[Federal Register Volume 69, Number 33 (Thursday, February 19, 2004)]
[Rules and Regulations]
[Pages 7689-7703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-3595]
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DEPARTMENT OF TRANSPORTATION
National Highway Traffic Safety Administration
49 CFR Part 538
[Docket No.: NHTSA-2001-10774; Notice 3]
RIN 2127-AI41
Automotive Fuel Economy Manufacturing Incentives for Alternative
Fueled Vehicles
AGENCY: National Highway Traffic Safety Administration (NHTSA),
Department of Transportation (DOT).
ACTION: Final rule.
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SUMMARY: Consistent with the Alternative Motor Fuels Act of 1988, this
final rule extends the incentive created by that Act to encourage the
continued production of motor vehicles capable of operating on
alternative fuels. The incentive, originally enacted to begin the
process of moving the nation toward the use of alternative fuels and
away from petroleum dependence, has resulted in the creation of a fleet
of vehicles able to operate on alternative fuel. To continue the
process of moving the nation toward energy independence and to remain
dedicated to the policies underlying the enactment of the Act, this
final rule extends the alternative fuel CAFE incentive as contemplated
in the NPRM for four additional model years.
[[Page 7690]]
DATES: Effective Date: The amendments made in this final rule are
effective October 1, 2004.
Petition Date: Any petitions for reconsideration must be received
by NHTSA no later than April 5, 2004.
ADDRESSES: Any petitions for reconsideration should refer to the docket
and notice number of this notice and be submitted to: Administrator,
National Highway Traffic Safety Administration, 400 Seventh Street,
SW., Washington, DC 20590.
FOR FURTHER INFORMATION CONTACT: The following persons at the National
Highway Traffic Safety Administration, 400 Seventh Street, SW.,
Washington, DC 20590: For non-legal issues: Mr. Kenneth Katz, Fuel
Economy Division, Office of Planning and Consumer Standards, NVS-132,
Room 5320, telephone (202) 366-0846, facsimile (202) 493-2290. For
legal issues: Otto Matheke, Office of the Chief Counsel, NCC-20, Room
5219, telephone (202) 366-5263, facsimile (202) 366-3820.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Summary of Final Rule
II. Statutory Background
III. Regulatory Background
IV. March 2002 Report to Congress
V. Notice of Proposed Rulemaking
VI. Summary of Comments
VII. Resolution of the ``Chicken and Egg'' Problem
VIII. Extending the CAFE Incentive
IX. Conclusion
X. Regulatory Analyses
I. Summary of Final Rule
This Final Rule completes the agency's implementation of a
statutory requirement to consider the continuation of credits accorded
to dual fueled automobiles pursuant to the Alternative Motor Fuels Act
of 1988 (AMFA; Pub. L. 100-494). As part of that Act, Congress provided
that motor vehicles subject to corporate average fuel economy (CAFE)
standards are accorded special consideration if they are capable of
running either flexibly (dual fueled) or exclusively (dedicated) on
fuel other than petroleum.\1\ AMFA encourages the production of these
vehicles by providing a specified credit toward the calculation of a
manufacturer's CAFE performance. Congress provided this incentive to
enhance the nation's energy independence. Congress ensured that the
incentive is not negated through the setting of more stringent CAFE
standards by prohibiting the agency from considering the AMFA CAFE
incentive when determining maximum feasible CAFE standards.
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\1\ There are two classes of alternative fuel motor vehicles.
Dedicated alternative fuel motor vehicles are motor vehicles
designed to run only on alternative fuel. Vehicles that are capable
of operating on a conventional fuel (either gasoline or diesel) as
well as on an alternative fuel are considered to be ``dual fuel'' or
``flexible fuel'' motor vehicles.
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AMFA sets certain parameters for the amount and duration of the
incentive program. For model years 1993 through 2004, the maximum
allowable credit toward a manufacturer's average fuel economy is 1.2
miles per gallon (mpg). The statute then provides that the Department
of Transportation (through NHTSA) must either extend the incentive
program for dual fueled vehicles beyond the 2004 model year or issue a
Federal Register notice justifying termination of the program. The
statute limits any extension to no more than four model years and the
amount of credit during any such extension to 0.9 mpg per manufacturer.
Congress also required that NHTSA provide it with a report discussing
the progress of the program, apparently to help Congress determine
whether any further legislative initiatives would be necessary.
This final rule completes the agency's implementation of the
statutory mandate by extending the program as authorized by the
statute. The agency's decision comes after a considered review of the
public comments solicited in anticipation of preparing the Report to
Congress, the public comments filed in response to the agency's March
2002 Notice of Proposed Rulemaking, and the legislative history
surrounding the enactment of AMFA.
The agency's Report to Congress found that the results of the AMFA
incentive program to date have been mixed in that the program led to
the development and production of vehicles capable of operating on
alternative fuels but has not yet generated an infrastructure to
support fully the use of alternative fuels in such vehicles. The Report
did not recommend abandoning the AMFA incentive program. On the
contrary, the Report concluded that continuation of the program should
include additional measures to ensure its success, and in particular
measures aimed at encouraging the increased use of alternative fuels
and the expansion of an alternative fuel infrastructure.
The agency finds that continuation of the AMFA incentive program,
consistent with existing statutory limits, best serves the
Congressional intent underlying AMFA and best serves the nation's
continuing public policy interest in encouraging energy security. In
enacting AMFA, Congress sought to solve the so-called ``chicken and the
egg'' problem inherent in the development of an alternative fuel
infrastructure. Vehicle manufacturers could not justify producing
vehicles capable of operating on alternative fuels if people would not
buy them or be able to use them, and energy companies could not justify
investing in developing fueling infrastructure for fuels of unknown
consumer acceptance and utility.
As Congress intended, the CAFE credits accorded through AMFA have
induced the creation of a fleet of approximately 3.4 million dual-
fueled vehicles through the 2003 model year which, in turn, has begun
to spur investment in alternative fuel stations and other
infrastructure development. Congress specifically did not choose any
particular alternative fuel when enacting AMFA. Instead, Congress
provided a sufficient amount of time for experimenting with different
fuels, for creating a fleet of vehicles capable of using one or more of
those fuels and for beginning the development of an infrastructure to
support that fleet. Recognizing that more time may be needed to
accomplish the end result, Congress mandated that the agency extend the
CAFE incentive through rulemaking (with specified limitations) or
publish a Federal Register notice explaining why it chose not to do so.
In providing for special CAFE incentives to help create that fleet,
Congress recognized in 1988 that its action was just a beginning toward
energy security. The legislative history does not suggest that Congress
believed the CAFE incentive provided to these vehicles would, in and of
itself, lead to infrastructure supporting alternative fuel use and
energy independence. Rather, the legislative history is replete with
references to the initiation of a process to ``begin'' such
development. If NHTSA were to terminate the incentive program now, the
gains that have been made would be lost and there would be no
possibility of obtaining the benefits yet to be gained through the
continued development of a light vehicle transportation system capable
of operating on domestically produced alternative transportation fuels.
II. Statutory Background
Recognizing the substantial energy use by the transportation
sector, the need to conserve the Nation's energy resources, and the
need to reduce the Nation's dependence upon foreign energy sources,
Congress passed the Energy Policy and Conservation Act of 1975 (Pub. L.
94-163). That Act amended the Motor Vehicle Information
[[Page 7691]]
and Cost Savings Act (Pub. L. 92-513) by adding provisions for
improving the fuel efficiency of light-duty motor vehicles. Standards
based on Corporate Average Fuel Economy (``CAFE''), the production
weighted average of a manufacturer's fleet of new passenger cars and
light duty trucks, were mandated for newly manufactured passenger cars
produced after 1977 and light trucks after 1978. Congress authorized
the Department of Transportation's National Highway Traffic Safety
Administration (NHTSA) to promulgate these CAFE standards.
Along with the improvements in light transportation fleet fuel
efficiency, Congress undertook a strategy to encourage, and ultimately
implement, the use of alternative fuels to reduce the nation's
dependence on petroleum. Congress chose not to mandate any particular
energy source, but rather to create market incentives to break the
``chicken and the egg'' problem plaguing any movement away from the
developed petroleum infrastructure. AMFA was enacted to initiate a
process to encourage the production of a fleet of vehicles that would
in turn give rise to consumer acceptance and ultimately lead to the
development of infrastructure to distribute and make alternative fuel
available.
Section 6 of AMFA provided new incentives for the manufacture of
``dual fueled'' vehicles that can operate on either an alternative fuel
or a petroleum-based fuel such as gasoline or diesel. Under the special
procedures for calculating the fuel economy of those vehicles contained
in that section, dual fueled vehicles are assigned a higher fuel
economy value for CAFE purposes in recognition of the fact that they
can displace gasoline or diesel fuel use, and therefore reduce
dependence on foreign oil. This special CAFE calculation procedure
encourages the production of dual fueled vehicles by helping
manufacturers who build them to meet CAFE standards.
Congress considered the incentive to manufacture dual fueled
vehicles so important that it took steps to ensure its continued
effectiveness by providing that the agency could not consider the
availability of the AMFA credits when determining the maximum feasible
fuel economy level for any particular fleet in any particular model
year. As Congressman Dingell pointed out during the House debate on the
AMFA Conference Report (H. REP. No. 100-929), adjusting CAFE levels to
account for the AMFA incentive would negate the incentive:
A provision is included in the legislation to ensure that the
incentives provided by this bill are not erased by the Secretary's
setting the CAFE standard for cars or trucks at a level that assumes
a certain penetration of alternative fueled vehicles. The conferees
are aware that the statute requires CAFE standards to be set at the
``maximum feasible'' level, and that DOT traditionally has
determined that level in connection with examining the individual
fuel economy capabilities of the larger manufacturers. It is
intended that this examination will be conducted without regard to
the penetration of alternative fuel vehicles in any manufacturer's
fleet, in order to ensure that manufacturers taking advantage of the
incentives offered by this bill do not find DOT including those
incentive increases in the manufacturer's ``maximum fuel economy
capability.'' This, of course, would wipe out the benefits
associated with the increases if it resulted in commensurate
increases in the CAFE standard. 134 CONG. REC. 8091 (1988).
AMFA established the eligibility criteria and procedures for
calculation of the incentive benefits, and further provided that in
establishing maximum feasible fuel economy levels, the Secretary ``may
not consider the fuel economy of dedicated automobiles and shall not
consider dual fueled automobiles to be operated only on gasoline or
diesel fuel.'' 49 U.S.C. 32902(h). AMFA then provided for a special
calculation for determining actual CAFE performance that provides
special consideration for the fact that the vehicles can, and may,
operate on alternative fuel sources.
The Senate version of the bill, and ultimately AMFA itself,
balanced the need to encourage the development of a fleet of
alternative fueled vehicles against concerns that the fuel economy
program would be unduly hindered by placing limits on the amount of the
CAFE credit available to any manufacturer and by including partial and
ultimate sunset provisions. The program was to be in effect through the
2004 model year, and could be continued on more limited terms by the
Secretary for up to an additional four years. These limits were
specifically aimed at addressing the possibility that dual fueled
vehicles might be run entirely on gasoline. (House Debate on Conference
Report, Section 6, Vol. 134, Congressional Record, Sept. 23, 1988);
(Senate Debate on Conference Report, Section 6, Vol. 134 Congressional
Record (Sept. 20, 1988). Indeed, the Senate Committee Report on S.
1518, the Senate version of AMFA (S. REP. No. 100-271) explained that:
``Recognizing that the dual fuel vehicle is a transitional vehicle that
might often operate on gasoline, the Committee established reasonable
caps in the increase in CAFE so that the broader purposes of CAFE would
remain intact.''
In enacting AMFA, Congress undertook to encourage the development
of a fleet of vehicles capable of running on alternative fuels in order
to create the incentive for the development of an infrastructure to
support it. Congress recognized that motor vehicle makers were
``reluctant to produce automobiles unless there is a demand for them,
consumers will not purchase cars for which there is an inadequate fuel
supply, and an adequate fuel supply is unlikely to be developed until
there are a significant number of alternative fuel vehicles.''
Congress recognized that the special CAFE incentive contained in
AMFA would be a facilitating factor in the development of a
transportation system incorporating alternative fuels. The legislative
history makes clear that Congress did not expect these CAFE credits
solely to drive the development of such a transportation system.
Indeed, the legislative history is replete with comments expressing
Congress' belief that AMFA, and its CAFE credit, would ``begin'' a
process and that it may well be necessary to continue that process
beyond its initial statutory timeframe. For example:
[sbull] The incentives provided under this bill are modest yet
sufficient to begin this important program. The bill is important,
however, both as a step toward increasing our energy options and as a
reflection of a new recognition of a need for action on the economic
front. 134 CONG. REC. 4101 (statement of Sen. Rockefeller).
[sbull] In my judgment, we need to begin an effort to convert a
portion of our automotive fleet to methanol and other alternative
fuels. Id. at 4102 (statement by Senator Danforth).
[sbull] This bill begins to solve the [chicken and the egg] dilemma
* * * in ways that should help to instill consumer confidence, gain
valuable experience, encourage the development, production and sale of
vehicles capable of operating on both conventional fuels (gasoline and
diesel) and alternative fuels (alcohols and natural gas), and encourage
the development of alternative fuel retail pumps for consumer use. H.R.
REP. No. 100-476 at 9 (1987).
[sbull] We also do not believe that this bill and the opportunities
offered by it, including the CAFE incentive, will be a panacea. We have
a healthy skepticism about when and how these vehicles will be
developed. We are not optimistic that foreign and domestic automakers
will transform many lines of passenger cars
[[Page 7692]]
in the early 1990s to alternative fueled vehicles. Id. at 12.
[sbull] The importance of this bill is to provide a beginning and
to emphasize the importance of developing now an alternative fuels
transportation network for the benefit of present and future
generations. Id.
[sbull] Alternative fuels will not be universally or even widely
available, however, when the new vehicles are first available. Except
for fleets with a central fueling location many of the early
alternative fuel vehicles will need to be capable of running on both
the alternative fuel and gasoline. 134 CONG. REC. 8090 (1988)
(statement of Rep. Sharp).
[sbull] So this really is a very important step forward. It is a
very powerful incentive for the automakers to produce automobiles that
can consume alternative fuels. Id. at 12,916 (statement of Sen.
Danforth).
Congress provided that the Secretary of Transportation could extend
the CAFE credit program for not more than four consecutive model years
and explain the basis on which the extension would be granted (49
U.S.C. 32905(f)). Should the Secretary choose not to extend the
program, the statute requires the publication of a Federal Register
notice explaining the reasons for that decision. The statute imposes no
particular criteria to be applied in making that determination, but
rather leaves the decision to the discretion of the Secretary.
III. Regulatory Background
A. Fuel Economy Standards
Congress enacted the Energy Policy and Conservation Act (EPCA) in
December 1975 to help address the nation's dependence on foreign oil.
EPCA provided for the issuance of CAFE standards for passenger
automobiles and for automobiles that are not passenger automobiles
(light trucks). The CAFE standards set minimum performance requirements
in terms of an average number of miles a vehicle travels per gallon of
gasoline or diesel fuel. By statute, Congress set passenger car
standards for model years 1978 (18 mpg), 1979 (19 mpg), 1980 (20 mpg)
and 1985 and thereafter (27.5 mpg). Those standards remained effective
by statute unless the Secretary of Transportation changed them through
rulemaking. In contrast to passenger cars, Congress did not specify
CAFE standards for light trucks. Instead, it provided authority to the
Secretary to establish those standards administratively. The Secretary
delegated the authority to promulgate CAFE standards to NHTSA.
Market conditions in the mid and late 1980s led the agency to
reconsider established CAFE fuel economy standards to account for
consumer preferences that had rendered the standards economically
impracticable, despite manufacturers' good faith efforts to comply.
Accordingly, passenger car CAFE standards were reduced to 26.0 mpg for
the 1986 through 1988 model years and to 26.5 mpg for 1989. Light truck
CAFE standards set at 20.5 mpg for the 1987 through 1989 model years
were reduced to 20.0 mpg for the 1990 model year. Meanwhile, Congress
enacted AMFA in 1988 in an attempt to further reduce the Nation's
dependence on foreign oil by encouraging the development of a fleet of
vehicles capable of running on alternative fuel.
The passenger car CAFE standard returned to the statutory level of
27.5 mpg between model years 1990 and 1996, while light truck CAFE
standards rose slightly through those years from 20.0 mpg to 20.7 mpg.
In April 1994, NHTSA issued an Advanced Notice of Proposed Rulemaking
stating its intent to increase the light truck CAFE standards for some
or all of model years 1998 to 2006. Congress acted to restrain the
agency from acting further on this intention.
In enacting the Department of Transportation and Related Agencies
Appropriations Act for FY 1996 (Pub. L. 104-50) in November 1995,
Congress included a provision prohibiting the agency from using any
funds to prescribe corporate average fuel economy standards for
automobiles ``in any model year that differs from standards promulgated
for such automobiles prior to enactment of this section.'' This same
prohibition was included in the appropriations acts for each of the
1997 through 2001 fiscal years, effectively foreclosing NHTSA from
acting to change the passenger car and light truck CAFE standards
applicable to the 1999-2003 model years. During those years, Congress
kept the CAFE incentive for dual fuel vehicles intact, making no effort
during those years to restrict the incentives despite having mandated
stability in CAFE standards.
While the Department of Transportation and Related Agencies
Appropriations Act for FY 2001 (Pub. L. 106-346) was similar to the
prior appropriations acts in that it contained a identical restriction
on CAFE rulemaking, the conference committee report for that Act
directed that NHTSA fund a study by NAS to evaluate the effectiveness
and impacts of CAFE standards (H.R. Conf. Rep. No. 106-940, at 117-
118). The NAS submitted its report to the Department of Transportation
on July 30, 2001.
One of the recommendations in the NAS report was that ``CAFE
credits for dual-fuel vehicles should be eliminated, with a long enough
lead time to limit adverse financial impacts on the automotive
industry.'' (at 114) The NAS report stated that, ``the provision
creating extra credits for multifuel vehicles has had, if any, a
negative effect on fuel economy, petroleum consumption, greenhouse gas
emissions, and cost.'' (at 111) The report also indicated that the
production of these dual-fuel vehicles enables ``automakers to increase
the production of less fuel efficient vehicles.'' (at 111)
In a letter dated July 10, 2001, Secretary of Transportation Mineta
asked the House and Senate Appropriations Committees to lift the
restriction on the agency's ability to spend funds for the purpose of
setting and modifying CAFE standards. In response, Congress enacted the
Department of Transportation and Related Agencies Appropriations Act
for FY 2002 (Pub. L. 107-87 (December 18, 2001)) without any provision
restricting the Secretary's authority to prescribe fuel economy
standards.
On March 31, 2003, NHTSA established new fuel economy standards for
light trucks applicable to model years 2005-2007. These new standards
represent the largest increase in light truck fuel economy standards in
20 years and will result in substantial savings in petroleum
consumption over the lifetime of the vehicles manufactured in those
model years. In issuing these standards, the agency discussed the
Nation's continuing need to conserve energy and noted the various
public and private efforts underway to develop advanced technology
vehicles.
B. Other Initiatives to Promote Energy Independence
The CAFE incentive program contained in AMFA is part of the
Administration's comprehensive approach to energy security. While the
incentive program encourages the mass production of dual-fuel vehicles
and the use of alternative fuel, other programs exist to address
longer-term technologies and the introduction of fuel-efficient vehicle
technologies. Last year, President Bush announced a Hydrogen Fuel
Initiative to support for active research and development of
commercially viable hydrogen-powered fuel cells for transportation and
stationary power applications, and the
[[Page 7693]]
infrastructure to support them. As the President indicated in his 2003
State of the Union address, successful execution of this Hydrogen Fuel
Initiative would mean that the first car driven by a child born today
could be powered by fuel cells, and pollution-free. The President's
Hydrogen Fuel Initiative complements the Department of Energy's
FreedomCAR initiative, a partnership with the U.S. auto industry aimed
at developing technologies needed for mass production of safe and
affordable hydrogen fuel cell vehicles. Together, these initiatives
will enable automobile manufacturers to decide to offer affordable and
technologically viable hydrogen fuel cell vehicles in the mass consumer
market by 2015 and the ability to produce and deliver such vehicles to
the market by 2020.
The private sector is also responding to the Nation's need to
improve energy security through efficient transportation options. On
January 6, 2003, General Motors announced that it would offer an
optional hybrid (gasoline/electric) powertrain on several of its most
popular models, including light trucks. While pointing out that its
plans involve ``relatively low volumes,'' General Motors also stated
that its initiative would make it ``well positioned to meet market
demand as it develops.'' Similarly, Ford Motor Company will introduce
an optional hybrid electric powertrain in its Escape Sport Utility
Vehicle (SUV), beginning in model year 2005. As Ford explained:
While a few automakers have introduced small, low-volume hybrid-
electric cars, Ford is introducing its first HEV on a family-sized
sport utility to increase mass customer appeal. The hybrid-electric
powertrain also has been developed with additional applications and
vehicles in mind to expand the potential impact of the
environmentally responsible technology.
DaimlerChrysler will introduce an optional diesel engine in the
Jeep Liberty SUV, also beginning with the 2004 model year. The company
claimed in December 2002 that American consumers could save about 800
million gallons of oil annually if they chose to purchase clean diesel
engines at the same rate as purchased by European consumers. According
to DaimlerChrysler: ``Today's modern diesel vehicles should be part of
the solution to improving fuel efficiency and reducing carbon dioxide
emissions. Diesels lead to up to 30 percent improvement in fuel
economy, while reducing carbon dioxide emissions an average of 20
percent.''
IV. March 2002 Report to Congress
AMFA required the Secretary of Transportation, in consultation with
the Secretary of Energy and the Administrator of the EPA, to complete a
study ``of the success of the policy'' of the CAFE incentive for dual
fuel vehicles and to report on the results of the study, including
preliminary conclusions on whether the CAFE incentive should be
extended for up to four more model years. The study and conclusions
were to consider the availability to the public of alternative fueled
automobiles and alternative fuel, energy conservation and security,
environmental considerations and other relevant factors.
NHTSA published a Request for Comments on May 9, 2000 (65 FR 26805)
(Docket No. NHTSA-2000-7087), seeking public input on the success of
the program. The agency received a number of comments on the published
notice: from automotive manufacturers (General Motors Corporation,
DaimlerChrysler Corporation and Ford Motor Company), an automotive
association (Alliance of Automobile Manufacturers), alternate fuels
coalitions (National Ethanol Vehicle Coalition, Clean Fuels Development
Coalition and Members of the Renewable Fuels Association), and State
governments.\2\ All of these commenters expressed support for extending
the CAFE incentive program.
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\2\ On March 23, 2001, the Governors' Ethanol Coalition sent a
letter to Secretary Norman Mineta strongly urging DOT to extend the
CAFE credit incentive.
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Subsequent to the closing of the comment period, additional letters
in support of extending the CAFE incentive program were received from
several Members of Congress. Also, subsequent to the closing of the
comment period, a joint letter expressing opposition to the extension
was received from the Sierra Club, the American Council for an Energy-
Efficient Economy, the Center for Auto Safety and the U.S. Public
Interest Research Group.
All of these submissions are docketed in the DOT Docket Management
System, Docket No. 7087. They may be found by conducting a search under
that number at http://dms.dot.gov/.
The agency gathered information from other sources as well. These
included the DOE Alternative Fuels Data Center (AFDC) and publications
from the Energy Information Administration (DOE/EIA), the Center for
Transportation Research at Argonne National Laboratory, and the Oak
Ridge National Laboratory (ORNL). The AFDC was created to facilitate
implementation of the directives of AMFA, to gather and analyze
information on the fuel consumption, emissions, operation, and
durability of alternative fuel vehicles, and to provide information on
alternative fuel vehicles to government agencies, private industry,
research institutions and other related organizations. The agency also
used data from EPA's National Vehicle and Fuel Emissions Laboratory,
the California Energy Commission, the General Accounting Office, the
American Petroleum Institute and the American Methanol Institute.
Based on consideration of the comments, other information and the
factors specified in AMFA, the agency submitted a report in March 2002
Report that concluded that the CAFE incentive program had succeeded in
incentivizing the development of a fleet of vehicles capable of
operating on alternative fuels, but had not yet succeeded in creating
the necessary infrastructure to support the actual use of alternative
fuels. The Report also found that the success of the program could be
further enhanced through the identification of additional policies and
programs to encourage more use of alternative fuels in the vehicle
fleet that has been built to accommodate them. The Report did not
recommend any suspension or termination of the CAFE incentive program.
V. Notice of Proposed Rulemaking
On March 11, 2002, the agency published a Notice of Proposed
Rulemaking (NPRM) in the Federal Register (67 FR 10873) (Docket No.
NHTSA-2001-10774; Notice 2) proposing to extend the dual fuel incentive
program through the end of the 2008 model year. As we explained in the
NPRM, this proposal was based on our tentative conclusion that granting
the extension would preserve the opportunities for promoting energy
security and decreasing reliance on foreign petroleum by encouraging
continued production of dual fuel vehicles while other efforts to
increase the growth of a dual fuel infrastructure could be undertaken.
We also noted our concern that any extension of less than four years
would be insufficient given the relatively recent influx of large
numbers of dual fuel vehicles in the marketplace.\3\
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\3\ We said that, in light of this recent influx, ``(i)t is,
therefore, not yet clear whether the continuing presence of these
vehicles, their ability to use alternative fuels, programs intended
to increase the use and production of alternative fuels and other
conditions will stimulate the expansion of the alternative fuel
infrastructure as envisioned by Congress in creating the dual fuel
incentive program.'' (at 10874) (Emphasis added.)
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[[Page 7694]]
The NPRM reflected our initial conclusion that the benefits of
extending the incentive provisions are justified by its potential
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benefits:
The agency's tentative decision to extend the incentive program
for four years is based on its assessment that the energy and other
costs of the incentive program are justified by the potential
benefits. We are unable to predict with certainty how much
alternative fuel use, which is a critical element to the realization
of benefits, will increase. Adoption of the proposed four-year
extension entails a risk that manufacturers might be producing dual-
fuel vehicles that operate only on petroleum fuel. On the other
hand, if the agency were to allow the program to terminate, there
would be an equal risk that late-blooming alternative fuel
technology and production would be wasted and the opportunities for
eventual reductions in petroleum use would be lost. A four-year
extension is, in NHTSA's view, a reasonable reconciling of those
risks. Such an extension will provide opportunities for further
development of measures to encourage alternative fuel use and, if
those policies are successful, result in the development of a
domestic fuel supply and infrastructure with either little or no
increase in petroleum use.'' (at 10881)
As the NPRM pointed out, benefits arising from the CAFE incentive
program include the development of a fleet of vehicles that can use
alternative fuels, reduce dependence on foreign oil and help lessen
demand for conventional fuels, thereby helping to keep fuel prices
lower than they otherwise would be in the absence of the incentive
program. We also observed that if sufficient numbers of dual fuel
vehicles exist and spur development of an alternative fuel
infrastructure, the nation would (to a degree) be further insulated
from the impacts of ``oil shocks'' resulting from sudden disruptions to
the petroleum supply, as the Nation's transportation system would be
less dependent on oil supply, and therefore, less vulnerable to such
disruptions.
VI. Summary of Comments
We received numerous comments, responding both to our solicitation
of views before preparing the March 2002 Report to Congress and our
proposal to extend the AMFA dual fuel incentive. Comments were received
from environmental and safety advocacy organizations such as the
Alliance to Save Energy (ASE), Environmental Defense (ED), Renewable
Fuels Association (RFA), American Council for an Energy Efficient
Economy (ACEEE), Natural Resources Defense Council (NRDC), Union of
Concerned Scientists (UCS), Sierra Club, Public Citizen, and Center for
Auto Safety (CAS).
We also received comments from automobile manufacturers and trade
associations--including Ford Motor Company (Ford), General Motors
Corporation (GM), DaimlerChrysler Corporation (DC), and the Alliance of
Automobile Manufacturers (the Alliance)--and alternative fuel groups
and grain producers--including the National Ethanol Vehicle Coalition
(NEVC), National Corn Growers Association (NCGA), Colorado Corn
Administrative Committee (CCAC), Maryland Grain Producers Association
(MGPA) and Minnesota Corn Growers Association (MCGA). Comments were
also received from two individuals--Edward Parker and Joseph Darling.
In general, commenters expressed either complete support or
complete opposition to the proposed four-year extension. None of the
commenters indicated that they believed changing the duration of the
proposed extension was appropriate. Automobile manufacturers,
automotive trade groups, grain producers, and alternative fuel groups
favored the extension. Environmental and automobile safety advocacy
groups did not support the agency's proposal. The two private citizens
did not support the extension.
Those supporting the extension argued that the CAFE incentive
program was successful in achieving the goal of increasing the number
of dual fuel vehicles. They indicated that the infrastructure
supporting the use of alternative fuel in these vehicles is also
continuing to grow. Noting that public awareness of the existence of
alternative fuel vehicles and the fuels they use continues to increase,
they pointed out that the infrastructure to support alterative fuels
(in particular E85, a blend of 85% ethanol and 15% gasoline) has grown
in recent years and continues to expand. They argued that Congress
would not have intended the substantial investment in alternative fuel
vehicles and the burgeoning infrastructure to be terminated just as the
incentive is starting to show benefits.
The automobile manufacturers listed the vehicles they have built
capable of running on ethanol and the various efforts they have made,
and continue to make, to build awareness and support for alternative
fuel use. Since the late 1990s, they have produced approximately 3.4
million dual fuel vehicles capable of running on alternative fuel.\4\
They further pointed out that having this fleet of dual fuel vehicles
improves the Nation's energy security by creating the potential for
using non-petroleum fuels if a crisis in petroleum supply develops and
encourages continued research into the development of cheaper and
cleaner alternative fuels and the infrastructure to support their use.
---------------------------------------------------------------------------
\4\ Automakers have also been working toward the widespread
application of advanced technologies, such as hybrid electric and
modern diesel engines, that may substantially enhance the nation's
energy security and overall fuel economy. The Administration and
private industry are also supporting the development of fuel cell
technology, which over the long run, presents even more potential
for substantial fuel economy savings. All of these efforts,
including AMFA, are part of a broad array of efforts to encourage
development of technologies and infrastructure that collectively and
individually will help to reduce the nation's dependence on foreign
oil as a primary energy source.
---------------------------------------------------------------------------
The ethanol community and its supporters argued that the investment
in alternative fuel vehicles has begun to spur the anticipated
investment in an infrastructure to support actual fuel use. Both
investments would be lost were the agency not to continue implementing
the public policy encouraging alternative fuels and their use. The
ethanol community and numerous government representatives outlined the
strides currently being made to enhance the availability of E85 and to
educate consumers on its potential. They urged the agency not to
abandon the program during this investment stage by eliminating the
incentive provided to automakers to produce and sell vehicles capable
of operating on alternative fuel.
Many of those who commented on the NPRM had also provided
submissions in response to the Request for Comments. Others expressed
their views on the merits only at that time. For example, we heard from
numerous Members of Congress: Senators Grassley, Bond, Bayh, Allard,
Hagel, Ashcroft and Levin all expressed unconditional support for
extending the incentive. Similarly, the members of the Congressional
Auto Caucus (Congressmen Upton, Oxley, Bonilla, Kildee, Dingell, Frost,
Ewing, Camp, Buyer, Hoekstra, Manzullo, LaTourette, Knollenberg,
Stupak, Barcia, Kilpatrick, Kaptur and Stabenow) made clear their
position that more alternative fuel vehicles would be built only if the
incentive were continued. Senator Daschle urged the agency to extend
the incentive, noting, however, that ``in the end, the success of the
program should be measured not only by the number of flexible fuel
vehicles produced, but by the actual use of alternative fuels by
[[Page 7695]]
those vehicles.'' Senator Daschle suggested looking ``for ways to
encourage the establishment of additional alternative fuel refueling
stations around the country.''
State governments also supported extending the incentive. The
Governors of Kansas, Wisconsin, New Mexico, and Missouri each urged the
agency to extend the incentive. The Governor of Wisconsin pointed out:
The flex-fuel vehicle credit program for auto manufacturers is
essential for maintaining support for a cleaner environment through
the use of alternative fuels. Until a substantial network for
infrastructure is developed, the flex-fuel vehicle credit will
assist advancing improvements in infrastructure and enhance the
status of alternative fuels. Nationally, the U.S. will gain energy
independence from foreign oil and individually gain a cleaner fuel.
Wisconsin is currently assisting in an effort to expand the
availability of alternative fuel infrastructure. Until that
infrastructure matures, the use of bi-fuel and flex-fuel vehicles
will be necessary as a bridge fuel to meet the requirements of the
Energy Policy Act and create a demand side draw for the necessary
infrastructure to support an all dedicated fuel fleet.
Those opposing the extension of the incentive program voiced common
themes in their arguments. They argued principally that the program
should not be deemed a success because it has not yet resulted in the
widespread use of alternative fuels. Instead, they stated out that, by
allowing extra credit toward CAFE requirements, the program so far has
allowed the production of more vehicles that are less fuel-efficient
than would have been produced had manufacturers met their CAFE
obligations without the incentives. Thus, they contended, the result of
the incentive is greater fuel consumption and exhaust emissions without
substantial offsetting benefit.
Because the incentive provides additional CAFE credit to vehicles
capable of running on alternative fuel, but which in fact have largely
been using gasoline, those opposed to the incentive argue that its
extension will actually increase dependence on foreign oil.\5\
Accordingly, these commenters also believe that continuation of the
incentive will have adverse environmental consequences and argued that
the adverse effects of higher gasoline use overwhelm the benefits of
the smaller amount of alternative fuel used to date.
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\5\ The ACEEE also questioned whether some dual fuel vehicles in
fact qualified for the incentive taken by the manufacturers.
According to ACEEE, the energy efficiency for some vehicles
qualifying for the dual fuel credit program is less when operating
on alternative fuel than on conventional fuel, even when the varying
heating values for each fuel are considered.
---------------------------------------------------------------------------
Some commenters also consider it unlikely that a fleet of dual fuel
vehicles might be useful in the event of sudden disruption in oil
supply. ACEEE and NRDC stated that such a crisis is likely to arise so
quickly that sufficient time would not be available for existing
ethanol production capability to meet demand or for new ethanol
production capacity to be built. NRDC argued that ethanol could be
added to conventional gasoline to make gasohol blends burned by
conventional vehicles, rendering a fleet of dual fuel vehicles
unnecessary.
The Sierra Club and UCS raised concerns that if ethanol were used
as a MTBE substitute, there might not be sufficient ethanol for use as
an alternative fuel. Both organizations noted that the phasing out of
MTBE in California and the Northeast could require the use of all of
the current projected expansion in ethanol production to meet the
refining industry's need for an MTBE substitute.
CAS argued that a difference in tax treatment makes 10 percent
ethanol (referred to as gasohol or E10) more preferred by the ethanol
industry than E85 blends. According to CAS, E10 blends qualify for a
5.3[cent] per gallon exemption from the motor fuel excise tax, which is
the equivalent value of 53[cent] per gallon.\6\ CAS questioned whether
the ethanol industry would support the continued expansion of E85
because the ethanol used in E85 blends qualifies for a 53[cent] per
gallon tax credit, which is less attractive than the up-front tax
exemption provided for E10.
---------------------------------------------------------------------------
\6\ Since January 1, 2003, these incentives have been 5.2 cents
and 52 cents respectively. They are scheduled to drop to 5.1 cents
and 51 cents on January 1, 2005.
---------------------------------------------------------------------------
Commenters disagreed on whether continuation of the incentive is
likely to spur the development of an infrastructure that has not yet
reached critical mass. Many argued that consumer demand remains focused
on gasoline and that unless a demand develops for alternative fuels,
fuel suppliers will have no incentive to increase the supply or expand
the number of alternative fuel outlets currently in existence. Some
argued that given the cost to consumers of extending this program,
energy conservation efforts would be better directed toward improving
fuel economy or installing ethanol stations to fuel the E85 dual-fuel
vehicles already produced.
On the other hand, the automobile industry and the ethanol
community pointed to their efforts to begin the development of an
infrastructure to support ethanol use in the ethanol-capable dual fuel
vehicles built since the late 1990s. They cited evidence of continued
growth of alternative fuel infrastructure. For example, Minnesota had
recently experienced a 70% increase in the number of E85 fueling
stations. The Minnesota Corn Growers Association, Colorado Corn
Administrative Committee and Maryland Grain Producers Association, Inc.
indicated that the number of E85 stations in their states had recently
increased. The Alliance cited a number of initiatives being pursued by
automobile manufacturers to promote the expanded use of E85 fuel and
increase the number of E85 outlets.
Contending that the present alternative fuel fleet is reaching
``critical mass,'' the supporters of the CAFE incentive program argued
that discontinuing the incentive now would waste the substantial
investment already made in a dual fuel vehicle fleet and result in the
abandonment of the burgeoning infrastructure of E85 fueling stations.
The National Ethanol Vehicle Coalition specifically credited the dual
fuel incentive program for the existence of a growing fleet of dual
fuel vehicles. Although development of the fueling infrastructure has
not progressed as rapidly as the growth of this fleet, the existence
and size of the dual-fuel vehicle fleet is clearly linked to the
incentive program. Discontinuing the CAFE incentive program now,
thereby foreclosing the continued growth of the dual fuel fleet and
potential demand for and use of alternative fuels, would also foreclose
the potential for alternative fuels to contribute significantly to the
nation's energy security.
On June 18, 2003, the Energy Future Coalition \7\ issued a
comprehensive set of energy policy recommendations in a report entitled
``Challenge And Opportunity: Charting A New Energy Future'' (http://www.energy futurecoalition.com/full_ report/index.shtm).\8\ Officials
from a number of
[[Page 7696]]
environmental organizations that commented on this rulemaking serve on
the Coalition's Steering Committee or Advisory Council. Among the
recommendations contained in the Coalition's report was the one
concerning the future of the CAFE incentives for dual fueled vehicles:
---------------------------------------------------------------------------
\7\ On its Web site (http://www.energy futurecoalition.com/about.shtm), the Coalition describes itself as follows:
The Energy Future Coalition is a broad-based, nonpartisan
alliance that seeks to bridge the differences among business, labor,
and environmental groups and identify energy policy options with
broad political support. The coalition aims to bring about changes
in U.S. energy policy to address the economic, security and
environmental challenges related to the production and use of fossil
fuels with a compelling new vision of the economic opportunities
that will be created by the transition to a new energy economy.
\8\ A lengthy article on the report appears under the title of
``The Future of Energy Policy'' in the July-August issue of Foreign
Affairs. The authors are three members of the Coalition's Steering
Committee: John Podesta, former chief of staff to former President
Clinton, C. Boyden Gray, former counsel to former President G. H. W.
Bush, and Timothy Wirth, former U.S. Senator.
Several million cars and trucks already in the U.S. fleet are
fuel-flexible--capable of using gasoline or ethanol interchangeably.
Automakers should continue to receive incentives under federal fuel
economy standards for the production and sale of these vehicles, and
the program should be modified to ensure greater use of alternative
fuels, such as high-ethanol blends. (at 22)
VII. Resolution of the ``Chicken and Egg'' Problem
As noted above, Congress created the CAFE incentive in order to
solve what it considered to be a ``chicken and egg'' problem with the
development of a light vehicle transportation system capable of
operating on domestically produced alternative fuels. As noted in
AMFA's legislative history, Congress sought to address this ``problem''
by encouraging the development of an infrastructure to support
alternative transportation fuels by first promoting the creation of a
fleet of vehicles capable of operating on such fuels, then enhancing
public awareness and acceptance of such fuels, which in turn would
encourage the construction of alternative fuel stations and other
infrastructure to support wider use of such fuels.
Congress chose neither to specify a preferred alternative fuel
choice nor to impose an absolute timetable for the program to achieve
full success. As noted above, the legislative history makes clear that
Congress intended to begin the process towards the development of a
domestically self-sufficient energy environment through the incentive
program. It did not necessarily expect the program to achieve all of
its ultimate goals during the first 10 years. Indeed, Congress
expressly mandated that the Secretary consider extending the program--
albeit on more restricted specified terms--at the end of the first 10
model years and further provided a mechanism for the agency to provide
information to Congress from which it could determine whether further
legislative action is needed.
In comments submitted in June 2000, as well as those submitted in
response to the NPRM, the automobile manufacturers outlined the
technical difficulties they initially faced in producing a large volume
of alternative fuel vehicles in the early to mid-1990s. Manufacturers'
initial efforts focused both on methanol and ethanol fueled vehicles
capable of using fuels containing as much as 95 percent alternative
fuel. These vehicles were initially provided for fleet applications.
All three major U.S. manufacturers have been producing dual fuel
vehicles since 1992, with Ford and General Motors producing those
vehicles as early as 1987 and 1988, respectively:
[sbull] Starting with the 1987 model year and continuing to the
1989 model year, Ford produced approximately 200 methanol dual fuel
Crown Victoria models. These vehicles were used in various public fleet
demonstration programs.
[sbull] In model year 1991, Ford introduced its methanol dual fuel
Taurus, which was produced until model year 1998, the last model year
in which Ford produced methanol flexible fuel vehicles (FFVs).
[sbull] In model year 1994, Ford added the ethanol dual fuel
Taurus, which it continues to produce today. From model year 1999 to
model year 2002, Ford produced ethanol dual fueled versions of the
Ranger and the Mazda B3000 pickup. In addition, Ford produced an
ethanol dual fuel version of its popular Explorer SUV in the 2001 and
2002 model years.
[sbull] GM produced test fleets of methanol dual fuel 1988 Corsicas
and methanol dual fuel 1991 Luminas. GM redesigned the Lumina for the
1994 model year and did not offer a methanol dual fuel version in 1994
and 1995.
[sbull] After the conclusion of its methanol dual fuel test fleet
program, GM embarked on a test fleet program for ethanol flexible fuel
vehicles, starting with the production of 50 ethanol dual fuel Luminas
in model year 1992. These were followed by a production run of 320
ethanol dual fuel Luminas in the 1993 model year.
[sbull] Due to technical problems with these vehicles, GM did not
produce another ethanol dual fuel vehicle until model year 2000, when
the company produced approximately 100,000 ethanol dual fuel S-10s and
Sonomas. A similar quantity of these vehicles was produced in model
year 2001. Starting with the 2002 model year, GM has been producing
full-size pickups and SUVs with 5.3 L V8 ethanol dual fuel engines.
[sbull] Chrysler produced 2,500 methanol dual fuel Plymouth
Acclaims and Dodge Spirits in the 1992 model year, which were sold to
fleets and the public. Chrysler continued offering methanol Acclaims/
Spirits until model year 1994, when the company started producing its
large passenger cars as methanol dual fuel vehicles.
[sbull] Since model year 1999, DaimlerChrysler has mass-produced
ethanol dual fuel minivans by equipping these minivans with engines
capable of operating on E85.
These early fleet introductions led to the identification of
several technological problems with the operation of dual fueled
vehicles when using alternative fuels. These included the corrosive
nature of the fuels, their effect on engine cylinders, and the need for
alcohol compatible materials for fuel lines, hoses, gaskets, valves,
fuel pumps, fuel injectors and fuel tanks. Ultimately, these problems
were overcome by substituting parts that were more compatible with
alcohol-based alternative fuels. With the resolution of these problems,
and the movement toward ethanol as the primary source of alternative
fuel, the growth of a fleet capable of operating on alternative fuel
and the development of an infrastructure to support it began in
earnest.
Two main issues eventually led to the discontinuation of methanol
flexible fueled vehicle production: (1) Methanol's being more corrosive
than ethanol; and (2) the shift in focus by the methanol industry away
from providing methanol for M85 to providing methanol for MTBE. Because
methanol is more corrosive than ethanol, engineers were faced with
challenges more difficult with methanol than those faced with ethanol.
The challenges created by ethanol were overcome by 1997, which resulted
in a mass influx of E85 vehicles into the market, which continues to
this day. These technical solutions enabled E85 vehicles to be mass-
produced and reduced their incremental price to such a level that these
vehicles are now sold at no additional cost to the consumer.
Additionally, methanol producers rapidly altered their focus from
developing an M85 infrastructure to providing methanol and MTBE to the
refining industry.
Automobile manufacturers have joined with state and local
governments and other ethanol supporters to help develop public
awareness about E85 and to encourage its use in dual fuel vehicles
capable of operating on E85. Other corporations, such as the United
Parcel Service, have also embraced alternative fuel vehicles (Fortune
Magazine, ``Corporate Responsibility: Tree Huggers, Soy Lovers, and
Profits,'' June 23, 2003, noting that the UPS fleet
[[Page 7697]]
includes 1,800 alternative-fuel vehicles and that Federal Express
announced plans to convert all its trucks to hybrid electric-diesel
engines).
GM has been involved with a variety of efforts focused on promoting
the use of E85 in flexible fuel vehicles, including supporting
university research and sponsoring programs such as the Ethanol
Challenge, an engineering competition focused on E85 vehicles. GM's
efforts in the infrastructure area include joint sponsorship with BP
Amoco to develop E85 fueling stations and encouraging, through letters
and GM's internal website, its employees to refuel their FFVs with E85.
GM also provides a list of E85 refueling locations on its GM
alternative fuel vehicle Web site, www.gmaltfuel.com.
In February 2003, GM announced a new, multi-million dollar campaign
to promote the use of corn-based E85 as an alternative to gasoline. As
announced, this campaign will be a 2-year partnership with the non-
profit National Ethanol Vehicle Coalition (NEVC) and will be focused on
increasing ethanol use in flexible fuel vehicles. The ethanol promotion
effort will begin in six key states: Missouri, Wisconsin, Colorado,
Minnesota, Michigan and Illinois.\9\ Methods will include making
information available at dealerships and through direct mail,
advertising and on-line activities.
---------------------------------------------------------------------------
\9\ Representatives of many of these States (as well as others)
expressed their support in the rulemaking record for extending the
CAFE incentive to help in their efforts to ensure the continuation
of a fleet capable of using E85 and to encourage the use of E85 to
service that fleet.
---------------------------------------------------------------------------
Since the early 1990's, Ford has been a contributor to the effort
to develop the E85 infrastructure and increase public awareness of the
benefits of E85 use. Ford has recently completed an effort to expand
the number of E85 stations in the Chicago area, and has initiated the
installation of E85 stations in Denver and Milwaukee, which should be
completed this summer. Ford also was able to install an E85 station in
the Detroit area to service both public and company owned vehicles.
As part of the Minnesota E85 Team, Ford has assisted with the
establishment of 30 additional E85 stations in the Minneapolis/St. Paul
area. As a result, there are now 62 E85 refueling outlets in Minnesota,
which has enabled the use of E85 in the Minneapolis/St. Paul area to
grow by 70 percent in recent years. Ford also was an advertising
sponsor for the Minnesota Timberwolves NBA team, with an E85 and clean
air theme, which included a Taurus FFV as a prize. In recognition of
these achievements, the Environmental Protection Agency awarded Ford,
as a participant in the Minnesota E85 Team, with its 2002 ``Clean Air
Excellence Award.''
Ford has also been involved in promoting public awareness of E85
and flexible fuel vehicles. In its comments, Ford noted it plans to
hand out approximately 50,000 ethanol/FFV brochures at events, include
FFV's in its full-line product brochure (approximately 70,000 were
distributed last year), and to mail approximately 55,000 CD's
containing ethanol and FFV information to interested customers. Ford
also committed to continuing the dissemination of information about
ethanol and FFV's on its Web site, and promote ethanol and FFV's in
their regional merchandising kits and product presentations.
DaimlerChrysler also has been involved in activities to promote the
use of E85 in flexible fuel vehicles. DaimlerChrysler distributes the
``AFV Quarterly'' every three months to 35,000 customers, dealers,
corporate executives and alternative fuel vehicle industry personnel.
This publication contains articles related to alternative fuels, the
company's AFVs and promotes the purchase of AFVs including E85
vehicles. Since 1992, DaimlerChrysler has placed ads in a variety of
magazines and publications promoting its AFVs and E85 vehicles.
As set forth in its comments, DaimlerChrysler supports and
participates in the DOE Clean Cities program, including membership in
many Clean Cities coalitions, and participation in many events,
meetings and conferences. DaimlerChrysler also actively sponsors and
participates in a multitude of conferences and events designed to
promote the use of AFVs, and alternative fuel, including E85.
In addition to corporate activities, the ethanol community and
state and local governments are actively encouraging the use of E85 in
the alternative fuel fleet. In June 2003, representatives from
industry, government and public interest groups announced the launch of
a nationwide public education, information and outreach campaign to
advance the production and use of renewable ethanol. The program,
entitled ``Ethanol Across America,'' is designed to generate awareness
and build support for ethanol.
U.S. Senators Conrad Burns (R-Mont.) and Ben Nelson (D-Neb.) will
serve as co-chairmen of the new effort, which is directed by the Clean
Fuels Foundation, a 501(c)(3) non-profit organization and supported by
the U.S. Department of Energy. Ethanol Across America will use a wide
range of methods to educate the public, including educational
publications, conferences and workshops, consumer brochures (e.g., the
Ethanol Fact Book and Flexible Fuel Vehicle Fact Book) and an already-
released curriculum guide for a high school course on ethanol. Ethanol
Across America also will serve as an information clearinghouse by
creating a national services directory database and a national speakers
bureau. In addition, the campaign will include a unique nationwide
radio component on approximately 400 stations called the 'Ethanol
Minute' during which spokespersons from all walks of life, including
elected officials, celebrities, energy and environmental experts, will
discuss various aspects of ethanol.
Although not yet completed, a light vehicle transportation system
capable of incorporating E85 is developing and investment in that
system is growing. The March 2002 Report to Congress recommended
building on the foundation that has been laid to date by the incentive
program. It did not recommend that the incentive be terminated or that
the program be halted. To the contrary, it recommended that further
efforts be made to enhance the actual use of E85 and to encourage the
already occurring investment in order to achieve the ultimate success
of more widespread use of alternative fuels.
VIII. Extending the CAFE Incentive
The agency has decided to continue the CAFE incentive program
consistent with AMFA and our proposal in the NPRM. Our review of the
legislative history has led us to conclude that, when AMFA was enacted
in 1988, Congress intended the incentive to be extended if the policy
underlying it had begun to work, but the purposes had not yet been
fully achieved. That is the situation in which we find the nation as we
consider whether to extend the dual fuel vehicle incentive. As AMFA
sought, the incentive has led to a growing fleet of dual fuel vehicles,
currently more than 3 million strong, capable of using alternative
fuels. But, since the development of that fleet occurred only in the
late 1990s and early 2000s, an infrastructure for alternative fuel (and
particularly for ethanol) has only begun to develop.
Congress gave the agency the authority to extend the CAFE incentive
in order to allow the continued development of a dual fuel fleet, an
alternative fuel infrastructure, and, ultimately, the implementation of
alternative fuels into daily use. Congress itself considered the
implications of extending the credits on the overall
[[Page 7698]]
CAFE program, and created the balance it deemed appropriate by limiting
the application of the incentive and the terms on which it could be
extended.
We do not believe Congress expected the agency to continue the
incentive only if the vehicle fleet it created had led to substantial
alternative fuel use. If that were the case, the incentive would serve
no ongoing purpose, having already achieved its objective, and there
would have been no reason for Congress to have placed statutory limits
on the time and scope of the extension. Nor do we believe Congress
expected the agency to continue the incentive if the automakers had not
developed vehicles capable of running on alternative fuels or if no
infrastructure seemed likely to develop. Indeed, the legislative
history is clear that Congress believed that it was beginning a process
toward the use of domestically produced fuel, with the full knowledge
that the limited time table set forth in AMFA may not be sufficient to
spur the investment into alternative fuels it sought to achieve.
While the infrastructure to support E85 is in its infancy, the
availability of approximately 3.4 million vehicles to use that fuel
has, as set forth in the comments in this record, provided the
necessary encouragement to begin investment in E85 refueling stations.
As an example, as of January 19, 2004, there are 182 E85 refueling
stations in the country. This includes 56 more stations than existed in
March of 2002 when the Report to Congress was completed. Private
industry is working with public entities (and, in particular, with
state governments) to educate the public about the utility of
domestically produced alternative fuels and to encourage consumers to
use it. Many commenters argued that were we to discontinue the
incentive now, and thereby remove the government's policy support for
these efforts, the efforts they are making would likely cease and the
gains they have made, and will make, would likely be lost.
The NRDC argued that the agency cannot continue the CAFE incentive
without first considering: (1) The availability to the public of
alternative fueled automobiles and alternative fuel; (2) energy
conservation and security; (3) environmental considerations; and (4)
other relevant factors. These are the matters that Congress mandated be
considered by the agency when preparing the Report to Congress required
by 49 U.S.C. 32905(g).
The NRDC argued that the program has failed in these regards,
asserting that dual fuel vehicles do not use alternative fuels, that an
extension of the incentive would harm energy conservation and that an
extension would have negative environmental effects. The NRDC believes
the program should be terminated because, in its view, the primary
result of the program to date has been to allow automobile
manufacturers the opportunity to enhance their CAFE numbers without yet
a corresponding actual reduction in petroleum use. And, to be sure,
NHTSA's Report to Congress in March 2002 described the possibility that
the AMFA program had, as of that time, resulted in a slight increase in
petroleum use (1%) and greenhouse gas emissions (well less than 1%).
However, we note that it is not clear from the statute whether
Congress intended the agency to base its administrative decision on the
matters required to be considered in the Report to Congress. Had
Congress intended that to be the case, it could easily have included
those considerations in the statutory provision governing the extension
(49 U.S.C. 32905(f)), rather than just the Report to Congress (49
U.S.C. 32905(g)). Nor did Congress specify whether the nation's
continuing need to conserve energy and to reduce dependence on foreign
oil should militate for or against an extension when, as now, the
incentive program established by AMFA has begun to work but not yet
achieved its ultimate objective.
As described above, we believe that the most consistent application
of Congressional intent is to extend the CAFE incentive contained in
AMFA based on data indicating that the program envisioned by Congress
has begun but not yet been fully achieved. We believe Congress would
not have expected the program to be extended if no fleet of alternative
fuel vehicles had arisen or if infrastructure development had yet to
begin, nor if the program had been so successful that the acceptance
and use of an alternative fuel was self-supporting and needed no
further assistance.
Since Congress did not include these criteria in the statutory
provision governing the extension, nor provided any guidance on how to
apply them, we do not believe that Congress intended there be any legal
requirement for the agency to make specific findings with regard to
those criteria when considering whether to extend the dual fuel
incentive. We believe it more likely that Congress sought information
in the Report to Congress from which it could determine whether further
legislative action was necessary or desirable. The criteria are
accordingly set forth in the statutory section governing the Report to
Congress and appropriately provide no guidance as to how or whether to
apply the criteria when making preliminary conclusions about whether
the incentive should be extended.\10\
---------------------------------------------------------------------------
\10\ Indeed, subsequent to the submittal of the Report to
Congress, both Houses of the Congress passed bills last year that
would have extended the dual fuel vehicle incentive.
---------------------------------------------------------------------------
While we do not believe there to be any legal requirement that we
make findings relating to those criteria before deciding whether to
continue the incentive as provided in 49 U.S.C. 32905(f), we do believe
those criteria to be relevant to our consideration of an extension. In
contrast to the analysis suggested by NRDC and other advocacy groups,
we believe that these criteria support further extension of the CAFE
incentive for dual fuel vehicles.
First, on March 31, 2003, the agency issued corporate average fuel
economy levels for light trucks for model years 2005-2007 (68 FR 16868;
April 7, 2003). The agency's analysis concluded that the Nation's
continuing need to conserve energy and to enhance energy security
justified increased fuel economy levels representing the maximum
technologically feasible and economically practicable standards. The
public policy needs that led Congress to enact AMFA remains vital
today--energy security remains a serious public policy concern. As
recent Congressional debate on comprehensive energy legislation has
made clear, the development of a light vehicle transportation system
based on a domestically produced transportation fuel remains an
important energy policy objective. As Congress recognized might be the
case, continuation of the AMFA incentive is essential to continue the
development of such a system. Without it, the investment already made
may be lost and the continuing investment underway may well cease.
The availability of vehicles capable of operating on alternative
fuels, and the growing but as yet not commercially developed system to
support such a system, argue for (not against) the continuation of the
incentive providing the impetus for the development of the vehicle
fleet and the infrastructure to support it. The availability of
vehicles that can use alternative fuel, and the beginnings of an
infrastructure to support it, trumpet the need to continue the
incentive to further the fleet and to further spur the implementation
of refilling stations and other necessary infrastructure to further use
of non-petroleum fuel.
It is worth noting, however, that the Report to Congress described
an analysis performed by the
[[Page 7699]]
Environmental Protection Agency (EPA) comparing a baseline case in
which no incentive program existed with a case where the incentive
program was in place, but in which dual fuel vehicles would use an
alternative fuel source only one percent of the time. Not surprisingly,
this analysis indicated that when dual fuel vehicles are operated on
alternative fuel only 1% of the time, petroleum use would increase
slightly because the incentive program would discourage, rather than
encourage, the production of more fuel-efficient vehicles. In analyzing
the results of the analysis, the Report to Congress stated:
The results of the analysis indicate that the incentive has
resulted in an increase in alternative fuel use (almost all E85),
and some slight increase (about one percent) in petroleum
consumption and greenhouse gas emissions for 1996 through 2000. The
effects beyond 2000 will depend almost entirely on the amount of E85
fuel used by FFVs. Unless actions are taken to significantly expand
the availability and use of alternative fuels, the CAFE credit
incentive program will not result in any reduced petroleum
consumption or greenhouse gas emissions in the future. (at xii)
Rather than argue for termination of the CAFE incentive (as
suggested by some commenters), EPA's analysis demonstrates that the
real benefits of the CAFE incentive have not yet been realized, and
further extension of the CAFE incentive is needed to expand the
alternative fuel infrastructure and realize substantial gains in
replacement fuel use and petroleum displacement. Only by extending the
CAFE incentive can we take full advantage of the existing (and future)
investment in the Nation's alternative fuel vehicle fleets and
infrastructure. As many commenters have made clear, abandoning that
investment today would likely result in the contraction of the dual
fuel vehicle fleet, reversal of the upward trend in the construction of
refueling stations and reduced public education concerning and
acceptance of alternative fuels.
In enacting AMFA, Congress determined that a vehicle fleet capable
of operating on alternative fuels was the best approach to encouraging
investment in domestic energy sources. As evident in the Report to
Congress, the incentive program has resulted in the development of a
vehicle fleet, but has only begun to spur the investment necessary for
that fleet actually to use alternative fuel. The Report to Congress
also emphasizes that increasing the use of domestic alternative fuels
in lieu of imported petroleum will have beneficial environmental and
energy effects. To abandon the program at this juncture would not allow
those benefits to be realized. That is why the Report to Congress
concludes that further efforts should be made to encourage the use of
alternative fuel, but does not offer a preliminary conclusion
suggesting that the program be terminated.
Second, the agency does not agree with the comments of several
groups that the CAFE incentive program should be abandoned because
manufacturers have used it to enhance their CAFE performance. Several
of the advocacy groups claim this has resulted in reducing, rather than
enhancing, energy security by permitting the development of a less
fuel-efficient vehicle fleet than would have been permitted without the
incentive. We believe that argument to be contrary to the policies and
objectives underlying the legislative program. Congress specifically
decided to use a special dual fuel CAFE calculation to promote the
production of dedicated and dual fuel vehicles. To ensure that the
incentive is not subsumed within higher CAFE standards, Congress
expressly prohibits the agency from acknowledging the incentive when
determining maximum feasible average fuel economy levels. Moreover,
because Congress recognized that the CAFE incentive could potentially
lead to lower overall fleet fuel economy, Congress placed express
limitations on the scope of the incentive and the term of any necessary
extension specifically to strike the appropriate balance between
encouraging alternative fuel system development and providing relief
from CAFE obligations.
Third, the view that extension of the CAFE incentive should be
premised on the existence of a well-developed alternative fuel
infrastructure misinterprets the intent of Congress with respect to the
``chicken and egg'' problem and its actions to provide the agency with
the option to extend the CAFE incentive. Were there a well-developed
alternative fuel infrastructure and a corresponding substantial use of
alternative fuels, there would be no need for an extension of the CAFE
incentive. Similarly, had there been no movement toward a fleet capable
of operating on alternative fuels, or no movement toward the growth of
infrastructure to that fleet, there would not be any basis for
extending the CAFE incentive.
As it is, however, after initially experimenting with methanol and
working through technological issues with alternative fuels, in the mid
to late 1990s, automobile manufacturers created a fleet of vehicles (as
Congress intended) and States and local governments began to encourage
investment in infrastructure to support that fleet. As we observed in
the NPRM, while no liquid fuel dual-fueled light duty vehicles were
produced prior to 1996, approximately 3.4 million dual-fueled light
duty vehicles were produced in the 1998 through 2003 model years.
Indeed, about one million of these vehicles were produced in the 2003
model year alone. Termination of the incentive now would likely
discourage the further growth of the dual fuel vehicle fleet, as well
as the further development of the growing infrastructure to support
this fleet. This would, in effect, stamp out the gains toward energy
security that the CAFE incentive has already produced and will produce
in the future. Further, as stated in the Report to Congress, the
Nation's long-term energy security must be given considerable weight
when balanced against possible short-term petroleum consumption and
environmental impacts.
Fourth, commenters who supported the agency's proposal noted that
manufacturers would not have developed and produced these dual fuel
vehicles in the absence of the incentive. In addition, these commenters
indicated the importance of the fact that the dual fuel fleet had only
begun to grow in size in recent years, reaching a ``critical mass'' of
vehicles to support investments in alternative fuel infrastructure. In
contrast, those commenters opposed to the extension argued that the
continued lack of meaningful development of an alternative fuel
infrastructure indicated the existence of the dual fuel vehicles
themselves has had no impact on demand for alternative fuels. Instead,
these commenters, notably Public Citizen, argued that the presence of
the growing dual fuel fleet is meaningless if not accompanied by a
corresponding growth in demand for alternative fuel. Without such
demand, they contend, an alternative fuel infrastructure will not fully
develop.
Congress recognized it was unlikely that an alternative fuel
vehicle fleet, consumer demand for such vehicles and infrastructure to
support such vehicles all would develop contemporaneously. Congress
created the incentive in order to spur the necessary investment to
create an alternative fuel vehicle fleet, which would drive consumer
demand for alternative fuels and, ultimately, the necessary
infrastructure to support such demand. Congress further recognized the
likelihood that an extension could be necessary to complete the process
it had started. Accordingly, the agency does not agree with those
commenters that suggest that the credit should be
[[Page 7700]]
terminated because consumer demand and infrastructure have not yet
developed to an extent that an alternative fuel system is self-
sustaining.
Fifth, we believe that the existence of a significant fleet of dual
fueled vehicles is meaningful even in the absence of substantial
current demand for alternative fuels. Maintaining the CAFE incentive
program, and thus continuing to spur the production of dual fuel
vehicles, will help attenuate the potential impacts of ``oil shocks''
caused by rapid changes in the petroleum supply. In the event of an oil
shock, dual fuel vehicles could--in those areas where infrastructure is
already developed or rapidly expanding--use a domestically produced
alternative fuel to reduce the nation's overall petroleum consumption.
We do not agree with those commenters who argued that continuing the
incentive is unnecessary because manufacturers could reinstitute
production of dual fuel vehicles if the need arose, as the technology
to build vehicles capable of operating on alternative fuels must be
incorporated into the design and manufacture of those vehicles, a
process which requires several years lead time.
Sixth, a number of commenters suggested that the supply of ethanol
might be a limiting factor in expanding E85 use, the largest component
of growth in alternative fuel use. Current U.S. ethanol production is
approximately 3.6 billion gallons per year. A substantial percentage of
this production capacity is used to produce additives for conventional
gasoline or to produce gasohol (90 percent gasoline/10 percent
ethanol). Ethanol production capacity has essentially doubled in recent
years and, based on the comments showing increased investment in both
infrastructure and consumer education, appears likely to continue to
grow so that there will be more than enough ethanol to meet the demand
for additives and provide E85 fuel. The March 2002 Report to Congress
estimated that there were 400 million gallons of ethanol available for
use in E85 for the year 2000. By 2002, the amount available for E85 use
had grown to slightly over 1 billion gallons.
Recent experience with using ethanol as a replacement for methyl
tertiary butyl ether (MTBE) indicates that the ethanol industry has the
ability to increase production capacity quite rapidly in response to
increased demand. The Report to Congress indicated that if ethanol
production remained at a constant rate, production in 2010 would be
approximately 2.6 billion gallons per year. However, the California
Energy Commission now projects that U.S. ethanol production capacity
will exceed 5 billion gallons per year by December 2004\11\. Therefore,
the Nation's experience with MTBE's replacement by ethanol has thus far
demonstrated that the ethanol industry has the capability to expand
production capability rather quickly. The move by some States to phase-
out MTBE has also had other salutary effects in terms of improvements
in the production, transportation, distribution and blending of
ethanol. Therefore, while this MTBE phase-out has significantly
increased demand for ethanol, it has also established that ethanol
production can be expanded to meet that increased demand.
---------------------------------------------------------------------------
\11\ Schremp, Gordon. ``California's Phaseout of MTBE--
Background and Current Status'' http://www.energy.ca.gov/mtbe/
documents/2003-03-17--SCHREMP--AT--EPA.PPT
---------------------------------------------------------------------------
The existence of the capability to rapidly expand ethanol
production underscores the need to have and maintain an ethanol dual
fuel vehicle fleet. The presence of an alternative fuel fleet would, in
the event of significant changes in the availability of petroleum
fuels, provide a ready market for a domestically produced fuel. While
the Alliance and Ford both indicated their support for this contention,
ACEEE and the NRDC indicated that sudden changes to the petroleum
supply might not allow sufficient time for the development of
additional ethanol production to allow dual fuel vehicles to use E85
fuel. Rapid changes to ethanol production capacity--i.e., taking less
than in six months to a year--are not likely and probably not useful in
ameliorating the impact of a sudden oil crisis or ``shock.'' Similarly,
if sufficient ethanol production capacity exists in such a situation,
or is rapidly developed thereafter, the ethanol produced could be used
in an E10 blend as well as E85. However, if restrictions to the
petroleum supply persist over a longer term, the ethanol industry's
recently demonstrated ability to rapidly expand production indicates
that more ethanol could become available. The use of E85 fuels in E85
vehicles is likely to occur simply because much less petroleum would be
available. In such an instance, the existence of a dual fuel fleet
could be an important asset to the Nation's energy security.
Seventh, we note that the Department of Energy (DOE) has recently
published a final rule determining that it is not necessary to require
private and local government fleets to acquire alternative fuel
vehicles. (69 FR 4219; January 29, 2004). The statutory authority under
which DOE issued its final rule specifies that DOE may adopt such a
requirement only if it is able to determine that doing so is
``necessary'' to meet the statutory goal of replacing 30 percent of
motor vehicle petroleum use by 2010.
DOE concluded that a private and local government fleet mandate was
not necessary because, under current conditions, the limited number of
fleets that would be covered and of alternative fuel vehicles that
would be acquired under a mandate, coupled with the statutory
constraints on such a mandate, would mean that the mandate would not
appreciably increase the use of replacement fuels by motor vehicles.
DOE also pointed out that even if the number of fleets and acquired
alternative fuel vehicles were larger, there was no assurance that
acquired vehicles would actually use alternative fuels.
DOE's final rule is consistent with our approach in today's final
rule. DOE has merely decided not to impose a mandate on private and
local government fleets in the absence of appreciable benefits from
such a mandate. Moreover, of course, DOE's action is under a different
statute and subject to different statutory requirements than is our
rulemaking today. DOE's statute expressly conditions a determination of
necessity, and thus the adoption of a mandate, upon that Department's
being able to make twin findings: that the 2010 goal of replacement
fuel use is not expected to be achieved by voluntary means or pursuant
to any law without a mandate, and that that goal is practicable and
actually achievable through the adoption of a mandate in combination
with voluntary means and any other relevant programs. It would not have
been enough for DOE simply to find that a private and local government
fleet AFV acquisition mandate would increase the level of alternative
or replacement fuel used; rather, in order for a mandate to be
promulgated, DOE would have had to find that the 2010 goal actually is
achieved ``through implementation of such a fleet requirement program
in combination with voluntary means and the application of other
programs * * *.'' (42 U.S.C. 13257(e).) In contrast, our decision to
extend the incentive is not conditioned upon making any findings. This
affords us greater discretion in determining what decision is
appropriate.
Eighth, we note that CAS observed that the respective tax
treatments of E10 and E85 militate against producers choosing to make
E85 instead of E10, stating that E10 blends qualify for a 5.3[cent] per
gallon exemption from the motor fuel excise tax, which is the
equivalent
[[Page 7701]]
value of 53[cent] per gallon, while the ethanol used in E85 blends
qualifies for a 53[cent] per gallon tax credit. Gasohol, or E10,
benefits from direct reduction of taxation while E85 is subject to the
equivalent reduction in taxation through operation of a credit. The two
tax treatments are equal in their impact, if not in their operation,
and we have no data on which to base a conclusion that the differing
approaches to taxing the fuels will affect the production level of
either.
Finally, we note that ACEEE indicated that it did not understand
how certain dual fuel vehicles, which are required to provide equal or
greater energy efficiency when operating on alternative fuel than when
using gasoline or diesel fuel, could be classified as such. The agency
calculates the relative energy efficiency of a dual fuel vehicle by
dividing the vehicle's combined fuel economy (miles/gallon) when
operating on gasoline or diesel fuel by the net heating value of the
gasoline or diesel fuel (BTU/gallon). We then divide the vehicle's
combined fuel economy (miles/gallon) when operating on alternative fuel
by the net heating value of the alternative fuel (BTU/gallon). This
results in two values, expressed in miles/BTU, which provides the
energy efficiency of that vehicle while operating on alternative fuels
and the energy efficiency of the vehicle while operating on gasoline or
diesel fuel.
The relative energy efficiency of that vehicle can be expressed by
a ratio of the energy efficiency of the vehicle while operating on
alternative fuels to the energy efficiency of the vehicle while
operating on gasoline or diesel fuel. If that ratio, called the energy
efficiency ratio, is equal to or greater than one, then that dual fuel
vehicle provides equal or greater energy efficiency while operating on
the alternative fuel than that vehicle operating on gasoline or diesel
fuel. Our review indicates that vehicles currently classified as dual
fuel vehicles have, when the method described above is used, energy
efficiency ratios indicating that they qualify as dual fuel vehicles.
IX. Conclusion
For the reasons set forth above, we have determined that the
extension of the AMFA CAFE incentive program for dual fuel vehicles is
necessary to carry out the Congressional aim of encouraging development
and use of alternative motor fuels. AMFA envisioned the alternative
fuel program as a series of steps: the production of a vehicle fleet
capable of operating on alternative fuel that, in turn, would increase
consumer demand for alternative fuels to use in those vehicles, which
would then spur the growth of infrastructure (such as refueling
stations) to support such demand. Combined with a public education and
awareness campaign to generate acceptance of alternative fuels as a
replacement for conventional fuels, this Congressional program can
result in significant economic and energy security benefit as
alternative fuel becomes increasingly available and its use gains
public acceptance and becomes more widespread.
The extension is consistent with the clear Congressional intent to
continue the program if, after a fixed period of time, the CAFE
incentive had initially generated some success in the creation of a
vehicle fleet, but had not yet resulted in enough infrastructure to
create a self-sustaining alternative fuel system. In enacting AMFA,
Congress decided to permit a slight short-term reduction in fleet fuel
economy in order to encourage long-term energy security through the
development of an alternative fuel automobile fleet. The agency has
found that the incentive has led to the creation of such a vehicle
fleet, and more recently has led to expanded investment in
infrastructure and public education campaigns to develop the actual use
of alternative fuel in that fleet.
We have determined that extension of the CAFE incentive
appropriately balances the Nation's need to continue to encourage
investment in alternative fuel infrastructure and the risk that the
Nation's alternative fuels system may never become self-sustaining. The
recent proliferation of E85 refueling stations, the recent
Congressional support for ethanol as an alternative fuel, and the
recent expansion of public awareness and acceptance campaigns to
encourage ethanol use all imply a continuing increase in E85 use and
the ultimate success of the program created by Congress in AMFA, at
least as far as ethanol-based fuels are concerned. The current status
of the program does not support its abandonment by terminating the CAFE
incentive that has sparked its development to date.
X. Regulatory Analyses
A. Executive Order 12866 and DOT Regulatory Policies and Procedures
Executive Order 12866, ``Regulatory Planning and Review'' (58 FR
51735, October 4, 1993), provides for making determinations whether a
regulatory action is ``significant'' and therefore subject to Office of
Management and Budget (OMB) review and to the requirements of the
Executive Order. The Order defines a ``significant regulatory action''
as one that is likely to result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or Tribal governments or
communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlements, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
This final rule is economically significant. While final rule does
not require the production of alternative fuel vehicles, it allows
manufacturers producing dual-fuel vehicles to produce less efficient
conventionally fueled vehicles. The impact of the production of these
less efficient vehicles may result in additional annual fuel costs of
more than $100 million. Accordingly, it was reviewed under Executive
Order 12866. The rule is also significant within the meaning of the
Department of Transportation's Regulatory Policies and Procedures.
Because this final rule is economically significant, the agency has
prepared a Final Economic Assessment (FEA), as required by E.O.
12866.\12\ Among the estimates and conclusions in the FEA are the
following:
---------------------------------------------------------------------------
\12\ As we noted in IX. Conclusion above, we have determined
that the extension of the AMFA CAFE incentive program for dual fuel
vehicles based on our conclusion that doing so is necessary to carry
out the Congressional aim of encouraging development and use of
alternative motor fuels. Combined with a public education and
awareness campaign to generate acceptance of alternative fuels as a
replacement for conventional fuels, this Congressional program can
result in significant economic and energy security benefit as
alternative fuel becomes increasingly available and its use gains
public acceptance and becomes more widespread.
---------------------------------------------------------------------------
[sbull] The incentive program has stimulated a significant increase
in the availability of dual fuel vehicles (about 3.4 million E85
vehicles were sold through MY 2003, mostly light trucks).
[sbull] Even under the most pessimistic assumption regarding the
use of E85 fuel (1% usage) in dual fuel vehicles, overall increases in
gasoline consumption are relatively small--less that one percent.
[sbull] The average consumer cost of adding dual fuel capability to
a vehicle is $100 to $200 (in $2000).
[[Page 7702]]
[sbull] The ability of GM, Ford and DaimlerChrysler to rely on the
incentive credits during the extension will decrease the extent to
which those companies would otherwise need to increase the fuel economy
of their conventional vehicles, with a resulting average savings, from
the manufacturer's perspective, ranging from $34 for MY 2005 light
trucks to about $85 for MY 2007 light trucks.
The full FEA is available in the docket and has been placed on the
agency's Web site along with the final rule itself.
B. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 et seq.,
as amended by the Small Business Regulatory Enforcement Fairness Act
(SBREFA) of 1996), whenever an agency is required to publish a notice
of rulemaking for any proposed or final rule, it must prepare and make
available for public comment a regulatory flexibility analysis that
describes the effect of the rule on small entities (i.e., small
businesses, small organizations, and small governmental jurisdictions).
The Small Business Administration's regulations at 13 CFR 121.105(a)
define a small business, in part, as a business entity ``which operates
primarily within the United States.'' No regulatory flexibility
analysis is required if the head of an agency certifies the rule will
not have a significant economic impact on a substantial number of small
entities. SBREFA amended the Regulatory Flexibility Act to require
Federal agencies to provide a statement of the factual basis for
certifying that a rule will not have a significant economic impact on a
substantial number of small entities.
NHTSA has considered the effects of this final rule under the
Regulatory Flexibility Act. I certify that this final rule does not
have a significant economic impact on a substantial number of small
entities. The rationale for this certification is that there are not
currently any small motor vehicle manufacturers in the United States
building vehicles that will be affected by the extension of the dual-
fuel incentive credit.
C. National Environmental Policy Act
NHTSA has analyzed this rulemaking action for the purposes of the
National Environmental Policy Act. The agency has performed an
Environmental Assessment and determined that implementation of this
final rule will not have a significant impact on the quality of the
human environment. Adoption of this final rule could result in
increased vehicle emissions and an increase in greenhouse gases,
depending on the amount of alternative fuel consumed by dual-fueled
vehicles manufactured in response to the rule. Such increases will stem
largely from the production of larger, less fuel-efficient vehicles
made possible by the extension. However, under any scenario, the amount
of increased emissions represents a de minimis percentage of overall
emissions resulting from the consumption of petroleum fuels by highway
vehicles.
D. Executive Order 13132 (Federalism)
Executive Order 13132 requires NHTSA to develop an accountable
process to ensure ``meaningful and timely input by State and local
officials in the development of regulatory policies that have
federalism implications.'' ``Policies that have federalism
implications'' is defined in the Executive Order to include regulations
that have ``substantial direct effects on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government.'' Under Executive Order 13132, the agency may not issue a
regulation with federalism implications, that imposes substantial
direct compliance costs, and that is not required by statute, unless
the Federal government provides the funds necessary to pay the direct
compliance costs incurred by State and local governments, the agency
consults with State and local governments, or the agency consults with
State and local officials early in the process of developing the
proposed regulation. NHTSA also may not issue a regulation with
federalism implications and that preempts State law unless the agency
consults with State and local officials early in the process of
developing the proposed regulation.
The agency has analyzed this final rule in accordance with the
principles and criteria set forth in Executive Order 13132 and has
determined that it will not have sufficient federalism implications to
warrant consultation with State and local officials or the preparation
of a federalism summary impact statement. The extension of the
incentive program through the 2008 model year might result in
additional conventional fuel costs for State and local governments. At
the same time, extension of the incentive program will ensure that dual
fuel vehicles, which State and local governments might need to acquire
to comply with other government mandates, will be available at lower
costs. Any increased costs that will not be offset by the continued
availability of lower cost dual fuel vehicles, however, are not direct
costs. The agency's final rule will not otherwise have any substantial
effects on the States, or on the current Federal-State relationship, or
on the current distribution of power and responsibilities among the
various local officials.
E. Civil Justice Reform
This final rule will not have any retroactive effect. 49 U.S.C.
30161 sets forth a procedure for judicial review of final rules
establishing, amending, or revoking Federal motor vehicle safety
standards. That section does not require submission of a petition for
reconsideration or other administrative proceedings before parties may
file suit in court.
F. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995, a person is not required
to respond to a collection of information by a Federal agency unless
the collection displays a valid OMB control number. This final rule
will not require any new collections of information as defined by the
OMB in 5 CFR part 1320. Data regarding production of dual-fuel vehicles
will be submitted to the agency under the existing procedures found in
49 CFR part 537.
G. National Technology Transfer and Advancement Act
Section 12(d) of the National Technology Transfer and Advancement
Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272)
directs us to use voluntary consensus standards in our regulatory
activities unless doing so would be inconsistent with applicable law or
otherwise impractical. Voluntary consensus standards are technical
standards (e.g., materials specifications, test methods, sampling
procedures, and business practices) that are developed or adopted by
voluntary consensus standards bodies, such as the Society of Automotive
Engineers (SAE). The NTTAA directs us to provide Congress, through OMB,
explanations when we decide not to use available and applicable
voluntary consensus standards.
There are no voluntary consensus standards available at this time.
However, NHTSA will consider any such standards if they become
available.
H. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires Federal agencies to prepare a written assessment of the costs,
benefits,
[[Page 7703]]
and other effects of proposed or final rules that include a Federal
mandate likely to result in the expenditure by State, local or tribal
governments, in the aggregate, or by the private sector, of more than
$109 million in any one year (adjusted for inflation with base year of
1995). Before promulgating a rule for which a written statement is
needed, section 205 of the UMRA generally requires NHTSA to identify
and consider a reasonable number of regulatory alternatives and adopt
the least costly, most cost-effective, or least burdensome alternative
that achieves the objectives of the rule. The provisions of section 205
do not apply when they are inconsistent with applicable law. Moreover,
section 205 allows NHTSA to adopt an alternative other than the least
costly, most cost-effective, or least burdensome alternative if the
agency publishes with the final rule an explanation why that
alternative was not adopted.
This final rule is not a Federal mandate; instead, it provides an
incentive for automobile manufacturers. Further, the rule is not
estimated to result in expenditures by State, local or tribal
governments, or by the private sector, of more than $109 million
annually.
I. Regulation Identifier Number (RIN)
The Department of Transportation assigns a regulation identifier
number (RIN) to each regulatory action listed in the Unified Agenda of
Federal Regulations. The Regulatory Information Service Center
publishes the Unified Agenda in April and October of each year. You may
use the RIN contained in the heading at the beginning of this document
to find this action in the Unified Agenda.
List of Subjects in 49 CFR Part 538
Energy conservation, Gasoline, Imports, Motor vehicles.
0
In consideration of the foregoing, NHTSA is amending 49 CFR part 538 as
follows:
PART 538--MANUFACTURING INCENTIVES FOR ALTERNATIVE FUELED VEHICLES
0
1. The authority citation for part 538 of title 49 continues to read as
follows:
Authority: 49 U.S.C. 32901, 32905, and 32906; delegation of
authority at 49 CFR 1.50.
0
2. Revise Sec. 538.1 to read as follows:
Sec. 538.1 Scope.
This part establishes minimum driving range criteria to aid in
identifying passenger automobiles that are dual-fueled automobiles. It
also establishes gallon equivalent measurements for gaseous fuels other
than natural gas. This part also extends the dual-fuel incentive
program.
0
3. Revise Sec. 538.2 to read as follows:
Sec. 538.2 Purpose.
The purpose of this part is to specify one of the criteria in 49
U.S.C. chapter 329 ``Automobile Fuel Economy'' for identifying dual-
fueled passenger automobiles that are manufactured in model years 1993
through 2004. The fuel economy of a qualifying vehicle is calculated in
a special manner so as to encourage its production as a way of
facilitating a manufacturer's compliance with the Corporate Average
Fuel Economy Standards set forth in part 531 of this chapter. The
purpose is also to establish gallon equivalent measurements for gaseous
fuels other than natural gas. This part also specifies the model years
after 2004 in which the fuel economy of dual-fueled automobiles may be
calculated under the special incentive provisions found in 49 U.S.C.
32905(b) and (d).
0
4. Add Sec. 538.9 to read as follows:
Sec. 538.9 Dual fuel vehicle incentive.
The application of 49 U.S.C. 32905(b) and (d) to qualifying dual
fuel vehicles is extended to the 2005, 2006, 2007, and 2008 model
years.
Issued on: February 13, 2004.
Jeffrey W. Runge,
Administrator.
[FR Doc. 04-3595 Filed 2-18-04; 8:45 am]
BILLING CODE 4910-59-P