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Daily Rules, Proposed Rules, and Notices of the Federal Government

DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Parts 523, 531, 533, 536, and 537

[EPA-HQ-OAR-2010-0799; FRL-9706-5; NHTSA-2010-0131]

RIN 2060-AQ54; RIN 2127-AK79

2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions and Corporate Average Fuel Economy Standards

AGENCY: Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA), DOT.
ACTION: Final rule.
SUMMARY: EPA and NHTSA, on behalf of the Department of Transportation, are issuing final rules to further reduce greenhouse gas emissions and improve fuel economy for light-duty vehicles for model years 2017 and beyond. On May 21, 2010, President Obama issued a Presidential Memorandum requesting that NHTSA and EPA develop through notice and comment rulemaking a coordinated National Program to improve fuel economy and reduce greenhouse gas emissions of light-duty vehicles for model years 2017-2025, building on the success of the first phase of the National Program for these vehicles for model years 2012-2016. This final rule, consistent with the President's request, responds to the country's critical need to address global climate change and to reduce oil consumption. NHTSA is finalizing Corporate Average Fuel Economy standards for model years 2017-2021 and issuing augural standards for model years 2022-2025 under the Energy Policy and Conservation Act, as amended by the Energy Independence and Security Act. NHTSA will set final standards for model years 2022-2025 in a future rulemaking. EPA is finalizing greenhouse gas emissions standards for model years 2017-2025 under the Clean Air Act. These standards apply to passenger cars, light-duty trucks, and medium-duty passenger vehicles, and represent the continuation of a harmonized and consistent National Program. Under the National Program automobile manufacturers will be able to continue building a single light-duty national fleet that satisfies all requirements under both programs while ensuring that consumers still have a full range of vehicle choices that are available today. EPA is also finalizing minor changes to the regulations applicable to model years 2012-2016, with respect to air conditioner performance, nitrous oxides measurement, off-cycle technology credits, and police and emergency vehicles.
DATES: This final rule is effective on December 14, 2012,sixty days after date of publication in the Federal Register. The incorporation by reference of certain publications listed in this regulation is approved by the Director of theFederal Registeras of December 14, 2012.
ADDRESSES: EPA and NHTSA have established dockets for this action under Docket ID No. EPA-HQ-OAR-2010-0799 and NHTSA 2010-0131, respectively. All documents in the docket are listed in thehttp://www.regulations.govindex. Although listed in the index, some information is not publicly available,e.g.,confidential business information (CBI) or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available in hard copy in EPA's docket, and electronically in NHTSA's online docket. Publicly available docket materials can be found either electronically inwww.regulations.govby searching for the dockets using the Docket ID numbers above, or in hard copy at the following locations: EPA: EPA Docket Center, EPA/DC, EPA West, Room 3334, 1301 Constitution Ave. NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566-1744. NHTSA: Docket Management Facility, M-30, U.S. Department of Transportation (DOT), West Building, Ground Floor, Rm. W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590. The DOT 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: EPA: Christopher Lieske, Office of Transportation and Air Quality, Assessment and Standards Division, Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor MI 48105; telephone number: 734-214-4584; fax number: 734-214-4816; email address:lieske.christopher@epa.gov, or contact the Assessment and Standards Division; email address:otaqpublicweb@epa.gov. NHTSA: Rebecca Yoon, Office of the Chief Counsel, National Highway Traffic Safety Administration, 1200 New Jersey Avenue SE., Washington, DC 20590. Telephone: (202) 366-2992.
SUPPLEMENTARY INFORMATION:

A. Does this action apply to me?

This action affects companies that manufacture or sell new light-duty vehicles, light-duty trucks, and medium-duty passenger vehicles, as defined under EPA's CAA regulations,1 and passenger automobiles (passenger cars) and non-passenger automobiles (light trucks) as defined under NHTSA's CAFE regulations.2 Regulated categories and entities include:

1“Light-duty vehicle,” “light-duty truck,” and “medium-duty passenger vehicle” are defined in 40 CFR 86.1803-01. Generally, the term “light-duty vehicle” means a passenger car, the term “light-duty truck” means a pick-up truck, sport-utility vehicle, or minivan of up to 8,500 lbs gross vehicle weight rating, and “medium-duty passenger vehicle” means a sport-utility vehicle or passenger van from 8,500 to 10,000 lbs gross vehicle weight rating. Medium-duty passenger vehicles do not include pick-up trucks.

2“Passenger car” and “light truck” are defined in 49 CFR Part 523.

Category NAICS CodesA Examples of potentially regulated entities Industry 336111 Motor Vehicle Manufacturers. 336112 Industry 811111 Commercial Importers of Vehicles and Vehicle Components. 811112 811198 423110 Industry 335312 Alternative Fuel Vehicle Converters. 336312 336399 811198 ANorth American Industry Classification System (NAICS).

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

Table of Contents I. Overview of Joint EPA/NHTSA Final 2017-2025 National Program A. Executive Summary 1. Purpose of the Regulatory Action 2. Summary of the Major Provisions of the Final Rule 3. Costs and Benefits of National Program B. Introduction 1. Continuation of the National Program 2. Additional Background on the National Program and Stakeholder Engagement Prior to the NPRM 3. Public Participation and Stakeholder Engagement Since the NPRM Was Issued 4. California's Greenhouse Gas Program C. Summary of the Final 2017-2025 National Program 1. Joint Analytical Approach 2. Level of the Standards 3. Form of the Standards 4. Program Flexibilities for Achieving Compliance 5. Mid-Term Evaluation 6. Coordinated Compliance 7. Additional Program Elements D. Summary of Costs and Benefits for the National Program 1. Summary of Costs and Benefits for the NHTSA CAFE Standards 2. Summary of Costs and Benefits for the EPA's GHG Standards 3. Why are the EPA and NHTSA MY 2025 estimated per-vehicle costs different? E. Background and Comparison of NHTSA and EPA Statutory Authority 1. NHTSA Statutory Authority 2. EPA Statutory Authority 3. Comparing the Agencies' Authority II. Joint Technical Work Completed for This Final Rule A. Introduction B. Developing the Future Fleet for Assessing Costs, Benefits, and Effects 1. Why did the agencies establish baseline and reference vehicle fleets? 2. What comments did the agencies receive regarding fleet projections for the NPRM? 3. Why were two fleet projections created for the FRM? 4. How did the agencies develop the MY 2008 baseline vehicle fleet? 5. How did the agencies develop the projected MY 2017-2025 vehicle reference fleet for the 2008 model year based fleet? 6. How did the agencies develop the model year 2010 baseline vehicle fleet as part of the 2010 based fleet projection? 7. How did the agencies develop the projected my 2017-2025 vehicle reference fleet for the 2010 model year based fleet? 8. What are the differences in the sales volumes and characteristics of the MY 2008 based and the MY 2010 based fleets projections? C. Development of Attribute-Based Curve Shapes 1. Why are standards attribute-based and defined by a mathematical function? 2. What attribute are the agencies adopting, and why? 3. How have the agencies changed the mathematical functions for the MYs 2017-2025 standards, and why? 4. What curves are the agencies promulgating for MYs 2017-2025? 5. Once the agencies determined the slope, how did the agencies determine the rest of the mathematical function? 6. Once the agencies determined the complete mathematical function shape, how did the agencies adjust the curves to develop the proposed standards and regulatory alternatives? D. Joint Vehicle Technology Assumptions 1. What technologies did the agencies consider? 2. How did the agencies determine the costs of each of these technologies? 3. How did the agencies determine the effectiveness of each of these technologies? 4. How did the agencies consider real-world limits when defining the rate at which technologies can be deployed? 5. Maintenance and Repair Costs Associated With New Technologies E. Joint Economic and Other Assumptions F. CO2Credits and Fuel Consumption Improvement Values for Air Conditioning Efficiency, Off-cycle Reductions, and Full-size Pickup Trucks 1. Air Conditioning Efficiency Credits and Fuel Consumption Improvement Values 2. Off-Cycle CO2Credits 3. Advanced Technology Incentives for Full-Size Pickup Trucks G. Safety Considerations in Establishing CAFE/GHG Standards 1. Why do the agencies consider safety? 2. How do the agencies consider safety? 3. What is the current state of the research on statistical analysis of historical crash data? 4. How do the agencies think technological solutions might affect the safety estimates indicated by the statistical analysis? 5. How have the agencies estimated safety effects for the final rule? III. EPA MYs 2017-2025 Light-Duty Vehicle Greenhouse Gas Emissions Standards A. Overview of EPA Rule 1. Introduction 2. Why is EPA establishing MYs 2017-2025 standards for light-duty vehicles? 3. What is EPA finalizing? 4. Basis for the GHG Standards Under Section 202(a) 5. Other Related EPA Motor Vehicle Regulations B. Model Year 2017-2025 GHG Standards for Light-duty Vehicles, Light-duty Trucks, and Medium Duty Passenger Vehicles 1. What fleet-wide emissions levels correspond to the CO2standards? 2. What are the CO2attribute-based standards? 3. Mid-Term Evaluation 4. Averaging, Banking, and Trading Provisions for CO2Standards 5. Small Volume Manufacturer Standards 6. Additional Lead Time for Intermediate Volume Manufacturers 7. Small Business Exemption 8. Police and Emergency Vehicle Exemption From GHG Standards 9. Nitrous Oxide, Methane, and CO2-equivalent Approaches 10. Test Procedures C. Additional Manufacturer Compliance Flexibilities 1. Air Conditioning Related Credits 2. Incentives for Electric Vehicles, Plug-in Hybrid Electric Vehicles, Fuel Cell Vehicles, and Dedicated and Dual Fuel Compressed Natural Gas Vehicles 3. Incentives for Using Advanced “Game-Changing” Technologies in Full-Size Pickup Trucks 4. Treatment of Plug-in Hybrid Electric Vehicles, Dual Fuel Compressed Natural Gas Vehicles, and Ethanol Flexible Fuel Vehicles for GHG Emissions Compliance 5. Off-cycle Technology Credits D. Technical Assessment of the CO2Standards 1. How did EPA develop reference and control fleets for evaluating standards? 2. What are the effectiveness and costs of CO2-reducing technologies? 3. How were technologies combined into “Packages” and what is the cost and effectiveness of packages? 4. How does EPA project how a manufacturer would decide between options to improve CO2performance to meet a fleet average standard? 5. Projected Compliance Costs and Technology Penetrations 6. How does the technical assessment support the final CO2standards as compared to the alternatives has EPA considered? 7. Comments Received on the Analysis of Technical Feasibility and Appropriateness of the Standards 8. To what extent do any of today's vehicles meet or surpass the final MY 2017-2025 CO2footprint-based targets with current powertrain designs? E. Certification, Compliance, and Enforcement 1. Compliance Program Overview 2. Compliance With Fleet-Average CO2Standards 3. Vehicle Certification 4. Useful Life Compliance 5. Credit Program Implementation 6. Enforcement 7. Other Certification Issues 8. Warranty, Defect Reporting, and Other Emission-related Components Provisions 9. Miscellaneous Technical Amendments and Corrections 10. Base Tire Definition 11. Treatment of Driver-Selectable Modes and Conditions 12. Publication of GHG Compliance Information F. How will this rule reduce GHG emissions and their associated effects? 1. Impact on GHG Emissions 2. Climate Change Impacts From GHG Emissions 3. Changes in Global Climate Indicators Associated With This Rule's GHG Emissions Reductions G. How will the rule impact Non-GHG emissions and their associated effects? 1. Inventory 2. Health Effects of Non-GHG Pollutants 3. Environmental Effects of Non-GHG Pollutants 4. Air Quality Impacts of Non-GHG Pollutants 5. Other Unquantified Health and Environmental Effects H. What are the estimated cost, economic, and other impacts of the rule? 1. Conceptual Framework for Evaluating Consumer Impacts 2. Costs Associated With the Vehicle Standards 3. Cost per Ton of Emissions Reduced 4. Reduction in Fuel Consumption and its Impacts 5. Cost of Ownership, Payback Period and Lifetime Savings on New Vehicle Purchases 6. CO2Emission Reduction Benefits 7. Non-Greenhouse Gas Health and Environmental Impacts 8. Energy Security Impacts 9. Additional Impacts 10. Summary of Costs and Benefits 11. U.S. Vehicle Sales Impacts and Affordability of New Vehicles 12. Employment Impacts I. Statutory and Executive Order Reviews J. Statutory Provisions and Legal Authority IV. NHTSA Final Rule for Passenger Car and Light Truck CAFE Standards for Model Years 2017 and Beyond A. Executive Overview of NHTSA Final Rule 1. Introduction 2. Why does NHTSA set CAFE standards for passenger cars and light trucks? 3. Why is NHTSA presenting CAFE standards for MYs 2017-2025 now? B. Background 1. Chronology of Events Since the MY 2012-2016 Final Rule was Issued 2. How has NHTSA developed the CAFE standards since the President's announcement, and what has changed between the proposal and the final rule? C. Development and Feasibility of the Proposed Standards 1. How was the baseline vehicle fleet developed? 2. How were the technology inputs developed? 3. How did NHTSA develop its economic assumptions? 4. How does NHTSA use the assumptions in its modeling analysis? D. Statutory Requirements 1. EPCA, as Amended by EISA 2. Administrative Procedure Act 3. National Environmental Policy Act E. What are the CAFE standards? 1. Form of the Standards 2. Passenger Car Standards for MYs 2017-2025 3. Minimum Domestic Passenger Car Standards 4. Light Truck Standards F. How do the final standards fulfill NHTSA's statutory obligations? 1. Overview 2. What are NHTSA's statutory obligations? 3. How did the agency balance the factors for the NPRM? 4. What comments did the agency receive regarding the proposed maximum feasible levels? 5. How has the agency balanced the factors for this final rule? G. Impacts of the Final CAFE Standards 1. How will these standards improve fuel economy and reduce GHG emissions for MY 2017-2025 vehicles? 2. How will these standards improve fleet-wide fuel economy and reduce GHG emissions beyond MY 2025? 3. How will these standards impact non-GHG emissions and their associated effects? 4. What are the estimated costs and benefits of these standards? 5. How would these final standards impact vehicle sales and employment? 6. Social Benefits, Private Benefits, and Potential Unquantified Consumer Welfare Impacts of the Standards 7. What other impacts (quantitative and unquantifiable) will these standards have? H. Vehicle Classification I. Compliance and Enforcement 1. Overview 2. How does NHTSA determine compliance? 3. What compliance flexibilities are available under the CAFE program and how do manufacturers use them? 4. What new incentives are being added to the CAFE program for MYs 2017-2025? 5. Other CAFE Enforcement Issues J. Record of Decision 1. The Agency's Decision 2. Alternatives NHTSA Considered in Reaching its Decision 3. NHTSA's Environmental Analysis, Including Consideration of the Environmentally Preferable Alternative 4. Factors Balanced by NHTSA in Making its Decision 5. How the Factors and Considerations Balanced by NHTSA Entered Into its Decision 6. The Agency's Preferences Among Alternatives Based on Relevant Factors, Including Economic and Technical Considerations and Agency Statutory Missions 7. Mitigation K. Regulatory Notices and Analyses 1. Executive Order 12866, Executive Order 13563, and DOT Regulatory Policies and Procedures 2. National Environmental Policy Act 3. Clean Air Act (CAA) as Applied to NHTSA's Action 4. National Historic Preservation Act (NHPA) 5. Fish and Wildlife Conservation Act (FWCA) 6. Coastal Zone Management Act (CZMA) 7. Endangered Species Act (ESA) 8. Floodplain Management (Executive Order 11988 and DOT Order 5650.2) 9. Preservation of the Nation's Wetlands (Executive Order 11990 and DOT Order 5660.1a) 10. Migratory Bird Treaty Act (MBTA), Bald and Golden Eagle Protection Act (BGEPA), Executive Order 13186 11. Department of Transportation Act (Section 4(f)) 12. Regulatory Flexibility Act 13. Executive Order 13132 (Federalism) 14. Executive Order 12988 (Civil Justice Reform) 15. Unfunded Mandates Reform Act 16. Regulation Identifier Number 17. Executive Order 13045 18. National Technology Transfer and Advancement Act 19. Executive Order 13211 20. Department of Energy Review 21. Privacy Act I. Overview of Joint EPA/NHTSA Final 2017-2025 National Program A. Executive Summary 1. Purpose of the Regulatory Action a. The Need for the Action and How the Action Addresses the Need

NHTSA, on behalf of the Department of Transportation, and EPA are issuing final rules to further reduce greenhouse gas emissions and improve fuel economy for light-duty vehicles for model years 2017 and beyond. On May 21, 2010, President Obama issued a Presidential Memorandum requesting that EPA and NHTSA develop through notice and comment rulemaking a coordinated National Program to improve fuel economy and reduce greenhouse gas emissions of light-duty vehicles for model years 2017-2025, building on the success of the first phase of the National Program for these vehicles for model years 2012-2016. These final rules are consistent with the President's request and respond to the country's critical need to address globalclimate change and to reduce oil consumption.

These standards apply to passenger cars, light-duty trucks, and medium-duty passenger vehicles (i.e. sport utility vehicles, cross-over utility vehicles, and light trucks), and represent the continuation of a harmonized and consistent National Program for these vehicles. Under the National Program automobile manufacturers will be able to continue building a single light-duty national fleet that satisfies all requirements under both programs.

The National Program is estimated to save approximately 4 billion barrels of oil and to reduce GHG emissions by the equivalent of approximately 2 billion metric tons over the lifetimes of those light duty vehicles produced in MYs 2017-2025. The agencies project that fuel savings will far outweigh higher vehicle costs, and that the net benefits to society of the MYs 2017-2025 National Program will be in the range of $326 billion to $451 billion (7 and 3 percent discount rates, respectively) over the lifetimes of those light duty vehicles sold in MYs 2017-2025.

The National Program is projected to provide significant savings for consumers due to reduced fuel use. Although the agencies estimate that technologies used to meet the standards will add, on average, about $1,800 to the cost of a new light duty vehicle in MY 2025, consumers who drive their MY 2025 vehicle for its entire lifetime will save, on average, $5,700 to $7,400 (7 and 3 percent discount rates, respectively) in fuel, for a net lifetime savings of $3,400 to $5,000. This estimate assumes gasoline prices of $3.87 per gallon in 2025 with small increases most years throughout the vehicle's lifetime.

b. Legal Authority

EPA and NHTSA are finalizing separate sets of standards for passenger cars and for light trucks, under their respective statutory authority. EPA is setting national CO2emissions standards for passenger cars and light-trucks under section 202 (a) of the Clean Air Act (CAA) ((42 U.S.C. 7521 (a)), and under its authority to measure passenger car and passenger car fleet fuel economy pursuant to the Energy Policy and Conservation Act (EPCA) 49 U.S.C. 32904 (c). NHTSA is setting national corporate average fuel economy (CAFE) standards under the Energy Policy and Conservation Act (EPCA), as amended by the Energy Independence and Security Act (EISA) of 2007 (49 U.S.C. 32902).

Section 202 (a) of the Clean Air Act requires EPA to establish standards for emissions of pollutants from new motor vehicles which emissions cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare.See Coalition for Responsible Regulationv.EPA,No. 09-1322 (D.C. Cir. June 26, 2012) slip op. p. 41 (“'[i]f EPA makes a finding of endangerment, the Clean Air Act requires the [a]gency to regulate emissions of the deleterious pollutant from new motor vehicles. `* * * Given the non-discretionary duty in Section 202 (a)(1) and the limited flexibility available under Section 202 (a)(2), which this court has held relates only to the motor-vehicle industry,* * * EPA had no statutory basis on which it could `ground [any] reasons for further inaction” (quotingState of Massachusettsv.EPA,549 U.S. 497, 533, 535 (2007). In establishing such standards, EPA must consider issues of technical feasibility, cost, and available lead time. Standards under section 202 (a) thus take effect only “after providing such period as the Administrator finds necessary to permit the development and application of the requisite technology, giving appropriate consideration to the cost of compliance within such period” (CAA section 202 (a)(2) (42 U.S.C. 7512 (a)(2)).

EPCA, as amended by EISA, contains a number of provisions regarding how NHTSA must set CAFE standards. EPCA requires that NHTSA establish separate passenger car and light truck standards (49 U.S.C. 32902(b)(1)) at “the maximum feasible average fuel economy level that it decides the manufacturers can achieve in that model year (49 U.S.C. 32902(a)),” based on the agency's consideration of four statutory factors: Technological feasibility, economic practicability, the effect of other standards of the Government on fuel economy, and the need of the nation to conserve energy (49 U.S.C. 32902(f)). EPCA does not define these terms or specify what weight to give each concern in balancing them; thus, NHTSA defines them and determines the appropriate weighting that leads to the maximum feasible standards given the circumstances in each CAFE standard rulemaking. For MYs 2011-2020, EPCA further requires that separate standards for passenger cars and for light trucks be set at levels high enough to ensure that the CAFE of the industry-wide combined fleet of new passenger cars and light trucks reaches at least 35 mpg not later than MY 2020 (49 U.S.C. 32902(b)(2)(A))]. For model years 2021-2030, standards need simply be set at the maximum feasible level (49 U.S.C.32903(b)(2)(B).

Section I.E of the preamble contains a detailed discussion of both agencies' statutory authority.

2. Summary of the Major Provisions of the Final Rule

NHTSA and EPA are finalizing rules for light-duty vehicles that the agencies believe represent the appropriate levels of fuel economy and GHG emissions standards for model years 2017 and beyond pursuant to their respective statutory authorities.

a. Standards

EPA is establishing standards that are projected to require, on an average industry fleet wide basis, 163 grams/mile of carbon dioxide (CO2) in model year 2025, which is equivalent to 54.5 mpg if this level were achieved solely through improvements in fuel efficiency.3 Consistent with its statutory authority, NHTSA has developed two phases of passenger car and light truck standards in this rulemaking action. The first phase, from MYs 2017-2021, includes final standards that are projected to require, on an average industry fleet wide basis, a range from 40.3-41.0 mpg in MY 2021. The second phase of the CAFE program, from MYs 2022-2025, includes standards that are not final, due to the statutory requirement that NHTSA set average fuel economy standards not more than 5 model years at a time. Rather, those standards are augural, meaning that they represent NHTSA's current best estimate, based on the information available to the agency today, of what levels of stringency might be maximum feasible in those model years. NHTSA projects that those standards could require, on an average industry fleet wide basis, a range from 48.7-49.7 mpg in model year 2025.

3Real-world CO2is typically 25 percent higher and real-world fuel economy is typically 20 percent lower than the CO2and CAFE compliance values discussed here. 163g/mi would be equivalent to 54.5 mpg, if the entire fleet were to meet this CO2level through tailpipe CO2and fuel economy improvements. The agencies expect, however, that a portion of these improvements will be made through improvements in air conditioning leakage and through use of alternative refrigerants, which would not contribute to fuel economy.

Both the CO2and CAFE standards are footprint-based, as are the standards currently in effect for these vehicles through model year 2016. The standards will become more stringent on average in each model year from 2017 through 2025. Generally, the larger the vehicle footprint, the less numerically stringent the corresponding vehicle CO2emissions and MPG targets. As a result of the footprint-based standards, the burden of compliance is distributedacross all vehicle footprints and across all manufacturers. Manufacturers are not compelled to build vehicles of any particular size or type (nor do the rules create an incentive to do so), and each manufacturer will have its own fleet-wide standard that reflects the light duty vehicles it chooses to produce.

b. Mid-Term Evaluation

The agencies will conduct a comprehensive mid-term evaluation and agency decision-making process for the MYs 2022-2025 standards as described in the proposal. The mid-term evaluation reflects the rules' long time frame and, for NHTSA, the agency's statutory obligation to conduct ade novorulemaking in order to establish final standards for MYs 2022-2025. In order to align the agencies' proceedings for MYs 2022-2025 and to maintain a joint national program, EPA and NHTSA will finalize their actions related to MYs 2022-2025 standards concurrently. If the EPA determination is that standards may change, the agencies will issue a joint NPRM and joint final rules. NHTSA and EPA fully expect to conduct this mid-term evaluation in coordination with the California Air Resources Board, given our interest in maintaining a National Program to address GHG emissions and fuel economy. Further discussion of the mid-term evaluation is found in Sections III.B.3 and IV.A.3.b.

c. Compliance Flexibilities

As proposed, the agencies are finalizing several provisions which provide compliance flexibility to manufacturers to meet the standards without compromising the program's overall environmental and energy security objectives. Further discussion of compliance flexibilities is in Section C.4, II.F, III.B, III.C, IV.I.

Credit Averaging, Banking and Trading

The agencies are continuing to allow manufacturers to generate credits for over-compliance with the CO2and CAFE standards.4 A manufacturer will generate credits if its car and/or truck fleet achieves a fleet average CO2/CAFE level better than its car and/or truck standards. Conversely, a manufacturer will incur a debit/shortfall if its fleet average CO2/CAFE level does not meet the standard when all credits are taken into account. As in the prior CAFE and GHG programs, a manufacturer whose fleet generates credits in a given model year would have several options for using those credits, including credit carry-back, credit carry-forward, credit transfers, and credit trading.

4This credit flexibility is required by EPCA/EISA,see49 U.S.C. 32903, and is well within EPA's discretion under section 202 (a) of the CAA.

Air Conditioning Improvement Credits

As proposed, EPA is establishing that the maximum total A/C credits available for cars will be 18.8 grams/mile CO2-equivalent and 24.4 grams/mile for trucks CO2-equivalent.5 The approaches used to calculate these credits for direct and indirect A/C improvement (i.e., improvements to A/C leakage (including substitution of low GHG refrigerant) and A/C efficiency) are generally consistent with those of the MYs 2012-2016 program, although there are several revisions. Most notably, a new test for A/C efficiency, optional under the GHG program starting in MY 2014, will be used exclusively in MY 2017 and beyond. Under its EPCA authority, EPA proposed and is finalizing provisions to allow manufacturers to generate fuel consumption improvement values for purposes of CAFE compliance based on these same improvements in air conditioner efficiency.

5This is further broken down by 5.0 and 7.2 g/mi respectively for car and truck A/C efficiency credits, and 13.8 and 17.2 g/mi respectively for car and truck alternative refrigerant credits.

Off-Cycle Credits

EPA proposed and is finalizing provisions allowing manufacturers to continue to generate and use off-cycle credits to demonstrate compliance with the GHG standards. These credits are for measureable GHG emissions and fuel economy improvements attributable to use of technologies whose benefits are not measured by the two-cycle test mandated by EPCA. Under its EPCA authority, EPA proposed and is finalizing provisions to allow manufacturers to generate fuel consumption improvement values for purposes of CAFE compliance based on the use of off-cycle technologies.

Incentives for Electric Vehicles, Plug-in Hybrid Electric Vehicles, Fuel Cell Vehicles and Compressed Natural Gas Vehicles

In order to provide temporary regulatory incentives to promote the penetration of certain “game changing” advanced vehicle technologies into the light duty vehicle fleet, EPA is finalizing, as proposed, an incentive multiplier for CO2emissions compliance purposes for all electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs) sold in MYs 2017 through 2021. The incentives are expected to promote increased application of these advanced technologies in the program's early model years, which could achieve economies of scale that will support the wider application of these technologies to help achieve the more stringent standards in MYs 2022-2025. In addition, in response to public comments persuasively explaining how infrastructure for compressed natural gas (CNG) vehicles could serve as a bridge to use of advanced technologies such as hydrogen fuel cells, EPA is finalizing an incentive multiplier for CNG vehicles sold in MYs 2017 through 2021.

NHTSA currently interprets EPCA and EISA as precluding it from offering incentives for the alternative fuel operation of EVs, PHEVs, FCVs, and NGVs, except as specified by statute, and thus did not propose and is not including incentive multipliers comparable to the EPA incentive multipliers described above.

Incentives for Use of Advanced Technologies Including Hybridization for full-Size Pick-up Trucks

The agencies recognize that the standards presented in this final rule for MYs 2017-2025 will be challenging for large vehicles, including full-size pickup trucks. To help address this challenge, the program will, as proposed, contain incentives for the use of hybrid electric and other advanced technologies in full-size pickup trucks.

3. Costs and Benefits of National Program

It is important to note that NHTSA's CAFE standards and EPA's GHG standards will both be in effect, and both will lead to increases in average fuel economy and reductions in GHGs. The two agencies' standards together comprise the National Program, and the following discussions of the respective costs and benefits of NHTSA's CAFE standards and EPA's GHG standards does not change the fact that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program.

The costs and benefits projected by NHTSA to result from the CAFE standards are presented first, followed by those projected by EPA to result from the GHG emissions standards. For several reasons, the estimates for costs and benefits presented by NHTSA and EPA for their respective rules, while consistent, are not directly comparable, and thus should not be expected to be identical. See Section I.D of the preamble for further details and discussion.

NHTSA has analyzed in detail the projected costs and benefits for the 2017-2025 CAFE standards for light-duty vehicles. NHTSA estimates that the fuel economy increases would lead to fuel savings totaling about 170 billion gallons throughout the lives of light duty vehicles sold in MYs 2017-2025. At a 3 percent discount rate, the present value of the economic benefits resulting from those fuel savings is between $481 billion and $488 billion; at a 7 percent private discount rate, the present value of the economic benefits resulting from those fuel savings is between $375 billion and $380 billion. The agency further estimates that these new CAFE standards will lead to corresponding reductions in CO2emissions totaling 1.8 billion metric tons during the lives of light duty vehicles sold in MYs 2017-2025. The present value of the economic benefits from avoiding those emissions is approximately $49 billion, based on a global social cost of carbon value of about $26 per metric ton (in 2017, and growing thereafter).

The Table below shows NHTSA's estimated overall lifetime discounted costs and benefits, and net benefits for the model years 2017-2025 CAFE standards.

NHTSA's Estimated MYs 2017-2021 and MYs 2017-2025 Costs, Benefits, and Net Benefits (Billions of 2010 dollars)) under the CAFE Standards6 Baseline fleet Totals 3% Discount rate 7% Discount rate Annualized 3% Discount rate 7% Discount rate Cumulative for MYs 2017-2021 Final Standards Costs 2010 ($61)- ($58)- ($2.4)- ($3.6)- 2008 ($57) ($54) ($2.2) ($3.3) Benefits 2010 $243- $195- $9.2- $11.3- 2008 $240 $194 $9.0 $11.0 Net Benefits 2010 $183- $137- $6.8- $7.7- 2008 $184 $141 $6.8 $7.8 Cumulative for MYs 2017—2025 (Includes MYs 2022-2025 Augural Standards) Costs 2010 ($154)- ($147)- ($5.4)- ($7.6)- 2008 ($156) ($148) ($5.4) ($7.5) Benefits 2010 $629- $502- $21.0- $24.2- 2008 $639 $510 $21.3 $24.4 Net Benefits 2010 $476- $356- $15.7- $16.7- 2008 $483 $362 $15.9 $16.9

6“The “Estimated Achieved” analysis includes accounting for compliance flexibilities and advanced technologies that manufacturers may voluntarily use for compliance, but that NHTSA is prohibited from considering when determining the maximum feasible level of new CAFE standards.

EPA has analyzed in detail the projected costs and benefits of the 2017-2025 GHG standards for light-duty vehicles. The Table below shows EPA's estimated lifetime discounted cost, fuel savings, and benefits for all such vehicles projected to be sold in model years 2017-2025. The benefits include impacts such as climate-related economic benefits from reducing emissions of CO2(but not other GHGs), reductions in energy security externalities caused by U.S. petroleum consumption and imports, the value of certain particulate matter-related health benefits (including premature mortality), the value of additional driving attributed to the VMT rebound effect, the value of reduced refueling time needed to fill up a more fuel efficient vehicle. The analysis also includes estimates of economic impacts stemming from additional vehicle use, such as the economic damages caused by accidents, congestion and noise (from increased VMT rebound driving).

EPA's Estimated 2017-2025 Model Year Lifetime Discounted Costs, Benefits, and Net Benefits Assuming the 3% Discount Rate SCC Value7(Billions of 2010 dollars) Lifetime Present Valued—3% Discount Rate Program Costs $150 Fuel Savings 475 Benefits 126 Net Benefitsd 451 Annualized Valuef—3% Discount Rate Annualized costs 6.49 Annualized fuel savings 20.5 Annualized benefits 5.46 Net benefits 19.5 Lifetime Present Valued—7% Discount Rate Program Costs 144 Fuel Savings 364 Benefits 106 Net Benefitse 326 Annualized Valuef—7% Discount Rate Annualized costs 10.8 Annualized fuel savings 27.3 Annualized benefits 7.96 Net benefits 24.4 B. Introduction

7Further notes and details concerning these SCC. Value are found in Section I.D.2. Table I-17.

EPA is announcing final greenhouse gas emissions standards for model years 2017-2025 and NHTSA is announcing final Corporate Average Fuel Economy standards for model years 2017-2021 and issuing augural8 standards formodel years (MYs) 2022-2025. These rules establish strong and coordinated Federal greenhouse gas and fuel economy standards for passenger cars, light-duty trucks, and medium-duty passenger vehicles (hereafter light-duty vehicles or LDVs). Together, these vehicle categories, which include passenger cars, sport utility vehicles, crossover utility vehicles, minivans, and pickup trucks, among others, are presently responsible for approximately 60 percent of all U.S. transportation-related greenhouse gas (GHG) emissions and fuel consumption. These final rules extend the MYs 2012-2016 National Program by establishing more stringent Federal light-duty vehicle GHG emissions and corporate average fuel economy (CAFE) standards in MYs 2017 and beyond. This coordinated program will achieve important reductions in GHG emissions and fuel consumption from the light-duty vehicle part of the transportation sector, based on technologies that either are commercially available or that the agencies project will be commercially available in the rulemaking timeframe and that can be incorporated at a reasonable cost. Higher initial vehicle costs will be more than offset by significant fuel savings for consumers over the lives of the vehicles covered by this rulemaking. NHTSA's final rule also constitutes the agency's Record of Decision for purposes of its NEPA analysis.

8For the NPRM/PRIA/Draft EIS, NHTSA described the proposed standards for MYs 2022-2025 as “conditional.” “Conditional” was understood and objected to by some readers as implying that the future proceeding would consist merely of a confirmation of the conclusions and analysis of the current rulemaking, which would be incorrect and inconsistent with the agency's obligations under both EPCA/EISA and the Administrative Procedure Act. The agency must conduct a de novo rulemaking for MYs 2022-2025. To avoid creating an incorrect impression, the agency is changing the descriptor for the MY 2022-2025 standards that are presented and discussed in these documents. The descriptor must convey thatthe standards we are now presenting for MYs 2022-2025 reflect the agency's current best judgment of what we would have set at this time had we the authority to do so, but also avoid suggesting that the future process for establishing final standards for MYs 2022-2025 would be anything other than a new and separate rulemaking based on the freshly gathered and solicited information before the agency at that future time and on a fresh assessing and balancing of all statutorily relevant factors, in light of the considerations existing at the time of that rulemaking. The agency deliberated extensively, considering many alternative descriptors, and concluded that the best descriptor was “augural,” from the verb “to augur,” meaning to foretell future events based on current information (as in, “these standards may augur well for what the agency might establish in the future”). This is precisely what the MYs 2022-2025 standards presented in these documents are—our effort to help interested parties anticipate the future by providing our current best judgment as to what standards we would now set, based on the information before us today, recognizing that our future decision as to what standards we will actually set will be based on the information then before us.

This joint rulemaking builds on the success of the first phase of the National Program to regulate fuel economy and GHG emissions from U.S. light-duty vehicles, which established strong and coordinated standards for MYs 2012-2016. As with the MY 2012-2016 final rules, a key element in developing this rulemaking was the agencies' discussions with automobile manufacturers, the California Air Resources Board (CARB) and many other stakeholders. During the extended public comment period, the agencies received nearly 300,000 written comments (and nearly 400 oral comments through testimony at three public hearings held in Detroit, Philadelphia and San Francisco) on this rule and received strong support from most auto manufacturers, the United Auto Workers (UAW), nongovernmental organizations (NGOs), consumer groups, national security experts and veterans, State/local government and auto suppliers.

Continuing the National Program in coordination with California will help to ensure that all manufacturers can build a single fleet of vehicles that satisfy all requirements under both federal programs as well as under California's program,9 which will in turn help to reduce costs and regulatory complexity while providing significant energy security, consumer savings, and environmental benefits.10

9Section I.B.4 provides a explanation of California's authority to set air pollution standards for vehicles.

10The California Air Resources Board (CARB) adopted California MYs 2017-2025 GHG emissions standards on January 26, 2012. At its March 22, 2012 meeting the Board gave final approval to the California standards. The Board directed CARB's Executive Officer to “continue collaborating with EPA and NHTSA as their standards are finalized and in the mid-term review * * *” and the Board also reconfirmed its commitment to propose to revise its GHG emissions standards for MYs 2017 to 2025 “to accept compliance with the 2017 through 2025 MY National Program as compliance with California's greenhouse gas emission standards in the 2017 through 2025 model years if the Executive Officer determines that U.S. EPA has adopted a final rule that at a minimum preserve greenhouse reductions benefits set forth” in the NPRM issued by EPA on December 1, 2011. State of California Air Resources Board, Resolution 12-11, January 26, 2012, at 20.Available at http://www.arb.ca.gov/regact/2012/cfo2012/res12-11.pdf(last accessed July 9, 2012).

Combined with the standards already in effect for MYs 2012-2016, as well as the MY 2011 CAFE standards, the final standards will result in MY 2025 light-duty vehicles with nearly double the fuel economy, and approximately one-half of the GHG emissions compared to MY 2010 vehicles—representing the most significant federal actions ever taken to reduce GHG emissions and improve fuel economy in the U.S.

EPA is establishing standards that are projected to require, on an average industry fleet wide basis, 163 grams/mile of carbon dioxide (CO2) in model year 2025, which is equivalent to 54.5 mpg if this level were achieved solely through improvements in fuel efficiency.11 Consistent with its statutory authority,12 NHTSA has developed two phases of passenger car and light truck standards in this rulemaking action. The first phase, from MYs 2017-2021, includes final standards that are projected to require, on an average industry fleet wide basis, a range from 40.3-41.0 mpg in MY 2021.13 The second phase of the CAFE program, from MYs 2022-2025, includes standards that are not final due to the statutory provision that NHTSA shall issue regulations prescribing average fuel economy standards for at least 1 but not more than 5 model years at a time.14 The MYs 2022-2025 CAFE standards, then, are not final based on this rulemaking, but rather augural, meaning that they represent the agency's current judgment, based on the information available to the agency today, of what levels of stringency would be maximum feasible in those model years. NHTSA projects that those standards could require, on an average industry fleet wide basis, a range from 48.7-49.7 mpg in model year 2025. The agencies note that these estimated combined fleet average mpg levels are projections and, in fact the agencies are establishing separate standards for passenger cars and trucks, based on a vehicle's size or “footprint,” and the actual average achieved fuel economy and GHG emissions levels will be determined by the actual footprints and production volumes of the vehicle models that are produced. NHTSA will undertake ade novorulemaking at a later date to set legally binding CAFE standards for MYs 2022-2025.See Section IV for more information. The agencies will conduct a comprehensive mid-term evaluation and agency decision-making process for the MYs 2022-2025 standards as described in the proposal. The mid-term evaluation reflects the rules' long time frame and, for NHTSA, the agency's statutory obligation to conductde novorulemaking in order to establish final standards for vehicles for those model years. In order to align the agencies' proceedings for MYs 2022-2025 and to maintain a joint national program, EPA and NHTSA will finalize their actions related to MYs 2022-2025 standards concurrently.

11Real-world CO2is typically 25 percent higher and real-world fuel economy is typically 20 percent lower than the CO2and CAFE compliance values discussed here. 163g/mi would be equivalent to 54.5 mpg, if the entire fleet were to meet this CO2level through tailpipe CO2and fuel economy improvements. The agencies expect, however, that a portion of these improvements will be made through improvements in air conditioning leakage and use of alternative refrigerants, which would not contribute to fuel economy.

1249 U.S.C. 32902.

13The range of values here and through this rulemaking document reflect the results of co-analyses conducted by NHTSA using two different light-duty vehicle market forecasts through model year 2025. To evaluate the effects of the standards, the agencies must project what vehicles and technologies will exist in future model years and then evaluate what technologies can feasibly be applied to those vehicles to raise their fuel economy and reduce their greenhouse gas emissions. To project the future fleet, the agencies must develop a baseline vehicle fleet. For this final rule, the agencies have analyzed the impacts of the standards using two different forecasts of the light-duty vehicle fleet through MY 2025. The baseline fleets are discussed in detail in Section II.B of this preamble, and in Chapter 2 of the Technical Support Document. EPA's sensitivity analysis of the alternative fleet is included in Chapter 10 of its RIA.

1449 U.S.C. 32902(b)(3)(B).

The agencies project that manufacturers will comply with the final rules by using a range of technologies, including improvements in air conditioning efficiency, which reduce both GHG emissions and fuel consumption. Compliance with EPA's GHG standards is also likely to be achieved through improvements in air conditioning system leakage and through the use of alternative air conditioning refrigerants with a lower global warming potential (GWP), which reduce GHGs (i.e., hydrofluorocarbons) but which do not generally improve fuel economy. The agencies believe there is a wide range of technologies already available to reduce GHG emissions and improve fuel economy from both passenger cars and trucks. The final rules facilitate long-term planning by manufacturers and suppliers for the continued development and deployment across their fleets of fuel saving and GHG emissions-reducing technologies. The agencies believe that advances in gasoline engines and transmissions will continue for the foreseeable future, and that there will be continual improvement in other technologies, including vehicle weight reduction, lower tire rolling resistance, improvements in vehicle aerodynamics, diesel engines, and more efficient vehicle accessories. The agencies also expect to see increased electrification of the fleet through the expanded production of stop/start, hybrid, plug-in hybrid and electric vehicles. Finally, the agencies expect that vehicle air conditioners will continue to improve by becoming more efficient and by increasing the use of alternative refrigerants and lower leakage air conditioning systems. Many of these technologies are already available today, some on a limited number of vehicles while others are more widespread in the fleet, and manufacturers will be able to meet the standards through significant efficiency improvements in these technologies, as well as through a significant penetration of these and other technologies across the fleet. Auto manufacturers may also introduce new technologies that we have not considered for this rulemaking analysis, which could result in possible alternative, more cost-effective paths to compliance.

From a societal standpoint, this second phase of the National Program is estimated to save approximately 4 billion barrels of oil and to reduce GHG emissions by the equivalent of approximately 2 billion metric tons over the lifetimes of those light duty vehicles produced in MYs 2017-2025. These savings and reductions come on top of those that are being achieved through the MYs 2012-2016 standards.15 The agencies project that fuel savings will far outweigh higher vehicle costs, and that the net benefits to society of the MYs 2017-2025 National Program will be in the range of $326 billion to $451 billion (7 and 3 percent discount rates, respectively) over the lifetimes of those light duty vehicles sold in MY 2017-2025.

15The cost and benefit estimates provided in this final rule are only for the MYs 2017-2025 rulemaking. EPA and DOT's rulemaking establishing standards for MYs 2012-2016 are already part of the baseline for this analysis.

These final standards are projected to provide significant savings for consumers due to reduced fuel use. Although the agencies estimate that technologies used to meet the standards will add, on average, about $1,800 to the cost of a new light duty vehicle in MY 2025, consumers who drive their MY 2025 vehicle for its entire lifetime will save, on average, $5,700 to $7,400 (7 and 3 percent discount rates, respectively) in fuel, for a net lifetime savings of $3,400 to $5,000. This estimate assumes gasoline prices of $3.87 per gallon in 2025 with small increases most years throughout the vehicle's lifetime.16 For those consumers who purchase their new MY 2025 vehicle with cash, the discounted fuel savings will offset the higher vehicle cost in roughly 3.3 years, and fuel savings will continue for as long as the consumer owns the vehicle. Those consumers that buy a new vehicle with a typical 5-year loan will immediately benefit from an average monthly cash flow savings of about $12 during the loan period, or about $140 per year, on average. So this type of consumer would benefit immediately from the time of purchase: the increased monthly fuel savings would more than off