Kingdom of Saudi Arabia (KSA) Fuel Economy Regulations

U.S. CAFE & KSA Fuel Economy Background CAFE standard footprint curves were based on the mix of vehicles sold in U.S. KSA consumers demand a different mix of vehicles. CAFE has important flexibilities (e.g., FFV, A/C, off-cycle, etc.) that were not adopted by KSA. KSA provided a 4 year offset which is directionally helpful – but does not cover mix differences and lack of flexibilities.

U.S. CAFE & KSA Fuel Economy Flexibilities / Penalties Flexibility CAFE KSA Credits Carry Forward / Back +5 years, -3 years +5 years, -1 year Early Credits 3 Years (started in 2009 for 2012 program) None Car/Truck Trading Capped Unlimited (8 truck credits = 10 car credits) FFV Credits 1.2 mpg cap (0.5 km/liter) Off-Cycle Credits Start in 2017 MY A/C Credits HEV/PHEV/BEV Benefits Petroleum displacement factor for CAFE Non-compliance penalty Manufacturer trading allowed, financial penalties Non-compliant products cannot be sold if 1 year carry-back doesn’t close gap

KSA Fleet Non-Compliant (even with Four Year delay) U.S. CAFE & KSA Fuel Economy Example Different Mix of the Same Vehicles = Different Fleet Fuel Economy U.S. Fleet Compliant (with Flexibilities) KSA Fleet Non-Compliant (even with Four Year delay) These fleets are made up of the same vehicles (same footprint and fuel economy). The size of bubbles is proportional to sales. The mix and flexibilities have changed making U.S. fleet compliant and KSA fleet non-compliant.

U.S. CAFE & KSA Fuel Economy Summary We will continue to work with KSA to resolve the regulatory impact of market mix differences to ensure a successful program. Recommendation - Modify the U.S. CAFE curves (still to begin in MY 2016) to account for U.S. to Saudi Arabia Market Average Fuel Economy Differences Shift the U.S. 2012-2025 car and truck curves down by 2.9km/l to account for the regional fleet mix and consumer preference differences. The shifted curve would be an offset to existing curve (i.e., operate in the same fashion not requiring any modification to the program structure).

Options That Could Add Longevity to Program Delay in light truck implementation: In the global markets, effective dates for trucks are often started at a later point in time than car standards (e.g., CO2 regulation in the EU is delayed two years for light commercial vehicles). Delay start of the program: Delay implementation of the requirements from the proposed start in MY 2016 until MY 2018. Exclusion of passenger vehicles with 3 seating rows or more: (or a 20% target relief in stringency) for vehicles that offer more mobility. 5-Year Offset: Start the program with the FE target curves from the U.S. program as applied in 2011 (a 5 year curve offset) rather than 2012 (4 year offset). Recognition of U.S. Flexibilities: Recognition for vehicle improvements that; allow flexible fuel operation, improve A/C systems, and/or recognition of technologies that achieve real-world benefit that is not captured on U.S. drive cycles.