced technologies could further increase lease payments.
    The Alliance stated that the standards have a disproportionate
negative impact on low-income households. Other commenters stated that
the standards will have a larger proportionate benefit for low-income
households and referenced a Greene and Welch study.\23\ VEIC requested
that the agencies consider that relaxing the standards will increase
ownership costs on lower-income drivers. EDF did not find adverse
effects on affordability and note that the standards will lead to used
vehicle purchasers having more fuel efficient choices.
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    \23\ D.L. Greene and J.G. Welch (2017), ``The impact of
increased fuel economy for light-duty vehicles on the distribution
of income in the United States: A Retrospective and Prospective
Analysis.'' March 2017. University of Tennessee, Knoxville.
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    On the issue of consumer affordability, some stakeholders commented
that EPA standards are not making new vehicles less affordable, citing
a Synapse Energy Economics report prepared for Consumers Union. The
report noted a wider range for vehicle prices at the upper end, due to
higher-end vehicles receiving more features, at the same time that the
prices of entry-level vehicles have stayed roughly the same for the
past 10 years.
    EPA concludes that affordability concerns and their impact on new
vehicle sales should be more thoroughly assessed, further supporting
its determination to initiate a new rulemaking for the 2022-2025
standards.

Factor 4: The Impact of the Standards on Reduction of Emissions, Oil
Conservation, Energy Security, and Fuel Savings by Consumers

    The impact of the standards on emissions, oil conservation, energy
security, and fuel savings to consumers are significantly affected by
many assumptions including but not limited to: (1) The consumer
adoption of new lower emitting cars; (2) cost of fuel; and (3) the
rebound effects.
    Slower or decreased consumer adoption of new lower emitting cars,
as mentioned above, would result in decreased effectiveness of the
program. As consumer preference changes and/or the cost of new cars
increases, consumers may be less willing to purchase new vehicles and
thus phase out the higher-emitting older cars. Because of the potential
decrease in adoption of newer cars the reduction of emissions from the
standards may be less than originally thought. The same logic can be
applied to oil conservation. EPA believes that this issue raises enough
concern to warrant consideration in the future rulemaking.
    With respect to cost of fuel, for example, the lifetime fuel
savings to consumers can change by almost 200 percent per vehicle based
on the assumption on gas prices according to the 2016 Proposed
Determination (Table IV.12). This significant effect on consumer
savings due to fuel prices can in turn affect both consumer demand for
fuel-efficient vehicles and their driving behavior generally, both of
which significantly affect impacts on emissions, oil conservation and
energy security. Figure 3 below shows the fuel price projections EPA
used in the 2012 final rule, the January 2017 Determination, and the
current projections from the Energy Information Administration's Annual
Energy Outlook (AEO). As can be seen from the figure, the 2012 rule
projected significantly higher fuel prices than current EIA
projections, while the 2017 Final Determination used similar
projections to EIA. Lower fuel prices mean lower incentives for
consumers to purchase fuel efficient vehicles, because the fuel cost
savings they get from doing so are also lower. Thus, the projections
for fuel cost savings in the 2012 rule may have been optimistic, which
increases the challenge manufacturers face in making fuel-efficient
vehicles attractive to consumers. This consideration supports EPA's
determination that the current standards are inappropriate and should
be reconsidered in a new rulemaking.

[GRAPHIC] [TIFF OMITTED] TN13AP18.002

    With respect to the rebound effect (the increase in driving
resulting from a lower marginal cost of driving due to greater fuel
efficiency), EPA received a range of views and assessments in the
recent public comments. Higher rebound values mean that consumers are
inherently driving more due to the increase in fuel efficiency of the
vehicle and this impact will offset the reduction of emissions, oil
conservation, energy security, and fuel savings by customers. EPA
believes it is important to fully consider the effects of a rebound
effect to project an accurate assessment of the projected fuel savings,
and EPA intends to do so in its new rulemaking.
    With respect to energy security, the situation of the United States
is dramatically different than it was at the time the 2012 standards
were promulgated, and even significantly different from its situation
in 2016 when the draft TAR was developed.
    Regarding emissions, some state and local government commenters
pointed to the co-benefits of GHG standards as important criteria
pollutant control measures. For example, NACAA commented that the
standards would lead to oxides of nitrogen (NOx) reduction that
contribute to attainment and maintenance of the 2008 and 2015 ozone and
2012 fine particulate matter National Ambient Air Quality Standards
(NAAQS) and other air benefits. While EPA agrees that there are co-
benefits from these standards, EPA notes that the standards are
supposed to be based on GHG emissions and that while co-benefits exist
with respect to emissions such as criteria pollutants, using GHG
emission standards as criteria pollutant control measures is likely a
less efficient mechanism to decrease criteria pollutants and those
issues are already handled through the NAAQS implementation processes.
    Based on the information provided above, the Administrator believes
that there is strong basis for concern that the current emission
standards from MY 2022--2025 may not produce the same level of benefits
that was projected in the January 2017 Determination. This further
supports the Administrator's determination to withdraw the prior
Determination and initiate a rulemaking to reconsider the current
standards.

Factor 5: The Impact of the Standards on the Automobile Industry

    The Administrator finds, based on the current record, that the
standards potentially impose unreasonable per vehicle costs resulting
in decreased sales and potentially significant impact to both
automakers and auto dealers. Trinity Consulting & NERA Economic
Consulting (TC/NERA) \24\ found that the MY 2022-2025 standards would
reduce vehicle sales over those four model years from 65 million to
63.7 million, a reduction of 1.3 million vehicles, due to higher
vehicle prices.
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    \24\ Trinity Consultants & NERA Economic Consulting, Critical
Assessment of Certain Technical And Economic Assumptions Made in
EPA'S Final Determination On the Appropriateness of the Model Year
2022-2025 Light-duty Vehicle Greenhouse Gas Emission Standards Under
the Midterm Evaluation 2 (Oct. 2017).
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    EPA also recognizes significant unresolved concerns regarding the
impact of the current standards on United States auto industry
employment. The Center for Automotive Research (CAR),\25\ a nonprofit

automotive research center, developed a cost-benefit study referenced
by multiple commenters that estimated employment losses up to 1.13
million due to the standards if the standards increased prices by
$6,000 per vehicle. Other stakeholders submitted comments critical of
the CAR report.
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    \25\ McAlinden et al., Center for Automotive Research (2016).
The Potential Effects of the 2017-2025 EPA/NHTSA GHG/Fuel Economy
Mandates on the U.S. Economy. http://www.cargroup.org/publication/the-potential-effects-of-the-2017-2025-epanhtsa-ghgfuel-economy-mandates-on-the-u-s-economy/.
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    Commenters expressed differing points of view on the potential
effects of the standards on employment and the macroeconomy and
predicting the exact effect of the GHG emission standards on the
macroeconomy is rather difficult.
    Some commenters pointed to negative effects on the economy and
employment due to higher costs from the standards. The Alliance
commented that each job in the auto sector creates 6.5 additional jobs,
and stated that auto sector employment is generally related to vehicle
sales, which is expected to decline. The Alliance, Global Automakers,
and FCA expressed concern that cost increases associated with the MY
2022-2025 standards could reduce sales and employment, and put downward
pressure on the macroeconomy. The Alliance and Global Automakers argued
that reduced revenues from a sales drop due to the standards would
reduce spending on research and development.
    Other commenters stated that the standards could lead to
macroeconomic and employment benefits through their effects on
innovation. Commenters also stated that innovation and investment
resulting from the standards have contributed to the recovery of the
auto industry and the wider economy. Some commenters stated that
reopening the standards increases uncertainties that may reduce
investments in advanced technologies.
    The UAW, while not objecting to a reevaluation of the standards,
stated that EPA should ensure that the regulations recognize the long-
term importance of manufacturing a diverse fleet of motor vehicles in
the United States by American workers and radically weakening the
standards will adversely impact investments in key technologies and put
domestic manufacturers behind in making fuel-saving technologies being
used to meet the standards. Some commenters stated they believe there
would be positive effects on employment from the standards through
their effects on investments.
    The automotive supplier commenters discussed their views on the
importance of the standards in maintaining the competitive advantage
U.S. companies currently have in the global marketplace. For example,
MEMA commented that reducing the stringency of the standards in the
U.S. increases the likelihood that work on these emissions-reducing
technologies would shift to other markets.
    A number of commenters cited Carley et al.,\26\ which included a
study of the macroeconomic impacts of the standards, conducted by
researchers at Indiana University. The study found that the short-term
effects of the standards are negative, but the long-term effects of the
standards are positive for employment but will not overtake the
negative effects until at least 2025. Several commenters identified
concerns in the Carley et.al. analysis that contributed to short-term
negative effects. Graham, a coauthor of the report, responded to these
comments by supporting the IU report assumptions.
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    \26\ Sanjay Carley, Denvil Duncan, John D. Graham, Saba Siddiki,
and Nikolaos Zirogiannis. ``A Macroeconomic Study of Federal and
State Automotive Regulations,'' Indiana University School of Public
and Environmental Affairs, March 2017.
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    EPA finds that a more rigorous analysis of job gains and losses is
needed to determine the net effects of alternate levels of the
standards on employment and believes this is an important factor to
consider in adopting appropriate standards. EPA intends to include such
an analysis as part of the basis for the new rule.

Factor 6: The Impacts of the Standards on Automobile Safety

    EPA and NHTSA considered some potential safety impacts in the 2012
rulemaking, and EPA considers safety to be an important factor in the
reconsideration of the MY 2022-2025 standards. For example, fleet
turnover is important to an overall safety analysis, as newer cars tend
to be safer and more efficient than older cars due to safety technology
innovation and regulatory requirements. EPA intends to further assess
the scope of its safety analysis in the upcoming rulemaking to examine
the possible impacts of fleet turnover on safety. The Administrator
finds that this safety analysis is an additional reason to undertake
the forthcoming rulemaking.

Factor 7: The Impact of the Greenhouse Gas Emission Standards on the
Corporate Average Fuel Economy Standards and a National Harmonized
Program

    Many stakeholders commented on the importance of maintaining a
National Program for GHG emissions and CAFE standards, and stakeholders
urged EPA and NHTSA to continue coordinating with the California Air
Resources Board. For example, Global Automakers commented,
``Harmonization between the federal and California programs must be
maintained. EPA, NHTSA and California need to work together to maintain
the One National Program as all parties committed to at its
inception.'' Toyota commented that its ultimate objective ``remains a
true, single national standard governing fuel economy and greenhouse
gas emissions in the future.'' Nissan and Mitsubishi similarly
commented that harmonization between federal and California programs
must be maintained, urging California, EPA and NHTSA to work together.
    Automotive suppliers also commented on the importance of
maintaining the National Program. For example, the MEMA stated ``[t]he
One National Program provides industry stakeholders with economies of
scale and increases domestic investment in emissions-reducing and fuel-
efficiency technologies and jobs. Anything that falls short of a
National Program will fail to provide the long-term planning certainty
the industry needs to make the long-term business and technology
investment decisions to meet MYs 2022-2025 standards and beyond.'' The
International Union, United Automobile, Aerospace and Agricultural
Implement Workers of America (UAW) commented that all stakeholders
should work towards a single National Program and that ``California and
non-governmental organizations must have a seat at the table along with
manufacturers and workers.''
    EPA believes that a national harmonized program is very important
and will continue to work toward maintaining a national harmonized
program through MY 2025 and beyond. To that end, EPA, in collaboration
with NHTSA, will initiate a notice and comment rulemaking in a
forthcoming Federal Register notice to further consider appropriate
standards for MY 2022-2025 light-duty vehicles, as appropriate. This
coordination will ensure that GHG emission standards and CAFE standards
are as aligned as much as possible given EPA and NHTSA's different
statutory authorities.
    EPA and NHTSA have been communicating with stakeholders, including
CARB and automobile manufacturers, to try and ensure that a national
harmonized program remains intact to minimize unnecessary cost and
burdens in the development of the notice and comment rulemaking.

Factor 8: The Impact of Standards on Other Relevant Factors

    The January 2017 Determination also identified regulatory certainty
as an additional relevant factor that was considered as part of the
determination. EPA understands that automakers and suppliers plan many
years in advance.\27\ Given such long lead times, regulatory certainty
can increase the efficiency of business planning and investment cycles.
The Administrator agrees that regulatory certainty is extremely
important, but is reconsidering its conclusion that maintaining the
current standards is the best way to provide such certainty.
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    \27\ To note, some commenters raised concerns that reevaluating
the standards increases uncertainty that might reduce investment in
advanced technologies that could hurt jobs and United States
competitiveness. As mentioned below, EPA disagrees with this concern
as NHTSA must still complete a rulemaking for MY 2022-2025.
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    Furthermore, industry cannot effectively plan for compliance with
the current MY 2022-2025 GHG standards until it knows the outcome of
the upcoming NHTSA rulemaking for MY 2022-2025 CAFE standards. Any
regulatory certainty potentially provided by the January 2017
Determination is not supported by the fact that NHTSA had not yet begun
their statutorily required rulemaking process, and EPA did not know at
that time whether NHTSA would establish coordinated requirements. EPA
now believes that the greatest potential regulatory certainty is
provided in the long run by undertaking a new rulemaking, in
partnership with NHTSA, and ensuring that the resulting standards are
harmonized to the greatest degree possible.

IV. Revised Determination

    Even with the wide range in perspectives, it is clear that many of
the key assumptions EPA relied upon in its January 2017 Determination,
including gas prices, and the consumer acceptance of advanced
technology vehicles, were optimistic or have significantly changed. EPA
has also both developed and received additional data and assessments
since the January 2017 Determination regarding technology effectiveness
and technology costs which warrant additional consideration. In
addition, the reach and success of the program is significantly limited
when consumers do not purchase new vehicles with low GHG emissions,
either because they are priced out of them or are unwilling to spend
additional money on advanced fuel-saving technologies.
    Based on our review and analysis of the comments and information
submitted, the Administrator believes that the current GHG program for
MY 2022-2025 vehicles presents difficult challenges for auto
manufacturers and adverse impacts on consumers. On the whole, the
Administrator believes the MY 2022-2025 GHG emission standards are not
appropriate and, therefore, should be revised as appropriate. EPA, in
partnership with NHTSA, will further explore the appropriate degree and
form of changes to the program through a notice and comment rulemaking
process.
    As stated above, in this notice, the Administrator has determined
that the standards are not appropriate in light of the record before
EPA, and therefore, should be revised as appropriate. EPA is also
withdrawing the January 2017 Determination with this notice. EPA, in
partnership with NHTSA, will initiate a notice and comment rulemaking
in a forthcoming Federal Register notice to further consider
appropriate standards for MY 2022-2025 light-duty vehicles. This notice
concludes EPA's MTE under 40 CFR 86.1818-12(h). Finally, EPA notes, as
discussed above, that this revised determination is not a final agency
action, as explained in the 2012 final rule. The effect of this action
is rather to initiate a rulemaking process whose outcome will be a
final agency action. Until that rulemaking has been completed, the
current standards remain in effect and there is no change in the legal
rights and obligations of any stakeholders.

    Dated: April 2, 2018.
E. Scott Pruitt,
Administrator.
[FR Doc. 2018-07364 Filed 4-12-18; 8:45 am]
BILLING CODE 6560-50-P