BACKGROUNDER: Greenhouse Gas Emissions Standard and Credits

Produced from the U.S. EPA’s Greenhouse Gas Emission Standards for Light-duty Vehicles Manufacturer Performance Report for the 2012 Model Year

The U.S. Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA) on May 7, 2010, issued a joint Final Rule to establish a national program with new standards for light-duty vehicles that reduce greenhouse gas (GHG) emissions and improve fuel economy.  EPA finalized GHG standards under its authority in the Clean Air Act, while NHTSA finalized Corporate Average Fuel Economy (CAFE) standards under the Energy Policy and Conservation Act of 1975, as amended (EPCA).  These standards apply to passenger cars, light-duty trucks and medium-duty passenger vehicles, covering model years 2012-16, and represent the first phase of the EPA and NHTSA joint harmonized national program.  EPA and NHTSA on October 15, 2012 issued a subsequent rulemaking further reducing GHG emissions and improving fuel economy of light-duty vehicles for model years 2017-25.

The ability to earn and bank credits, including early credits, is a fundamental aspect of the program design intended to give manufacturers flexibility in meeting the 2012-16 model year standards, as well as to aid in the transition to the progressively more stringent standards in the 2017-25 model years.  Credits represent emission reductions beyond those required by EPA’s GHG program for vehicle manufacturers, which is determined on a fleet-wide basis using vehicle-specific emission measurements.  Credit banking, as well as emissions averaging and credit trading (collectively termed Averaging, Banking and Trading or “ABT”) have been an important part of many mobile source programs under the Clean Air Act.  These programs help manufacturers in planning and implementing the orderly phase-in of emissions control technology in their production, consistent with their typical redesign schedules.  These provisions are an integral part of the standard-setting itself, and not just an add-on to help reduce costs.

Credits (or deficits) are calculated separately for cars and trucks.  If credits remain after addressing any deficits, those credits may be “banked” for use in a future year, or sold or otherwise traded to another manufacturer.  Credits earned in the 2010-16 model years may be carried forward and used through the 2021 model year.  Credits from the 2009 model year and 2017 and later model years may only be carried forward for five years.

Manufacturers’ 2012 performance is based on:

  • CO2 exhaust emission performance, including credits for flexible fuel vehicles, relative to a fleet average CO2 standard (resulting in credits or deficits);
  • GHG reductions (credits) from improvement to air conditioning systems that reduce refrigerant leakage or improve fuel efficiency;
  • Off-cycle CO2 emission reductions (credits) from technology improvements that cannot be sufficiently measured by EPA test procedures; and
  • GHG deficits from meeting alternative methane or nitrous oxide standards.