Civil Penalties, 95489-95492 [2016-31136]

Agencies

• National Highway Traffic Safety Administration
• DEPARTMENT OF TRANSPORTATION

[Federal Register Volume 81, Number 249 (Wednesday, December 28, 2016)]
[Rules and Regulations]
[Pages 95489-95492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31136]


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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Part 578

[Docket No. NHTSA-2016-0136]
RIN 2127-AL82


Civil Penalties

AGENCY: National Highway Traffic Safety Administration (NHTSA), 
Department of Transportation (DOT).

ACTION: Final rule; response to petition for reconsideration; response 
to petition for rulemaking.

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SUMMARY: On July 5, 2016, NHTSA published an interim final rule 
updating the maximum civil penalty amounts for violations of statutes 
and regulations administered by NHTSA, pursuant to the Federal Civil 
Penalties Inflation Adjustment Act Improvements Act of 2015. This 
decision responds to a petition for partial reconsideration of that 
interim final rule. After carefully considering the issues raised, the 
Agency grants some aspects of the petition, and denies other aspects. 
This decision amends the relevant regulatory text accordingly. This 
decision also responds to a petition for rulemaking on a similar topic.

DATES: Effective date: This rule is effective January 27, 2017.

FOR FURTHER INFORMATION CONTACT: Ms. Rebecca Yoon, Office of the Chief 
Counsel, NHTSA, telephone (202) 366-2992, facsimile (202) 366-3820, 
1200 New Jersey Avenue SE., Washington, DC 20590.

SUPPLEMENTARY INFORMATION: 

I. Background on CAFE Penalties and Interim Final Rule

    The National Highway Traffic Safety Administration (NHTSA) 
administers Corporate Average Fuel Economy (CAFE) standards under 49 
U.S.C. 32901 et seq. Vehicle manufacturers that produce passenger cars 
and light trucks for sale in the United States are subject to these 
standards,\1\ and are subject to civil penalties for failure to meet 
the standards.\2\ Manufacturers generally meet the standards by 
applying technology to their vehicles to improve their fleet-wide fuel 
economy, but may also apply credits earned from over-compliance with 
standards in another year or purchased from another manufacturer. If a 
manufacturer does not have credits to apply, and does not apply 
sufficient fuel economy-improving technologies to their vehicles to 
meet their fleet-wide standards, then that manufacturer is liable for 
civil penalties.\3\
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    \1\ 49 U.S.C. 32911(b).
    \2\ 49 U.S.C. 32912(b).
    \3\ Civil penalties are remitted to the U.S. Treasury.
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    Congress has prescribed the formula for calculating a civil penalty 
for violation of a CAFE standard. That formula multiplies the penalty 
rate times the number of tenths-of-a-mile-per-gallon by which a non-
compliant fleet falls short of an applicable CAFE standard, times the 
number of vehicles in that non-compliant fleet.\4\ For many years, the 
penalty rate has been $5.50 per tenth-of-a-mile-per-gallon. As an 
illustration, assume that Manufacturer A produced 1,000,000 light 
trucks in model year 2010. Assume further that A has a light truck 
standard of 20 mpg for MY 2010, and an achieved light truck average 
fuel economy level of 19.7 mpg in that model year. If A has no credits 
to apply, then A's assessed civil penalty under this historical penalty 
rate would be:
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    \4\ 49 U.S.C. 32912(b).

$5.50 (penalty rate) x 3 (tenths of an mpg) x 1,000,000 (vehicles in 
Manufacturer A's light truck fleet) = $16,500,000 due for A's light 
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truck fleet for MY 2010.

To date, few manufacturers have actually paid civil penalties, and the 
amounts of CAFE penalties paid generally have been relatively low. 
Additionally, since the introduction of credit trading and transfers 
for MY 2011 and after, many manufacturers have taken advantage of those 
flexibilities rather than paying civil penalties for non-compliance.
    The Federal Civil Penalties Inflation Adjustment Act Improvements 
Act (November 2, 2015) (the ``Act'') prescribed an inflation adjustment 
for many civil monetary penalties, including CAFE's civil penalty rate. 
In that Act, Congress generally required Federal agencies that 
administer civil monetary penalties to make an initial ``catch-up'' 
adjustment for inflation through an interim final rule by July 1, 2016, 
and then to make subsequent annual adjustments for inflation (see Pub. 
L. 114-74, Sec. 701). NHTSA developed an interim final rule (IFR) 
implementing the Agency's responsibilities under that Act, and that IFR 
published in the Federal Register on July 5, 2016. The NHTSA IFR 
included adjustments for all civil monetary penalties administered by 
the Agency, including those prescribed by the CAFE program. In 
accordance with the Act and OMB guidance, the updated penalty rate 
increased from $5.50 per tenth of a mile per gallon (mpg) to $14 per 
tenth of an mpg.\5\ NHTSA stated in implementation guidance that it 
issued following the IFR that the Agency intended to apply the $14 rate 
to any penalties assessed on and after August 4, 2016, beginning with 
penalties applicable to violations for MY 2015, and also applying to 
any violations from prior model years that resulted from recalculation 
of a manufacturer's previous CAFE levels.\6\
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    \5\ NHTSA's explanation of its process, including reliance on 
OMB guidance for calculating the initial adjustment required by the 
Act, is set forth in the interim final rule at 81 FR 43524-26 (Jul. 
5, 2016). The interim final rule also discusses the ``rounding 
rule'' under the prior version of the Federal Civil Penalties 
Inflation Adjustment Act, which prevented NHTSA from raising the 
$5.50 rate after 1997.
    \6\ Memorandum, ``Implementation of the Federal Civil Penalties 
Inflation Adjustment Act Improvement Act of 2015 for the Corporate 
Average Fuel Economy (CAFE) Program,'' July 18, 2016.
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II. Industry Petition for Reconsideration

    The Auto Alliance and Global Automakers jointly petitioned NHTSA 
for reconsideration of the interim final rule with regard to the 
inflation adjustment for CAFE non-compliance penalties (hereafter, the 
Alliance and Global petition will be referred to as the ``Industry 
Petition'') on August 1, 2016. The Industry Petition asked that NHTSA 
not apply the penalty increase to non-compliances associated with 
``model years that have already been completed or for which a company's 
compliance plan has already been set.'' Specifically, the Industry 
Petition stated that:

    Our most significant concern with the IFR is that it would apply 
retroactively to the 2014 and 2015 Model Years (which have been 
completed for all manufacturers but for which the compliance files 
are not all closed), to the 2016 Model Year (which is complete for 
many manufacturers) and to the 2017 and 2018 Model Years (for which 
manufacturers have already set compliance plans based on guidance 
from NHTSA, including the [historical penalty amounts of $5.50 per 
tenth of an mpg]). Applying the increased civil penalties in this 
manner is profoundly unfair to manufacturers, does not improve the 
effectiveness of this penalty, and does nothing to further the 
policies underlying the CAFE statute.

Industry Petition at 3.
    In the alternative, the Industry Petition requested that if NHTSA 
decided to apply the penalty increase to MYs 2014-2018, the Agency 
should recalculate the adjusted penalty rate

[[Page 95490]]

using 2007 as the ``base year'' for calculating the inflation 
adjustment. As another alternative, the Industry Petition sought a 
finding that immediately increasing the penalty to $14 would cause a 
``negative economic impact,'' thereby requiring a smaller initial 
penalty increase. See Public Law 114-74, Sec. 701(c) (providing for an 
exception to the otherwise-applicable penalty increase, if the Agency 
finds through a rulemaking proceeding that the increase would cause a 
``negative economic impact,'' a term that the statute does not 
define).\7\
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    \7\ Because the Agency is granting the Industry Petition's 
request to apply inflation-adjusted penalties only to MY 2019 and 
after, the Agency need not address the Industry Petition's 
alternative requests.
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III. Petition for Rulemaking To Raise Civil Penalty Rate

    The Center for Biological Diversity (CBD) petitioned NHTSA on 
October 1, 2015, just over a month prior to passage of the Act, to 
conduct a rulemaking to raise the civil penalty rate for CAFE standard 
violations under NHTSA's then-existing statutory authority. The CBD 
petition stated correctly that NHTSA had not adjusted the $5.50 civil 
penalty rate for inflation since 1997, and requested that the Agency 
follow the procedure laid out at 49 U.S.C. 32912(c) to undertake a 
rulemaking to raise the amount to the maximum then allowed by Congress, 
$10 per tenth-of-an-mpg. A month later, Congress changed the statutory 
landscape by enacting the Federal Civil Penalties Inflation Adjustment 
Act Improvements Act of 2015.

IV. NHTSA Response to Petitions

    Having carefully considered the issues raised by the petitioners, 
NHTSA will grant the Industry Petition in part and deny it in part. 
Beginning with model year 2019, NHTSA will apply the full penalty 
prescribed by the Federal Civil Penalties Inflation Adjustment 
Improvements Act of 2015. NHTSA is required by the Act to continue 
adjusting the civil penalty for inflation each year, so the penalty 
rate applicable to MY 2019 and after fleets will be $14 per tenth-of-
an-mpg, plus any adjustment(s) for inflation that occur between now and 
a violation's assessment. The Agency concludes that this decision also 
effectively addresses the issue raised by the CBD Petition. The 
discussion below presents the Agency's analysis and conclusion.

A. Model Years 2014-2016

    NHTSA agrees with the Industry Petitioners that applying the $14 
civil penalty rate to violations of CAFE standards in model years prior 
to the enactment of the Act would not result in additional fuel 
savings, and thus would seem to impose retroactive punishment without 
accomplishing Congress' specific intent in establishing the civil 
penalty provision of the Energy Policy and Conservation Act (``EPCA''). 
Model years typically begin prior to their respective calendar year. By 
November 2, 2015 (the date of enactment of the civil penalties 
adjustment Act), nearly all manufacturers subject to the CAFE standards 
had completed both model years 2014 and 2015, and no further vehicles 
in those model years were being produced in significant numbers. This 
argument is even stronger considering that all manufacturers would have 
completed these model years prior to July 5, 2016, the date of the IFR. 
If all the vehicles for a model year have already been produced, then 
there is no way for their manufacturers to raise the fuel economy level 
of those vehicles in order to avoid higher penalty rates for non-
compliance.
    In the specific context of EPCA as amended, the purpose of civil 
penalties for non-compliance is to encourage manufacturers to comply 
with the CAFE standards. See 49 CFR 578.2 (section addressing penalties 
states that a ``purpose of this part is to effectuate the remedial 
impact of civil penalties and to foster compliance with the law''); see 
generally, 49 U.S.C. 32911-32912; United States v. General Motors, 385 
F.Supp. 598, 604 (D.D.C. 1974), vacated on other grounds, 527 F.2d 853 
(D.C. Cir. 1975) (``The policy of the Act with regard to civil 
penalties is clearly to discourage noncompliance''). Assuming that 
higher civil penalty rates are intended, in the particular context of 
CAFE, to provide greater incentives for manufacturers to comply with 
applicable standards, then raising penalty rates for model years 
already completed and thus unchangeable would be not only 
retroactive,\8\ but incapable of serving the purpose of causing greater 
compliance with CAFE standards. Based on the governing statutory 
framework and the specific CAFE regulatory scheme, NHTSA believes that 
Congress would not have intended retroactive application of an 
inflation adjustment to overcome this core substantive purpose and 
intent of EPCA. This analysis compels the conclusion that applying an 
increased penalty rate to MYs 2014 and 2015 would not be appropriate, 
nor would applying it to MY 2016, which was underway by November 2, 
2015 and over halfway complete by July 5, 2016.\9\
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    \8\ Retroactivity is not favored in the law. The Supreme Court 
has stated that ``congressional enactments . . . will not be 
construed to have retroactive effect unless their language requires 
this result.'' Landgraf v. USI Film Products, 511 U.S. 244, 280 
(1994), citing Bowen v. Georgetown University Hospital, 488 U.S. 
204, 208 (1988). NHTSA believes that in the specific context of the 
CAFE program and the statutes that govern it, Congress could not 
have intended to impose higher civil penalty rates for time periods 
when they would not incentivize increased fuel economy.
    \9\ The decision not to apply the increased penalties 
retroactively is similar to the approach taken by various other 
federal agencies in implementing the Federal Civil Penalties 
Inflation Adjustment Act Improvements Act of 2015. See, e.g., 
Department of Justice, Interim final rule with request for comments: 
Civil Monetary Penalties Inflation Adjustment, 81 FR 42491 (June 30, 
2016) (applying increased penalties only to violations after 
November 2, 2015, the date of the Act's enactment); Federal Aviation 
Administration, Interim Final Rule: Revisions to Civil Penalty 
Inflation Adjustment Tables, 81 FR 43463 (July 5, 2016) (applying 
increased penalties only to violations after August 1, 2016).
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B. Model Years 2017 and 2018

    The Industry Petition asserts that manufacturers have set their 
product and compliance plans for MY 2017 and 2018 based on the CAFE 
penalty provisions in place prior to July 2016, and that it is too late 
at this juncture to make significant changes to those plans and avoid 
non-compliances (for the manufacturers already intending not to 
comply). The Agency determined above that it is not appropriate to 
apply an increased penalty rate to CAFE non-compliance in past model 
years, i.e., MY 2016 and before, which could not be changed in response 
to a higher penalty rate. The next question presented by the Industry 
Petition is how to address future model years' vehicles whose fuel 
economy levels cannot be changed at this juncture.
    For immediate future model years (i.e., 2017 and 2018), the 
theoretical possibility exists that manufacturers could respond to a 
higher penalty rate by increasing their fleet fuel economy and thus 
achieving CAFE compliance or mitigating their non-compliance. However, 
because of industry design, development, and production cycles, vehicle 
designs (including drivetrains, which are where many fuel economy 
improvements are made) are often fixed years in advance, making 
adjustments to fleet fuel economy difficult without a lead time of 
multiple years.
    Here, the Industry Petitioners assert that their plans for what 
technology to put on which MYs 2017 and 2018 vehicles are, at the point 
the IFR was issued, fixed and inalterable. NHTSA takes manufacturers' 
product cycles into account when NHTSA sets fuel economy standards. For 
example,

[[Page 95491]]

because NHTSA recognizes that manufacturers' product and compliance 
plans are difficult to alter significantly for years ahead of a given 
model year,\10\ the Agency includes product cadence in its assessment 
of CAFE standards, by limiting application of technology in its 
analytical model to years in which vehicles are refreshed or 
redesigned. NHTSA believes that this approach facilitates continued 
fuel economy improvements over the longer term by accounting for the 
fact that manufacturers will seek to make improvements when and where 
they are most cost-effective.
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    \10\ One of the Industry Petitioners, the Alliance, submitted 
supplemental materials describing the activities and events that 
make up product cycles, which support this point. See Docket No. 
NHTSA-2016-0136.
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    In an analogous context, EPCA provides that when DOT amends a fuel 
economy standard to make it more stringent, that new standard must be 
promulgated ``at least 18 months before the beginning of the model year 
to which the amendment applies.'' 49 U.S.C. 32902(a)(2). The 18 months' 
notice requirement for increases in fuel economy standards represents a 
congressional acknowledgement of the importance of advance notice to 
vehicle manufacturers to allow them the lead time necessary to adjust 
their product plans, designs, and compliance plans to address changes 
in fuel economy standards. Similarly here, affording manufacturers lead 
time to adjust their products and compliance plans helps them to 
account for such an increase in the civil penalty amount. In this 
unique case, the 18-month lead time for increases in the stringency of 
fuel economy standards provides a reasonable proxy for appropriate 
advance notice of the application of substantially increased--here 
nearly tripled--civil penalties.
    Given that NHTSA issued the IFR in July 2016, 18 months from that 
date would be January 2018, which would encompass MY 2017 for most 
manufacturers and models and part of MY 2018. Based on the Industry 
Petition, comments, and agency expertise, NHTSA believes that, in this 
instance, applying the adjusted penalties only for MY 2019 and after 
provides a reasonable amount of lead time for manufacturers to adjust 
their plans and products to take into account the substantial change in 
penalty level.
    For future model years for which the vehicles to be produced and 
their technologies are essentially fixed (i.e., MYs 2017-2018), it is 
conceivable that some manufacturers might be able to change production 
volumes of certain lower- or higher-fuel-economy models, which could 
help them to reduce or avoid CAFE non-compliance penalties. However, in 
this particular instance, compelling such a result through the 
immediate application of higher penalty rates to product design 
decisions that have already been made and cannot be changed would be 
contrary to a fundamental congressional purpose of the CAFE program. 
The Energy Independence and Security Act (EISA) amendments of 2007 
required that fuel economy standards be attribute-based, demonstrating 
congressional intent that the CAFE program be responsive to consumer 
demand. See 49 U.S.C. 32902(b)(3). Applying higher civil penalty rates 
in a way that would force manufacturers to disregard consumer demand 
(e.g., by restricting the availability of vehicles that consumers want) 
would be inconsistent with that fundamental statutory command. 
Providing some lead time, as here, mitigates that concern.
    In order to reconcile competing statutory objectives in the unique 
context of multi-year vehicle product cycles, NHTSA will grant the 
Industry Petition insofar as it seeks to apply the penalty increase 
only for model years 2019 and after. For CAFE standard non-compliances 
that occur(ed) for model years 2014-2018, NHTSA intends to assess civil 
penalties at the rate of $5.50 per tenth of an mpg. Beginning with 
model year 2019, NHTSA will apply the full penalty prescribed by the 
Federal Civil Penalties Inflation Adjustment Improvements Act of 2015. 
NHTSA is required by the Act to continue adjusting the civil penalty 
for inflation each year, so the penalty rate applicable to MY-2019-and-
after fleets will be $14 per tenth-of-an-mpg, plus any adjustment(s) 
for inflation that occur between now and then. See Public Law 114-74, 
Sec. 701(b)(2).
    NHTSA believes this approach appropriately harmonizes the two 
congressional directives of adjusting civil penalties to account for 
inflation and maintaining attribute-based, consumer-demand-focused 
standards, applied in the context of the presumption against 
retroactive application of statutes. See, e.g., Bowen v. Georgetown 
Univ. Hosp., 488 U.S. 204, 208. This decision increases civil penalties 
starting with the model year that manufacturers, in this particular 
instance, are reasonably able to design and produce vehicles in 
response to the increased penalties. See Industry Petition at 4-6 
(seeking application of the adjusted civil penalties only to MY 2019 
and after).
    In summary, NHTSA partially grants the Industry Petition for 
Reconsideration insofar as it seeks implementation of the civil 
penalties adjustment only to MY 2019 and after, and denies the Industry 
Petition in all other respects.
    This action also effectively responds to the petition for 
rulemaking from CBD to increase the civil penalty rate as permitted by 
EPCA/EISA. The civil penalty rate beginning in MY 2019 will be 
substantially higher than the CBD petition requested, and NHTSA 
believes that the increased penalty will accomplish CBD's goal of 
encouraging manufacturers to apply more fuel-saving technologies to 
their vehicles in those future model years. To the extent that the CBD 
Petition requests an earlier penalty rate increase, it is denied for 
the reasons set forth in this decision.

V. Regulatory Notices and Analyses

A. 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 
Transportation's regulatory policies and procedures. This rulemaking 
document was not reviewed under Executive Order 12866 or Executive 
Order 13563, and has been determined not to be ``significant'' under 
the Department of Transportation's regulatory policies and procedures 
and the policies of the Office of Management and Budget.

B. Regulatory Flexibility Act

    NHTSA has also considered the impacts of this rule under the 
Regulatory Flexibility Act. I certify that this rule will not have a 
significant impact on a substantial number of small entities. The 
following provides the factual basis for this certification under 5 
U.S.C. 605(b). The amendments only affect manufacturers of motor 
vehicles. Low-volume manufacturers can petition NHTSA for an alternate 
CAFE standard under 49 CFR part 525, which lessens the impacts of this 
rulemaking on small businesses by allowing them to avoid liability for 
potential penalties under 49 CFR 578.6(h)(2). Small organizations and 
governmental jurisdictions will not be significantly affected as the 
price of motor vehicles and equipment ought not change as the result of 
this rule.

C. 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

[[Page 95492]]

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, or the agency consults 
with State and local governments early in the process of developing the 
proposed regulation.
    This rule will not 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, as specified in Executive Order 13132. The reason 
is that this rule applies to motor vehicle manufacturers. Thus, the 
requirements of Section 6 of the Executive Order do not apply.

D. Unfunded Mandates Reform Act of 1995 (UMRA)

    The Unfunded Mandates Reform Act of 1995, Public Law 104-4, 
requires agencies to prepare a written assessment of the cost, 
benefits, 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 $100 million annually. Because NHTSA does not believe that this 
rule will necessarily have a $100 million effect, no Unfunded Mandates 
assessment will be prepared.

E. Executive Order 12778 (Civil Justice Reform)

    This rule does not have a retroactive or preemptive effect. 
Judicial review of this rule may be obtained pursuant to 5 U.S.C. 702. 
That section does not require that a petition for reconsideration be 
filed prior to seeking judicial review.

F. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1980, we state 
that there are no requirements for information collection associated 
with this rulemaking action.

G. Privacy Act

    Please note that anyone is able to search the electronic form of 
all comments received into any of our dockets by the name of the 
individual submitting the comment (or signing the comment, if submitted 
on behalf of an association, business, labor union, etc.). You may 
review DOT's complete Privacy Act statement in the Federal Register 
published on April 11, 2000 (65 FR 19477-78) or you may visit https://www.transportation.gov/privacy.

List of Subjects in 49 CFR Part 578

    Fuel economy, Motor vehicles, Penalties.

    In consideration of the foregoing, 49 CFR part 578 is amended as 
set forth below.

PART 578--CIVIL AND CRIMINAL PENALTIES

0
1. The authority citation for 49 CFR part 578 is revised to read as 
follows:

    Authority: Pub. L. 101-410, Pub. L. 104-134, Pub. L. 109-59, 
Pub. L. 114-74, Pub L. 114-94, 49 U.S.C. 32902 and 32912; delegation 
of authority at 49 CFR 1.81, 1.95.


0
2. Section 578.6 is amended by revising paragraph (h) to read as 
follows:


Sec.  578.6  Civil penalties for violations of specified provisions of 
Title 49 of the United States Code.

* * * * *
    (h) Automobile fuel economy. (1) A person that violates 49 U.S.C. 
32911(a) is liable to the United States Government for a civil penalty 
of not more than $40,000 for each violation. A separate violation 
occurs for each day the violation continues.
    (2) Except as provided in 49 U.S.C. 32912(c), beginning with model 
year 2019, a manufacturer that violates a standard prescribed for a 
model year under 49 U.S.C. 32902 is liable to the United States 
Government for a civil penalty of $14, plus any adjustments for 
inflation that occurred or may occur (for model years before model year 
2019, the civil penalty is $5.50), multiplied by each .1 of a mile a 
gallon by which the applicable average fuel economy standard under that 
section exceeds the average fuel economy--
    (i) Calculated under 49 U.S.C. 32904(a)(1)(A) or (B) for 
automobiles to which the standard applies produced by the manufacturer 
during the model year;
    (ii) Multiplied by the number of those automobiles; and
    (iii) Reduced by the credits available to the manufacturer under 49 
U.S.C. 32903 for the model year.
* * * * *

    Issued on: December 21, 2016.
Mark R. Rosekind,
Administrator.
[FR Doc. 2016-31136 Filed 12-27-16; 8:45 am]
 BILLING CODE 4910-59-P