EPA Finalizes Light-Duty Vehicle Greenhouse Gas Emissions Standards

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EPA recently finalized rules under the Clean Air Act (CAA) establishing federal greenhouse gas (GHG) emissions standards for passenger cars and light trucks for Model Years (MY) 2023 through 2026.  The standards are designed to achieve significant GHG emissions reductions along with reductions in other air pollutants.  This rule will result in substantial GHG emissions reductions from transportation over the long term.  The effective date of the rule is February 28, 2022.

The final rule is structured to prompt automakers to use clean technologies that are available today and to help stimulate production of more electric vehicles.  This rule is viewed by EPA as a crucial step in setting the U.S. on a path to a zero-emissions transportation future.  The final rule revises current GHG standards beginning in MY 2023 and increases in stringency year over year through MY 2026.  The standards finalized for MYs 2025 and 2026 are the most stringent option considered in the proposed rule, and the MY 2026 requirements establish the most stringent GHG standards ever set for the light-duty vehicle sector.  The final rule significantly accelerates the rate of stringency increases to between 5 and 10 percent each year from 2023 through 2026.  Under the previous standards, stringency increased at a rate of roughly 1.5 percent per year.  The final standards are expected to result in average fuel economy label values of 40 mpg, while the standards they replace (the SAFE rule standards) would achieve only 32 mpg in MY 2026.

As with EPA’s previous light-duty GHG programs, EPA is finalizing standards expressed as footprint-based curves for both passenger cars and trucks.  Under this approach, each manufacturer has a unique standard for the passenger car and truck categories, for each model year, based on the sales-weighted footprint-based CO2 targets of the vehicles produced in each MY.  The projected fleet targets under the final rule increase in stringency in MY 2023 by about 10 percent (from the existing standards in MY 2022), followed by a stringency increase of about 5 percent in MY 2024, as proposed.  For MYs 2025-2026 EPA is finalizing increases more stringent than those proposed, about 7 and 10 percent year over year, respectively.  EPA intends to initiate a subsequent rule to establish standards for MYs 2027 and beyond.

For MY 2026, EPA projects that the CO2 emissions under the new standard will be 161 grams/mile, which is more stringent than the proposed rule projection of 173 grams/mile, and the projection under the previous rule (SAFE2) of 208 grams/mile.  EPA estimates that real world fuel economy will increase by MY 2026 to a projected 40 miles per gallon (mpg) compared to an estimated 38 mpg under the proposed rule and 32 mpg under the previous rule.  These projections are based on an estimated fleet mix of 47% cars and 53% trucks in MY2026.  This is a value that would be comparable to what a consumer would see on a fuel economy label and reflects real-world impacts on GHG emissions and fuel economy that are not captured by compliance tests, including high speed driving, air conditioning usage, and cold temperatures.

Interestingly, EPA estimates that technology improvements in internal combustion engines and transmissions will account for much of the reductions in CO2 emissions, with lesser contributions from electric battery powered vehicles and hybrids.  Even so, the rule is expected to prompt further development of electric powered vehicles.

Transportation is the single largest source of GHG emissions in the United States, making up 29 percent of all emissions.  Within the transportation sector, passenger cars and trucks are the largest contributor, at 58 percent of all transportation sources and 17 percent of total U.S. GHG emissions.  According to EPA, final standards will contribute toward the goal of holding the increase in the global average temperature to well below 2°C above pre-industrial levels and reducing the probability of severe climate change-related impacts, including heat waves, drought, sea level rise, extreme climate and weather events, coastal flooding, and wildfires.

EPA estimates that the final rule will provide significant benefits with respect to emission reductions, public health, and fuel savings.  The projected benefits of the rule exceed costs by $120 billion to $190 billion through 2050.  Benefits include reduced impacts of climate change, improved public health from lower pollution, and cost savings for vehicle owners through improved fuel efficiency.  Between $8 and $19 billion of the total benefits through 2050 result from improved public health due to reduced emissions of non-GHG pollutants, including NOx and other pollutants that contribute to fine particulates (PM2.5).  American drivers are also projected to save between $210 billion and $420 billion through 2050 in fuel costs.  EPA estimates that reduced fuel costs will outweigh the increase in vehicle costs by about $1,080 over the lifetime of a MY 2026 vehicle. 

The auto industry supported EPA’s proposal for the standards to begin in MY2023, and the final rule maintains the MY2023 start date for revised standards.  Nearly all major automakers have announced plans to transition their vehicle fleets to zero-emissions, with many electric vehicle launches planned before 2026.  The entry of so many new electric vehicle models over the next few years is expected to put the auto industry in a strong position to meet the standards.  The program also includes averaging, credit banking and trading provisions to aid the industry in meeting standards through a multi-year planning process, and EPA also is finalizing additional targeted compliance flexibilities to help the industry manage its transition to more stringent standards.

The final rule focuses the available flexibilities in MYs 2023-2024 to help manufacturers manage the transition to more stringent standards in the longer term by providing some additional flexibility in the near-term.  The flexibilities that EPA is adopting include the following: a limited extension of credits generated by overcompliance with the MYs 2017 and 2018 standards that can be carried forward for compliance with the MYs 2023-2024 standards, respectively; advanced technology vehicle multiplier credits for MYs 2023-2024 with a cumulative credit cap of 10 grams CO2 per mile, which encourages manufacturers to accelerate introduction of zero and near-zero emissions vehicles; full-size pickup truck incentives for strong hybrids or similar performance-based credit for MYs 2023-2024; “off-cycle” credits of up to 15 g/mile (off-cycle credits recognize and incentivize technologies that provide real-world emissions reductions but that are not captured on EPA’s tailpipe emissions compliance tests, including technologies such as high-efficiency headlamps or solar reflective paint that keeps the vehicle cabin cooler to reduce air conditioning needs).

The rule is not expected to affect driving safety.  EPA estimates that the risk of fatal and non-fatal injuries will remain virtually unchanged by the final regulation.

As a follow-on to this action, EPA plans to initiate a future rulemaking to establish multi-pollutant emission standards for MY 2027 and beyond.  Consistent with the direction of Executive Order 14037, “Strengthening American Leadership in Clean Cars and Trucks,” this subsequent rulemaking will set standards through at least MY 2030 and will apply to light-duty vehicles and medium-duty vehicles, which includes commercial pickups and vans.

86 Fed. Reg. 74434 (Dec. 30, 2021)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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