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Federal Register / Vol. 86, No. 159 / Friday, August 20, 2021 / Proposed Rules
an intervenor and was well aware of the possibility that the Second Circuit would restore the applicability of the inflation increase beginning with Model Year 2019. In fact, the Second Circuit did just that. NHTSA is therefore of the view that it would be appropriate to revisit the characterization of the application of the inflation adjustment beginning with Model Year 2019 as retroactive. Moreover, commenters have raised valid concerns regarding the procedures that the agency used in issuing the interim final rule, which did not proceed through a more typical notice-and-comment process and made the rule effective immediately upon publication. In addition, based upon further review and consideration of the Second Circuits prior decisions and, in light of the ongoing litigation, the agency is assessing the legal risk of leaving the interim final rule in place, as the interim final rule was based on an assertion of discretion that NHTSA
now tentatively believes is in conflict with the Inflation Adjustment Act and the Second Circuits decisions.
For these reasons, the agency is now considering withdrawing the interim final rule and reverting to the December 2016 final rule.
That said, the agency has not yet reached any final determinations, and instead believes that an additional period of public comment would aid the agency in its reexamination of the issues involved in the interim final rule.
Considering the importance of this rulemaking and the short comment periodten dayspreviously provided to interested parties, NHTSA is issuing this notice to provide the public with an appropriate amount of time to comment and to enable NHTSA to more fully review and consider the issues. In doing so, NHTSA is expressly requesting comment on whether it should proceed to a final rule that withdraws the interim final rule and reverts to the December 2016 final rule, restoring the application of the increased CAFE civil penalty rate beginning with Model Year 2019. NHTSA will also accept comments on whether the inflation adjustment should apply beginning with a model year later than Model Year 2019. Commenters arguing for such a position should explain how it is consistent with the 2015 Act and the Second Circuits decisions. NHTSA will also consider comments already submitted in response to the interim final rule as part of its ongoing review and the anticipated promulgation of a final rule following this comment period.

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G. Rulemaking Analyses and Notices 1. Executive Order 12866, Executive Order 13563, and DOT Regulatory Policies and Procedures NHTSA has considered the impact of this rulemaking action under Executive Order 12866, Executive Order 13563, and the Department of Transportations regulatory policies and procedures. This rulemaking document has been considered a significant regulatory action under Executive Order 12866.
NHTSA believes that this rulemaking will be economically significant, as NHTSA believes that the difference in the amount of penalties received by the government as a result of this rule are likely to exceed $100 million in at least one of the years affected by this rulemaking and that there may be some further economic effects as discussed below.
As a general matter, the civil penalty rate as adjusted for inflation will likely induce some degree of greater compliance. Manufacturers that are paying civil penalties for CAFE
violations have likely calculated that it is less costly or otherwise preferable to pay the penalties than to meet the statutory and regulatory requirements.
An increased penalty rate changes this calculation, as it likely raises either the costs of credits a noncompliant manufacturer may choose to purchase, the total penalty amount a manufacturer will pay, or both. However, the Second Circuit has made clear that the Inflation Adjustment Act applies to these penalties and, thus, the question over whether these penalties should be adjusted for inflation has been settled.
In this rule, NHTSA is proposing to remove the interim final rule, which delayed the inflation adjusted penalty rate by three model years, two of which are already complete and the last one which is considerably underway. An analysis here would be limited to estimating over this short time horizon:
1 Which manufacturers did not produce compliant fleets for Model Years 2019 and 2020 and are likely to not produce compliant fleets for Model Year 2021; 2 what the shortfalls will be for those non-compliant manufacturers;
and 3 the extent to which those manufactures will choose to use credits either their own or those purchased from over-compliant manufacturers or pay penalties to address these shortfalls.
Pointedly, this analysis does not have sufficient information to account for whether, and if so, how manufacturers will adjust the composition of the fleet for these model years in response to the penalty change.

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Any analysis would estimate what the compliance shortfalls will be and whether manufacturers will pay penalties or use credits. These estimates could be used to estimate the effects on individual manufactures in the form of higher penalty payments, higher payments to other manufacturers for credits, or higher receipts for overcomplying manufacturers for credits sold to other manufacturers.
However, NHTSA has only limited ability to estimate what strategies manufacturers will take either to use credits or pay penalties to deal with any noncompliance, as that is a decision that each manufacturer must take based on their unique circumstances. In the past, the vast majority of manufacturers pay no penalties, as only five manufacturers have paid civil penalties since Model Year 2011.37 And only one of those manufacturers faced particularly heavy penaltieseven before the $14 rate would have gone into effectfor failing to comply with the minimum domestic passenger car standard, which cannot be made up through the application of transferred or traded credits.38
Despite this uncertainty, NHTSA is confident that, based on the experience of recent model years, this rule would lead to at least $100 million difference in the amount of penalties in at least one model year. For example, based on mid-model year fuel economy performance data, NHTSA projected a shortfall of 1.3 miles per gallon across the U.S. fleet in Model Year 2019.39
Assuming a similar magnitude of production from Model Year 2018 for Model Year 2019 would result in a nationwide fleet-wide net shortfall of approximately $115.4 million at the $5.50 rate or an approximately $293.9
million shortfall at the $14 ratean approximately $178.5 million difference.40 As noted, it is expected 37 See Civil Penalties, available at https
one.nhtsa.gov/cafe_pic/CAFE_PIC_Fines_
LIVE.html.
38 49 U.S.C. 32903f2, g4; 49 CFR 536.9c.
39 See MYs 2018 and 2019 Projected Fuel Economy Performance Report, available at https
one.nhtsa.gov/cafe_pic/AdditionalInfo.htm. This projection is based on information received from manufacturers mid-model year reports required by 49 CFR part 537. The data from these reports has not been verified by EPA or NHTSA. NHTSA
assesses manufacturers compliance only using EPA-verified final model year data. The final model year data may differ from the mid-model year projections due to the mixture of vehicles actually produced throughout the model year.
40 In looking at the total fleet performance across the country, manufacturers who over-complied with the standard may benefit from an expected increase in the value of credits as a result of an inflation increase in the penalty rate, while those that have made a business decision not to comply with the standards would likely have to pay more
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