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Proposed Rulemaking To Establish Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards
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PDF Version (50 pp, 1533K, About PDF) [Federal Register: September 28, 2009 (Volume 74, Number 186)] [Proposed Rules] [Page 49703-49752] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr28se09-29] Proposed Rulemaking To Establish Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards [[Continued from page 49702]] [[Page 49703]] [GRAPHIC] [TIFF OMITTED] TP28SE09.045 [GRAPHIC] [TIFF OMITTED] TP28SE09.046 The agency began the process of winnowing the alternatives by determining whether any of the lower stringency alternatives should be eliminated from consideration. To begin with, the agency needs to ensure that its standards are high enough to enable the combined fleet of passenger cars and light trucks to achieve at least 35 mpg not later than MY 2020, as required by EISA. Achieving that level makes it necessary for the chosen alternative to increase at over 3 percent annually. NHTSA has concluded that it must reject the 3%/y and 4%/y alternatives. Given that CO2 and fuel savings are very closely correlated, the above chart reveals that the 3%/y and 4%/y alternative would not produce the reductions in fuel savings and CO2 emissions that the Nation needs at this time. Picking either of those alternatives would unnecessarily result in foregoing substantial benefits, in terms of fuel [[Page 49704]] savings and reduced CO2 emissions, which would be achievable at reasonable cost. Further, NHTSA has tentatively concluded that it must reject the 3%/y and 4%/y alternatives, as neither would lead to the regulatory harmonization that forms a vital core principle of the National Program that EPA and NHTSA are jointly striving to implement. In order to achieve a harmonized National Program, an average annual increase of 4.3% is necessary. In contrast, at the upper end of the range of alternatives, the agency was concerned that the increased benefits offered by those alternatives were available only at excessive cost and might not be practicable in all cases within the available leadtime. NHTSA first considered the environmentally-preferable alternative. Based on the information provided in the DEIS, the environmentally- preferable alternative would be that involving stringencies at which total costs most nearly equal total benefits. NHTSA notes that NEPA does not require that agencies choose the environmentally-preferable alternative if doing so would be contrary to the choice that the agency would otherwise make under its governing statute. Given the levels of stringency required by the environmentally-preferable alternative and the lack of lead time to achieve such levels between now and MY 2016, NHTSA tentatively concludes that the environmentally-preferable alternative would not be economically practicable or technologically feasible, and thus tentatively concludes that it would result in standards that would be beyond the level achievable for MYs 2012-2016. NHTSA determined that it would be inappropriate to propose any of the other more stringent alternatives due to concerns over lead time and economic practicability. At a time when the entire industry remains in an economically critical state, the agencies believe that it would be unreasonable to propose more stringent standards. Even in a case where economic factors were not a consideration, there are real-world time constraints which must be considered due to the short lead time available for the early years of this program, in particular for MYs 2012 and 2013. As revealed by the figures shown above, the proposed standards already require aggressive application of technologies, and more stringent standards which would require more widespread use (including more substantial implementation of advanced technologies such as stoichiometric gasoline direct injection engines and strong hybrids) raise serious issues of adequacy of lead time, not only to meet the standards but to coordinate such significant changes with manufacturers' redesign cycles. NHTSA does not believe that more stringent standards would meet EPCA's requirement that CAFE standards be economically practicable. The figures presented above reveal that increasing stringency beyond the proposed standards would entail significant additional application of technology--technology that, though perhaps feasible for individual vehicle models, would not be economically practicable for the industry at the scales involved. Among the more stringent alternatives, the one closest in stringency to the standards proposed today is the alternative under which combined CAFE stringency increases at 5% annually. As indicated above, this alternative would yield fuel savings and CO2 reductions about 12% and 9% higher, respectively, than the proposed standards. However, compared to the proposed standards, this alternative would increase outlays for new technologies during MY 2012-2016 by about 24%, or $14b. Average MY 2016 cost increases would, in turn, rise from $1,076 under the proposed standards to $1,409 when stringency increases at 5% annually. This represents a 30% increase in per-vehicle cost for only a 3% increase in average performance (on a gallon-per-mile basis to which fuel savings are proportional). The following three tables summarize estimated manufacturer-level average incremental costs for the 5%/y alternative and the average of the passenger and light truck fleets: Table IV.F.3--Average Incremental Costs ($/Vehicle) Under the 5%/y Alternative CAFE Standards for Passenger Cars ---------------------------------------------------------------------------------------------------------------- Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 ---------------------------------------------------------------------------------------------------------------- BMW............................. 474 541 667 883 1,190 Chrysler........................ 726 1,464 1,832 1,928 1,913 Daimler......................... 132 209 814 1,094 1,467 Ford............................ 979 1,556 1,572 1,918 2,181 General Motors.................. 94 934 1,242 1,541 1,808 Honda........................... 55 263 408 451 671 Hyundai......................... 518 531 943 1,007 1,152 Kia............................. 180 344 440 612 796 Mazda........................... 603 919 1,294 1,569 1,863 Mitsubishi...................... 1,106 1,141 2,594 2,962 2,913 Nissan.......................... 298 587 1,344 1,402 1,517 Porsche......................... 209 240 350 465 581 Subaru.......................... 353 454 1,828 2,258 2,201 Suzuki.......................... 204 1,453 2,444 2,580 2,624 Tata............................ 202 239 428 632 1,350 Toyota.......................... 133 127 194 285 446 Volkswagen...................... 231 550 688 828 1,202 ------------------------------------------------------------------------------- Average..................... 337 664 916 1,079 1,291 ---------------------------------------------------------------------------------------------------------------- Table IV.F.4--Average Incremental Costs ($/Vehicle) Under the 5%/y Alternative CAFE Standards for Light Trucks ---------------------------------------------------------------------------------------------------------------- Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 ---------------------------------------------------------------------------------------------------------------- BMW............................ 297 306 403 753 935 Chrysler....................... 113 475 1,058 1,271 1,538 [[Page 49705]] Daimler........................ 172 198 227 459 528 Ford........................... 732 1,201 1,685 2,345 2,380 General Motors................. ............... 786 1,121 1,275 1,457 Honda.......................... 646 614 1,139 1,265 1,624 Hyundai........................ 990 1,009 2,106 2,206 2,148 Kia............................ ............... 309 713 1,181 1,692 Mazda.......................... 434 608 612 722 953 Mitsubishi..................... 11 88 2,102 2,081 2,817 Nissan......................... 793 891 1,419 1,535 1,907 Porsche........................ (17) 55 117 962 1,009 Subaru......................... 1,398 1,370 1,501 1,441 1,486 Suzuki......................... 6 2,169 2,093 2,028 2,155 Tata........................... ............... 77 160 242 695 Toyota......................... 113 427 906 1,065 1,291 Volkswagen..................... (11) 55 127 209 286 -------------------------------------------------------------------------------- Average.................... 373 742 1,179 1,449 1,641 ---------------------------------------------------------------------------------------------------------------- Table IV.F.5--Average Incremental Costs ($/Vehicle) Under the 5%/y Alternative CAFE Standards ---------------------------------------------------------------------------------------------------------------- Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 ---------------------------------------------------------------------------------------------------------------- BMW............................. 415 469 590 848 1,123 Chrysler........................ 351 888 1,392 1,632 1,747 Daimler......................... 148 205 591 884 1,167 For[caret]d..................... 872 1,401 1,623 2,110 2,269 General Motors.................. 52 868 1,189 1,426 1,660 Honda........................... 272 386 638 701 955 Hyundai......................... 610 625 1,167 1,228 1,330 Kia............................. 143 337 489 707 942 Mazda........................... 571 862 1,181 1,443 1,732 Mitsubishi...................... 959 975 2,525 2,854 2,902 Nissan.......................... 462 683 1,367 1,441 1,627 Porsche......................... 120 172 272 623 717 Subaru.......................... 743 787 1,709 1,964 1,942 Suzuki.......................... 152 1,637 2,349 2,434 2,504 Tata............................ 71 144 267 420 1,001 Toyota.......................... 125 233 440 549 724 Volkswagen...................... 182 460 586 716 1,043 ------------------------------------------------------------------------------- Average..................... 350 692 1,010 1,207 1,409 ---------------------------------------------------------------------------------------------------------------- These cost increases derive from accelerated application of advanced technologies as stringency increases past the levels in the proposed standards. For example, under the proposed standards, additional diesel application rates average 2% for the industry and range from 0% to 7% among Chrysler, Ford, GM, Honda, Nissan, and Toyota. Under standards increasing in combined stringency at 5% annually, these rates more than double, averaging 5% for the industry and ranging from 2% to 13% for the same six manufacturers. The agency tentatively concludes that the levels of technology penetration required by the proposed standards are reasonable. Increasing the standards beyond those levels would lead to rapidly increasing dependence on advanced technologies with higher costs, particularly in the early years of the rulemaking time frame, according to the agency's analysis, and potentially pose too great an economic burden given the state of the industry. In contrast, through analysis of the illustrative results shown above, as well as the more complete and detailed results presented in the accompanying PRIA, NHTSA has concluded that the proposed standards are technologically feasible and economically practicable. The proposed standards will require manufacturers to apply considerable additional technology. Although NHTSA cannot predict how manufacturers will respond to the proposed standards, the agency's analysis indicates that the standards could lead to significantly greater use of advanced engine and transmission technologies. As shown above, the agency's analysis shows considerable increases in the application of SGDI systems and engine turbocharging and downsizing. Though not presented above, the agency's analysis also shows similarly large increases in the use of dual-clutch automated manual transmissions (AMTs). However, the agency's analysis does not suggest that the additional application of these technologies in response to the proposed standards would extend beyond levels achievable by the industry. These technologies are likely to be applied to at least some extent even in the absence of new CAFE standards. In addition, the agency's analysis indicates that most manufacturers would rely only to a limited extent on the most expensive and advanced technologies, including diesel engines and strong HEVs. As shown above, NHTSA estimates that the proposed standards could lead to average incremental costs ranging [[Page 49706]] from $291 per vehicle (for light trucks in MY 2011) to $1,085 per vehicle (for passenger cars in MY 2016), increasing steadily from $421 per vehicle in for all light vehicles in MY 2011 $1,076 for all light vehicle in MY 2016. NHTSA estimates that these costs would vary considerably among manufacturers, but would rarely exceed $2,000 per vehicle. The following three tables summarize estimated manufacturer- level average incremental costs for the proposed standards and the average of the passenger and light truck fleets: Table IV.F.6--Average Incremental Costs ($/Vehicle) Under Proposed Passenger Car CAFE Standards ---------------------------------------------------------------------------------------------------------------- Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 ---------------------------------------------------------------------------------------------------------------- BMW............................. 524 552 634 828 1,124 Chrysler........................ 775 1,304 1,473 1,583 1,582 Daimler......................... 182 215 781 1,039 1,401 Ford............................ 1,746 1,719 1,735 1,880 2,078 General Motors.................. 143 990 1,189 1,387 1,553 Honda........................... 31 122 205 287 494 Hyundai......................... 418 452 643 726 868 Kia............................. 319 359 387 473 647 Mazda........................... 658 735 965 991 1,26 Mitsubishi...................... 1,156 1,076 1,715 2,076 2,035 Nissan.......................... 653 712 1,155 1,153 1,275 Porsche......................... 270 256 306 399 498 Subaru.......................... 408 465 1,493 1,877 1,838 Suzuki.......................... 259 1,001 1,445 1,494 1,675 Tata............................ 246 244 395 577 1,284 Toyota.......................... 133 127 155 257 267 Volkswagen...................... 286 561 650 767 1,125 ------------------------------------------------------------------------------- Average..................... 498 674 820 930 1,085 ---------------------------------------------------------------------------------------------------------------- Table IV.F.7--Average Incremental Costs ($/Vehicle) Under Proposed Light Truck CAFE Standards ---------------------------------------------------------------------------------------------------------------- Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 ---------------------------------------------------------------------------------------------------------------- BMW............................. 325 327 380 708 884 Chrysler........................ 152 399 749 892 1,188 Daimler......................... 322 289 316 420 478 Ford............................ 471 629 693 1,323 1,365 General Motors.................. 33 533 752 792 962 Honda........................... 390 380 616 749 1,006 Hyundai......................... 774 744 1,301 1,322 1,292 Kia............................. 228 373 547 843 1,218 Mazda........................... 340 608 610 679 776 Mitsubishi...................... 55 94 1,546 1,732 2,123 Nissan.......................... 541 608 903 1,022 1,312 Porsche......................... 28 46 84 913 954 Subaru.......................... 1,203 1,140 1,213 1,197 1,184 Suzuki.......................... 50 1,451 1,404 1,358 1,373 Tata............................ 44 83 127 193 635 Toyota.......................... 172 309 665 764 877 Volkswagen...................... 28 61 99 160 231 ------------------------------------------------------------------------------- Average..................... 291 485 701 911 1,058 ---------------------------------------------------------------------------------------------------------------- Table IV.F.8--Average Incremental Costs ($/Vehicle) Under Proposed CAFE Standards ---------------------------------------------------------------------------------------------------------------- Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 ---------------------------------------------------------------------------------------------------------------- BMW............................. 457 483 560 796 1,061 Chrysler........................ 393 777 1,061 1,271 1,408 Daimler......................... 236 243 604 834 1,106 Ford............................ 1,195 1,242 1,262 1,629 1,762 General Motors.................. 94 785 997 1,131 1,304 Honda........................... 162 212 335 429 647 Hyundai......................... 488 509 769 835 944 Kia............................. 300 362 416 535 740 Mazda........................... 598 712 907 944 1,193 Mitsubishi...................... 1,007 921 1,692 2,033 2,045 Nissan.......................... 616 679 1,078 1,115 1,286 Porsche......................... 174 179 231 562 643 Subaru.......................... 705 711 1,392 1,632 1,602 Suzuki.......................... 204 1,117 1,434 1,458 1,598 Tata............................ 115 150 234 368 938 Toyota.......................... 147 191 331 429 468 [[Page 49707]] Volkswagen...................... 233 470 550 657 970 ------------------------------------------------------------------------------- Average..................... 421 605 777 924 1,076 ---------------------------------------------------------------------------------------------------------------- In summary, NHTSA has considered eight regulatory alternatives, including the proposed standards, examining technologies that could be applied in response to each alternative, as well as corresponding costs, effects, and benefits. The agency has concluded that alternatives less stringent than the proposed standards would not produce the fuel savings and CO2 reductions necessary at this time to achieve either the overarching purpose of EPCA, i.e., energy conservation, or an important part of the regulatory harmonization underpinning the National Program. Conversely, the agency has concluded that more stringent standards would involve levels of additional technology and cost that, considering the fragile state of the automotive industry, would not be economically practicable. Therefore, having considered these eight regulatory alternatives, and the statutorily-relevant factors of technological feasibility, economic practicability, the effect of other motor vehicle standards of the Government on fuel economy, and the need of the United States to conserve energy, along with other relevant factors such as the safety impacts of the proposed standards,\580\ NHTSA tentatively concludes that the proposed standards represent a reasonable balancing of all of these concerns, and are the maximum feasible average fuel economy levels that the manufacturers can achieve in MYs 2012-2016. --------------------------------------------------------------------------- \580\ See Section IV.G.7 below. --------------------------------------------------------------------------- G. Impacts of the Proposed CAFE Standards 1. How Would These Proposed Standards Improve Fuel Economy and Reduce GHG Emissions for MY 2012-2016 Vehicles? As discussed above, the CAFE level required under an attribute- based standard depends on the mix of vehicles produced for sale in the U.S. Based on the market forecast that NHTSA and EPA have used to develop and analyze new CAFE and CO2 emissions standards, NHTSA estimates that the new CAFE standards will require CAFE levels to increase by an average of 4.3 percent annually through MY 2016, reaching a combined average fuel economy requirement of 34.1 mpg in that model year: Table IV.G.1-1--Average Required Fuel Economy (mpg) Under Proposed Standards ---------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 ---------------------------------------------------------------------------------------------------------------- Passenger Cars.................. 33.6 34.4 35.2 36.4 38.0 Light Trucks.................... 25.0 25.6 26.2 27.1 28.3 ------------------------------------------------------------------------------- Combined.................... 29.8 30.6 31.4 32.6 34.1 ---------------------------------------------------------------------------------------------------------------- NHTSA estimates that average achieved fuel economy levels will correspondingly increase through MY 2016, but that manufacturers will, on average, undercomply \581\ in some model years and overcomply \582\ in others, reaching a combined average fuel economy of 33.7 mpg in MY 2016: \583\ --------------------------------------------------------------------------- \581\ In NHTSA's analysis, ``undercompliance'' is mitigated either through use of FFV credits, use of existing or ``banked'' credits, or through fine payment. Because NHTSA cannot consider availability of credits in setting standards, the estimated achieved CAFE levels presented here do not account for their use. In contrast, because NHTSA is not prohibited from considering fine payment, the estimated achieved CAFE levels presented here include the assumption that BMW, Daimler (i.e., Mercedes), Porsche, and Tata (i.e., Jaguar and Rover) will only apply technology up to the point that it would be less expensive to pay civil penalties. \582\ In NHTSA's analysis, ``overcompliance'' occurs through multi-year planning: Manufacturers apply some ``extra'' technology in early model years (e.g., MY 2014) in order to carry that technology forward and thereby facilitate compliance in later model years (e.g., MY 2016) \583\ Consistent with EPCA, NHTSA has not accounted for manufacturers' ability to earn CAFE credits for selling FFVs, carry credits forward and back between model years, and transfer credits between the passenger car and light truck fleets. Table IV.G.1-2--Average Achieved Fuel Economy (mpg) Under Proposed Standards ---------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 ---------------------------------------------------------------------------------------------------------------- Passenger Cars.................. 32.9 34.2 35.2 36.5 37.6 Light Trucks.................... 24.9 25.7 26.5 27.4 28.1 ------------------------------------------------------------------------------- Combined.................... 29.3 30.5 31.5 32.7 33.7 ---------------------------------------------------------------------------------------------------------------- NHTSA estimates that these fuel economy increases will lead to fuel savings totaling 61.6 billion gallons during the useful lives of vehicles sold in MYs 2012-2016: [[Page 49708]] Table IV.G.1-3--Fuel Saved (Billion Gallons) [Under proposed standards] -------------------------------------------------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 Total -------------------------------------------------------------------------------------------------------------------------------------------------------- Passenger Cars.......................................... 2.5 5.3 7.5 9.4 11.4 36.0 Light Trucks............................................ 1.8 3.7 5.4 6.8 7.8 25.6 ----------------------------------------------------------------------------------------------- Combined............................................ 4.3 9.1 12.9 16.1 19.2 61.6 -------------------------------------------------------------------------------------------------------------------------------------------------------- The agency also estimates that these new CAFE standards will lead to corresponding reductions of CO2 emissions totaling 656 million metric tons (mmt) during the useful lives of vehicles sold in MYs 2012-2016: Table IV.G.1-4--Avoided Carbon Dioxide Emissions (mmt) Under Proposed Standards ---------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 Total ---------------------------------------------------------------------------------------------------------------- Passenger Cars............................................ 25 56 79 99 121 381 Light Trucks.............................................. 19 40 58 73 85 275 ----------------------------------------------------- Combined.............................................. 44 96 137 173 206 656 ---------------------------------------------------------------------------------------------------------------- 2. How Would These Proposed Standards Improve Fleet-Wide Fuel Economy and Reduce GHG Emissions Beyond MY 2016? Under the assumption that CAFE standards at least as stringent as those proposed for MY 2016 would be established for subsequent model years, the effects of the proposed standards on fuel consumption and GHG emissions will continue to increase for many years. This will occur because over time, a growing fraction of the U.S. light-duty vehicle fleet will be comprised of cars and light trucks that meet the MY 2016 standard. The impact of the proposed standards on fuel use and GHG emissions will continue to grow through approximately 2050, when virtually all cars and light trucks in service will have met the MY 2016 standard. As Table IV.G.2-1 shows, NHTSA estimates that the fuel economy increases resulting from the proposed standards will lead to reductions in total fuel consumption by cars and light trucks of 9 billion gallons during 2020, increasing to 30 billion gallons by 2050. Over the period from 2012--when the proposed standards would begin to take effect-- through 2050, cumulative fuel savings would total 693 billion gallons, as Table IV.G.2-1 also indicates. Table IV.G.2-1--Reduction in Fleet-Wide Fuel Use (Billion Gallons) Under Proposed Standards ---------------------------------------------------------------------------------------------------------------- Total, Calendar year 2020 2030 2040 2050 2012-2050 ---------------------------------------------------------------------------------------------------------------- Passenger Cars........................................... 5 12 16 19 431 Light Trucks............................................. 4 7 9 11 262 ------------------------------------------------------ Combined............................................. 9 19 25 30 693 ---------------------------------------------------------------------------------------------------------------- As a consequence of these reductions in fleet-wide fuel consumption, the agency also estimates that the proposed CAFE standards for MYs 2012-2016 will lead to corresponding reductions in CO2 emissions from the U.S. light-duty vehicle fleet. Specifically, NHTSA estimates that total CO2 emissions associated with passenger car and light truck use in the U.S. use will decline by 111 million metric tons (mmt) during 2020 as a consequence of the proposed standards, as Table IV.G.2-2 reports. The table also shows that the this reduction is estimated to grow to 355 million metric tons by the year 2050, and will total 8,247 million metric tons over the period from 2012, when the proposed standards would take effect, through 2050. Table IV.G.2-2--Reduction in Fleet-Wide Carbon Dioxide Emissions (mmt) From Passenger Car and Light Truck Use Under Proposed Standards ---------------------------------------------------------------------------------------------------------------- Total, Calendar year 2020 2030 2040 2050 2012-2050 ---------------------------------------------------------------------------------------------------------------- Passenger Cars........................................... 64 144 186 222 5,117 Light Trucks............................................. 47 87 110 132 3,130 ------------------------------------------------------ Combined............................................. 111 231 295 355 8,247 ---------------------------------------------------------------------------------------------------------------- [[Page 49709]] These reductions in fleet-wide CO2 emissions, together with corresponding reductions in other GHG emissions from fuel production and use, would lead to small but significant reductions in projected changes in the future global climate. These changes are summarized in Table IV.G.2-3 below. Table IV.G.2-3--Effects of Reductions in Fleet-Wide Carbon Dioxide Emissions (mmt) On Projected Changes in Global Climate ---------------------------------------------------------------------------------------------------------------- Projected change in measure -------------------------------------------------- Measure Units Date With proposed No action standards Difference ---------------------------------------------------------------------------------------------------------------- Atmospheric CO2 Concentration... ppm............... 2100 783.0 780.3 -2.7 Increase in Global Mean Surface [deg]C............ 2100 3.136 3.126 -0.010 Temperature. Sea Level Rise.................. cm................ 2100 38.00 37.91 -0.09 Global Mean Precipitation....... % change from 1980- 2090 4.59% 4.57% -0.02% 1999 avg.. ---------------------------------------------------------------------------------------------------------------- 3. How Would These Proposed Standards Impact Non-GHG Emissions and Their Associated Effects? Under the assumption that CAFE standards at least as stringent as those proposed for MY 2016 would be established for subsequent model years, the effects of the proposed standards on air quality and its associated health effects will continue to be felt over the foreseeable future. This will occur because over time a growing fraction of the U.S. light-duty vehicle fleet will be comprised of cars and light trucks that meet the MY 2016 standard, and this growth will continue until approximately 2050. Increases in the fuel economy of light-duty vehicles required by the proposed CAFE standards will cause a slight increase in the number of miles they are driven, through the fuel economy ``rebound effect.'' In turn, this increase in vehicle use will lead to increases in emissions of criteria air pollutants and some airborne toxics, since these are products of the number of miles vehicles are driven. At the same time, however, the projected reductions in fuel production and use reported in Table IV.G.2-1 above will lead to corresponding reductions in emissions of these pollutants that occur during fuel production and distribution (``upstream'' emissions). For most of these pollutants, the reduction in upstream emissions resulting from lower fuel production and distribution will outweigh the increase in emissions from vehicle use, resulting in a net decline in their total emissions. Tables IV.G.3-1a and 3-1b report estimated reductions in emissions of selected criteria air pollutants (or their chemical precursors) and airborne toxics expected to result from the proposed standards during calendar year 2030. By that date, the majority of light-duty vehicles in use will have met the proposed MY 2016 CAFE standards, so these reductions provide a useful index of the long-term impact of the proposed standards on air pollution and its consequences for human health. Table IV.G.3-1a--Projected Changes in Emissions of Criteria Air Pollutants From Car and Light Truck Use [Calendar year 2030; tons] ---------------------------------------------------------------------------------------------------------------- Criteria air pollutant --------------------------------------------------------------- Source of Volatile Vehicle class emissions Nitrogen Particulate Sulfur oxides organic oxides (NOX) matter (PM2.5) (SOX) compounds (VOC) ---------------------------------------------------------------------------------------------------------------- Passenger Cars................ Vehicle use..... 1,791 630 -2,375 2,157 Fuel production -19,022 -2,539 -11,363 -75,031 and distribution. --------------------------------------------------------------------------------- All sources..... -17,231 -1,909 -13,738 -72,874 ---------------------------------------------------------------------------------------------------------------- Light Trucks.................. Vehicle use..... 1,137 257 -1,401 1,094 Fuel production -11,677 -1,569 -7,031 -43,667 and distribution. --------------------------------------------------------------------------------- All sources..... -10,540 -1,312 -8,432 -42,573 --------------------------------------------------------------------------------- Total..................... Vehicle use..... 2,928 887 -3,776 3,251 Fuel production -30,699 -4,108 -18,394 -118,698 and distribution. --------------------------------------------------------------------------------- All sources..... -27,771 -3,221 -22,170 -115,447 ---------------------------------------------------------------------------------------------------------------- Table IV.F.3-1b--Projected Changes in Emissions of Airborne Toxics From Car and Light Truck Use [Calendar year 2030; tons] ---------------------------------------------------------------------------------------------------------------- Toxic air pollutant Vehicle class Source of emissions ----------------------------------------------- Benzene 1,3-Butadiene Formaldehyde ---------------------------------------------------------------------------------------------------------------- Passenger Cars........................ Vehicle use............. 67 19 72 [[Page 49710]] Fuel production and -158 -1 -54 distribution. ------------------------------------------------------------------------- All sources............. -91 18 18 ---------------------------------------------------------------------------------------------------------------- Light Trucks.......................... Vehicle use............. 45 9 32 Fuel production and -93 -1 -33 distribution. ------------------------------------------------------------------------- All sources............. -48 8 -1 ------------------------------------------------------------------------- Total............................. Vehicle use............. 112 28 104 Fuel production and -251 -2 -87 distribution. ------------------------------------------------------------------------- All sources............. -139 26 17 ---------------------------------------------------------------------------------------------------------------- Note: Positive values indicate increases in emissions; negative values indicate reductions. In turn, the reductions in emissions reported in Tables IV.G.3-1a and 3-1b are projected to result in significant declines in the health effects that result from population exposure to these pollutants. Table IV.G.3-2 reports the estimated reductions in selected PM2.5- related human health impacts that are expected to result from reduced population exposure to unhealthful atmospheric concentrations of PM2.5. The estimates reported in Table IV.G.3-2 are derived from PM2.5-related dollar-per-ton estimates that include only quantifiable reductions in health impacts likely to result from reduced population exposure to particular matter (PM). They do not include all health impacts related to reduced exposure to PM, nor do they include any reductions in health impacts resulting from lower population exposure to other criteria air pollutants (particularly ozone) and air toxics. NHTSA and EPA are using PM-related benefits-per- ton values as an interim approach to estimating the PM-related benefits of the proposal. To model the ozone and PM air quality benefit sof the final rule, the analysis will utilize ambient concentration data derived from full-scale photochemical air quality modeling. Table IV.G.3-2--Projected Reductions in Health Impacts of Exposure to Criteria Air Pollutants From Proposed Standards [Calendar year 2030] ------------------------------------------------------------------------ Projected Health impact Measure reduction (2030) ------------------------------------------------------------------------ Mortality (ages 30 and older). premature deaths per 217 to 554 year. Chronic Bronchitis............ cases per year........ 142 Emergency Room Visits for number per year....... 198 Asthma. Work Loss..................... workdays per year..... 25,522 ------------------------------------------------------------------------ 4. What Are the Estimated Costs and Benefits of These Proposed Standards? NHTSA estimates that the proposed standards could entail significant additional technology beyond the levels reflected in the baseline market forecast used by NHTSA. This additional technology will lead to increases in costs to manufacturers and vehicle buyers, as well as fuel savings to vehicle buyers. The following three tables summarize the extent to which the agency estimates technologies could be added to the passenger car, light truck, and overall fleets in each model year in response to the proposed standards. Percentages reflect the technology's additional application in the market, and are negative in cases where one technology is superseded (i.e., displaced) by another. For example, the agency estimates that many automatic transmissions used in light trucks could be displaced by dual clutch transmissions. BILLING CODE 6560-50-P [[Page 49711]] [GRAPHIC] [TIFF OMITTED] TP28SE09.047 [[Page 49712]] [GRAPHIC] [TIFF OMITTED] TP28SE09.048 [[Page 49713]] [GRAPHIC] [TIFF OMITTED] TP28SE09.049 BILLING CODE 6560-50-C In order to pay for this additional technology (and, for some manufacturers, civil penalties), NHTSA estimates that average passenger car and light truck prices will, relative to levels resulting from compliance with baseline (MY 2011) standards, increase by $591-$1,127 and $283-$1,020, respectively, during MYs 2011-2016. The following tables summarize the agency's estimates of average price increases for each manufacturer's passenger car, light truck, and overall fleets (with corresponding averages for the industry): Table IV.G.4-4--Average Passenger Car Incremental Price Increases ($) Under Proposed Standards ---------------------------------------------------------------------------------------------------------------- Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 ---------------------------------------------------------------------------------------------------------------- BMW............................. 524 552 634 828 1,124 Chrysler........................ 775 1,304 1,473 1,583 1,582 Daimler......................... 182 215 781 1,039 1,401 [[Page 49714]] Ford............................ 1,746 1,719 1,735 1,880 2,078 General Motors.................. 143 990 1,189 1,387 1,553 Honda........................... 31 122 205 287 494 Hyundai......................... 418 452 643 726 868 Kia............................. 319 359 387 473 647 Mazda........................... 658 735 965 991 1,263 Mitsubishi...................... 1,156 1,076 1,715 2,076 2,035 Nissan.......................... 653 712 1,155 1,153 1,275 Porsche......................... 270 256 306 399 498 Subaru.......................... 408 465 1,493 1,877 1,838 Suzuki.......................... 259 1,001 1,445 1,494 1,675 Tata............................ 246 244 395 577 1,284 Toyota.......................... 133 127 155 257 267 Volkswagen...................... 286 561 650 767 1,125 ------------------------------------------------------------------------------- Total/Average............... 498 674 820 930 1,085 ---------------------------------------------------------------------------------------------------------------- Table IV.G.4-5--Average Light Truck Incremental Price Increases ($) Under Proposed Standards ---------------------------------------------------------------------------------------------------------------- Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 ---------------------------------------------------------------------------------------------------------------- BMW............................. 325 327 380 708 884 Chrysler........................ 152 399 749 892 1,188 Daimler......................... 322 289 316 420 478 Ford............................ 471 629 693 1,323 1,365 General Motors.................. 33 533 752 792 962 Honda........................... 390 380 616 749 1,006 Hyundai......................... 774 744 1,301 1,322 1,292 Kia............................. 228 373 547 843 1,218 Mazda........................... 340 608 610 679 776 Mitsubishi...................... 55 94 1,546 1,732 2,123 Nissan.......................... 541 608 903 1,022 1,312 Porsche......................... 28 46 84 913 954 Subaru.......................... 1,203 1,140 1,213 1,197 1,184 Suzuki.......................... 50 1,451 1,404 1,358 1,373 Tata............................ 44 83 127 193 635 Toyota.......................... 172 309 665 764 877 Volkswagen...................... 28 61 99 160 231 ------------------------------------------------------------------------------- Total/Average............... 291 485 701 911 1,058 ---------------------------------------------------------------------------------------------------------------- Table IV.G.4-6--Average Incremental Price Increases ($) by Manufacturer Under Proposed Standards ---------------------------------------------------------------------------------------------------------------- Manufacturer MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 ---------------------------------------------------------------------------------------------------------------- BMW............................. 457 483 560 796 1,061 Chrysler........................ 393 777 1,061 1,271 1,408 Daimler......................... 236 243 604 834 1,106 Ford............................ 1,195 1,242 1,262 1,629 1,762 General Motors.................. 94 785 997 1,131 1,304 Honda........................... 162 212 335 429 647 Hyundai......................... 488 509 769 835 944 Kia............................. 300 362 416 535 740 Mazda........................... 598 712 907 944 1,193 Mitsubishi...................... 1,007 921 1,692 2,033 2,045 Nissan.......................... 616 679 1,078 1,115 1,286 Porsche......................... 174 179 231 562 643 Subaru.......................... 705 711 1,392 1,632 1,602 Suzuki.......................... 204 1,117 1,434 1,458 1,598 Tata............................ 115 150 234 368 938 Toyota.......................... 147 191 331 429 468 Volkswagen...................... 233 470 550 657 970 ------------------------------------------------------------------------------- Total/Average............... 421 605 777 924 1,076 ---------------------------------------------------------------------------------------------------------------- [[Page 49715]] Based on the agencies' estimates of manufacturers' future sales volumes, these price increases will lead to a total of $60.2 billion in incremental outlays during MYs 2012-2016 for additional technology attributable to the proposed standards: Table IV.G.4-7--Incremental Technology Outlays ($b) Under Proposed Standards -------------------------------------------------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 Total -------------------------------------------------------------------------------------------------------------------------------------------------------- Passenger Cars.......................................... 4.1 6.5 8.4 9.9 11.8 40.8 Light Trucks............................................ 1.5 2.8 4.0 5.2 5.9 19.4 ----------------------------------------------------------------------------------------------- Combined............................................ 5.7 9.3 12.5 15.1 17.6 60.2 -------------------------------------------------------------------------------------------------------------------------------------------------------- NHTSA notes that these estimates of the economic costs for meeting higher CAFE standards omit certain potentially important categories of costs, and may also reflect underestimation (or possibly overestimation) of some costs that are included. For example, although the agency's analysis attempts to hold vehicle performance, capacity, and utility constant in estimating the costs of applying fuel-saving technologies to vehicles, the analysis imputes no cost to any actual reductions in vehicle performance, capacity, and utility that may result from manufacturers' efforts to comply with the proposed CAFE standards. Although these costs are difficult to estimate accurately, they nonetheless represent a potentially significant category of omitted costs. Similarly, the agency's estimates of costs for meeting higher CAFE standards does not estimate the economic value of potential increases in motor vehicle fatalities and injuries that could result from reductions in the size or weight of vehicles. While NHTSA reports worst-case estimates of these increases in fatalities and injuries, no estimate of their economic value is included in the agency's estimates of the net benefits resulting from the proposed standards due to ongoing discussion regarding these potential impacts. Finally, it is possible that the agency may have underestimated or overestimated manufacturers' direct costs for applying some fuel economy technologies, or the increases in manufacturer's indirect costs associated with higher vehicle manufacturing costs. In either case, the technology outlays reported here will not correctly represent the costs of meeting higher CAFE standards. Similarly, NHTSA's estimates of increased costs of congestion, accidents, and noise associated with added vehicle use are drawn from a 1997 study, and the correct magnitude of these values may have changed since they were developed.\584\ If this is the case, the costs of increased vehicle use associated with the fuel economy rebound effect will differ from the agency's estimates in this analysis. Thus, like the agency's estimates of economic benefits, estimates of total compliance costs reported here may underestimate or overestimate the true economic costs of the proposed standards. --------------------------------------------------------------------------- \584\ The agency seeks comment above on appropriate values for these costs. --------------------------------------------------------------------------- However, offsetting these costs, the achieved increases in fuel economy will also produce significant benefits to society. NHTSA estimates that, in present value terms (at a discount rate of 3 percent), these benefits will total $201.7 billion over the useful lives of light vehicles sold during MYs 2012-2016: Table IV.G.4-8--Present Value of Benefits ($Billion) Under Proposed Standards -------------------------------------------------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 Total -------------------------------------------------------------------------------------------------------------------------------------------------------- Passenger Cars.......................................... 7.6 17.0 24.4 31.2 38.7 119.1 Light Trucks............................................ 5.5 11.6 17.3 22.2 26.0 82.6 ----------------------------------------------------------------------------------------------- Combined............................................ 13.1 28.7 41.8 53.4 64.7 201.7 -------------------------------------------------------------------------------------------------------------------------------------------------------- NHTSA attributes most of these benefits to reductions in fuel consumption, valuing fuel at future pretax prices in EIA's reference case forecast from AEO 2009. The total benefits shown in the above table also include other benefits and disbenefits, examples of which include the social values of reductions in CO2 and criteria pollutant emissions, the value of additional travel (induced by the rebound effect), and the social cost of additional congestion, accidents, and noise attributable to that additional travel. The PRIA accompanying today's proposed rule presents a detailed analysis of specific benefits of the proposed rule. For both the passenger car and light truck fleets, NHTSA estimates that the benefits of today's proposed standards will exceed the corresponding costs in every model year. Over the useful lives of the affected (MY 2012-2016) vehicles, the agency estimates that the benefits of the proposed standards will exceed the costs of the proposed standards by $141.5 billion: Table IV.G.4-9--Present Value of Net Benefits ($Billion) Under Proposed Standards -------------------------------------------------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 Total -------------------------------------------------------------------------------------------------------------------------------------------------------- Passenger Cars.......................................... 3.5 10.5 16.0 21.3 26.9 78.3 Light Trucks............................................ 3.9 8.9 13.3 17.0 20.1 63.2 ----------------------------------------------------------------------------------------------- [[Page 49716]] Combined............................................ 7.4 19.4 29.3 38.3 47.1 141.5 -------------------------------------------------------------------------------------------------------------------------------------------------------- NHTSA's estimates of economic benefits from establishing higher CAFE are also subject to considerable uncertainty. Most important, the agency's estimates of the fuel savings likely to result from adopting higher CAFE standards depend critically on the accuracy of the estimated fuel economy levels that will be achieved under both the baseline scenario, which assumes that manufacturers will continue to comply with the MY 2011 CAFE standards, and under alternative increases in the standards that apply to MY 2012-16 passenger cars and light trucks. Specifically, if the agency has underestimated the fuel economy levels that manufacturers will achieve under the baseline scenario, its estimates of fuel savings and the resulting economic benefits will be too large. As another example, the agency's estimate of benefits from reducing the threat of economic damages from disruptions in the supply of imported petroleum to the U.S. applies to calendar year 2015. If the magnitude of this estimate would be expected to grow after 2015 in response to increases in U.S. petroleum imports, growth in the level of U.S. economic activity, or increases in the likelihood of disruptions in the supply of imported petroleum, the agency may have underestimated the benefits from the reduction in petroleum imports expected to result from adopting higher CAFE standards. However, it is also possible that NHTSA's estimates of economic benefits from establishing higher CAFE standards underestimate the true economic benefits of the fuel savings those standards would produce. This is partly because the agency has been unable to develop monetized estimates of the economic value of certain potentially significant categories of benefits from reducing fuel consumption. Specifically, the agency's estimate of the economic value of reduced damages to human health resulting from lower exposure to criteria air pollutants includes only the effects of reducing population exposure to PM2.5 emissions. Although this is likely to be the most significant component of health benefits from reduced emissions of criteria air pollutants, it excludes the value of reduced damages to human health and other impacts resulting from lower emissions and reduced population exposure to other criteria air pollutants, including ozone and nitrous oxide (N2O), as well as airborne toxics. The agency's analysis excludes these benefits because no reliable estimates of the health impacts of criteria pollutants other than PM2.5 or of the health impacts of airborne toxics were available to use in developing estimates of these benefits. In addition, the agency's estimate of the value of reduced climate- related economic damages from lower emissions of GHGs excludes many sources of potential benefits from reducing the pace and extent of global climate change. These include reductions in the risk of catastrophic changes in the global climate, lower costs for necessary adaptations to changes in climate, reduced water supply within specific global sub-regions, reductions in damages caused by severe storms, lower population exposure to harmful air pollution levels, reductions in ecosystem impacts and risks to natural resources of global significance, and reduced threats from widespread social or political unrest. Including monetized estimates of benefits from reducing the extent of climate change and these associated impacts would increase the agency's estimates of benefits from adopting higher CAFE standards. The benefits, costs, and net benefits shown above are all based on a discount rate of 3 percent. As documented in the accompanying PRIA, the agency examined the sensitivity of results to changes in many economic inputs. With an alternative discount rate of 7 percent, incremental technology outlays were virtually identical to those estimated at a 3 percent discount rate: \585\ --------------------------------------------------------------------------- \585\ Because some economic inputs change the effective cost of some technologies, and NHTSA assumes some manufacturers will be willing to pay civil penalties based on economic considerations, this outcome is not assured. Table IV.G.4-10--Incremental Technology Outlays ($b) Under Proposed Standards (Using 7 Percent Discount Rate) -------------------------------------------------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 Total -------------------------------------------------------------------------------------------------------------------------------------------------------- Passenger Cars.......................................... 4.1 6.5 8.4 9.9 11.8 40.8 Light Trucks............................................ 1.5 2.8 4.0 5.2 5.9 19.4 ----------------------------------------------------------------------------------------------- Combined............................................ 5.7 9.3 12.5 15.1 17.6 60.2 -------------------------------------------------------------------------------------------------------------------------------------------------------- However, the present value of the benefits accrued over the lifetime of the vehicles covered by the proposal is about 20 percent smaller when discounted at a 7 percent annual rate than when discounted at a 3 percent annual rate: Table IV.G.4-11--Present Value of Benefits ($Billion) Under Proposed Standards (Using 7 Percent Discount Rate) -------------------------------------------------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 Total -------------------------------------------------------------------------------------------------------------------------------------------------------- Passenger Cars.......................................... 6.0 13.6 19.5 25.0 31.1 95.3 Light Trucks............................................ 4.3 9.1 13.5 17.4 20.4 64.6 ----------------------------------------------------------------------------------------------- [[Page 49717]] Combined............................................ 10.3 22.6 33.1 42.4 51.5 159.8 -------------------------------------------------------------------------------------------------------------------------------------------------------- As a result, net benefits are 38 percent lower when total benefits are discounted at a 7 percent annual rate: Table IV.G.4-12--Present Value of Net Benefits ($Billion) Under Proposed Standards (Using 7 Percent Discount Rate) -------------------------------------------------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 Total -------------------------------------------------------------------------------------------------------------------------------------------------------- Passenger Cars.......................................... 1.9 7.0 11.1 15.1 19.3 54.5 Light Trucks............................................ 2.7 6.3 9.5 12.2 14.5 45.2 ----------------------------------------------------------------------------------------------- Combined............................................ 4.6 13.3 20.6 27.3 33.8 99.7 -------------------------------------------------------------------------------------------------------------------------------------------------------- The following tables also present itemized costs and benefits for the combined fleet for each year of the proposed standards and for all the years combined, at 3 and 7 percent discount rates, respectively. Numbers in parentheses represent negative values. Table IV.G.4-13--Itemized Cost and Benefit Estimates for the Combined Vehicle Fleet, 3% Discount Rate -------------------------------------------------------------------------------------------------------------------------------------------------------- MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Total -------------------------------------------------------------------------------------------------------------------------------------------------------- Costs: .............. .............. .............. .............. .............. .............. Technology Costs.................................... $5,695 $9,295 $12,454 $15,080 $17,633 $60,157 Benefits .............. .............. .............. .............. .............. .............. Lifetime Fuel Expenditures.......................... 10,197 22,396 32,715 41,880 50,823 158,012 Consumer Surplus from Additional Driving............ 751 1,643 2,389 3,029 3,639 11,451 Refueling Time Value................................ 776 1,551 2,198 2,749 3,277 10,550 Petroleum Market Externalities...................... 559 1,194 1,700 2,129 2,538 8,121 Congestion Costs.................................... (460) (934) (1,332) (1,657) (1,991) (6,376) Noise Costs......................................... (7) (14) (21) (26) (31) (99) Crash Costs......................................... (217) (437) (625) (776) (930) (2,985) CO2................................................. 1,028 2,287 3,382 4,376 5,372 16,446 CO.................................................. 0 0 0 0 0 0 VOC................................................. 41 80 108 131 156 518 NOX................................................. 82 132 155 174 200 744 PM.................................................. 220 438 621 771 904 2,956 SOX................................................. 161 345 490 613 731 2,341 ----------------------------------------------------------------------------------------------- Total........................................... 13,132 28,680 41,781 53,394 64,687 201,676 ======================================================================================================================================================== Net Benefits............................................ 7,044 18,759 27,090 34,710 41,386 128,992 -------------------------------------------------------------------------------------------------------------------------------------------------------- Table IV.G.4-14--Itemized Cost and Benefit Estimates for the Combined Vehicle Fleet, 7% Discount Rate -------------------------------------------------------------------------------------------------------------------------------------------------------- MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Total -------------------------------------------------------------------------------------------------------------------------------------------------------- Costs Technology Costs.................................... $5,695 $9,295 $12,454 $15,080 $17,633 $60,157 Benefits: Lifetime Fuel Expenditures.......................... 7,991 17,671 25,900 33,264 40,478 125,305 Consumer Surplus from Additional Driving............ 590 1,301 1,896 2,412 2,904 9,102 Refueling Time Value................................ 624 1,249 1,770 2,215 2,642 8,500 Petroleum Market Externalities...................... 448 960 1,367 1,712 2,043 6,531 Congestion Costs.................................... (371) (753) (1,074) (1,335) (1,606) (5,138) Noise Costs......................................... (6) (12) (16) (21) (24) (80) Crash Costs......................................... (173) (352) (503) (626) (749) (2,403) CO2................................................. 797 1,781 2,634 3,410 4,189 12,813 CO.................................................. 0 0 0 0 0 0 VOC................................................. 33 65 87 106 125 416 NOX................................................. 60 99 120 135 156 570 PM.................................................. 170 344 492 613 721 2,339 [[Page 49718]] SOX................................................. 129 278 394 493 588 1,882 ----------------------------------------------------------------------------------------------- Total........................................... 10,292 22,631 33,066 42,380 51,468 159,837 ======================================================================================================================================================== Net Benefits............................................ 4,281 12,832 18,818 24,414 29,293 89,638 -------------------------------------------------------------------------------------------------------------------------------------------------------- The above benefit and cost estimates did not reflect the availability and use of flexibility mechanisms, such as compliance credits and credit trading, because EPCA prohibits NHTSA from considering the effects of those mechanisms in setting CAFE standards. However, the agency noted that, in reality, manufacturers were likely to rely to some extent on flexibility mechanisms provided by EPCA and would thereby reduce the cost of complying with the proposed standards to a meaningful extent. As discussed in the PRIA, NHTSA has performed an analysis to estimate the costs and benefits if EPCA's provisions regarding FFVs are accounted for. The agency considered also attempting to account for other EPCA flexibility mechanisms, in particular credit transfers between the passenger and nonpassenger fleets, but has concluded that, at least within a context in which each model year is represented explicitly, technologies carry forward between model years, and multiyear planning effects are represented, there is no basis to reliably estimate how manufacturers might use these mechanisms. Accounting for the FFV provisions indicates that achieved fuel economies would be 0.6-1.1 mpg lower than when these provisions are not considered (for comparison see Table IV.G.1-2 above): Table IV.G.4-15--Average Achieved Fuel Economy (mpg) Under Proposed Standards (With FFV Credits) ---------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 ---------------------------------------------------------------------------------------------------------------- Passenger Cars.................. 32.5 33.4 34.3 35.3 36.5 Light Trucks.................... 24.1 24.6 25.3 26.3 27.0 Combined.................... 28.7 29.6 30.4 31.6 32.7 ---------------------------------------------------------------------------------------------------------------- As a result, NHTSA estimates that, when FFV credits are taken into account, fuel savings will total 58.8 billion gallons--about 4.5 percent less than the 61.6 billion gallons estimated when these credits are not considered: Table IV.G.4-16--Fuel Saved (Billion Gallons) Under Proposed Standards (With FFV Credits) -------------------------------------------------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 Total -------------------------------------------------------------------------------------------------------------------------------------------------------- Passenger Cars.......................................... 2.5 5.0 6.9 8.6 10.9 33.9 Light Trucks............................................ 2.0 3.3 5.0 6.8 7.9 24.9 ----------------------------------------------------------------------------------------------- Combined............................................ 4.5 8.2 11.8 15.4 18.8 58.8 -------------------------------------------------------------------------------------------------------------------------------------------------------- The agency similarly estimates CO2 emissions reductions would total 639 million metric tons (mmt), about 2.6 percent less than the 656 mmt estimated when these credits are not considered:\586\ --------------------------------------------------------------------------- \586\ Differences in the application of diesel engines lead to differences in the incremental percentage changes in fuel consumption and carbon dioxide emissions. Table IV.G.4-17--Avoided Carbon Dioxide Emissions (mmt) Under Proposed Standards (With FFV Credits) -------------------------------------------------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 Total -------------------------------------------------------------------------------------------------------------------------------------------------------- Passenger Cars.......................................... 27 54 75 93 118 368 Light Trucks............................................ 22 36 54 74 86 272 ----------------------------------------------------------------------------------------------- Combined............................................ 49 90 129 167 204 639 -------------------------------------------------------------------------------------------------------------------------------------------------------- This analysis further indicates significant reductions in outlays for additional technology when FFV provisions are taken into account-- about $45b, or about 25 percent less than the $60b estimated when excluding these provisions: [[Page 49719]] Table IV.G.4-18--Incremental Technology Outlays ($b) Under Proposed Standards (With FFV Credits) -------------------------------------------------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 Total -------------------------------------------------------------------------------------------------------------------------------------------------------- Passenger Cars.......................................... 2.5 4.4 6.1 7.4 9.3 29.6 Light Trucks............................................ 1.3 2.0 3.1 4.3 5.0 15.6 ----------------------------------------------------------------------------------------------- Combined............................................ 3.7 6.3 9.2 11.7 14.2 45.2 -------------------------------------------------------------------------------------------------------------------------------------------------------- Because NHTSA's analysis indicated that FFV provisions would not significantly reduce fuel savings, the agency's estimate of discounted benefits when including these provisions, $192.5b, is only about 4.5 percent lower than the $201.7b shown above for the analysis that excluded these provisions: Table IV.G.4-19--Present Value of Benefits ($Billion) Under Proposed Standards (With FFV Credits) -------------------------------------------------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 Total -------------------------------------------------------------------------------------------------------------------------------------------------------- Passenger Cars.......................................... 7.8 15.9 22.5 28.6 37.1 111.9 Light Trucks............................................ 6.1 10.2 15.9 22.1 26.3 80.5 ----------------------------------------------------------------------------------------------- Combined............................................ 13.9 26.1 38.4 50.7 63.3 192.5 -------------------------------------------------------------------------------------------------------------------------------------------------------- However, although the agency estimates lower discounted benefits when FFV provisions are taken into account, the agency estimates that these provisions slightly increase net benefits (by about 4 percent, from $141.5b to $147.2b) because costs decrease by more than discounted benefits: Table IV.G.4-20--Present Value of Net Benefits ($Billion) Under Proposed Standards (With FFV Credits) -------------------------------------------------------------------------------------------------------------------------------------------------------- 2012 2013 2014 2015 2016 Total -------------------------------------------------------------------------------------------------------------------------------------------------------- Passenger Cars.......................................... 5.3 11.5 16.4 21.2 27.8 82.3 Light Trucks............................................ 4.8 8.2 12.8 17.8 21.3 64.9 ----------------------------------------------------------------------------------------------- Combined............................................ 10.2 19.7 29.2 39.0 49.1 147.2 -------------------------------------------------------------------------------------------------------------------------------------------------------- The agency has performed several sensitivity analyses to examine important assumptions. We examine sensitivity with respect to the following five economic parameters: (1) The price of gasoline: The Reference Case uses the AEO 2009 reference case estimate for the price of gasoline. In this sensitivity analysis we examine the effect of using the AEO high or low forecast estimates instead. (2) The discount rate: The Reference Case uses a discount rate of 3 percent to discount future benefits. In the sensitivity analysis, we equally examine the effect of using a 7 percent discount rate instead. (3) The rebound effect: The Reference Case uses a rebound effect of 10 percent to project increased miles traveled as the cost per mile driven decreases. In the sensitivity analysis, we examine the effect of using a 5 percent or 15 percent rebound effect instead. (4) The values of CO2 benefits and monopsony: The Reference Case uses $20 per ton to quantify the benefits of reducing CO2 emissions and $0.178 per gallon to quantify the benefits of reducing fuel consumption. In the sensitivity analysis, we examine the effect of using values of $5, $10, $34, or $56 per ton instead to value CO2 benefits. These values can be translated into cents per gallon by multiplying by 0.0089,\587\ giving the following values: --------------------------------------------------------------------------- \587\ The molecular weight of Carbon (C) is 12, the molecular weight of Oxygen (O) is 16, thus the molecular weight of CO2 is 44. One ton of C = 44/12 tons CO2 = 3.67 tons CO2. 1 gallon of gas weighs 2,819 grams, of that 2,433 grams are carbon. $1.00 CO2 = $3.67 C and $3.67/ton * ton/1000kg * kg/1000g * 2433g/gallon = (3.67 * 2433)/ 1000 * 1000 = $0.0089/gallon. ($5 per ton CO2) x 0.0089 = $0.0445 per gallon ($10 per ton CO2) x 0.0089 = $0.089 per gallon ($20 per ton CO2) x 0.0089 = $0.178 per gallon ($34 per ton CO2) x 0.0089 = $0.3026 per gallon ($56 per ton CO2) x 0.0089 = $0.4984 per gallon The $5 per ton value reflects the domestic impacts of CO2 emissions and so we use a nonzero monopsony cost, namely $0.30 cents per gallon, when valuing CO2 emissions at $5 per ton. The higher per-ton values of CO2 emissions reflect the global impacts of CO2 emissions and we so use $0 per gallon for monopsony in these cases. (5) Military security: The Reference Case uses $0 per gallon to quantify the military security benefits of reducing fuel consumption. In the sensitivity analysis, we examine the impact of using a value of 5 cents per gallon instead. Varying each of the above 5 parameters in isolation results in 10 economic scenarios, not including the Reference case. These are listed in Table IV.G.4-21 below, together with two additional scenarios that use values for these parameters that produce the lowest and highest valued benefits. [[Page 49720]] Table IV.G.4-21--Sensitivity Analyses Evaluated in NHTSA's PRIA -------------------------------------------------------------------------------------------------------------------------------------------------------- Rebound Monopsony Military Name Fuel price Discount rate effect SCC effect security -------------------------------------------------------------------------------------------------------------------------------------------------------- Reference................................. Reference................... 3% 10% $20 0[cent]/gal 0[cent]/gal High Fuel Price........................... High........................ 3% 10% $20 0[cent]/gal 0[cent]/gal Low Fuel Price............................ Low......................... 3% 10% $20 0[cent]/gal 0[cent]/gal 7% Discount Rate.......................... Reference................... 7% 10% $20 0[cent]/gal 0[cent]/gal 5% Rebound Effect......................... Reference................... 3% 5% $20 0[cent]/gal 0[cent]/gal 15% Rebound Effect........................ Reference................... 3% 15% $20 0[cent]/gal 0[cent]/gal $56/ton CO2 Value......................... Reference................... 3% 10% $56 0[cent]/gal 0[cent]/gal $34/ton CO2............................... Reference................... 3% 10% $34 0[cent]/gal 0[cent]/gal $10/ton CO2............................... Reference................... 3% 10% $10 0[cent]/gal 0[cent]/gal $5/ton CO2................................ Reference................... 3% 10% $5 30[cent]/gal 0[cent]/gal 5[cent]/gal Military Security Value....... Reference................... 3% 10% $20 0[cent]/gal 5[cent]/gal Lowest Discounted Benefits................ Low......................... 7% 15% $5 0[cent]/gal 0[cent]/gal Highest Discounted Benefits............... High........................ 3% 5% $56 0[cent]/gal 5[cent]/gal -------------------------------------------------------------------------------------------------------------------------------------------------------- The basic results of the sensitivity analyses were as follows: (1) The various economic assumptions have similar effects on the passenger car and light truck standards. (2) Varying the economic assumptions has virtually no impact on achieved fuel economy. (3) The economic parameter with the greatest impact is fuel price. Changing the fuel price forecast to AEO's High or Low forecasts impacts benefits by about ±37 percent. However, the impact of fuel price on other quantities, such as cost, is much smaller, resulting in increases or decreases of 3-8 percent. (4) Economic parameters other than fuel price and the rebound effect had no effect on per-vehicle cost, total cost, fuel savings, or CO2 reductions. Their impacts on benefits were 6 percent or less, with the exception of the 7 percent discount rate, which decreased benefits by 20 percent, and the $56/ton CO2 value, which raised benefits by 14 percent. (5) Changing all economic parameters simultaneously (among the considered values) changes benefits by at most about 60 percent. However impacts to other quantities, such as cost, are much smaller, resulting in increases or decreases of 6 percent or less. (6) Impacts other than those discussed in 1) through 5) were small (5 percent or less). For more detailed information regarding NHTSA's sensitivity analyses for this NPRM, please see Chapter X of NHTSA's PRIA. 5. How Would These Proposed Standards Impact Vehicle Sales? Higher fuel economy standards are expected to increase the price of passenger cars and light trucks, because manufacturers will have to add technology to vehicles to increase their fuel economy, the cost for which they will likely pass on in some fashion to consumers. NHTSA examined the potential impact of higher vehicle prices on sales on an industry-wide basis for passenger cars and light trucks separately. We note that the analysis conducted for this rule does not have the precision to examine effects on individual manufacturers or different vehicle classes. There is a broad consensus in the economic literature that the price elasticity for demand for automobiles is approximately -1.0.\588\ Thus, every one percent increase in the price of the vehicle would reduce sales by one percent. Elasticity estimates assume no perceived change in the quality of the product. However, in this case, vehicle price increases result from adding technologies that improve fuel economy. If consumers did not value improved fuel economy at all, and considered nothing but the increase in price in their purchase decisions, then the estimated impact on sales from price elasticity could be applied directly. However, NHTSA believes that consumers do value improved fuel economy, because it reduces the operating cost of the vehicles. NHTSA also believes that consumers consider other factors that affect their costs and have included these in the analysis. --------------------------------------------------------------------------- \588\ Kleit, A.N. (1990). ``The Effect of Annual Changes in Automobile Fuel Economy Standards,'' Journal of Regulatory Economics, vol. 2, pp. 151-172; Bordley, R. (1994). ``An Overlapping Choice Set Model of Automotive Price Elasticities,'' Transportation Research B, vol. 28B, no. 6, pp. 401-408; McCarthy, P.S. (1996). ``Market Price and Income Elasticities of New Vehicle Demands,'' The Review of Economics and Statistics, vol. LXXVII, no. 3, pp. 543-547. --------------------------------------------------------------------------- The main question, however, is how much of the retail price needed to cover the technology investments to meet higher fuel economy standards will manufacturers be able to pass on to consumers. The ability of manufacturers to pass the compliance costs on to consumers depends upon how consumers value the fuel economy improvements.\589\ Consumer valuation of fuel economy improvements often depends upon the price of gasoline, which has recently been very volatile. The estimates reported below as part of NHTSA's analysis on sales impacts assume that manufacturers will be able to pass all of their costs to improve fuel economy on to consumers. To the extent that NHTSA has accurately predicted the price of gasoline and consumers' reactions, and manufacturers can pass on all of the costs to consumers, then the sales and employment impact analyses are reasonable. On the other hand, if manufacturers only increase retail prices to the extent that consumers value these fuel economy improvements (i.e., to the extent that they value fuel savings), then there would be no impact on sales, although manufacturers' profit levels would fall. Sales losses are predicted to occur only if consumers fail to value fuel economy improvements at least as much as they pay in higher vehicle prices. Likewise, if fuel prices rise beyond levels used in this analysis, consumer valuation of improved fuel economy could increase to match or exceed their initial investment, resulting in no impact or even an increase in sales levels. --------------------------------------------------------------------------- \589\ Gron, Ann and Swenson, Deborah, 2000, ``Cost Pass-Through in the U.S. Automobile Market,'' The Review of Economics and Statistics, 82: 316-324. --------------------------------------------------------------------------- To estimate the average value consumers place on fuel savings at the time of purchase, NHTSA assumes that the average purchaser considers the fuel savings they would receive over a 5-year time frame. NHTSA chose 5 years because this is the average length of time of a financing agreement.\590\ The [[Page 49721]] present values of these savings were calculated using a 3 percent discount rate. NHTSA used a fuel price forecast that included taxes, because this is what consumers must pay. Fuel savings were calculated over the first 5 years and discounted back to a present value. --------------------------------------------------------------------------- \590\ National average financing terms for automobile loans are available from the Board of Governors of the Federal Reserve System G.19 ``Consumer Finance'' release. See http:// www.federalreserve.gov/releases/g19/ (last accessed August 9, 2009). --------------------------------------------------------------------------- NHTSA believes that consumers may consider several other factors over the 5-year horizon when contemplating the purchase of a new vehicle. NHTSA added these factors into the calculation to represent how an increase in technology costs might affect consumers' buying considerations. First, consumers might consider the sales taxes they have to pay at the time of purchasing the vehicle. NHTSA took sales taxes in 2007 by State and weighted them by population by State to determine a national weighted-average sales tax of 5.5 percent. Second, NHTSA considered insurance costs over the 5-year period. More expensive vehicles will require more expensive collision and comprehensive (e.g., theft) car insurance. The increase in insurance costs is estimated from the average value of collision plus comprehensive insurance as a proportion of average new vehicle price. Collision plus comprehensive insurance is the portion of insurance costs that depends on vehicle value. The Insurance Information Institute provides the average value of collision plus comprehensive insurance in 2006 as $448.\591\ This is compared to an average price for light vehicles of $24,033 for 2006.\592\ Average prices and estimated sales volumes are needed because price elasticity is an estimate of how a percent increase in price affects the percent decrease in sales. --------------------------------------------------------------------------- \591\ Insurance Information Institute, 2008, ``Average Expenditures for Auto Insurance By State, 2005-2006.'' Available at http://www.iii.org/media/facts/statsbyissue/auto/(last accessed August 9, 2009). \592\ $29,678/$26,201 = 1.1327 * $22,651 = $25,657 average price for light trucks. In 2006, passenger cars were 54 percent of the on- road fleet, and light trucks were 46 percent of the on-road fleet, resulting in an average light vehicle price for 2006 of $24,033. --------------------------------------------------------------------------- Dividing the insurance cost by the average price of a new vehicle gives the proportion of comprehensive plus collision insurance as 1.86 percent of the price of a vehicle. If we assume that this premium is proportional to the new vehicle price, it represents about 1.86 percent of the new vehicle price, and insurance is paid each year for the five- year period we are considering for payback. Discounting that stream of insurance costs back to present value indicates that the present value of the component of insurance costs that vary with vehicle price is equal to 8.5 percent of the vehicle's price at a 3 percent discount rate. Third, NHTSA considered that 70 percent of new vehicle purchasers take out loans to finance their purchase. The average new vehicle loan is for 5 years at a 6 percent rate.\593\ At these terms, the average person taking a loan will pay 16 percent more for their vehicle over the 5 years than a consumer paying cash for the vehicle at the time of purchase.\594\ Discounting the additional 3.2 percent (16 percent/5 years) per year over the 5 years using a 3 percent mid-year discount rate \595\ results in a discounted present value of 14.87 percent higher for those taking a loan. Multiplying that by the 70 percent of consumers who take out a loan means that the average consumer would pay 10.2 percent more than the retail price for loans the consumer discounted at a 3 percent discount rate. --------------------------------------------------------------------------- \593\ New car loan rates in 2007 averaged about 7.8 percent at commercial banks and 4.5 percent at auto finance companies, so their average is close to 7 percent. \594\ Based on www.bankrate.com