U.S. Department Of Transportation National Highway Traffic Safety Administration Preliminary Regulatory Impact Analysis Corporate Average Fuel Economy for MY 2012-MY 2016 Passenger Cars and Light Trucks Office of Regulatory Analysis and Evaluation National Center for Statistics and Analysis August 2009 TABLE OF CONTENTS EXECUTIVE SUMMARY ............................................................................................................ 1 I. INTRODUCTION ................................................................................................................ 14 II. NEED OF THE NATION TO CONSERVE ENERGY....................................................... 17 III. BASELINE AND ALTERNATIVES................................................................................. 20 IV. IMPACT OF OTHER FEDERAL MOTOR VEHICLE STANDARDS ON FUEL ECONOMY .................................................................................................................................. 48 V. FUEL ECONOMY ENHANCING TECHNOLOGIES AND THE VOLPE MODEL........ 61 VI. MANUFACTURER CAFE CAPABILITIES................................................................... 271 VII. COST IMPACTS............................................................................................................ 296 VIII. BENEFITS FROM IMPROVED FUEL ECONOMY ................................................... 343 IX. IMPACT OF WEIGHT REDUCTION ON SAFETY...................................................... 414 X. NET BENEFITS AND SENSITIVITY ANALYSES ........................................................ 441 XI. FLEXIBILITIES IN MEETING THE STANDARD........................................................ 460 XII. PROBABILISTIC UNCERTAINTY ANALYSIS......................................................... 463 XIII. REGULATORY FLEXIBILITY ACT AND UNFUNDED MANDATES REFORM ACT ANALYSIS................................................................................................................................. 496 1 EXECUTIVE SUMMARY This assessment examines the costs and benefits of improving the fuel economy of passenger cars and light trucks for model years (MY) 2012 through MY 2016. It includes a discussion of the technologies that can improve fuel economy, analysis of the potential impact on retail prices, safety, lifetime fuel savings and their value to consumers, and other societal benefits such as improved energy security and reduced emissions of pollutants and greenhouse gases.1 In a previous rulemaking, the agency reformed the corporate average fuel economy (CAFE) standards with a size-based standard based on footprint.2 This rulemaking continues this approach; a continuous mathematical function provides a separate fuel economy target for each footprint. Different parameters for the continuous mathematical function are derived. Individual manufacturers will be required to comply with a single fuel economy level that is based on the distribution of its production among the footprints of its vehicles. Although the same reformed CAFE scheme is required for both passenger cars and light trucks, they are established with different continuous mathematical functions specific to the vehicles’ design capabilities. The baseline assumptions for this rulemaking differ from previous analyses. In the past, the baseline was the manufacturers’ confidential plans for each model year. In this analysis, the baseline is each manufacturer’s MY 2008 fleet. We assume that similar vehicles will be produced through MY 2016 and technologies are added to this baseline fleet to determine what mpg levels could be achieved with technologies. This approach is more transparent than relying on manufacturers’ confidential plans. NHTSA has examined a variety of alternatives. The eight scenarios examined include five alternatives that are annual percentage improvements over the baseline. The “Preferred Alternative” would require fuel economy levels that are between the 4 and 5 percent annual increase alternatives. The “Maximum Net Benefits” alternative is based upon availability of technologies and a marginal cost/benefit analysis. In this case the model continues to include technologies until marginal cost of adding the next technology exceeds the marginal benefit. “Total Costs Equal Total Benefits”: An increase in the standard to a point where essentially total costs of the technologies added together over the baseline added equals total benefits over the baseline. In this analysis, for brevity, at times it is labeled “TC = TB”. Table 1a shows the agency’s projection of the actual harmonic average that would be achieved by the manufacturers, assuming those manufacturers whose plans were above the requirements would achieve those higher levels. Table 1b shows the estimated required levels. All of the tables in this analysis compare an adjusted baseline to the projected achieved harmonic average. Costs: Costs were estimated based on the specific technologies that were applied to improve each manufacturer’s fuel economy up to the level required under each alternative. Table 2 provides those cost estimates on an average per-vehicle basis, and Table 3 provides those estimates on a fleet-wide basis in millions of dollars. 1 This analysis does not contain NHTSA’s assessment of the potential environmental impacts of the final rule for purposes of the National Environmental Policy Act (NEPA), 42 U.S.C. 4321-4347. 2 Vehicle Footprint is defined as the wheelbase (the distance from the center of the front axle to the center of the rear axle) times the average track width (the distance between the centerline of the tires) of the vehicle (in square feet). 2 Benefits: Benefits are determined mainly from fuel savings over the lifetime of the vehicle, but also include externalities such as reductions in criteria pollutants. The agency uses a 3 percent and 7 percent discount rate to value intra-generational future benefits and costs. Inter- generational3 benefits from future carbon dioxide reductions are always discounted at 3 percent, even when intra-generational benefits are discounted at 7 percent. Table 4 provides those estimates on an industry-wide basis at a 3 percent discount rate and Table 6 provides the estimates at a 7 percent discount rate. Net Benefits: Tables 5 and 7 compares societal costs and societal benefits of each alternative at the 3 percent and 7 percent discount rates, respectively. Fuel Savings: Table 8 shows the lifetime fuel savings in millions of gallons. 3 Inter-generational benefits, which include reductions in the expected future economic damages caused by increased global temperatures, a rise in sea levels, and other projected impacts of climate change, are anticipated to extend over a period from approximately fifty to two hundred or more years in the future, and will thus be experienced primarily by generations that are not now living. 3 Table 1a Alternative CAFE Levels Projected Achieved Harmonic Average for the Fleet, in mpg Alternative MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Passenger Cars Preferred Alternative 32.9 34.2 35.2 36.5 37.6 3% Annual Increase 32.2 33.3 34.0 34.7 35.5 4% Annual Increase 32.4 33.7 34.8 36.0 37.1 5% Annual Increase 32.6 34.4 35.9 37.2 38.7 6% Annual Increase 32.7 34.9 36.9 38.4 40.1 7% Annual Increase 32.9 35.3 37.5 39.0 41.0 Max Net Benefits 33.0 35.4 37.3 38.7 40.0 Total Cost = Total Benefit 33.2 35.6 37.8 39.2 40.9 Light Trucks Preferred Alternative 24.9 25.7 26.5 27.4 28.1 3% Annual Increase 24.3 24.8 25.4 26.0 26.5 4% Annual Increase 24.5 25.2 26.3 27.1 27.7 5% Annual Increase 24.6 25.7 27.0 28.2 29.0 6% Annual Increase 24.8 26.0 27.6 29.2 30.3 7% Annual Increase 25.0 26.4 28.2 29.9 31.0 Max Net Benefits 25.4 27.1 28.5 29.7 30.3 Total Cost = Total Benefit 25.5 27.2 28.8 30.1 30.8 Passenger Cars & Light Trucks Preferred Alternative 29.3 30.5 31.5 32.7 33.7 3% Annual Increase 28.7 29.6 30.3 31.1 31.9 4% Annual Increase 28.9 30.0 31.2 32.4 33.3 5% Annual Increase 29.1 30.6 32.1 33.5 34.8 6% Annual Increase 29.2 31.0 33.0 34.6 36.2 7% Annual Increase 29.4 31.4 33.5 35.3 37.0 Max Net Benefits 29.7 31.8 33.6 35.0 36.1 Total Cost = Total Benefit 29.8 32.0 34.0 35.5 36.9 Preferred Alternative CAFE Levels Projected Achieved Harmonic Average for the Fleet, in gallons per 100 miles MY MY MY MY MY 2012 2013 2014 2015 2016 PC 3.0438 2.9267 2.8398 2.7434 2.6623 LT 4.0241 3.8952 3.7713 3.6495 3.5604 4 Table 1b Alternative CAFE Levels Estimated Required Average for the Fleet, in mpg Alternative MY 2012 MY 2013 MY 2014 MY 2015 MY 2016 Passenger Cars Preferred Alternative 33.6 34.4 35.2 36.4 38.0 3% Annual Increase 31.5 32.9 33.8 34.7 35.6 4% Annual Increase 32.1 33.6 34.8 36.1 37.4 5% Annual Increase 32.7 34.2 35.8 37.5 39.3 6% Annual Increase 33.0 34.9 36.9 38.9 41.1 7% Annual Increase 33.3 35.5 37.9 40.4 43.1 Max Net Benefits 33.4 36.0 38.1 39.5 40.9 Total Cost = Total Benefit 33.8 36.7 39.0 40.8 42.7 Light Trucks Preferred Alternative 25.0 25.6 26.2 27.1 28.3 3% Annual Increase 24.3 24.5 25.2 25.9 26.6 4% Annual Increase 24.3 25.0 26.0 26.9 27.9 5% Annual Increase 24.4 25.5 26.7 28.0 29.3 6% Annual Increase 24.6 26.0 27.5 29.0 30.7 7% Annual Increase 24.8 26.5 28.3 30.1 32.2 Max Net Benefits 26.4 27.7 28.8 30.1 30.6 Total Cost = Total Benefit 26.7 28.0 29.2 30.9 31.5 Passenger Cars & Light Trucks Preferred Alternative 29.8 30.6 31.4 32.6 34.1 3% Annual Increase 28.4 29.3 30.2 31.1 32.0 4% Annual Increase 28.7 29.9 31.0 32.3 33.6 5% Annual Increase 29.0 30.4 31.9 33.5 35.2 6% Annual Increase 29.2 31.0 32.9 34.8 36.9 7% Annual Increase 29.5 31.6